Home Properties Reports Fourth Quarter and Full Year 2010 Results

ROCHESTER, N.Y., Feb. 17, 2011 /PRNewswire/ -- Home Properties (NYSE: HME) today released financial results for the fourth quarter and year ended December 31, 2010.  All results are reported on a diluted basis.

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"In 2010, Home Properties repeated its 2009 leadership in same-store Net Operating Income ("NOI") growth among the publicly-traded apartment companies, again demonstrating the consistently-strong performance of our geographic markets, property type and repositioning business model," said Home Properties' President and CEO Edward J. Pettinella.

Earnings per share ("EPS") for the quarter ended December 31, 2010 was $0.18, compared to $0.36 for the quarter ended December 31, 2009.  The $0.18 decrease in EPS was primarily a result of the net effects of an increase in income from continuing operations of $0.03 per share combined with a decrease of $0.24 per share in gain on disposition of property.  EPS for the year ended December 31, 2010 was $0.54, compared to $1.04 for the year ended December 31, 2009.  The year-over-year decrease of $0.50 per share was primarily attributable to a $0.54 per share decrease in gain on disposition of properties offset by a $0.09 per share decrease in losses from discontinued operations.  

For the quarter ended December 31, 2010, Funds From Operations ("FFO") was $41.9 million, or $0.85 per share, compared to $35.4 million, or $0.77 per share, for the quarter ended December 31, 2009.  Fourth quarter 2010 FFO of $0.85 per share was $0.06 above analysts' mean estimate, as reported by Thomson, and the midpoint of the guidance range provided by management.  FFO for the year ended December 31, 2010 was $3.10 per share, compared to $3.22 in the year-ago period.  Year-to-date 2010 FFO includes $0.06 in costs related to the acquisition of nine properties for a total of $339 million, which are 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.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

Fourth Quarter Operating Results

For the fourth 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 1.4% compared to the same quarter a year ago.  Net operating income ("NOI") increased by 3.8% from the fourth quarter of 2009.  Property level operating expenses decreased by 2.0% compared to the prior year quarter, primarily due to decreases in natural gas heating costs, property insurance, and snow removal costs, which were partially offset by increases in water and sewer expense, repairs and maintenance costs, personnel expense and real estate taxes.

Average physical occupancy for the Core properties was 95.1% during the fourth quarter of 2010, up from 95.0% during the fourth quarter of 2009.  Average monthly rental rates of $1,147 represent a 1.4% increase compared to the year-ago period.

On a sequential basis, compared to the 2010 third quarter results for the Core properties, rental income (including utility recovery) increased 1.8% in the fourth quarter of 2010, total revenues increased 1.4%, expenses were up 4.0%, and net operating income decreased 0.3%.  The sequential expense growth and NOI reduction can be attributed to the typical seasonality of higher gas heating and snow removal costs incurred in the fourth quarter.  Average physical occupancy decreased 0.3% to 95.1%.

Physical occupancy for the 3,063 apartment units acquired/developed between January 1, 2009 and December 31, 2010 averaged 89.4% during the fourth quarter of 2010, at average monthly rents of $1,273.  Of the 3,063 apartment units, 2,614 units relate to communities acquired during 2010 with average occupancy of 93.8% and average monthly rents of $1,169.  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 73.7% for the quarter with average monthly rents of $1,873.  See additional information below in the acquisitions/dispositions and development sections.

Year-to-Date Operating Results

For the year ended December 31, 2010, same-property comparisons for the Core properties reflected an increase in total revenues of 0.3% and a decrease in total expenses of 1.7%, resulting in a 1.7% increase in net operating income compared to 2009.  Property level operating expenses declined 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, personnel expense and snow removal costs.

Average physical occupancy for the Core properties was 95.2% during 2010, up from 94.8% a year ago, with average monthly rental rates of $1,136, a decrease of 0.2% over the prior year.

Acquisitions/Dispositions

As previously reported, 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.  In 2010, the Company 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 of apartment communities during 2010.

Development

In December 2010, the Company completed construction on 1200 East West Highway in Silver Spring, Maryland.  Move-ins began in mid-March.  Currently, 100% of the 247 units are leased.

The Company has one community currently under construction, The Courts at Huntington Station.  Phase One, comprised of 202 units, is substantially complete and 90.6% 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 and is projected to reach stabilized occupancy a year later.

Capital Markets Activities

As of December 31, 2010, the Company's ratio of debt-to-total market capitalization was 48.9% (based on a December 31, 2010 stock price of $55.49 to determine equity value), with $57 million outstanding on its $175 million revolving credit facility and $11 million of unrestricted cash on hand.  Total debt of $2.6 billion was outstanding, at rates of interest averaging 5.2% and with staggered maturities averaging approximately seven years.  Approximately 90% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.3 times and the fixed charge ratio averaged 2.2 times.

During the fourth quarter of 2010, the Company refinanced maturing loans with a principal balance of $284 million and a weighted average interest rate of 5.8%.  The new loans placed were for $408 million with a weighted average interest rate of 4.6%.  In 2010, the Company refinanced a total of $427 million with a weighted average interest rate of 6.0% with new loans in the amount of $628 million with a weighted average interest rate of 4.7%.  The annual interest savings generated by these transactions is approximately $5.6 million.

"The Company continues to benefit from its multifamily focus as the Government Sponsored Enterprises Fannie Mae and Freddie Mac were very active in lending to apartment owners in 2010.  The Company was able to reduce 2011 maturities from $299 million at the beginning of the year to $45 million at December 31, 2010.  Additionally, the reduction in annual interest from these transactions will add approximately $0.11 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.

On February 10, 2011, the Company amended and extended until August 31, 2012 its $175 million unsecured line of credit agreement.  The amended agreement includes a one-year extension at the Company's option, lowers the spread over LIBOR, the unused facility fee and the cap rate used for asset valuation purposes, and eliminates the LIBOR floor.

Outlook

For 2011, the Company expects FFO between $3.30 and $3.46 per share, which will produce FFO per share growth of 6.3% to 11.5% when compared to 2010 results.  This guidance range reflects management's current assessment of economic and market conditions.  The assumptions for the 2011 projections are included with the published supplemental information.

Dividend Increase Declared

The Company today announced a $0.04 per share increase to its regular quarterly cash dividend on common shares.  The increase of 6.9% raises the quarterly dividend from $0.58 per share to $0.62 for the quarter ended December 31, 2010.  The dividend is payable on March 4, 2011 to shareholders of record on February 28, 2011 and is equivalent to an annualized rate of $2.48 per share.  The current annual dividend represents a 4.5% yield based on yesterday's closing price of $55.26.  Home Properties' common stock will begin trading ex-dividend on February 24, 2011.

"The Board's decision to increase the quarterly dividend reflects the better-than-anticipated same-store net operating income and Funds From Operations growth in 2010 and expectations that this trend will further improve in 2011," said Pettinella.

Corporate Governance

At its February meeting, in anticipation of the retirement from the Board of Directors of Co-Chairs Nelson B. Leenhouts and Norman Leenhouts, the Board appointed Clifford W. Smith, Jr. as Chair of the Board, effective following the May 3, 2011 annual shareholders' meeting.  An independent director since the Company's initial public offering in 1994, Smith is Professor of Finance at the William E. Simon Graduate School of Business Administration of the University of Rochester.  The Leenhouts are retiring from the Board having reached the Company's mandatory Board retirement age.  They retired as Co-CEOs of Home Properties on January 1, 2004.

The Board also approved a shareholder-friendly revised Executive Retention Plan that eliminates both the excise tax gross-up payment to certain executives upon termination of employment following a change in control and the rights of those executives to terminate employment for any reason during a 30-day window following the one-year anniversary of a change in control, converting the Plan into a full "double trigger" plan.  The Company also adopted new stock ownership guidelines requiring executive officers to acquire and retain certain levels of equity ownership in the Company.

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.

Fourth Quarter and Full Year 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 800-913-1647 (International 212-231-2900).  An audio replay of the call will be available through February 25, 2011, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21485981. 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.

First Quarter 2011 Conference/Event Schedule

Home Properties' President and CEO, Edward J. Pettinella, is scheduled to participate in a roundtable presentation and question and answer session at the 2011 Citi Global Property CEO Conference in Hollywood, Florida, on Tuesday, March 15, 2011 at 9:30 AM ET.  Details on how to access any presentation or related materials will be available at homeproperties.com in the "Investors" section.

First Quarter 2011 Earnings Release and Conference Call

The first quarter financial results are scheduled to be released after the stock market closes on Thursday, May 5, 2011.  A conference call, which will be simultaneously webcast, is scheduled for Friday, May 6, 2011 at 11:00 AM ET and is accessible following the above instructions.

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 115 communities containing 38,861 apartment units.  For more information, visit Home Properties' website at homeproperties.com.

SOURCE Home Properties