Home Properties Reports First Quarter 2010 Results

ROCHESTER, N.Y., May 6 /PRNewswire-FirstCall/ -- Home Properties (NYSE: HME) today released financial results for the first quarter ending March 31, 2010.  All results are reported on a diluted basis.

"We are encouraged by better-than-expected first quarter results as we enter the peak leasing season," said Edward J. Pettinella, Home Properties President and CEO.  "First quarter occupancy was strong, move-outs were at a record low and we now are becoming more aggressive on increasing rental rates.  Our acquisition of two properties in April, coupled with strong operating results, contributes to our optimism that the business environment is improving."

Earnings per share ("EPS") for the quarter ended March 31, 2010 was $0.07, compared to $0.33 for the quarter ended March 31, 2009.  The $0.26 decrease in EPS is primarily attributable to the $0.30 per share gain on disposition of three properties that were sold in the first quarter of 2009 for a gain of $13.5 million.  There were no dispositions in the first quarter of 2010.

For the quarter ended March 31, 2010, Funds From Operations ("FFO") was $33.2 million, or $0.71 per share, compared to $35.9 million, or $0.79 per share, for the quarter ended March 31, 2009, and equates to an 11% decrease from the prior year.  First quarter 2010 FFO of $0.71 per share included $0.05 in costs related to record severe storms that increased snow removal costs ($0.037) and insurance costs from flooding ($0.013) in the Company's Mid-Atlantic and Boston area markets, respectively.  Excluding these unusual costs, FFO per share would have been $0.76 or a 4.7% decrease compared to 2009 results for the same period.  FFO of $0.71 for the 2010 first quarter was $0.03 above the midpoint of management's guidance range, which already included $0.02 for storm-related expenses.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

First Quarter Operating Results

For the first quarter of 2010, same-property comparisons (for 105 "Core" properties containing 35,798 apartment units owned since January 1, 2009) reflected a decrease in total revenues of 0.5% compared to the same quarter a year ago.  Net operating income ("NOI") decreased by 1.7% from the first quarter of 2009.  Excluding unusual weather-related expenses of $0.05 per share, NOI would have increased by 1.6%.  Property level operating expenses increased by 1.0% compared to the prior year quarter, primarily due to increases in property insurance and snow removal costs, which were partially offset by decreases in electricity, natural gas heating costs and repairs and maintenance.

Average physical occupancy for the Core properties was 94.8% during the first quarter of 2010, up from 94.3% during the first quarter of 2009.  Average monthly rental rates of $1,126 represent a 1.5% decrease compared to the year-ago period.

On a sequential basis, compared to the 2009 fourth quarter results for the Core properties, total revenues increased 1.2% in the first quarter of 2010, expenses were up 8.6% and net operating income decreased 4.1%.  Average physical occupancy decreased 0.2% to 94.8%.  The sequential expense growth can be attributed to the typical seasonality of higher gas heating and snow removal costs incurred in the first quarter.

Physical occupancy for the 114 net apartment units developed between January 1, 2009 and March 31, 2010 (the "Recently Acquired Communities") averaged 11.3% during the first quarter of 2010, at average monthly rents of $1,846.  This is solely the result of initial lease-up activity at 1200 East West Highway, which opened its doors to new residents in March 2010.  See additional information below in the development section.

Acquisitions/Dispositions

There were no acquisitions or dispositions during the first quarter of 2010.

As previously reported, subsequent to the end of the first quarter, on April 1, 2010, the Company purchased two properties with a total of 318 units in the Baltimore region for a combined $23.7 million.  Closing costs of $0.23 million will be expensed and included in general and administrative expenses in the second quarter of 2010.

Development

The Company has two projects currently under construction, 1200 East West Highway and The Courts at Huntington Station.  1200 East West Highway is in Silver Spring, Maryland and construction is expected to be completed during the second quarter of 2010.  As of April 30, 2010, 44 of the 209 units available to rent are occupied and another 47 units are pre-leased.

The Courts at Huntington Station is in Alexandria, Virginia, and construction of the 202 units in Phase I is expected to be completed during the second quarter of 2010.  Initial occupancy is expected in May, 2010 and the lease-up period is projected to last eleven months.  Construction on Phase II (219 units) has commenced and is scheduled to be complete in the second quarter of 2011, reaching stabilized occupancy a year later.

Capital Markets Activities

As of March 31, 2010, the Company's ratio of debt-to-total market capitalization was 50.4% (based on a March 31, 2010 stock price of $46.80 to determine equity value), with $11 million outstanding on its $175 million revolving credit facility and $9 million of unrestricted cash on hand.  Total debt of $2.3 billion was outstanding, at rates of interest averaging 5.5% and with staggered maturities averaging approximately six years.  Approximately 89% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.1 times, and the fixed charge ratio averaged 1.9 times.

The Company did not repurchase any of its common shares during the first quarter.  As of March 31, 2010, the Company has Board authorization to buy back up to approximately 2.3 million additional shares of its common stock or Operating Partnership Units.

The Company has an At-The-Market ("ATM") equity offering program through which it may sell up to 3.7 million common shares, not to exceed $150 million of gross proceeds.  During the first quarter, 1,285,700 shares were issued at an average price of $46.74 generating net proceeds of $59 million, including 169,600 shares that generated $8 million of net proceeds from the first few days of January, 2010, which previously had been reported.  Subsequent to the end of the quarter, the settlement of pending trades at March 31, 2010 resulted in an additional 155,900 shares issued at an average price of $46.92 generating net proceeds of $7 million.  Since inception, 2,313,200 shares have been issued at an average price of $46.36 generating gross proceeds of $107 million and net proceeds of $105 million, including pending trades.

Outlook

For 2010, the Company has increased the midpoint of its prior guidance to $2.90 while tightening the range of FFO per share to $2.81 to $2.99 from $2.75 to $2.99.  This guidance range reflects management's current assessment of economic and market conditions.

The quarterly breakdown for the balance of 2010 guidance on FFO per share results remains unchanged and is as follows:  Second quarter $0.68 to $0.74; third quarter $0.72 to $0.78; fourth quarter $0.70 to $0.76.

Dividend Declared

The Company announced a regular cash dividend on the Company's common shares of $0.58 per share for the quarter ended March 31, 2010.  The dividend is payable on May 27, 2010 to shareholders of record on May 17, 2010 and is equivalent to an annualized rate of $2.32 per share.  The current annual dividend represents a 4.6% yield based on yesterday's closing price of $50.10.  Home Properties' common stock will begin trading ex-dividend on May 13, 2010.

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 Web site through the "Investors" section, e-mail or facsimile upon request.

First Quarter 2010 Earnings Conference Call

The Company will conduct a conference call and simultaneous webcast tomorrow at 11:15 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 May 13, 2010, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21442491.  The Company webcast, which includes audio and a slide presentation, will be available, live at 11:15 AM and archived by 1:00 PM, through the "Investors" section home page of the Web site, homeproperties.com.

Second Quarter 2010 Conference/Event Schedule

Home Properties is scheduled to participate in REITWeek 2010: NAREIT's Investor Forum® from June 9-11, 2010 in Chicago.  Management will present information and answer questions about its operations on Thursday, June 10, from 11:15-11:50 AM CT.  The audio presentation and related materials will be available in the "Investors" section of Home Properties' Web site.

Second Quarter 2010 Earnings Release and Conference Call

The second quarter financial results are scheduled to be released after the stock market closes on Thursday, August 5, 2010.  A conference call, which will be simultaneously webcast, is scheduled for Friday, August 6, 2010 at 11:00 AM ET and is accessible following the above instructions.  The passcode for that replay will be 21442492.

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, Mid-Atlantic and Southeast Florida markets.  Currently, Home Properties operates 110 communities containing 37,475 apartment units.  Of these, 36,325 units in 108 communities are owned directly by the Company; 868 units are partially owned and managed by the Company as general partner, and 282 units are managed for other owners.  For more information, visit Home Properties' Web site at homeproperties.com.

Tables to follow.

(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 105 properties with 35,798 apartment units owned throughout 2009 and 2010.

(c)  Acquisition Properties consist of 1 property with 114 apartment units developed subsequent to January 1, 2009.

(1)  Pursuant to the revised definition of Funds From Operations adopted 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, noncontrolling interest and extraordinary items plus depreciation from real property.  In 2009, the Company added back debt extinguishment costs which were incurred as a result of repaying property-specific debt triggered upon sale as a gain or loss on sale of the 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.

(2)  Operating FFO is defined as FFO as computed in accordance with NAREIT definition, adjusted for the addback of real estate impairment charges.

(3)  Adjusted Funds From Operations ("AFFO") is defined as gross FFO less an annual reserve for anticipated recurring, non-revenue generating capitalized costs of $800 per apartment unit in 2010 and 2009.  Non-cash interest expense and non-cash adjustments to gain on early extinguishment of debt have been added back for 2010 and 2009.  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.

SOURCE Home Properties