Home Properties Reports First Quarter 2011 Results

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    Home Properties Reports First Quarter 2011 Results

    FFO Per Share Exceeds Wall Street's Mean Estimate by 5 Cents

    PR Newswire

    ROCHESTER, N.Y., May 5, 2011 /PRNewswire/ — Home Properties (NYSE: HME) today released financial results for the first quarter ended March 31, 2011.  All results are reported on a diluted basis.

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

    "Year-over-year first quarter growth of 8.8% in same-store net operating income was the largest quarterly increase since the first quarter of 2007, contributing to results in Funds From Operations per share that were better than both internal and street expectations," said Home Properties' President and CEO Edward J. Pettinella.  "This excellent performance continues to reflect the improving economic climate, the success of our property management and development operations, and the stability of our geographic markets."

    Earnings per share ("EPS") for the quarter ended March 31, 2011 was $0.19, compared to $0.07 for the quarter ended March 31, 2010.  The $0.12 increase in EPS was attributable to an increase in income from continuing operations from 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 March 31, 2011, Funds From Operations ("FFO") was $43.2 million, or $0.86 per share, compared to $33.2 million, or $0.71 per share, for the quarter ended March 31, 2010, which equates to a 22% increase on a per-share basis.  The first quarter 2010 FFO included $0.05 per share in costs related to record severe storms that increased snow removal costs and insurance costs from flooding in the Company's Mid-Atlantic and Boston area markets, respectively, that were non-recurring in 2011.  First quarter 2011 FFO of $0.86 per share was $0.05 above both the analysts' mean estimate, as reported by Thomson, and the midpoint of the guidance range provided by management.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

    First Quarter Operating Results

    For the first quarter of 2011, same-property comparisons (for 104 Core properties containing 35,798 apartment units owned since January 1, 2010) reflected an increase in total revenues of 3.2% compared to the same quarter a year ago.  Net operating income ("NOI") increased by 8.8% from the first quarter of 2010.  Property level operating expenses decreased by 3.9% compared to the prior year quarter, primarily due to decreases in electricity, natural gas heating costs, property insurance, and snow and trash removal costs, which were partially offset by an increase in water and sewer expense.

    Average physical occupancy for the Core properties was 95.3% during the first quarter of 2011, up from 94.8% during the first quarter of 2010.  Average monthly rental rates of $1,151 represent a 2.2% increase compared to the year-ago period.

    On a sequential basis, compared to the 2010 fourth quarter results for the Core properties, rental income (excluding utility recovery) increased 0.7% in the first quarter of 2011, total revenues increased 2.9%, expenses were up 6.5% and net operating income increased 0.5%.  The sequential expense growth can be attributed to the typical seasonality of higher gas heating and snow removal costs incurred in the first quarter.  Removing the effects of seasonality by reducing higher first quarter utility reimbursement income and gas and snow removal expenses to equal fourth quarter results, sequential NOI would be up 1.6%.  Average physical occupancy increased 0.2% to 95.3%.

    Physical occupancy for the 3,063 apartment units acquired/developed between January 1, 2010 and March 31, 2011 averaged 94.0% during the first quarter of 2011, at average monthly rents of $1,272.

    Acquisitions/Dispositions

    There were no acquisitions or dispositions of apartment communities during the first quarter of 2011.

    On April 19, 2011, the Company acquired Hunters Glen, a 108-unit apartment community located in Frederick, Maryland for a total $7.0 million.  The property is currently 94.4% occupied at monthly rents averaging $963.  The projected weighted average first year capitalization rate is 7.2% after allocating 2.7% of rental revenues for management and overhead expenses and before normalized capital expenditures.  The property, built in 1984, includes six garden-style buildings and will be managed with Home Properties' Elmwood Terrace Apartments, located across the street.  Hunters Glen is located less than one mile from historic downtown Frederick, is 45 miles northwest of Washington, D.C. and 50 miles west of Baltimore.  Acquisition costs of approximately $83,000 will be included in other expenses in the second quarter of 2011.

    Development

    Phase One of The Courts at Huntington Station, comprised of 202 units, is complete with 98.5% of the units leased.  Construction of Phase Two, which will have 219 units, is scheduled to be completed in the second quarter of 2011 and is projected to reach stabilized occupancy a year later.

    The Company previously announced the groundbreaking of The Apartments at Cobblestone Square, located in Fredericksburg, Virginia.  The 314-unit, class-A community will feature eight four-story buildings and a refurbished 100-year-old rail depot.  The first of the eight apartment buildings, along with the rail depot renovation and amenities, is slated for completion in late 2011.  The entire project should be completed in 2012.

    Capital Markets Activities

    As of March 31, 2011, the Company's ratio of debt-to-total market capitalization was 46.6% (based on a March 31, 2011 stock price of $58.95 to determine equity value), with $42.5 million outstanding on its $175 million revolving credit facility and $11 million of unrestricted cash on hand.  Total debt of $2.6 billion was outstanding, at rates of interest averaging 5.1% and with staggered maturities averaging approximately seven years.  Approximately 90% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.3 times and the fixed charge ratio averaged 2.2 times.

    The Company has an At-The-Market (ATM) equity offering program through which it may sell up to 3.6 million common shares.  During the first quarter, 841,000 shares were issued at an average price of $56.51 generating net proceeds of $46.6 million.  As of March 31, 2011, there were 2.8 million common shares remaining under this program.

    Outlook

    Based on first quarter 2011 results, the Company has increased the midpoint of its prior guidance by five cents to $3.43 and the range of FFO per share to $3.37 to $3.49 from $3.30 to $3.46.  This guidance range reflects management's current assessment of economic and market conditions.

    The quarterly breakdown for the balance of 2011 guidance on FFO per share results remains unchanged and is as follows:  Second quarter $0.82 to $0.86; third quarter $0.83 to $0.87; fourth quarter $0.86 to $0.90.

    Dividend Declared

    The Company announced a regular cash dividend on the Company's common shares of $0.62 per share for the quarter ended March 31, 2011.  The dividend is payable on May 27, 2011 to shareholders of record on May 17, 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 May 3 closing price of $62.84.  Home Properties' common stock will begin trading ex-dividend on May 13, 2011.

    Corporate Governance

    At its Annual Meeting on May 3, 2011, stockholders elected eight directors, approved, on an advisory basis, the compensation of executive officers, voted to hold an advisory vote on executive compensation every year and approved the 2011 Stock Benefit Plan.

    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.

    First 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 May 11, 2011, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21510466.  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.

    Second Quarter 2011 Conference/Event Schedule

    Home Properties is scheduled to participate in REITWeek 2011: NAREIT's Investor Forum® from June 7-9, 2011 in New York City.  Management will present information and answer questions about its operations on Wednesday, June 8, from 3:45-4:15 PM.  The audio presentation and related materials will be available at homeproperties.com in the "Investors" section.

    Second Quarter 2011 Earnings Release and Conference Call

    The second quarter financial results are scheduled to be released after the stock market closes on Thursday, August 4, 2011.  A conference call, which will be simultaneously webcast, is scheduled for Friday, August 5, 2011 at 11:00 AM ET and is accessible following the above instructions.

    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 116 communities containing 38,972 apartment units.  For more information, visit Home Properties' website at homeproperties.com.

    HOME PROPERTIES, INC.

    SUMMARY OF OCCUPANCY AND PROPERTY OPERATING RESULTS

    First Quarter Results:

    1Q 2011

    Average

    1Q 2011 vs. 1Q 2010 % Growth

    Avg. Physical

    Monthly

    Base

    Occupancy (a)

    Rent/

    Rental

    Total

    Total

    1Q 2011

    1Q 2010

    Occ Unit

    Rates

    Revenue

    Expense

    NOI

    Core Properties (b)

    95.3%

    94.8%

    $1,151

    2.2%

    3.2%

    (3.9%)

    8.8%

    Acquisition Properties (c)

    94.0%

    NA

    $1,272

    NA

    NA

    NA

    NA

    TOTAL PORTFOLIO

    95.2%

    NA

    $1,160

    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 35,798 apartment units owned throughout 2010 and 2011.

    (c) Acquisition Properties consist of 11 properties with 3,063 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

    March 31

    2011

    2010

    Rental income

    $127,421

    $113,199

    Property other income

    13,924

    12,610

    Other income

    53

    58

     Total revenues

    141,398

    125,867

    Operating and maintenance

    58,279

    56,028

    General and administrative

    6,236

    5,557

    Interest

    33,031

    30,185

    Depreciation and amortization

    34,479

    30,113

    Other expenses

    10

     Total expenses

    132,035

    121,883

    Income from continuing operations

    9,363

    3,984

    Discontinued operations

     Income (loss) from discontinued operations

    (462)

     Gain (loss) on disposition of property

    (11)

    Discontinued operations

    (473)

    Net income

    9,363

    3,511

    Net income attributable to noncontrolling interest

    (2,139)

    (874)

    Net income attributable to common stockholders

    $    7,224

    $    2,637

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

    Net income available to common stockholders

    $    7,224

    $    2,637

    Real property depreciation and amortization

    33,815

    29,723

    Noncontrolling interest

    2,139

    874

    (Gain) loss on disposition of property

    11

    FFO – basic and diluted (1)

    $  43,178

    $  33,245

    (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

    March 31

    2011

    2010

    FFO – basic and diluted

    $  43,178

    $ 33,245

    FFO – basic and diluted

    $  43,178

    $ 33,245

    Acquisition costs of closed deals included in other expenses

    10

    Operating FFO (2)

    $  43,188

    $ 33,245

    FFO – basic and diluted

    $  43,178

    $ 33,245

    Recurring non-revenue generating capital expenses

    (7,772)

    (7,164)

    Addback of non-cash interest expense

    538

    508

    AFFO (3)

    $  35,944

    $ 26,589

    Operating FFO

    $  43,188

    $ 33,245

    Recurring non-revenue generating capital expenses

    (7,772)

    (7,164)

    Addback of non-cash interest expense

    538

    508

    Operating AFFO (2) (3)

    $  35,954

    $ 26,589

    Weighted average shares/units outstanding:

     Shares – basic

    38,004.2

    34,970.4

     Shares – diluted

    38,659.8

    35,406.8

     Shares/units – basic (4)

    49,292.6

    46,595.9

     Shares/units – diluted (4)

    49,948.2

    47,032.3

    Per share/unit:

     Net income – basic

    $0.19

    $0.08

     Net income – diluted

    $0.19

    $0.07

    FFO – basic

    $0.88

    $0.71

     FFO – diluted

    $0.86

    $0.71

     Operating FFO (2)

    $0.86

    $0.71

    AFFO (3)

    $0.72

    $0.57

    Operating AFFO (2) (3)

    $0.72

    $0.57

     Common Dividend paid

    $0.62

    $0.58

    (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)

    March 31, 2011

    December 31, 2010

    Land

    $     606,026

    $     589,359

    Construction in progress

    91,299

    119,992

    Buildings, improvements and equipment

    3,706,509

    3,668,379

    4,403,834

    4,377,730

    Accumulated depreciation

    (875,607)

    (841,801)

    Real estate, net

    3,528,227

    3,535,929

    Cash and cash equivalents

    10,887

    10,782

    Cash in escrows

    35,475

    34,070

    Accounts receivable

    12,702

    12,540

    Prepaid expenses

    17,781

    17,662

    Deferred charges

    14,511

    15,079

    Other assets

    7,464

    8,641

    Total assets

    $ 3,627,047

    $ 3,634,703

    Mortgage notes payable

    $ 2,404,670

    $ 2,424,214

    Exchangeable senior notes

    138,756

    138,218

    Line of credit

    42,500

    56,500

    Accounts payable

    15,948

    20,935

    Accrued interest payable

    12,894

    11,389

    Accrued expenses and other liabilities

    26,830

    28,730

    Security deposits

    19,596

    19,583

    Total liabilities

    2,661,194

    2,699,569

    Common stockholders' equity

    749,356

    720,893

    Noncontrolling interest

    216,497

    214,241

    Total equity

    965,853

    935,134

    Total liabilities and equity

    $ 3,627,047

    $ 3,634,703

    Total shares/units outstanding:

    Common stock

    38,925.1

    37,949.2

    Operating partnership units

    11,273.0

    11,305.3

    50,198.1

    49,254.5

    SOURCE Home Properties