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Good day, and welcome to the Aimco Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. Please note, today's event is being recorded.I would now like to turn the conference over to Lisa Cohn, Executive Vice President and General Counsel. 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 2019 and 2020 expectations. These statements are subject to certain risks and uncertainties, a description of which can we found in our SEC filings. Actual results may differ materially from what may we 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 Amico's website.Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President, in charge of Property Operations; Wes Powell, Executive Vice President, in charge of Redevelopment; and Paul Beldin, our CFO. John Bezzant, our Chief Investment Officer, is present and will be available during our question-and-answer session, which will follow our prepared remarks.I will now turn the call to Terry Considine. Terry?

Thank you, Lisa, and good morning to all of you on this call. Thank you for your interest in Aimco. Two or three headlines. First, Paul raises guidance again. The explanation is another great quarter of property operations. In a few minutes, Keith will have more tell you. Second, Patty and Paul capitalize on current interest rates to lower the cost of Aimco leverage. Paul expects the work of the past few quarters to save more than $20 million annually.And third, John, Wes and Lisa continue to reallocate to reallocate Aimco capital, to value-add -- value-creating opportunities in higher-growth submarkets. Without stealing Wes' thunder, I am enthusiastic about our increased investment in Florida, in general, and in Miami, in particular. As most of you know, Florida is the third most popular state after California and Texas. Florida is 10% more populous than New York, and about equal to Pennsylvania and Illinois, added together. Its mild weather and cosmopolitan culture attract people from the Northeast and from around the world. An important part of its economic appeal is effective government with good education, modern infrastructure and low taxes. And did I mention, no state income tax.Miami, the largest of Florida's metropolitan areas is the leader among Atlantic seaboard cities, including such sunbelt darlings as Nashville, for the rate at which real GDP per capita has increased going back to 2013. And our locations include the best neighborhoods in all of Miami-Dade County. And other but related news Aimco was named by Bay Area News Group, a top workplace in the Bay Area, adding to our frequent recognitions including designation by the Denver Post as a top workplace in Colorado for the past 7 years.I offer sincere thanks to the entire Aimco team. You are the bedrock foundation of Aimco's success. If any of you on this call are interested to learn more about what makes Aimco special, please ask any Aimco teammate or read our corporate responsibility report available on our website.Now for a more detailed report on the second quarter, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?

Thanks, Terry. As mentioned in our first headline, we had a strong second quarter in operations. The outlook for the balance of the year is also positive. We've continued to improve our occupancy while increasing rental rates. This starts with consistently high customer satisfaction and the relentless focus on customer selection. Our second quarter trailing 12-month turnover was 45.4%, marking a sixth consecutive quarter under 46%. As a result, second quarter average daily occupancy was 96.9%, 60 basis points better than the second quarter of 2018. Our strong occupancy translated to solid top line growth, with revenues up 3.8% for the quarter. Our top markets with growth over 4% were Washington, D.C., Boston, the Bay Area, Philadelphia and Seattle. We had solid performances of growth over 2.5% in Los Angeles, San Diego, Denver, Chicago and Miami. Finally, markets with growth over 1% are New York and Atlanta, which make up less than 4% of our same-store revenue.Expenses in the second quarter grew 1.8%. We continued to drive innovation and productivity, resulting in lower personnel, marketing and administrative costs. This was offset by higher property taxes as well as increased maintenance expense as we continued to invest in our communities. As a result, net operating income grew 4.6% and margins expanded to 73.3%, 50 basis points better than last year.Looking at leases which transacted in the quarter. New lease rates were up 2%, renewal rates were up 5% and same-store blended lease rates were up 3.6%. Our strongest new lease rate growth was in Philadelphia, Boston and Seattle, with the most pressure on new lease rates in Chicago and New York.Finally, as we look at our preliminary July results, we see a good start to the third quarter and an acceleration of our momentum. Blended lease rates are up 3.9%, with new lease rates up 2.6% and renewals up 4.8%, all while achieving average daily occupancy of 96.6%, some 50 basis points better than 2018. And with great thanks to our teams in the field and here in Denver for your commitment to Aimco's success, I'll turn the call Wes Powell, our Executive Vice President of Redevelopment. Wes?

Thank you, Keith. Today, I will provide highlights on our second headline. Aimco continues to reallocate capital to value-creating opportunities in higher-growth submarkets. During the second quarter, we invested a total of $52 million in redevelopment and development across our portfolio. At Parc Mosaic in Boulder, a very wet winter and spring season slowed our pace of construction and led to higher costs. We now expect our total investment in Parc Mosaic to be $123 million. Our initial move-ins occurred yesterday, and demand has been strong. 80% of our first building was pre-leased at rents above underwriting prior to its delivery. We expect the higher rents to offset the higher costs, leaving our expected returns unchanged.Construction at our other ground-up projects in Elmhurst, Illinois and on the Anschutz Medical Campus in Aurora remain on time and on budget.Turning to new business. Aimco began the next phase of redevelopment at Flamingo Point in Miami Beach, where we are completely renovating this waterfront community. As we previously announced, our first phase includes major improvements to the site and ground-level retail. These enhancements will be complete later this year. In the newly announced phase, we will fully reposition the property's North Tower, saving only its concrete structure and creating all-new floor plans, which highlight the spectacular views of Biscayne Bay. In addition, we will renovate apartment homes within Flamingo Point's Center Tower on the turn and only as demand warrants. Upon completion of the amenities, common areas, retail and apartments in the North and Center Towers, Aimco will have invested $280 million, generating a free cash flow IRR of approximately 10% on its incremental investment.On the acquisition's front. Aimco purchased for $157 million in an off-market transaction, a 95% interest in a nearly 2-acre waterfront property located in Brickell and directly adjacent to our Yacht Club community. The property 1001 Brickell Bay Drive contains a 30-story office tower, with approximately 350,000 square feet of rentable space, which is currently 86% occupied.Our investment thesis is simple. Given the scarcity of waterfront land in Brickell, the substantial increase in densities that is allowed by code and the efficiencies gained through assemblage with our neighboring property there exists the potential to unlock considerable value through a large-scale redevelopment of the combined sites.With no definitive plans to report today, we remain open to all possibilities to maximize value, including the potential of a joint venture partner. In the meantime, we intend to operate 1001 Brickell Bay Drive based on its existing use, generating a free cash flow IRR in the mid-8 percentage range, approximately 250 basis points higher than the returns expected from the apartment communities being sold to fund the acquisition. We expect this investment to be accretive to earnings in 2019, with an initial NOI yield in the mid- to upper 5s, growing as we increase occupancy to the submarket average.Also during the quarter, Aimco purchased an apartment building that is currently under construction in Cambridge and located directly across the street from our Axiom community. We expect our $70 million investment in this 136-unit property to generate a free cash flow IRR north of 9% and NOI yields near 6% at stabilization. Construction is scheduled to be complete approximately 1 year from now.Coupled with our Axiom and Vivo communities, which are located within a 2-block radius, Aimco will have $200 million invested in the heart of the thriving Kendall Square submarket.Finally, during the quarter, Aimco sold one property for $79 million in suburban Chicago, in keeping with our paired trade strategy whereby we recycle capital to value-creating opportunities in higher-growth submarkets. Additional sales are expected before year-end or in the first half of next year to complete the leverage-neutral paired trades plan to fund the acquisitions and redev spending I've just described.And with thanks to all of my teammates for their continued hard work and pursuit of value-creating opportunities, both inside and outside of our portfolio, I would like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Thanks, Wes. Our third headline is: Aimco capitalizes on current interest rates to lower its cost of leverage. Aimco leverage is primarily safe property debt, that is low-cost, long-dated amortizing and nonrecourse. We are not market timers. Yesterday reconfirms that interest rates are predictable. We're focused on regular repricing of our leverage when we can and do so at lower rates. In May, Aimco redeemed its Class A professional preferreds, retiring a $125 million at a 6.875% rate.In June, Aimco rate-locked $587 million of new fixed-rate property debt at a weighted average interest rate of 3.37%, a weighted average spread to the applicable benchmark treasury rates of 129 basis points and a weighted average term to maturity of 11.5 years. $284 million of these loans closed in July and the balance is expected to close in August. We're paying all bank borrowings so that Aimco's $800 million line of credit is undrawn and available, and with a pool of unencumbered properties valued at more than $2.3 billion.The new property loans extend the average duration of Amico's debt by more than 1/2 year and reduce our weighted average cost of leverage by 10 basis points. When combined with the refinance activity completed in the fourth quarter of 2018, Aimco has reduced annual average leverage costs by approximately $20 million.Now turning to our financial results for the quarter and guidance. Second quarter AFFO per share of $0.51 and pro forma FFO per share of $0.60 were both $0.01 ahead of the midpoint of our guidance ranges due to strong performance at our same-store properties.Based on these results and our expectations for the remainder of the year, we are raising guidance. Same-store guidance is raised for a second time this year at the midpoint and compared to our beginning of year guidance we have, improved our revenue growth rate by 40 basis points to 3.7%, improved our expense growth rate by 20 basis points to 2.3%, improved our NOI growth by 60 basis points to 4.2%. And as a result, we've increased our pro forma FFO and AFFO per share expectations by $0.02 at the midpoint.I remind you, it was 1 year ago when Aimco sold its Asset Management business, accepting near-term earnings dilution as the price of a longer-term increased growth rate. In the first half of 2019, Aimco overcame the dilution, posting pro forma FFO per share of $1.21, up $0.01 from last year. Third quarter will be the last quarter when current results are compared to a bottom line inflated by contribution from the now-sold Asset Management business.Fourth quarter results will be the first where the increasing profitability of apartment operations will be apparent in year-over-year comparisons of the bottom line. Using the midpoint of our implied fourth quarter pro forma FFO guidance, we expect year-over-year growth to accelerate to approximately 5%. Finally, Aimco's Board of Directors declared a quarterly cash dividend of $0.39 per share for the quarter ended June 30, 2019, up 3% over the quarterly dividend paid in 2018.With that, we will now open up the call for questions. [Operator Instructions].Rocco, I'll turn it over to you for the first question.

[Operator Instructions]. Today's first question comes from Nick Joseph of Citi.

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

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

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

You bet, Nick. You're right that our thoughts on leverage are unchanged. As a reminder, we keep leverage-to-EBITDA ratio to be below 7x. And really, we're also seeking total leverage to be about $3.8 billion. As you point out, we are above these levels currently and do have a plan and anticipation to get back to those levels by year-end. And what we -- what drove the increased leverage now was we just wanted to take advantage of the ability to lock in low interest rates. But when we complete our paired trades that Lisa and team are working on in the remainder of the year, we'll be back at those leverage targets.

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

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

John, it's Wes. I'll take that one. And the answer is, yes, we are considering lease duration as we lease that building up in primarily shorter-term leases, 4-year durations, but also including provisions and clauses that would allow us access to the building if and one redevelopment materialized. And I'd say that the existing in-place leases have an average duration of well less than 5 years.

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

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

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

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

Just the entire redevelopment actually.

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

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

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

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

John?

Okay. I guess one for Wes. I appreciate the comments on Parc Mosaic. So that development saw a 5% increase in investment, but the return profile is essentially unchanged. So I guess 2-part question here. I think you previously mentioned a 5.5% to 6% stabilized yield. So does the unchanged expectation mean you're expecting the low end, the midpoint or high end of that? And second part of that, has strength in rate growth had any effect on how you're underwriting other developments?

Take those in turn. On the yields, I would say, your range is correct, but it's very early days. We've experienced strong demand, rents are, let's say, a good amount above our original underwriting. And as we lease up the building through the remainder of the year, we'll let you know where we land. But that's still the range we're targeting. And then the second question was on other developments and the rent growth or can you repeat that one for me?

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

It is not. No.

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

Trent, thanks for the question. You're correct, there was a slight increase in -- I would tell you we're always trying to be better. With that being said, the 45% that we had is consistent with our plan and most importantly was peer-leading as we look at it across the board. Turnover is really just one of many levers that we use as we solve to total revenue the [indiscernible] way to the expense and, of course, bottom line. We -- this was our sixth consecutive quarter at sub-46, and we think that we'll continue to see numbers like that and we will look to be better each quarter as we go forward.

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

So my first question has to do with renewal. So it would seem as if June and July have decelerated from a high of 5.3% in May. So I was just curious as to how you're approaching that lever versus occupancy? And how you see that playing out in the rest of pre-leasing season?

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

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

Yes, Shirley. This is John. This development is very similar, in fact, exact same fracture to our Vivo building that we bought a few years ago there. You may be -- your name is new anyway to me to the coverage universe. But we bought a building there from Alexandria Real Estate Equities that they completed for us. We're repeating that process again, as Wes indicated, hiring 36 units across the street from existing building. The building is under construction. It gets steel up to the second floor, and we will pay the remaining cost through the completion of construction.

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

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

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

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

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

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

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

Yes. Austin, just to add a commercial for Keith here. In year-to-date, our controllable operating expenses are down 20 basis points. And because of these investments that Keith mentioned, we think we'll probably be closer to 5% or maybe slightly positive.

That's helpful. No. You certainly have done a nice on the controllable side. Can you give us a sense of how large the tech investment is?

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

Just one more. Is it a onetime expense? Or is this going to be a recurring spend that we should expect kind of on a go-forward basis?

No, there's a -- Austin, there's a software element of it, that is capitalized and amortized over its expected life. So it's a mixture of both. But it's not a big movement. So it's in that.

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

And our next question today comes from Hardik Goel of

I wanted to take the conversion maybe in a little different direction and just bigger picture. If you look at your portfolio where it is today and your market exposure, I know it's inside the greater LA and it's all over Los Angeles and it's not really in one submarket, but are you comfortable with where it is today? Where would you want it to be five years from now? And just your thoughts around your exposure.

It's Terry. I like our exposure today. We have a wonderful portfolio. And 5 years from now, I hope it will be better.

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

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

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

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

Rich, it's Keith. Thanks for the question. Listen, Philly, it started off strong. We have had a strong first half of the year. It's been tracking on our plan. I would just point out that our first quarter average daily occupancy was 97% in the first half, and it's 97.5% year-to-date. We continue to feel like Philly is a really special place and most importantly that our assets are very special and their locations. I'd also just point out, Park Towne Place, as we move past or lease-up, continues to show great strength and being really well received in the marketplace. And, of course, it will lend itself to why we've made the other decisions we've made to having more there.

Yes. I didn't even mean that pun about Philly hero. I just realized it.

Sure.

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

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

I think you should call it The Terry. I'm just saying in that sense.

I'd rather be called the Philadelphia hero.

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

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

Buck, it's Terry. And there are some glances exchanged around the table because we have so little exposure to rent control in New York City, that we weren't 100% sure who should answer it. I think we have single digit, roughly 10 or 11 rent-controlled units. We have maybe 100 and change, 140 or so that a rent stabilized. That total investment is not very large. And in fact, if those buildings were torn down, which we can tear down, then the land values are greater than our carrying value for GAV. So we have a very limited exposure because we've always been cautious about that rent control market.That said, so going forward, there's not a lot of impact on Keith's operations beyond what those few I just said. And there's opportunity for Wes, who is in the teardown business as, for example, at 88th Street to look at particular sites and redevelop them in a market where there may be somewhat lesser competition because of the thoughtless regulation and legislation.

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

I do, but I'm also anxious too. So I mean it's comfortable maybe too strong. California is a wonderful market in terms of demand, in terms of consumer incomes, in terms of the properties we own and their locations. And so we like that exposure. It is possible that they will pass some rent control legislation that would be hurtful. We don't know that yet. It seems to me, and this is just as a outsider watching the legislative process, more likely that they pass something that will -- that they can say addresses rent concerns and has, perhaps, for, example one proposal that rent cannot be raised more than CPI plus 700 basis points. And then only -- that legislation lasts for only 2 or 3 years. So from my point of view that's a fig leaf. But it could be worse, it could be not at all. We'll just have to wait and see.

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

So a question for you Terry, I guess. First, you've had sector-leading organic growth here the last couple of years, which hasn't necessarily translated into earnings growth. Some of that is dragged from asset sales, sale of the Asset Management business. And I think I heard Paul mentioned a 5% earnings growth target post the sale of this business. So I guess -- I'm wondering if -- should we be expecting Aimco to be closer to the upper end of the group, the peer group going forward? Or is there anything else that we're maybe not appreciating that could be a drag on the earnings growth going forward?

Haendel, thank you very much. I think that's a very good question. The biggest impact on FFO growth in the last 12 months is, of course, the sale of the Asset Management business. And what that sale illustrates is our focus on net asset value creation, even if it results in short-term earnings dilution. Over time, those 2 metrics are to drive together, but we think net asset value is a measure that we use because it allows us to anticipate the effect of spending decisions we make today. And so, for example, during this second quarter, we will have emptied 707 Leahy in Redwood City, California. And we have emptied the North Tower in Miami beach. And so that'll show up in FFO as a negative -- as negative events. In fact, we see them as investments, as an opportunity to empty those buildings, so that they could be renovated on basis where we tend to get 10 -- double-digit free cash flow IRRs, but have short-term earnings dilution. And so, again, over time, those metrics should rise together. But we would expect FFO to lag that because it -- it's the outcome of those value-creation activities.

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

Haendel, no. I think it has been long-running. But I think we may just be beginning another cycle because what we're focusing on is not just the submarkets, but the opportunities for above-average gain. If you think about it, the difference in buying a stabilized asset in Redwood City would have an expected return today of probably under 6% and probably a NOI cap rate of -- with 3%, Haendel. And so -- but if we do a redevelopment, such as our 707 Leahy, we expect to have internal -- unlevered internal rates of return of double digits. So we're looking at not just at the submarket, but at the opportunity to earn above-average returns in those submarkets.

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

Yes. Last year, there were 3.8%, and this year they're 3.9%.

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

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

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

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

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