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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 completed its secondary offering of approximately 11.8 million shares, including the partial exercise of the over-allotment option by  the underwriters. Citigroup Inc. (C - Analyst Report) acted as the sole book-running manager for the offering.

Aimco raised net proceeds of about $318 million from the equity offer. The company intends to utilize about $150 million of the proceeds 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 expects the secondary offering to result in modest earnings dilution in the recent quarters until the full redemption of preferred stocks, following which funds from operations (FFO) is expected to rise steadily. Funds from operations, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.

Aimco currently expects FFO for second quarter 2012 in the range of 39 cents to 43 cents – down from its earlier guidance of 40 cents to 44 cents for the quarter. Adjusted FFO (AFFO) for fiscal 2012 is presently expected in the range of $1.24 to $1.34, compared to the earlier expectations of $1.21 to $1.31 per share.

The simultaneous issue of common shares and redemption of preferred stocks is anticipated to reduce the cost of capital and increase annual cash flow by approximately $16 million. The projected debt and preferred equity to EBITDA (earnings before interest, tax, depreciation, and amortization) ratio for fourth quarter 2012 on an annualized basis is currently expected to be 8.2x compared to the earlier projections of 8.7x, while EBITDA coverage of interest and preferred dividends is expected to be 2.15x (up from 2.0x).

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.

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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