Home Properties Reports Third Quarter 2011 Results

FFO Per Share Meets Wall Street's Mean Estimate

Nov 03, 2011, 16:31 ET from Home Properties

ROCHESTER, N.Y., Nov. 3, 2011 /PRNewswire/ -- Home Properties (NYSE: HME) today released financial results for the third quarter ended September 30, 2011.  All results are reported on a diluted basis.

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"Increased rent growth, continued high occupancy, ongoing expense control and accretive acquisitions contributed to continued strong performance in the third quarter," said Home Properties' President and CEO Edward J. Pettinella.  "These results led us to project Operating Funds From Operations per share for 2011 will be up 12.2% from 2010, which would be the third highest annual growth rate in the Company's history."

Earnings per share ("EPS") for the quarter ended September 30, 2011 was $0.20, compared to $0.15 for the quarter ended September 30, 2010.  The $0.05 increase in EPS is primarily attributable to a $3.4 million increase in income from continuing operations. EPS for the nine months ended September 30, 2011 was $0.59, compared to $0.36 for the nine months ended September 30, 2010.  The $0.23 increase in EPS was due to a $12.1 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/redeveloped subsequent to January 1, 2010 (the "Non-Core" properties).

For the quarter ended September 30, 2011, Funds From Operations ("FFO") was $46.4 million, or $0.87 per share, compared to $38.9 million, or $0.79 per share, for the quarter ended September 30, 2010, which equates to a 9.8% increase on a per-share basis.  Third quarter 2011 FFO of $0.87 per share was $0.01 above the midpoint of the guidance range provided by management and met the analysts' mean estimate, as reported by Thomson. FFO for the nine months ended September 30, 2011 was $2.60 per share, compared to $2.26 per share in the year-ago period, a 15.1% increase.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

Third Quarter Operating Results

For the third quarter of 2011, same-property comparisons (for 103 Core properties containing 34,950 apartment units owned since January 1, 2010) reflected an increase in total revenues of 4.6% compared to the same quarter a year ago.  Net operating income ("NOI") increased by 5.8% from the third quarter of 2010.  Property level operating expenses increased by 2.6% compared to the prior year quarter, primarily due to increases in repairs & maintenance, legal & professional expense and property insurance, which were partially offset by a decrease in personnel and real estate taxes expense.

Average physical occupancy for the Core properties was 95.5% during the third quarter of 2011, up from 95.4% during the third quarter of 2010.  Average monthly rental rates of $1,184 represent a 4.3% increase compared to the year-ago period.

On a sequential basis, compared to the 2011 second quarter results for the Core properties, rental income (excluding utility recovery) increased 1.4% in the third quarter of 2011, total revenues increased 0.9%, expenses were up 1.0% and NOI increased 0.8%.  Average physical occupancy decreased 0.3% to 95.5%.  

Physical occupancy for the 5,290 apartment units acquired/developed/redeveloped between January 1, 2010 and September 30, 2011 averaged 87.6% during the third quarter of 2011, at average monthly rents of $1,331.

Year-to-Date Operating Results

For the nine months ended September 30, 2011, same-property comparisons for the Core properties reflected an increase in total revenues of 4.1% and a decrease in total expenses of 0.3%, resulting in a 7.1% increase in NOI compared to the first nine months of 2010.  Property level operating expenses decreased primarily due to lower personnel, property insurance and snow removal costs, partially offset by increases in water & sewer costs, repairs & maintenance and legal & professional expenses.

Average physical occupancy for the Core properties was 95.5% during the first nine months of 2011, up from 95.2% a year ago, with average monthly rental rates of $1,164, an increase of 3.3% over the prior year.

Acquisitions/Dispositions

As previously reported, during the third quarter, the Company acquired three apartment communities with a total of 1,049 units in the Baltimore, Philadelphia and Boston regions for a combined $155.5 million paid in cash.  Acquisition costs of approximately $1.6 million were included in other expenses in the 2011 third quarter.

In addition, subsequent to the end of the quarter, the Company acquired two apartment communities with a total of 1,045 units in the Suburban Washington, D.C. region for a total purchase price of approximately $225 million paid in cash using proceeds from the common stock offering closed on September 23, 2011.  In connection with these acquisitions, closing costs of approximately $1.0 million were incurred and will be included in other expenses in the 2011 fourth quarter.

Year-to-date, the Company has acquired a total of six communities with 2,202 units for a combined purchase price of $387.8 million, exceeding the $350 million high end of guidance previously provided.

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

Development

At The Apartments at Cobblestone Square, located in Fredericksburg, Virginia, the first of the eight apartment buildings, along with the rail depot renovation and amenities, are nearing completion and occupancy is expected to begin in November 2011.  Construction on the subsequent buildings has begun and the entire project is estimated to be completed in 2012.

Groundbreaking on a new community located in downtown Silver Spring, Maryland is expected to occur in late 2011.  Eleven55 Ripley will consist of 379 units including high rise apartments, urban row houses and lofts.  Initial occupancy is expected to occur in the third quarter of 2013 and the entire project is expected to be completed in 2014.

Capital Markets Activities

As of September 30, 2011, the Company's ratio of debt-to-total market capitalization was 42.6% (based on a September 30, 2011 stock price of $56.76 to determine equity value), with no outstanding balance on its $175 million revolving credit facility and $204 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 six years.  Approximately 92% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.5 times and the fixed charge ratio averaged 2.4 times.

At the end of the third quarter, $140 million of the Company's 4.125% Exchangeable Senior Notes due 2026 were outstanding, the terms of which allowed note holders to have the Company repurchase all or a portion of their notes on November 1, 2011.  On November 1, 2011, as a result of "puts" from note holders, the Company repurchased notes in the principal amount of $135 million plus accrued interest of $2.8 million utilizing a $140 million bridge loan closed in October 2011.  The Company expects to call the balance of the notes during the fourth quarter of 2011 and substitute longer term unsecured debt for the bridge loan.

The Company has an At-The-Market equity offering program through which it may sell up to 3.6 million common shares.  During the third quarter, 877,400 shares were issued at an average price of $64.44 generating net proceeds of $55.3 million.  Year-to-date, 3,204,107 shares have been issued at an average price of $60.60 generating gross proceeds of $194.2 million and net proceeds of $190.1 million.  There are 395,893 common shares remaining under this program.

On September 23, 2011 the Company closed on a public offering of 6,000,000 shares of its common stock at a price of $58.50 per share, for net proceeds of approximately $336.8 million after underwriting discounts and commissions and offering expenses. The Company used the net proceeds from the offering to fund acquisitions, pay down outstanding amounts on its line of credit and for general corporate purposes including capital expenditures and other working capital requirements.

Outlook

Based on higher third quarter 2011 results than expected and slightly reduced results expected for the balance of the year, the Company has decreased the midpoint of its prior FFO guidance for the year by two cents to $3.49.  The decrease in two cents reflects higher acquisition costs projected in the fourth quarter of 2011 based on a significantly higher level of planned acquisitions.  This guidance reflects management's current assessment of economic and market conditions. Guidance for Operating FFO ("OFFO") for the year, which excludes expensing of acquisition costs, is unchanged with a midpoint of $3.55.

The guidance range on FFO per share results for the fourth quarter of 2011 is $0.87 to $0.91, and the guidance range for OFFO per share is $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 September 30, 2011.  The dividend is payable on November 22, 2011 to shareholders of record on November 14, 2011 and is equivalent to an annualized rate of $2.48 per share.  The current annual dividend represents a 4.3% yield based on the November 2 closing price of $57.96.  Home Properties' common stock will begin trading ex-dividend on November 9, 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.

Third 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. 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). For audio-only replay, available through November 10, 2011, dial 800-633-8284 or 402-977-9140 and enter the passcode 21510468.

Fourth Quarter 2011 Conference/Event Schedule

Home Properties' President and CEO, Edward J. Pettinella, is scheduled to participate in REITWorld®: NAREIT's Annual Convention for All Things REIT® in Dallas on November 15-17.  Details on how to access any presentation or related materials are available at homeproperties.com in the "Investors" section.

Fourth Quarter 2011 Earnings Release and Conference Call

The fourth quarter financial results are scheduled to be released after the stock market closes on Thursday, February 9, 2012. The complete webcast, with both audio and a slide presentation, will be available live on Friday, February 10, 2012, at 11:00 AM ET 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).

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 121 communities containing 41,285 apartment units.  For more information, visit Home Properties' website at homeproperties.com.

HOME PROPERTIES, INC.

SUMMARY OF OCCUPANCY AND PROPERTY OPERATING RESULTS

Avg. Physical

Third Quarter Results:

Occupancy(a)

3Q 2011

3Q 2011 vs. 3Q 2010 % Growth

Average

Monthly

Base

Rent/

Rental

Total

Total

3Q 2011

3Q 2010

Occ Unit

Rates

Revenue

Expense

NOI

Core Properties(b)

95.5%

95.4%

$1,184

4.3%

4.6%

2.6%

5.8%

Non-Core Properties(c)

87.6%

NA

$1,331

NA

NA

NA

NA

TOTAL PORTFOLIO

94.5%

NA

$1,202

NA

NA

NA

NA

Avg. Physical

Year-To-Date Results:

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%

$1,164

3.3%

4.1%

(0.3%)

7.1%

Non-Core Properties(c)

91.1%

NA

$1,309

NA

NA

NA

NA

TOTAL PORTFOLIO

95.0%

NA

$1,179

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 103 properties with 34,950 apartment units owned throughout 2010 and 2011.

(c) Non-Core Properties consist of 16 properties with 5,290 apartment units acquired/developed/redeveloped subsequent to January 1, 2010, 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

Nine Months Ended

September 30

September 30

2011

2010

2011

2010

Rental income

$ 133,960

$ 118,920

$391,145

$347,689

Property other income

10,636

9,695

35,466

31,651

Other income

25

12

95

100

 Total revenues

144,621

128,627

426,706

379,440

Operating and maintenance

55,352

50,542

167,352

156,298

General and administrative

7,803

5,553

22,865

18,221

Interest

32,759

30,840

98,590

90,694

Depreciation and amortization

36,320

32,071

105,534

92,869

Other expenses

1,629

2,213

1,738

2,836

 Total expenses

133,863

121,219

396,079

360,918

Income from continuing operations

10,758

7,408

30,627

18,522

Discontinued operations

 Income (loss) from discontinued operations

-

(206)

-

(1,017)

 Gain (loss) on disposition of property

-

-

-

(13)

Discontinued operations

-

(206)

-

(1,030)

Net income

10,758

7,202

30,627

17,492

Net income attributable to noncontrolling interest

(2,250)

(1,695)

(6,700)

(4,180)

Net income attributable to common stockholders

$   8,508

$     5,507

$  23,927

$  13,312

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

Net income available to common stockholders

$     8,508

$     5,507

$  23,927

$  13,312

Real property depreciation and amortization

35,625

31,722

103,493

91,691

Noncontrolling interest

2,250

1,695

6,700

4,180

(Gain) loss on disposition of property

-

-

-

13

FFO - basic and diluted (1)

$   46,383

$   38,924

$134,120

$109,196

(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

Nine Months Ended

September 30

September 30

2011

2010

2011

2010

FFO – basic and diluted

$  46,383

$  38,924

$ 134,120

$109,196

FFO – basic and diluted

$  46,383

$  38,924

$134,120

$109,196

Acquisition costs of closed deals included in other expenses

1,630

2,205

1,739

2,804

Operating FFO (2)

$  48,013

$  41,129

$135,859

$112,000

FFO – basic and diluted

$  46,383

$  38,924

$134,120

$109,196

Recurring non-revenue generating capital expenses

(7,973)

(7,410)

(23,550)

(21,862)

Addback of non-cash interest expense

553

523

1,639

1,549

AFFO (3)

$  38,963

$  32,037

$112,209

$  88,883

Operating FFO

$  48,013

$  41,129

$135,859

$112,000

Recurring non-revenue generating capital expenses

(7,973)

(7,410)

(23,550)

(21,862)

Addback of non-cash interest expense

553

523

1,639

1,549

Operating AFFO (2) (3)

$  40,593

$  34,242

$113,948

$  91,687

Weighted average shares/units outstanding:

 Shares – basic

41,707.7

37,357.6

39,743.3

36,389.2

 Shares – diluted

42,531.0

37,863.9

40,462.5

36,830.7

 Shares/units – basic (4)

52,767.7

48,883.4

50,910.7

47,935.2

 Shares/units – diluted (4)

53,591.1

49,389.7

51,630.0

48,376.7

Per share/unit:

 Net income – basic

$0.20

$0.15

$0.60

$0.37

 Net income – diluted

$0.20

$0.15

$0.59

$0.36

FFO – basic

$0.88

$0.80

$2.63

$2.28

 FFO – diluted

$0.87

$0.79

$2.60

$2.26

 Operating FFO (2)

$0.90

$0.83

$2.63

$2.32

AFFO (3)

$0.73

$0.65

$2.17

$1.84

Operating AFFO (2) (3)

$0.76

$0.69

$2.21

$1.90

 Common Dividend paid

$0.62

$0.58

$1.86

$1.74

(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)

September 30, 2011

December 31, 2010

Land

$     641,129

$     589,359

Construction in progress

49,511

119,992

Buildings, improvements and equipment

3,950,892

3,668,379

4,641,532

4,377,730

Accumulated depreciation

(945,132)

(841,801)

Real estate, net

3,696,400

3,535,929

Cash and cash equivalents

204,076

10,782

Cash in escrows

35,082

34,070

Accounts receivable

11,048

12,540

Prepaid expenses

20,960

17,662

Deferred charges

12,605

15,079

Other assets

23,936

8,641

Total assets

$  4,004,107

$3,634,703

Mortgage notes payable

$  2,352,783

$2,424,214

Exchangeable senior notes

139,858

138,218

Line of credit

-

56,500

Accounts payable

21,389

20,935

Accrued interest payable

12,435

11,389

Accrued expenses and other liabilities

30,085

28,730

Security deposits

19,622

19,583

Total liabilities

2,576,172

2,699,569

Common stockholders' equity

1,167,263

720,893

Noncontrolling interest

260,672

214,241

Total equity

1,427,935

935,134

Total liabilities and equity

$  4,004,107

$3,634,703

Total shares/units outstanding:

Common stock

48,264.1

37,949.2

Operating partnership units

10,796.2

11,305.3

59,060.3

49,254.5

SOURCE Home Properties



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