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.
