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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 over 11 million shares to increase its liquidity. The company has also decided to grant the underwriters an option to purchase an additional 1.35 million shares to cover any over-allotments.

The share offering includes 9 million shares to be sold by the company and more than 2 million shares to be sold by its Chairman and Chief Executive Officer as part of the full exercise of the near-term expiring options.

Citigroup Inc. (C - Analyst Report) and Morgan Stanley (MS - Analyst Report) are acting as the joint book-running managers for the offering. Aimco intends to utilize the proceeds from the equity offering along with its available cash resources to redeem all the outstanding shares of its ‘Class U Cumulative Preferred Stock.'

In order to further increase its liquidity, the company is also continuing with the sale of non-core assets and expects total asset sale in 2012 in the range of $550 million to $650 million (before repayment of related property debt and transaction costs). Year to date, Aimco has already completed approximately $162 million worth of asset sale transactions.  

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 and consequently increase its investment in target markets through redevelopment and acquisitions.

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.

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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