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Archstone-Smith Profits Drop

Archstone-Smith's (ASN) third-quarter profits fell from a year ago as the luxury apartment owner recorded higher operating expenses across its national portfolio, though results still beat analyst estimates.

The real estate investment trust reported funds from operations, or FFO, of 55 cents a share, down from 65 cents a year ago, as the company sold several properties. Analysts expected FFO of 53 cents a share, according to Thomson First Call. Funds from operations is a common REIT performance metric that adds back depreciation and amortization charges to net income.

Same-store net operating income grew 5.9% in the quarter. However, a 10.4% increase in same-store expenses dampened the 7.3% revenue growth. Higher turnover costs, personnel expenses, insurance increases and a one-time ground lease payment adjustment boosted expenses.

"Overall, we suspect the market will be somewhat disappointed by Archstone's inability to push the 7.3% same-store revenue growth to the bottom line," Bank of America analyst Ross Nussbaum wrote in a research note Tuesday morning. He added that the earnings beat appears to have been driven by other income.

"That said, we believe the (same-store) revenue result is a good run-rate for the next 6 months and that expense growth will moderate, pushing same-store NOI growth back to the 8-10% range. So, we suspect this quarter is likely a `blip,'" Nussbaum wrote.

Chicago and Southeast Florida were the company's best-performing markets, with same-store NOI growing 22.1% and 16.3% year over year, respectively.

New York and Seattle also reported double-digit NOI growth. The company's same-store Boston properties saw NOI fall 10%.

Shares of Archstone-Smith recently were up 18 cents to $59.18.

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