ROCHESTER, N.Y., Feb. 18 /PRNewswire-FirstCall/ -- Home Properties today released financial results for the fourth quarter and year ended December 31, 2009. All results are reported on a diluted basis.
"Home Properties' sector-leading 2009 net operating income ("NOI") growth reflects the consistency and strength of the Company's geographic markets, middle-market apartment strategy and operations focus," said Edward J. Pettinella, Home Properties President and CEO. "Based on our projections and those of the other publicly-traded apartment companies, we expect to repeat our number one performance in same-store NOI growth in 2010."
Earnings per share ("EPS") for the quarter ended December 31, 2009 was $0.36, compared to $0.78 for the quarter ended December 31, 2008. The $0.42 decrease in EPS is primarily attributable to a gain on early extinguishment of debt of $0.25 per share offset by a real estate impairment charge on assets held as general partner of $0.09 per share, both recorded in the fourth quarter 2008, combined with a decrease of $0.24 per share in gain on disposition of property between 2009 and 2008. EPS for the year ended December 31, 2009 was $1.04, compared to $2.04 for the year ended December 31, 2008. The year-over-year decrease of $1.00 per share is primarily attributable to the fourth quarter 2008 gain on early extinguishment of debt and real estate impairment charge, combined with a decrease in gain on disposition of property between years.
For the quarter ended December 31, 2009, Funds From Operations ("FFO") was $35.4 million, or $0.77 per share, compared to $43.0 million, or $0.95 per share, for the quarter ended December 31, 2008. Fourth quarter 2009 FFO of $0.77 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 year ended December 31, 2009 was $3.22 per share, compared to $3.45 in the year-ago period. Excluding two unusual non-recurring items recorded in the 2008 fourth quarter for gain on early extinguishment of debt after fees and other accruals, and an impairment charge, FFO per share would have been $0.81 for the 2008 fourth quarter and $3.32 for the full year 2008. Compared to the adjusted FFO per share for 2008, 2009 results represent a decrease of 4.4% for the quarter and 2.9% for the full year. A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.
Fourth Quarter Operating Results
For the fourth quarter of 2009, same-property comparisons (for 102 "Core" properties containing 34,768 apartment units owned since January 1, 2008) reflected a decrease in total revenues of 1.6% compared to the same quarter a year ago. Net operating income ("NOI") increased by 1.1% from the fourth quarter of 2008. Property level operating expenses decreased by 5.2% compared to the prior year quarter, primarily due to decreases in natural gas heating costs, repairs and maintenance, personnel costs and property insurance, which were partially offset by an increase in snow removal costs.
Average physical occupancy for the Core properties was 95.1% during the fourth quarter of 2009, compared to 94.9% during the fourth quarter of 2008. Average monthly rental rates of $1,130 represent a 1.4% decrease compared to the year-ago period.
On a sequential basis, compared to the 2009 third quarter results for the Core properties, total revenues increased 0.7% in the fourth quarter of 2009, expenses were up 2.4% and net operating income decreased 0.5%. Average physical occupancy at 95.1% was identical to third quarter 2009 occupancy.
Physical occupancy for the 1,029 net apartment units acquired/developed between January 1, 2008 and December 31, 2009 (the "Recently Acquired Communities") averaged 93.9% during the fourth quarter of 2009, at average monthly rents of $1,138.
Year-to-Date Operating Results
For the year ended December 31, 2009, same-property comparisons for the Core properties reflected a decrease in total revenue of 0.1% and expenses of 0.2%, resulting in net operating income that was essentially flat compared to 2008. Property level operating expenses decreased for the year, primarily due to decreases in natural gas heating costs, property insurance and property management G&A costs, which were partially offset by increases in personnel costs, real estate taxes and snow removal costs.
Average physical occupancy for the Core properties was 94.9% during 2009, down from 95.0% a year ago, with average monthly base rents rising 0.1%.
Dispositions
During the fourth quarter of 2009, the Company closed on two separate sale transactions, with a total of 592 units, for $40.5 million, producing $39.3 million in net proceeds after closing costs. A gain on sale of $10.8 million was recorded in the fourth quarter related to these sales. The details for a 432-unit property located in Philadelphia sold earlier in the quarter were presented in the third quarter earnings news release. The most recent sale, closed December 16, 2009, was a 160-unit property also located in Philadelphia, which sold for $10.5 million at an expected first year cap rate of 7.6%.
Development
The Company has two projects currently under construction, 1200 East West Highway and The Courts at Huntington Station. 1200 East West Highway is in Silver Spring, Maryland and construction is expected to be completed in April 2010. It is a 14-story high rise with 247 apartments and 10,600 square feet of retail or nonresidential space that is expected to have initial occupancy in March 2010. Stabilization is anticipated after a one-year lease-up period.
The Courts at Huntington Station is in Alexandria, Virginia and construction of the 202 units in Phase I is expected to be complete by the end of May 2010. Initial occupancy is expected in April 2010 and the lease-up period is projected to last eleven months. Construction on Phase II (219 units) has commenced and is scheduled to be complete in the second quarter of 2011, reaching stabilized occupancy a year later.
The Company owns no raw land and has no real estate development investments in which the cost is in excess of fair market value. Therefore, the Company has not had to record any development pipeline impairment charges. The Company does not plan to acquire new entitled or raw land for development in 2010.
Capital Markets Activities
As of December 31, 2009, the Company's ratio of debt-to-total market capitalization was 51.1% (based on a December 31, 2009 stock price of $47.71 to determine equity value), with $53.5 million outstanding on its $175 million revolving credit facility and $8.8 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 89% of total indebtedness is at fixed rates. Interest coverage for the year averaged 2.2 times and the fixed charge ratio averaged 2.1 times.
In the 2009 fourth quarter, the Company closed on approximately $151 million in new secured loans, generating $34 million in net proceeds after the payoff of maturing loans. An additional $51 million of maturing debt was paid off, adding four properties to the unencumbered pool. The Company has reduced 2010 maturities from $305 million as of September 30, 2009 to only $146 million at December 31, 2009 by refinancing loans prior to maturity.
The Company did not repurchase any of its common shares during the fourth quarter. As of December 31, 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.
During the fourth quarter of 2009, the Company initiated an At-The-Market ("ATM") equity offering program through which it may sell up to 3.7 million common shares, not to exceed $150 million of gross proceeds. During the fourth quarter, 871,600 shares were issued at an average price of $45.70 generating net proceeds of $39 million. In January 2010, the settlement of pending trades at December 31, 2009 resulted in an additional 169,600 shares issued at an average price of $48.37 generating net proceeds of $8 million. As of December 31, 2009, up to 2,658,800 shares remain available for issuance under this program.
Outlook
For 2010, the Company expects FFO per share between $2.75 and $2.99 per share, which will produce FFO per share growth of negative 14.6% to negative 7.1% when compared to 2009 results. This guidance range reflects management's current assessment of economic and market conditions. The assumptions for the 2010 projections are included with the published supplemental information.
Pettinella commented, "Like our peers in the industry, we continue to feel the effects of the current economic environment, but despite what we view as a challenging 2010, our outlook for same-unit NOI performance is the best among our peers. The impact of relatively favorable operating results is muted in our 2010 FFO projections due to the earnings dilution from lower than expected development yields, as well as dilution from the ATM equity offering program and higher interest expense from the September 2009 renewal of the line of credit. If the economy improves as projected, our outlook for 2011 is cautiously optimistic. Beyond that, we believe 2012 through 2014 could result in some of the best results in our history."
The quarterly breakdown for the 2010 guidance on FFO per share results is as follows: First quarter $0.65 to $0.71; second quarter $0.68 to $0.74; third quarter $0.72 to $0.78; fourth quarter $0.70 to $0.76.
Dividend Declared
The Company announced a regular cash dividend on the Company's common shares of $0.58 per share for the quarter ended December 31, 2009. The dividend is payable on March 5, 2010 to shareholders of record on March 1, 2010, and is equivalent to an annualized rate of $2.32 per share. The current annual dividend represents a 5.0% yield based on yesterday's closing price of $46.41. Home Properties' common stock will begin trading ex-dividend on February 25, 2010.
The quarterly dividend of $0.58 is a decrease of 13.4% from the Company's prior quarterly dividend of $0.67 per share.
"The Board's decision to reduce the dividend reflects the expectation that FFO will continue to be under pressure in 2010, before rental rate pricing improves in 2011 or beyond," said Pettinella. "Unlike many Real Estate Investment Trusts ("REITs") which cut or suspended their dividends in 2009, we were cautiously optimistic that we could weather the great recession without adjusting the dividend based on our sector-leading NOI last year. However, now that we expect the economic recovery to occur later and be more prolonged than originally anticipated, in addition to the increased common shares from the At the Market (ATM) equity offering program, we believe it is prudent to adjust our dividend payout level closer to the apartment REIT average." The Company said it would provide more information about the dividend decision on the conference call tomorrow.
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.
Fourth Quarter and Year End 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 800-758-5606 (International 212-231-2906). An audio replay of the call will be available through February 25, 2010, by dialing 800-633-8284 or 402-977-9140 and entering the passcode 21442490. 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 Web site, http://www.homeproperties.com/.
First Quarter 2010 Earnings Release and Conference Call
The first quarter financial results are scheduled to be released after the stock market closes on Thursday, May 6, 2010. A conference call, which will be simultaneously webcast, is scheduled for Friday, May 7, 2010 at 11:15 AM Eastern Time and is accessible following the above instructions. The passcode for that replay will be 21442491.
First Quarter 2010 Conference/Event Schedule
Home Properties' President and CEO, Edward J. Pettinella, is scheduled to participate in a roundtable presentation and question and answer session at the Citi 2010 Global Property CEO Conference in Palm Beach, Florida, on Wednesday, March 3, 2010 at 9:45 AM. The live presentation and related materials will be available in the "Investors" section of Home Properties' Web site.
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 107 communities containing 36,948 apartment units. Of these, 35,798 units in 105 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 homeproperties.com.
Tables to follow. HOME PROPERTIES, INC. SUMMARY OF OCCUPANCY AND PROPERTY OPERATING RESULTS Fourth Quarter Avg. Physical 4Q 4Q 2009 vs. 4Q Results: Occupancy(a) 2009 2008 % Growth -------------- ------------ ---- ------------------------ Average Monthly Rent Per Base 4Q 4Q Occ Rental Total Total 2009 2008 Unit Rates Revenue Expense NOI ---- ----- ---- ----- ------- ------- --- Core Properties(b) 95.1% 94.9% $1,130 (1.4%) (1.6%) 5.2% 1.1% Acquisition Properties(c) 93.9% NA $1,138 NA NA NA NA ---- --- ------ --- --- --- --- TOTAL PORTFOLIO 95.0% NA $1,130 NA NA NA NA Year-To-Date Avg. Physical YTD YTD 2009 vs. YTD Results: Occupancy(a) 2009 2008 % Growth ------------ ------------ ---- -------------------------- Average Monthly Rent Per Base YTD YTD Occ Rental Total Total 2009 2008 Unit Rates Revenue Expense NOI ---- ---- ---- ----- ------- ------- --- Core Properties(b) 94.9% 95.0% $1,137 0.1% (0.1%) 0.2% 0.0% Acquisition Properties(c) 92.5% NA $1,162 NA NA NA NA ---- --- ------ --- --- --- --- TOTAL PORTFOLIO 94.8% NA $1,137 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 102 properties with 34,768 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 Year Ended December 31 December 31 ---------------------- ----------------- 2009 2008 2009 2008 ---- ---- ---- ---- Rental income $114,976 $114,665 $462,086 $452,142 Property other income 10,494 11,091 40,764 41,336 Interest income 41 6 59 165 Other income 301 92 700 400 --- --- --- --- Total revenues 125,812 125,854 503,609 494,043 ------- ------- ------- ------- Operating and maintenance 52,563 54,723 211,265 207,517 General and administrative 6,237 6,703 24,476 25,488 Interest 31,232 30,581 122,814 119,330 Depreciation and amortization 30,256 28,844 119,689 111,310 Impairment of real estate assets - 4,000 - 4,000 --- ----- --- ----- Total expenses 120,288 124,851 478,244 467,645 ------- ------- ------- ------- Income from operations before gain on early extinguishment of debt 5,524 1,003 25,365 26,398 Gain on early extinguishment of debt - 11,304 - 11,304 --- ------ --- ------ Income from continuing operations 5,524 12,307 25,365 37,702 Discontinued operations Income (loss) from discontinued operations 149 1,189 (2,601) 3,943 Gain on disposition of property 10,844 21,711 24,314 51,560 ------ ------ ------ ------ Discontinued operations 10,993 22,900 21,713 55,503 ------ ------ ------ ------ Net income 16,517 35,207 47,078 93,205 Net income attributable to noncontrolling interest (4,284) (10,068) (12,659) (27,124) ------ ------- ------- ------- Net income attributable to common shareholders $12,233 $25,139 $34,419 $66,081 ======= ======= ======= ======= Reconciliation from net income attributable to common shareholders to Funds From Operations: Net income attributable to common shareholders $12,233 $25,139 $34,419 $66,081 Real property depreciation and amortization 29,718 29,435 118,480 114,260 Noncontrolling interest 4,284 10,068 12,659 27,124 Gain on disposition of property (10,844) (21,711) (24,314) (51,560) Loss from early extinguishment of debt in connection with sale of real estate - 30 4,927 1,413 --- --- ----- ----- FFO -basic and diluted (1) $35,391 $42,961 $146,171 $157,318 ======= ======= ======== ======== (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 Year Ended December 31 December 31 ----------------- ----------------- 2009 2008 2009 2008 ---- ---- ---- ---- FFO - basic and diluted $35,391 $42,961 $146,171 $157,318 ======= ======= ======== ======== FFO - basic and diluted $35,391 $42,961 $146,171 $157,318 Impairment of real property - 4,000 - 4,000 --- ----- --- ----- FFO - operating (2) $35,391 $46,961 $146,171 $161,318 ======= ======= ======== ======== FFO - basic and diluted $35,391 $42,961 $146,171 $157,318 Recurring non-revenue generating capital expenses (7,187) (7,246) (29,069) (28,885) Addback of non-cash interest expense 504 531 1,968 2,463 Addback of non-cash adjustment to gain on early extinguishment of debt - 2,580 - 2,580 --- ----- --- ----- AFFO (3) $28,708 $38,826 $119,070 $133,476 ======= ======= ======== ======== FFO - operating $35,391 $46,961 $146,171 $161,318 Recurring non-revenue generating capital expenses (7,187) (7,246) (29,069) (28,885) Addback of non-cash interest expense 504 531 1,968 2,463 Addback of non-cash adjustment to gain on early extinguishment of debt - 2,580 - 2,580 --- ----- --- ----- AFFO - operating $28,708 $42,826 $119,070 $137,476 ======= ======= ======== ======== Weighted average shares/units outstanding: Shares - basic 33,621.9 32,228.6 33,040.8 31,991.8 Shares - diluted 33,965.9 32,356.2 33,172.1 32,332.7 Shares/units - basic (4) 45,423.7 45,144.2 45,274.4 45,200.4 Shares/units - diluted (4) 45,767.7 45,271.8 45,405.7 45,541.3 Per share/unit: Net income - basic $0.36 $0.78 $1.04 $2.07 Net income - diluted $0.36 $0.78 $1.04 $2.04 FFO - basic $0.78 $0.95 $3.23 $3.48 FFO - diluted $0.77 $0.95 $3.22 $3.45 Operating FFO - diluted (2) $0.77 $1.04 $3.22 $3.54 AFFO (3) $0.63 $0.86 $2.62 $2.93 Operating AFFO (2) (3) $0.63 $0.95 $2.62 $3.02 Common Dividend paid $0.67 $0.67 $2.68 $2.65 (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. Non-cash interest expense and non-cash adjustments to gain on early extinguishment of debt have been added back for 2009 and 2008. 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) December 31, 2009 December 31, 2008 ----------------- ----------------- Land $508,087 $515,610 Construction in progress 184,617 111,039 Buildings, improvements and equipment 3,223,275 3,245,741 --------- --------- 3,915,979 3,872,390 Accumulated depreciation (733,142) (636,970) -------- -------- Real estate, net 3,182,837 3,235,420 Cash and cash equivalents 8,809 6,567 Cash in escrows 27,278 27,904 Accounts receivable 14,137 14,078 Prepaid expenses 16,783 16,277 Deferred charges 13,931 11,360 Other assets 4,259 5,488 ----- ----- Total assets $3,268,034 $3,317,094 ========== ========== Mortgage notes payable $2,112,645 $2,112,331 Exchangeable senior notes 136,136 134,169 Line of credit 53,500 71,000 Accounts payable 19,695 23,731 Accrued interest payable 10,661 10,845 Accrued expenses and other liabilities 27,989 32,043 Security deposits 19,334 21,443 Total liabilities 2,379,960 2,405,562 Common stockholders' equity 661,112 650,778 Noncontrolling interest 226,962 260,754 ------- ------- Total equity 888,074 911,532 ------- ------- Total liabilities and equity $3,268,034 $3,317,094 ========== ========== Total shares/units outstanding: Common stock 34,655.4 32,431.3 Operating partnership units 11,734.6 12,821.2 -------- -------- 46,390.0 45,252.5 ======== ========
Home Properties
CONTACT: David P. Gardner, Executive Vice President and Chief Financial
Officer, +1-585-246-4113, or Charis W. Warshof, Vice President, Investor
Relations, +1-585-295-4237
Web Site: http://www.homeproperties.com/
