2014

Home Properties Reports Third Quarter 2013 Results

ROCHESTER, N.Y., Oct. 31, 2013 /PRNewswire/ -- Home Properties, Inc. (NYSE: HME) today released financial results for the third quarter ended September 30, 2013.  All results are reported on a diluted basis.

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"In the third quarter, Home Properties made tremendous progress in its multi-year plan to further strengthen the balance sheet and increase future financial flexibility," said Edward J. Pettinella, Home Properties President and CEO.  "During the quarter, the Company received net proceeds of $267.6 million from a successful equity offering, which was used to reduce debt, in addition to increasing to $450 million its revolving line of credit and extending the term.  Both events significantly enhanced key credit metrics for Home Properties."

Earnings per share ("EPS") for the quarter ended September 30, 2013 was $0.44 compared to $0.71 for the quarter ended September 30, 2012.  The $0.27 decrease in EPS is primarily attributable to a $19.7 million decrease in gain on disposition of two properties sold in the third quarter of 2012, partially offset by a $7.2 million increase in income from continuing operations from both the properties owned throughout 2012 and 2013 (the "Core" properties) and those acquired, developed or redeveloped subsequent to January 1, 2012 (the "Non-Core" properties).  EPS for the nine months ended September 30, 2013 was $1.92 compared to $1.31 for the nine months ended September 30, 2012.  The $0.61 increase in EPS is primarily attributable to a $25.3 million year-over-year increase in gain on disposition of property combined with a $25.8 million increase in income from continuing operations.

For the quarter ended September 30, 2013, Funds From Operations ("FFO") was $73.1 million, or $1.09 per share, compared to $67.3 million, or $1.09 per share, for the quarter ended September 30, 2012.  The FFO increase of $5.8 million, or 8.6%, was driven by stronger operating results and lower General and Administrative costs, offset by the dilutive impact of the 4.4 million public share offering on July 12, 2013. FFO for the nine months ended September 30, 2013 was $3.25 per share, compared to $3.03 per share in the year-ago period, which equates to a 7.3% increase on a per-share basis.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

Third Quarter Operating Results

For the third quarter of 2013, same-property comparisons (for 113 Core properties containing 38,784 apartment units owned since January 1, 2012) reflected an increase of 3.2% in base rental rates and an increase of 2.6% in total revenues compared to the same quarter a year ago.  Net operating income ("NOI") increased by 3.2% from the third quarter of 2012.  Property level operating expenses increased by 1.4% compared to the prior year quarter, primarily due to increases in personnel expense, property insurance and real estate taxes, which were partially offset by decreases in repairs and maintenance.

Average physical occupancy for the Core properties was 95.0% during the third quarter of 2013, down from 95.5% during the third quarter of 2012.  Average monthly rental rates of $1,306 represent a 3.2% increase compared to the year-ago period.

On a sequential basis, compared to the 2013 second quarter results for Core properties, rental income (excluding utility recovery) remained unchanged in the third quarter of 2013, total revenues decreased 0.4%, expenses decreased 1.6% and NOI increased 0.2%.  Average physical occupancy decreased 0.9% to 95.0%.

Physical occupancy for the 3,183 apartment units acquired/developed/redeveloped between January 1, 2012 and September 30, 2013 averaged 92.7% during the third quarter of 2013, at average monthly rents of $1,312.

Year-To-Date Operating Results

For the nine months ended September 30, 2013, same-property comparisons for the Core properties reflected an increase in total revenues of 3.3% and an increase in total expenses of 1.6%, resulting in a 4.3% increase in NOI compared to the first nine months of 2012.  Property level operating expenses increased primarily due to higher natural gas heating costs, personnel expense, real estate taxes and snow removal costs.  These increases were partially offset by decreases in repairs and maintenance and property insurance.

Average physical occupancy for the Core properties was 95.5% during the first nine months of 2013, up from 95.4% a year ago, with average monthly rental rates of $1,291, an increase of 3.3% over the prior-year period.

Acquisitions/Dispositions

There were no acquisitions or dispositions of apartment communities during the third quarter of 2013.

Subsequent to the end of the quarter, on October 15, 2013, the Company sold a 344-unit apartment community in the Washington, D.C. region for $68 million.  The weighted average historical capitalization rate on the sale is 5.9% after applying a 2.7% management fee and before capital expenditures.  A gain on sale of approximately $36 million will be recorded in the fourth quarter of 2013 related to this sale.

Development

Construction continued as planned on Eleven55 Ripley and Courts at Spring Mill Station.

Capital Markets Activities

As of September 30, 2013, the Company's ratio of debt-to-total market capitalization was 38.6% (based on a September 30, 2013 stock price of $57.75 used to determine equity value), with $106.5 million outstanding on its $450 million revolving credit facility and $11.0 million of unrestricted cash on hand.  Total debt of $2.4 billion was outstanding, at interest rates averaging 4.5% and with staggered maturities averaging five years.  Approximately 91% of total indebtedness was at fixed rates.  Interest coverage for the quarter was 3.6 times and the fixed charge ratio was 3.4 times.

As previously reported, on July 12, 2013, the Company closed on a public offering of 4,427,500 shares of its common stock at a price of $63.00 per share.  The net proceeds of the sale were approximately $267.6 million, after underwriting discounts, commissions and offering expenses.

On July 31, 2013, the Company repaid three variable-rate mortgages on three properties for $59.1 million, incurring debt extinguishment costs of $0.9 million, or $0.013 FFO per share, which is included in interest expense.  The mortgages averaged a 3.2% interest rate and a three-year maturity date.  These properties are now part of the unencumbered asset pool.  As of September 30, 2013, the unencumbered asset pool represented 45.6% of total value, up from 37.5% at December 31, 2012.

As previously reported, on August 19, 2013, the Company increased the amount of the unsecured revolving line of credit agreement to $450 million from $275 million.  The maturity date of the line was extended to August 18, 2017 from December 8, 2015 and may be extended at the Company's option for an additional one-year period.  The rates, terms and conditions remain unchanged from the prior agreement.  Based on the Company's current leverage ratio, the LIBOR margin is 1.00% and the annual facility fee is 0.175%.  The existing $250 million term loan has been extended until August 18, 2018 from December 8, 2016.

The Company has an At-The-Market equity offering program through which it may sell up to 4.4 million common shares.  There were no transactions during the third quarter.  There are approximately two million common shares that remain available under this program.

Outlook

Based on slightly lower third quarter results than projected, the Company has decreased from $4.34 to $4.42 the range of its annual FFO per share guidance to $4.34 to $4.38.  FFO per share expected for the fourth quarter of 2013 remains unchanged at a range from $1.09 to $1.13.

Dividend Declared

The Company announced a regular cash dividend on the Company's common shares of $0.70 per share for the quarter ended September 30, 2013.  The dividend is payable on November 22, 2013 to shareholders of record on November 12, 2013 and is equivalent to an annualized rate of $2.80 per share.  Based on the closing price of $60.83 on October 29, 2013, the day prior to the Board's declaration of the dividend, the yield was 4.6%.  Home Properties' common stock will begin trading ex-dividend on November 8, 2013.

Supplemental Information

The Company produces supplemental information that includes details regarding property operations, other income, acquisitions, sales, geographic market breakdown, debt and new development.  The supplemental information is available via the Company's website through the "Investors" section or e-mail upon request.

Third Quarter 2013 Earnings Conference Call

The Company will conduct a conference call and simultaneous webcast tomorrow at 11:00 AM ET to review and comment on the information reported in this release.  The webcast, which includes audio and a slide presentation, will be available, live at 11:00 AM and archived by 1:00 PM, through the "Investors" section home page of the website homeproperties.com.  For live audio-only participation, please dial 800-913-1647 (International 212-231-2900).

Fourth Quarter 2013 Conference/Event Schedule

Home Properties is scheduled to participate in REITWorld®: NAREIT's Annual Convention for All Things REIT® in San Francisco, November 13-15 and in the Barclays Select Series 2013 Conference – Real Estate:  The Year Ahead, December 10-11, 2013 in New York City.  Presentation materials will be available at www.homeproperties.com in the "Investors" section.

Fourth Quarter 2013 Earnings Release and Conference Call

The Company's fourth quarter 2013 financial results are scheduled to be released after the stock market closes on Thursday, February 6, 2014.  A conference call, which will be simultaneously webcast, is scheduled for Friday, February 7, 2014 at 11:00 AM ET and will be accessible following the instructions above for the current quarter's conference call.

This release contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved.  Factors that may cause actual results to differ include general economic and local real estate conditions, weather and other conditions that might affect operating expenses, the timely completion of repositioning and new development activities within anticipated budgets, the actual pace of future acquisitions and dispositions, and continued access to capital to fund growth.

Home Properties is a publicly traded apartment real estate investment trust that owns, operates, develops, acquires and rehabilitates apartment communities primarily in selected Northeast and Mid-Atlantic markets.  An S & P 400 Company, Home Properties owns and operates 117 communities containing 41,623 apartment units.  For more information, visit Home Properties' website at www.homeproperties.com.

 


HOME PROPERTIES, INC.

SUMMARY OF OCCUPANCY AND PROPERTY OPERATING RESULTS



Avg. Physical



Third Quarter Results:

Occupancy(a)

3Q 2013

3Q 2013 vs. 3Q 2012 % Growth




Average








Monthly

Base







Rent/

Rental

Total

Total



3Q 2013

3Q 2012

Occ Unit

Rates

Revenue

Expense

NOI

Core Properties(b)

95.0%

95.5%

$1,306

3.2%

2.6%

1.4%

3.2%

Non-Core Properties(c)

92.7%

NA

$1,312

NA

NA

NA

NA

TOTAL PORTFOLIO

94.8%

NA

$1,306

NA

NA

NA

NA









Avg. Physical






Year-To-Date Results:

Occupancy(a)

YTD 2013

YTD 2013 vs. YTD 2012 % Growth




Average








Monthly

Base





YTD

YTD

Rent /

Rental

Total

Total



2013

2012

Occ Unit

Rates

Revenue

Expense

NOI

Core Properties(b)

95.5%

95.4%

$1,291

3.3%

3.3%

1.6%

4.3%

Non-Core Properties(c)

90.7%

NA

$1,304

NA

NA

NA

NA

TOTAL PORTFOLIO

95.1%

NA

$1,292

NA

NA

NA

NA


(a) Average physical occupancy is defined as total possible rental income, net of vacancy expense, as a percentage of total possible rental income. Total possible rental income is determined by valuing occupied units at contract rates and vacant units at market rents.

 

(b) Core Properties consist of 113 properties with 38,784 apartment units owned throughout 2012 and 2013.

 

(c) Non-Core Properties consist of 5 properties with 3,183 apartment units acquired, developed, or redeveloped subsequent to January 1, 2012, such that full year comparable operating results are not available.

 

HOME PROPERTIES, INC.

SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data – Unaudited)





Three Months Ended

Nine Months Ended


September 30

September 30


2013

2012

2013

2012

Rental income

$ 154,100

$ 149,562

$ 459,552

$ 430,997

Property other income

12,506

12,171

40,325

38,216

Other income

207

32

671

63

   Total revenues

166,813

161,765

500,548

469,276

Operating and maintenance

58,855

57,726

180,298

172,243

General and administrative

6,152

8,018

22,572

27,367

Interest

28,161

31,874

88,048

92,766

Depreciation and amortization

44,005

41,720

129,860

120,234

Other expenses

16

15

48

2,726

   Total expenses

137,189

139,353

420,826

415,336

Income from continuing operations

29,624

22,412

79,722

53,940

Discontinued operations





   Income (loss) from discontinued operations

-

2,010

(377)

5,972

   Gain on disposition of property

-

19,667

45,004

19,667

Discontinued operations

-

21,667

44,627

25,639

Net income

29,624

44,089

124,349

79,579

Net income attributable to noncontrolling interest

(4,586)

(7,676)

(20,395)

(14,051)

Net income attributable to common stockholders

$   25,038

$   36,413

$  103,954

$   65,528

Reconciliation from net income attributable to
common stockholders to Funds From Operations:





Net income available to common stockholders

$   25,038

$   36,413

$ 103,954

$  65,528

Real property depreciation and amortization

43,472

42,863

128,832

123,442

Noncontrolling interest

4,586

7,676

20,395

14,051

Gain on disposition of property

-

(19,667)

(45,004)

(19,667)

FFO - basic and diluted, as defined by NAREIT

73,096

67,285

208,177

183,354

Loss from early extinguishment of debt in connection with sale of real estate

-

-

1,416

-

FFO - basic and diluted (1)

$   73,096

$   67,285

$ 209,593

$ 183,354






(1) Pursuant to the updated guidance for Funds From Operations provided by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), FFO is defined as net income (computed in accordance with accounting principles generally accepted in the United States of America ("GAAP")) excluding gains or losses from disposition of property, impairment write-downs of depreciable real estate, noncontrolling interest and extraordinary items plus depreciation from real property. The Company adds back debt extinguishment costs and other one-time costs incurred as a result of repaying property specific debt triggered upon sale of a property. Because of the limitations of the FFO definition as published by NAREIT as set forth above, the Company has made certain interpretations in applying the definition. The Company believes all adjustments not specifically provided for are consistent with the definition. Other similarly titled measures may not be calculated in the same manner.

 


HOME PROPERTIES, INC.

SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data – Unaudited)



Three Months Ended

Nine Months Ended


September 30

September 30


2013

2012

2013

2012

FFO – basic and diluted

$ 73,096

$ 67,285

$ 209,593

$ 183,354

FFO – basic and diluted

$ 73,096

$ 67,285

$ 209,593

$ 183,354

Acquisition costs of closed deals included in other expenses

16

15

48

2,726

Operating FFO (2)

$ 73,112

$ 67,300

$ 209,641

$ 186,080

FFO – basic and diluted

$ 73,096

$ 67,285

$ 209,593

$ 183,354

Recurring non-revenue generating capital expenses

(8,897)

(9,363)

(26,830)

(27,285)

AFFO (3)

$ 64,199

$ 57,922

$ 182,763

$ 156,069

Operating FFO

$ 73,112

$ 67,300

$ 209,641

$ 186,080

Recurring non-revenue generating capital expenses

(8,897)

(9,363)

(26,830)

(27,285)

Operating AFFO (2) (3)

$ 64,215

$ 57,937

$ 182,811

$ 158,795

Weighted average shares/units outstanding:





   Shares – basic

56,370.1

50,255.2

53,444.2

49,218.7

   Shares – diluted

56,943.8

50,934.2

54,051.5

49,848.4

   Shares/units – basic (4)

66,717.3

60,868.0

63,834.0

59,873.9

   Shares/units – diluted (4)

67,291.0

61,547.0

64,441.3

60,503.6

Per share/unit:





   Net income – basic

$0.44

$0.72

$1.95

$1.33

   Net income – diluted

$0.44

$0.71

$1.92

$1.31

   FFO – basic

$1.10

$1.11

$3.28

$3.06

   FFO – diluted

$1.09

$1.09

$3.25

$3.03

   Operating FFO (2)

$1.09

$1.09

$3.25

$3.08

   AFFO (3)

$0.95

$0.94

$2.84

$2.58

   Operating AFFO (2) (3)

$0.95

$0.94

$2.84

$2.62

   Common Dividend paid

$0.70

$0.66

$2.10

$1.98


(2) Operating FFO is defined as FFO adjusted for the addback of acquisition costs on closed deals.

(3) Adjusted Funds From Operations ("AFFO") is defined as FFO less an annual reserve for anticipated recurring, non-revenue generating capitalized costs of $848 per apartment unit. The resulting sum is divided by the weighted average shares/units on a diluted basis to arrive at AFFO per share/unit.

(4) Basic includes common stock outstanding plus operating partnership units in Home Properties, L.P., which can be converted into shares of common stock. Diluted includes additional common stock equivalents.

 

HOME PROPERTIES, INC.

SUMMARY CONSOLIDATED BALANCE SHEETS

(in thousands - Unaudited)



September 30, 2013

December 31, 2012

Land

$     780,156

$      791,604

Construction in progress

163,534

83,241

Buildings, improvements and equipment

4,599,949

4,580,381


5,543,639

5,455,226

Accumulated depreciation

(1,213,528)

(1,108,840)

Real estate, net

4,330,111

4,346,386




Cash and cash equivalents

11,024

21,092

Cash in escrows

24,929

26,971

Accounts receivable

11,900

13,406

Prepaid expenses

22,973

19,504

Deferred charges

12,750

13,429

Other assets

7,198

10,704

Total assets

$  4,420,885

$  4,451,492

Mortgage notes payable

$  1,879,090

$  2,165,027

Unsecured notes payable

450,000

450,000

Unsecured line of credit

106,500

162,500

Accounts payable

25,547

22,691

Accrued interest payable

10,754

9,974

Accrued expenses and other liabilities

31,703

33,887

Security deposits

18,531

19,146

Total liabilities

2,522,125

2,863,225




Common stockholders' equity

1,607,585

1,320,968

Noncontrolling interest

291,175

267,299

Total equity

1,898,760

1,588,267

Total liabilities and equity

$  4,420,885

$  4,451,492




Total shares/units outstanding:



Common stock

56,888.3

51,508.1

Operating partnership units

10,345.1

10,455.6


67,233.4

61,963.7

 

SOURCE Home Properties, Inc.



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