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Apartment Investment & Management Co. (AIV - Analyst Report) or Aimco as the real estate investment trust (REIT) is popularly known, reported third quarter 2012 funds from operations (FFO) of 38 cents per share compared to 41 cents in the year-ago period.

Recurring FFO stood at 46 cents per share, compared to 41 cents in the year-ago period. The 12.2% year-over-year increase in recurring FFO was due to improved property operating results, incremental income from investments in partnership tenders and mergers, and lower preferred stock dividends. Recurring FFO for third quarter 2012 beat the Zacks Consensus Estimate by 3 cents.

During the quarter, total revenues stood at $267.4 million compared to $254.5 million in the year-ago period. Total revenues in the reported quarter missed the Zacks consensus estimate of $269 million.

In the conventional same-store real estate portfolio, which includes a diversified range of market-rate apartment communities, Aimco had an average daily occupancy of 95.3%. Average rents in the same-store conventional real estate portfolio increased 4.4% during the quarter to $1,184 per unit from $1,134 during third quarter 2011.

Rental rates on new leases and renewals in the conventional same-store real estate portfolio were 3.8% and 6.0% higher respectively than the expiring lease rates. Same-store revenues in the conventional portfolio increased 4.9% year over year to $190.9 million, while net operating income (NOI) increased 7.4% to $122.8 million. Conventional portfolio average revenue per unit increased 4.8% year over year to $1,312 in third quarter 2012.

In the affordable real estate portfolio, which includes properties with rents that are generally paid (in whole or in part) by a government agency, Aimco had a daily average occupancy of 98.9% at quarter-end. Average revenue per unit increased 3.2% from $960 to $991. Same-store revenues in the affordable real estate portfolio increased 4.4% year over year to $28.3 million, while NOI increased 3.4% to $17.1 million.

Aimco is continuing with a strategic focus on the largest markets in the U.S. that are concentrated mostly in the coastal areas and includes the Sun Belt cities, Chicago and Illinois. Going forward, the company expects to sell each year the lowest rated 5.0% -10.0% of its portfolio, and increase its investment in target markets through redevelopment and acquisitions. With the portfolio restructuring initiatives, the company expects its year-end overall average revenue per rental unit to grow at 4% to 5% higher than the annual market rent growth. Furthermore, the company intends to completely sell its affordable portfolio over the next four-to-five year period.

During the reported quarter, Aimco acquired an 84-unit apartment community in downtown San Diego (with about 8,000 square feet of commercial space) for $19.7 million. Average residential revenue per unit was approximately $1,880 for this property, which was about 15% greater than the local market average. The acquisition was funded partly by using $9.7 million of non-recourse property debt and in part by proceeds from the sale of lower-rated properties.

Aimco sold eight conventional properties (2,349 units) and 14 affordable properties (1,562 units) during the quarter for $235.4 million worth of total gross proceeds. During the entire course of the current year, Aimco expects to sell over 25 conventional properties and at least 60 affordable properties towards portfolio upgradation.

During the reported quarter, Aimco started redevelopment work on The Preserve at Marin in Corte Madera, California. For full year 2012, Aimco expects to invest $100 million in redevelopment projects of 10 properties.

Aimco issued 1.35 million shares during the quarter for net proceeds of $36.1 million. At quarter-end, Aimco had a total debt of $4.8 billion, including an outstanding debt of $66.2 million on its revolving credit facility. Cash and cash equivalents were $102.5 million, with debt service and fixed charge coverage ratios of 1.63x and 1.44x respectively. By quarter-end, however, Aimco had an available capacity of $406.8 million on its revolving credit facility, net of $27.0 million of letters of credit backed by the facility.

For full year 2012, Aimco expects recurring FFO in the range of $1.79-$1.85 while FFO for fourth quarter is expected to be in the range of 47 cents to 53 cents.

Aimco currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock. One of its competitors, Equity Residential (EQR - Analyst Report) currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Note: Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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