Home Properties Reports Third Quarter 2011 Results

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.

SOURCE Home Properties