0000901309-01-500110.txt : 20011107
0000901309-01-500110.hdr.sgml : 20011107
ACCESSION NUMBER: 0000901309-01-500110
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20011102
ITEM INFORMATION: Financial statements and exhibits
ITEM INFORMATION:
FILED AS OF DATE: 20011102
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HOME PROPERTIES OF NEW YORK INC
CENTRAL INDEX KEY: 0000923118
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 161455126
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13136
FILM NUMBER: 1774395
BUSINESS ADDRESS:
STREET 1: 850 CLINTON SQ
CITY: ROCHESTER
STATE: NY
ZIP: 14604
BUSINESS PHONE: 7165464900
MAIL ADDRESS:
STREET 1: 850 CLINTON SQUARE
CITY: ROCHESTER
STATE: NY
ZIP: 14604
8-K
1
form8k11_2.txt
CURRENT REPORT ON FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): November 2, 2001
HOME PROPERTIES OF NEW YORK, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 1-13136 16-1455126
---------------- -------------- ------------------
(State or other jurisdiction Commission (IRS Employer
of incorporation) File No.) Identification No.)
850 Clinton Square, Rochester, New York 14604
----------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (716) 546-4900
Not Applicable
------------------------------------------------------------------
(Former name or former address, if changed since
last report.)
-2-
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
c. Exhibits
Exhibit 99.1 Press Release
Exhibit 99.2 Supplemental Information
Exhibit 99.3 Third Quarter 2001 Earnings Conference Call script and
text of slides
Item 9. Regulation FD Disclosure
On November 2, 2001, the Registrant issued a press release announcing
its results for the first quarter of 2001. The related press release is attached
hereto as Exhibit 99.1.
Attached as Exhibit 99.2 is information supplemental to the financial
information contained in the November 2, 2001 press release.
On November 2, 2001, the Registrant held its third quarter 2001
investor conference call. Also, the conference call included slides shown during
the conference call, and the written description of those slides is included in
the following script from that conference call. The script of the conference
call and the text of the slides is attached as Exhibit 99.3 to this Form 8-K.
-3-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 2, 2001
HOME PROPERTIES OF NEW YORK, INC.
(Registrant)
By: /s/ David P. Gardner
----------------------------------
David P. Gardner,
Senior Vice President
EX-99
3
form8k11_2press.txt
EXHIBIT 99.1 PRESS RELEASE THIRD QUARTER 2001
FOR IMMEDIATE RELEASE
HOME PROPERTIES REPORTS THIRD QUARTER RESULTS
Same-Store NOI Growth 8.7%; FFO Up 14%
ROCHESTER, NY, November 2, 2001/PRNewswire/ - Home Properties (NYSE:HME) today
released financial results for the quarter and nine months ending September 30,
2001. All results are reported on a fully-diluted basis.
For the quarter ended September 30, 2001, Funds From Operations (FFO) was $37.8
million, or $.84 per share, compared with $33.1 million, or $.77 per share, for
the quarter ended September 30, 2000. These results exceeded analysts' consensus
estimates for the quarter and equate to a 14% increase in total FFO over the
comparable prior-year period, or an 8.9% increase on a per-share basis. FFO for
the nine months ended September 30, 2001, was $99.5 million, or $2.22 per share,
compared with $88.3 million, or $2.19 per share, a 13% increase in total FFO
from the prior year and a 1.2% increase on a per-share basis. FFO, a primary
earnings measure for equity REITs, has been calculated in conformance with
NAREIT guidelines.
Earnings Per Share (EPS) for the quarter ended September 30, 2001, was $.66
compared with $.40 for the quarter ended September 30, 2000, or an increase of
65%. EPS for the nine months ended September 30, 2001, was $1.61 compared with
$1.10 for the nine months ended September 30, 2000, or an increase of 46%. The
reported EPS results include gains and losses from sales of real property.
Third Quarter Operating Results
For the third quarter of 2001, same-property comparisons (for 113 "Core"
properties containing 31,166 apartment units owned since January 1, 2000)
reflected an increase in rental revenues of 6.3% and a net operating income
increase of 8.7% over the third quarter of 2000. Property level operating
expenses increased by 2.5%, primarily due to increases in natural gas utility
expenses, property insurance, and real estate taxes. These expense increases
were partially offset by reduced electricity, personnel, and advertising costs.
Average economic occupancy for the Core properties was 93.8% during the third
quarter of 2001, down from 94.8% during the third quarter of 2000, with average
monthly rental rates increasing 7.3% to $786.
Occupancies for the 7,930 apartment units acquired between January 1, 2000, and
September 30, 2001 (the "Recently Acquired Communities") averaged 94.0% during
the third quarter of 2001, at average monthly rents of $924.
Year-to-Date Operating Results
For the nine months ended September 30, 2001, same property comparisons for the
Core properties showed an increase in rental revenues of 6.5% and a net
operating income increase of 5.9% over the first nine months of 2000. Property
level operating expenses increased by 7.6%, primarily due to increases in
natural gas utility expenses, property insurance, and real estate taxes. These
expense increases were offset in part by reduced repairs and maintenance costs.
Average economic occupancy for the Core properties decreased slightly from 94.4%
to 94.1%, with average monthly rents rising 6.8% to $770.
The yield on the Recently Acquired Communities during the third quarter of 2001
averaged 9.7% on an annualized basis (calculated as the net operating income
from the properties, less an allowance for general and administrative expenses
equal to 3% of revenues, all divided by the acquisition costs plus capital
improvement expenditures in excess of normalized levels).
Interest and Dividend Income
Interest and dividend income decreased $1.9 million during the third quarter of
2001, resulting from decreased levels of financing to affiliates. To comply with
provisions of the REIT Modernization Act, effective March 1, 2001, the Company
recapitalized its management service affiliate by contributing to capital $23.7
million of loans due from affiliated partnerships. This effectively shifted
$437,000 of interest income for the quarter to the Other Income category, as the
Company recorded its share of interest income through its equity earnings of
affiliates.
Development and Management Activities
"Other Income" reflects the net contribution from management and development
activities after allocating certain overhead and interest expenses. Compared
with the third quarter of last year, management fee revenues increased 5% to
$1.6 million (including management fee revenues recognized by both the Company
and its management equity affiliates). Development fee income was reduced from
$1.3 million in the third quarter of 2000 to zero in 2001, offset in part by
decreased general and administrative costs of $1.0 million. The Company closed
on the sale of its affordable housing development operations on the last day of
2000 for $6.7 million, resulting in no development activity during the first
nine months of 2001.
Acquisitions and Dispositions
During the third quarter of 2001, the Company acquired four communities with a
total of 1,190 apartment units in Baltimore, Long Island, and Chicago. Total
consideration was $111.2 million, or an average of $93,400 per unit. The
weighted average expected first year cap rate for acquisitions closed in the
third quarter of 2001 is 9.34%.
Also during the third quarter of 2001, the Company sold eight communities with a
total of 1,534 apartment units located in Upstate New York, Maryland, and
Virginia for total consideration of $59.2 million, or an average of $38,600 per
unit. A gain on sale of approximately $8.4 million was reported in the third
quarter from these sales. In conformance with NAREIT guidelines, the gains from
real property are not included in reported FFO results.
Subsequent to the end of the third quarter, on October 24, 2001, the Company
acquired two communities with 274 units known as Wellington Woods and Wellington
Lakes Apartments located in Fredericksburg, Virginia. The total purchase price
of $11.1 million, including closing costs, equates to approximately $40,500 per
apartment unit, and was funded with $7.9 million of assumed debt and $3.2
million of cash on hand. The assumed mortgage carries an interest rate of 6.98%
and matures in June 2008. The properties are currently 99% occupied with monthly
rents averaging $680. The Company expects the properties to generate a 10%
initial unleveraged return on the acquisition and capital improvement costs.
The Company is pleased with its progress to strategically dispose of properties
in its portfolio in slower growth markets. Sales of approximately $100 million
have been closed year to date, with additional closings anticipated during the
fourth quarter of 2001 as well as next year. The weighted average cap rate
achieved on closed sales during 2001 was 9.14% (before a reserve for capital
expenditures), with a
weighted average unleveraged internal rate of return (IRR) during the Company's
ownership period in excess of 13%.
Capital Markets Activities
During the third quarter of 2001, the Company raised $6.0 million by issuing
additional shares (at an average cost of $30.99 per share) under its Dividend
Reinvestment and Direct Stock Purchase Plan ("DRIP"). Approximately $4.4 million
was from reinvested dividends and $1.6 million from optional cash purchases.
As of September 30, 2001, the Company's ratio of debt-to-total market
capitalization was 40.5%, with $72.0 million outstanding on its $100 million
revolving credit facility and $5.2 million of unrestricted cash on hand.
Mortgage debt of $904 million was outstanding, at fixed rates of interest
averaging 7.4% and with staggered maturities averaging approximately 10 years.
Interest coverage averaged 3.2 times during the quarter; and the fixed charge
ratio, which includes preferred dividends, averaged 2.5 times.
The Company estimates its net asset value at September 30, 2001 to be
approximately $32.90 per share (based on capitalizing the annualized and
seasonally adjusted third quarter property net operating income at 9.5%, adding
a 4% growth factor and deducting a management fee equal to 3% of gross
revenues).
Review and Outlook
The Company expects FFO for the fourth quarter of $.81 to $.83 with full year
results of $3.03 to $3.05. For 2002, the Company expects FFO in the range of
$3.14 to $3.26. Additional detail on 2002 will be provided at the time year-end
results are released. These estimates reflect the impact of slowing market and
economic conditions currently experienced by the Company.
According to Norman Leenhouts, Chairman and Co-CEO, "Results for third quarter
2001 were very good for any operating climate, but with the weakened economy and
more difficult markets both pre- and post-September 11, we believe our results
for the quarter compared to a year ago were outstanding. Home Properties'
same-store net operating income growth of 8.7%, robust FFO increase of 8.9% and
conservative balance sheet are all evidence that our unique operating strategy
continues to provide strong returns with low risk compared not only to our
multifamily peer group but compared to the broader market. We're particularly
pleased that our investors received a dividend yield in excess of 7% in addition
to solid capital appreciation in a very difficult operating environment."
He concluded, "We intend to continue to add value for our shareholders by
implementing our strategy of acquiring apartment communities in high
barrier-to-entry markets while selling properties in healthy, but slower growth
markets."
Conference Call
The Company will conduct a conference call and simultaneous webcast today at
11:00 AM Eastern Time to review the information reported in this release. To
listen to the call, please dial 800-248-9412. A replay of the call will be
available by dialing 800-633-8284 or 858-812-6440 and entering 17420046. Call
replay will become available beginning at approximately 1:00 PM Eastern Time and
continue until approximately Midnight on Friday, November 9. The prepared
portion of the conference call presentation will be filed with the SEC on a Form
8-K.
The Company webcast will be available live through the "Investors" section of
our web site, www.homeproperties.com, under the heading, "Financial
Information", and archived by 2:30 PM.
The Company produces supplemental information that provides details regarding
property operations, other income, acquisitions, sales, market geographic
breakdown, debt, and net asset value. The supplemental information is available
via the Company's web site or via facsimile upon request.
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
activities within anticipated budgets, the actual pace of future acquisitions,
and continued access to capital to fund growth.
Home Properties, the 10th largest apartment company in the United States, is a
fully integrated, self-administered, and self-managed real estate investment
trust ("REIT"). With operations in select Northeast, Midwest, and Mid-Atlantic
markets, the Company owns, operates, acquires, rehabilitates, and develops
apartment communities. Currently, Home Properties operates 297 communities
containing 50,356 apartment units. Of these, 39,370 units in 145 communities are
owned directly by the Company; 8,211 units are partially owned and managed by
the Company as general partner, and 2,775 units are managed for other owners.
The Company also manages one million square feet of commercial space. Home
Properties' common stock is traded on the New York Stock Exchange under the
symbol "HME" and on the Berlin Stock Exchange under the symbol "HMP GR". For
more information, view Home Properties' Web site at www.homeproperties.com.
Tables to follow.
For further information:
David Gardner, Senior Vice President and Chief Financial Officer, (716) 246-4113
Charis Copin, Director, Investor Relations, (716) 295-4237
EX-99
4
form8k11_2exh.txt
EXHIBIT 99.2 SUPPLEMENTAL INFORMATION
Exhibit 99.2 Supplemental Information Third Quarter 2001
Avg. Economic
Third Quarter Results Occupancy Q3 '01 Q3 '01 vs. Q3 '00
--------------------- --------------- ------ -----------------
Average
Monthly % Rental % Rental
Rent/ Rate Revenue % NOI
Q3 '01 Q3 '00 Occ Unit Growth Growth Growth
------- --------- ----------- -------- -------- -------
Core Properties(a) 93.8% 94.8% $786 7.3% 6.3% 8.7%
Acquisition Properties(b) 94.0% NA $924 NA NA NA
TOTAL PORTFOLIO 93.9% 94.7% $813 NA NA NA
Avg. Economic
Year-To-Date Results Occupancy YTD '01 YTD '01 vs. YTD '00
-------------------- ---------------- ------- --------------------------------
YTD '01 YTD '00 Average
Monthly % Rental % Rental
Rent/ Rate Revenue % NOI
YTD '01 YTD '00 Occ Unit Growth Growth Growth
------- -------- --------- -------- --------- -------
Core Properties(a) 94.1% 94.4% $770 6.8% 6.5% 5.9%
Acquisition Properties(b) 93.8% NA $879 NA NA NA
TOTAL PORTFOLIO 94.1% 94.5% $788 NA NA NA
(a) Core Properties includes 113 properties with 31,166 apartment units owned
since January 1, 2000.
(b) Reflects 30 Properties with 7,930 apartment units
acquired subsequent to January 1, 2000.
HOME PROPERTIES OF NEW YORK, INC.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data - Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ---------------------------
2001 2000 2001 2000
------- ------ ------ -------
Rental income $ 89,790 $ 76,303 $258,937 $218,039
Other income - property related 3,440 2,999 9,716 8,080
Interest and dividend income 531 2,400 2,548 6,035
Other income 684 305 1,610 381
------- -------- -------- --------
Total revenues 94,445 82,007 272,811 232,535
------- -------- -------- --------
Operating and maintenance 34,971 31,250 110,877 92,862
General and administrative 4,336 3,479 13,274 9,799
Interest 17,293 14,132 49,056 41,522
Depreciation and amortization 16,176 13,188 47,386 37,795
------- -------- -------- --------
Total expenses 72,776 62,049 220,593 181,978
------- -------- -------- --------
Income before gain (loss) on
disposition of property and
minority interest 21,669 19,958 52,218 50,557
Gain (loss) on disposition of property 8,437 45 22,085 ( 417)
------- -------- -------- --------
Income before minority interest 30,106 20,003 74,303 50,140
Minority interest 10,811 7,658 25,558 19,219
Net income 19,295 12,345 48,745 30,921
Preferred dividends ( 4,498) ( 3,790) ( 13,492) ( 8,252)
------- -------- -------- --------
Net income available to common shareholders 14,797 8,555 35,253 22,669
Preferred dividends 4,498 3,790 13,492 8,252
Depreciation - real property 16,061 13,049 46,960 37,405
Unconsolidated adjustments 88 99 291 340
(Gain) loss on disposition of property ( 8,437) (45) ( 22,085) 417
Minority Interest 10,811 7,658 25,558 19,219
------- -------- -------- --------
FFO (1) $37,818 $33,106 $99,469 $88,302
======= ======== ======== ========
Weighted average shares/units outstanding:
Shares - basic 21,963.0 20,994.8 21,852.4 20,412.4
Shares - diluted 29,233.6 21,174.1 21,948.2 20,539.3
Shares/units -- basic(2) 38,010.4 36,820.1 37,687.0 35,601.0
Shares/units - diluted 45,281.1 43,162.4 44,895.1 40,321.0
Per share/unit:
Net income - basic $.67 $.41 $1.61 $1.11
Net income - diluted $.66 $.40 $1.61 $1.10
FFO - basic $.88 $.80 $2.28 $2.25
FFO - diluted $.84 $.77 $2.22 $2.19
(1) FFO has been calculated in conformance with NAREIT guidelines and is defined
as net income (calculated in accordance with generally accepted accounting
principles) excluding gains or losses from sales of property, minority interest
and extraordinary items plus depreciation from real property. (2) Basic includes
common stock outstanding plus operating partnership units in Home Properties of
New York, L.P., which can be converted into shares of common stock. Diluted
includes additional common stock equivalents and Series A through E (in 2001)
and Series A through D (in 2000) convertible cumulative preferred stock, which
can be converted into shares of common stock.
HOME PROPERTIES OF NEW YORK, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data - Unaudited)
September December
30, 2001 31, 2000
-------- --------
Real estate $2,101,290 $1,895,269
Accumulated depreciation (185,927) (153,324)
Real estate, net 1,915,363 1,741,945
Cash and cash equivalents 5,197 10,449
Cash in escrows 40,242 36,676
Accounts receivable 6,340 11,510
Prepaid expenses 17,269 13,505
Investment in and advances to affiliates 41,609 45,048
Deferred charges 3,864 3,825
Other assets 8,327 8,930
---------- -----------
Total Assets $2,038,211 $1,871,888
========== ===========
Mortgage notes payable $ 904,356 $ 832,783
Line of credit 72,000 --
Other liabilities 54,502 49,300
---------- -----------
Total liabilities 1,030,858 882,083
Minority interest 343,075 371,544
Series B convertible preferred stock 48,733 48,733
Stockholders' equity 615,545 569,528
---------- -----------
Total liabilities and stockholders' equity $2,038,211 $1,871,888
========== ===========
Total shares/units outstanding:
Common stock 22,107.4 21,565.7
Operating partnership units* 16,035.1 15,854.5
Series A convertible cumulative preferred stock* 1,666.7 1,666.7
Series B convertible cumulative preferred stock* 1,679.5 1,679.5
Series C convertible cumulative preferred stock* 1,983.5 1,983.5
Series D convertible cumulative preferred stock* 833.3 833.3
Series E convertible cumulative preferred stock* 949.4 949.4
----------- --------
45,254.9 44,532.6
*Potential common shares
# # #
For further information:
David Gardner, Senior Vice President and Chief Financial Officer,
(716) 246-4113
Charis Copin, Director, Investor Relations, (716) 295-4237
EX-99
5
form8k11_2exh2.txt
EXHIBIT 99.3 CONFERENCE CALL SCRIPT AND SLIDES
Exhibit 99.3
November 2, 2001 Third Quarter Conference Call Script and Slides
SLIDE 1: This slide contains the logo of Home Properties of New York, Inc. as
well as the following statement:
Third Quarter 2001 Earnings Conference Call and Webcast November 2, 2001. This
statement is followed by photographs of Norman Leenhouts, Chairman and Co-CEO,
David Gardner, Sr. Vice President and Chief Financial Officer and Charis Copin,
Vice President, Investor Relations. Below each picture is written the officer's
name and title of the office held.
(Charis)
Good morning. This is Charis Copin, Vice President of Investor Relations. Thank
you for participating in our third quarter earnings conference call. We are
broadcasting this call live over the Internet. You can view supporting,
synchronized slides via our Web site at www.homeproperties.com. The complete
webcast will be available for playback through our web site within about 90
minutes following its conclusion.
I would also like to refer invited participants to the phone number on the
invitation that was previously faxed. That number is the only one that can be
used for questions. The number referred to in the press release issued this
morning is for a "listen only" mode. If you need the call-in number to ask
questions, please call us at 716-246-4140, and Yvonne will provide those
authorized with the number.
Here with me this morning are Norman Leenhouts, Chairman and Co-Chief Executive
Officer and David Gardner, Sr. Vice President and Chief Financial Officer.
Ed Pettinella, Executive Vice President and Director typically would join us on
the call, but is unable to be here today due to a family medical situation.
SLIDE 2: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Forward
Looking Statements"
"This presentation 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 these expectations will be
achieved."
Also, the content of this conference call contains time-sensitive information
that, subject to the safe harbor statement, is accurate only as of the date of
this call.
(Charis continued)
Before we begin, I would like to remind you that some of our discussion this
morning will involve forward-looking statements. Please refer to the safe-harbor
language included in our press release, which describes certain risk factors
that may impact our future results. Also, the content of this conference call
contains time-sensitive information that, subject to the safe harbor statement,
is accurate only as of the date of this call.
Please be aware that this call is being recorded and members of the press may be
participating.
I will assume that all of you have already seen our earnings press release,
which was issued early this morning. We have also made available several pages
of supplemental schedules. If you didn't receive this information and would like
to get on our distribution list, give us a call. The press release and
supplemental schedules are also available today on our web site.
Now, David will discuss our financial results for the quarter.
SLIDE 3: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "FFO Per Share". The slide also contains a graph listing Q3
2000 and Q3 2001 from left to right along the x-axis. Along the left side of the
y-axis are the points $0.00, $0.20, $0.40, $0.60, $0.80 and $1.00. There is a
bar above the point on the x-axis marked Q3 2000 with the figure $0.77 printed
above the bar and there is a bar above the point on the x-axis marked Q3 2001
with the figure $0.84 printed above the bar. Inside this bar is the figure
"+8.9%".
(David)
Thanks, Charis.
Good morning everyone.
We were very pleased with our results for the third quarter, which actually
exceeded analysts' current consensus estimates by a penny. We were particularly
pleased that this result also met the pre-September 11 consensus estimate, which
was quite an achievement in the current environment. We generated 14% growth in
total Funds From Operations, with FFO per share up 8.9% over the year ago
quarter.
SLIDE 4: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Core Property Performance*" The * is noted at the bottom
of the slide: "Reflects 31,166 apartment units owned throughout 2000 and 2001."
The following table is also on the slide:
3Q 2000 3Q 2001
------- -------
Rental Rates + 7.3%
Rental Revenues + 6.3%
Other Income + 4.4%
Total Income + 6.2%
Operating Expenses + 2.5%
Net Operating Income + 8.7%
Occupancy Percentage 94.8% 93.8%
(David continued)
During the quarter, we also saw improvement in our core property performance
compared to last year's third quarter. We achieved 6.3% growth in core property
rental revenues, as a result of rental rate increases, which averaged 7.3%,
offset by a decline in occupancy of one percent.
We are most pleased with the 7.3% growth in rental rates, since this is now the
third quarter in a row we've hit a new record high.
On the expense side, we were able to absorb increases in gas and insurance
costs, containing the increase in expenses at our core properties to 2.5%
compared to the third quarter last year. Overall, net operating income was up a
solid 8.7%.
As we have explained many times before, some of our same-property NOI growth
reflects a return on incremental investments in our communities above and beyond
normal capital replacements. After charging ourselves a 10% cost of capital on
these additional expenditures, the adjusted NOI growth that was added to the
bottom line during the third quarter of 2001 is estimated to be about 5%.
SLIDE 5: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Core Property Operating Expenses", followed by the
following table:
3Q Year-over-Year Change
$ (000's) %
--------- -----
Gas $ 449 53.0%
Insurance 273 118.2%
Real Estate Taxes 258 3.9%
Electricity (151) (9.5)%
Personnel (133) (1.8)%
Other Expenses ( 34) (0.3)%
---------- --------
Total Expenses $ 662 2.5%
(David continued)
While overall expense control was favorable, we've included a slide here that
focuses on the expense categories which had the most significant changes during
the third quarter versus a year ago. A more detailed comparison of all expense
items for core communities is included in the supplemental schedules.
The major areas of increase occurred in gas, insurance and real estate taxes.
Gas costs at our core communities were up 53% for the quarter, an increase which
is consistent with our experience in the first and second quarters of 2001.
We have made significant progress in the implementation of our natural gas
management strategy. We are please to report that we now have 95% of our total
usage for the 2001-2002 heating season under fixed contract, surpassing our goal
of 90%; and, for the 2002-2003 heating season 86% is also under fixed contracts.
Weighted average costs for forward contracts have been lowered to $4.51 per
decatherm.
Insurance, even though it is up 118%, came in as expected, consistent with our
premium increase effective last November.
Finally, real estate taxes were up almost 4%, relatively comparable to inflation
and within budgeted expectations.
Offsetting these increases were decreases in electricity and personnel costs.
Personnel costs seem to be benefiting from the increased level of capital
expenditures and upgrading over the last couple of years at our Core
communities. The physical improvements have enabled us to operate many of our
properties more efficiently.
SLIDE 6: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Market Breakdown". The Market Breakdown is shown in the
following table:
9/30/2001
% Owned
Market # of Units Portfolio
Baltimore, MD 7,191 18.4%
Eastern PA 6,276 16.1%
Detroit, MI 5,693 14.6%
DC/Northern VA 3,134 8.0%
New Jersey 2,657 6.8%
Rochester, NY 2,565 6.6%
Chicago, IL 2,242 5.7%
Long Island 1,933 4.9%
Buffalo, NY 1,644 4.2%
All Others 5,761 14.7%
------------ -------
Total Units 39,096 100.0%
(David continued)
The supplemental schedules show the breakdown of owned communities by market
area. Property-by-property comparisons are also included and grouped by region.
Every community has its own unique story. However, each of our markets continues
to support positive growth in rental rates.
The regions with the lowest growth in rental rates and NOI were in Upstate New
York, Detroit, and Indiana.
For the quarter ended September 30, 2001, occupancy levels throughout our
portfolio have decreased by 30 basis points compared to the second quarter, to
an average of 93.9%. On a same-property comparison, today we are about two
percent behind in occupancies compared to a year ago. About one percent of this
change is attributable to a combination of a drop in corporate rentals and an
increase in delinquencies of 60 basis points.
By looking at five regions - which cover 87% of our same-store results - we can
give you a sense of where the occupancy changes have occurred to date. This
information is a snapshot of occupancy as of October 26.
The Mid-Atlantic region, defined as Baltimore, Washington DC, and Northern
Virginia, with 24% of same-store units, is at 94.7% occupancy, down 1.5% from a
year ago.
The Philadelphia region, with 19% of same-store units, is at 94.9%, down 1.2%
from a year ago.
Upstate New York, representing 16% of same-store units, is at 93.8% versus 95.8%
a year ago, a drop of 2%.
Detroit, representing 16% of same-store units, is at 92.6%, versus 97.2% a year
ago, a drop of 4.6%. Nevertheless, as with other regions, Detroit had positive
growth in rental revenues, which were up nearly 3%.
And finally, our region surrounding metropolitan New York, including the Hudson
Valley, Long Island and New Jersey, representing 12% of same-store units, is at
96.3%, down 0.5% from a year ago.
Despite some softness in occupancy, we still achieved a total increase in rental
revenues of over 6%.
As we looked at our third quarter traffic experience, same-store traffic was up
2% over a year ago for both the third quarter and on a year-to-date basis, but
closing ratios were down slightly from a year ago.
As you might expect, there was quite a divergence of experience in different
regions. The traffic in the suburbs located outside metropolitan New York was
off 12% compared to third quarter a year ago and the mid-Atlantic region was off
4%. On the other hand, Philadelphia was up 22% and Detroit up 5%.
How this experience will play out in the future remains to be seen.
SLIDE 7: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Recently Acquired Communities" with the following table
presented:
Price
Market Units (000's)
------ ----- -------
Baltimore 1,349 $ 60.5
Chicago 787 40.4
Detroit 662 26.1
Long Island 1,239 116.3
No. VA/DC 1,780 143.8
Philadelphia 2,113 135.9
------ ------
Total 2000 and 2001 7,930 $ 523.0
(David continued)
All of the property results discussed so far have pertained to the 31,166
apartment units owned since the beginning of 2000. We also continue to have
positive news concerning the 7,930 units in communities recently acquired.
These communities, acquired during 2000 and 2001, generated net operating income
during the third quarter which approximated a 9.7% yield on our total investment
of over $500 million. This return is down slightly from our typical double-digit
initial returns, but still in line with announced expectations and, with
interest rates down, this is an excellent result. We see tremendous future
upside in these communities beyond the initial returns.
SLIDE 8: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Conservative Capital Structure". At the top-left corner,
above the pie chart, is a box containing the following:
Equity 59.5%
Common Stock (49%)
Convertible Preferred (16%)
Operating Partnership Interests (35%)
On the top-right corner, above the pie chart, is a box containing the following:
Debt 40.5%
Fixed (92%)
Floating (8%)
The slide also contains a pie chart. The pie chart is divided into five pieces:
the largest part is labeled "Fixed Rate Debt", followed by (in order of size)
"Common Stock", "Operating Partnership Interests", "Convertible Preferred" and
"Floating Rate Debt". Centered beneath the pie chart is "$2.4 BILLION TOTAL
MARKET CAPITALIZATION". On the lower left of the slide is the caption: "*$31.64
per share at 9/28/01".
(David continued)
With a stock price of $31.64 per share at the end of the quarter, leverage was
40.5% on our total market capitalization of $2.4 billion at the end of
September.
Nearly all of our debt was at fixed interest rates, with weighted average
maturities of about ten years and an average interest rate of 7.4%. $72 million
of floating rate debt was outstanding on our $100 million unsecured revolving
credit facility. Our interest coverage ratio was 3.2 times for the quarter; and
our fixed charge ratio, which includes preferred dividends, averaged 2.5 times
coverage.
SLIDE 9: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Net Asset Valuation (000's)" . There is a table with the
following information:
9.0% 9.5% 10.0%
Cap Cap Cap
----- ----- -----
Real Estate Value $2,470 $2,340 $2,223
Other Assets/Liab. (852) (852) (852)
-------- ------ -------
Net Asset Value $1,618 $1,488 $1,371
NAV Per Share $35.76 $32.89 $30.03
(David continued)
The supplemental information contains a complete presentation of our calculation
of Home Properties' Net Asset Value.
We have provided a range of cap rates from 9% to 10%, settling on the mid-point
of 9.5% as the value we will quote. This results in an estimate of current NAV
of $32.89, a premium of about 4% compared to the price of $31.64 at the end of
the quarter.
Due to a higher stock price, our appetite for repurchasing stock has been
reduced, with no shares repurchased in the third quarter.
With our stock trading much closer to net asset value, we are able to continue
to use UPREIT units very effectively as currency for acquisitions. While units
could be priced slightly below our estimate of NAV, these transactions typically
enable us to acquire communities at even greater discounts to the market value
of the properties.
SLIDE 10: This slide contains the logo of Home Properties of New York, Inc.
Centered in the middle of the slide are the words "Future Guidance".
(David continued)
This is a particularly challenging time to provide guidance. I'll give you our
preliminary thoughts, although we are still in our budgeting process for 2002
and will have greater visibility after the fourth quarter.
In today's press release, we have suggested a range for FFO per share for the
fourth quarter of 81 cents to 83 cents. This results from the following
assumptions:
O Same-store revenue growth ranging from 4.2% to 5.2%.
O A decrease in expenses of 5%, mainly due to our successful efforts to
reduce 2001 insurance costs, the savings from which are all reflected in
the fourth quarter.
Resulting in same-store NOI growth ranging from 11% to 13%.
For 2002, we have suggested a range for FFO of $3.14 to $3.26, which results in
year-over-year growth of 3.4% to 7.2% based on the following assumptions:
O Same-store revenue growth ranging from 3% to 4.5%. It is important to
remember that this includes both "normal" increases as well as increases
associated with continued upgrading and repositioning efforts.
O Same-store expense growth of approximately 5%. Two of the more volatile
line items are essentially fixed for the coming year - natural gas, because
the hedging strategies previously discussed are now in place, and insurance
because our contract was renewed as of November first. We expect total
utility costs to be flat year over year, and insurance rates to be up 150%
year over year. Other line items should increase at levels in line with
inflation.
Resulting in same-store NOI growth ranging from 2% to 4.5%.
Now, I will turn the discussion over to our Chairman.
SLIDE 11: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Achievements - Third Quarter 2001" and contains the
following bullet points:
O Solid NOI growth of 8.7%
O Record rental rate growth of 7.3%
O Successful acquisition/disposition program
(Norman)
Thank you, David. Good morning, everyone! I will start by reviewing our most
significant accomplishment during the quarter. In spite of a slower economy,
operating results which reflect same-store NOI growth of 8.7%
This was accomplished by setting a new record for growth in rental rates at
7.3%. This was the third quarter in a row that a new record was set. A major
contributor to this success is our practice of repositioning properties by
making capital improvements for which we can charge higher rents and which also
improve the value of our communities, whether we keep them in our portfolio or
sell them.
We also have been very successful in our acquisition and disposition activities
this year.
SLIDE 12: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Disposition/Acquisition Strategy" and contains the
following bullet points:
O Sell $100-$200 million
O Sell in 7 markets, more than 50% in Upstate New York
O Reinvest in higher growth acquisitions in 6 target markets
O Focus on 1031 exchanges
(Norman continued)
At the beginning of the year, we said we planned on selling $100 to $200 million
of properties this year with proceeds to be invested in higher growth markets.
Year-to-date, we have sold approximately $100 million of properties either in
slower growth markets or properties that were less efficient to operate due to
their remote locations and/or smaller size, or have simply reached a high level
of their potential with little upside remaining. We continue to match sales with
acquisitions using 1031 exchanges to defer taxable gains for our shareholders or
to protect UPREIT investors.
Sales of property provide the opportunity to improve shareholder value by
recycling proceeds from the sale of property that is expected to produce an
unleveraged IRR of from 9% to 10% with the purchase of property that we expect
to produce an unleveraged IRR of at least 12%, our hurdle rate for acquisitions.
SLIDE 13: This slide contains the logo of Home Properties of New York, Inc.
and the following title: "Managing Sale Proceeds" and contains the following
table:
# # Avg. $ Cap
Props. Units Total $ Per Unit Rate
------ ----- -------- -------- ----
Dispositions YTD 12 2,491 $ 98.7 $39,623 9.14%
Acquisitions YTD 8 2,546 $200.9 $78,908 9.23%
O Timing
O No negative spread in initial cap rates
(Norman continued)
We have done well with property sales, particularly since this is the first year
we have engaged in significant sales activity.
Year-to-date, six of our twelve sales have been in Upstate New York. The timing
of our twelve sales and eight acquisitions worked well to avoid dilution. It
seems to be common in our industry to sell properties first, receive proceeds,
and temporarily park the proceeds in low yield investments. We have been very
fortunate to be ahead of the curve for the most part with timing.
In addition, we also avoided a negative spread in initial cap rates, having
disposed of properties at a weighted average rate of 9.1% and acquired
properties at a weighted average expected first year cap rate of 9.2%.
While timing and matching are somewhat unpredictable, our goal is to continue
the transaction process so that, when we sell a property, we can complete a 1031
match with property already acquired or property we have identified for
near-term acquisition. 2001 will be a bit unusual as we will sell more apartment
units than we will buy, although, in terms of dollars, we will acquire in excess
of $200 million of properties while selling over $100 million. While we will
continue to sell properties in the future, going forward, we expect to buy two
or three times as many units as we sell depending, of course, on market
conditions. In 2002, we will probably sell 50 to 100 million dollars and acquire
200 to 300 million dollars of properties.
SLIDE 14: This slide contains the logo of Home Properties of New York, Inc. and
the following title: "Sustainable Business Model" and contains the following
bullet points:
O Conservative assumptions
O B property type lowers risk
O Strong geographic markets with lower vacancies and higher rent increases
O Sound balance sheet
O Unique acquisition opportunities
O Repositioning strategy works
O Controlled gas/insurance costs
(Norman continued)
Given the horrific events of September 11, we feel very fortunate that our
business is on course. In recent weeks, we've attended various conferences --
Urban Land Institute, NAREIT, and others. We have been pleased with the response
from current and potential investors at these conferences to the Home Properties
business model and results. From discussions at these events and among our
internal management group, we continue to believe we have the right strategy. I
will now share some brief thoughts about that.
We have thoroughly assessed the potential impacts on our business, both plus and
minus, of the September 11 tragedy and the economic recession Our decision
process is now more challenging as it is harder for us to predict the future as
we have not before experienced the impact of a terrorist attack, recession and
war all at the same time. We are viewing our business even more conservatively
in terms of our projections for the future, particularly for new acquisitions.
Although as a company I think we have historically been somewhat more
conservative than others.
We have some advantages due to our B property types, our geographic markets, and
our unique strategy of repositioning properties through extensive
rehabilitation. While some reduction in occupancy next year is expected, we know
from 30 years' experience that the negative household formations caused by a
slowing economy do not impact B properties as drastically as other types. Our
middle income level property type has held up best in past recessions. Our
geographic markets are also generally strong. I
was encouraged reviewing a recent Wachovia Securities' report that ranked the
top 30 markets where multifamily REITs own most of their property. Based on the
specific location of REIT portfolios, Home ranked 5th best out of 17 multifamily
REITs based on lowest relative market risk. Our markets have lower projected
vacancy rates and higher projected rental rate increases than most.
Another advantage is our conservative balance sheet. We have no development
risk. We have already taken advantage of lower interest rates to restructure
some debt. With a strong financial position, declining cap rates, and ability to
acquire properties using operating partnership units as currency, we believe we
may have unique acquisition opportunities in 2002. While taking a conservative
approach, we plan to continue to execute our strategy of rehabilitating and
repositioning the properties we acquire, which we know adds incremental value.
Also favorable to our future results is our ability to control expenses. David
has already described the strategy in place to control gas costs. Another cost
we have examined closely is insurance, and any projected net increase is built
into our guidance for next year.
Here is our outlook on insurance costs for 2002. To give you some perspective,
in January 2000, a survey by several real estate companies showed the mean cost
of property and casualty risk per apartment unit was $83. Home Properties' cost
of risk was $54 per unit at that time. In August of this year, the same survey
showed the mean was $215 per unit, up 159%. Home Properties cost of risk was to
$110 per unit. We have some advantage as our properties are located in stable
markets in the Northeastern quadrant of the U.S., which are less exposed to many
insurance risks.
SLIDE 15: This slide contains the logo of Home Properties of New York, Inc. as
well as the following title: "QUESTIONS & ANSWERS" followed by photographs of
Norman Leenhouts, Chairman and Co-CEO, David Gardner, Sr. Vice President and
Chief Financial Officer and Charis Copin, Vice President, Investor Relations.
Below each picture is written the officers name and title of the office held.
Below the photographs is written "Home Properties Central Office (716) 546-4900.
(Norman continued)
As a final comment, I would like to say how pleased we are in this economic
climate to have a proven business strategy that we have executed successfully
and know works particularly well when the chips are down. This gave our Board of
Directors confidence to increase the dividend by just over 5%, which we
announced on Tuesday. We feel we can deliver the kind of stable returns in terms
of dividend increases and capital appreciation that investors are looking for in
these uncertain times.
That concludes our formal presentation. I'd now like to open up the phone lines
for questions.
SLIDE 16: This slide contains the logo of Home Properties of New York, Inc. as
well as the following statements: Third Quarter 2001 Earnings Conference Call
and Webcast November 2, 2001.
(David)
If there are no further questions, we'd like to thank you all for your continued
interest and investment in Home Properties. Have a great day!