Home Properties Reports First Quarter 2014 Results

ROCHESTER, N.Y., May 1, 2014 /PRNewswire/ -- Home Properties, Inc. HME today released financial and operational results for the first quarter ended March 31, 2014.  All results are reported on a diluted basis.

"While first quarter Funds from Operations per share were 4 cents below our expectations as a result of costs related to severe winter weather, rate increases on expiring leases have been very encouraging," said Edward J. Pettinella, Home Properties President and CEO.  "Rents on new leases, compared to expiring leases, increased steadily month-over-month into May, a positive sign of the typical upturn we expected during the Spring leasing season."

Earnings per share ("EPS") for the quarter ended March 31, 2014 was $0.79, compared to $0.99 for the quarter ended March 31, 2013.  The $0.20 decrease in EPS is primarily attributable to a $9.1 million decrease in the gain on disposition of property partially offset by a $1.5 million increase in income from continuing operations from both the properties owned throughout 2013 and 2014 (the "Core" properties) and those acquired, developed, or redeveloped subsequent to January 1, 2013 (the "Non-Core" properties).

For the quarter ended March 31, 2014, Funds From Operations ("FFO") were $67.6 million, or $1.00 per share, compared to $66.0 million, or $1.05 per share, for the quarter ended March 31, 2013, which equates to a 5.4% decrease on a per-share basis.  First quarter 2014 FFO included $0.04 in costs related to record severe weather, over and above the budgeted normal winter, that resulted in increased costs in the majority of the Company's market areas.  Excluding this extreme variance in weather-related costs, FFO per share would have been $1.04.  A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

Operating Results

For the first quarter of 2014, same-property comparisons (for 115 Core properties containing 39,915 apartment units owned since January 1, 2013) reflected an increase of 2.8% in base rental rates and an increase of 2.8% in total revenues compared to the same quarter a year ago.  Net operating income ("NOI") decreased by 0.8% from the first quarter of 2013.  Property level operating expenses increased by 8.9% compared to the prior year quarter, primarily due to increases in electricity, natural gas heating costs, personnel expense, property insurance, real estate taxes and snow removal costs.  Excluding the extraordinary weather-related effects, NOI would have increased by 2.0%, slightly above the Company's expectations.

For the first quarter of 2014, compared to expiring leases, new lease rents for the Core properties declined by 0.2% while renewals increased 2.9%.  In April, new lease rents were 2.3% higher than expiring leases and in May, preliminary results show that new lease rents were up 3.7%.  Renewals in both April and May were 3.1% higher than expiring leases.  In May, the increase in new lease rents surpassed that of renewals for the first time since July of 2012.

Average physical occupancy for the Core properties was 95.0% during the first quarter of 2014, down from 95.5% during the first quarter of 2013.  Average monthly rental rates of $1,311 represent a 2.8% increase compared to the year-ago period.

On a sequential basis, compared to the 2013 fourth quarter results for Core properties, rental income (excluding utility recovery) was up 0.4% in the first quarter of 2014, total revenues increased 1.7%, expenses were up 12.4% and NOI decreased 4.2%.  Average physical occupancy increased 0.2% to 95.0%. The large sequential increase in expenses represents the seasonality of weather-related costs in the first quarter.

Physical occupancy for the 1,308 apartment units acquired/developed/redeveloped between January 1, 2013 and March 31, 2014 averaged 85.2% during the first quarter of 2014, at average monthly rents of $1,468.

Acquisitions/Dispositions

There were no acquisitions of apartment communities during the first quarter of 2014.

As previously reported, during the first quarter of 2014, the Company sold an 864-unit apartment community in the Washington, D.C. region for $110 million resulting in a gain on sale of $31.3 million. The sale is consistent with the Company's strategy to lighten the geographic concentration in the Washington, D.C. region, which is now at 28% of total units.

Development

Construction continues on Eleven55 Ripley, which will consist of one 21-story high-rise and a    5-story mid-rise, for a total of 379 units. Construction on the 21-story building is nearly complete, with 309 units ready for occupancy. Lease-up has commenced, with 52 units occupied and another 39 units preleased as of March 31, 2014.

Construction continued as planned on Courts at Spring Mill Station, with initial occupancy expected later in 2014.

Capital Markets Activities

The Company repaid a $58.5 million variable rate mortgage on February 26, 2014 in connection with the property disposition discussed above. 

On March 31, 2014, the Company repaid a $22.3 million fixed rate mortgage with an April 1, 2014 maturity date.  The property is now part of the unencumbered asset pool.  As of March 31, 2014, unencumbered assets represented 53.5% of total undepreciated assets, up from 51.9% at December 31, 2013.

During the first quarter of 2014, the Company did not issue any new shares through its
At-The-Market equity offering program.  There are approximately two million common shares that remain available under this program.  In addition, the Company did not repurchase any shares and has authorization remaining to repurchase approximately 2.3 million shares.

As of March 31, 2014, the Company's ratio of debt-to-total market capitalization was 36.8% (based on a March 31, 2014 stock price of $60.12), with $179 million outstanding on its $450 million revolving credit facility and $8.4 million of unrestricted cash on hand.  Total debt of $2.4 billion was outstanding, at interest rates averaging 4.5% and with staggered maturities averaging four years.  Approximately 91% of total indebtedness was at fixed rates.  Interest coverage for the quarter was 3.6 times and the fixed charge ratio was 3.3 times.

Outlook

Based solely on the actual first quarter results as compared to expectations, the Company has decreased the midpoint of its prior guidance by $0.04 per share to $4.48 and the range of FFO per share to $4.42 to $4.54.  The guidance range of both FFO and OFFO per share results for the second quarter of 2014 is $1.09 to $1.13.  The Company expects to include additional commentary on projected results for the balance of the year when it announces second quarter 2014 financial results.

Dividend Declared

The Company announced a regular cash dividend on the Company's common shares of $0.73 per share for the quarter ended March 31, 2014.  The dividend is payable on May 23, 2014 to shareholders of record on May 12, 2014 and is equivalent to an annualized rate of $2.92 per share.  The current annual dividend represents a 4.8% yield based on the April 28 closing price of $61.34.  Home Properties' common stock will begin trading ex-dividend on May 8, 2014.

Supplemental Information

The Company produces supplemental information that includes details regarding property operations, other income, acquisitions, sales, geographic market breakdown, debt and new development.  A new schedule is included in the first quarter 2014 supplement that provides details on weather-related effects on the quarter's results.  The supplemental information is available via the Company's website through the "Investors" section or e-mail upon request.

First Quarter 2014 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).

Second Quarter 2014 Conference/Event Schedule

Home Properties is scheduled to participate in REITWeek 2014:® NAREIT's Investor Forum® from June 3-5, 2014 in New York City.  Management will present information and answer questions about its operations on Wednesday, June 4, from 11:00 AM-11:30 AM ET.  The audio presentation and related materials will be available at homeproperties.com in the "Investors" section.

Second Quarter 2014 Earnings Release and Conference Call

The Company's second quarter 2014 financial results are scheduled to be released after the stock market closes on Thursday, July 31, 2014.  A conference call, which will be simultaneously webcast, is scheduled for Friday, August 1, 2014 at 11:00 AM ET and will be accessible following the instructions for the current quarter's conference call.

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 suburbs of major metropolitan areas in selected Northeast and Mid-Atlantic markets.  An S & P 400 Company, Home Properties owns and operates 119 communities containing 41,568 apartment units.  For more information, visit Home Properties' website at www.homeproperties.com.

 

 

^(a) Average physical occupancy is defined as the number of occupied apartment units divided by total apartment units.

^(b) Core Properties consist of 115 properties with 39,915 apartment units owned throughout 2013 and 2014.

^(c) Non-Core Properties consist of 3 properties with 1,308 apartment units acquired, developed, or redeveloped subsequent to January 1, 2013, such that full year comparable operating results are not available. Non-Core Properties exclude properties still under development where construction is not 100% complete.

 

⁽¹⁾ Pursuant to the updated guidance for Funds From Operations provided 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, impairment write-downs of depreciable real estate, noncontrolling interest and extraordinary items plus depreciation from real property.  The Company adds back debt extinguishment costs and other one-time costs incurred as a result of repaying property specific debt triggered upon sale of a 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.

 

⁽²⁾ Operating FFO is defined as FFO as adjusted for the addback of acquisition costs on closed deals.

⁽³⁾ Adjusted Funds From Operations ("AFFO") is defined as FFO less an annual reserve for anticipated recurring, non-revenue generating capitalized costs of $900 and $848 per apartment unit in 2014 and 2013, 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.

 

 

 

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SOURCE Home Properties, Inc.