Home Properties Reports Second Quarter 2013 Results

ROCHESTER, N.Y., Aug. 1, 2013 /PRNewswire/ -- Home Properties, Inc. (NYSE: HME) today released financial results for the second quarter ended June 30, 2013.  All results are reported on a diluted basis.

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"The second quarter was a good one for Home Properties with continued solid operating performance resulting in record high Funds From Operations per share, which were at the top end of our expectations," said Edward J. Pettinella, Home Properties President and CEO.  "Recent capital markets activities have strengthened the Company's balance sheet, increasing our financial flexibility for the future."

Earnings per share ("EPS") for the quarter ended June 30, 2013 was $0.51 compared to $0.28 for the quarter ended June 30, 2012.  The $0.23 increase in EPS is primarily attributable to a $4.6 million gain on disposition of property combined with a $13.0 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 six months ended June 30, 2013 was $1.50 compared to $0.59 for the six months ended June 30, 2012.  The $0.91 increase in EPS is primarily attributable to a $45.0 million gain on disposition of property combined with an $18.6 million increase in income from continuing operations.

For the quarter ended June 30, 2013, Funds From Operations ("FFO") was $70.4 million, or $1.11 per share, compared to $57.6 million, or $0.96 per share, for the quarter ended June 30, 2012, which equates to a 16.5% increase on a per-share basis.  FFO for the six months ended June 30, 2013 was $2.17 per share, compared to $1.93 per share in the year-ago period.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

Second Quarter Operating Results

For the second quarter of 2013, same-property comparisons (for 113 Core properties containing 38,784 apartment units owned since January 1, 2012) reflected an increase in rental income of 3.2% and a 3.7% increase in total revenues compared to the same quarter a year ago.  Net operating income ("NOI") increased by 4.3% from the second quarter of 2012.  Property level operating expenses increased by 2.6% compared to the prior year quarter, primarily due to increases in natural gas heating costs and real estate taxes, which were partially offset by a decrease in property insurance.

Average physical occupancy for the Core properties was 95.9% during the second quarter of 2013, down from 96.0% during the second quarter of 2012.  Average monthly rental rates of $1,289 represent a 3.4% increase compared to the year-ago period.

On a sequential basis, compared to the 2013 first quarter results for Core properties, rental income (excluding utility recovery) was up 1.2% in the second quarter of 2013, total revenues increased 0.1%, expenses were down 3.7% and NOI increased 2.4%.  Average physical occupancy increased 0.3% to 95.9%.

Physical occupancy for the 3,183 apartment units acquired/developed/redeveloped between January 1, 2012 and June 30, 2013 averaged 91.1% during the second quarter of 2013, at average monthly rents of $1,303.

Year-To-Date Operating Results

For the six months ended June 30, 2013, same-property comparisons for the Core properties reflected an increase in total revenues of 3.7% and an increase in total expenses of 1.7%, resulting in a 4.9% increase in NOI compared to the first six months of 2012.  Property level operating expenses increased primarily due to higher personnel expense and real estate taxes, which were partially offset by a decrease in property insurance.

Average physical occupancy for the Core properties was 95.8% during the first six months of 2013, up from 95.4% a year ago, with average monthly rental rates of $1,283, an increase of 3.4% over the prior-year period.

Acquisitions/Dispositions

There were no acquisitions of apartment communities during the second quarter of 2013.

As previously reported, during the second quarter of 2013, the Company sold one apartment community in the Philadelphia region with a total of 158 units for $15 million. A gain on sale of $3.3 million was recorded in the second quarter of 2013 related to this sale.

Development

The Company started construction in the fourth quarter of 2011 on Eleven55 Ripley, which will consist of 379 units located in downtown Silver Spring, Maryland.  Initial occupancy is projected to occur in the fourth quarter of 2013, with completion of the entire project anticipated in the first half of 2014.

Capital Markets Activities

As of June 30, 2013, the Company's ratio of debt-to-total market capitalization was 39.4% (based on a June 28, 2013 stock price of $65.37 used to determine equity value), with $241 million outstanding on its $275 million revolving credit facility and $8.8 million of unrestricted cash on hand.  Total debt of $2.7 billion was outstanding, at interest rates averaging 4.3% and with staggered maturities averaging five years.  Approximately 84% of total indebtedness was at fixed rates.  Interest coverage for the quarter was 3.4 times and the fixed charge ratio was 3.2 times.

The Company repaid a $100 million multi-property mortgage note during the second quarter with an interest rate of 6.48% and a maturity date of August 31, 2013, without any prepayment penalties.  The debt was secured by five properties, which are now part of the unencumbered asset pool.  As of June 30, 2013 the unencumbered asset pool represented 43.6% of total value, up from 37.5% at December 31, 2012.

On June 28, 2013, the Company entered into a bridge loan agreement, which matures September 30, 2013.  The note has a maximum principal amount of $75 million with monthly interest at a variable rate equal to the rate on the existing revolving credit facility.  The Company had $25 million outstanding on this note as of June 30, 2013.  The proceeds from this note were used to partially fund the repayment of the aforementioned multi-property mortgage note.

The Company has an At-The-Market equity offering program through which it may sell up to 4.4 million common shares.  During the second quarter of 2013, the Company received net proceeds of $3.2 million from pending trades as of March 31, 2013.  There were no other transactions during the second quarter.  There are approximately two million common shares that remain available under this program.

Subsequent to the end of the quarter, 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, which included 577,500 shares issued pursuant to the full exercise of the underwriters' option to purchase additional shares. The net proceeds of the sale were approximately $267.6 million, after underwriting discounts, commissions and offering expenses.

Outlook

Based on higher second quarter results than predicted, higher anticipated operating results for the balance of the year, offset by dilution expected from the recent stock offering, the Company has maintained the midpoint of its prior FFO per share guidance at $4.38 and narrowed the range of FFO per share guidance to $4.34 to $4.42.  The quarterly breakdown for the balance of 2013 guidance on FFO per share results is as follows: Third quarter $1.08 to $1.12; fourth quarter $1.09 to $1.13. Included in the third quarter is $0.015 per share expense from debt extinguishment costs associated with paying off certain variable rate secured debt before maturity.

The midpoint of Operating FFO ("OFFO") per share guidance for 2013, which excludes acquisition costs, is $4.40.  The quarterly guidance range for OFFO per share is:  Third quarter $1.08 to $1.12; fourth quarter $1.11 to $1.15.  The Company anticipates acquisitions will be in a range of $50 million to $150 million in 2013.

On May 2, 2013, the Company provided updated guidance for full year 2013 on both an FFO and OFFO basis.  The table below reconciles the guidance as of that date to the new guidance provided in this release effective August 1, 2013.

 

FULL YEAR 2013 GUIDANCE

COMPARISON TO MAY 2, 2013 GUIDANCE


Per Share



FFO


OFFO

(1)

May 2, 2013 guidance midpoint

$ 4.380


$ 4.410


Second quarter outperformance

0.020


0.020

(2)

Third and fourth quarter expected outperformance

0.020


0.020

(3)

Reduced other expense - acquisition costs

0.010


NA   


Effect from July equity offering





Dilution

(0.035)


(0.035)


Use of proceeds - debt extinguishment costs (3Q)

(0.015)


(0.015)


August 1, 2013 Full Year Guidance

$ 4.380


$ 4.400


 

(1)    OFFO – Operating FFO is defined as FFO adjusted for the addback of

acquisition costs on closed deals.

(2)    Second quarter exceeded the midpoint of guidance by two cents from

various items including Core and Non-Core NOI improvement, reduced

interest expense, and reduced G&A, all compared to expectations.

(3)    Third and fourth quarter improvement expected from Core and
Non-Core NOI.

 

Dividend Declared

The Company announced a regular cash dividend on the Company's common shares of $0.70 per share for the quarter ended June 30, 2013.  The dividend is payable on August 23, 2013 to shareholders of record on August 13, 2013 and is equivalent to an annualized rate of $2.80 per share.  The current annual dividend represents a 4.3% yield based on the July 29 closing price of $65.01.  Home Properties' common stock will begin trading ex-dividend on August 9, 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.

Second 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).

Third Quarter 2013 Conference/Event Schedule

Home Properties is scheduled to participate in the Bank of America Merrill Lynch 2013 Global Real Estate Conference on September 12, 2013 in New York City and in the BMO Capital Markets 8th Annual North American Real Estate Conference on September 16 and 17, 2013 in Chicago.  Presentation materials will be available at www.homeproperties.com in the "Investors" section.

Third Quarter 2013 Earnings Release and Conference Call

The Company's third quarter 2013 financial results are scheduled to be released after the stock market closes on Thursday, October 31, 2013.  A conference call, which will be simultaneously webcast, is scheduled for Friday, November 1, 2013 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 118 communities containing 41,967 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



Second Quarter Results:

Occupancy(a)

2Q 2013

2Q 2013 vs. 2Q 2012 % Growth




Average








Monthly

Base







Rent/

Rental

Total

Total



2Q 2013

2Q 2012

Occ Unit

Rates

Revenue

Expense

NOI

Core Properties(b)

95.9%

96.0%

$1,289

3.4%

3.7%

2.6%

4.3%

Non-Core Properties(c)

91.1%

NA

$1,303

NA

NA

NA

NA

TOTAL PORTFOLIO

95.5%

NA

$1,290

NA

NA

NA

NA








Year-To-Date Results:

Avg. Physical

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)

95.8%

95.4%

$1,283

3.4%

3.7%

1.7%

4.9%

Non-Core Properties(c)

89.6%

NA

$1,300

NA

NA

NA

NA

TOTAL PORTFOLIO

95.3%

NA

$1,285

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

Six Months Ended


June 30

June 30


2013


2012


2013


2012

Rental income

$ 153,762


$ 143,128


$ 305,452


$ 281,435

Property other income

13,206


11,667


27,819


26,045

Other income

215


21


464


30

     Total revenues

167,183


154,816


333,735


307,510









Operating and maintenance

59,649


56,017


121,443


114,517

General and administrative

7,337


11,037


16,420


19,350

Interest

29,264


30,504


59,887


60,892

Depreciation and amortization

43,222


39,880


85,855


78,513

Other expenses

16


2,693


32


2,710

     Total expenses

139,488


140,131


283,637


275,982









Income from continuing operations

27,695


14,685


50,098


31,528









Discontinued operations








     Income (loss) from discontinued operations

59


2,019


(377)


3,962

     Gain on disposition of property

4,645


-


45,004


-

Discontinued operations

4,704


2,019


44,627


3,962









Net income

32,399


16,704


94,725


35,490

Net income attributable to noncontrolling interest

(5,363)


(2,977)


(15,809)


(6,375)

Net income attributable to common stockholders

$   27,036


$   13,727


$  78,916


$  29,115









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








Net income available to common stockholders

$   27,036


$   13,727


$ 78,916


$  29,115

Real property depreciation and amortization

42,695


40,920


85,360


80,579

Noncontrolling interest

5,363


2,977


15,809


6,375

Gain on disposition of property

(4,645)


-


(45,004)


-

FFO - basic and diluted, as defined by NAREIT

70,449


57,624


135,081


116,069









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

-


-


1,416


-

FFO - basic and diluted (1)

$   70,449


$   57,624


$ 136,497


$ 116,069


(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

Six Months Ended


June 30

June 30


2013


2012


2013


2012

FFO – basic and diluted

$ 70,449


$ 57,624


$ 136,497


$ 116,069

FFO – basic and diluted

$ 70,449


$ 57,624


$ 136,497


$ 116,069

Acquisition costs of closed deals included in other expenses

16


2,693


32


2,710

Operating FFO (2)

$ 70,465


$ 60,317


$ 136,529


$ 118,779

FFO – basic and diluted

$ 70,449


$ 57,624


$ 136,497


$ 116,069

Recurring non-revenue generating capital expenses

(8,901)


(9,013)


(17,934)


(17,912)

AFFO (3)

$ 61,548


$ 48,611


$ 118,563


$  98,157

Operating FFO

$ 70,465


$ 60,317


$ 136,529


$ 118,779

Recurring non-revenue generating capital expenses

(8,901)


(9,013)


(17,934)


(17,912)

Operating AFFO (2) (3)

$ 61,564


$ 51,304


$ 118,595


$ 100,867

Weighted average shares/units outstanding:








   Shares – basic

52,299.4


49,026.4


51,954.6


48,694.4

   Shares – diluted

52,922.0


49,678.7


52,581.5


49,327.9

   Shares/units – basic (4)

62,695.4


59,676.5


62,366.2


59,371.0

   Shares/units – diluted (4)

63,318.0


60,328.8


62,993.0


60,004.4

Per share/unit:








   Net income – basic

$0.52


$0.28


$1.52


$0.60

   Net income – diluted

$0.51


$0.28


$1.50


$0.59

   FFO – basic

$1.12


$0.97


$2.19


$1.95

   FFO – diluted

$1.11


$0.96


$2.17


$1.93

   Operating FFO (2)

$1.11


$1.00


$2.17


$1.98

   AFFO (3)

$0.97


$0.81


$1.88


$1.64

   Operating AFFO (2) (3)

$0.97


$0.85


$1.88


$1.68

   Common Dividend paid

$0.70


$0.66


$1.40


$1.32


(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)



June 30, 2013


December 31, 2012

 

Land

$     780,099


$      791,604

Construction in progress

147,784


83,241

Buildings, improvements and equipment

4,557,863


4,580,381


5,485,746


5,455,226

Accumulated depreciation

(1,169,763)


(1,108,840)

Real estate, net

4,315,983


4,346,386





Cash and cash equivalents

8,846


21,092

Cash in escrows

28,904


26,971

Accounts receivable

12,357


13,406

Prepaid expenses

10,494


19,504

Deferred charges

11,751


13,429

Other assets

7,901


10,704





Total assets

$  4,396,236


$  4,451,492





Mortgage notes payable

$  1,946,517


$  2,165,027

Unsecured notes payable

475,000


450,000

Unsecured line of credit

241,000


162,500

Accounts payable

30,447


22,691

Accrued interest payable

8,769


9,974

Accrued expenses and other liabilities

28,984


33,887

Security deposits

18,823


19,146





Total liabilities

2,749,540


2,863,225





Common stockholders' equity

1,375,796


1,320,968

Noncontrolling interest

270,900


267,299

Total equity

1,646,696


1,588,267





Total liabilities and equity

$  4,396,236


$  4,451,492





Total shares/units outstanding:




Common stock

52,408.3


51,508.1

Operating partnership units

10,363.6


10,455.6


62,771.9


61,963.7

 

 

SOURCE Home Properties, Inc.



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