Home Properties Reports Fourth Quarter and Full Year 2013 Results

News provided by

Feb 06, 2014, 04:30 ET

ROCHESTER, N.Y., Feb. 6, 2014 /PRNewswire/ -- Home Properties, Inc. (NYSE: HME) today released financial results for the fourth quarter and year ended December 31, 2013. All results are reported on a diluted basis.

(Logo: http://photos.prnewswire.com/prnh/20101026/NY89070LOGO )

"Home Properties continued its track record of consistent performance in 2013, delivering solid operating results as well as further strengthening its balance sheet to enhance future financial flexibility," said Edward J. Pettinella, Home Properties President and CEO.

Earnings per share ("EPS") for the quarter ended December 31, 2013 was $0.99 compared to $1.34 for the quarter ended December 31, 2012. The $0.35 reduction in fourth quarter 2013 EPS was primarily attributable to a $24.7 million lower gain on dispositions of property, partially offset by an $8.0 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 year ended December 31, 2013 was $2.93 compared to $2.69 for the year ended December 31, 2012. The $0.24 increase in EPS in 2013 is primarily attributable to a $33.6 million increase in income from continuing operations.

For the quarter ended December 31, 2013, Funds From Operations ("FFO") was $75.2 million, or $1.11 per share, compared to $68.3 million, or $1.09 per share, for the quarter ended December 31, 2012, which equates to a 1.6% increase on a per-share basis. FFO for the year ended December 31, 2013 was $4.37 per share, compared to $4.13 per share in the year-ago period, which equates to a 5.9% increase on a per-share basis. 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 2013, same-property comparisons (for 112 Core properties containing 38,440 apartment units owned since January 1, 2012) reflected an increase of 2.9% in base rental rates and an increase of 2.7% in total revenues compared to the same quarter a year ago. Net operating income ("NOI") increased by 3.2% from the fourth quarter of 2012. Property level operating expenses increased by 1.9% compared to the prior year quarter, primarily due to increases in repairs & maintenance, legal & professional expense, and snow removal costs, which were partially offset by a decrease in natural gas heating costs.

Average physical occupancy for the Core properties was 94.9% during the fourth quarter of 2013, compared to 95.4% during the fourth quarter of 2012. Average monthly rental rates of $1,309 represent a 2.9% increase compared to the year-ago period.

On a sequential basis, compared to the 2013 third quarter results for Core properties, rental income (excluding utility recovery) increased 0.6% in the fourth quarter of 2013, total revenues increased 1.3%, expenses were up 2.3% and NOI increased 0.7%. Average physical occupancy decreased 0.1% to 94.9%.

Physical occupancy for the 3,640 apartment units acquired/developed/redeveloped between January 1, 2012 and December 31, 2013 averaged 92.0% during the fourth quarter of 2013, at average monthly rents of $1,314.

Full Year Operating Results

For the year ended December 31, 2013, same-property comparisons for the Core properties reflected an increase in total revenues of 3.2% and an increase in total expenses of 1.8%, resulting in a 4.0% increase in NOI compared to 2012. Property level operating expenses increased primarily due to personnel expense, real estate taxes and snow removal costs. These increases were partially offset by decreases in repairs & maintenance, office & telephone and property insurance expense.

Average physical occupancy for the Core properties was 95.3% during 2013, down slightly from 95.4% a year ago, with average monthly rental rates of $1,294, an increase of 3.2% over the prior year period.

Acquisitions/Dispositions

As previously reported, during the fourth quarter of 2013, the Company acquired one apartment community with 205 units in the Philadelphia region and one apartment community with 252 units in the Boston region. The combined purchase price of $55.8 million was paid in cash. In connection with these acquisitions, closing costs of $0.2 million were incurred and are included in other expenses in the fourth quarter of 2013.

During the fourth quarter of 2013, as previously reported, the Company sold a 344-unit apartment community in the Washington, D.C. region for $68 million. A gain on sale of $36.2 million was recorded in the fourth quarter of 2013 related to this sale.

For the year ended December 31, 2013, the Company sold four apartment communities with 1,013 units for a total consideration of $192.1 million. The weighted average historical capitalization rate on these sales was 5.8% after applying a 2.7% management fee and before capital expenditures.

Development

Construction continued as planned on Eleven55 Ripley and Courts at Spring Mill Station.

The Company purchased a land parcel located in Linthicum, Md. in the fourth quarter of 2013 for $13.8 million, which includes the closing costs. A construction start date for the approximately 300 apartment units which will comprise the Concorde Circle community has not been determined, but is not anticipated to occur earlier than late 2014 or into 2015.

Capital Markets Activities

On November 11, 2013, Moody's Investors Services assigned a Baa2 issuer rating to Home Properties.

As of December 31, 2013, the Company's ratio of debt-to-total market capitalization was 40.5% (based on a December 31, 2013 stock price of $53.62 used to determine equity value), with $193 million outstanding on its $450 million revolving credit facility and $9.9 million of unrestricted cash on hand. Total debt of $2.5 billion was outstanding, at interest rates averaging 4.4% and with staggered maturities averaging four years. Approximately 89% of total indebtedness was at fixed rates. Interest coverage for the quarter was 3.9 times and the fixed charge ratio was 3.6 times. For the full year, interest coverage was 3.5 times and the fixed charge ratio was 3.3 times.

During the quarter, the Company repaid a $27.6 million variable-rate mortgage in connection with a property disposition, which triggered a prepayment penalty of $0.3 million. In addition, the Company repaid two mortgages securing one property totaling $29.1 million. This property is now part of the unencumbered asset pool. As of December 31, 2013, the unencumbered asset pool represented 47.8% of total value, up from 37.5% at December 31, 2012.

During the fourth quarter of 2013, the Company did not issue any new shares through its
At-The-Market equity offering program. There are approximately two million common shares that remain available under this program.

Outlook

For 2014, the Company expects FFO between $4.44 and $4.60 per share, which will produce FFO per share growth of 1.6% to 5.3% when compared to 2013 results. "FFO growth in 2014, especially the first half of the year, is impacted by the continued dilution from the Company's July 2013 public stock offering," said David P. Gardner, Executive Vice President and Chief Financial Officer.

The guidance range on FFO per share results for the first quarter of 2014 is $1.02 to $1.06. This guidance range reflects management's current assessment of economic and market conditions. The assumptions for the 2014 projections are included with the published supplemental information.

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.

Fourth Quarter 2013 Earnings Conference Call

The Company will conduct a conference call and simultaneous webcast on February 7, 2014 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).

First Quarter 2014 Conference/Event Schedule

Home Properties is scheduled to participate in Wells Fargo Securities' Real Estate Securities Conference on February 27, 2014 in New York City and in Citi's 2014 Global Property CEO Conference March 3-5, 2014 in Hollywood, FL. Presentation materials will be available at www.homeproperties.com in the "Investors" section.

First Quarter 2014 Earnings Release and Conference Call

The Company's first quarter 2014 financial results are scheduled to be released after the stock market closes on Thursday, May 1, 2014. A conference call, which will be simultaneously webcast, is scheduled for Friday, May 2, 2014 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 120 communities containing 42,297 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
Fourth Quarter Results:	Occupancy^(a)		4Q 2013	4Q 2013 vs. 4Q 2012 % Growth
			Average
			Monthly	Base
			Rent/	Rental	Total	Total
	4Q 2013	4Q 2012	Occ Unit	Rates	Revenue	Expense	NOI
Core Properties^(b)	94.9%	95.4%	$1,309	2.9%	2.7%	1.9%	3.2%
Non-Core Properties^(c)	92.0%	NA	$1,314	NA	NA	NA	NA
TOTAL PORTFOLIO	94.7%	NA	$1,310	NA	NA	NA	NA

	Avg. Physical
Year-To-Date Results:	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)	95.3%	95.4%	$1,294	3.2%	3.2%	1.8%	4.0%
Non-Core Properties^(c)	91.0%	NA	$1,306	NA	NA	NA	NA
TOTAL PORTFOLIO	95.0%	NA	$1,295	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 112 properties with 38,440 apartment units owned throughout 2012 and 2013.

^(c)	Non-Core Properties consist of 7 properties with 3,640 apartment units acquired, developed, or
	redeveloped subsequent to January 1, 2012, such that full year comparable operating results are not
	available. Non-Core Properties excludes properties still under development where construction is not
	100% complete.

HOME PROPERTIES, INC.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data – Unaudited)

	Three Months Ended		Year Ended
	December 31		December 31
	2013	2012	2013	2012
Rental income	$153,793	$149,169	$608,994	$575,969
Property other income	13,490	12,896	53,426	50,709
Other income	508	247	1,180	311
Total revenues	167,791	162,312	663,600	626,989
Operating and maintenance	59,647	58,553	238,510	229,290
General and administrative	5,935	6,807	28,507	34,174
Interest	26,334	31,597	113,911	123,874
Depreciation and amortization	44,335	42,074	172,903	161,047
Other expenses	264	15	312	2,741
Total expenses	136,515	139,046	554,143	551,126
Income from continuing operations	31,276	23,266	109,457	75,863
Discontinued operations
Income (loss) from discontinued operations	(247)	(88)	917	7,227
Gain on disposition of property	36,201	60,865	81,205	80,532
Discontinued operations	35,954	60,777	82,122	87,759
Net income	67,230	84,043	191,579	163,622
Net income attributable to noncontrolling interest	(10,311)	(14,269)	(30,706)	(28,320)
Net income attributable to common stockholders	$ 56,919	$ 69,774	$160,873	$135,302
Reconciliation from net income attributable to common stockholders to Funds From Operations:
Net income attributable to common stockholders	$ 56,919	$ 69,774	$160,873	$135,302
Real property depreciation and amortization	43,792	42,970	172,624	166,411
Noncontrolling interest	10,311	14,269	30,706	28,320
Gain on disposition of property	(36,201)	(60,865)	(81,205)	(80,532)
FFO - basic and diluted, as defined by NAREIT	74,821	66,148	282,998	249,501
Loss from early extinguishment of debt in connection with sale of real estate	366	2,157	1,782	2,157
FFO - basic and diluted ⁽¹⁾	$ 75,187	$ 68,305	$284,780	$251,658

⁽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		Year Ended
	December 31		December 31
	2013	2012	2013	2012
FFO – basic and diluted	$ 75,187	$ 68,305	$ 284,780	$ 251,658
FFO – basic and diluted	$ 75,187	$ 68,305	$ 284,780	$ 251,658
Acquisition costs of closed deals included in other expenses	264	15	312	2,741
Operating FFO ⁽²⁾	$ 75,451	$ 68,320	$ 285,092	$ 254,399
FFO – basic and diluted	$ 75,187	$ 68,305	$ 284,780	$ 251,658
Recurring non-revenue generating capital expenses	(8,857)	(9,163)	(35,687)	(36,457)
AFFO⁽³⁾	$ 66,330	$ 59,142	$ 249,093	$ 215,201
Operating FFO	$ 75,451	$ 68,320	$ 285,092	$ 254,399
Recurring non-revenue generating capital expenses	(8,857)	(9,163)	(35,687)	(36,457)
Operating AFFO^{(2) (3)}	$ 66,594	$ 59,157	$ 249,405	$ 217,942
Weighted average shares/units outstanding:
Shares – basic	56,944.9	51,314.0	54,328.5	49,744.6
Shares – diluted	57,327.9	51,920.1	54,820.2	50,382.6
Shares/units – basic ⁽⁴⁾	67,270.3	61,829.4	64,702.1	60,364.7
Shares/units – diluted ⁽⁴⁾	67,653.3	62,435.6	65,193.8	61,002.7
Per share/unit:
Net income – basic	$1.00	$1.36	$2.96	$2.72
Net income – diluted	$0.99	$1.34	$2.93	$2.69
FFO – basic	$1.12	$1.10	$4.40	$4.17
FFO – diluted	$1.11	$1.09	$4.37	$4.13
Operating FFO⁽²⁾	$1.12	$1.09	$4.37	$4.17
AFFO ⁽³⁾	$0.98	$0.95	$3.82	$3.53
Operating AFFO^{(2) (3)}	$0.98	$0.95	$3.83	$3.57
Common Dividend paid	$0.70	$0.66	$2.80	$2.64

⁽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)

	December 31, 2013	December 31, 2012
Land	$ 786,868	$ 791,604
Construction in progress	187,976	83,241
Buildings, improvements and equipment	4,645,921	4,580,381
	5,620,765	5,455,226
Accumulated depreciation	(1,243,243)	(1,108,840)
Real estate, net	4,377,522	4,346,386

Cash and cash equivalents	9,853	21,092
Cash in escrows	23,738	26,971
Accounts receivable	14,937	13,406
Prepaid expenses	22,089	19,504
Deferred charges	11,945	13,429
Other assets	7,793	10,704
Total assets	$4,467,877	$4,451,492
Mortgage notes payable	$1,814,217	$2,165,027
Unsecured notes payable	450,000	450,000
Unsecured line of credit	193,000	162,500
Accounts payable	27,540	22,691
Accrued interest payable	8,392	9,974
Accrued expenses and other liabilities	33,936	33,887
Security deposits	18,479	19,146
Total liabilities	2,545,564	2,863,225

Common stockholders' equity	1,629,253	1,320,968
Noncontrolling interest	293,060	267,299
Total equity	1,922,313	1,588,267
Total liabilities and equity	$4,467,877	$4,451,492

Total shares/units outstanding:
Common stock	56,961.6	51,508.1
Operating partnership units	10,287.2	10,455.6
	67,248.8	61,963.7