ROCHESTER, N.Y., Feb. 19 /PRNewswire-FirstCall/ -- Home Properties
(NYSE: HME) today released financial results for the fourth quarter
and year ended December 31, 2008. All results are reported on a
diluted basis. "Home Properties' solid 2008 operating results and
record Funds from Operations per share once again reflect the
Company's defensive characteristics, which have contributed to
superior sector performance in a recessionary environment," said
Edward J. Pettinella, President and CEO. "We expect this
outperformance to continue in 2009 as Home Properties is the only
apartment REIT projecting an increase in net operating income for
the year." Earnings per share ("EPS") for the quarter ended
December 31, 2008 was $0.85, compared to $0.48 for the quarter
ended December 31, 2007. The $0.37 increase in earnings is
primarily attributable to a $13.9 million gain on early
extinguishment of debt, a $7.2 million increase in gain on
disposition of property, partially offset by a $4.0 million real
estate impairment charge. After the allocation of minority
interest, the combined gains produced a $0.48 per share increase
that was offset by a $0.09 per share reduction for the real estate
impairment charge. EPS for the year ended December 31, 2008 was
$2.15, compared to $1.73 for the year ended December 31, 2007. The
year-over-year increase of $0.42 per share is mainly attributable
to the fourth quarter 2008 $13.9 million gain on early
extinguishment of debt and $4.0 million real estate impairment
charge, combined with a $9.4 million increase in gain on
disposition of property (before the allocation of minority
interest). For the quarter ended December 31, 2008, Funds From
Operations ("FFO") was $46.1 million, or $1.02 per share, compared
to $36.7 million, or $0.79 per share, for the quarter ended
December 31, 2007. For the year ended December 31, 2008, FFO was
$162.4 million, or $3.57 per share, compared to $151.1 million, or
$3.20 per share, for the year ended December 31, 2007. Excluding
the non-cash charges of $0.09 per share in the 2008 fourth quarter
related to a real estate impairment charge and $0.04 per share in
2007 related to costs associated with the initial offering of the
Series F preferred shares which were redeemed, Operating FFO for
2008 was $3.65, compared to $3.24 in 2007, which is a 12.7%
increase over 2007. Finally, if all unusual non-recurring items are
excluded, 2008 FFO per share would have been $3.37, compared to
$3.24 in 2007, or an increase of 3.9%. A reconciliation of GAAP net
income to FFO is included in the financial data accompanying this
news release. As referenced above, the Company recorded a non-cash
charge of $4 million for impairment on an affordable property in
Columbus, Ohio where Home Properties is the general partner owning
a 0.01% interest. In the fourth quarter of 2008, the Company
determined that it planned to sell the property over the next 12 to
18 months, rather than hold it for the long term. This decision led
to a re-evaluation of the fair market value of the property. Under
the guidance of FAS No.144, the Company reviewed the value of the
long-term asset with the substantially shortened holding period,
which triggered the recording of an impairment charge of $4
million. Fourth Quarter Operating Results For the fourth quarter of
2008, same-property comparisons (for 102 "Core" properties
containing 34,560 apartment units owned since January 1, 2007)
reflected an increase in total revenues of 3.9% compared to the
same quarter a year ago. Net operating income ("NOI") increased by
2.4% from the fourth quarter of 2007. Property level operating
expenses increased by 6.0% for the quarter, primarily due to
increases in repairs and maintenance costs, personnel, and property
insurance, partially offset by a reduction in advertising and snow
removal costs. Average physical occupancy for the Core properties
was 94.9% during the fourth quarter of 2008, compared to 94.6%
during the fourth quarter of 2007. Average monthly rental rates,
including utility recoveries, increased 3.3% compared to the
year-ago period. On a sequential basis, compared to the 2008 third
quarter results for the Core properties, total revenues were up
2.1% in the fourth quarter of 2008, expenses were up 8.0%, and net
operating income was down 2.0%. Average physical occupancy
decreased 0.2% to 94.9%; however, average monthly rental rates
including utility recoveries were 2.2% higher and rental income,
including utility recoveries, posted a 2.1% increase. The
sequential expense growth can be attributed to the typical
seasonality of higher natural gas heating and snow removal costs
incurred in the fourth quarter. Occupancies for the 2,570 net
apartment units acquired/developed between January 1, 2007 and
December 31, 2008 (the "Recently Acquired Communities") averaged
93.2% during the fourth quarter of 2008, at average monthly rents
of $1,051. Year-to-Date Operating Results For the year ended
December 31, 2008, same-property comparisons for the Core
properties reflected an increase in total revenues of 3.4%,
resulting in a 3.3% increase in net operating income, compared to
2007. Property level operating expenses increased by 3.6% for the
year, primarily due to increases in repairs and maintenance costs,
property insurance and real estate taxes. These increases were
partly offset by reductions in natural gas heating costs,
advertising and snow removal costs. Average physical occupancy for
the Core properties was 95.0% during 2008, compared to 94.8% a year
ago, with rent, including utility recoveries, rising 3.1%. Average
monthly rental rates, including utility recoveries, increased 3.3%
compared to the year-ago period. Acquisitions The Company
previously announced the acquisition during the fourth quarter of
Saddle Brooke Apartments, a 468-unit property located in
Cockeysville, Maryland, for $51.5 million. On December 30, 2008,
the Company acquired Westchester West, a 345-unit apartment
community located in Silver Spring, Maryland, for $49.0 million,
including closing costs, which equates to approximately $142,000
per apartment unit. Consideration for the purchase included the
assumption of two existing mortgages. The first mortgage totaled
$28.8 million (fair market value of $27.2 million) at a fixed
interest rate of 5.03% maturing on March 1, 2015. The second
mortgage totaled $7.9 million (fair market value of $7.6 million)
at a fixed rate of 5.89% also maturing on March 1, 2015. The
balance of the purchase price was paid in cash. The weighted
average first year capitalization rate ("cap rate") projected on
this acquisition is 6.9% after allocating 3% of rental revenues for
management and overhead expenses and before normalized capital
expenditures. These purchases from the same buyer were agreed upon
in September of 2008. "These acquisitions were two positive
outliers in what continues to be a very difficult acquisitions
market," Pettinella said. "We continue to look at deals but,
especially in the current market, with recently exacerbated
liquidity and recessionary issues, we don't anticipate closing on
any acquisitions in the foreseeable future." Dispositions During
the fourth quarter of 2008, the Company closed on three separate
sale transactions, with a total of 629 units, for $60 million,
producing approximately $54 million in net proceeds after mortgage
payoffs and closing costs. A gain on sale of approximately $21.7
million, before the allocation of minority interest, was recorded
in the fourth quarter related to these sales. The weighted average
cap rate for these dispositions was 7.4%. Subsequent to the end of
the quarter, on January 30, 2009, the Company sold three properties
with a total of 741 units to one buyer for $68 million, producing
approximately $25 million in net proceeds after mortgage payoffs
and closing costs. A gain on sale of approximately $13.8 million
(before the allocation of minority interest) will be recorded in
the first quarter of 2009 related to this sale. The weighted
average first year cap rate projected on these dispositions is
7.6%. Two of the properties were located in the Hudson Valley, N.Y.
region, with the third in New Jersey. With the sales in the fourth
and first quarters, the Company has now executed its plan to exit
the Hudson Valley region. Development The Company has only two
projects currently under construction as well as investments in
entitled land. 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, unlike many of its peers.
In 2009, none of the Company's pre-construction projects are
scheduled to commence construction nor does the Company plan to
acquire new entitled or raw land for development. Capital Markets
Activities As of December 31, 2008, the Company's ratio of
debt-to-total market capitalization was 55.8% (based on a
12/31/2008 stock price of $40.60 to determine equity value), with
$71.0 million outstanding on its $140.0 million revolving credit
facility and $6.6 million of unrestricted cash on hand. Total debt
of $2.32 billion was outstanding, at rates of interest averaging
5.4% and with staggered maturities averaging approximately six and
one-quarter years. Approximately 94.5% of total indebtedness is at
fixed rates. Interest coverage averaged 2.2 times during the
quarter (2.3 for the year), and the fixed charge ratio averaged 2.1
times for the quarter (2.2 for the year). The Company did not
repurchase any of its common shares during the fourth quarter. As
of December 31, 2008, 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, the Company
repurchased a total of $60 million face value of its Exchangeable
Senior Notes for $45.4 million in several privately-negotiated
transactions. The notes were repurchased at a 24.4% discount to
face value, which produced a risk-free Internal Rate of Return of
approximately 15% and reduced the Company's 2011 debt maturities by
$60 million. A gain on debt extinguishment of approximately $13.9
million (after the write-off of debt issuance costs) was recorded
in the fourth quarter. After fees and other accruals, this
transaction adds $0.29 per share to FFO for the fourth quarter.
Also in the fourth quarter, the Company closed on approximately
$141 million in new secured loans, generating $83 million after the
payoff of $58 million in maturing loans. The proceeds were used to
fund the cash portion of the Westchester West acquisition, to
purchase the Exchangeable Senior Notes, and to reduce the
outstanding balance on the line of credit. The Company has reduced
2009 maturities from $45 million as of September 30, 2008 to only
$19 million today by refinancing prior to maturity as well as
extending maturity dates. On January 30, 2009, Fitch Ratings has
affirmed the Company's bank credit facility and exchangeable senior
note rating at BBB with a "stable" outlook. Outlook For 2009, the
Company expects FFO per share between $3.04 and $3.28 per share,
which will produce FFO per share growth of -4.8% to 2.8% when
compared to 2008 results as restated for FASB Staff Position APB
14-1. The 2009 projection is net of four cents per share for the
effect of APB 14-1. This guidance range reflects management's
current assessment of economic and market conditions. The
assumptions for the 2009 projections are included with the
published supplemental information. The defensive characteristics
of the Company's portfolio are contributing to the positive same
store NOI results assumed for the midpoint of guidance. Compared to
the multifamily peer group, Home's result is the only one that is
positive and is 430 basis points better than the straight average
for the group. The quarterly breakdown for the 2009 guidance on FFO
per share results is as follows: First quarter $0.76 to $0.82;
second quarter $0.77 to $0.83; third quarter $0.76 to $0.82; fourth
quarter $0.75 to $0.81. 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 February 24, 2009, by dialing
800-633-8284 or 402-977-9140 and entering 21412428. 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/. The Company produces supplemental
information that provides 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, e-mail or facsimile upon request. First
Quarter 2009 Event Home Properties is scheduled to participate in a
roundtable presentation and question and answer session at the Citi
2009 Global Property CEO Conference in Naples, Florida, at 8:25 AM
EST on Tuesday, March 3, 2009. Citi will offer audio coverage of
the event. The Company's presentation materials will be available
in the Investors section of Home Properties' Web site at
homeproperties.com under News & Market Data - Presentations
with dial-in instructions for the call. 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 homeproperties.com. Tables to follow.
Avg. Fourth Quarter Physical Results: Occupancy(a) 4Q 2008 4Q 2008
vs. 4Q 2007 % Growth Average Monthly 4Q 4Q Rent/ Rental Total Total
2008 2007 Occ Unit Rates Revenue Expense NOI Core Properties(b)
94.9% 94.6% $1,145 2.5% 3.9% 6.0% 2.4% Acquisition Properties(c)
93.2% NA $1,051 NA NA NA NA TOTAL PORTFOLIO 94.8% NA $1,138 NA NA
NA NA Avg. Year-To-Date Physical Results: Occupancy(a) YTD 2008 YTD
2008 vs. YTD 2007 % Growth Average Monthly YTD YTD Rent/ Rental
Total Total 2008 2007 Occ Unit Rates Revenue Expense NOI Core
Properties(b) 95.0% 94.8% $1,135 2.7% 3.4% 3.6% 3.3% Acquisition
Properties(c) 93.5% NA $1,042 NA NA NA NA TOTAL PORTFOLIO 94.9% NA
$1,129 NA NA NA NA (a) Average physical occupancy is defined as
total possible rental income, net of vacancy, 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 34,560 apartment units owned throughout 2007 and
2008. (c) Acquisition Properties consist of 8 properties with 2,570
apartment units acquired/developed subsequent to January 1, 2007.
HOME PROPERTIES, INC. SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data - Unaudited) Three Months
Ended Year Ended December 31 December 31 2008 2007 2008 2007 Rental
income $118,242 $114,104 $466,620 $448,919 Property other income
11,510 9,352 42,764 36,624 Interest income 6 277 166 1,963 Other
income 92 62 400 1,124 Total revenues 129,850 123,795 509,950
488,630 Operating and maintenance 56,518 52,659 214,485 203,106
General and administrative 6,703 5,783 25,491 23,413 Interest
30,570 30,152 118,959 117,958 Depreciation and amortization 29,818
27,513 115,020 107,037 Impairment of real estate assets 4,000 -
4,000 - Total expenses 127,609 116,107 477,955 451,514 Income from
operations before gain on early retirement of debt 2,241 7,688
31,995 37,116 Gain on early retirement of debt 13,884 - 13,884 -
Income from operations 16,125 7,688 45,879 37,116 Minority interest
in Operating Partnership (4,612) (2,221) (13,361) (9,729) Income
from continuing operations 11,513 5,467 32,518 27,387 Discontinued
operations Income from operations, net of minority interest 345 160
576 4,080 Gain on disposition of property, net of minority interest
15,502 10,330 36,572 30,077 Discontinued operations 15,847 10,490
37,148 34,157 Net Income 27,360 15,957 69,666 61,544 Preferred
dividends - - - (1,290) Redemption of preferred stock - - - (1,902)
Net income available to common Shareholders $27,360 $15,957 $69,666
$58,352 Reconciliation from net income available to common
shareholders to Funds From Operations: Net income available to
common Shareholders $27,360 $15,957 $69,666 $58,352 Real property
depreciation and amortization 29,435 27,914 114,260 110,536
Minority interest 4,612 2,221 13,361 9,729 Minority interest -
income from discontinued operations 137 65 233 1,637 Gain on
disposition of property, net of minority interest (15,502) (10,330)
(36,572) (30,077) Loss from early extinguishment of debt in
connection with sale of real estate 30 890 1,413 890 FFO - basic
and diluted (1) $46,072 $36,717 $162,361 $151,067 (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, minority interest and
extraordinary items plus depreciation from real property. In 2008
and 2007, 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 2008 2007 2008 2007 FFO - basic and diluted $46,072
$36,717 $162,361 $151,067 FFO - basic and diluted $46,072 $36,717
$162,361 $151,067 Impairment of real property 4,000 - 4,000 -
Redemption of Series F Preferred stock - - - 1,902 FFO - operating
(2) $50,072 $36,717 $166,361 $152,969 FFO - basic and diluted
$46,072 $36,717 $162,361 $151,067 Recurring non-revenue generating
capital expenses (7,246) (7,157) (28,885) (28,638) AFFO (3) $38,826
$29,560 $133,476 $122,429 FFO - operating $50,072 $36,717 $166,361
$152,969 Recurring non-revenue generating capital expenses (7,246)
(7,157) (28,885) (28,638) AFFO - operating $42,826 $29,560 $137,476
$124,331 Weighted average shares/units outstanding: Shares - basic
32,228.6 32,873.7 31,991.8 33,130.1 Shares - diluted 32,356.2
33,346.3 32,332.7 33,794.5 Shares/units - basic (4) 45,144.2
46,268.4 45,200.4 46,520.7 Shares/units - diluted (4) 45,271.8
46,741.0 45,541.3 47,185.2 Per share/unit: Net income - basic $0.85
$0.49 $2.18 $1.76 Net income - diluted $0.85 $0.48 $2.15 $1.73 FFO
- basic $1.02 $0.79 $3.59 $3.25 FFO - diluted $1.02 $0.79 $3.57
$3.20 Operating FFO - diluted (2) $1.11 $0.79 $3.65 $3.24 AFFO (3)
$0.86 $0.63 $2.93 $2.59 Operating AFFO (2) (3) $0.95 $0.63 $3.02
$2.63 Common Dividend paid $0.67 $0.66 $2.65 $2.61 (2) Operating
FFO is defined as FFO as computed in accordance with NAREIT
definition, adjusted for the addback of real estate impairment
charges and preferred stock redemption costs. This is presented for
a consistent comparison of how NAREIT defined FFO in 2003. (3)
Adjusted Funds From Operations ("AFFO") is defined as gross FFO
less an annual reserve for anticipated recurring, non-revenue
generating capitalized costs of $780 and $760 per apartment unit in
2008 and 2007, 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) December 31,
2008 2007 Land $515,610 $510,120 Construction in progress,
including land 111,039 54,069 Buildings, improvements and equipment
3,245,741 3,115,966 3,872,390 3,680,155 Accumulated depreciation
(636,970) (543,917) Real estate, net 3,235,420 3,136,238 Cash and
cash equivalents 6,567 6,109 Cash in escrows 27,904 31,005 Accounts
receivable 14,078 11,109 Prepaid expenses 16,277 15,560 Deferred
charges 11,473 12,371 Other assets 5,488 4,031 Total assets
$3,317,207 $3,216,423 Mortgage notes payable $2,112,331 $1,986,789
Exchangeable senior notes 140,000 200,000 Line of credit 71,000
2,500 Accounts payable 23,731 18,616 Accrued interest payable
10,845 10,984 Accrued expenses and other liabilities 32,043 27,586
Security deposits 21,443 22,826 Total liabilities 2,411,393
2,269,301 Minority interest 259,136 279,061 Stockholders' equity
646,678 668,061 Total liabilities and stockholders' Equity
$3,317,207 $3,216,423 Total shares/units outstanding: Common stock
32,431.3 32,600.6 Operating partnership units 12,821.2 13,446.9
45,252.5 46,047.5 DATASOURCE: 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, both of Home Properties Web Site:
http://www.homeproperties.com/
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