Shares in Archstone-Smith (NYSE:ASN) rose 2.8% today after the company's third-quarter earnings announcement, so it looks like I'm not the only investor who was a bit surprised by the results turned in by the apartment REIT.

For the quarter, Archstone-Smith turned in earnings per share of $0.80, which bettered last year's results by a dime. However, for real estate investment trusts, it's also important to look at funds from operations, or FFO, which measures operating cash flow before investments and dividends, because that metric backs out the non-cash depreciation expense. Based on that, the company also had a solid quarter, with FFO up 16% to $0.65 per share versus last year's $0.56. That's a solid performance, but $0.07 of this increase was for insurance recoveries and litigation settlements, so I recommend adjusting both the EPS and FFO results down by $0.07. The company also raised its earnings and FFO guidance for the rest of the year.

Perhaps the most important measure of a REIT is its ability to generate increasing levels of profitability from existing properties. Here, Archstone-Smith really delivered the goods in the third quarter. Revenues from existing properties, which the company refers to as same-store sales, were up 4.1% in the quarter and same-store net operating income was up 5.7%. This strong performance lends some support to the idea that the company's decision back in the 1990s to sell off non-core assets and focus its capital deployment on high-growth communities in protected markets makes sense.

Despite the solid performance, I'm not very intrigued by Archstone-Smith's valuation. If the company reaches its high-end estimate of $2.13 per share in FFO, it still trades at about 18.5 times FFO, which, along with its 4.5% dividend yield, isn't enough to draw me in. The valuation puts it about on par with AvalonBayCommunities (NYSE:AVB), which is due to report earnings Tuesday after the market closes. At the moment, I'm more interested in checking out smaller apartment REITs, such as United Dominion Realty Trust (NYSE:UDR) and BRE Properties (NYSE:BRE), because they have slightly higher growth potential.

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Nathan Parmelee has no financial stake in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.