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Apartment Investment and Management Company (AIV - Analyst Report), or Aimco, as the real estate investment trust (REIT) is popularly known, has recently announced a secondary offering of 11 million shares to increase its liquidity and repay debt. The company has also decided to grant the underwriters an option to purchase an additional 1.65 million shares to cover any over-allotments.

Citigroup Inc. (C - Analyst Report) is acting as the sole book-running manager for the offering. Aimco intends to utilize about $150 million of the proceeds from the equity offer to redeem all the outstanding shares of its ‘Class T Cumulative Preferred Stock,’ $65 million for redeeming all outstanding shares of its ‘Class V Cumulative Preferred Stock,’ and the balance for redeeming ‘Class Y Cumulative Preferred Stock.’

Aimco has historically maintained a conservative balance sheet and pursued a strategy of financial flexibility that enables the payment of steady dividends to its shareholders. By the end of first quarter 2012, Aimco had total debt of $5.6 billion and cash and cash equivalents of $83.2 million, with debt service and fixed charge coverage ratios of 1.62x and 1.38x, respectively.

One of the largest owners and operators of multifamily apartments in the U.S., Aimco has a diversified portfolio of conventional, affordable and student housing communities. The company has a strong portfolio of Class ‘B’ and Class ‘C’ properties, primarily catering to the middle-income market.

Aimco expects to sell almost all of its affordable properties over the next four- to five-year period to concentrate entirely on the conventional real estate portfolio. The company also expects to reduce its investment in non-target markets through asset sale transactions, and consequently increase its investment in target markets through redevelopment and acquisitions.

However, despite attempts to reposition its portfolio in higher growth markets, much of the company’s portfolio still resides in areas where housing is relatively cheap. As the company continues to sell non-core assets and buy in high-growth infill areas, we expect continued earnings dilution.

We maintain our long-term Neutral rating on Aimco, which currently has a Zacks #3 Rank that translates into a short-term Hold rating.

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