Home Properties Reports Fourth Quarter and Full Year 2011 Results

Published on Thursday, 09 February 2012 16:52 Written by TradersHuddle Staff

FFO Per Share Exceeds Wall Street's Mean Estimate by 4 Cents

ROCHESTER, N.Y., Feb. 9, 2012 /PRNewswire/ -- Home Properties (NYSE: HME) today released financial results for the fourth quarter and year ended December 31, 2011.  All results are reported on a diluted basis.

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"Robust fourth quarter rent and revenue growth, combined with a continued decrease in expenses, contributed to the outstanding 2011 performance of Home Properties," said Edward J. Pettinella, Home Properties President and CEO.  "Funds From Operations per share in 2011 was up 14% from 2010, the second highest annual growth rate in the Company's history.  Financial results from core properties, recent acquisitions and new developments, as well as capital markets activities, are expected to produce another excellent year, with FFO per share growth of more than 9% in 2012."

Earnings per share ("EPS") for the quarter ended December 31, 2011 was $0.29, compared to $0.18 for the quarter ended December 31, 2010.  The $0.11 increase in EPS is primarily attributable to an $8.8 million increase in income from continuing operations. EPS for the year ended December 31, 2011 was $0.89, compared to $0.54 for the year ended December 31, 2010.  The $0.35 increase in EPS was due to a $20.9 million increase in income from continuing operations.  Increased income from continuing operations is attributed to the results of both properties owned throughout 2010 and 2011 (the "Core" properties) and those acquired, developed, or redeveloped subsequent to January 1, 2010 (the "Non-Core" properties).

For the quarter ended December 31, 2011, Funds From Operations ("FFO") was $55.6 million, or $0.93 per share, compared to $41.9 million, or $0.85 per share, for the quarter ended December 31, 2010, which equates to a 10.5% increase on a per-share basis.  Fourth quarter 2011 FFO of $0.93 per share was $0.04 above the midpoint of the guidance range provided by management and the analysts' mean estimate, as reported by Thomson. FFO for the year ended December 31, 2011 was $3.54 per share, compared to $3.10 per share in the year-ago period, a 14.0% increase.  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 2011, same-property comparisons (for 103 Core properties containing 34,950 apartment units owned since January 1, 2010) reflected an increase in rental income of 5.0% and a 4.7% increase in total revenues compared to the same quarter a year ago.  Net operating income ("NOI") increased by 9.1% from the fourth quarter of 2010.  Property level operating expenses decreased by 1.8% compared to the prior year quarter, primarily due to decreases in natural gas heating costs, personnel, and snow removal costs, which were partially offset by an increase in water & sewer, property insurance and real estate taxes.

Average physical occupancy for the Core properties was 95.3% during the fourth quarter of 2011, up from 95.1% during the fourth quarter of 2010.  Average monthly rental rates of $1,195 represent a 4.7% increase compared to the year-ago period.

On a sequential basis, compared to the 2011 third quarter results for Core properties, rental income (excluding utility recovery) increased 0.9% in the fourth quarter of 2011, total revenues increased 1.5%, expenses were down 0.1% and NOI increased 2.5%.  Average physical occupancy decreased 0.2% to 95.3%.  

Physical occupancy for the 7,001 apartment units acquired/developed/redeveloped between January 1, 2010 and December 31, 2011 averaged 89.2% during the fourth quarter of 2011, at average monthly rents of $1,368.

Year-to-Date Operating Results

For the year ended December 31, 2011, same-property comparisons for the Core properties reflected an increase in total revenues of 4.2% and a decrease in total expenses of 0.7%, resulting in a 7.6% increase in NOI compared to 2010.  Property level operating expenses decreased primarily due to lower electricity, natural gas heating costs, personnel, property insurance and snow and trash removal costs.  These decreases were partially offset by increases in water & sewer costs, repairs & maintenance and legal & professional expense.

Average physical occupancy for the Core properties was 95.5% during 2011, up from 95.2% a year ago, with average monthly rental rates of $1,171, an increase of 3.7% over the prior year.

Acquisitions/Dispositions

As previously reported, during the fourth quarter of 2011, the Company acquired three apartment communities with a total of 1,456 units in the Suburban Washington, D.C. region and one community with 204 units in the Chicago, Illinois region. The combined purchase price of $338 million was paid in cash.  In connection with these acquisitions, closing costs of approximately $1.5 million were incurred and are included in other expenses in the fourth quarter of 2011.

Year-to-date, the Company has acquired a total of eight communities with 2,817 units for a combined purchase price of $501 million, exceeding the $350 million high end of guidance originally provided and the highest annual level of acquisitions in the Company's history.

There were no dispositions of apartment communities during 2011.

Development

Construction on the first of the eight apartment buildings comprising The Apartments at Cobblestone Square, located in Fredericksburg, Virginia, was completed in December 2011. Construction on the rail depot renovation also was substantially completed.  Occupancy for both buildings began in the fourth quarter of 2011.

Groundbreaking for Eleven55 Ripley, which will consist of 379 units located in downtown Silver Spring, Maryland, occurred in November 2011.  Initial occupancy is expected to occur in the third quarter of 2013, and the entire project is expected to be completed in 2014.

On December 6, 2011, the Company acquired a 7.7 acre development parcel located in Whitemarsh, Pennsylvania for $11.1 million. The Company has received final land development plan approval for 385 apartment units at Courts at Spring Mill Station.

Capital Markets Activities

As of December 31, 2011, the Company's ratio of debt-to-total market capitalization was 43.9% (based on a December 31, 2011 stock price of $57.57 used to determine equity value), with $2.5 million outstanding balance on its $275 million revolving credit facility and $8 million of unrestricted cash on hand.  Total debt of $2.7 billion was outstanding, at interest rates averaging 4.8% and with staggered maturities averaging six years.  Approximately 83% of total indebtedness is at fixed rates.  Interest coverage for the quarter averaged 2.8 times and the fixed charge ratio averaged 2.7 times.

During the fourth quarter, all of the Company's 4.125% Exchangeable Senior Notes were repurchased in the principal amount of $140 million plus accrued interest of $2.8 million.

As previously reported, on December 9, 2011, the Company entered into an amended and restated revolving line of credit agreement for $275 million and a new $250 million five-year unsecured term loan.  The $275 million line of credit replaced the prior $175 million credit facility.  The initial term is for four years and may be extended at the Company's option for an additional one-year period.  Borrowing rates under the credit facility float at a margin over LIBOR plus a facility fee, both of which are priced off a grid that is tied to the Company's overall leverage ratio.  Based on the current leverage ratio, the LIBOR margin is 1.3% (compared to 2.1% in the previous facility), and the annual facility fee is 0.25%.  There were no material changes to the financial covenants from the previous facility.  The unsecured five-year term loan is also priced at 1.3% over LIBOR, and its covenants align with those of the new revolving credit facility.

On December 19, 2011, as previously reported, the Company completed the issuance of $150 million of unsecured senior notes.  The notes were offered in a private placement in two series:  $90 million with a seven-year term due December 19, 2018 at 4.46% (Series A) and $60 million with a ten-year term due December 19, 2021 at 5.00% (Series B).  The covenants align with those of the new revolving credit facility.

The Company has an At-The-Market equity offering program through which it may sell up to 3.6 million common shares.  There was no activity in the program during the fourth quarter of 2011.  During 2011, 3,204,107 shares were 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.

Outlook

For 2012, the Company expects FFO between $3.79 and $3.95 per share, which will produce FFO per share growth of 7.1% to 11.6% when compared to 2011 results.  The guidance range on FFO per share results for the first quarter of 2012 is $0.90 to $0.94.  This guidance range reflects management's current assessment of economic and market conditions.  The assumptions for the 2012 projections are included with the published supplemental information.

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.

Fourth Quarter and Full Year 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).

First Quarter 2012 Conference/Event Schedule

Home Properties' President and CEO, Edward J. Pettinella, is scheduled to participate in a roundtable presentation and question and answer session during Citi's 17th Annual Global Property CEO Conference in Palm Beach, Florida to be held from March 11-14, 2012.  Details on how to access any presentation or related materials will be available at homeproperties.com in the "Investors" section.

First Quarter 2012 Earnings Release and Conference Call

The first quarter financial results are scheduled to be released after the stock market closes on Thursday, May 3, 2012.  The complete webcast, with both audio and a slide presentation, will be available live on Friday, May 4, 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 124 communities containing 41,951 apartment units.  For more information, visit Home Properties' website at homeproperties.com.

SOURCE Home Properties