September 2008
History of Apartment Investment & Management Company (“Aimco”) <ul><li>Initial Public Offering in 1994 with $315 million g...
Background & Context – How Aimco Creates Value   <ul><li>Aimco Value Drivers </li></ul><ul><li>Customer-Centric </li></ul>...
Portfolio Overview Aimco owns a high quality portfolio that is well diversified by price point. Conventional Portfolio by ...
AIMCO Operations Philosophy <ul><li>The apartment management industry has been undergoing a transformation from a cottage ...
Aimco’s Conventional Strategy Roadmap Revenue Expense, Capital & Service Mgt Style/Design & Community Building  Customer I...
The Market Description - 2004 2007 data indicates 30-40% of market
A Fragmented Market – the Aimco Target Bullseye <ul><li>The market is fragmented and AIMCO operates in a fraction of the m...
Consumer Housing Choices The  components of strategy must  enhance   positives , while mitigating  negatives as much as po...
The Market Value Equation-2007 CUSTOMER PRIORITIES Rational Drivers Emotional Drivers Service Security Location Respect/Pr...
The Market Value Equation   Consumers Priorities are Rational Drivers + Emotional Drivers  <ul><li>Respect/Pride & Care </...
To a Segmented Approach <ul><ul><li>After spending several years driving consistency across properties, we are now moving ...
Improvement to Resident Quality <ul><li>Aimco’s first step to improve operations began with improving resident quality. </...
Operational Excellence <ul><li>Aimco continues to build its platform </li></ul><ul><li>Processes and Standards </li></ul><...
How Customers Search   <ul><li>Our research validated a need for a differentiated web experience, which drove our investme...
Efficiencies from Scalability <ul><li>Transformation of communities from mini-transaction processing centers to a focus on...
Utilization of Technological Systems <ul><li>PROFIT Revenue Management System is a heavily data-driven tool used to accura...
Highest Emphasis Placed on Customer Experience <ul><li>We involve our residents in improving the customer experience throu...
The Team Member Experience – Extending the Operating Platform <ul><li>Team Member Engagement- Reduced turnover by 8%  </li...
Employees are at the Heart of Quality Customer Service <ul><li>“ Hire for attitude, train for skill”  </li></ul><ul><ul><l...
Customer Service Improved Through Training Model <ul><li>In-house customer service training is integrated with training fr...
Team Member Experience- CM Training Results   (at 120 days post hire vs. prior year)   Measure Rating Comments  1 Sales Ef...
Results of the Operating Improvements Aimco versus REIS Occupancy & Rent Source: REIS. Used with permission from Reis.com ...
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Adler Fall 2008 Operations Presentation Revised

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Overview of Jeff Adler's Leadership of AIMCO Operating Strategy

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Adler Fall 2008 Operations Presentation Revised

  1. 1. September 2008
  2. 2. History of Apartment Investment & Management Company (“Aimco”) <ul><li>Initial Public Offering in 1994 with $315 million gross asset value </li></ul><ul><li>Rapid growth followed by an integration period. </li></ul><ul><ul><li>Doubled in size every 18 months from 1994 – 2002 through several large portfolio acquisitions. </li></ul></ul><ul><ul><li>Rationalized portfolio and operations, selling more than 350 properties worth over $4.5 billion from 2001 – 2006 and substantially exiting the third-party property management business. </li></ul></ul><ul><li>Built operating infrastructure to take advantage of scale and support growth. </li></ul><ul><li>Operating platform stabilized by 2006, positioning Aimco for growth. </li></ul>Gross Book Value of Real Estate Number of Aimco Employees
  3. 3. Background & Context – How Aimco Creates Value <ul><li>Aimco Value Drivers </li></ul><ul><li>Customer-Centric </li></ul><ul><li>Property Operations </li></ul><ul><li>Redevelopment/ Entitlements </li></ul><ul><li>Tax Credit Transactions </li></ul><ul><li>Finance Strategy </li></ul><ul><li>Joint Ventures </li></ul><ul><ul><li>Our primary focus is creating value through the management and redevelopment of high land value assets in good locations. This implies serving customers w/different value propositions. </li></ul></ul>Customer Segment 1 Customer Segment 3 Customer Segment 2 Customer Segment 1 Customer Segment 2 Customer Segment 3 Market Selection Operational Excellence Capitalization Strategy Measuring Success - NAV Sell at Gain Redevelopment, Entitlement and Tax Credits Lease Up Acquire High Land Value Assets Operate and Incubate
  4. 4. Portfolio Overview Aimco owns a high quality portfolio that is well diversified by price point. Conventional Portfolio by Property Class as % of NAV Aimco Property Rent v. Market (4Q 2006) ‘ A’ Property: Average rent greater than 125% of REIS market average ‘ B’ Property: Average rent between 90-125% of REIS market average ‘ C’ Property: Average rent less than 90% of REIS market average Source: Market Rents provided by REIS, 2006. Used with permission from Reis.com
  5. 5. AIMCO Operations Philosophy <ul><li>The apartment management industry has been undergoing a transformation from a cottage industry to a scale driven, professional business system that is customer-centric, driven by rising customer expectations. </li></ul><ul><li>Aimco Operations is at the forefront of this transformation and is led by a team that is grounded in other geographically distributed consumer businesses. </li></ul><ul><li>Aimco has refocused its Operational Philosophy into five major Components: </li></ul><ul><ul><li>Customer Driven - based on a solid foundation of consumer research, we focus on the entire customer experience, measure it, and seek to differentiate ourselves beyond the physical quality of the property, in order to achieve a relative price premium. </li></ul></ul><ul><ul><li>Forward Looking & Data Driven - we measure, in detail, to manage our four pipelines 1) revenue, 2) expense, 3) people, and 4) capital spend. </li></ul></ul><ul><ul><li>Scale Driven - we seek to leverage our size into scale driven advantages, and to transform site operations from mini transaction processing centers to places of personalized experiences. </li></ul></ul><ul><ul><li>People Driven - selection, hiring, on-boarding, training, development, performance management, and succession planning is itself a set of processes that are developed, measured, and managed. </li></ul></ul><ul><ul><li>Product Driven - curb appeal, unit turn quality standards, capital investment, financial management, construction services, and the redevelopment process are all areas that receive intense focus to ensure that we are competitive on the basis of product quality and amenities. </li></ul></ul>
  6. 6. Aimco’s Conventional Strategy Roadmap Revenue Expense, Capital & Service Mgt Style/Design & Community Building Customer Information as Competitive Advantage <ul><li>Turn Production </li></ul><ul><li>Vendor/Expense Management </li></ul><ul><li>Customer Service Measurement </li></ul><ul><li>Product Lines (Student) </li></ul><ul><li>Revenue growth through customer experience, style and product differentiation </li></ul><ul><li>Increasing emphasis on Team-member processes and systems </li></ul><ul><li>Web Enablement </li></ul><ul><li>Ramp up of Redevelopment & Capital Programs </li></ul><ul><li>Disney Training – Customer Experience </li></ul>2004/5 2006/7 2007/8 2008/9 <ul><li>Resident quality </li></ul><ul><li>Mtkg and Media </li></ul><ul><li>Customer Response (phone and email) </li></ul><ul><li>Sales (New & Renewal) </li></ul><ul><li>Revenue Management </li></ul><ul><li>Continue migration of admin tasks offsite </li></ul><ul><li>Refinement of emotion-based customer segments </li></ul><ul><ul><li>On-Site experience </li></ul></ul><ul><ul><li>Media </li></ul></ul><ul><ul><li>Property Websites </li></ul></ul><ul><ul><li>Call Center </li></ul></ul><ul><ul><li>Revenue Mgmt </li></ul></ul><ul><ul><li>Customer Underwriting </li></ul></ul><ul><ul><li>Retention </li></ul></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Services </li></ul></ul><ul><ul><li>Capital Invest </li></ul></ul>Resident Quality is the Moral Imperative- Selection of Neighbors is the Unique function of a management company
  7. 7. The Market Description - 2004 2007 data indicates 30-40% of market
  8. 8. A Fragmented Market – the Aimco Target Bullseye <ul><li>The market is fragmented and AIMCO operates in a fraction of the market . </li></ul>Tapestry Segments % Who Rent: Rentals (Fragmented Market) AIMCO Target Global Roots = 60-80% Solo Acts = 60-70% Upscale Avenues = 30-60% <ul><li>We occupy only 1-2% of the “management company” rental market </li></ul><ul><ul><li>300 million people In the US </li></ul></ul><ul><ul><li>100 million US households </li></ul></ul><ul><ul><li>30 million rental units, (including condos, flats, individual LL etc.) </li></ul></ul><ul><ul><li>30-40% are professional management =9-12 million </li></ul></ul><ul><ul><li>Aimco with 125,000 current units = <1% </li></ul></ul>30-40% of available market House Townhome Condo - Management Company Condo- Landlord Sublet 2-3 Flat Apartment Building with Professional Management Company
  9. 9. Consumer Housing Choices The components of strategy must enhance positives , while mitigating negatives as much as possible 30-40% of available market 60-70% of available market “ Perception” of uniqueness and personalization Professional Management Company Landlord Ownership Positive <ul><li>Consistent standards & security </li></ul><ul><li>Access to “whole team of people” 24/7 </li></ul><ul><li>Fast/responsive (know building and have the appropriate resources) </li></ul><ul><li>Public company (meets public scrutiny) </li></ul><ul><li>Can escalate issues if necessary </li></ul><ul><li>Can negotiate cost/rent </li></ul><ul><li>Landlord takes extra/personal care (updates) </li></ul><ul><li>Inside has character </li></ul><ul><li>Deal with one person </li></ul><ul><li>Landlord knows/chooses me </li></ul><ul><li>Equity </li></ul><ul><li>Chose neighbors (more scrutiny) </li></ul><ul><li>Free to personalize to taste </li></ul><ul><li>Take pride in my space </li></ul>Negative <ul><li>“ Cookie cutter.” No character/ personalization </li></ul><ul><li>Profit oriented </li></ul><ul><li>Risk of many neighbors </li></ul><ul><li>Can I be myself? </li></ul><ul><li>Landlord is too close for comfort, would rather complain to larger company </li></ul><ul><li>Landlord can be greedy </li></ul><ul><li>Less consistent maintenance (polarized- they are either on top of you or take a long time) </li></ul><ul><li>Economic/market fluctuation </li></ul><ul><li>Maintenance/incidentals can be a headache and costly </li></ul><ul><li>Risk of community issues </li></ul><ul><li>Escalating Property Taxes </li></ul>
  10. 10. The Market Value Equation-2007 CUSTOMER PRIORITIES Rational Drivers Emotional Drivers Service Security Location Respect/Pride & Care Price Friendly Community/ Value System Amenities Updates
  11. 11. The Market Value Equation Consumers Priorities are Rational Drivers + Emotional Drivers <ul><li>Respect/Pride & Care </li></ul><ul><li>Dimensions </li></ul><ul><ul><li>Pride in work </li></ul></ul><ul><ul><ul><li>Staff enjoys job, they WANT to help me </li></ul></ul></ul><ul><ul><li>Appreciation/humility </li></ul></ul><ul><ul><ul><li>You are our responsibility/pride, Residents are #1 priority over prospects….”how can we help you?” </li></ul></ul></ul><ul><ul><li>2 way communication </li></ul></ul><ul><ul><ul><li>No surprises, makes me feel valued </li></ul></ul></ul><ul><ul><ul><li>Reach out and ask/listen to needs </li></ul></ul></ul><ul><ul><li>Empathy </li></ul></ul><ul><ul><li>Visible touch-point (family, connection, feels like home) </li></ul></ul><ul><ul><li>Consistency (change is very disruptive) </li></ul></ul><ul><li>Friendly Community/Value System </li></ul><ul><li>Friendly neighbors </li></ul><ul><ul><li>Not friends, but friendly. “A smile goes a long way” </li></ul></ul><ul><li>Shared Values/Community value system (among both residents and staff) </li></ul><ul><li>Updates </li></ul><ul><li>FUNCTIONAL aspect of Updates for Residents: “Justifies rent increases” </li></ul><ul><li>EMOTIONAL aspect of Updates for Residents: “Shows me you care as much as I do, and you care about me, feels like a hug, and keep me updated with the latest styles/trends” </li></ul>Emotional Drivers <ul><li>Location </li></ul><ul><li>Suburban </li></ul><ul><ul><li>Green/nature/parks, close to malls/shops/restaurants </li></ul></ul><ul><ul><li>Interstate highways, public transportation (commuting = currency) </li></ul></ul><ul><ul><li>Schools </li></ul></ul><ul><li>Urban </li></ul><ul><ul><li>Schools </li></ul></ul><ul><ul><li>Walk to public transportation </li></ul></ul><ul><ul><li>Convenience stores/restaurants </li></ul></ul><ul><li>Metro </li></ul><ul><ul><li>Walk to public transportation, walk to convenience stores, restaurants, culture/events </li></ul></ul><ul><li>Price </li></ul><ul><li>Washer/dryer (#1) </li></ul><ul><li>Big closets/storage </li></ul><ul><li>Wood floors </li></ul><ul><li>Kitchen/living area open floor plan </li></ul><ul><li>Price Range </li></ul><ul><li>View/ceiling to floor windows </li></ul><ul><li>Amenities </li></ul><ul><li>Gym (24/7) </li></ul><ul><li>“ At my convenience” and “On my own time” </li></ul><ul><li>Amenity value beyond Gym alone (pool, enclosed community center) </li></ul>Rational Drivers Fear/Risk: Consumers have fear/risk about Service and Security, these 2 drivers are the cost of entry (visual proof of guarantee needed) <ul><li>Service </li></ul><ul><li>Clean/spotless with cues - Fast/responsive (24 hrs), Fixed the first time </li></ul><ul><li>(lobby/main entrance, carpet/floors/paint) - Reliable/dependable (know maintenance staff </li></ul><ul><li> by name) </li></ul><ul><li>Security </li></ul><ul><li>Window locks, buzz in doors, gate/lighting, guard - Security you can see </li></ul><ul><li>Neighborhood - “People around and watching over me” </li></ul><ul><li>- Screening (background checks/high rent weeds out) </li></ul>Emotion: Pride & Care
  12. 12. To a Segmented Approach <ul><ul><li>After spending several years driving consistency across properties, we are now moving to the next level through a segmentation approach that is emotionally driven </li></ul></ul><ul><ul><li>Emphasis is shifting from a Customer Acquisition (outside-in) to Customer Experience (inside-out) business model to drive profitability </li></ul></ul><ul><ul><li>Ripple effect of this “experiential” approach touches performance metrics, on-site team tasks, services offered, team selection and training, marketing/media, contact center, customer underwriting, revenue management, and capital investment decisions </li></ul></ul>
  13. 13. Improvement to Resident Quality <ul><li>Aimco’s first step to improve operations began with improving resident quality. </li></ul><ul><ul><li>Neighbors are an essential ingredient to successful communities. </li></ul></ul><ul><ul><li>Employ an unyielding system relying on financial stability to judge resident quality. </li></ul></ul>Aimco Average Physical Occupancy Results from Improving Resident Quality 2003 Current Annualized Skip/Eviction % 9-10% 6-7% Accounts Receivable > 12.0% < 2.5% Bad Debt 3.0% < 1.0%
  14. 14. Operational Excellence <ul><li>Aimco continues to build its platform </li></ul><ul><li>Processes and Standards </li></ul><ul><ul><li>Data-driven people and culture with the systems and tools to accomplish as much. </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><li>“ Automate the Routine, Humanize the Exception” </li></ul><ul><ul><li>Improving productivity, the hiring profile, and in the end the customer experience. </li></ul></ul>2006/7 Accomplishments 2008 Project <ul><li>Electronic Procurement </li></ul><ul><li>Internet Customer Experience </li></ul><ul><li>60% of demand web generated </li></ul><ul><li>Electronic Revenue Management </li></ul><ul><li>Electronic Lease Documentation </li></ul><ul><li>Operating Standards </li></ul><ul><li>Accounts Payable Centralization </li></ul>43% of leases from web >50% growth in web demand 23% of apps on line and growing On-line leasing live in Atl/Orl
  15. 15. How Customers Search <ul><li>Our research validated a need for a differentiated web experience, which drove our investment in a new property website platform </li></ul><ul><ul><li>Usage of ILS is very high: 76% </li></ul></ul><ul><ul><li>Usage of Search Engines is also high: 71% </li></ul></ul><ul><ul><li>68% started their search online </li></ul></ul><ul><ul><li>After online search, </li></ul></ul><ul><ul><ul><li>40% - word of mouth </li></ul></ul></ul><ul><ul><ul><li>32% printed resources </li></ul></ul></ul><ul><ul><ul><li>31% phone calls </li></ul></ul></ul><ul><ul><li>Community web site: 67% </li></ul></ul><ul><ul><li>Craig’s List web site: 43% </li></ul></ul><ul><ul><li>3 clicks/3 bricks: Consumers average 3 web site and 3 community visits </li></ul></ul><ul><ul><li>The web experience must be “real”, as if I was there, no glamour views that may disappoint </li></ul></ul>
  16. 16. Efficiencies from Scalability <ul><li>Transformation of communities from mini-transaction processing centers to a focus on revenue enhancing customer relationships- 2/3 of Front office time spent on administrative tasks </li></ul><ul><ul><li>Community Support Centers in 2008 handle e-procurement and other administrative tasks </li></ul></ul><ul><ul><li>Centralized procurement increases standardization across Aimco </li></ul></ul><ul><ul><li>Call Center to manage all leasing inquiries to Aimco </li></ul></ul><ul><ul><ul><li>Missed calls have declined from 25% to <5% </li></ul></ul></ul><ul><ul><li>Media purchasing and development has been centralized </li></ul></ul><ul><ul><ul><li>The national media group executes all large scale web and print buys </li></ul></ul></ul>Goal is to eliminate the back office from Aimco’s leasing centers Timeline for Move to Off-Site Responsibility 2005 2005 2005 2005 2006 2006 2007 2007 payment, service in place Transaction Category Incoming leasing calls Incoming leasing e-mails Outbound Appointment Confirmation Utility Bill payments Electronic procurement Electronic revenue management Electronic Lease documentation Centralized accounts payable Web Customer Self-Service
  17. 17. Utilization of Technological Systems <ul><li>PROFIT Revenue Management System is a heavily data-driven tool used to accurately price rents through: </li></ul><ul><ul><li>Forecasting inventory based on historical season trends. </li></ul></ul><ul><ul><li>Upcoming lease expirations for the specific property. </li></ul></ul><ul><ul><li>Forecasting of market demand metrics, including Aimco’s own lease pipeline (inquiries, visits, etc.). </li></ul></ul>Aimco has strategically invested in technological systems which have SIGNIFICANTLY IMPROVED operating efficiency
  18. 18. Highest Emphasis Placed on Customer Experience <ul><li>We involve our residents in improving the customer experience through several feedback systems. </li></ul><ul><ul><li>On-line surveys are offered to residents at: </li></ul></ul><ul><ul><ul><li>1) move-in; 2) two days after move-in; 3) 120 days after move-in </li></ul></ul></ul><ul><ul><ul><li>4) completion of each service request (Customer Experience Measurement). </li></ul></ul></ul><ul><ul><li>Results are immediately available for staff review and impact the variable compensation program. </li></ul></ul><ul><ul><li>Retention has improved 3% from ’03 to ’08 </li></ul></ul><ul><ul><li>Net Promoter Score is our primary customer experience metric </li></ul></ul>Customer Experience Measurement Metric 2005 2006 2007 2008 Net Promoter Score 18% 18% 31% 38% Office Courtesy 90% 90% 93% 94% Maintenance Overall Rating 82% 86% 90% Customer Average Duration (months) 16 17 17 19 Willingness to Renew 70% 75% 75% 93% Move-in Defect Rate 14% 8% 11% 11% Unit Turn Cycle Time 34 days 15 days 15 15 Unit Availability 40% 90% >90% >90%
  19. 19. The Team Member Experience – Extending the Operating Platform <ul><li>Team Member Engagement- Reduced turnover by 8% </li></ul><ul><li>Selection- Behavior based hiring screens deployed mid year ‘07 </li></ul><ul><li>HR People Pipeline Mgmt System- START- deployed early ‘07 </li></ul><ul><li>Training/Development </li></ul><ul><ul><li>Continued CM training program </li></ul></ul><ul><ul><li>Learning Management system deployed early ‘06 </li></ul></ul><ul><ul><li>New long-term training relationship with the Disney Institute </li></ul></ul><ul><li>Retention programs </li></ul><ul><ul><li>“ Aiming for the Stars”, Aimco Cares, Aimco Cares4U, College Scholarships, Active Duty Service Members, Tuition Reimbursement, Scorecard payments to 63% of properties in ’06, 50% in ‘07 </li></ul></ul><ul><li>Performance mgmt, career paths, succession planning programs. </li></ul>
  20. 20. Employees are at the Heart of Quality Customer Service <ul><li>“ Hire for attitude, train for skill” </li></ul><ul><ul><li>Aimco has developed rigorous training programs to ensure our people deliver the highest level of customer service. </li></ul></ul><ul><ul><ul><li>Approximately 5,000 Regional and site team members have completed an average of 10 courses per person year to date. </li></ul></ul></ul><ul><ul><li>Aimco has improved team member satisfaction through specific initiatives including pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities. </li></ul></ul>Indicator 2005 2007 Increase Engagement Job Satisfaction, Retention, Recommending Aimco as a place to work 57% 65% 8% On the Job Training, Role Clarity, Information, Resources, Using Skills & Abilities 81% 88% 7% Work Life 57% 78% 21% Compensation (Pay & Benefits) 57% 67% 10% <ul><li>Values (Living Up To) </li></ul><ul><li>Integrity, Respect , Teamwork, Customer, Team Member Focus, Performance </li></ul>66% 75% 9% Values (Believe In) 97% 99% 2%
  21. 21. Customer Service Improved Through Training Model <ul><li>In-house customer service training is integrated with training from the Disney Institute. </li></ul><ul><ul><li>Aimco’s emphasis on customer service is evidenced by the partnership with the Disney Institute where Aimco executives and staff refine their customer service skills with particular focus to detail. </li></ul></ul><ul><ul><li>All Community and Service Managers completed training in early 2008. </li></ul></ul><ul><ul><li>Aimco’s internal training program is derived from the Disney curriculum. </li></ul></ul>Move-in Net Promoter Score Office Courtesy Scores
  22. 22. Team Member Experience- CM Training Results (at 120 days post hire vs. prior year) Measure Rating Comments 1 Sales Effectiveness Strong improvement New CM sales performance- 10.7% point increase 3.2% improvement vs. month average 2 Office Courtesy Improvement Office Courtesy scores 10.5% improvement to above 93% 3 Employee Retention Strong Improvement Employee turnover improvement +30% vs. baseline 4 FSG Tickets Strong Improvement Reductions of FOCUS tickets vs. benchmark improvement of 2.9 tickets per 100 units
  23. 23. Results of the Operating Improvements Aimco versus REIS Occupancy & Rent Source: REIS. Used with permission from Reis.com The operating improvements are further evidenced through above-market rents and occupancies.

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