Home Properties Inc. (HME, Financial) filed Quarterly Report for the period ended 2009-06-30.
Home Properties is a real estate investment trust with operations in selected Northeast Midwest Mid-Atlantic and Southeast Florida markets. The Company owns operates acquires and rehabilitates apartment communities. The Company adhere to a simple and straightforward business plan in our effort to provide investors with dependable financial returns that exceed those of comparable investments. There communities generate extraordinary financial results through physical improvements and exhibit an unwavering commitment to customer service. Home Properties and its predecessor company have a proven track record of creating and preserving value in multifamily rental housing. Home Properties Inc. has a market cap of $1.41 billion; its shares were traded at around $42.97 with a P/E ratio of 12.1 and P/S ratio of 2.6. The dividend yield of Home Properties Inc. stocks is 6.3%. Home Properties Inc. had an annual average earning growth of 4.4% over the past 10 years.
In response to the constrictions in the credit market, the Company is pursuing certain initiatives as follows: 1) The Company is evaluating alternatives to replace the existing unsecured line of credit which matures September 1, 2009. The Company is working with its existing lead bank and discussions suggest that there is significant interest from banks to participate in the Company\'s facility. The Company anticipates it will be able to replace the entire $140 million line and, in fact, plans on increasing the level to a minimum $150 million. Pricing will be more expensive, and may move from interest at 0.75% over the one-month LIBOR under the existing agreement possibly to a spread closer to 3.00%. In addition, up-front and on-going fees could add another 75 basis points to pricing. 2) During 2008, the Company increased the level of the value of unencumbered properties in relationship to the total property portfolio from 16% to 19%. This higher level adds flexibility in 2009 allowing the Company to place secured financing on unencumbered assets as required. 3) The Company benefits from its multifamily focus as the Government Sponsored Enterprises ("GSEs") Fannie Mae and Freddie Mac are still very active lending to apartment owners. Underwriting has become more stringent, but the Company believes it will be able to refinance its debt maturities during this cycle of reduced liquidity. 4) The Company has only $19 million of secured loans maturing in 2009 (including $6 million already paid during the second quarter of 2009). For 2010 and 2011, the principal amount of loans due rises to $331 million and $300 million, respectively. The Company is pursuing refinancing $225 million of the 2010 and 2011 maturities in the second half of 2009 with the GSEs, at a time when the GSEs are still very active and open to such transactions. It is anticipated that $329 million of new debt could be placed (including financing certain properties currently unencumbered), resulting in $85 million of net proceeds from refinancing. The loans being targeted are those that would have little or no prepayment penalties. The balance of the 2010 maturities are not expected to be refinanced early due to expensive yield-maintenance provisions making prepayment costly.
In October 2006, the Company issued $200 million of exchangeable senior notes (“Senior Notes”) with a coupon rate of 4.125%, which generated net proceeds of $195.8 million. The net proceeds were used to repurchase 933,000 shares of common stock for a total of $58 million, pay down $70 million on the line of credit, with the balance used for redemption of preferred shares and property acquisitions. During the fourth quarter of 2008, the Company repurchased $60 million of the Senior Notes for $45.4 million. The exchange terms and conditions are more fully described under "Contractual Obligations and Other Commitments," below.
Cash used in investing activities was $7 million for the six months ended June 30, 2009 compared to $10 million for the same period in 2008. The change is primarily due to a change in the use of proceeds between periods, as the proceeds from sale of properties were similar in both periods at $67 million and $63 million, respectively. During the six months ended June 30, 2009, $74 million cash was used on additions to property and new construction as compared to the six months ended June 30, 2008 where $58 million was spent on additions to property and new construction, plus $16 million on the purchase of land for development.
Cash used in financing activities was $72 million for the six months ended June 30, 2009 compared to $74 million for the same period in 2008. The $2 million decrease in cash used between periods is primarily due to $40 million less cash provided by the line of credit and $6 million higher net mortgage payments in 2009 as compared to 2008, partially offset by $51 million less cash used for stock buybacks in the 2009 period as compared to the 2008 period.
In October 2006, the Company issued $200 million of Senior Notes with a coupon rate of 4.125%. The notes are exchangeable into cash equal to the principal amount of the notes and, at the Company\'s option, cash or common stock for the exchange value, to the extent that the market price of common stock exceeds the initial exchange price of $73.34 per share, subject to adjustment. The exchange price is adjusted for payments of dividends in excess of the reference dividend set in the indenture of $0.64 per share. The adjusted exchange price at June 30, 2009 was $72.98 per share. Upon an exchange of the notes, the Company will settle any amounts up to the principal amount of the notes in cash and the remaining exchange value, if any, will be settled, at the Company\'s option, in cash, common stock or a combination of both. The notes are not redeemable at the option of the Company for five years, except to preserve the status of the Company as a REIT. Holders of the notes may require the Company to repurchase the notes upon the occurrence of certain designated events. In addition, prior to November 1, 2026, the holders may require the Company to repurchase the notes on November 1, 2011, 2016 and 2021. The notes will mature on November 1, 2026, unless previously redeemed, repurchased or exchanged in accordance with their terms prior to that date. During October and November 2008, the Company repurchased and retired $60 million face value of its Senior Notes for $45.4 million, in several privately-negotiated transactions which amounted to a 24.4% discount from face value. An adjusted gain on debt extinguishment of $11.3 million was recorded in the fourth quarter of 2008, as compared to the originally reported gain of $13.9 million. The adjustment is as a result of recently adopted accounting standards as more fully described in Note 3 to the Consolidated Financial Statements.
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Home Properties is a real estate investment trust with operations in selected Northeast Midwest Mid-Atlantic and Southeast Florida markets. The Company owns operates acquires and rehabilitates apartment communities. The Company adhere to a simple and straightforward business plan in our effort to provide investors with dependable financial returns that exceed those of comparable investments. There communities generate extraordinary financial results through physical improvements and exhibit an unwavering commitment to customer service. Home Properties and its predecessor company have a proven track record of creating and preserving value in multifamily rental housing. Home Properties Inc. has a market cap of $1.41 billion; its shares were traded at around $42.97 with a P/E ratio of 12.1 and P/S ratio of 2.6. The dividend yield of Home Properties Inc. stocks is 6.3%. Home Properties Inc. had an annual average earning growth of 4.4% over the past 10 years.
Highlight of Business Operations:
As of June 30, 2009, the Company had an unsecured line of credit agreement with M&T Bank, as administrative agent and lead bank, of $140 million which expires September 1, 2009. The Company is currently negotiating a new line of credit with the current lender and is confident that the line will be replaced in full with the possibility of upsizing the facility. The Company has had no defaults through June 30, 2009. The Company had $104 million outstanding under the credit facility on June 30, 2009. The Company s line of credit agreement provides the ability to issue up to $20 million in letters of credit. While the issuance of letters of credit does not increase the borrowings outstanding under the line of credit, it does reduce the amount available. At June 30, 2009, the Company had outstanding letters of credit of $7.4 million. As of June 30, 2009, the amount available on the credit facility was $28.6 million (net of $7.4 million which was restricted to support letters of credit and net of $104 million in outstanding borrowings). Borrowings under the line of credit bear interest at 0.75% over the one-month LIBOR rate of 0.31% at June 30, 2009. Accordingly, increases in interest rates will increase the Company\'s interest expense and as a result will affect the Company\'s results of operations and financial condition.In response to the constrictions in the credit market, the Company is pursuing certain initiatives as follows: 1) The Company is evaluating alternatives to replace the existing unsecured line of credit which matures September 1, 2009. The Company is working with its existing lead bank and discussions suggest that there is significant interest from banks to participate in the Company\'s facility. The Company anticipates it will be able to replace the entire $140 million line and, in fact, plans on increasing the level to a minimum $150 million. Pricing will be more expensive, and may move from interest at 0.75% over the one-month LIBOR under the existing agreement possibly to a spread closer to 3.00%. In addition, up-front and on-going fees could add another 75 basis points to pricing. 2) During 2008, the Company increased the level of the value of unencumbered properties in relationship to the total property portfolio from 16% to 19%. This higher level adds flexibility in 2009 allowing the Company to place secured financing on unencumbered assets as required. 3) The Company benefits from its multifamily focus as the Government Sponsored Enterprises ("GSEs") Fannie Mae and Freddie Mac are still very active lending to apartment owners. Underwriting has become more stringent, but the Company believes it will be able to refinance its debt maturities during this cycle of reduced liquidity. 4) The Company has only $19 million of secured loans maturing in 2009 (including $6 million already paid during the second quarter of 2009). For 2010 and 2011, the principal amount of loans due rises to $331 million and $300 million, respectively. The Company is pursuing refinancing $225 million of the 2010 and 2011 maturities in the second half of 2009 with the GSEs, at a time when the GSEs are still very active and open to such transactions. It is anticipated that $329 million of new debt could be placed (including financing certain properties currently unencumbered), resulting in $85 million of net proceeds from refinancing. The loans being targeted are those that would have little or no prepayment penalties. The balance of the 2010 maturities are not expected to be refinanced early due to expensive yield-maintenance provisions making prepayment costly.
In October 2006, the Company issued $200 million of exchangeable senior notes (“Senior Notes”) with a coupon rate of 4.125%, which generated net proceeds of $195.8 million. The net proceeds were used to repurchase 933,000 shares of common stock for a total of $58 million, pay down $70 million on the line of credit, with the balance used for redemption of preferred shares and property acquisitions. During the fourth quarter of 2008, the Company repurchased $60 million of the Senior Notes for $45.4 million. The exchange terms and conditions are more fully described under "Contractual Obligations and Other Commitments," below.
Cash used in investing activities was $7 million for the six months ended June 30, 2009 compared to $10 million for the same period in 2008. The change is primarily due to a change in the use of proceeds between periods, as the proceeds from sale of properties were similar in both periods at $67 million and $63 million, respectively. During the six months ended June 30, 2009, $74 million cash was used on additions to property and new construction as compared to the six months ended June 30, 2008 where $58 million was spent on additions to property and new construction, plus $16 million on the purchase of land for development.
Cash used in financing activities was $72 million for the six months ended June 30, 2009 compared to $74 million for the same period in 2008. The $2 million decrease in cash used between periods is primarily due to $40 million less cash provided by the line of credit and $6 million higher net mortgage payments in 2009 as compared to 2008, partially offset by $51 million less cash used for stock buybacks in the 2009 period as compared to the 2008 period.
In October 2006, the Company issued $200 million of Senior Notes with a coupon rate of 4.125%. The notes are exchangeable into cash equal to the principal amount of the notes and, at the Company\'s option, cash or common stock for the exchange value, to the extent that the market price of common stock exceeds the initial exchange price of $73.34 per share, subject to adjustment. The exchange price is adjusted for payments of dividends in excess of the reference dividend set in the indenture of $0.64 per share. The adjusted exchange price at June 30, 2009 was $72.98 per share. Upon an exchange of the notes, the Company will settle any amounts up to the principal amount of the notes in cash and the remaining exchange value, if any, will be settled, at the Company\'s option, in cash, common stock or a combination of both. The notes are not redeemable at the option of the Company for five years, except to preserve the status of the Company as a REIT. Holders of the notes may require the Company to repurchase the notes upon the occurrence of certain designated events. In addition, prior to November 1, 2026, the holders may require the Company to repurchase the notes on November 1, 2011, 2016 and 2021. The notes will mature on November 1, 2026, unless previously redeemed, repurchased or exchanged in accordance with their terms prior to that date. During October and November 2008, the Company repurchased and retired $60 million face value of its Senior Notes for $45.4 million, in several privately-negotiated transactions which amounted to a 24.4% discount from face value. An adjusted gain on debt extinguishment of $11.3 million was recorded in the fourth quarter of 2008, as compared to the originally reported gain of $13.9 million. The adjustment is as a result of recently adopted accounting standards as more fully described in Note 3 to the Consolidated Financial Statements.
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