Home Properties Reports Third Quarter 2009 Results
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ROCHESTER, N.Y., Nov. 5 /PRNewswire-FirstCall/ -- Home Properties (NYSE: HME) today released financial results for the third quarter ending September 30, 2009. All results are reported on a diluted basis.
"Home Properties exceeded both internal and street expectations for Funds From Operations in the third quarter, reflecting the stability of our solid geographic markets and middle-market apartment properties, even in a challenging operating environment," said Edward J. Pettinella, President and CEO. "Our number one ranking in same-unit net operating income growth in the apartment sector results from a continued focus on managing rents to optimize occupancy and revenue, while also controlling costs and refining operations to ensure excellent future results despite continued weakness in the economy."
Earnings per share ("EPS") for the quarter ended September 30, 2009 was $0.16, compared to $0.21 for the quarter ended September 30, 2008. The $0.05 decrease in EPS is primarily attributable to a generally weaker operating environment. EPS for the nine months ended September 30, 2009 was $0.67, compared to $1.27 for the nine months ended September 30, 2008. The year-over-year decrease of $0.60 per share is primarily attributable to a $21.8 million decrease in income from discontinued operations, of which $16.4 million was due to a decrease in gain on disposition of property. The sale of seven properties in the first quarter of 2008 produced a gain of $29.8 million. Three properties were sold in the first quarter of 2009 for a gain of $13.5 million. The $5.4 million balance of the $21.8 million decrease in income from discontinued operations included $4.7 million attributable to prepayment penalties incurred as a result of the sale of the 2009 properties.
For the quarter ended September 30, 2009, Funds From Operations ("FFO") was $37.0 million, or $0.81 per share, compared to $38.3 million, or $0.84 per share, for the quarter ended September 30, 2008. Third quarter 2009 FFO of $0.81 per share was $0.04 above the midpoint of the guidance range provided by management and $0.03 above analysts' mean estimate, as reported by Thomson, and equates to a 3.2% decrease from the prior year. FFO for the nine months ended September 30, 2009 was $2.45 per share, compared to $2.50 in the year-ago period. 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 2009, same-property comparisons (for 104 "Core" properties containing 35,360 apartment units owned since January 1, 2008) reflected a decrease in total revenues of 0.2% compared to the same quarter a year ago. Net operating income ("NOI") decreased by 0.5% from the third quarter of 2008. Property level operating expenses increased by 0.2% for the quarter, primarily due to increases in personnel costs and real estate taxes, which were partially offset by a reduction in natural gas heating costs, repairs and maintenance, property insurance and property management G&A costs.
Average physical occupancy for the Core properties was 95.1% during the third quarter of 2009, compared to 95.0% during the third quarter of 2008. Average monthly rental rates decreased 0.5% compared to the year-ago period to $1,132.
On a sequential basis, compared to the 2009 second quarter results for the Core properties, total revenue was down 0.3% in the third quarter of 2009, expenses were up 0.6%, and net operating income was down 0.9%. Average physical occupancy remained steady at 95.1%.
Physical occupancy for the 1,029 net apartment units acquired/developed between January 1, 2008 and September 30, 2009 (the "Recently Acquired Communities") averaged 93.3% during the third quarter of 2009, at average monthly rents of $1,166.
Year-to-Date Operating Results
For the nine months ended September 30, 2009, same-property comparisons for the Core properties reflected an increase in total revenue of 0.4% and expenses of 1.5%, resulting in a 0.4% decrease in net operating income compared to the first nine months of 2008. Property level operating expenses increased primarily due to increases in repairs and maintenance, personnel and real estate taxes, which were partially offset by a reduction in advertising, property insurance and property management G&A costs.
Average physical occupancy for the Core properties was 94.9% during the first nine months of 2009, down from 95.0% a year ago, with average monthly base rents rising 0.6%.
Dispositions
Subsequent to the end of the quarter, on October 1, 2009, the Company sold a property located in the Philadelphia region with a total of 432 units for $30.0 million. A gain on sale of approximately $7.3 million will be recorded in the fourth quarter of 2009 related to this sale. The weighted average first year cap rate projected on this disposition is 8.4% (after a 3% management fee but before allowance for capital expenditures).
Capital Markets Activities
As of September 30, 2009, the Company's ratio of debt-to-total market capitalization was 54.6% (based on a September 30, 2009 stock price of $43.09 to determine equity value), with $71.5 million outstanding on its $175.0 million revolving credit facility and $6.9 million of unrestricted cash on hand. Total debt of $2.3 billion was outstanding, at rates of interest averaging 5.6% and with staggered maturities averaging approximately six years. Approximately 93.0% of total indebtedness is at fixed rates. Interest coverage averaged 2.2 times during the quarter, and the fixed charge ratio averaged 2.1 times for the quarter.
The Company did not repurchase any of its common shares during the third quarter. As of September 30, 2009, 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.
Outlook
For 2009, the Company has increased its guidance based only on higher third quarter results compared to the prior range of guidance and now expects FFO per share to be between $3.18 and $3.24 per share versus the previous range of $3.10 to $3.22. This guidance range reflects management's current assessment of economic and market conditions for the balance of the year.
The guidance for the balance of 2009 is reaffirmed without change, with the fourth quarter range expected to be $0.73 to $0.79 per share.
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 Web site through the "Investor" section, e-mail or facsimile upon request.
Third Quarter 2009 Earnings Conference Call
The Company will conduct a conference call and simultaneous webcast tomorrow at 11:00 AM Eastern Time to review and comment on the information reported in this release. To listen to the call, please dial 800-954-0647 (International 212-231-2901). An audio replay of the call will be available through November 12, 2009, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21412431. 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 its Web site, http://www.homeproperties.com.
Fourth Quarter and Year End 2009 Earnings Release and Conference Call
The fourth quarter and year end financial results are scheduled to be released after the stock market closes on Thursday, February 18, 2010. A conference call, which will be simultaneously webcast, is scheduled for Friday, February 19, 2010 at 11:00 AM Eastern Time and is accessible following the above instructions. The passcode for that replay will be 21442490.
Fourth Quarter 2009 Conference/Event Schedule
Home Properties' President and CEO, Edward J. Pettinella, is scheduled to participate in the NAREIT Annual Conference November 11-13, 2009. He is also scheduled to give presentations at the FBR Capital Markets 2009 Fall Investor Conference on December 2 and at the Wells Fargo 13th Annual Global Real Estate Securities Conference on December 9. Both presentations will be webcast live. Details on how to access presentation and related materials will be available at http://www.homeproperties.com in the "Investors" section.
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, Mid-Atlantic and Southeast Florida markets. Currently, Home Properties operates 108 communities containing 37,107 apartment units. Of these, 35,957 units in 106 communities are owned directly by the Company; 868 units are partially owned and managed by the Company as general partner, and 282 units are managed for other owners. For more information, visit Home Properties' Web site at http://www.homeproperties.com.
Tables to follow.
HOME PROPERTIES, INC.
SUMMARY OF OCCUPANCY AND PROPERTY OPERATING RESULTS
Third Quarter Avg. Physical
Results: Occupancy(a) 3Q 2009 3Q 2009 vs. 3Q 2008 % Growth
------------- ------------ ------- --------------------------------
Average
Monthly
Rent/ Base
3Q 3Q Occ Rental Total Total
2009 2008 Unit Rates Revenue Expense NOI
---- ---- -------- ------ ------- ------- ---
Core
Properties(b) 95.1% 95.0% $1,132 (0.5%) (0.2%) 0.2% (0.5%)
Acquisition
Properties(c) 93.3% NA $1,166 NA NA NA NA
---- ---- -------- ------ ------- ------- ---
TOTAL PORTFOLIO 95.1% NA $1,132 NA NA NA NA
Year-To-Date Avg. Physical
Results: Occupancy(a) YTD '09 YTD '09 vs. YTD '08 % Growth
------------- ------------ ------- --------------------------------
Average
Monthly Base
Rent / Rental Total Total
YTD '09 YTD '08 Occ Unit Rates Revenue Expense NOI
------- ------- -------- ------ ------- ------- ---
Core
Properties(b) 94.9% 95.0% $1,135 0.6% 0.4% 1.5% (0.4%)
Acquisition
Properties(c) 92.1% NA $1,170 NA NA NA NA
---- ---- -------- ------ ------- ------- ---
TOTAL PORTFOLIO 94.8% NA $1,135 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 includes 104 properties with 35,360 apartment units
owned throughout 2008 and 2009.
(c) Acquisition Properties consist of 3 properties with 1,029 apartment
units acquired/developed subsequent to January 1, 2008.
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
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Rental income $116,996 $114,791 $351,296 $341,762
Property other income 9,288 8,982 30,711 30,640
Interest income 4 20 18 159
Other income 29 30 397 308
-- -- --- ---
Total revenues 126,317 123,823 382,422 372,869
------- ------- ------- -------
Operating and maintenance 51,959 50,998 160,734 154,805
General and administrative 6,102 5,948 18,240 18,786
Interest 30,772 29,936 91,582 88,749
Depreciation and amortization 30,319 28,292 90,609 83,607
------ ------ ------ ------
Total expenses 119,152 115,174 361,165 345,947
------- ------- ------- -------
Income from continuing
operations 7,165 8,649 21,257 26,922
Discontinued operations
Income (loss) from
discontinued operations 77 1,008 (4,167) 1,227
Gain (loss) on disposition
of property (22) - 13,471 29,848
---- --- ------ ------
Discontinued operations 55 1,008 9,304 31,075
-- ----- ----- ------
Net income 7,220 9,657 30,561 57,997
Net income attributable to
noncontrolling interest (1,956) (2,818) (8,375) (17,055)
------- ------- ------- --------
Net income attributable to
common shareholders $5,264 $6,839 $22,186 $40,942
====== ====== ======= =======
Reconciliation from net
income attributable to
common shareholders to
Funds From Operations:
Net income available to
common shareholders $5,264 $6,839 $22,186 $40,942
Real property depreciation
and amortization 29,712 28,666 88,763 84,824
Noncontrolling interest 1,956 2,818 8,375 17,055
(Gain) loss on disposition
of property 22 - (13,471) (29,848)
Loss from early
extinguishment of debt in
connection with sale of
real estate - - 4,927 1,384
------- ------- ------- --------
FFO - basic and diluted (1) $36,954 $38,323 $110,780 $114,357
======= ======= ======== ========
(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. In 2009 and 2008, the
Company added back debt extinguishment costs which were incurred as a
result of repaying property specific debt triggered upon sale as a
gain or loss on sale of the 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
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
FFO - basic, diluted
and Operating (2) $36,954 $38,323 $110,780 $114,357
======= ======= ======== ========
FFO - basic, diluted
and Operating (2) $36,954 $38,323 $110,780 $114,357
Recurring non-revenue
generating capital expenses (7,278) (7,202) (21,882) (21,638)
------- ------- -------- --------
AFFO (3) $29,676 $31,121 $88,898 $92,719
======= ======= ======= =======
Weighted average
shares/units outstanding:
Shares - basic 32,972.8 31,884.1 32,841.8 31,914.7
Shares - diluted 33,091.8 32,395.0 32,905.7 32,357.4
Shares/units - basic (4) 45,243.0 45,049.0 45,220.8 45,221.7
Shares/units - diluted (4) 45,361.9 45,559.9 45,284.7 45,664.3
Per share/unit:
Net income - basic $0.16 $0.21 $0.68 $1.28
Net income - diluted $0.16 $0.21 $0.67 $1.27
FFO - basic $0.82 $0.85 $2.45 $2.53
FFO - diluted and
Operating (2) $0.81 $0.84 $2.45 $2.50
AFFO and Operating
AFFO (2)(3) $0.65 $0.68 $1.96 $2.03
Common Dividend paid $0.67 $0.66 $2.01 $1.98
(2) Operating FFO is defined as FFO as computed in accordance with NAREIT
definition, adjusted for the addback of real estate impairment
charges.
(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 and $780 per apartment unit in 2009 and
2008, respectively. 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, December 31,
2009 2008
--------- ---------
Land $511,404 $515,610
Construction in progress 164,697 111,039
Buildings, improvements and equipment 3,238,440 3,245,741
--------- ---------
3,914,541 3,872,390
Accumulated depreciation (714,815) (636,970)
--------- ---------
Real estate, net 3,199,726 3,235,420
Cash and cash equivalents 6,879 6,567
Cash in escrows 26,793 27,904
Accounts receivable 11,707 14,078
Prepaid expenses 19,756 16,277
Deferred charges 13,086 11,360
Other assets 4,156 5,488
----- -----
Total assets $3,282,103 $3,317,094
========== ==========
Mortgage notes payable $2,138,524 $2,112,331
Exchangeable senior notes 135,632 134,169
Line of credit 71,500 71,000
Accounts payable 19,223 23,731
Accrued interest payable 12,668 10,845
Accrued expenses and other liabilities 27,419 32,043
Security deposits 20,291 21,443
------ ------
Total liabilities 2,425,257 2,405,562
Common stockholders' equity 629,882 650,778
Noncontrolling interest 226,964 260,754
------- -------
Total equity 856,846 911,532
------- -------
Total liabilities and equity $3,282,103 $3,317,094
========== ==========
Total shares/units outstanding:
Common stock 33,488.8 32,431.3
Operating partnership units 11,895.5 12,821.2
-------- --------
45,384.3 45,252.5
======== ========
SOURCE Home Properties
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