Englewood-based Archstone-Smith Trust, the second- largest U.S. apartment owner by market value, said third-quarter earnings fell 20 percent as interest costs increased.
Net income dropped to $131.2 million, or 60 cents a share, from $163.7 million, or 80 cents, a year earlier, the company said today on its Web site. Interest costs jumped 56 percent to $72.8 million.
The increased interest expenses are part of the cost of building new apartment complexes, R. Scot Sellers, Archstone-Smith’s chief executive officer, said in an interview. “As we grow and develop, we have more communities, and that is a positive thing, not a negative thing.”
The company is shifting its investments to better- performing markets, and selling in areas with slower growth. Archstone-Smith has spent $1.6 billion this year buying 3,849 units, mainly in New York and California, while it has sold apartment communities in cities including Atlanta, Chicago and Houston for $790.2 million.
The inventory of new and existing homes for sale has swelled to record levels as the five-year U.S. housing boom comes to an end, hurt by rising mortgage rates. As the cost of financing a home increases, more prospective buyers are renting.
Archstone-Smith reported a 9.9 percent decline in funds from operations to $119.7 million, or 55 cents a share, from $132.8 million, or 65 cents, a year earlier. By that measure, Archstone-Smith beat the average analysts’ estimate of 53 cents a share. Funds from operations are a measure of cash flow used by real estate investment trusts that doesn’t comply with generally accepted accounting principles.
