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Good day, and welcome to the Aimco Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Cohn. Please go ahead.
Thank you. Good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2018 results. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today. 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; John Bezzant, our Chief Investment Officer; and Paul Beldin, our Chief Financial Officer. A question-and-answer session will follow our prepared remarks. I'll now turn the call to Terry Considine. Terry?
Thank you, Lisa, and good morning to all of you on the call. Thank you for your interest in Aimco. For Aimco, last year was a good year. At the bottom line, AFFO per share was up 8%, but it's more important than the 1-year result that our success in our 5 areas of focus provides the foundation for the long-term sustainable profitability we seek for the shareholder capital entrusted to us. Here are a few highlights.
In property operations, same-store NOI growth was 4.2%, over a 4% growth rate for the seventh consecutive year. Keith and his team successfully completed the lease-ups of One Canal in Boston and Indigo in Redwood City, both well ahead of schedule.
In redevelopment, in Center City, Philadelphia, we completed the construction and lease-up of The Sterling and of our third tower at Park Towne Place, and we began construction on the fourth and final tower at Park Towne.
In portfolio management, we again improved portfolio quality, with average revenue per apartment home now more than $2,100 a month, up 7% year-over-year.
As to our balance sheet, we have a low leverage investment-grade balance sheet, safer because our leverage is primarily nonrecourse and long-dated. We have abundant liquidity, with more than $500 million available on our revolving credit facility, and we have great flexibility, with unencumbered properties worth more than $1.8 billion, up about 13% year-over-year.
And as to our team, our intentional culture emphasizes customer focus, personal responsibility for results, collaboration and respect for others. It's the foundation for the stable and cohesive team that achieved the accomplishments we've just reported.
As we begin the new year, I am upbeat and energized by our opportunities. The U.S. economy is strong and accelerating. Tax reform will provide an additional lift and will increase individual disposable income for many. Favorable demographics and rising incomes provide solid demand for our high-quality apartments. These positives support our redevelopment and development activities and also stimulate new supply.
As I read industry commentary, I note that some are concerned about competitive new supply and sluggish rents. But these are conditions for which Aimco has planned and prepared.
First, new supply is usually at the A price point, affecting only indirectly Aimco's 50% allocation to B and C apartments. Second, building cycles are local and asynchronous, rotating among markets so that when one market is overbuilt, another is not. Aimco's broad geographic diversification helps. Third, supply exposure's further mitigated by local job growth and by situations where Aimco's A rents are substantially lower than the rents charged by new supply. So between our allocation to Bs, the geographic diversification of our investment in As and other mitigating factors, most of our capital, say 80%, is invested where new building is not the major problem that bedevils so many downtowns. And fourth, even where top line growth is sluggish, Aimco often outperforms at the bottom line because our long-term success with innovation and productivity has held on-site cost operating expenses essentially flat for about the past 10 years.
So continuing growth in property incomes, together with profitable redevelopment activities will drive growth in gross asset value and net asset value. Net asset value per share increases, plus cash dividends, are what we call economic income, and uses our primary metric for financial success. Over the past 5 years, our NAV per share has increased at a compounded annual growth rate between 10% and 11%, and our cash dividends have nearly doubled.
Now some investors ask me about our emphasis on NAV, thinking it applicable only to a hypothetical liquidation. But I like it because it's the most objective and reliable predictor of long-term cash flows. NAV represents the distilled investment decisions of tens of thousands of market participants, specifically their judgment as to the present value of expected future results adjusted for risk. This market-based result is objective, unbiased by awkward accounting or management optimism. Our Aimco calculations have been confirmed by property sales of many billions of dollars.
So when applied to Aimco, NAV captures the importance to the overall enterprise of the $4.7 billion, 37% of our capital, that's invested outside of same-store in acquisitions, in development and in redevelopment, where current returns are not yet stabilized but substantial future cash flows are expected. And NAV also reflects the relative importance of the current asset management income, which we expect to decline as we exit that business, and it points to the opportunity to redeploy the capital invested there to our core businesses with their higher sustained returns, which will again make their contribution to NAV growth. So for these bright prospects and for the good results achieved last year, I offer sincere thanks to my Aimco teammates, both here in Denver as well as across the country.
And now for a more detailed report on the fourth quarter, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?
Thanks, Terry. I'm pleased to report that we had a solid fourth quarter in operations led by strong performances in Los Angeles, San Diego and Boston. Same-store revenues were up 2.8%. Expenses were up 2.1%. And net operating income was up 3.1% for the quarter and 4.2% for the full year. Our residents continue to reward us with high marks as they gave us better than a 4-star rating in customer satisfaction for the 17th consecutive quarter, with a record 4.29 out of a possible 5 stars. This strong customer satisfaction limited our turnover to 48.5% for the quarter. For the full year in 2017, turnover was 47%, a 160 basis point reduction from 2016. This lower turnover was a key contributor to our operational efficiencies and our full year expense results.
We saw increased average daily occupancy and finished at 96.3% for the quarter. That result was 20 basis points better than the fourth quarter of 2016 and our best fourth quarter of occupancy since 2010.
Move-out reasons for the quarter are similar when compared to the recent quarters and our long-term averages.
Looking at leases which transacted in the quarter. Blended lease rates were up 1.6%, with renewal rents having solid increases of 4.5%. We saw particular strength in Denver, Seattle, Nashville and Chicago. Renewal rents in these markets increased more than 5% compared to the expiring leases. Where those leases expired and were not renewed, our new leases were 80 basis points lower than the prior lease as we traded for higher occupancy during the winter months. We saw continued improvements in Los Angeles and Miami, where new leases grew 2% to 3%.
Turning to the fourth quarter same-store revenue growth. Our top performers had revenue increases over 4% for the quarter. This was led by Los Angeles, where we have our largest concentration of capital, followed by San Diego and Boston. Our steady performers, which had revenue growth of 2.5% to 3% were Atlanta, Chicago and the Bay Area. With revenue growth of 1% to 1.5%, we had Washington, D.C., Denver, Miami, Seattle and New York. And finally, with revenue growth of negative 1%, we had Philadelphia. As a reminder, our same-store sales Philadelphia portfolio represents only 3 communities and does not include our primary development assets in Center City.
Looking ahead to 2018, we see an operational outlook that is quite similar to 2017. We anticipate revenue growth of 2.6% at the midpoint for the year, comprised of average daily occupancy 10 basis points higher than 2017 and a rate growth of 2.5%, which is based on blended lease rates on par with last year.
Our controllable operating expenses, which exclude utilities, taxes and insurance, are expected to rise 2% at the midpoint. This increase includes strategic investments in technology to enable greater efficiencies for our teams and an improved customer experience, higher cost due to the repricing of multiyear service contracts and lastly, increased compensation for our top-performing team members who enable our operational success. This, combined with changes in tax and insurance, which Paul will discuss later, result in NOI growth for the year of 2.4% at the midpoint.
Turning our attention to the 2018 outlook for individual markets. We see our top markets with revenue growth of 4% to 6% are Seattle and San Diego; strong markets with revenue growth over 3% are Denver, Boston, Chicago and Los Angeles; our steady markets with revenue growth over 2% are the Bay Area, Washington, D.C., Atlanta and New York; and finally, in Philadelphia and Miami, we expect to grow about 1.5% to 2%.
As we look at our preliminary January results, we see a solid beginning to the new year with a strengthening of our rates and occupancy. Blended lease rates are up 2.7%, with renewals up 5.2% and new leases about flat. Our average daily occupancy for January is 96.3%, some 30 basis points higher than 2017. And finally, February and March renewal offers went out with 4% to 6% increases. And with great thanks to our teams in the field and here in Denver for your commitment to Aimco's success, I'll turn the call over to John Bezzant, our Chief Investment Officer. John?
Thank you, Keith. On the transactions front, in the fourth quarter of 2017, we sold 2 Affordable properties and 3 of our lower-rated Conventional properties, producing $381 million of net proceeds. And by mid-January, we completed the few remaining property sales that funded the equity for the 2017 reacquisition of our partner's interest in the Palazzo communities. In total, these property sales closed at prices that exceeded their underlying values and our published NAV at NOI cap rates around 6 and free cash flow cap rates around 5.
The Palazzo Pair Trade reallocated capital from weaker submarkets in Southern Virginia, Southern New Jersey and suburban Maryland to the Mid-Wilshire submarket of Los Angeles, where we expect to achieve superior long-term revenue growth, higher rents and higher operating margins, and added $50 million of asset -- net asset value to our portfolio in the process.
Similarly, our redevelopment activities in 2017 continue to create value. As Terry noted, we completed construction in Center City, Philadelphia, on our major redevelopments at The Sterling and the third tower at Park Towne Place, and we continued several projects elsewhere.
In total, during 2017, we invested $158 million in our redevelopments. This investment created roughly $0.35 of value for each dollar invested, leading to NAV creation of more than $55 million. This creation of value through redevelopment, along with operational earnings growth, are the primary drivers of our economic income performance in recent years. As Terry explained, we measure economic income as the change in our net asset value plus dividends paid. For the past 5 years, Aimco's economic income has increased at a compounded annual growth rate of nearly 14%.
Looking to 2018, we expect to complete the redevelopment of the final tower at Park Towne Place, continue construction on Parc Mosaic in Boulder, Colorado, with anticipated first deliveries in mid-2019, and carry on the planning and execution of redevelopment and development activities at other communities. We expect these activities to create another $50 million to $60 million in net asset value to the Aimco portfolio.
While our 2018 guidance does not include any acquisitions, we continue to look for opportunities to make accretive Pair Trades that improve our portfolio.
With that, I'd now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?
Thanks, John. Today, I'd like to spend a few moments on our 2017 results and our balance sheet and then turn to the 2018 guidance that was published yesterday with our earnings release. At the beginning of 2017, we guided to 3 primary financial metrics: first, at the midpoint, we guided to an 8% increase in AFFO and achieved it; second, also at the midpoint, we guided to a 5% increase in FFO and delivered a 6% increase; and third, we guided to a 3.5% to 5% increase in same-store net operating income and achieved growth of 4.2%. And in doing so, we continued to demonstrate our ability to reduce cost through innovation, delivering a 1.3 reduction -- 1.3% reduction in controllable operating expenses and overall expense growth of 70 basis points. Next, turning to the balance sheet. Our balance sheet remains safe and strong, with minimal 2018 maturities and over $500 million of capacity available on our revolving credit facility.
During the fourth quarter, we closed or rate-locked $189 million of nonrecourse fixed-rate property debt. These loans have a weighted average term of approximately 8 years and an interest rate of 3.48%, a spread of 117 basis points over the corresponding treasury rates at the time of pricing.
For the year, property debt refinancing activities lowered our weighted average fixed interest rates by almost 20 basis points to 4.64%, generating more than $6 million of prospective annual interest savings.
In short, 2017 was a good year for Aimco, both in operations and in our investment activities, where we realized gains on sold properties of almost $300 million.
We also recognized an impairment resulting from a January 2018 decision to sell a property as part of a legal settlement. In this settlement, we agreed to sell our interest in our La Jolla Cove property to resolve legal actions filed in 2014 by a group of disappointed buyers who had hoped to acquire the property. As a result of the settlement, we recognized a gross impairment of approximately $36 million. $26 million of this amount relates to a day 1 increase in recorded land value unrelated to our cash purchase price that GAAP required to offset a deferred tax liability assumed in our purchase.
Upon closing of our sale, that tax liability will be assumed by the buyer, resulting in no economic loss to Aimco. This $26 million is entirely a GAAP-based paper loss. The true economic loss of $10 million is offset by cash distributions received during our ownership and avoided legal costs for continued litigation.
Now turning to 2018. We expect our core business of owning and operating predominantly market-rate apartment communities will continue to perform well. At the midpoint, we expect that net operating income growth of our same-store and other real estate portfolio will contribute $0.09 of year-over-year incremental AFFO and that our redevelopment and development communities will contribute an incremental $0.05 of growth.
Dilution from asset sales, which funded our redevelopment and development activities, is expected to be approximately $0.04.
Outside of property operations, as we continue to simplify our business and reduce the scale of offsite activities, we anticipate a $0.01 reduction of these costs in 2018. This $0.11 of AFFO growth is partially offset by a $0.04 reduction in tax benefits, primarily from the effect for the recent tax law change, and $0.03 from our long-discussed reduction in the contribution of our asset management business. As we continue our exit from this business, we are excited to redeploy its capital to our core business of real estate ownership with its attractive returns.
At the bottom line, the result is 2018 pro forma FFO per share in the range of $2.42 to $2.52 and AFFO per share in the range of $2.11 to $2.21.
Now diving a little bit deeper into our same-store expectations. We have established full year 2018 guidance for same-store revenue growth of between 2.1% and 3.1%. The earn-in of our 2017 leasing activity will contribute 1.2%, with the remaining growth primarily resulting from our blended lease rates and changes in occupancy.
Same-store expenses are expected to grow between 2.6% and 3.6%, a level that is uncharacteristically high for Aimco and is primarily attributable to higher real estate taxes and insurance costs.
In 2017, we experienced favorable tax appeals in San Francisco, Chicago and Los Angeles, which lowered 2017 taxes by approximately $1 million and is contributing roughly 70 basis points to the 2018 growth rate.
And after 5 years of declining costs, Aimco's property hazard premium is expected to increase by approximately 10% in 2018 due to worldwide casualty events, contributing approximately 40 basis points to our expense growth rate.
One last item. As you're aware, Aimco is engaged in litigation with Airbnb to protect our property rights to select our residents and their neighbors. Due to the unpredictable nature of these cases and associated legal costs, Aimco will exclude such costs from 2018 pro forma FFO and AFFO.
To summarize, Aimco expects 2018 to be another good year, with continued strong revenue and NOI growth, strength and flexibility in our balance sheet and stability from its high-quality and well-located portfolio. Given these positive prospects, our Board of Directors approved a 6% increase in our quarterly dividend to $0.38 per share.
With that, we will now open up the call for questions. [Operator Instructions] Operator, I'll turn it over to you for the first question.
[Operator Instructions] Today's first question comes from Austin Wurschmidt of KeyBanc Capital Markets.
John, given your comments on continuing to look for acquisitions today in a Pair Trade manner, combined with the comments talked about earlier on the call in reference to NAV and how you think about it and given the discount, where you're trading versus NAV today, would you consider stock buybacks, and just what are the latest thoughts there?
Austin, I appreciate you directing the question to me. I think I will defer over to Terry on the question of stock buybacks.
Austin, thank you very much for a very good question. It's something we think about regularly. It's a part of our toolkit. And as we work through the year ahead, we're open to all options.
Okay. And then maybe touching on dispositions. You guys had assumed $600 million in your 2017 guidance. I think you closed about $450 million, included what closed subsequent to year-end. So curious what's driving the delta there. And then how should we think about the timing on the balance of dispositions assumed in your 2018 guidance?
Yes, Austin, and just heads up to everybody else on the call, we have a bit of a rough connection and so we're getting bits and pieces of your questions. But I believe it was regarding our disposition guidance for the year and what we actually did. As you noted, during 2017, the bulk of our dispositions activity took place at the end of the year. We have closed a few deals here in January of this year that are really carryover deals from 2017. And the bulk of our 2018 guidance, we anticipate, will take place toward the end of the year as well.
And our next question comes from Juan Sanabria of Bank of America Merrill Lynch.
On the asset management business and the tax benefit rolloff, how should we think about that beyond '18? When are you going to exit the business? And you referenced capital kind of coming back to you being able to be redeployed. How much capital are we talking about?
Well, I'll talk about the financial impact for the next couple of years. And then, Terry or John, if you want to add any color, please jump in. The -- in my prepared remarks, I mentioned that we expect, '17 over '18, a $0.03 decline from our asset management business. As we look forward into '19, without getting into particulars about the business as a whole in '19, we know that there will be a small decline in the amount of Low Income Housing Tax Credit amortization. As a reminder, those are fees paid to us by our investors to originate those Low Income Housing Tax Credits. And so those are expected to decline by approximately $2 million next year or $0.01. We don't expect to have any other declines from sales in '19 from the communities, although we do work with our partners to explore opportunities to sell. And as we mentioned in our prepared remarks, we think that will be a good thing because it will allow us to reinvest that capital into our conventional operations.
Juan, what I would add to that is that there's a pretty good financial description, if you will, of the financial impacts of the asset management business in our net asset value disclosures. And so I think you might look there. They're valued at the discounted cash flow of the relatively certain payments that we expect to receive, from fees and other elements of the original syndications, but that disregards the upside potential of redevelopment. And so whether we'll receive that through the runoff according to an existing schedule or be accelerated by a transaction is unknown at this time, and we'll keep you posted.
Great. And then I was just wondering if you guys have targeted any new redevelopment starts or if you could talk about maybe what's next on the horizon, whether that be Parc Bay Plaza (sic) [ Bay Parc Plaza ], anything in the New York City area on the Upper East Side, and kind of what the latest is for Calhoun.
Yes. Thanks, Juan. We do have some identified projects that are in -- continue through planning, including those that you just referenced, Yacht Club in Miami, the project up on the Upper East side in New York that are, what I would call, farther out. And those would be really more of a development type of a project where we would be building some new buildings. On the redevelopment side of the pipeline, we have an existing pipeline that's identified in Schedule 10 of our release. We have a handful of others that are in the planning process, that when we are ready to implement them, we will announce them.
And our next question comes from John Kim of BMO Capital Markets.
Terry, in your prepared remarks, you highlighted the diversified nature of your portfolio on a geographic basis. And I'm just wondering, going forward, if tax reform or if the impact from SALT has changed the way that you look out to capital going forward?
John, that's a very good question. I thank you for it. I have an incomplete answer. I think that tax reform has been a tremendous stimulus to the U.S. economy and it will affect different regions differently. And we would like to maintain a highly diversified portfolio. And so it gives us a change that we need to think through for different markets. And we don't have anything to report on it today, but it's the right question. And we hope to have a more complete answer perhaps by the end of this -- next quarter.
Okay. So a little bit too early to tell at this point?
Yes. We're thinking about it, but we're not prepared to act on it, and it's easier to report when we have taken action.
Got it. Okay. Looking at your 2018 outlook versus your initial outlook from last year, one thing that kind of stood out to us was the property upgrades. So you exceeded your target for 2017. And then for 2018, it looks like that range is higher than your initial outlook for '18. Can you just discuss why this is happening and if this is really the upgrade from kind of like your Cs and B minuses to a higher-grade product?
John, I think you're referring to the model that we published a year ago for 2018, which provided some broad parameters and applied those parameters in a mathematical way to forecast a range of potential outcomes. And so there was some variability between what was modeled and then as we went through the detailed budget and planning process, where we identified specific opportunities at specific projects to improve our communities. And so you're right, it is slightly higher from the model to what we've published in our guidance. And the reason is that Lisa and Keith and their teams have done a wonderful job of identifying communities that we expect to earn about a 10% return and a 9% plus IRR by investing dollars on those projects. So we're excited about those opportunities. I think it will benefit the portfolio book next year and long into the future.
And our next question comes from Nick Joseph from Citi.
It's Michael Bilerman. I'm here with Nick. Terry, you sort of opened the door in your opening comments talking about NAV and why you think it's relevant and why you focus on it. And you talked about the unstabilized, the acquisitions, basically, the 20% of your growth NAV that's not in there that arguably will start earning income and then -- and enhance cash flows. But I guess if you take the other side of it, one of the important things for NAV is it does give you a sense of overall value relative to where a stock is trading. And you sort of dismissed the share buyback question pretty quickly, sinks arrow in your quiver -- in your toolkit. And the reality is street NAVs are $50, you think the stock's worth $53, stock's trading at $41, you trade at the widest discount to NAV in the apartment space at almost 20%, your peers are at 10%. So it's not only just an absolute discount, it's a massive relative discount to your peers. Why aren't you more confident in -- in your answer about saying, yes, we see this discount and we're going to do something to take advantage of it. And we're going to either put the company up for sale, look for M&A opportunities or be aggressive at buying back our stock. It's preposterous that you're not like being aggressive enough at trying to narrow a discount that you think is there.
Well, Michael, I think you're focusing on a very important question, so I appreciate it. And it's one that's very much on my mind and the mind of our team here. And it's one that's also on the minds of our shareholders, and it's something that we will address in a productive way. But I want to bring to your attention what our shareholders keep telling us, which is they're focused on a long-term asset allocation, they're focused on longer-term results. They're not as interested by where the stock trades day-to-day. And that they look at the long-term record, which is satisfying to them and relatively quite good, and I think this will work out in the course of time.
So why won't you take more aggressive action as Chairman and CEO of the company? I mean, you can -- I mean, strategic alternatives and selling the company is one thing, but you're at a leverage position, now where you're under-leveraged, you have confidence in the private market, why not buy back stock at a 20% discount to what your investors and analysts think your NAV is and a 25% discount to what you think is? I mean, why not do it?
No. Those are good questions. I'm going to say that we like to talk about results and actions, and we just haven't made a decision on them.
And then our next question today comes from Ivy Zelman of Zelman & Associates.
Terry, maybe you can chat a little bit about your portfolio, as you said, about 50% is really more in A, and cost B and C. Remind us how much are Cs versus Bs, I guess, first, and then to what you think the supply that's still elevated for 2018 is impacting your forecasting in your outlook for '18, whether there's any trickle effect and maybe some pressure on rents as As are coming down or maybe you're not incorporating any impacts from the supply.
Well, Ivy, thank you very much. It's good to hear your voice in this call. I think that the Bs and Cs are broken roughly 35% Bs and 15% C plus, I would call them, because they have high average rents compared to the nation but lower in their markets. So they tend to be in high-rent markets and tend to have high land values. I think that the impact -- our experience is that the impact of new supply is primarily at the A price point. And that inside Aimco, if you did a gross screen, you would see that perhaps 40% of our capital would screen to be inside those kinds of markets. But if you adjust for the ones where we have an A for the overall market but a B price in the submarket, and if you adjust for the ones where job growth is quite high, then we end up with about 20% of our capital is in the submarkets where we expect that Keith will earn his keep this year by competing with lease-ups that often discount their rent to absorb that incremental supply. A related part to that -- to your question, as I heard it, was that the trickle-down effect from the A markets to the Bs and Cs, and there is some. There's no doubt about that. And I think that you and your team have written persuasively about the general slowdown in rent growth. And so we fight that every day. There are offsets to that in improving retention, increasing ADO and controlling costs. And I think that at the end of this year, you and others will be satisfied with the job that Keith and his team do in that area.
Very helpful. Just to make sure I understand it then, you are incorporating some modest impact deceleration in markets where you'll see some trickle effect? I think you said 20%, is that correct?
20% of our capital is in markets that we think are pretty directly impacted. And yes, that we go through on a property-by-property basis, and so we'll have less optimism in those areas and greater optimism elsewhere.
Great. And then another one, if I could, on the competitive landscape and the transaction market for you guys. Recognizing that you're obviously competing on value-add product and cap rates have really compressed, can you give us a perspective of are you still interested in doing value-add or are you pulling back because the valuations are more steep at this point? And just then maybe comment on the lending market and what you're seeing there, please.
Well, you're exactly right that it's a competitive market, and we see lots of properties that we think are priced beyond our ambition. But we are interested to see properties where we think that the redevelopment skills and the operating skills that have been developed can make it an accretive transaction for us, and so that's why we keep looking.
Got it. And then just again on the competitive landscape on what lenders are willing to. Or are you seeing any change for the positive, lenders easing a little bit after being stringent, any change there?
I think for the interest rate markets, lenders remain quite aggressive, there's plenty of liquidity, and that the life insurance companies, where -- who are our primary lenders, if anything, are a little bit more aggressive than they were a year ago.
And our next question comes from Rob Stevenson of Janney.
A number of your peers are seeing 5%-plus increases in payroll due to upward cost pressure on both wages and benefits. You guys are actually down $1 million year-over-year on the off-site cost in your guidance. And it didn't seem like it was a major factor in the same-store expense guidance either. What are you guys doing to keep the personnel cost down? Is it more technology, mix of more part-time people, hordes and hordes of unpaid interns? What are you guys are doing?
Hey, Rob. It's Keith. I'll -- it's not hordes and hordes of unpaid interns. Listen, it's a combination of things, and so let me just walk you through it. Really, it's about innovation and productivity and where we have found that we can take fractional work that had been done on site, move it to our shared service center in which we get a much greater efficiency. When we actually look at the average compensation for our team members, it's actually gone up greater than 5%, especially for those that are our top performers. So at the end of the day, we are paying our team members more, rewarding those that are great, and we're finding ways to be much more efficient within our operation on site.
Okay. And then, Paul, what's the litigation cost to date regarding Airbnb?
Our litigation costs to date have just not been all that significant. And it wasn't impactful to our 2017 results.
And by your comments earlier in terms of excluding it from the guidance, are you expecting that to pick up over the course of '18?
This is Lisa. We do. As you probably saw, we had a challenge in our California case, but we're succeeding in our Florida case. And as with most legal proceedings, there are ups and downs. And these cases are going to turn on some complicated legal issues. We're going to be appealing the dismissal in California to the Ninth Circuit. And in Florida, we survived the motion to dismiss. And the fundamental issue for us is that we just object to their intentional interference in our private property rights and our contracts and the impact that, that has on our residents. We've consistently said that our most important job is picking our residents and our residents' neighbors, and what Airbnb is doing is preventing us from fulfilling that promise to our customers. And so as we proceed with the litigation, there will be some increased costs coming into 2018.
And our next question comes from Conor Wagner with Green Street Advisors.
Keith, you mentioned on rent growth that it would be similar in new lease and renewals. So is the assumption around 4.5% for 2018 on renewals and around 50 to 75 bps on new lease fair?
Hey, Conor. This is Paul. That math that you just did works. But as you know, there are a million different ways to achieve revenue growth, so it could be a function of higher rent, lower new, higher new, lower renewal or a combination of both of those and changes in occupancy. So there's a lot of different levers to pull, but the high-level math that you just walked through certainly works.
Great. And then, Terry, you opened up the call, you said you're upbeat and you're energized, and we note that you're going to celebrate your 25-year anniversary in the public market next year. Just like to know what your thoughts are for yourself and your role in the company over the next 3 to 5 years?
Well, Conor, just to put gasoline on the fire, it will actually be my second 25th anniversary of being in the public markets since that began in 1971.
You said it, not me.
I just -- in Aimco, all facts are friendly. I am enthusiastic and energetic about my work. I'm delighted by the team with whom I spend my days. We do good work, and we expect to do that for the foreseeable future.
And for you specifically, as of right now, just for the investors that are listening in, you feel -- again, the future's uncertain, but making that 3- to 5-year commitment in your role as CEO and Chairman is something you're comfortable with.
I am.
Great. And then, Terry, just on a lighter note, I'd note you're the only apartment CEO who has Boston and Philadelphia in the Super Bowl, and given that Philadelphia is going to riot in either case of the outcome, have you increased your CapEx, your maintenance reserves in that market for Q1?
Well, you point to a material risk because Philadelphia will riot in either case, but Boston may celebrate too and burn the town down. So either way, it's going to be an expensive Sunday.
And our next question comes from Rich Anderson of Mizuho Securities.
Well, that question was taken from me, but I have one more. So Terry, at the beginning, you mentioned disposable income as a consequence of tax reform, and I'm curious how this kind of parlays into the single-family market from the perspective of Aimco. Imagine single-family becomes more of a competitive factor in rental housing. First of all, do you agree with that? And second, do you think some of the other elements of tax reform, namely to cap some mortgage interest deductibility and property tax deductibility, provide a material offset to this potential increase in single-family as a competitive threat to apartments?
Rich, thank you very much. That's a good question, reflects your usual focus on the big picture. I think that tax reform and the improving economy is good for single-family demand, not so much because of the rising incomes, although I think that's important, but because higher interest rates will make it easier to accumulate down payments. And that's been the block to demand, particularly at the entry level. I think that the caps on deductibility won't be -- won't materially affect that because most people at the entry level will have benefited from the standard deduction anyway, and so that -- it doesn't affect their -- the money they have available to pay debt service. The impact on the apartment business will vary very much depending on the customers involved. If the customers involved are primarily young couples getting started, then there will be very direct competition from single-family housing to pull those people out of 2- and 3-bedroom apartments that you might see across the Sun Belt. But of course, we redeployed away from that. So today, most of our apartments are in areas where the competitive single-family housing is quite high. And most -- about half of our customers are single occupants, so that they're just not as attracted to home purchases. But there are plenty of apartments that will be subject to the discipline and the impact that you just asked about.
And our next question comes from Buck Horne of Raymond James.
I just wanted to drill down a little bit on some markets that you guys have a fairly positive outlook on for the coming year, but -- in which you do have some A price properties and some high-quality locations in places like Los Angeles and San Diego and Miami but where we think there's some growing supply pressure. You seem to have a feeling that you're going to kind of perform similar to last year with those supply pressures. Now just maybe walk us through how you have that comfort level and why you think you'll be able to perform similar to last year there?
Buck, first of all, again, a terrific question. Very thoughtful. I read your piece this morning and made a note about to look into CoreLogic and to be sure I understand their submarkets because what I touched on in my remarks and want to remind everyone on the call is that supply is very local. And so when people look at a market, for example, our largest market, Los Angeles, and they say supply is up in Los Angeles, that is -- that can be true but irrelevant to Mid-Wilshire or to Calabasas if the supply is concentrated at Staples. So you're talking about broad areas, and it matters very much where that local supply increase is. As we sort through our portfolio, we think, as I said, about 20% of our capital will be challenged by competitive new supply. And that's probably up a little bit over last year, but it's in the same ZIP Code. And in those areas, we have to work harder at customer satisfaction, customer retention and manage our costs. And that's exactly what Keith did in 2017 and exactly what we predict will happen in 2018.
Okay. And I guess, secondly, did you have to take any impairments or write-downs on tax assets or other tax management-related income due to the new legislation?
Hey, Buck. This is Paul. Thank you for that question. As far as the impact of the tax legislation, just so everybody is clear, it impacts only 2 lines of our financial results. For those of you that have the supplemental schedules handy, in our supplemental package is Schedule 2, outlines our FFO by line item. And so we have 2 income tax-related line items there. One is associated with historic tax benefits, the others are other tax benefits. So those are the only 2 line items that are impacted by tax reform. And so as we evaluated the impact of our deferred tax assets and liabilities on our balance sheet, we were able to write down the liability for those deferred taxes that we've incurred but not yet paid, and that created a benefit, but then that caused us to also evaluate the deferred tax assets we had on our books and how we'd be able to use those in the future. And so the net of tax reform on our recorded assets and liabilities was about a net $500,000 benefit to FFO, which we've excluded in the purpose -- in the process of reporting pro forma FFO. So fairly inconsequential.
And this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.
Well, thank you all for your interest in Aimco. If you have questions afterwards, please feel free to call Paul Beldin or Lynn Stanfield or myself, I'm Terry Considine. We want to be transparent and give you the information we can. And we look forward to seeing many of you at the investor conferences that line the calendars as we look at the year ahead. So thank you very much.
And thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect, and have a wonderful day.