Home Properties Reports Third Quarter 2014 Results and Announces Quarterly Dividend
ROCHESTER, N.Y., Oct. 30, 2014 /PRNewswire/ -- Home Properties, Inc. (NYSE: HME) today reported financial results for the quarter and nine months ended September 30, 2014. All per share results are reported on a diluted basis.
Results for the Quarter
- Earnings per share ("EPS") was $0.45 compared to $0.44 in the third quarter of 2013.
- Funds from Operations ("FFO") and Operating Funds from Operations ("OFFO") were $1.13 per share compared to $1.09 per share in the prior year period.
- Results for the quarter were negatively impacted by the Company's decision to exit the business of developing new apartment communities as announced on July 31. In the third quarter, net severance charges of $1.024 million were expensed in connection with the elimination of development employee positions. The Company also recognized $602,000 of interest expense related to land and predevelopment carrying costs that would have otherwise been capitalized. The impact to third quarter OFFO on a per share basis is summarized below:
| OFFO as Reported |
$1.13 |
| Severance |
0.02 |
| Reduced Capitalized Interest on Land Parcels |
|
| Previously Designated for Development |
0.01 |
| OFFO as Adjusted for Impact of Exit From |
|
| New Development Business |
$1.16 |
Results for the Nine Months
- EPS was $1.64 per share compared to $1.92 per share in the first nine months of 2013. The decrease is primarily attributable to one-time charges of $0.07 per share incurred in connection with the Company's exit from the business of developing new apartment communities and lower gains on the disposition of property of $0.24 per share.
- FFO was $3.17 per share compared to $3.25 per share in the prior year period. The decrease is primarily attributable to charges related to the Company's exit from the new development business.
- OFFO was $3.24 per share compared to $3.25 per share in the prior year period.
Definitions of FFO and OFFO and reconciliations of GAAP net income to these measures are provided in the financial data section of this release.
"It was a solid quarter for Home Properties," said Edward J. Pettinella, President and Chief Executive Officer. "Rental income for our core properties increased 3.2% over the third quarter of 2013, with renewal leases executed at rents 3.6% higher than expiring leases and new leases 2.5% higher. Occupancy was 40 basis points above the prior year level. These positive operating trends and our outlook for the fourth quarter led to our affirmation of 2014 guidance previously provided.
In early October, we obtained a BBB rating from Standard & Poor's. We now have strong ratings from the three primary rating agencies and plan to complete our initial public offering of unsecured debt in the fourth quarter, further strengthening our balance sheet with this new source of capital."
Same-Property Operating Results (1)
| Third Quarter 2014 Compared to Third Quarter 2013 |
Third Quarter 2014 Compared to Second Quarter 2014 |
|
| Rental Income |
3.2% increase |
0.8% increase |
| Total Revenues |
3.2% increase |
0.4% increase |
| Property Level Operating Expenses |
5.7% increase |
2.1% increase |
| Net Operating Income ("NOI") |
1.9% increase |
0.5% decrease |
| Average Physical Occupancy(2) |
95.3%, or a 40 basis point increase |
95.3%, or a 10 basis point decrease |
| Average Monthly Rental Rates |
2.6% increase to $1,340 |
1.3% increase to $1,340 |
| (1) For 115 core properties containing 39,916 apartment units owned since January 1, 2013 |
||
| (2) Average physical occupancy – defined as the number of occupied apartment units divided |
||
Acquisitions
As previously reported, the Company acquired Willowbrook Apartments, a 248-unit garden apartment community located in Jeffersonville, Pennsylvania, on July 30.
"Our acquisition pipeline is robust," commented Mr. Pettinella. "The deal flow increased in several of our markets during the third quarter and we reviewed more than 50 potential transactions. We expect to complete approximately $250 million of acquisitions in 2014."
Development
Construction continues on the Company's remaining new development projects:
- Eleven55 Ripley in Silver Spring, Maryland is expected to be completed in the fourth quarter of 2014. Approximately 65% of the units have been leased.
- The Courts at Spring Mill Station in Conshohocken, Pennsylvania is expected to be completed in the first quarter of 2015. The first of two buildings in the community became ready for occupancy on October 1. Approximately 11% of the units have been leased.
Capital Markets
On July 31, the Company repaid two fixed rate mortgages – an $8.8 million 4.93% fixed-rate mortgage with an August 1, 2014 maturity date and a $5.0 million 6.99% fixed-rate mortgage with a January 1, 2029 maturity date. Both properties have been added to the Company's unencumbered asset pool.
On October 3, Standard & Poor's Ratings Services assigned its 'BBB' corporate credit rating to Home Properties Inc. The outlook is stable.
As of September 30, 2014:
- The Company had approximately $13 million of cash on hand and an additional $75 million of available capacity on its corporate credit facility.
- Unencumbered assets represented 57.0% of total undepreciated assets, up from 51.9% at December 31, 2013.
- The Company's ratio of debt-to-total market capitalization was 38.6%.
- Total debt of $2.5 billion was outstanding at a weighted average interest rate of 4.2% and staggered maturities averaging 3.7 years.
- Approximately 84% of total indebtedness was at fixed rates.
- Interest coverage for the quarter was 4.1 times and the fixed charge ratio was 3.9 times.
2014 Guidance
Based on actual year-to-date results and expectations for the balance of the year, the Company affirms the midpoint of its prior FFO per share guidance of $4.35 for the year and $1.18 for the fourth quarter as well as the midpoint of its prior OFFO per share guidance of $4.42 for the year and $1.18 for the fourth quarter.
The ranges for each period were narrowed as follows:
- FFO per share for the year of $4.33 to $4.37
- FFO per share for the fourth quarter of $1.16 to $1.20
- OFFO per share for the year of $4.40 to $4.44
- OFFO per share for the fourth quarter of $1.16 to $1.20
Dividend Declared
The Company announced a regular cash dividend on the Company's common shares of $0.73 per share for the quarter ended September 30, 2014. The dividend is payable on November 21, 2014 to shareholders of record on November 10, 2014 and is equivalent to an annualized rate of $2.92 per share. The current annual dividend represents a 4.6% yield based on the October 29 closing price of $63.71 Home Properties' common stock will begin trading ex-dividend on November 6, 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. The supplemental information is available via the Company's website through the "Investors" section or e-mail upon request.
Third Quarter 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 of the Company's website, www.homeproperties.com. For live audio-only participation, please dial 800-913-1647 (International 212-231-2900).
Fourth Quarter Conference/Event Schedule
Home Properties is scheduled to participate in REITWorld 2014®: NAREIT's Annual Convention for All Things REIT® in Atlanta, November 5-7. Presentation materials will be available at www.homeproperties.com in the "Investors" section.
Fourth Quarter and Year End Earnings Release and Conference Call
The Company's fourth quarter 2014 financial results are scheduled to be released after the stock market closes on Thursday, February 5, 2015. A conference call, which will be simultaneously webcast, is scheduled for Friday, February 6, 2015 at 11:00 AM ET. It will be accessible following the instructions for the current quarter's conference call.
Forward-Looking Statements
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 are described under the heading "Risk Factors" in the Company's Annual Report on Form 10-K and in other filings with the Securities and Exchange Commission and 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. The Company assumes no obligation to update or supplement forward-looking statements because of subsequent events.
About Home Properties
Home Properties is a publicly traded multifamily real estate investment trust that owns, operates, acquires and upgrades apartment communities in suburbs of major metropolitan areas primarily along the East Coast of the United States. An S&P 400 Company, Home Properties owns and operates 122 communities containing 42,250 apartment units. For more information, please visit the Company's website at www.homeproperties.com.
| 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 |
|||
| 2014 |
2013 |
2014 |
2013 |
|
| Rental income |
$ 158,535 |
$ 149,588 |
$ 465,910 |
$ 446,194 |
| Property other income |
12,754 |
12,140 |
41,484 |
39,149 |
| Other income |
22 |
207 |
344 |
671 |
| Total revenues |
171,311 |
161,935 |
507,738 |
486,014 |
| Operating and maintenance |
62,245 |
57,060 |
189,006 |
175,061 |
| General and administrative |
5,288 |
6,152 |
21,672 |
22,571 |
| Interest |
25,062 |
27,499 |
75,586 |
86,184 |
| Depreciation and amortization |
46,463 |
42,793 |
136,009 |
126,207 |
| Other expenses |
335 |
16 |
617 |
48 |
| Impairment and other charges |
1,024 |
- |
4,866 |
- |
| Total expenses |
140,417 |
133,520 |
427,756 |
410,071 |
| Income from continuing operations |
30,894 |
28,415 |
79,982 |
75,943 |
| Discontinued operations |
||||
| Income from discontinued operations |
- |
1,209 |
40 |
3,402 |
| Gain on disposition of property |
- |
- |
31,306 |
45,004 |
| Discontinued operations |
- |
1,209 |
31,346 |
48,406 |
| Net income |
30,894 |
29,624 |
111,328 |
124,349 |
| Net income attributable to noncontrolling interest |
(4,650) |
(4,586) |
(16,824) |
(20,395) |
| Net income attributable to common stockholders |
$ 26,244 |
$ 25,038 |
$ 94,504 |
$ 103,954 |
| Reconciliation from net income attributable to |
||||
| Net income attributable to common stockholders |
$ 26,244 |
$ 25,038 |
$ 94,504 |
$ 103,954 |
| Real property depreciation and amortization |
45,882 |
43,472 |
134,557 |
128,832 |
| Noncontrolling interest |
4,650 |
4,586 |
16,824 |
20,395 |
| Gain on disposition of property |
- |
- |
(31,306) |
(45,004) |
| FFO - basic and diluted, as defined by NAREIT |
76,776 |
73,096 |
214,579 |
208,177 |
| Loss from early extinguishment of debt in connection with sale of real estate |
- |
- |
802 |
1,416 |
| FFO - basic and diluted (1) |
$ 76,776 |
$ 73,096 |
$ 215,381 |
$ 209,593 |
| (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. |
||||
| 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 |
|||
| 2014 |
2013 |
2014 |
2013 |
|
| FFO – basic and diluted |
$ 76,776 |
$ 73,096 |
$ 215,381 |
$ 209,593 |
| FFO – basic and diluted |
$ 76,776 |
$ 73,096 |
$ 215,381 |
$ 209,593 |
| Acquisition costs of closed deals included in other expenses |
335 |
16 |
617 |
48 |
| Impairment and other charges |
- |
- |
3,842 |
- |
| Operating FFO (2) |
$ 77,111 |
$ 73,112 |
$ 219,840 |
$ 209,641 |
| FFO – basic and diluted |
$ 76,776 |
$ 73,096 |
$ 215,381 |
$ 209,593 |
| Recurring non-revenue generating capital expenses |
(9,209) |
(8,897) |
(27,433) |
(26,830) |
| AFFO (3) |
$ 67,567 |
$ 64,199 |
$ 187,948 |
$ 182,763 |
| Operating FFO |
$ 77,111 |
$ 73,112 |
$ 219,840 |
$ 209,641 |
| Recurring non-revenue generating capital expenses |
(9,209) |
(8,897) |
(27,433) |
(26,830) |
| Operating AFFO (2) (3) |
$ 67,902 |
$ 64,215 |
$ 192,407 |
$ 182,811 |
| Weighted average shares/units outstanding: |
||||
| Shares – basic |
57,412.6 |
56,370.1 |
57,248.1 |
53,444.2 |
| Shares – diluted |
57,970.4 |
56,943.8 |
57,735.3 |
54,051.5 |
| Shares/units – basic (4) |
67,611.3 |
66,717.3 |
67,458.8 |
63,834.0 |
| Shares/units – diluted (4) |
68,169.1 |
67,291.0 |
67,946.0 |
64,441.3 |
| Per share/unit: |
||||
| Net income – basic |
$0.46 |
$0.44 |
$1.65 |
$1.95 |
| Net income – diluted |
$0.45 |
$0.44 |
$1.64 |
$1.92 |
| FFO – basic |
$1.14 |
$1.10 |
$3.19 |
$3.28 |
| FFO – diluted |
$1.13 |
$1.09 |
$3.17 |
$3.25 |
| Operating FFO (2) |
$1.13 |
$1.09 |
$3.24 |
$3.25 |
| AFFO (3) |
$0.99 |
$0.95 |
$2.77 |
$2.84 |
| Operating AFFO (2) (3) |
$1.00 |
$0.95 |
$2.83 |
$2.84 |
| Common Dividend paid |
$0.73 |
$0.70 |
$2.19 |
$2.10 |
| (2) Operating FFO is defined as FFO adjusted for the addback of acquisition costs on closed deals and land impairment costs. |
||||
| (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. |
||||
| HOME PROPERTIES, INC. SUMMARY CONSOLIDATED BALANCE SHEETS (in thousands - Unaudited) |
||
| September 30, 2014 |
December 31, 2013 |
|
| Land |
$ 816,478 |
$ 786,868 |
| Land held for sale |
13,734 |
- |
| Construction in progress |
129,704 |
187,976 |
| Buildings, improvements and equipment |
4,767,930 |
4,645,921 |
| 5,727,846 |
5,620,765 |
|
| Accumulated depreciation |
(1,349,206) |
(1,243,243) |
| Real estate, net |
4,378,640 |
4,377,522 |
| Cash and cash equivalents |
13,145 |
9,853 |
| Cash in escrows |
25,088 |
23,738 |
| Accounts receivable |
13,205 |
14,937 |
| Prepaid expenses |
25,667 |
22,089 |
| Deferred charges |
9,632 |
11,945 |
| Other assets |
5,749 |
7,793 |
| Total assets |
$ 4,471,126 |
$ 4,467,877 |
| Mortgage notes payable |
$ 1,654,394 |
$ 1,814,217 |
| Unsecured notes payable |
450,000 |
450,000 |
| Unsecured line of credit |
371,000 |
193,000 |
| Accounts payable |
30,160 |
27,540 |
| Accrued interest payable |
9,949 |
8,392 |
| Accrued expenses and other liabilities |
34,414 |
33,936 |
| Security deposits |
19,079 |
18,479 |
| Total liabilities |
2,568,996 |
2,545,564 |
| Common stockholders' equity |
1,616,392 |
1,629,253 |
| Noncontrolling interest |
285,738 |
293,060 |
| Total equity |
1,902,130 |
1,922,313 |
| Total liabilities and equity |
$ 4,471,126 |
$ 4,467,877 |
| Total shares/units outstanding: |
||
| Common stock |
57,366.9 |
56,961.6 |
| Operating partnership units |
10,195.1 |
10,287.2 |
| 67,562.0 |
67,248.8 |
|
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SOURCE Home Properties, Inc.
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