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): August 3, 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.)
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
c. Exhibits
Exhibit 10. 1 Purchase and Sale Agreement by and between Sandalwood Co-Op,
Inc. and Home Properties of New York, L.P., dated April 12, 2001
Exhibit 10.2 Contribution Agreement by and among Home Properties of
New York, L.P. and Lincolnia Limited Partnership, dated April 30,
2001.
Exhibit 10.3 Purchase and Sale Agreement between Windsor at Hauppauge
Limited Partnership and Home Properties of New York, L.P., dated as of
May , 2001. Exhibit 99.1 Press Release
Exhibit 99.2 Supplemental Information
Item 9. Regulation FD
On August 3, 2001, the Registrant issued a press release announcing its
results for the second 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 August 3, 2001 press release.
On August 3, 2001, the Registrant held its second 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:
SLIDE 1: This slide contains the logo of Home Properties of New York, Inc. as
well as the following statements: Second Quarter 2001 Earnings Conference Call
and Webcast August 3, 2001.
Good morning. Thank you for participating in our second 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.
For those of you who were on our call last quarter, you may remember that we
fielded one question, and much to our surprise had no more questioners. Little
did we know that the wrong instructions may have been given out in order to get
into the queue.
We will make sure that does not happen again.
I would also like to refer invited participants to the phone number on their
invitation previously faxed to them - the only number 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 number, please call us at area code
716, 246-4140 and Yvonne will provide those authorized with the number.
SLIDE 2: This slide contains the following caption: "Conference Call
Participants" followed by photographs of Norman Leenhouts, Chairman and Co-CEO,
Ed Pettinella, Executive Vice President and Director, David Gardner, Sr. Vice
President and Chief Financial Officer and Charis Copin, Director, Investor
Relations. Below the photographs is written "Home Properties Central Office
(716) 546-4900.
(David continued)
Here with me this morning are Norman Leenhouts, Chairman and Co-Chief Executive
Officer, Ed Pettinella, Executive Vice President and Charis Copin who recently
joined Home Properties as Director of Investor Relations, reporting to me.
Before joining us, Charis headed investor relations for four years at PSC, Inc.,
a manufacturer of bar code scanners. Prior to that, she held various senior
management positions with Rochester Community Savings Bank, a financial services
institution that has since been acquired by Charter One Financial. At RCSB,
Charis started the IR program in 1986 when the company went public. We're glad
to have Charis bring her broad experience to Home Properties.
(Charis)
Thank you David. I'm looking forward to getting rapidly up the curve on the
industry and working with our investors.
SLIDE 3: This slide contains the following caption: "Forward Looking Statement"
followed by the following statement: "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."
(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, 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 fax list, give us a call. The press release and supplemental
schedules are also available today on our web site.
Now, I will turn it back to David to discuss our financial results for the
quarter.
SLIDE 4: This slide contains the following title: "FFO Per Share". The slide
also contains a graph listing Q2 2000 and Q2 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 and $0.60. There is a bar above the point on the x-axis marked Q2 2000
with the figure $0.74 printed above the bar and there is a bar above the point
on the x-axis marked Q2 2001 with the figure (+5%) printed at the top inside the
bar and $0.78 printed above the bar.
(David)
Thanks, Charis.
We were very pleased with our results for the second quarter which were in line
with analysts' consensus estimates. We generated 16% growth in total Funds From
Operations, with FFO per share up 5% over the year ago quarter, at 78 cents on a
diluted basis.
I wanted to point out that our reported numbers this year have not included any
write-offs for technology investments, unlike some in our industry. That is not
to say we have not been pursuing certain technology initiatives. We have just
partnered up with providers where the need to invest our own capital was not
required.
SLIDE 5: This slide contains the following title: "Core Property Performance *".
The * is noted at the bottom of the slide: "Reflects 32,700 apartment units
owned throughout 2000 and 2001." The following table is also on the slide:
2Q 2000 2Q 2001
Rental Rates +6.7%
Rental Revenues +6.4%
Other Income +10.7%
Total Income + 6.5%
Operating Expenses + 4.3%
Net Operating Income + 8.1%
Occupancy Percentage 94.5% 94.2%
(David continued)
During the quarter, we also saw improvement in our core property performance
compared to last year's second quarter. We achieved 6.4% growth in core property
rental revenues, as a result of rental rate increases, which averaged 6.7%,
offset by a slight decline in occupancy of 30 basis points.
We are most pleased with the 6.7% growth experienced in rental rates, which
represents a new record, beating our previous high of 6.2% achieved in the first
quarter this year. "Other income" at our core communities increased by 10.7%
this quarter, reflecting our ongoing successful efforts to increase ancillary
income. Most of these additional revenues represented a broad mix of fees and
charges, including laundry, cable, and net profits from corporate apartments.
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 4.3%
compared to the second quarter last year. Overall, net operating income was up a
solid 8.1%.
SLIDE 6: This slide contains the following title: "Core Property Operating
Expenses", followed by the following table:
2Q Year-over-Year Change
$ (000's) %
--------- ---
Gas $ 987 64.7%
Insurance 407 114.0%
Real Estate Taxes 419 6.3%
Personnel (414) (5.7)%
Repairs & Maintenance (478) (8.1)%
Other Expenses 274 4.5%
----- -----
Total Expenses $1,195 4.3%
(David continued)
While overall expense control was favorable, this slide focuses on the expense
categories which had the most significant changes during the second quarter
versus a year ago. A more detailed comparison of all expense items for core
communities is included in the supplemental schedules.
As shown here, the major areas of increase occurred in gas, insurance and real
estate taxes. Gas costs at our core communities were up 65% for the quarter, an
increase which is consistent with our experience from the first quarter of 2001.
Extraordinary increases in national gas prices have been well documented in
previous conference calls and press releases. In a few minutes, Ed will review
our success in managing our exposure to volatile natural gas costs using forward
contracts.
Insurance, even though it is up 114%, came in as expected, consistent with our
premium increase in November of 2000 that was discussed on the year-end
conference call. Finally, real estate taxes were up 6%, certainly a few
percentage points higher than inflation but within our budgeted expectations.
Offsetting these increases were decreases in personnel and repair and
maintenance costs. Both of these line items seem to be benefiting from the
increased level of capital expenditures and upgrading over the last couple years
at our Core communities. The physical improvements have enabled us to operate
many of our properties more efficiently.
SLIDE 7: This slide contains the following title: Same Property NOI Growth".
This slide also contains a graph listing the years 1991, 1992, 1993, 1994, 1995,
1996, 1997, 1998, 1999, 2000, 1Q 2001, 2Q 2001 and 2001 HME Est. from left to
right along the x-axis. Along the left side of the y-axis are the points 0.0%,
1.0%, 2.0%, 3.0%, 4.0%, 5.0%, 6.0%, 7.0%, 8.0%, 9.0% and 10.0%. There are bars
above each point on the x-axis with the following figures marked: 1991 - 4.4%,
1992 - 1.8%, 1993 - 2.7%, 1994 - 2.2%, 1995 - 5.0%, 1996 - 5.9%, 1997 - 8.4%,
1998 - 6.9%, 1999 - 9.0%, 2000 - 7.6%, 1Q 2001 - 0.5%, 2Q 2001 - 8.1% and 2001
HME Est. - 7.0%.
(David continued)
For the quarter, net operating income growth was a solid 8.1%. We estimate NOI
growth for the full year to be about 7%, slightly lower than previous years.
Keep in mind that the year's result is negatively affected by the weak first
quarter result of 0.5% NOI growth, reflecting the burden of extremely high
heating costs. The good news is that the average for the second through fourth
quarters is expected to be very respectable, with over 9% NOI growth projected.
Our current estimate of 7% NOI growth for the full year is slightly less than
the 7.8% guidance we originally gave at the beginning of the year. As stated in
the press release, the weakened economy has resulted in lower occupancy and,
therefore, lower revenue growth in some of our regions than originally budgeted.
We anticipated achieving 7.5% same store rental growth for 2001 which has
averaged 6.6% year-to-date. It is only prudent to assume similar growth for the
balance of the year.
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 second quarter of 2001 is estimated to be about 4.1%.
SLIDE 8: This slide contains the following title: "Market Breakdown" with the
following table presented:
6/30/2001
% Owned
Market # of Units Portfolio
------ ---------- ----------
Baltimore, MD 7,347 18.6%
Eastern PA 6,276 15.9%
Detroit, MI 5,693 14.4%
DC/Northern VA 2,935 7.4%
Rochester, NY 2,893 7.3%
New Jersey 2,657 6.7%
Chicago, IL 2,018 5.1%
Buffalo, NY 1,644 4.2%
Long Island 1,636 4.2%
All Others 6,341 16.2%
----- -----
Total Units 39,440 100.0%
(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 is
supporting positive growth in rental rates.
The regions with the lowest growth in rental rates and NOI were in Upstate New
York - Buffalo, Rochester, and Syracuse. Rental growth of 3.1% for these regions
was less than half of the 6.7% experienced for the entire portfolio. We will
continue to identify properties in these slower growth markets as potential sale
candidates. Occupancy levels throughout our portfolio remain quite healthy,
averaging 94.2%. On a same-property comparison, we currently are about one
percent behind in occupancies compared to a year ago. We certainly have been
very aggressive in increasing rents to recover the increase in utility costs,
and this dip in occupancy is what has led us to revise guidance.
By looking at four regions - which cover 86% of our same-store results - we can
give you a sense of where the occupancy changes have occurred. The Mid-Atlantic
region, including Baltimore and Washington, DC, with 27% of same-store units, is
at 95.7% today, up 0.2% from a year ago.
Upstate New York, representing 25% of same-store units, is at 95.1% today versus
95.7% a year ago, a drop of 0.6%. The Philadelphia region, with 19% of
same-store units, is at 94.4% today, down 2.4% from a year ago. And finally
Detroit, representing 15% of same-store units, is at 95.2% today, versus 96.8% a
year ago, a drop of 1.6%.
While a softening in any market is certainly not good news, we continue to feel
pretty well protected with properties in the Class B apartment sector with rent,
including utilities, averaging only $777 per month.
SLIDE 9: This slide has the title "Other Corporate Income (000's) with the
following table presented:
Q2 '00 Q2 '01
------- ------
Management fees $1,245 $1,376
Development fees 676 -
Interest Income - 480
Other 97 11
General & Administrative (1,905) ( 739)
Interest expense ( 488) ( 382)
Depreciation ( 116) ( 119)
Taxes ( 32) ( 11)
------ -----
Total Other Income ($ 523) $ 616
COMBINED EBITDA $ 66 $ 649
(David continued)
"Other Corporate Income" of $616,000 during the second quarter reflects net
results from management and development activities. Detailed information on the
breakdown of this income is included in the supplemental packets and summarized
on this slide for webcast listeners.
As a reminder, at the end of 2000, we were successful in closing the sale of the
affordable housing development business to the key personnel who ran that
division. Looking at some of the individual line items, management fee revenues
increased 10.5%. As we have sold our development business, there was no
development fee revenue this year, compared to almost $700,000 a year ago. At
the same time, general and administrative costs allocated to this activity were
reduced by almost $1,200,000. With that, I'll turn it over to Ed.
SLIDE 10: This slide has the following title: "Recently Acquired Communities"
with the following table presented:
Price
Market Units (000's)
------ ----- -------
Baltimore 1,115 $ 46.0
Chicago 563 27.6
Detroit 662 26.1
Long Island 942 68.8
No.VA/DC 1,345 107.4
Philadelphia 2,113 135.9
----- -----
Total 2000 and 2001 6,740 $411.8
(Ed)
Thank you, David.
All of the property results discussed so far have pertained to the 32,700
apartment units owned since the beginning of 2000. We continue to have positive
news concerning the 6,740 units in communities recently acquired. These
communities generated net operating income during the second quarter which
approximated a 9.7% yield on our total investment of over $400 million. This is
down slightly from our typical double-digit initial returns, but still in line
with announced expectations. We see tremendous future upside in these
communities beyond the initial returns.
SLIDE 11: This slide contains the following title: "Natural Gas" and the
following subtitle: "Henry Hub NYMEX Monthly Settle - January 1996 - July 2001".
The slide also contains a graph with an x-axis listing the months 1/1/96,
5/1/96, 9/1/96, 1/1/97, 5/1/97, 9/1/97, 1/1/98, 5/1/98, 9/1/98, 1/1/99, 5/1/99,
9/1/99, 1/1/00, 5/1/00, 9/1/00, 1/1/01 and 5/1/01 from left to right. The y-axis
has the points: $1.50, $2.50, $3.50, $4.50, $5.50, $6.50, $7.50, $8.50, $9.50
and $10.50 from bottom to top. The x-axis months each have a point marked above
them, with the spaces in between the months listed also having points marked.
The points marked on the graph for the months listed are as follows:
1/1/96 $2.66
5/1/96 $2.41
9/1/96 $2.21
1/1/97 $2.39
5/1/97 $2.24
9/1/97 $3.08
1/1/98 $2.28
5/1/98 $2.17
9/1/98 $2.43
1/1/99 $1.78
5/1/99 $2.36
9/1/99 $2.74
1/1/00 $2.66
5/1/00 $4.36
9/1/00 $5.19
1/1/01 $5.71
5/1/01 $4.89
(Ed continued)
This may be the last time we refer to this five-year graph of natural gas
prices.
After peaking in December and January at a high point at over $10 per decatherm,
we have seen a consistent downward trend. The first quarter of 2001 averaged
$5.67 per decatherm and the second quarter averaged $4.67. The last monthly
settle for July, 2001 saw the price at $3.18. This market trend is certainly a
big positive for us, especially as we continue to fix our gas costs over the
next few years.
We are pleased to report that, at this point, we are 84% covered with fixed
contracts for next winter, with a plan to exceed our goal of 90% by the end of
the third quarter. In addition, we have contracts extending out through the
2002-2003 heating season for 65% of our natural gas needs. We have diversified
our risk by staggering contract term expirations.
The process of monitoring and negotiating contracts will be an ongoing,
continuous effort in order to achieve predictable results for this very
significant expense item in our overall budget. The contracts in place for this
winter and next winter have a weighted average cost per decatherm of about
$4.95. At this dollar level, and based on the high percentage of contracts in
place, we believe the volatility seen in our financial results caused by high
heating costs for the first quarter will not be repeated. We believe the lower
net operating income growth quarters are now behind us. We are positioned for
the next six quarters to average high single digit same-store NOI growth.
The combination of this internal growth, coupled with assumed external growth,
will result in FFO growth per share approaching 9% for the third quarter, with
double digit growth projected for the fourth quarter. Our guidance for 2002
suggests FFO growth per share at between 8% and 9%.
SLIDE 12: This slide has the title "Conservative Capital Structure". The slide
also contains a pie chart. On the left above the pie chart there is a box within
which is stated: "Equity, 60%, followed by Common Stock (49%), Convertible
Preferred (16%) and Operating Partnership Interests (35%)". On the right above
the pie chart is a box within which is stated: "Debt, 40%, followed by Fixed
(96%) and Floating (4%)". 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 Interest", "Convertible Preferred", and "Floating
Rate Debt". Below the pie chart is the caption: "$2.3 Billion Total Market
Capitalization". On the lower left of the slide is the caption: "*$30.10 per
share at 6/30/01".
(Ed continued)
With a stock price of $30.10 per share at the end of the quarter, leverage was
40.3% on our total market capitalization of $2.3 billion at the end of June.
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%. $32 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 2.4 times
coverage.
These coverage ratios are both higher than what we experienced in the first
quarter. At that time, we told you that we expected these ratios would rebound.
Just like most other financial indicators reported, these ratios were negatively
affected by extraordinarily high operating costs in the first quarter. I'm happy
to report to you today that we're now roughly back at the levels we had
anticipated.
SLIDE 13: This slide has the title "Equity Issued (000's) - Second Quarter",
followed by the table set forth below:
OP Units $16.2
DRIP Shares 5.0
Repurchases (2.4)
-----
$18.8
(Ed continued)
During the second quarter we issued a net of $18.8 million in equity, primarily
from the issuance of OP units valued at $16.2 million in connection with the
acquisition of Virginia Village in Alexandria, Virginia. We also had purchases
in our DRIP of $5 million during the quarter, at an average price of $28.22 per
share. You may recall that last quarter we told you that we had changed the
terms of the Plan to reduce the level of participation, given that at the time
our stock had been trading consistently below the Company's estimate of net
asset value. The changes to the DRIP went into effect on April 1. At that time,
the discount on cash purchases and dividend reinvestments was reduced from 3% to
2% and the amount that could be invested through optional cash purchases was
reduced from $5,000 to $1,000. We achieved the desired effect, with $5 million
raised in the DRIP in the second quarter, down substantially from purchases in
the first quarter of $15.7 million. The Company also repurchased $2.4 million of
common shares at an average price of $27.70 through its stock repurchase
program.
SLIDE 14: This slide has the title "Net Asset Valuation (000's)" and is followed
by the table set forth below:
9.0% 9.5% 10.0%
Cap Cap Cap
--- --- ----
Real Estate Value $2,431 $2,303 $2,188
Other Assets/Liab. (836) (836) (836)
------ ------ -------
Net Asset Value $1,595 $1,467 $1,352
NAV Per Share $35.43 $32.59 $30.03
(Ed continued)
Our supplemental information contains a complete presentation of our calculation
of Home Properties' Net Asset Value. Last quarter, we presented a range of cap
rates between 9.0% and 9.75%. We suggested that the lower range, using a nominal
cap rate of 9%, was the proper rate, producing an NAV of about $32.75 per share.
At the time, our stock was trading about 12% below this level.
During numerous meetings in San Francisco at NAREIT's Institutional Conference,
I brought up the subject of methodology used by the various sell side and buy
side analysts. Most models we have seen use a higher cap rate than 9% for
calculating Home's NAV.
We have first hand experience selling properties, even in our slower growth
markets, at cap rates close to 9%. We acknowledge that a higher cap rate may be
more reflective of a longer time horizon. With that in mind, we have expanded
our range to include 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 $32.59, a premium
of about 7% compared to recent trading prices.
At this level, our appetite for repurchasing stock has been reduced, evidenced
by a repurchase level of only $2.4 million in the second quarter compared to
$30.1 million during the first 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.
Now, I will turn the discussion over to our Chairman.
SLIDE 15: This slide has the title "Achievements - Second Quarter 2001" and is
followed by the following bullet points: o Return to solid NOI growth o Record
rental rate growth of 6.7% o Acquisition yields averaging 9.7% o Successful
investor meeting o Added depth with new employees o Successful disposition
program
(Norman) Thank you, Ed. Good morning, everyone!
I will start by reviewing a list of our accomplishments during the quarter.
We are very pleased with the operating results which reflect same-store NOI
growth in excess of 8%. For the second quarter in a row, we have set a new
record for growth in rental rates at 6.7%. The $412 million of investment made
in acquisitions over the past year and a half performed up to our expectations,
with unleveraged yields during the first six months of 2001 averaging 9.7% on an
annualized basis. With interest rates down, this is an excellent result.
Earlier this week we held the fourth annual meeting of a group we call our
Significant Partners. These are individuals from whom we have purchased
apartment communities in exchange for operating units and who are important to
us in a number of ways. Of great significance is that collectively the 15 who
attended this year represented about $220 million of equity contributed to the
Company. Our objective is to keep this group well-informed because they are
often helpful in introducing other apartment owners to us for future
acquisitions, based on their positive personal experience selling their
properties to us and their ongoing association with Home Properties. Those in
attendance heard about our financial performance, our recent acquisition and
disposition transactions and toured a couple of our Rochester-area properties.
I'd like to bring you up-to-date on some recent additions and planned future
additions to the Home Properties staff. We are very cognizant of the need to
staff appropriately as we continue to grow and implement our succession
strategy. Beside Charis, other recent additions include Bill Revers who has
joined our acquisition team. Bill is working out of our Washington, DC office.
He spent the last 11 years as head of acquisitions for Charles E. Smith's
commercial REIT where he handled volumes up to $300 million in one year.
Increased coverage in key markets is critical for us as competition for the
purchase of apartments has become intense. We are also looking for an
acquisitions person in the Chicago region.
Keith Knight is another addition to our team. Keith leads our procurement
function and has excellent negotiating and purchasing experience, having owned a
sales agency representing manufacturers in the home improvement industry for the
past ten years. This too is an important area of focus as we expand and continue
to hone the way we control our costs.
Recently, we commenced a national job search for a Senior Vice President for
Property Management. This is a key position, particularly when you consider that
we now have more than 51,000 units in 12 states employing more than 2,000
people. We feel the job requires significant leadership abilities and at least
10 years of senior-level property management experience. This person will report
to my brother Nelson. The addition of this position is essential to our
succession plan for Nelson to reduce his role. Our regional property managers,
some of whom will have expanded roles, will report to this new position.
Of greatest importance, during the second quarter we were able to announce the
initial actual results from our disposition efforts which have been managed in a
manner which has not produced dilution to our shareholders.
SLIDE 16: This slide has the title "Disposition/Acquisition Strategy" and is
followed by 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 and/or opportunistic share
repurchase
o Focus on 1031 exchanges
(Norman continued)
As we've said previously, we still plan on selling $100 to $200 million of
properties this year and reinvesting in higher growth markets. The properties we
are selling are either in slower growth markets, 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.
The transactions 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 will
produce an unleveraged IRR of at least 12%, which is our hurdle rate for
acquisitions.
SLIDE 17: This slide has the title "Managing Sale Proceeds" and is followed
by the table set forth below:
# # Avg. $ Cap
Props. Units Total $ Per Unit Rate
----- ----- ------- -------- ----
Dispositions YTD 6 1,187 $ 48.7 $41,000 9.1%
Acquisitions YTD 5 1,653 $ 137.2 $83,000 9.2%
o Timing
o No negative spread in initial cap rates
(Norman continued)
I'd now like to give you more detail on our property acquisition and disposition
activities. We're very pleased with our results so far this year and are
particularly pleased that our management of purchases and sales has received
favorable analyst recognition since we've had no dilution.
This slide shows the results of the disposition of units year-to-date, all of
which have been in Upstate New York. The timing of our six sales and five
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, as you'll note in the far
right column, 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 we are buying first and then selling either
simultaneously or slightly later at comparable cap rates.
SLIDE 18: This slide has the title "Disposition Example - Buffalo". The slide
has three photographs, each with a subtitle and going from left to right: (1)
Williamstowne, 528 units, 1994; (2) Fiarways, 32 units, 1997 and (3) Garden
Village, 315 units, 1994. There is a box on the lower portion of the slide with
the following information:
Total original purchase price $25.0M
Total original purchase price per unit $28,000
Total sales price $36.6M
Sales price per unit $41,000
Sale cap rate 8.9%
IRR 13.9%
(Norman continued)
I'd like to review the results of the specific sale transactions.
These three properties in Buffalo were sold in one transaction. They were
originally bought for a total of $25 million, or $28,000 per unit. Of the 875
units sold, 843 had been owned since our IPO in 1994. The total sales price was
$36.6 million, or $41,000 per unit. The cap rate was 8.9%, based on the
properties' 2001 budgeted net operating income after allocating 3% of rental
revenues for management and overhead expenses and before normalized capital
expenditures.
The sales price exceeded the undepreciated cost basis by $4.4 million, and over
the ownership period, the properties achieved a 13.9% unleveraged internal rate
of return.
SLIDE 19: This slide has the title "Disposition Example - Rochester". The slide
has three photographs, each with a subtitle and going from left to right : (1)
Hill Court, 95 units, 1997; (2) Ivy Ridge, 135 units, 1997 and (3) Springcreek,
82 units, 1994. There is a box on the lower portion of the slide with the
following information:
Total original Purchase Price $9.2M
Total original Purchase price per unit $30,000
Total sales price $11.7M
Sales price per unit $38,000
Sale cap rate 9.6%
IRR 12.6%
(Norman continued)
These three properties in or near Rochester were sold in two separate
transactions. They were originally purchased for $9.2 million, or $30,000 per
unit. The total sales price was $11.7 million, or $38,000 per unit. The cap rate
was 9.6% and the unleveraged IRR produced was 12.6%.
Keep in mind that these financial results are for the weeds in our portfolio
that we have selected for sale.
SLIDE 20: This slide has the title "Recent Acquisitions - Virginia" and has a
photograph, with the following caption: " Virginia Village, Alexandria, VA,
$27.0M - 344 units, $78,600 per unit".
(Norman continued)
Here are some examples of what we have acquired so far this year. Virginia
Village is a 344 unit community located in Alexandria, Virginia, directly across
the street from Orleans Village, which we acquired for $27 million this past
November. The per-unit cost was $78,600.
SLIDE 21: This slide has the title "Recent Acquisitions - Long Island" and has a
photograph, with the following caption: "Southern Meadows, Bayport, NY, $39.3M -
452 units, $87,000 per unit".
(Norman continued)
Southern Meadows is located on Long Island in the Town of Bayport. The property
contains 452 units and was acquired in June for $39.3 million, or $87,000 per
unit.
SLIDE 22: This slide has the title "Recent Acquisitions - Long Island" and has a
photograph, with the following caption: "Home Properties of Hauppauge,
Hauppauge, NY, $47.5M - 297 units, $159,900 per unit".
(Norman continued)
Home Properties of Hauppauge, with 297 units, is also located on Long Island.
The property was bought for $47.5 million, or $159,900 per unit. The per unit
purchase price is certainly much higher than our overall average price of just
over $61,000 over the last year and a half. The property, however, fits all the
criteria we look at when performing due diligence. It is important to realize
that this property produces rents of $2 per square foot, compared to the Company
average of 89 cents. In addition, the Central Long Island area represents one of
the most dynamic apartment markets in the country, experiencing near
double-digit compounded annual growth in rental revenue during the past four
years.
SLIDE 23: This slide contains the following caption: "QUESTIONS & ANSWERS"
followed by the photographs of Norman Leenhouts, Chairman and Co-CEO, Ed
Pettinella, Executive Vice President and Director, David Gardner, Sr. Vice
President and Chief Financial Officer and Charis Copin, Director, Investor
Relations. 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 to have the three
quarters of steep escalation in natural gas costs behind us. With the contracts
we now have in place for the next winter, we can look forward to little if any
change in our heating costs on a same store basis which, with higher rental
rates in place, will allow us to return to high single digit quarterly FFO per
share growth rates.
That concludes our formal presentation. I'd now like to open up the phone lines
for questions.
SLIDE 24: This slide contains the logo of Home Properties as well as the
following statements: Second Quarter 2001, Earnings Conference Call and Webcast,
August 3, 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!
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: August 3, 2001 HOME PROPERTIES OF NEW YORK, INC.
(Registrant)
By: /s/ David P. Gardner
-----------------------------------
David P. Gardner, Senior Vice President