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Apartment Investment & Management Co (NYSE:AIV)
Q4 2019 Earnings Call
Jan 31, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

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

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

Thank you and good day. During this conference call, forward-looking statements we make are based on management's judgment, including projections related to 2020 and future year expectation. 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 and the supplemental information that is part of the full earnings release, published on Aimco's website.

Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President, in-charge of Property Operations; Wes Powell, Executive Vice President in charge of Redevelopment; and Paul Beldin, our CFO. 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?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Thank you, Lisa, and good morning to all of you on this call. Thank you for your interest in Aimco. Last year was a good year for Aimco, as we detailed in the earnings release published yesterday afternoon. And while I'm delighted by these good results, I am even more energized by the bright prospects for Aimco in 2020 and beyond.

We expect to meet or beat the 2020 forecast we made last fall and to finish this year with further growth in prospect for 2021 and thereafter. Aimco has an advantage of world-class property operations, value-creating redevelopments, accretive investments in real estate, long-dated and low-cost non-recourse property debt, and high performing cohesive team. In the next few minutes, Keith, Wes and Paul will detail their solid performance in 2019, and our high expectations for 2020. And with that I offer my Aimco teammates many and sincere you're thanks for what we accomplished last year and for the success we see ahead for this year.

For more details, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?

Keith M. Kimmel -- Executive Vice President-Property Operations

Thanks Terry. I'm pleased to report that we had a solid fourth quarter in operations. Our operating philosophy begins with a relentless focus on customer selection, and exceptional customer service. We continue to refine and execute this playbook every day, and it leads to lower turnover, higher occupancy, better pricing power, maximize revenues, avoiding costs and better margin.

Based on more than 13,000 surveys in the fourth quarter, customer satisfaction was 4.3 out of five stars. This is the first time we've achieved this mark, and indicative of our continued drive to deliver a world-class resident experience. This dedication to customer service means that residents want to live with us longer, leading to our lowest turnover on record, 43.2%, a 150 basis point improvement year-over-year. As a result, our average daily occupancy was an Aimco best, 97.4%, 40 basis points better than 2018, and we accelerated throughout the quarter, from 97.1% in October to 97.9% in December. This approach translated to solid top line growth, with revenues up 3.3% for the quarter, our top markets with growth over 4.5% were Denver, Philadelphia, Washington DC, and Boston. Solid markets with growth over 1.5%, were San Diego, Los Angeles, Atlanta, the Bay Area and Miami. Finally, markets with growth of 50 basis points to 1%, were New York, Chicago and Seattle.

Now turning to expenses; controllable operating expenses were flat for 2019, and up 2.1% in the fourth quarter, due to lower marketing and turn costs from improved retention, offset by higher investments in our communities. Total expenses were up 2.4% for the year and grew 4.4% in the quarter, driven by taxes and utilities. As a result. fourth quarter net operating income grew 2.9%, and margins were 74.8%. For the full year, our margin was 73.7%, a 40 basis point improvement over 2018.

Looking at leases which transacted in the quarter; new lease rates were up 70 basis points. Renewal rates were up 5%, and same-store blended lease rates were up 2.4%, 30 basis points better than 2018.

As we look at our preliminary January results, we are tracking toward a solid start to our 2020 plan. Blended lease rates are up 2.5%/ New lease is up 1%, 120 basis points better than 2019. Renewals up 5.6%, a 70 basis point improvement, all while achieving average daily occupancy of 97.8%, some 80 basis points better than last year.

Finally, turning to our 2020 outlook, we see another solid year. Our top markets with planned revenue growth of 3.5% to 5%, are Philadelphia, Seattle, Austin, Washington DC, San Diego and Miami. We expect growth of 2.5% to 3.5% in Atlanta, Denver Los Angeles and the Bay Area, and revenue growth of 1.5% to 2.5% in New York and Chicago. To the operations team, thank you for your dedication to innovation and a passion for serving our residents.

I'll now turn the call over to Wes Powell, our Executive Vice President Redevelopment. Wes?

Wes Powell -- Executive Vice President, Redevelopment

Thanks Keith. Today, I will provide a brief summary of our 2019 portfolio management and investment activities, and will also discuss our plans for 2020. Details on fourth quarter activity can be found within our release.

In 2019, Aimco continued with its paired trade strategy, reallocating capital from lower rent growth markets such as suburban Chicago and from properties that produce lower operating margins without the opportunity for value-creating reinvestment. That capital was redeployed into higher growth markets such as Miami, Denver, Cambridge and San Francisco. While improving upon our geographic allocation and to also increase its rate of investment. During the past year, $230 million was invested in redevelopment and development projects, up 30% year-over-year. This activity creates shareholder value, and will lead to accelerated earnings growth when apartments are completed and leased. In 2019, Aimco delivered 335 new or fully renovated homes; of these, more than 80% are currently leased at rental rates ahead of our underwriting.

Now turning to 2020; AImco expects to increase in annual investment in redevelopment and development between $250 million and $300 million, creating approximately $100 million of shareholder value. During the year, we plan to complete construction on approximately 500 homes, whose run rate contribution at stabilization will be $17.5 million in annual revenues. Flamingo Point's North Tower will remain under construction through 2020, and when its 366 homes are occupied and stabilized, they will contribute over $14 million of annual revenue, in a submarket with strong growth prospects. Additionally we retain a deep pipeline and plan to commence new redevelopment projects during the year and look forward to providing details on those, when the time is right.

Finally, we will continue to seek accretive opportunities outside of our existing portfolio, where we can earn superior returns as a result of key operational excellence, value creating redevelopment, and ideally both. Any new investments will be funded on a leverage neutral basis from the sale of communities with lower forecasted free cash flow IRRs. And with thanks to all of my teammates for their continued hard work and constant pursuit of value-creating opportunities.

I would now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Thank you Wes. Today, I'm going to give a quick recap of 2019 results, provide details on our 2020 guidance, discuss our balance sheet and comment on Aimco's 2020 dividend.

First 2019 same-store NOI growth of 4.3% was 70 basis points better than our guidance of one year ago, driven by 50 basis points of better than expected revenue growth. The strong same-store growth reported by Keith and the accretive investments discussed by Wes, contributed to full year AFFO being $0.03 per share, ahead of the midpoint of guidance provided at the beginning of the year.

Looking back, it is informative to recall, that Aimco's year over year AFFO growth for the first three quarters of 2019 was impacted by the July 2018 in sale of the Asset Management business. With the dilution from the sale behind us, fourth quarter AFFO grew by 12%. We expect the strong growth to continue in 2020. Aimco expects AFFO to be between $2.34 and $2.44 per share, representing $0.19 per share or 9% growth at the midpoint. Approximately $0.13 of this growth is expected from Aimco same-store portfolio, with NOI growth between 3.2% and 4.6%. The remaining $0.06 of growth is primarily due to a $0.06 net contribution from the mezzanine loan made to the partnership that owns Parkmerced and $0.04 of incremental AFFO from our redevelopment and development communities, offset by approximately $0.05 of dilution from properties sold to fund our investments. Please keep in mind, the $0.04 net contribution from our redevelopment and development communities, is expected to increase after consideration of funding costs, by another $0.18 per share, as these properties are stabilized over the following three years.

Next I'd like to discuss the components of our expected same-store NOI growth. We forecast 2020 same-store revenue growth between 3% and 3.8%. Our revenue growth expectations are based on the following; the earn in from our 2019 leasing activities is expected to contribute 130 basis points to 2020 revenue growth. The contribution of 2020 leasing activities is dependent upon a number of factors, including resident satisfaction and quality, retention percentages, lease space, and lease rates. We expect these factors to add 170 to 250 basis points to year-over-year revenue growth. Limited lease rates are expected to be similar to or better than the 3.4% achieved in 2019.

Over the full year, we expect average daily occupancy to increase in 2020, but at a slower pace than the 60 basis point improvement achieved in 2019. While January is not yet complete and January results are not yet fully available, we are encouraged by what we do know. For example January 2020 average daily occupancy was up by 80 bps.

Turning to same-store expense growth; we expect total same-store expense growth of 1.6% to 2.4%. Of these costs, we expect controllable operating expenses to be up by 50 basis points or less. Aimco's relentless focus on innovation and customer service has resulted in no increase in controllable operating expenses for more than a decade.

Now, turning to our balance sheet; in the fourth quarter, Aimco sold four communities, generating net proceeds of $201 million. Another $300 million of year-end January sales were delayed. This delay increased our leverage to EBITDA ratio by three-tenths of a turn, but we expect better pricing this year, as the transaction market remains deep, liquid and attractively priced.

Our leverage to EBITDA ratio is above our target of 7-0, but we expect this to be temporary. In 2020, we expect to repay approximately $550 million of leverage, funded by property sales and still reduce leverage to EBITDA by approximately one turn.

Looking into the future, we expect continued same-store NOI growth and an incremental $27 million contribution from our redevelopment and development investments, to further reduce our leverage to EBITDA ratio by another turn or more. Finally, after a solid 2019 and with strong FFO growth expected for 2020, the Aimco Board of Directors declared a quarterly cash dividend of $0.41 per share, a 5% increase over the regular quarterly dividends paid in 2019.

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

Questions and Answers:

Operator

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

Nick Joseph -- Citigroup -- Analyst

Thanks Rocco. Wondering if we could get a little more color on the decision to delay the asset sales, and maybe where were you in the process, when you made that decision?

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

Rocco, it's Lisa Cohn. Thanks for the question. We have a number of properties in the market as we did at end of the last year, and we're just looking for the best execution in terms of pricing. So we presently have a couple under contract and we're just going to keep looking to get the lowest cost of capital. And I think Paul said in his prepared remarks, we have a broad group of buyers and lots of people looking and those markets are deep and liquid, and we think we'll get the pricing we're looking for this year.

Nick Joseph -- Citigroup -- Analyst

So when you initially took them out, the market, the pricing just wasn't what you thought it should be? Is that essentially what you're saying?

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

I mean, we didn't have to sell them at that moment, and there -- we're looking to maximize price, and deals have ebbs and flows and things happen as people go through due diligence. And so we have the opportunity to make that decision.

Nick Joseph -- Citigroup -- Analyst

Thanks. Then what does guidance assume in terms of the timing of the asset sales this year?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Yeah. Nick, this is Paul. We expect to sell the $950 million of properties at the midpoint of our range. Throughout the course of the year, we expect this first sales will occur late in the first quarter, early second, and then the remainder will proceed through the year. As we get more of these sales under contract with hard money down, we will provide more precise timing.

Nick Joseph -- Citigroup -- Analyst

Thanks.

Operator

And our next question today comes from Shirley Wu of Bank of America. Please go ahead.

Shirley Wu -- Bank of America -- Analyst

Hey guys, thanks for taking the question. So my first question has to do with your two markets that you highlighted before, of higher supply in Center City and Mid-Wilshire? So in terms of what you're seeing now, have you started to feel the impact in terms of concessions or slower velocity? And then, when you really expect to see the full bulk of that supply to impact your portfolio?

Keith M. Kimmel -- Executive Vice President-Property Operations

Shirley, this is Keith. I'll start and then if Paul wants to add some more global supply insights. Your particular question around the Mid-Wilshire portfolio, we feel really good about where we're positioned there. And most of that supply that's coming in actually in Koreatown. And so where we are particularly located, we think that it's -- while it will be impactful in that part of Wilshire, we are further west, and we think that we're in a better spot, and we will keep our eye on it, but we're going into the year in a strong position and feeling good about the look forward in LA. Paul, anything you want to add to that?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Just to comment on Center City, Philadelphia, Shirley,as I'm sure you'll recall Center City, Philadelphia has seen elevated levels of new supply since 2016, and so the encouraging fact for us, is those levels are continuing to decline, and 2020 is expected to be the lowest year of any of the past five. And during the previous four years, our Center City assets have performed very well. And as Keith highlighted in his prepared remarks, Philadelphia is going to be one of our strongest markets next year.

Shirley Wu -- Bank of America -- Analyst

Great, that's helpful. So my next question has to do with -- for redevelopment plans. So you've previously talked about redevelopment for East 88 in New York. So could you tell us a little bit more about, where you are in that process, and what that could potentially look like, once it's built in the product offering?

Wes Powell -- Executive Vice President, Redevelopment

Hey Shirley, its Wes. Thanks for the question. You're right that that's a project like many that is in our pipeline, and we're actively pursuing that one. We feel great about the opportunity there. It's kind of a perfect case where we've owned the property for a long time with high land value, and have the ability to unlock that value, when the time is right. It would be premature to go into details right now, we're still working through the process. But as I think we stated before, it would be a higher density development on that site. And happy to talk about the details when we're ready to announce that one.

Shirley Wu -- Bank of America -- Analyst

Okay. Thanks for taking my questions.

Operator

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

John Kim -- BMO Capital Markets -- Analyst

Thank you. Good morning. Couple of questions on your guidance; so it sounds like you believe blended lease growth rates will be higher year-over-year and occupancy starting off the year higher as well. Yet you widened your same-store guidance, both at the top end and at the bottom end of the range and basically cut the midpoint the same. Why would there not be an upward bias on your same-store guidance this year?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Hey John, this is Paul. Thanks for the question. You're right that our -- the midpoint of our guidance that we issued last night was consistent with our preliminary outlook that we published at end of September. As we discussed on the third quarter call, our preliminary outlook really provided a range of where we thought the midpoint of our guidance would land. And so as we were setting guidance for the full year, we continued our historical practice of having about 100 basis point range around our operating metrics, and about a $0.10 range around our earnings metrics or FFO and AFFO. So nothing more than that.

John Kim -- BMO Capital Markets -- Analyst

Is portfolio mix part of this? And also on a related topic, your capital enhancements guidance is down 30% year-over-year? And I know that's been a driver -- or one of the drivers of same-store revenue growth? Is that potentially one of the reasons why you've widened that range?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

No. To comment on each of those, the portfolio that we expect to have our same-store pool in 2020 is consistent with what we used to form our preliminary outlook. And then in regards to CE, the time that we published our outlook, we were far enough along in the planning process, that we were expecting a decline in our spend in 2020, and that decline is really driven by nothing more than the factoring, both '19 and in 2018, we invested quite a bit of capital in rolling out smart rents and the associated smart technologies, now that we're done with that across the entire portfolio, that investment is coming down.

John Kim -- BMO Capital Markets -- Analyst

Great. Thank you.

Operator

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

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Yeah. Thank you. Back to the disposition delays; were those specific to a single market, or was it a broad-based group of assets? And were any of those assets within the group that was under contract as of last quarter's call?

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

They were not any of the assets that were under contract at last quarter's call, those we closed at the end of 2019, and they were in a variety of markets, and not with a single buyer or anything like that.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Okay, I appreciate that. And then as it relates to Parkmerced, when was the mezz investment funded? Was it at a single period, or is it being sort of funded over a period of time? And then how soon could phase two at Parkmerced get under way, any restrictions. I guess related to phase one getting complete or otherwise?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Sure Austin. It was all funded simultaneously at the closing in late November. As to phase two, yeah, it is conditioned on phase one taking place. They are out right now actively rebidding their design plans for Phase 1A and B, and we anticipate that they will proceed through development processes that continues.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

And just one quick follow-up, you did $1.5 million of mezz investment income as of the fourth quarter. You annualize that, it gets you to $18 million, a little bit shy of sort of the 27.5-ish that you might expect. What were the offsetting items for that line item?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Yeah, this is Paul. You're correct that our mezzanine income that was reported on our income statement was $1.5 million. And what that reflects is the interest that we accrued at the contractual rate of 10% offset by certain costs that were incurred, while originating the loans that were not eligible for deferrals.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Got it. Thank you.

Operator

And our next question today comes from Rob Stevenson of Janney. Please go ahead.

Rob Stevenson -- Janney -- Analyst

Good afternoon, guys. Keith, when you and your team put together your market view for 2020, what market or markets had the biggest delta in terms of the range of potential same store revenue growth outcomes for the year? And is a driver behind the gap, anything other than the amount and timing of new supply?

Keith M. Kimmel -- Executive Vice President-Property Operations

Rob. Thank you for that. Really when we put it together, we had a stronger pickup when we look at the average daily occupancy from '19 to '20. There is not any particular market that had any particular change or outlook on it, that drove the difference.

Rob Stevenson -- Janney -- Analyst

Okay. And then how is your ABC plus portfolio mix going to change, when you factor in the $1 billion of dispositions this year? And then what you're doing and Development, Redevelopment projects under construction and any acquisitions that are in the pipeline? I mean you're now up to 50% A, it's up 300 basis points year-over-year. How significantly does that accelerate, when you factor in all of these transactions that are coming through for you guys?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Hey Rob, this is Paul, I'll address it and then let anybody else supplement my response. You're right, currently we're about 52%, 54% As, which is a little bit more heavy than we'd prefer, and as part of our redevelopments, a lot of times what happens is that we'll see the greatest opportunity to create value for our shareholders, by taking a community that is in A location, with A dirt, but had a B rental price and so thereby creating value by bringing that community up to an A price point. And so that as a byproduct increases that allocation. But as we look forward, we'd like to see a greater allocation to that B price point. And so I think as we go throughout our sales this year, you'll see a mix of sales, we still have a few hundred million of assets that are at that C plus and B price point that will be sold likely in 2020. But there will also be an allocation likely of As. So over the longer term, we will seek to bring that percentage down.

Rob Stevenson -- Janney -- Analyst

Okay. So that $1 billion of dispositions, is it primarily just Bs and Cs?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

It's a mix. And as Lisa said, we've seen a lot of interest in the assets that are in the market and we expect to see really attractive pricing so the exact mix will be dependent upon pricing. But we feel very confident about the opportunity we have ahead of us. Okay. So in the near term, you wouldn't expect that -- the As to get above 60% or anything? No.

Rob Stevenson -- Janney -- Analyst

Okay, thanks guys.

Operator

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

Haendel St. Juste -- Mizuho -- Analyst

Hey, good morning out there.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Good morning Haendel.

Haendel St. Juste -- Mizuho -- Analyst

So Terry, can we go back to Parkmerced for a second? And I guess -- I know we had a call about it late last year, but I don't think we had all the information that we know now, the assets, cash flow, the existing CMBS loans. So I understand the loan, the attractive coupon you're getting there, the embedded value in the asset, and the accretion from the loan. But we've also heard some concern from investors, who see it as the latest detour on your ROTE simplifications, as well as concerns about the cash flow shortfall and the inability, at least right now, to fully cover the interest obligations on your mezz fee. So I guess I'm curious, how do you and the Board factor all this into your decision process? And is there anything more you want to share, for those who might still have some concerns over the transaction?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Haendel. First of all, thank you for the question and thank you for your piece this morning, I thought that was thoughtful and and I read whatever 15 or 20 of them, and yours stood out as insightful. As to your question about Parkmerced, it is certainly something that the Board and I and the management team thought about. We feel very comfortable about the balance between risk and reward. We think the downside is, is fairly limited, both as you see from appraisal, but also from the nature of the underlying cash flows of the rent control portfolio. So we feel very good about the downside and the upside from 6,000 entitled units without rent control in San Francisco is a big number. And so, I think we feel pretty good about that.

Haendel St. Juste -- Mizuho -- Analyst

Okay. And so it certainly sounds like over the next five years, there is an anticipation that redev and maybe some increased occupancy or rent increases could help cover the shortfall. But if not, you do have a right to force this control -- I am sorry, force the sale of the asset. Is that correct?

Terry Considine -- Chairman of the Board and Chief Executive Officer

I'm not sure I got the question. But the first part of it, yes, I'm completely comfortable that the natural operation of the rent control business will lead to increased cash flows, that will over time cover the cash requirements or the interest rate of the mezz loan, and as we -- but there is a second part of your question which I just didn't hear.

Haendel St. Juste -- Mizuho -- Analyst

Sorry about that. My understanding, and maybe correct me if I'm wrong, is that, if that were not to be the case, if there still is a shortfall by year five, you do have a mechanism by which you can potentially force the sale of the asset. Is that right?

John E. Bezzant -- Executive Vice President and Chief Investment Officer

Haendel, this is John. So there is not an explicit forced sale right in the loan agreement. There is obviously a foreclosure right in the loan agreement, if it doesn't get repaid in year five when it's due, then there is a lot of different consequences that will come into play.

Haendel St. Juste -- Mizuho -- Analyst

Okay, fair enough. Just one more quickly, is there anything on Brickell and perhaps you can update us on -- any updated thoughts or plans? I know you've been contemplating a range of options, but just curious if there is anything new to share on that front?

Wes Powell -- Executive Vice President, Redevelopment

Haendel, it's Wes. Thanks for the question. I'd say again, in terms of the operating asset there, it's continuing to track along, ahead of expectations, we feel good about that. And otherwise, nothing new to report, but we like the optionality and we'll update you, as something comes to me [Phonetic].

Haendel St. Juste -- Mizuho -- Analyst

All right. Thank you.

Operator

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

Hardik Goel -- Zelman & Associates -- Analyst

Hey guys, thanks for taking my question. Just on the prep, Paul, you just mentioned there some cost component that couldn't be deferred. But as I think about future, what's a good run rate, not just for 2020, but on your assumptions, it looks like this is going to be a slight increase in 2021 as well. What's the cadence of including those costs?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

So what we talked about Hardik that, the contribution to 2020 is -- AFFO is going to be $0.06 and that's net of the cost of funding. And so, looking forward, we continue to expect to be able to collect a 10% coupon on $275 million. There is a small amount of costs that were eligible to be deferred, and that will offset it slightly, but not to a massive extent.

Hardik Goel -- Zelman & Associates -- Analyst

Just for clarity, the 6% is not net, that's just the accretion from the -- considering the cost of funding, and then you have an additional cost that comes out of the $0.06?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

No, the $0.06 is all in benefit to 2020 numbers.

Hardik Goel -- Zelman & Associates -- Analyst

Okay, thank you.

Operator

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

Richard Anderson -- SMBC Nikko -- Analyst

Thanks, good morning. First, a quick modeling question. I see the same-store revenue -- top line revenue was about $4 million less in the fourth quarter than the third quarter. I understand you had some asset sales, but the same-store revenue sequentially was flat versus the third quarter. I'm curious as to why there is such a major drop in that line item from about $180 million to about $175.5 million in the fourth quarter?

Keith M. Kimmel -- Executive Vice President-Property Operations

Hey Rich, it's Keith. I'll start with the flat sequential, and then I'll turn it over to Paul to add the broader look. So when you look at our sequential revenue, while it was flat from Q3 to Q4, what's important to note, there is really two significant components in there. The first one being our net rental income, which is all of our occupancy, our rental rates and that particular piece actually grew by 1% quarter-over-quarter. That was offset by a number of lower transactions in transaction income from move-outs and move-in fees, application fees, things of that nature, we would describe that as good, bad news. We retain more residents and had less of that activity, did offset it, that flattened it out. But if you go to the core of the business, it actually grew 1%. Paul, what else would you add?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

That's exactly as I would articulate it, Keith, the one item that I would add, is that decline was expected and is consistent with what Keith has been talking about, kind of too modest to repeat here, and that it's really a function of our operating philosophy and the fact that we're getting customers who are staying with us longer, and who are less apt to create charges that are non-recurring and not necessarily good news, like late fees and damage costs.

Richard Anderson -- SMBC Nikko -- Analyst

Well, good job lowering revenue. Anyway, so a bigger picture question for Terry, and maybe drafting off of Haendel's question a little bit, maybe bigger picture. I'm sure you've heard it, the mezz deal and Brickell and even Indigo a few years ago or whenever it was, are somewhat complex in nature. Indigo has worked out for you, these two are TBD, and people thinking, while this is perhaps the Aimco [Indecipherable], complex stuff and all that sort of stuff. So I thought I'd give you the stage on this conference call, to see how you feel about that that response, and whether or not, is there a bigger pipeline of more complicated transactions ahead, or are these somewhat one-off and should not be viewed as sort of a return to a more complicated revenue stream that we'd recall back many years ago?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Rich. Thank you very much. I guess I'd like to start by hooking on to your insight that, congratulations on lower revenue. In fact that comes from simplification. And in fact, it comes from our focus not on top line or bad activity, but on contribution and margin. So I think that we are going to stay completely focused on cash and value creation and optionality, and I think that in a market that is as competitive as the current market, where there is lots of capital, lots of new supply, it's very important for us as a company to maintain that kind of focus, which -- to give Keith another pat on the back, has resulted in operating expenses excluding taxes being flat for more than a decade. So I'm not particularly worried about us getting off track. Those are just built into our culture and our discipline.

In looking at particular investments to arrive at those goals, we are going to be opportunistic. The amount of opportunity to buy fully marketed deals in a very competitive market is not particularly attractive. And so we will look for deals that have additional optionality, that will lead us to these same goals that we've been describing.

Richard Anderson -- SMBC Nikko -- Analyst

Okay. Fair enough. Thanks very much everyone.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. Today's next question comes from Drew Babin of Baird. Please go ahead.

Drew Babin -- Baird -- Analyst

Hey, good morning. My question on Parc Mosaic. Has that -- has it recently kind of -- at first occupancy, how is the rate achievement on that and kind of the pace of that going relative to your expectations? And I guess, has there been any change to the expected stabilized yield on that, or kind of your development pipeline as a whole, based on what you're seeing in the market?

Wes Powell -- Executive Vice President, Redevelopment

Dre, it's Wes. I'll take a first stab and then turn it over to Keith on some details on the lease up there. But we feel great about Parc Mosaic in Boulder, as you may know, it's a market that is continuing to add jobs at a rapid clip. And pricing has been better than expectation, and we feel that as we move into this year, it will be better yet. In terms of the yields on that, I think we've talked about a range between 5.5 and 6, but it's early days, and we're not quite sure where it's going to stabilize. But we feel very good about the spread of where that would trade today, may be a 4, or sub-4 cap rate market. But Keith, any additional color?

Keith M. Kimmel -- Executive Vice President-Property Operations

Drew, just share sort of the absorption and how it's being received in the market. We were now three buildings that have been delivered. We're approaching 60% pre-leased on those units, we are better than 50% occupied. To give you a context, we just got -- just started delivering on -- the fourth building will be coming soon, and the rates have been right on par, if not, a little bit better, and we're ready to get into peak season, where we think it will be our greatest strength.

Drew Babin -- Baird -- Analyst

Okay. Then I guess more generally, the rest of your development pipeline, the ground-up projects, where do those currently stand on kind of expected yield basis? Maybe give an update there?

Wes Powell -- Executive Vice President, Redevelopment

Drew. It's Wes again. Again on all of those that are in kind of early days, but the range there is generally going to be 150 to 200 plus basis points ahead, of whatever the cap rate in those markets is. So it's for us, looking at the factors of the submarket. So Fremont for example, which is I believe a mid 6 stabilization. But we think again based on early pricing, it could be better than that. The Leahy, which is in Redwood City, will be north of 5. But again, that's different markets. So I'd say overall, we feel very good about where pricing is coming in, where demand is coming in, and as those get past kind of a critical mass of lease-up, we will give you a better update.

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

And just, this is Paul. I was just going to add, from an overall perspective, we focus a lot on the expected free cash flow IRRs and for these projects, the returns are all between 9% and 11%.

Drew Babin -- Baird -- Analyst

Okay. I appreciate the color on that. And Paul, I've got here, just one question on the debt maturity schedule. I guess quite a bit of secured debt over the years has been pre-pay opportunistically, and given the rates available in the secured market right now, probably still makes sense. I guess, can you give some guidance on how much potential debt gets pulled forward to be paid down this year from out years, kind of what's assumed in guidance?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Yeah that's assumed in guidance is the expectation that we have about a $220 million of our 2021 maturities that can be repaid at par during 2020. So we have assumed that that debt will actually be repaid, and that's one of the factors that is lowering our leverage. But we also continue to have ongoing dialog every week with our lenders, and we look for other opportunities to maybe prepay other high-cost debt. If we can do so in a manner that is net cash positive to Aimco. So if our interest savings between the time of the debt is prepaid, with a prepayment penalty, and the date at which that debt can be paid off at par, that's a net positive NPV. We will undertake additional refinancing.

Drew Babin -- Baird -- Analyst

Okay. So to be clear, guidance just implies that $220 million, nothing else. Anything else would be opportunistic?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Correct.

Richard Anderson -- SMBC Nikko -- Analyst

All right, that's all from me. Thank you.

Operator

And our next question today comes from John Pawlowski of Green Street Advisors. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Keith, could you share what you're budgeting for LA Metro revenue growth in 2020?

Keith M. Kimmel -- Executive Vice President-Property Operations

Hi John, thanks for the question. We don't -- wouldn't give you the exact number, but that falls into our 2.5% to 3.5% range and we -- that we believe will fall in there.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Maybe a bit more color in that market. I know supply is getting all the headlines right now. But what are you seeing on the demand side, foot traffic and then, what's the concessionary activity in the market? It seems to be slowing pretty rapidly in your sequential numbers, so just curious what you're seeing in the early innings of 2020?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

So John, let me just -- I'll walk you through it. First our LA release broken into two pieces. So we have our Ventura portfolio, Simi Valley, and then of course our Mid-Wilshire in West LA. Not much supply or concern that really comes out of the Ventura piece. As we think about the Mid-Wilshire, we saw occupancy built through the fourth quarter and into January. So just as an example, we started in October at 96.7% and finished January at 97.1%, and so we believe that it's actually we're seeing good demand. There is plenty of sufficient demand to meet our needs and the fundamentals for us have been typically been pretty good.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. And then last one from me, Terry just wondering your thoughts on obviously the balance sheet, how it's structured, there will never be huge financial distress to Aimco. But you would be an outlier versus your peers, in terms of being able to play offense in the next downturn, if we ever get one. So curious how you're going to de-risk the company a little bit, so you're not as much of a laggard, because you know, the Eds and Meds in the diversified portfolio resonate, but some steps like buying an office building in Miami, a mezz loan in the Bay Area that's not fully covered, those seem to go against the safe low beta profile, that does resonate well with Aimco. So are there any steps in terms of geography or balance sheet that you're going to take over the next few years, to derisk the company a bit more?

Terry Considine -- Chairman of the Board and Chief Executive Officer

John. Thank you. That's a -- that's not only a big questions, that's several big question. So I'll try to be responsive, but if I miss one, please, please remind me.

On the question of the leverage; let me just say, I feel very comfortable with our leverage today. I feel very comfortable with our goal, which is expressed in published guidance to bring it down by a turn by this time next year, and I feel very good in the point -- about the point he made, which is just the delivery of these additional units that are in the pipeline, brings it down another turn. So as the natural operation of the business will bring it down to a number in the middle, low-fives, which I have no idea where their peers will be at that time, that's a little bit of a moving target. But I think in terms of running the business, not to be comparable to peers, but to be safe and derisk it, I feel good about that. Particularly, of course, with our longer dated and non-recourse leverage.

The second part of that is, remind me what the second part was? In terms of -- low-beta. I don't know that we would say that our target is low beta. I think there is elements of our business that are quite low beta.And there are elements that have great opportunity for value adds. And I would think that in general. what -- as I think Wes said in his remarks, we look for ones where you get both, that you have the opportunity for deals you don't lose, which is low beta. But you have some extra opportunity, or potential that leads to -- hedge you win. And I don't think there's anything high beta about 1001 Brickell, which is a very stable asset in a very stable market, with good demand and so forth.

But it has the extra factors that it could turn out to be worth a multiple in terms of land value as opposed to that low beta asset. And so I I would communicate to our shareholders, that we think their expected returns are quite secure, and yet we also think there is an opportunity for something better to happen.

John Pawlowski -- Green Street Advisors -- Analyst

All right. Thank you.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Thanks.

Operator

And ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the conference back over to Terry Considine for any final remarks.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Rocco, thank you very much and thank you my friends for your interest in Aimco. If you have further questions, please do call. Many of us will be together in just about a month at Flamingo and on Brickell to look first hand at whether these are safe and low beta or or not. I think you'll be delighted by what you see. And of course, many of us will be together at the Citi Conference in the following week. And so we want to be transparent, keep you posted in what we're doing, and we look forward to being together. Have a great weekend.

Operator

[Operator Closing Remarks].

Duration: 46 minutes

Call participants:

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

Terry Considine -- Chairman of the Board and Chief Executive Officer

Keith M. Kimmel -- Executive Vice President-Property Operations

Wes Powell -- Executive Vice President, Redevelopment

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

John E. Bezzant -- Executive Vice President and Chief Investment Officer

Nick Joseph -- Citigroup -- Analyst

Shirley Wu -- Bank of America -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Rob Stevenson -- Janney -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Hardik Goel -- Zelman & Associates -- Analyst

Richard Anderson -- SMBC Nikko -- Analyst

Drew Babin -- Baird -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

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