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"Despite pressure on rental revenue, the Company's focus on cost cutting contributed to Funds From Operations that was four cents higher than both our own and analysts' expectations for the second quarter," said Edward J. Pettinella, Home Properties President and CEO. "Our ongoing focus on expenses will enable Home Properties to outperform the sector as we did in the last recession."
Earnings per share ("EPS") for the quarter ended June 30, 2009 was $0.18, compared to $0.26 for the quarter ended June 30, 2008. The $0.08 decrease in EPS is primarily attributable to a $2.9 million decrease in income from continuing operations combined with a $0.8 million decrease in income from discontinued operations. EPS for the six months ended June 30, 2009 was $0.52, compared to $1.05 for the six months ended June 30, 2008. The year-over-year decrease of $0.53 per share is primarily attributable to a $16.3 million 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.
For the quarter ended June 30, 2009, Funds From Operations ("FFO") was $37.9 million, or $0.84 per share, compared to $40.2 million, or $0.89 per share, for the quarter ended June 30, 2008. Second quarter 2009 FFO of $0.84 per share was $0.04 above both the midpoint of the guidance range provided by management and analysts' mean estimate, as reported by Thomson, and equates to a 5.4% decrease from the prior year. FFO for the six months ended June 30, 2009 was $1.63 per share, compared to $1.66 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 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 1.4% from the second quarter of 2008. Property level operating expenses increased by 1.7% for the quarter, primarily due to increases in repairs and maintenance and personnel, which were partially offset by a reduction in insurance, natural gas heating costs and property management general and administrative costs.
Average physical occupancy for the Core properties was 95.1% during the second quarter of 2009, compared to 95.0% during the second quarter of 2008. Average monthly rental rates increased 0.6% compared to the year-ago period.
On a sequential basis, compared to the 2009 first quarter results for the Core properties, base rental revenue (excluding utility reimbursement) was up 0.7% in the second quarter of 2009, expenses were down 9.8%, and net operating income was up 3.8%. Average physical occupancy increased 0.7% to 95.1%, and total revenue, including utility reimbursements, was 2.1% lower. 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 represented typical seasonality from lower natural gas and snow removal costs realized between the first and second quarters.
Physical occupancy for the 1,029 net apartment units acquired/developed between January 1, 2008 and June 30, 2009 (the "Recently Acquired Communities") averaged 92.0% during the second quarter of 2009, at average monthly rents of $1,174.
Year-to-Date Operating Results
For the six months ended June 30, 2009, same-property comparisons for the Core properties reflected an increase in total revenue of 0.7% and expenses of 2.2%, resulting in a 0.4% decrease in net operating income compared to the first six 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 general and administrative costs.
Average physical occupancy for the Core properties was 94.7% during the first six months of 2009, down from 95.0% a year ago, with average monthly base rents rising 1.2%.
Acquisitions/Dispositions
There were no acquisitions during the second quarter of 2009, and there are currently no plans to acquire properties for the remainder of the year.
Capital Markets Activities
As of June 30, 2009, the Company's ratio of debt-to-total market capitalization was 59.9% (based on a June 30, 2009 stock price of $34.10 to determine equity value), with $104 million outstanding on its $140 million revolving credit facility and $6.5 million of unrestricted cash on hand. Based on yesterday's closing stock price of $40.76, the price level at which the Company's stock has been trading more recently, the debt-to-total market capitalization would be 55.6%. Total debt of $2.3 billion was outstanding, at rates of interest averaging 5.4% and with staggered maturities averaging approximately six years. Approximately 93% of total indebtedness is at fixed rates. Interest coverage averaged 2.3 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 second quarter. As of June 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 reconfirmed the $3.16 midpoint of its guidance while tightening the range to $3.10 to $3.22 per share from $3.07 and $3.25. This conservative guidance range reflects management's current assessment of economic and market conditions for the balance of the year.
The quarterly breakdown for the balance of 2009 guidance on FFO per share results is as follows: Third quarter $0.74 to $0.80; fourth quarter $0.73 to $0.79.
Dividend Declared
On August 5, 2009, Home Properties declared a regular cash dividend on the Company's common shares of $0.67 per share for the quarter ended June 30, 2009. The cash dividend is payable on August 26, 2009 to shareholders of record on August 17, 2009 and is equivalent to an annualized rate of $2.68 per share. The current annual dividend represents a 6.6% yield based on yesterday's closing price of $40.76. Home Properties' common stock will begin trading ex-dividend on August 13, 2009.
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.
Second 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 August 11, 2009, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21412430. 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.
Third Quarter 2009 Earnings Release and Conference Call
The third quarter financial results are scheduled to be released after the stock market closes on Thursday, November 5, 2009. A conference call, which will be simultaneously webcast, is scheduled for Friday, November 6, at 11:00 AM Eastern Time and is accessible following the above instructions. The passcode for that replay will be 21412431.
Third Quarter 2009 Conference/Event Schedule
Home Properties is scheduled to participate in BMO Capital Markets' 2009 North American Real Estate Conference, September 9-11 at the Ritz-Carlton Hotel in Chicago and in the Bank of America Merrill Lynch Conference in New York City September 30 and October 1. The Company's President and Chief Executive Officer, Edward Pettinella, will participate on a panel at each conference. Details on how to access the presentation and related materials are 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 109 communities containing 37,539 apartment units. Of these, 36,389 units in 107 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.
Second Avg.
Quarter Physical 2Q 2Q 2009 vs. 2Q
Results: Occupancy(a) 2009 2008 % Growth
----------- ----------- -- --------------
Average
Monthly
Rent/ Base
2Q 2Q Occ Rental Total Total
2009 2008 Unit Rates Revenue Expense NOI
-- -- ---- ----- ------- ------- ---
Core Properties(b) 95.1% 95.0% $1,135 0.6% -0.2% 1.7% -1.4%
Acquisition
Properties(c) 92.0% NA $1,174 NA NA NA NA
----- -- ------ -- -- -- --
TOTAL PORTFOLIO 95.0% NA $1,135 NA NA NA NA
Year-To Avg.
-Date Physical YTD YTD '09 vs. YTD
Results: Occupancy(a) '09 '08 % Growth
----------- ----------- -- --------------
Average
Monthly
Rent/ Base
YTD YTD Occ Rental Total Total
'09 '08 Unit Rates Revenue Expense NOI
-- -- ---- ----- ------- ------- ---
Core Properties(b) 94.7% 95.0% $1,136 1.2% 0.7% 2.2% -0.4%
Acquisition
Properties(c) 91.4% NA $1,172 NA NA NA NA
----- -- ------ -- -- -- --
TOTAL PORTFOLIO 94.6% NA $1,136 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 Six Months Ended
June 30 June 30
------- -------
2009 2008 2009 2008
---- ---- ---- ----
$117,538 $114,034 $234,299 $226,971
Rental income
Property other income 8,980 9,946 21,424 21,658
Interest income 6 19 14 139
Other income 90 86 368 278
-- -- --- ---
Total revenues 126,614 124,085 256,105 249,046
------- ------- ------- -------
Operating and maintenance 51,612 49,691 108,775 103,806
General and administrative 6,249 6,620 12,138 12,838
Interest 30,257 28,795 60,810 58,813
Depreciation and amortization 30,243 27,842 60,290 55,316
------ ------ ------ ------
Total expenses 118,361 112,948 242,013 230,773
------- ------- ------- -------
Income from continuing
operations 8,253 11,137 14,092 18,273
Discontinued operations
Income (loss) from operations 45 867 (4,244) 219
Gain (loss) on disposition of
property (16) (1) 13,493 29,848
---- --- ------ ------
Discontinued operations 29 866 9,249 30,067
-- --- ----- ------
Net income 8,282 12,003 23,341 48,340
Net income attributable to
noncontrolling interest (2,262) (3,552) (6,419) (14,237)
------- ------- ------- --------
Net income available to
common shareholders $6,020 $8,451 $16,922 $34,103
====== ====== ======= =======
Reconciliation from net
income available to common
shareholders to Funds From
Operations:
Net income available to
common shareholders $6,020 $8,451 $16,922 $34,103
Real property depreciation
and amortization 29,629 28,207 59,050 56,158
Noncontrolling interest 2,262 3,552 6,419 14,237
(Gain) loss on disposition of
property, net of
noncontrolling interest 16 1 (13,493) (29,848)
Loss from early
extinguishment of debt in
connection with sale of real
estate - - 4,927 1,384
------- ------- ----- -----
FFO - basic and diluted (1) $37,927 $40,211 $73,825 $76,034
======= ======= ======= =======
(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 Six Months Ended
June 30 June 30
------- -------
2009 2008 2009 2008
---- ---- ---- ----
$37,927 $40,211 $73,825 $76,034
FFO - basic, diluted and ======= ======= ======= =======
Operating (2)
FFO - basic, diluted and
Operating (2) $37,927 $40,211 $73,825 $76,034
Recurring non-revenue
generating capital expenses (7,278) (7,197) (14,605) (14,437)
------- ------- -------- --------
AFFO (3) $30,649 $33,014 $59,220 $61,597
======= ======= ======= =======
Weighted average shares/units
outstanding:
Shares - basic 32,868.8 31,642.0 32,777.0 31,927.9
Shares - diluted 32,919.4 32,111.8 32,811.4 32,342.1
Shares/units - basic(4) 45,227.0 44,960.3 45,211.3 45,306.7
Shares/units - diluted(4) 45,277.6 45,430.2 45,245.7 45,720.8
Per share/unit:
Net income - basic $0.18 $0.27 $0.52 $1.07
Net income - diluted $0.18 $0.26 $0.52 $1.05
FFO - basic $0.84 $0.89 $1.63 $1.68
FFO - diluted and
Operating (2) $0.84 $0.89 $1.63 $1.66
AFFO and Operating
AFFO (2) (3) $0.68 $0.73 $1.31 $1.35
Common Dividend paid $0.67 $0.66 $1.34 $1.32
(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)
June 30, December 31,
2009 2008
---- ----
Land $511,404 $515,610
Construction in progress, including land 146,301 111,039
Buildings, improvements and equipment 3,219,647 3,245,741
--------- ---------
3,877,352 3,872,390
Accumulated depreciation (684,663) (636,970)
--------- ---------
Real estate, net 3,192,689 3,235,420
Cash and cash equivalents 6,473 6,567
Cash in escrows 28,418 27,904
Accounts receivable 11,568 14,078
Prepaid expenses 11,174 16,277
Deferred charges 9,660 11,360
Other assets 3,667 5,488
----- -----
Total assets $3,263,649 $3,317,094
========== ==========
Mortgage notes payable $2,067,698 $2,112,331
Exchangeable senior notes 135,138 134,169
Line of credit 104,000 71,000
Accounts payable 20,921 23,731
Accrued interest payable 10,770 10,845
Accrued expenses and other liabilities 26,909 32,043
Security deposits 20,773 21,443
------ ------
Total liabilities 2,386,209 2,405,562
Stockholders' equity 636,500 650,778
Noncontrolling interest 240,940 260,754
------- -------
Total equity 877,440 911,532
------- -------
Total liabilities and equity $3,263,649 $3,317,094
========== ==========
Total shares/units outstanding:
Common stock 33,040.3 32,431.3
Operating partnership units 12,336.3 12,821.2
-------- --------
45,376.6 45,252.5
======== ========
SOURCE Home Properties
http://www.homeproperties.com
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