Home Properties Reports Third Quarter 2010 Results

ROCHESTER, N.Y., Nov. 4, 2010 /PRNewswire-FirstCall/ -- Home Properties (NYSE: HME) today released financial results for the third quarter ending September 30, 2010.  All results are reported on a diluted basis.

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"Third quarter operating results for Core properties exceeded our recently increased expectations," said Home Properties' President and CEO Edward J. Pettinella.  "With the additional favorable impact of acquisitions completed during the quarter, all of which are immediately accretive to earnings, we continue to be optimistic about future results, despite the lack of job growth and robust economic recovery."

Earnings per share ("EPS") for the quarter ended September 30, 2010 was $0.15, compared to $0.16 for the quarter ended September 30, 2009.  The $0.01 decrease in EPS was a result of the net effects of an increase in net income attributable to common shareholders offset by the dilutive effects of the increase in the number of dilutive common shares outstanding.  EPS for the nine months ended September 30, 2010 was $0.36, compared to $0.67 for the nine months ended September 30, 2009.  The year-over-year decrease of $0.31 per share is primarily attributable to a $13.5 million decrease in gain on disposition of three properties sold in the first quarter of 2009.

For the quarter ended September 30, 2010, Funds From Operations ("FFO") was $38.9 million, or $0.79 per share, compared to $37.0 million, or $0.81 per share, for the quarter ended September 30, 2009.  Third quarter 2010 FFO of $0.79 per share was $0.02 above analysts' mean estimate, as reported by Thomson, and $0.01 above the midpoint of the increased guidance range recently provided by management on September 20, 2010.  Included in the $0.79 per share 2010 FFO is $2.2 million or $0.05 in costs related to the acquisition of five properties for a total of $269 million, which are now recorded in other expenses as prescribed by authoritative accounting guidance, rather than included in the cost basis of the acquisition as was the prior accounting treatment.  FFO for the nine months ended September 30, 2010 was $2.26 per share, compared to $2.45 in the year-ago period.  Year-to-date 2010 FFO includes $0.05 in costs related to record severe storms that occurred in the first quarter as well as $0.06 in acquisition costs.  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 2010, same-property comparisons (for 105 "Core" properties containing 35,798 apartment units owned since January 1, 2009) reflected an increase in total revenues of 0.6% compared to the same quarter a year ago.  Net operating income ("NOI") increased by 3.4% from the third quarter of 2009.  Property level operating expenses decreased by 3.6% compared to the prior year quarter, primarily due to decreases in repairs and maintenance, property insurance and real estate taxes, which were partially offset by increases in water and sewer expense and personnel costs.

Average physical occupancy for the Core properties was 95.4% during the third quarter of 2010, up from 95.1% during the third quarter of 2009.  Average monthly rental rates of $1,140 represent a 0.2% increase compared to the year-ago period.

On a sequential basis, compared to the 2010 second quarter results for the Core properties, rental income increased 0.5% in the third quarter of 2010, total revenues increased 0.6%, expenses were down 0.6%, and net operating income increased 1.4%.  Average physical occupancy decreased 0.1% to 95.4%.  

Physical occupancy for the 2,943 apartment units acquired/developed between January 1, 2009 and September 30, 2010 averaged 80.8% during the third quarter of 2010, at average monthly rents of $1,319.  Of the 2,943 apartment units, 2,494 units relate to communities acquired during the second and third quarters of 2010 with average occupancy of 94.1% and average monthly rents of $1,084.  The remaining 449 units are newly developed apartments that commenced leasing in 2010.  The initial lease-up level at 1200 East West Highway and The Courts at Huntington Station reached an average 62.0% for the quarter with average monthly rents of $1,899.  See additional information below in the acquisitions/dispositions and development sections.

Year-to-Date Operating Results

For the nine months ended September 30, 2010, same-property comparisons for the Core properties reflected total revenues that were flat and a decrease in total expenses of 1.6%, resulting in a 1.0% increase in net operating income compared to the first nine months of 2009.  Property level operating expenses decreased primarily due to decreases in electricity, natural gas heating costs, repairs and maintenance and property insurance, which were partially offset by an increase in water and sewer expense and snow removal costs.

Average physical occupancy for the Core properties was 95.2% during the first nine months of 2010, up from 94.8% a year ago, with average monthly rental rates of $1,132, a decrease of 0.8% over the prior year.  The 0.8% decrease in rental rates as compared to the prior year is a 0.4% and 0.7% improvement over the second and first quarters of 2010, respectively.

Acquisitions/Dispositions

As previously reported, during the quarter the Company purchased five properties with a total of 1,894 units in the Baltimore, Suburban Washington, D.C. and Long Island regions for a combined $269 million.

Subsequent to the end of the quarter, on October 18, 2010, the Company acquired a 120-unit townhome apartment community located in Aurora, Illinois, a suburb of Chicago, for a total purchase price of $14.5 million.  The property is currently 95.8% occupied at monthly rents averaging $1,149.  The projected first year capitalization rate is 6.2% after allocating 3% of rental revenues for management and overhead expenses and before normalized capital expenditures.  The property, built in 1996, consists of 14 two-story garden style buildings.  Acquisition costs of approximately $55,000 will be included in other expenses in the fourth quarter of 2010.

Year-to-date, the Company has purchased a total of nine properties with 2,614 units for a combined price of $339 million (before mortgage assumption fair market value adjustments).

There were no dispositions during the first nine months of 2010.

Development

The Company has two communities currently under construction, 1200 East West Highway and The Courts at Huntington Station.  At 1200 East West Highway in Silver Spring, Maryland, construction is substantially complete and move-ins began in mid-March.  Currently, 90% of the 247 units are leased. At The Courts at Huntington Station in Alexandria, Virginia with 202 units in Phase One, construction is substantially complete and 70% of the units are leased.  Construction on Phase Two (219 units), which is underway, is scheduled to be completed in the second quarter of 2011, reaching stabilized occupancy a year later.

Capital Markets Activities

As of September 30, 2010, the Company's ratio of debt-to-total market capitalization was 50.0% (based on a September 30, 2010 stock price of $52.90 to determine equity value), with $137 million outstanding on its $175 million revolving credit facility and $8 million of unrestricted cash on hand.  Total debt of $2.6 billion was outstanding, at rates of interest averaging 5.3% and with staggered maturities averaging approximately six years.  Approximately 86% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.4 times, and the fixed charge ratio averaged 2.2 times.

During the third quarter of 2010, the Company refinanced maturing loans with a principal balance of $39 million and a weighted average interest rate of 7.50%.  The new loans placed were for $99.3 million with a weighted average interest rate of 4.65%.  In October, secured loans totaling $183.8 million with a weighted average interest rate of 6.31% were paid off and replaced by loans totaling $264.6 million with a weighted average interest rate of 4.41%.  The net proceeds of approximately $141 million from these combined transactions were used to pay down line of credit debt, fund acquisitions and for general corporate purposes.

Combined, the weighted average rate on debt refinanced since the beginning of the third quarter totaled 6.52% and was replaced with new fixed-rate debt at 4.46%, a savings of approximately 2% or $4.6 million, which equates to approximately $0.095 per share.

"These recent transactions, along with the refinancings we will complete during the next few months, will add approximately $0.10 per share to 2011 FFO per share," said David P. Gardner, Executive Vice President and Chief Financial Officer.

As previously announced, the Company has filed with the Securities and Exchange Commission to initiate an At-The-Market (ATM) equity offering program through which it may sell up to 3.6 million common shares.  No shares have been issued through this program to date.  If and when shares are issued, the Company intends to use the net proceeds from the offering for general corporate purposes, which may include the repayment of debt, working capital, capital expenditures, acquisitions, development and redevelopment of apartment communities.

Outlook

For 2010, the Company has increased its guidance, based on higher actual third quarter results compared to prior guidance, and higher results now expected for the fourth quarter.  The Company now projects 2010 FFO per share to be between $3.02 and $3.06.  This guidance range reflects management's current assessment of economic and market conditions.

The guidance for the fourth quarter of 2010 has been increased and is expected to be between $0.77 and $0.81.

Supplemental Information

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

Third Quarter 2010 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.  To listen to the call, please dial 800-758-5606 (International 212-231-2906).  An audio replay of the call will be available through November 12, 2010, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21442493.  The Company 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.

Fourth Quarter 2010 Conference/Event Schedule

Home Properties' President and CEO, Edward J. Pettinella, is scheduled to participate in REITWorld®: NAREIT's Annual Convention for All Things REIT® in New York on November 15-17, with an audio webcast on November 15 at 9:20 AM, available in the "Investors" section of Home Properties' website.  The Company also plans to participate in the Macquarie 2010 Global Property Series in New York on December 2-3 and the Wells Fargo 14th Annual Real Estate/Lodging Securities Conference on December 8.  Details on how to access any presentation or related materials will be available at homeproperties.com in the "Investors" section.

Fourth Quarter 2010 Earnings Release and Conference Call

The fourth quarter financial results are scheduled to be released after the stock market closes on Thursday, February 17, 2011.  A conference call, which will be simultaneously webcast, is scheduled for Friday, February 18, 2011 at 11:00 AM ET and is accessible following the above instructions.  The passcode for that replay will be 21485981.

This press 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, the 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.  Currently, Home Properties owns and operates 116 communities containing 38,861 apartment units.  For more information, visit Home Properties' website at homeproperties.com.

SOURCE Home Properties