Home Properties Reports Second Quarter 2010 Results

ROCHESTER, N.Y., Aug. 5 /PRNewswire-FirstCall/ -- Home Properties (NYSE: HME) today released financial results for the second quarter ending June 30, 2010.  All results are reported on a diluted basis.

"The first to second quarter 2010 sequential change in rental rate growth and net operating income (NOI) growth was positive for the first time since the second quarter of 2009, contributing to second quarter 2010 Funds From Operations per share that were three cents higher than analysts' estimates," said Edward J. Pettinella, Home Properties President and CEO.  "Sequential NOI growth of 7.0% reflects continued operating efficiencies.  Even without substantive economic recovery, we are pleased with our operating results, fueled by strong geographic markets and a stable business model."

Earnings per share ("EPS") for the quarter ended June 30, 2010 was $0.14, compared to $0.18 for the quarter ended June 30, 2009.  The $0.04 decrease in EPS is primarily attributable to a $1.0 million decrease in income from continuing operations.  EPS for the six months ended June 30, 2010 was $0.21, compared to $0.52 for the six months ended June 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.  There were no dispositions in the first half of 2010.

For the quarter ended June 30, 2010, Funds From Operations ("FFO") was $37.0 million, or $0.76 per share, compared to $37.9 million, or $0.84 per share, for the quarter ended June 30, 2009.  Second quarter 2010 FFO of $0.76 per share was $0.03 above analysts' mean estimate, as reported by Thomson, and $0.05 above the midpoint of the guidance range provided by management.  Included in the $0.76 per share 2010 FFO is $0.01 in costs related to the acquisition of three properties, which are now recorded as other expense rather than included in the cost basis of the acquisition, as was the prior accounting treatment.  FFO for the six months ended June 30, 2010 was $1.47 per share, compared to $1.63 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 $0.01 in acquisition costs.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

Second Quarter Operating Results

For the second 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 0.2% compared to the same quarter a year ago.  Net operating income ("NOI") increased by 1.3% from the second quarter of 2009.  Property level operating expenses decreased by 2.4% compared to the prior year quarter, primarily due to decreases in electricity, natural gas heating costs, repairs and maintenance, and personnel costs, which were partially offset by increases in real estate taxes and property general and administrative expense.

Average physical occupancy for the Core properties was 95.5% during the second quarter of 2010, up from 95.0% during the second quarter of 2009.  Average monthly rental rates of $1,129 represent a 1.0% decrease compared to the year-ago period.

On a sequential basis, compared to the 2010 first quarter results for the Core properties, rental income increased 1.0% in the second quarter of 2010, total revenues decreased 1.7%, expenses were down 12.7%, and net operating income increased 7.0%.  Average physical occupancy increased 0.7% to 95.5%.  The total revenue decrease in the second quarter compared to the first quarter was due to the typical seasonality from lower heating cost reimbursements.  The expense decrease between the first and second quarters represented seasonality from lower natural gas and snow removal costs in addition to higher first quarter costs related to record severe storms.

Physical occupancy for the 931 apartment units acquired/developed between January 1, 2009 and June 30, 2010 averaged 50.4% during the second quarter of 2010, at average monthly rents of $1,312.  Of the 931 apartment units, 600 units relate to communities acquired during the second quarter of 2010 with average occupancy of 90.2% and average monthly rents of $879.  The remaining 331 units are newly developed apartments that commenced leasing in 2010.  The initial lease-up activity at 1200 East West Highway and the Courts at Huntington Station has reached 24.9% with average monthly rents of $1,915.  See additional information below in the acquisitions/dispositions and development sections.

Year-to-Date Operating Results

For the six months ended June 30, 2010, same-property comparisons for the Core properties reflected a decrease in total revenues of 0.4% and a decrease in total expenses of 0.6%, resulting in a 0.2% decrease in net operating income compared to the first six months of 2009.  Property level operating expenses decreased primarily due to decreases in electricity, natural gas heating costs, and repairs and maintenance, which were partially offset by an increase in property insurance, real estate taxes, and snow removal costs.

Average physical occupancy for the Core properties was 95.2% during the first six months of 2010, up from 94.6% a year ago, with average monthly rental rates of $1,128, a decrease of 1.2% over the prior year, reflecting the tougher economic environment and resulting pressures on rental rates experienced in 2010 as compared to 2009.

Acquisitions/Dispositions

There were no dispositions during the first half of 2010.

As previously reported, during the quarter the Company purchased three properties with a total of 600 units in the Baltimore region for a combined $56.2 million.  Acquisition costs of $0.62 million were included in other expenses in the second quarter of 2010.

In addition, on July 29, 2010, the Company acquired The Greens at Columbia, a 168-unit apartment community located in Columbia, Maryland for a total $25.6 million.  The property is currently 94.0% occupied at monthly rents averaging $1,316.  Consideration for the purchase included the assumption of a $9.6 million fixed-rate mortgage at 4.93% maturing in August 2014, with the balance paid in cash.  The projected weighted average first year capitalization rate is 6.1% after allocating 3% of rental revenues for management and overhead expenses and before normalized capital expenditures.  The property, built in 1986 and 1987, includes fourteen, three-story, brick, garden style buildings.

Also, on August 5, 2010, the Company acquired Village at Potomac Falls, a 247-unit apartment community located in Sterling, Virginia for a total purchase price of $38.5 million, which was paid in cash.  The property is currently 96.6% occupied at monthly rents averaging $1,368.  The expected weighted average first year capitalization rate is 5.6%.  The garden style property, completed in 1999, consists of 10 three- and four-story buildings.

Acquisition costs of approximately $0.5 million for the two properties described above will be included in other expenses in the 2010 third quarter.

Year-to-date, the Company has purchased a total of five properties with 1,015 units for a combined price of $120.3 million.

Development

The Company has two projects 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.  As of August 5, 2010, 173 of the 247 units, or 70%, are leased. The Courts at Huntington Station is in Alexandria, Virginia, and construction of the 202 units in Phase One is expected to be completed during the third quarter of 2010.  As of August 5, 2010, 99 of the 202 units, or 49%, are leased.  Construction on Phase Two (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 June 30, 2010, the Company's ratio of debt-to-total market capitalization was 50.9% (based on a June 30, 2010 stock price of $45.07 to determine equity value), with $9 million outstanding on its $175 million revolving credit facility and $8 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 2.3 times, and the fixed charge ratio averaged 2.1 times.

The Company did not repurchase any of its common stock during the second quarter.  As of June 30, 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, although it has no current plans to do so.

During the second quarter, the Company completed its At-the-Market (ATM) equity offering program, which resulted in the sale of a total of 3,178,700 common shares at an average price of $47.19 generating net proceeds of approximately $147.0 million.  In the second quarter, the Company issued 865,500 shares of the total shares sold at an average price of $49.41 per share.

Outlook

For 2010, the Company has increased the midpoint of its prior guidance to $2.99 while tightening the range of FFO per share to $2.95 to $3.03 from $2.81 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 is as follows:  Third quarter $0.73 to $0.77; fourth quarter $0.75 to $0.79.

Dividend Declared

The Company announced a regular cash dividend on the Company's common stock of $0.58 per share for the quarter ended June 30, 2010.  The dividend is payable on August 26, 2010 to stockholders of record on August 16, 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 $50.33.  Home Properties' common stock will begin trading ex-dividend on August 12, 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 website through the "Investors" section, e-mail or facsimile upon request.

Second 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 August 11, 2010, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21442492.  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.

Third Quarter 2010 Conference/Event Schedule

Home Properties is scheduled to participate in the Barclays Capital 2010 Global Financial Services Conference on September 14 at the Sheraton New York in New York City, the BMO Capital Markets' 2010 North American Real Estate Conference September 15-17 at The Peninsula Hotel in Chicago, and in the Bank of America Merrill Lynch Global Real Estate Conference at the Grand Hyatt Hotel in New York City September 28.

In addition, Home Properties is hosting an investor meeting and property tour in Washington, D.C. on September 22, 2010.  For all conference/events, any audio presentation, webcast and related materials will be available in the "Investors" section of Home Properties' website.

Third Quarter 2010 Earnings Release and Conference Call

The third quarter financial results are scheduled to be released after the stock market closes on Thursday, November 4, 2010.  A conference call, which will be simultaneously webcast, is scheduled for Friday, November 5, 2010 at 11:00 AM ET and is accessible following the above instructions.  The passcode for that replay will be 21442493.

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 operates 113 communities containing 38,019 apartment units.  Of these, 37,151 units in 112 communities are owned directly by the Company and 868 units are partially owned and managed by the Company as general partner.  For more information, visit Home Properties' website at homeproperties.com.

SOURCE Home Properties