Aimco (AIV) Q4 2018 Earnings Conference Call Transcript

Aimco (AIV)
Q4 2018 Earnings Conference Call
Feb. 5, 2019 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good afternoon, and welcome to the Aimco fourth-quarter 2018 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Lisa Cohn, executive vice president and general counsel.

Please go ahead.

Lisa Cohn -- Executive Vice President and General Counsel

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 2019 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; Wes Powell, executive vice president, in charge of Redevelopment; and Paul Beldin, our chief financial officer. John Bezzant, our chief investment officer, is also present and will be available during our question-and-answer session, which will follow our prepared remarks.

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

Terry Considine -- Chairman and Chief Executive Officer

Thank you, Lisa, and good morning to all of you on this call. I thank you for your interest in Aimco. Last year was another good year for Aimco. We increased net asset value by almost 6% and economic income by more than 8%.

We did this through property operations, where Keith set Aimco records for occupancy and achieved peer-leading NOI margins. We did this through redevelopment, where Wes completed two major projects and continued investment in this highly accretive line of business. And we did this through improvement of the Aimco portfolio, not only through operations and redevelopment but also by capital allocation. We exited the affordable business and made accretive acquisitions in Philadelphia and Northern Virginia, and we repurchased 6% of our shares at about a 20% discount to net asset value per share.

And keeping with Aimco's paired-trade discipline, the leverage neutral buyback is funded by the sale of lower-rated properties. Half of the sales have closed, the remaining half are expected to close later this quarter. We also improved our balance sheet, safer because based on nonrecourse and long-dated leverage by reducing 2019 to '21 maturities by more than half, by lowering exposure to possible interest rate increases, by reducing interest expense by $13 million a year and by increasing financial flexibility and dry powder, by adding almost $1 billion to our pool of unencumbered properties. Our total leverage remained roughly flat at just over $4 billion and we expect to reduce that by about 10% during the coming year.

We have a stable and cohesive team. Our intentional culture was recognized once again when the Denver Post named Aimco a best workplace in Colorado for the sixth consecutive year. As the new year begins, we expect another solid year for Aimco. We expect 2019 market conditions to be the same as or better than last year.

Competitive new building remains a challenge in some markets, but the diversification of our portfolio provides important protection. When I reflect on last year's success, and this year's bright prospects, I'm filled with gratitude to my Aimco teammates. Thank you for your hard work to serve our customers, for your friendship and for the opportunities we have together. Now for a more detailed report in the fourth quarter, I'd like to turn the call over to Keith Kimmel, head of Property Operations.

Keith?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

Thanks, Terry. I'm pleased to report that we had a solid fourth quarter in operations. We've continued to maximize revenue growth through a focus on occupancy. The fourth quarter finished at 96.9%, 60 basis points better than the fourth quarter of 2017.

Occupancy increased each month for 96.8% in October to 97.1% in December and we remained strong in January at 97%. Due to our consistently high customer satisfaction and our focus on customer selection, in 2018, turnover was 45.9%, our lowest on record. We continue to have peer-leading margins in our same-store portfolio. Our fourth-quarter NOI margin of 75.6% is nearly 200 basis points better than the last quarter and represents our highest performance on record.

And our full-year result of 74.2% exceeded last year by 140 basis points. This is due to our consistent approach to staffing efficiencies, process centralization and automation. Turning to our same-store results. Revenues were up 3.4% for the quarter.

Representing 32% of our same-store GAV, our top revenue performers with increases over 4% were Boston, the Bay Area, San Diego and Seattle. We had solid performances of 3% growth in Los Angeles, Washington D.C., Miami and Denver, markets which make up 45% of our same-store GAV. Our lowest revenue growth came from Atlanta, Chicago, New York and Philadelphia, which had growth of flat to 2.5% for the quarter and these markets represent 14% of our same-store GAV. Also, in the fourth quarter, expenses were up 3% and net operating income was up 3.6%.

And finally, for the full-year 2018, revenue was up 3.1%, expenses increased 3.3% and net operating income was up 3.1%. Looking at leases which transacted in the quarter, new leases were up 20 basis points, renewals were up 4.3% and same-store blended lease rates were up 2%. We saw new lease rates of 3% to 4% in Boston and San Diego and with the most pressure on new lease rates in Chicago, due to normal seasonality. Overall, our non-same-store portfolio, which represents 37% of our GAV had results that outperformed our expectations.

At our premier Philadelphia redevelopment committees, the Sterling was occupied above 97% for the quarter, Park Towne Place is now over 95% occupied and is achieving rents in line with our underwriting. Our five acquisitions from earlier in 2018 continue to operate at or ahead of plan. And additionally, we had strong revenue growth from our premier non-same-store communities, the Palazzo in Los Angeles were up 5.8%, One Canal in Boston was up 6.6% and Indigo in Northern California was up 7.2%. Now turning to our 2019 outlook, our top markets with revenue growth of 3.5% to 4.5% are Boston, Washington, D.C.

and Los Angeles. Revenue growth of 2.5% to 3.5% is expected in the Bay Area, Philadelphia, San Diego, Chicago, Atlanta and Seattle. And we expect growth of 1.5% to 2.5% in Denver, New York and Miami. Finally, as we look at our January same-store results, we see a solid start to the year that tracked with our plan.

Blended lease rates were up 2.1%, new lease rates about flat, renewables up 4.9%, all while maintaining average daily occupancy of 97%, some 100 basis points higher 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 vVce president, In Charge of Redevelopment

Thank you, Keith. Today, I will cover redevelopment, development and our fourth-quarter acquisition. First, to recap our 2018 redevelopment and development activity, during the year, we invested a total of $176 million announced at the start of $122 million in new projects and completed construction at Park Towne Place in Philadelphia and Saybrook Pointe in San Jose, two projects on track to create nearly $70 million of value for Aimco shareholders. As we look to 2019, we plan to increase redevelopment and development spending to between $225 million and $275 million, a 40% increase over 2018.

Approximately two-thirds of our planned 2019 investment will we on projects previously announced and already under way while the remainder will be the result of new starts during the year. We look forward to announcing and providing details on these additional projects as approvals are gained and construction begins. Finally, during the fourth quarter, Aimco purchased Avery Row, a 67-unit apartment community in the Washington D.C. area.

The property was constructed in 2013 and is located in Arlington, Virginia, just one mile from the Key Bridge leading to Washington D.C.'s Georgetown neighborhood and two miles north of the Pentagon. We expect this $30 million acquisition to produce a free cash flow IRR of almost 9%, driven by the value added by Keith's operating team. And while Aimco contracted to purchase Avery Row before the announcement of Amazon's HQ2, we hope this stroke of good luck provides additional benefit given the property's location just three miles north of Crystal City.With that, I would like to now turn the call over to Paul Beldin, our chief financial officer. Paul?

Paul Beldin -- Chief Financial Officer

Thanks, Wes. Today, I'm going to cover our fourth-quarter balance sheet and share repurchase activity,our 2018 financial results and our 2019 guidance. First, on the balance sheet, in addition to closing the $867 million of refinancing activity we discussed on the third-quarter call, we increased liquidity and financial flexibility by exercising our option to expand by $200 million our revolving credit facility, bringing total capacity to $800 million, of which $633 million was available at year-end and increasing the value of our unencumbered properties by 50% since the beginning of the year to $2.7 billion. Now onto fourth-quarter share repurchases and related activity.

As Terry mentioned, we returned $394 million of capital to shareholders by repurchasing 6% of outstanding shares at a discount of about 20% to our published third quarter net asset value of $56 per share. About half of the proceeds needed to fund the stock repurchases came from property sales closed last year and in January of this year. These sales were made at a premium to the values ascribed to these communities in our published NAV. The remaining proceeds needed to fund the stock repurchases are expected from sale of communities now under contract, again, at prices greater than their value in our published net asset value.

With the completion of these transactions, we will have created $106 million of shareholder value. The 2019 property sales are expected to generate taxable gains in excess of our regular quarterly dividend. Accordingly, our board of directors has declared a special dividend consisting of, a regular quarterly revenue of $0.39 per share plus $1.54 per share of additional consideration to be paid predominantly in stock. The 4.5 million of newly issued shares will be neutralized on ex-dividend date so that there is no net change in the number of shares outstanding.

This reverse split will ensure comparability of Aimco results before and after these transactions. Some shareholders may have more Aimco shares and some may have fewer based on their individual elections. In summary, these transactions increased net asset value per share by 1%; do not affect our regular quarterly cash dividend, which was increased 3% from last year; reduces by 6% the number of shares outstanding by reason of share repurchases; minimizes the aggregate tax paid by Aimco and our shareholders; is leverage neutral; and results in no change the number of shares outstanding as the incremental shares issued in the special dividend are promptly offset by the reverse stock split. Now onto 2018 financial results, fourth-quarter pro forma FFO and AFFO per share met the midpoint of guidance at $0.63 and $0.53, respectively.

Full-year results were $0.03 ahead of the midpoint of our original guidance when adjusted for transactional activity with pro forma FFO per share of $2.47 and AFFO per share of $2.16. As Keith noted, same-store revenue was up 3.1% for the year, 50 basis points ahead of our beginning-of-year expectations. Same-store expenses were up 3.3%, and same-store NOI was up 3.1%, ahead of our beginning-of-year expectations by 70 basis points. These strong results and our accretive capital allocation drove economic income growth of 8.5%.

Turning to 2019, we expect economic income growth similar to that achieved in 2018. We expect 2019 revenue growth through continued pair trades and the following operational expectations. Same-store revenue growth rate between 2.8% and 3.8%, earn-in from our year-end book of business is expected to contribute 1.5% and higher average daily occupancy and blended rental rate growth are expected to contribute 1.3% to 2.3%. We expect expense growth between 2% and 3% with controllable operating expenses up just 50 basis points, and with real estate taxes, insurance and utilities up about 4% leading to a same-store NOI growth rate between 2.7% and 4.5%.

We expect AFFO per share between $2.12 and $2.22, up year-over-year by $0.01 at the midpoint. The significant drivers of the expected increase in AFFO per share are $0.11 from same-store NOI growth and $0.04 from lower interest expense, offset by $0.08 of lower income tax benefit and $0.04 of net dilution from the sale of the asset management business. As previously discussed, the sale of the asset management business and a reduction in non-recurring income tax benefits create a headwind to 2019 earnings growth. However, the redeployment of capital from a diminishing income stream and the high-quality apartment communities with higher expected free cash flow returns results in greater rates of net asset value creation and faster growth and economic income.

The percentage of AFFO derived from real estate operations is expected to be 98%, up from 75% just three years ago. Last, we have $0.02 net from other positive and negative changes, most importantly the loss of earnings from properties sold in 2019 to fund redevelopment activities. 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. 

Questions and Answers:

Operator

[Operator instructions] The first question will come from Nick Joseph of Citi. Please go ahead.

Nick Joseph -- Citi -- Analyst

Thanks. Terry, you've improved the portfolio on cash flow streams to your transactions, redevelopment, development and then the exit of the asset management business, now you become more aggressive with share buybacks. If there continues to be a large disconnect between the private market and where the public market values the company, what's your appetite for executing on an EBIT margin transaction and selling the company?

Terry Considine -- Chairman and Chief Executive Officer

Nick, as you know, the company's for sale every day. And so -- and looking at any such transaction, we'll think about it as fiduciaries and what's best for shareholders.

Nick Joseph -- Citi -- Analyst

You still have another $11 million under the existing repurchase program, given that discount is still there today, do you expect to continue to execute on it?

Terry Considine -- Chairman and Chief Executive Officer

It's one of the tools available to us to create value for our shareholders. When we look at our opportunities, both in redevelopment or acquisitions or share buybacks, we compare them on a consistent basis of a risk-adjusted free cash flow internal rate of return. And we'll exercise those that seem most accretive.

Nick Joseph -- Citi -- Analyst

Thanks.

Operator

Our next question comes from Trent Trujillo of Scotiabank. Please go ahead.

Trent Trujillo -- Scotiabank -- Analyst

Thanks for taking the time. Appreciate the commentary on asset sales. On asset, so taking a look at the list of assets that you have in the market, these generally look to be a little bit older properties and I guess the exception at least from what I noticed is Atlanta. So it kind of gives the appearance that you maybe not preferring to operate in that market.

What's your investment thesis on Atlanta? Is it too much supply, not enough scale benefit for you? Any commentary would we appreciated there.

Terry Considine -- Chairman and Chief Executive Officer

Trent, thank you for the question. Atlanta is a very dynamic economy, but it's a very competitive real estate market and proven to oversupply. And so we like our investments there and -- but we might we might, for the ones we're selling, redeploy that capital to areas that have better risk-adjusted growth.

Trent Trujillo -- Scotiabank -- Analyst

OK. And I guess on that point of risk-adjusted growth and diversification more broadly, it's something you talk about a lot and looking at your market concentrations, you have about 40% or so of your portfolio in California. And realizing California itself is a large geography, is there any inclination to reduce your exposure there whether it be by selling assets to take advantage of good pricing or any other means?

Terry Considine -- Chairman and Chief Executive Officer

Trent, again, thank you, it's an excellent question. California as an enormous economy, the fifth largest in the world, just by itself. And so having 40% of our capital there as a percentage of the economy does not give me any concern at all. It does, however, have a single government.

And so I think there's a certain political risk, which would make me cautious about increasing beyond that. And if we were to -- wish to reduce our exposure to the state or perhaps making another acquisition and wish to keep it constant, we would look at property sales or perhaps more likely joint ventures, which would preserve the advantage we have under Proposition 13 on our property tax assessments in California.

Trent Trujillo -- Scotiabank -- Analyst

All right. Thank you very much. Appreciate your time.

Operator

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

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

Hi, guys. Thanks for taking the question. So in Seattle, you saw revenue growth of 4.4%, which is a lot higher than the lot of other peers in 4Q. Could you speak a little to the demand in that market? And what you're expecting going into 2019?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

Shirley, this is Keith and I'll walk through that. I think most importantly is to recognize we only have two buildings in Seattle, one of which is in Belltown, one of which is in Renton. And while they had a good year, the impact is pretty minimal to the overall scope of things. And as we look into 2019, we'll look to continue with that momentum.

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

Great. And could you speak a little on Panorama in Miami? How's that building leasing up and how's that been taking away share and concessions for Yacht Club?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

Shirley, it's Keith, I'll take that one as well. They just -- they have been leasing up for some time but just recently started opening the doors as far as moving people in. So it's -- what I'd tell you is there were a little behind schedule, as we looked at 2018, that benefits us. And what I'd also say is, our particular community across the street Yacht Club has done quite well, even with them coming into the marketplace.

And so while it's a significant lease-up, it's one in which we think that we're well-positioned and on the right side of the water as well.

Operator

Our next question comes from Rob Stevenson of Janney. Please go ahead.

Rob Stevenson -- Janney -- Analyst

Good afternoon, guys. Keith, which of your major markets had the widest range of expected same-store revenue outcomes for 2019 when you were doing your budgeting? And what are the key variables that you think determine whether or not you come in at the high or low end of your expectations?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

Rob, listen, as we put them in tranches for you, we don't go into the particular markets of exactly how each one was built up. But what I would tell you is, is that when you look at our top tranche, which is Boston, D.C. and LA, those are the ones that we have the most positive outlook as far as how they're performing today and how we think they'll perform in '19.

Rob Stevenson -- Janney -- Analyst

OK. And then what are the stabilized yields on the three ground-up developments you currently have under construction?

Wes Powell -- Executive vVce president, In Charge of Redevelopment

Rob, it's Wes Powell, I can give you those. At the Fremont, which is what we're now calling the project out of the Anschutz Medical Campus, we're going to be at about 6.25%. The Elm Creek Townhome project in Elmhurst, we're going to be a little north of 7%. And at Parc Mosaic in Boulder, we'll be between 5.5% and a 6%.

Rob Stevenson -- Janney -- Analyst

Where does that -- where do those compare versus market cap rates for high-quality new assets?

Wes Powell -- Executive vVce president, In Charge of Redevelopment

Generally, that's about 150 to 200 basis-point spread.

Rob Stevenson -- Janney -- Analyst

OK. Thanks, guys.

Operator

Our next question comes from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets, Inc. -- Analyst

Thanks for taking the questions. I was wondering if you could provide some additional detail behind the decision to buy back more stock than you could absorb from a taxable-gain perspective. And then just also curious if the stock price move lower between now and the valuation date for the stock dividend, would you consider paying out 100% of the special dividend in cash?

Terry Considine -- Chairman and Chief Executive Officer

Austin, it's Terry. And your first question was around the sale and triggering economic gain. At Aimco, the fact is that our properties are worth a lot more than what we paid for them and then their bases. And so any active management in the exercise of capital allocation produces taxable income.

And with that taxable income, we have a choice between paying a tax at the REIT level or at the shareholder level. It's vastly more efficient for shareholders if we pay at the shareholder level. So that's our thinking behind the sale and use of proceeds in a very accretive way and the distribution of the gain through the stock dividend. And as to your second question, no, we think that we fixed the amount of cash, we fixed the number of shares and we think the dividend will transact in an efficient way.

Austin Wurschmidt -- KeyBanc Capital Markets, Inc. -- Analyst

Appreciate the thoughts there. And then you mentioned 2.1% blended lease rates in January, I believe,just curious how that compares versus last year?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

Austin, this is Keith. And as we looked at the lease rates looking year over year, they are pretty comparable. They are almost right on top of each other. And so what I'd really put your focus in is on the occupancy.

And so while we saw similar rates what we saw is really nice acceleration in our average daily occupancy.

Austin Wurschmidt -- KeyBanc Capital Markets, Inc. -- Analyst

So how does the 97% you mentioned in January -- how does that compare versus a year ago?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

About 100 basis points over -- it's exactly 100 basis points over a year ago.

Austin Wurschmidt -- KeyBanc Capital Markets, Inc. -- Analyst

Thanks for the time, guys.

Operator

Our next question comes from John Pawlowski of Green Street Advisors. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Curious on how you balance the moving properties under the disposition list and actually executing versus scale in some markets, so taking the Atlanta, Chicago, Minneapolis, where there is just less concentration. As you start to sell down those markets, do you hit a unit count or a property count where at that point it just makes sense to exit the market and want to fell swoop versus keeping people on the ground from an operating standpoint?

Terry Considine -- Chairman and Chief Executive Officer

John, it's Terry, and I'm happy to take a cut at that, and Keith could add. There certainly can be operating inefficiencies created at a particular scale. But those have to be weighed against the cost of exit and the price we would receive on the properties we are selling. And so it's just a consideration but it's not necessarily the decisive one.

Keith?

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

John, what I would add to that is that we take an opportunity to think about the uniqueness of each one of our communities and how we operate them. And so while one could be in Minneapolis and be in a unique place, we also can apply unique operating platform against it that gives us the opportunity to feel confident in operating in those spots.

John Pawlowski -- Green Street Advisors -- Analyst

OK. And then final one, John, maybe for you on the transaction market across your Illinois footprint and there's a bill going through the House right now similar to Costa-Hawkins in California to repeal Illinois' ban on rent control. Is it -- do you expect it to cause any hiccup in the transaction market as 2019 -- early2019 unfolds?

John Bezzant -- Chief Investment Officer

Yes. We haven't seen any, all right? We've got properties, we've transacted one there just recently and we got others under contract. We don't see any impact from it.

John Pawlowski -- Green Street Advisors -- Analyst

Are folks talking about it?

John Bezzant -- Chief Investment Officer

No. It would not be high on the list. It's not -- we've -- as we've put stuff out to market in Illinois, which has been a handful of properties, we've seen a very normal market response to it. And people are much more interested in rents and rates than they are in what's going on in the legislature.

John Pawlowski -- Green Street Advisors -- Analyst

Understood. Thanks.

Operator

Our next question comes from Tayo Okusanya of Jefferies. Please go ahead.

Tayo Okusanya -- Jefferies -- Analyst

Yes. Good afternoon. When we compare your guidance assumptions versus what we had in our models. I think where we vary the most is just in regards to your acquisition and you disposition outlook of much lower acquisitions, much higher dispositions.

Could you just talk a little bit about the strategic decision this year to be a net seller, kind of what's driving that? Does it need to de-lever the balance sheet? Is it -- you've seen some really attractive prices out there? I'm just trying understand that decision process and whether that initial guidance could be proven to change as the year progresses?

Terry Considine -- Chairman and Chief Executive Officer

Tayo, this is Terry, and I'll take a cut at it and then ask Paul to cover any details that I miss. But I thought looking at your model that the biggest difference was around the tax benefit number. And I just mentioned that because it -- 2019 is a good example of why I rely on net asset value rather than FFO as our primary financial metric. And I think the most important difference between FFO models and our guidance is the reduction of tax credit income to the -- due to redevelopment of Park Towne Place and its replacement by recurring cash flows from high-quality properties.

In FFO models, the result is flat, but the critical and asked question is what is the right PE multiple to apply to that FFO? The NAV model answers that question based on objective third-party valuations in hundreds and thousands of actual transactions by buyers and sellers. For nonrecurring tax credit income, the right multiple is one. For recurring cash flows from high-quality properties, the right multiple is 20 or 25, equivalent to 4% and 5% cap rate. So Aimco guidance to 2019 FFO is flat year over year does not mean that Aimco's valuation is unchanged.

And given the different quality of income, our guidance points to another good year for Aimco and for shareholders. So Paul, would you want to add to that or talk about the specifics of properties being sold?

Paul Beldin -- Chief Financial Officer

Yes. Thank you, Terry. Tayo, I think that covers very well kind of the consideration of variances may be from the consensus FFO growth to what we guided to and how we think about that differential. But when it relates to the question about how we are balancing our sources and uses of cash for the year, that $800 million of expected dispositions at the midpoint is used to fund on a leverage-neutral basis our share repurchase activity, which we are funding about $325 million of which in 2019 and then also our expected redevelopment spend that Wes spoke to earlier and our CE investment.

And so you take some of those four factors that bounces out exactly at that $800 million amount.

Tayo Okusanya -- Jefferies -- Analyst

That's helpful. Thank you.

Operator

Our next question comes from Hardik Goel of Zelman & Associates. Please go ahead.

Hardik Goel -- Zelman & Associates

Hey, guys. Thanks for taking my question. Regarding the share repurchases, looking ahead, what do you see as a good band in which to kind of repurchase your stock? And if the stock continues to trade above that band, what would the capital be used for in that case?

Terry Considine -- Chairman and Chief Executive Officer

As we discussed earlier, we are focused on all of the opportunities to make accretive investments for our shareholders. We look at it on a risk-adjusted basis. And broadly, we look at development activities led by Wes, acquisitions or buyback of shares. And we'll look at those based on how they -- opportunities present themselves and we analyze each of them on a consistent basis of a free cash flow internal rate of return.

And we'll pick those that are best for our shareholders.

Hardik Goel -- Zelman & Associates

Thanks.

Operator

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

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Hey, good... I guess it's good morning out there. I guess I'm curious on how the margins in IRRs on what you're selling compared to what you are keeping, the rest of your portfolio. Any color on that?

Terry Considine -- Chairman and Chief Executive Officer

I can answer that in general, but if you want a more particular answer, I might ask Lynn, if you have that in mind. Sure, why don't you speak to that?

Lynn Stanfield -- EVP Financial Planning & Analysis/Capital Allocation

So the properties that we are selling would be in the bottom of our stack ranking that we do across the portfolio. Therefore, we're selling off of the bottom. The free cash flow IRRs for those properties that are currently being sold are six or less while those properties that remain in our portfolio are well above that.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Any color on the margin differential?Terry ConsidineNOI margin, Lynn, do you have that at hand?

Lynn Stanfield -- EVP Financial Planning & Analysis/Capital Allocation

I don't, but I'd be happy to follow up after the call with specifics.

Terry Considine -- Chairman and Chief Executive Officer

But broadly, Haendel, and it's a delight to hear from you, our -- we'll be selling properties with lower NOI margins and keeping them with higher margins. As you can see from the margin that Keith has achieved, which was -- 74% -- 76% in the fourth quarter, 74% for the year, he's operating at a very high level. But the ones that are being sold are the ones that are in the bottom quartile of that range.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

And I guess to follow on, on some of the earlier questions about the timing here. I'm curious when you started thing seriously about the significant buyback and planning for the mechanics of what you're executing here as a taxable gain, special dividend, etc. When you look at the stock chart over the past year, the current price isn't well as attractive as other points in time to potentially execute on this. So just curious again the thinking or at least the timing of why now? And maybe some insight as to how you and the board have thought about or discussed this over the past year?

Terry Considine -- Chairman and Chief Executive Officer

Well, Haendel, as you know, because you know the company well, we are very focused on net asset value and economic income. And we've been well aware of the discount of the share price to our net asset value per share as we calculate it and as is verified by the sales we make. So the opportunity has been one that is something that we thought about a lot over a long period of time. What has changed is that, we've been able to think through a tax-efficient way to do so.

And that was only accomplished in the fourth quarter. And so that explains the timing.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

OK. Thank you.

Operator

Our next question comes from Nikita Bely of JPMorgan. Please go ahead.

Nikita Bely -- JPMorgan -- Analyst

Good afternoon, guys. On the dispositions, given the size of the dispositions expected in 2019, what does your guidance assume on the timing of these because given the size, you can really swing things whether it's front-loaded or back-end loaded. So if you could just tell us a little bit about maybe what's in the market already, what's in process, being sold right now? Is it front year leaded or back half of the year?

Paul Beldin -- Chief Financial Officer

Yes, Nikita, this is Paul. Thank you for the question. The timing of the disposition is of course subject to change until they ultimately closely but we have already closed a little over $140 million in January. We have another in real round numbers $250 million or so that we think is going to be closed between now and when we report our earnings for the first quarter.

And then that sums to about $400 million. So about half of our dispositions will occur in the first 3.5 months or so of the year and then the remaining is split about 25% in the second quarter, about 25% in the third and then the remainder in the fourth. Sorry, I was off on those percentages, 12% in the second, 12% in the third and then 25% in the fourth. Sorry about that.

Nikita Bely -- JPMorgan -- Analyst

I got it. No worries, that's fine. I got it. And what are the -- what's the blended cap rate on full year of dispositions for '19, are you assuming the model?

Paul Beldin -- Chief Financial Officer

The ultimate cap rate will depend on assets sold so it'll vary but as we mentioned earlier, we continue to sell off the bottom and so we would expect that to be higher than the cap rate of our overall portfolio, which is about 5%. But it's probably not going to be too far off of that number, so say mid-5s is the target.

Nikita Bely -- JPMorgan -- Analyst

About mid-5s. OK. Got it. And on the tax benefits, will there be any tax benefits post-'19? Will that number -- because I know that's expected to kind of trickle out over time, but is the '19 the last year or will that go to zero in 2020?

Paul Beldin -- Chief Financial Officer

Yes. So we have guided to about $8 million of tax benefit in 2019. There will always be some changes in the ultimate amount of benefit depending upon the activity of our taxable REIT subsidiary. But the amount of change or the rate of change year-over-year should not be significant going forward.

Nikita Bely -- JPMorgan -- Analyst

Got it. So basically that increment is kind of a run rate that one can assume going forward?

Paul Beldin -- Chief Financial Officer

Plus or minus within a reasonable percentage.

Operator

[Operator instructions] And our next question is a follow up from Rob Stevenson of Janney. Please go ahead.

Rob Stevenson -- Janney -- Analyst

Yes, thanks. Paul, what are the known items today that are expected to drive any difference in 2019 between NAREIT and pro forma FFO per share?

Paul Beldin -- Chief Financial Officer

Yes. As of today, Rob, there aren't items that we have backed into our plans. So we would expect it to be very consistent.

Rob Stevenson -- Janney -- Analyst

OK. And then what are you guys assuming for a weighted average share count for FFO calculations in the first quarter and for the full year in your guidance?

Paul Beldin -- Chief Financial Officer

Rob, I don't have that at the tip of my hand. But I would tell you is that as we think about the share repurchases, they will be obviously funded with asset sales which are dilutive but the accretive benefit of reducing the share count outstanding are -- is roughly offset. It's neutralized.

Rob Stevenson -- Janney -- Analyst

OK. And like right now you have like 149 or so, is that right?

Paul Beldin -- Chief Financial Officer

Yes. And just to emphasize a point that we made in talking about our stock dividend reverse stock split, upon the issuance of the new shares in connection with the stock dividend, those shares will be neatly reversed so that stock dividend will have no impact on our outstanding share count.

Terry Considine -- Chairman and Chief Executive Officer

Rob, just for clarity, we're -- if $150 million or so is what's outstanding today, that's what's expected for the year in our guidance. And I don't want you to think the guidance somehow is affected by what the future decisions. As Paul points out, those future decisions may or may not be material to what our average share count is. But there's no built-in gain for the -- some change in share count.

Rob Stevenson -- Janney -- Analyst

OK. That's helpful.

Operator

Our next question comes from Nick Joseph of Citi. Please go ahead.

Michael Bilerman -- Citi -- Analyst

Hey, it's Michael Bilerman here with Nick. Terry, so the use of the stock dividend is not new to you, right? You used it back in 2008 during the GFC as a way to conserve cash and pay upwards of 80% to 90% of that dividend in stock. And so I'm just wondering you talked a little bit about getting creative of having not done the share repurchases before until you came up with the structure, but effectively you're distributing the gain as a stock dividend basically as a rights offering to shareholders. So I don't know why it couldn't have been done before.

Like what change in the mechanics that made this more possible today than at other times?

Terry Considine -- Chairman and Chief Executive Officer

Michael, I think what changed is the use of reverse split that in -- a decade ago, as you point out, we did use stock dividends and it created uncertainty and confusion, I think, in the market because of the lack of comparability before and after. And so in this case, the utilization of the reverse split is something that neutralizes that confusion.

Michael Bilerman -- Citi -- Analyst

I don't think the market really -- I mean, it is what it is, right? I don't think having a reverse stock split all of a sudden negates what happens. I mean it's clever but I think at the end of the day, investors want company to sell assets and buy back stock, if there's that difference. But anyway, I guess that's the unique thing that allowed you guys to execute it. And how should investors think about the tax implication? Obviously, I assume the dividend, whether it's paid in cash or stock is a taxable event, right?So for those that are getting additional script, they would have to come up -- and if there taxable holder, they would have to come up with the cash to pay their taxes on the gain?

Terry Considine -- Chairman and Chief Executive Officer

Well, it all depends on their tax circumstances about which we're not expert. But as you will know, the vast majority of our shareholders are tax-exempt or tax-insensitive.

Michael Bilerman -- Citi -- Analyst

Like as you didn't -- did you consider that aspect? I mean, assuming if you hold shares personally, you have to pay taxes, right?

Terry Considine -- Chairman and Chief Executive Officer

I am familiar with my own tax circumstances. And you're right, it's an unfriendly event for me as an individual in the sense of taking the tax alone. But when in the context of value creation and the benefit to the company, it's one as a shareholder that's I'm quite pleased with.

Michael Bilerman -- Citi -- Analyst

Right. And it's the offset, right? The value of the remaining holdings...

Terry Considine -- Chairman and Chief Executive Officer

That's right.

Michael Bilerman -- Citi -- Analyst

And the future should be -- you may have to come up with a little more cash today to pay the taxes on that stock dividend that you're getting, which doesn't create any value from a shareholder, right? Because there's just the right if much more so on the ramp of what's left over versus than what they're getting because what they're getting is just a distributed amount just like the rights offering for a company?

Terry Considine -- Chairman and Chief Executive Officer

It's really not like a rights offering because it's not capable of or subject to being exercised. The company is not getting yet any new cash from it. It's more like a stock split, which is to say, a redivision of something that's already existing. But the immediate reversal leads it back to a comparable unit for comparison before and after.

The tax side is one that is different. And it's one that doesn't matter at all to shareholders that are tax-exempt or tax insensitive and it's one that can matter to me and to other officers, other directors, other people that hold it as individuals. But in doing that, we look at the bigger picture and what we gain and we think sometimes you have to pay tax on good things.

Michael Bilerman -- Citi -- Analyst

I was just thinking about the stock dividend in a sense of that all shareholders as the hold just get the percentage of the firm that they held, right, it's just more shares outstanding, you're doing the reverse stock split to reverse that but that's effectively the comparison I was trying to make.

Terry Considine -- Chairman and Chief Executive Officer

Correct. And I agree with that. I agree with that. I agree with that.

Michael Bilerman -- Citi -- Analyst

OK. And is there any impact for 2019 sales that we should be -- would this -- is this going to reoccur again, I guess at the end of the year, potentially for this year's sales?

Terry Considine -- Chairman and Chief Executive Officer

Nick, I think we've tried to describe the tax from the property sold to fund the share buyback in the fourth quarter. And so there is -- and in fact, we're pretty current with our estimated gains. But we've also been asked two or three times in the call, whether we would do more in the future, and we said, we'll look at all the possibilities that exist. If we do so then we could have the same situation again.

If we don't, it wouldn't recur.

Michael Bilerman -- Citi -- Analyst

All right. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Terry Considine for any closing remarks.

Terry Considine -- Chairman and Chief Executive Officer

Well, thank you all for your interest in Aimco, and perhaps fortuitously given that our last call came from Michael Bilerman, I just want to say we look forward to meeting a lot of our shareholders next month at the Citi Conference in Florida. So thank you very much and see you then.

Operator

[Operator signoff]

Duration: 55 minutes

Call Participants:

Lisa Cohn -- Executive Vice President and General Counsel

Terry Considine -- Chairman and Chief Executive Officer

Keith Kimmel -- Executive Vice President, In Charge of Property Operations

Wes Powell -- Executive vVce president, In Charge of Redevelopment

Paul Beldin -- Chief Financial Officer

Nick Joseph -- Citi -- Analyst

Trent Trujillo -- Scotiabank -- Analyst

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

Rob Stevenson -- Janney -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets, Inc. -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

John Bezzant -- Chief Investment Officer

Tayo Okusanya -- Jefferies -- Analyst

Hardik Goel -- Zelman & Associates

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Lynn Stanfield -- EVP Financial Planning & Analysis/Capital Allocation

Nikita Bely -- JPMorgan -- Analyst

Michael Bilerman -- Citi -- Analyst

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