Home Properties Reports Second Quarter 2011 Results

FFO Per Share Exceeds Wall Street's Mean Estimate by 1 Cent

Aug 04, 2011, 16:31 ET from Home Properties

ROCHESTER, N.Y., Aug. 4, 2011 /PRNewswire/ -- Home Properties (NYSE: HME) today released financial results for the second quarter ended June 30, 2011.  All results are reported on a diluted basis.

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"Operating performance remained strong in the second quarter, resulting in same-store net operating income growth for the 2011 first half of 7.5%," said Home Properties' President and CEO Edward J. Pettinella.  "Our Mid-Atlantic asset focus, the financial performance of recently acquired properties and our continued emphasis on maximizing operating efficiencies are strengthening our performance as multifamily fundamentals improve."

Earnings per share ("EPS") for the quarter ended June 30, 2011 was $0.20, compared to $0.14 for the quarter ended June 30, 2010.  The $0.06 increase in EPS is primarily attributable to a $3.4 million increase in income from continuing operations.  EPS for the six months ended June 30, 2011 was $0.39, compared to $0.21 for the six months ended June 30, 2010.  The $0.18 increase in EPS was due to an $8.8 million increase in income from continuing operations.  Increased income from continuing operations is attributed to both the properties owned throughout 2010 and 2011 (the "Core" properties) and those acquired/developed subsequent to January 1, 2010 (the "Acquisition" properties).

For the quarter ended June 30, 2011, Funds From Operations ("FFO") was $44.6 million, or $0.87 per share, compared to $37.0 million, or $0.76 per share, for the quarter ended June 30, 2010, which equates to a 14.1% increase on a per-share basis.  Second quarter 2011 FFO of $0.87 per share was $0.01 above the analysts' mean estimate, as reported by Thomson, and $0.03 above the midpoint of the guidance range provided by management.  FFO for the six months ended June 30, 2011 was $1.73 per share, compared to $1.47 per share in the year-ago period.  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 2011, same-property comparisons (for 104 Core properties containing 35,801 apartment units owned since January 1, 2010) reflected an increase in total revenues of 4.0% compared to the same quarter a year ago.  Net operating income ("NOI") increased by 6.3% from the second quarter of 2010.  Property level operating expenses increased by 0.5% compared to the prior year quarter, primarily due to increases in natural gas heating costs, water & sewer, repairs & maintenance and real estate taxes, which were partially offset by a decrease in property insurance expense.

Average physical occupancy for the Core properties was 95.6% during the second quarter of 2011, up from 95.5% during the second quarter of 2010.  Average monthly rental rates of $1,165 represent a 3.2% increase compared to the year-ago period.

On a sequential basis, compared to the 2011 first quarter results for the Core properties, rental income (excluding utility recovery) increased 1.6% in the second quarter of 2011, total revenues decreased 1.0%, expenses were down 8.7% and NOI increased 4.5%.  Average physical occupancy increased 0.3% to 95.6%. 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.

Physical occupancy for the 3,390 apartment units acquired/developed between January 1, 2010 and June 30, 2011 averaged 93.0% during the second quarter of 2011, at average monthly rents of $1,289.

Year-to-Date Operating Results

For the six months ended June 30, 2011, same-property comparisons for the Core properties reflected an increase in total revenues of 3.6% and a decrease in total expenses of 1.8%, resulting in a 7.5% increase in NOI compared to the first six months of 2010.  Property level operating expenses decreased primarily due to lower electricity, property insurance and snow removal costs.

Average physical occupancy for the Core properties was 95.5% during the first six months of 2011, up from 95.2% a year ago, with average monthly rental rates of $1,158, an increase of 2.7% over the prior year.

Acquisitions/Dispositions

As previously reported, on April 19, 2011, the Company acquired Hunters Glen, a 108-unit apartment community located in Frederick, Maryland for $7.0 million.  Acquisition costs of $89,000 were included in other expenses in the second quarter of 2011.

Also as previously reported, subsequent to the end of the second quarter, the Company acquired two apartment communities with a total of 505 units in the Philadelphia and Boston regions for a combined $65.1 million paid in cash using proceeds from the At-The-Market (ATM) equity offering program.  Acquisition costs of approximately $0.4 million will be included in other expenses in the 2011 third quarter.

Year-to-date, the Company has acquired a total of three communities with 613 units for a combined purchase price of $72.1 million.

There were no dispositions of apartment communities during the first half of 2011.

Development

Construction of Phase Two of The Courts at Huntington Station, comprised of 219 units, was completed in the second quarter of 2011 and move-ins began in mid-May.  Currently, 40.6% of the units are leased. Stabilized occupancy is expected to occur within a year.

Construction of The Apartments at Cobblestone Square, located in Fredericksburg, Virginia has commenced.  The 314-unit, class-A community is estimated to be completed in 2012.

Capital Markets Activities

As of June 30, 2011, the Company's ratio of debt-to-total market capitalization was 44.4% (based on a June 30, 2011 stock price of $60.88 to determine equity value), with no outstanding balance on its $175 million revolving credit facility and $32 million of unrestricted cash on hand.  Total debt of $2.5 billion was outstanding, at rates of interest averaging 5.2% and with staggered maturities averaging seven years.  Approximately 92% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.4 times and the fixed charge ratio averaged 2.3 times.

The Company has an At-The-Market equity offering program through which it may sell up to 3.6 million common shares.  During the second quarter, 1,485,707 shares were issued at an average price of $60.65 generating net proceeds of $88.3 million.  Pending trades at the end of June included an additional 35,000 shares issued at an average price of $60.15 generating net proceeds of $2.1 million.  Year-to-date, 2,361,707 shares have been issued at an average price of $59.17 generating gross proceeds of $139.7 million and net proceeds of $136.9 million.  There are 1,238,293 million common shares remaining under this program.

Outlook

Based on higher second quarter 2011 results than expected and higher results expected for the balance of the year, the Company has increased the midpoint of its prior FFO guidance by eight cents to $3.51 and the range of FFO per share to $3.47 to $3.55 from $3.37 to $3.49.  This guidance range reflects management's current assessment of economic and market conditions. Guidance for Operating FFO, which excludes expensing of acquisition costs, is four cents higher with a midpoint of $3.55.

The quarterly breakdown for the balance of 2011 guidance on FFO per share results is as follows:  Third quarter $0.84 to $0.88; fourth quarter $0.90 to $0.94.

Dividend Declared

The Company announced a regular cash dividend on the Company's common shares of $0.62 per share for the quarter ended June 30, 2011.  The dividend is payable on August 26, 2011 to shareholders of record on August 16, 2011 and is equivalent to an annualized rate of $2.48 per share.  The current annual dividend represents a 3.9% yield based on the August 2 closing price of $62.83.  Home Properties' common stock will begin trading ex-dividend on August 12, 2011.

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 2011 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 August 11, 2011, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21510467.  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 2011 Conference/Event Schedule

Home Properties is scheduled to participate in the Bank of America Merrill Lynch 2011 Global Real Estate Conference at the Westin New York at Times Square September 7-8 and the BMO Capital Markets 6th Annual North American Real Estate Conference September 21-22 at The Peninsula Hotel in Chicago.  The audio presentation and related materials will be available at homeproperties.com in the "Investors" section.

Third Quarter 2011 Earnings Release and Conference Call

The third quarter financial results are scheduled to be released after the stock market closes on Thursday, November 3, 2011.  A conference call, which will be simultaneously webcast, is scheduled for Friday, November 4, 2011 at 11:00 AM ET and is accessible following the above instructions for the second quarter earnings conference call.  The passcode for the third quarter audio replay will be 21510468.

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 118 communities containing 39,696 apartment units.  For more information, visit Home Properties' website at homeproperties.com.

HOME PROPERTIES, INC.

SUMMARY OF OCCUPANCY AND PROPERTY OPERATING RESULTS

Second Quarter:

2Q 2011

Average

2Q 2011 vs. 2Q 2010 % Growth

Avg. Physical

Monthly

Base

Occupancy(a)

Rent/

Rental

Total

Total

2Q 2011

2Q 2010

Occ Unit

Rates

Revenue

Expense

NOI

Core Properties(b)

95.6%

95.5%

$1,165

3.2%

4.0%

0.5%

6.3%

Acquisition Properties(c)

93.0%

NA

$1,289

NA

NA

NA

NA

TOTAL PORTFOLIO

95.4%

NA

$1,174

NA

NA

NA

NA

Avg. Physical

Year-To-Date:

Occupancy(a)

YTD 2011

YTD 2011 vs. YTD 2010 % Growth

Average

Monthly

Base

YTD

YTD

Rent /

Rental

Total

Total

2011

2010

Occ Unit

Rates

Revenue

Expense

NOI

Core Properties(b)

95.5%

95.2%

$1,158

2.7%

3.6%

(1.8%)

7.5%

Acquisition Properties(c)

93.5%

NA

$1,280

NA

NA

NA

NA

TOTAL PORTFOLIO

95.3%

NA

$1,167

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 104 properties with 35,801 apartment units owned throughout 2010 and 2011.

(c) Acquisition Properties consist of 12 properties with 3,390 apartment units acquired/developed subsequent to January 1, 2010.

HOME PROPERTIES, INC.

SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data – Unaudited)

Three Months Ended

Six Months Ended

June 30

June 30

2011

2010

2011

2010

Rental income

$129,764

$115,570

$257,185

$228,769

Property other income

10,906

9,346

24,830

21,956

Other income

17

30

70

88

 Total revenues

140,687

124,946

282,085

250,813

Operating and maintenance

53,721

49,729

112,000

105,756

General and administrative

8,826

7,111

15,062

12,668

Interest

32,800

29,669

65,831

59,854

Depreciation and amortization

34,735

30,685

69,214

60,798

Other expenses

99

622

109

623

 Total expenses

130,181

117,816

262,216

239,699

Income from continuing operations

10,506

7,130

19,869

11,114

Discontinued operations

 Income (loss) from discontinued operations

-

(349)

-

(811)

 Gain (loss) on disposition of property

-

(2)

-

(13)

Discontinued operations

-

(351)

-

(824)

Net income

10,506

6,779

19,869

10,290

Net income attributable to noncontrolling interest

(2,311)

(1,611)

(4,450)

(2,485)

Net income attributable to common stockholders

$    8,195

$    5,168

$  15,419

$    7,805

Reconciliation from net income attributable to common stockholders to Funds From Operations:

Net income available to common stockholders

$    8,195

$    5,168

$  15,419

$    7,805

Real property depreciation and amortization

34,053

30,245

67,867

59,968

Noncontrolling interest

2,311

1,611

4,450

2,485

(Gain) loss on disposition of property

-

2

-

13

FFO - basic and diluted (1)

$  44,559

$  37,026

$  87,736

$  70,271

(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.  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

Six Months Ended

June 30

June 30

2011

2010

2011

2010

FFO – basic and diluted

$  44,559

$ 37,026

$   87,736

$   70,271

FFO – basic and diluted

$  44,559

$ 37,026

$   87,736

$   70,271

Acquisition costs of closed deals included in other expenses

99

599

109

599

Operating FFO (2)

$  44,658

$ 37,625

$   87,845

$   70,870

FFO – basic and diluted

$  44,559

$ 37,026

$   87,736

$   70,271

Recurring non-revenue generating capital expenses

(7,803)

(7,284)

(15,576)

(14,448)

Addback of non-cash interest expense

548

518

1,086

1,026

AFFO (3)

$  37,304

$ 30,260

$   73,246

$   56,849

Operating FFO

$  44,658

$ 37,625

$   87,845

$   70,870

Recurring non-revenue generating capital expenses

(7,803)

(7,284)

(15,576)

(14,448)

Addback of non-cash interest expense

548

518

1,086

1,026

Operating AFFO (2) (3)

$  37,403

$ 30,859

$   73,355

$   57,448

Weighted average shares/units outstanding:

 Shares – basic

39,479.2

36,795.3

38,742.9

35,894.1

 Shares – diluted

40,230.4

37,247.2

39,407.5

36,304.3

 Shares/units – basic (4)

50,635.5

48,283.2

49,964.9

47,450.3

 Shares/units – diluted (4)

51,386.7

48,735.0

50,629.5

47,860.5

Per share/unit:

 Net income – basic

$0.21

$0.14

$0.40

$0.22

 Net income – diluted

$0.20

$0.14

$0.39

$0.21

FFO – basic

$0.88

$0.77

$1.76

$1.48

 FFO – diluted

$0.87

$0.76

$1.73

$1.47

 Operating FFO (2)

$0.87

$0.77

$1.74

$1.48

AFFO (3)

$0.73

$0.62

$1.45

$1.19

Operating AFFO (2) (3)

$0.73

$0.63

$1.45

$1.20

 Common Dividend paid

$0.62

$0.58

$1.24

$1.16

(2) Operating FFO is defined as FFO as computed in accordance with NAREIT definition, adjusted for the addback 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 $800 per apartment unit in 2011 and 2010.  Non-cash interest expense of the exchangeable senior notes in accordance with ASC 470-20 (formerly APB14-1) has been added back for 2011 and 2010.  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)

June 30, 2011

December 31, 2010

Land

$     608,265

$     589,359

Construction in progress

94,906

119,992

Buildings, improvements and equipment

3,745,650

3,668,379

4,448,821

4,377,730

Accumulated depreciation

(909,952)

(841,801)

Real estate, net

3,538,869

3,535,929

Cash and cash equivalents

32,463

10,782

Cash in escrows

37,475

34,070

Accounts receivable

12,862

12,540

Prepaid expenses

12,291

17,662

Deferred charges

13,541

15,079

Other assets

11,195

8,641

Total assets

$3,658,696

$3,634,703

Mortgage notes payable

$2,395,783

$2,424,214

Exchangeable senior notes

139,305

138,218

Line of credit

-

56,500

Accounts payable

18,280

20,935

Accrued interest payable

11,202

11,389

Accrued expenses and other liabilities

27,223

28,730

Security deposits

19,602

19,583

Total liabilities

2,611,395

2,699,569

Common stockholders' equity

824,259

720,893

Noncontrolling interest

223,042

214,241

Total equity

1,047,301

935,134

Total liabilities and equity

$3,658,696

$3,634,703

Total shares/units outstanding:

Common stock

40,927.4

37,949.2

Operating partnership units

11,096.0

11,305.3

52,023.4

49,254.5

SOURCE Home Properties



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