Home Properties Reports First Quarter 2012 Results

FFO Per Share Exceeds Wall Street's Mean Estimate by 5 Cents

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May 03, 2012, 04:30 ET

ROCHESTER, N.Y., May 3, 2012 /PRNewswire/ -- Home Properties, Inc. (NYSE: HME) today released financial results for the first quarter ended March 31, 2012. All results are reported on a diluted basis.

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"Home Properties core property net operating income growth in the first quarter of 2012 was the highest for any first quarter in the last five years," said Edward J. Pettinella, Home Properties President and CEO. "Increases in rental revenues and occupancy exceeded the strong results in both the prior quarter and the first quarter a year ago, reflecting the positive fundamentals in the multifamily business environment as well as our successful property management operations in prime apartment markets."

Earnings per share ("EPS") for the quarter ended March 31, 2012 was $0.31, compared to $0.19 for the quarter ended March 31, 2011. The $0.12 increase in EPS is primarily attributable to a $9.4 million increase in income from continuing operations from both the properties owned throughout 2011 and 2012 (the "Core" properties) and those acquired, developed, or redeveloped subsequent to January 1, 2011 (the "Non-Core" properties).

For the quarter ended March 31, 2012, Funds From Operations ("FFO") were $58.4 million, or $0.98 per share, compared to $43.2 million, or $0.86 per share, for the quarter ended March 31, 2011, which equates to a 13.2% increase on a per-share basis. First quarter 2012 FFO of $0.98 per share was $0.06 above the midpoint of the guidance range provided by management and $0.05 above the analysts' mean estimate, as reported by Thomson. 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 2012, same-property comparisons (for 113 Core properties containing 37,811 apartment units owned since January 1, 2011) reflected an increase in rental income of 5.1% and a 4.6% increase in total revenues compared to the same quarter a year ago. Net operating income ("NOI") increased by 9.9% from the first quarter of 2011. Property level operating expenses decreased by 2.8% compared to the prior year quarter, primarily due to decreases in natural gas heating costs, personnel expense and snow removal costs, which were partially offset by an increase in repairs & maintenance, property insurance and real estate taxes. Adjusting the first quarter NOI results to take out the positive effects from the extremely mild weather, which resulted in lower natural gas heating costs and snow removal expenses offset by lower heating cost reimbursements from residents, NOI growth was 7.8%.

Average physical occupancy for the Core properties was 95.5% during the first quarter of 2012, up from 95.3% during the first quarter of 2011. Average monthly rental rates of $1,207 represent a 4.8% increase compared to the year-ago period.

On a sequential basis, compared to the 2011 fourth quarter results for Core properties, rental income (excluding utility recovery) increased 0.9% in the first quarter of 2012, total revenues increased 2.8%, expenses increased 5.6% and NOI increased 1.1%. Average physical occupancy increased 0.2% to 95.5%.

Physical occupancy for the 4,218 apartment units acquired/developed/redeveloped between January 1, 2011 and March 31, 2012 averaged 87.2% during the first quarter of 2012, at average monthly rents of $1,446.

Acquisitions/Dispositions

There were no acquisitions or dispositions of apartment communities during the first quarter of 2012.

Development

As of March 31, 2012, renovation of the rail depot and construction of three of the eight apartment buildings comprising The Apartments at Cobblestone Square, located in Fredericksburg, Virginia, were completed, placing 129 apartment units into service. Construction of the other five buildings, which will contain 185 apartment units, has begun. The entire project is expected to be completed in the second quarter of 2012.

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 third quarter of 2013, with completion of the entire project anticipated in 2014.

The Company purchased a land parcel located in Conshohocken, Pennsylvania in the fourth quarter of 2011. Construction of the 385 apartment units, comprising Courts at Spring Mill Station, is expected to begin in the second quarter of 2012. Initial occupancy is projected for the second half of 2013, and the entire project is expected to be completed in 2014.

Capital Markets Activities

As of March 31, 2012, the Company's ratio of debt-to-total market capitalization was 42.6% (based on a March 31, 2012 stock price of $61.01 used to determine equity value), with $65.5 million outstanding on its $275 million revolving credit facility and $9 million of unrestricted cash on hand. Total debt of $2.7 billion was outstanding, at interest rates averaging 4.7% and with staggered maturities averaging six years. Approximately 81% of total indebtedness is at fixed rates. Interest coverage for the quarter was 2.9 times and the fixed charge ratio was 2.8 times.

The Company has an At-The-Market equity offering program through which it may sell up to 3.6 million common shares. During 2012, 188,393 shares were issued at an average price of $59.22 generating gross proceeds of $11.2 million and net proceeds of $10.9 million. There are 207,500 common shares remaining under this program.

Outlook

Based solely on the actual first quarter results as compared to expectations, the Company has increased the midpoint of its prior guidance by six cents to $3.93 and the range of FFO per share to $3.87 to 3.99. The guidance range of FFO per share results for the second quarter of 2012 is $0.93 to $0.97, and the range for Operating FFO per share for the second quarter is $0.94 to $0.98. The Company expects to include additional commentary on projected results for the balance of the year when it announces second quarter 2012 financial results.

Dividend Declared

The Company announced a regular cash dividend on the Company's common shares of $0.66 per share for the quarter ended March 31, 2012. The dividend is payable on May 25, 2012 to shareholders of record on May 15, 2012 and is equivalent to an annualized rate of $2.64 per share. The current annual dividend represents a 4.3% yield based on the April 30 closing price of $61.05. Home Properties' common stock will begin trading ex-dividend on May 11, 2012.

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.

First Quarter 2012 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).

Second Quarter 2012 Conference/Event Schedule

Home Properties is scheduled to participate in REITWeek 2012:® NAREIT's Investor Forum® from June 12-14, 2012 in New York City. Management will present information and answer questions about its operations on Wednesday, June 13, from 11:00-11:30 AM ET. The audio presentation and related materials will be available at homeproperties.com in the "Investors" section. Details on how to access any presentation or related materials will be available at homeproperties.com in the "Investors" section.

Second Quarter 2012 Earnings Release and Conference Call

The Company's second quarter 2012 financial results are scheduled to be released after the stock market closes on Thursday, August 2, 2012. A conference call, which will be simultaneously webcast, is scheduled for Friday, August 3, 2012 at 11:00 AM ET and will be accessible following the instructions 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 124 communities containing 42,068 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
First Quarter Results:	Occupancy(a)		1Q 2012	1Q 2012 vs. 1Q 2011 % Growth

			Average
			Monthly	Base
			Rent/	Rental	Total	Total
	1Q 2012	1Q 2011	Occ Unit	Rates	Revenue	Expense	NOI

Core Properties(b)	95.5%	95.3%	$1,207	4.8%	4.6%	(2.8%)	9.9%

Non-Core Properties(c)	87.2%	NA	$1,446	NA	NA	NA	NA

TOTAL PORTFOLIO	94.5%	NA	$1,231	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 37,811 apartment units owned throughout 2011 and 2012.

(c) Non-Core Properties consist of 11 properties with 4,218 apartment units acquired, developed, or redeveloped subsequent to January 1, 2011, 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
	March 31
	2012	2011
Rental income	$ 145,194	$ 127,421
Property other income	15,114	13,924
Other income	10	53
Total revenues	160,318	141,398

Operating and maintenance	61,271	58,279
General and administrative	8,312	6,236
Interest	31,526	33,031
Depreciation and amortization	40,405	34,479
Other expenses	18	10
Total expenses	141,532	132,035

Net income	18,786	9,363

Net income attributable to noncontrolling interest	(3,398)	(2,139)

Net income attributable to common stockholders	$ 15,388	$ 7,224

Reconciliation from net income attributable to common stockholders to Funds From Operations:
Net income available to common stockholders	$ 15,388	$ 7,224
Real property depreciation and amortization	39,658	33,815
Noncontrolling interest	3,398	2,139

FFO - basic and diluted (1)	$ 58,444	$ 43,178

(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 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
	March 31
	2012	2011
FFO – basic and diluted	$ 58,444	$ 43,178
FFO – basic and diluted	$ 58,444	$ 43,178
Acquisition costs of closed deals included in other expenses	18	10
Operating FFO (2)	$ 58,462	$ 43,188
FFO – basic and diluted	$ 58,444	$ 43,178
Recurring non-revenue generating capital expenses	(8,900)	(7,772)
Add back of non-cash interest expense	-	538
AFFO (3)	$ 49,544	$ 35,944
Operating FFO	$ 58,462	$ 43,188
Recurring non-revenue generating capital expenses	(8,900)	(7,772)
Add back of non-cash interest expense	-	538
Operating AFFO (2) (3)	$ 49,562	$ 35,954
Weighted average shares/units outstanding:
Shares – basic	48,334.5	38,004.2
Shares – diluted	49,013.0	38,659.8
Shares/units – basic (4)	59,037.5	49,292.6
Shares/units – diluted (4)	59,716.1	49,948.2
Per share/unit:
Net income – basic	$0.32	$0.19
Net income – diluted	$0.31	$0.19
FFO – basic	$0.99	$0.88
FFO – diluted	$0.98	$0.86
Operating FFO (2)	$0.98	$0.86
AFFO (3)	$0.83	$0.72
Operating AFFO (2) (3)	$0.83	$0.72
Common Dividend paid	$0.66	$0.62

(2) Operating FFO is defined as FFO as computed in accordance with NAREIT definition, adjusted for the add back of acquisition costs on closed deals.

(3) Adjusted Funds From Operations ("AFFO") is defined as gross FFO less an annual reserve for anticipated recurring, non-revenue generating capitalized costs of $848 and $800 per apartment unit in 2012 and 2011, respectively. Non-cash interest expense of the exchangeable senior notes in accordance with ASC 470-20 (formerly APB14-1) has been added back for 2011. 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)

	March 31, 2012	December 31, 2011
Land	$ 721,497	$ 721,542
Construction in progress	73,313	64,201
Buildings, improvements and equipment	4,296,309	4,256,581
	5,091,119	5,042,324
Accumulated depreciation	(1,023,402)	(983,759)
Real estate, net	4,067,717	4,058,565

Cash and cash equivalents	8,676	8,297
Cash in escrows	34,504	32,604
Accounts receivable	12,950	12,142
Prepaid expenses	16,417	15,994
Deferred charges	15,556	16,322
Other assets	16,210	9,282

Total assets	$ 4,172,030	$ 4,153,206

Mortgage notes payable	$ 2,222,204	$ 2,260,836
Unsecured notes payable	400,000	400,000
Unsecured line of credit	65,500	2,500
Accounts payable	21,114	20,953
Accrued interest payable	11,799	10,286
Accrued expenses and other liabilities	25,904	29,474
Security deposits	19,519	19,513

Total liabilities	2,766,040	2,743,562

Common stockholders' equity	1,153,734	1,153,668
Noncontrolling interest	252,256	255,976
Total equity	1,405,990	1,409,644

Total liabilities and equity	$ 4,172,030	$ 4,153,206

Total shares/units outstanding:
Common stock	48,644.3	48,321.3
Operating partnership units	10,670.4	10,739.8
	59,314.7	59,061.1