Property Operations Continue to Exceed Expectations With Same-Community NOI
Up 7 Percent
CLEVELAND, Feb. 8 /PRNewswire-FirstCall/ -- Associated Estates Realty
Corporation (NYSE: AEC) today reported net income available to common
shareholders of $12.1 million, or $0.71 per share, for the fourth quarter
ended December 31, 2006, compared with net income available to common
shareholders of $23.2 million, or $1.28 per share, for the fourth quarter
ended December 31, 2005. Fourth quarter 2006 results include gains from
property sales of approximately $0.94 per share and defeasance and
prepayment costs of approximately $0.05 per share. Fourth quarter 2005
results included gains from property sales of $1.49 per share.
Funds from Operations (FFO) for the fourth quarter of 2006 were $0.25
per share and included $948,000, or approximately $0.05 per share, in
defeasance and prepayment costs. Excluding defeasance and prepayment costs,
FFO for the fourth quarter of 2006 would have been $0.30 per share compared
with last year's fourth quarter FFO of $0.26 per share, or a 15.4 percent
increase per share.
Total revenue for the fourth quarter of 2006 was $36.4 million compared
with $35.4 million for the fourth quarter of 2005, an increase of 2.8
percent.
Same-Community (Market-Rate) Portfolio Results
Fourth quarter revenue from the Company's same-community portfolio was
up 5.9 percent, and total property operating expenses for the
same-community portfolio increased 4.7 percent, resulting in a 7.0 percent
increase in net operating income (NOI), compared with the fourth quarter
last year. Physical occupancy was 94.4 percent at the end of the fourth
quarter of 2006, a 1.4 percent occupancy increase over the same period of
2005.
For the fourth quarter, the average net collected rent per unit for the
same-community portfolio increased 6.1 percent to $768 per month. Net
collected rent per unit for the Company's same-community Midwest portfolio
grew 5.9 percent, while net collected rent per unit for the Company's same-
community Mid-Atlantic/Southeast markets grew 6.4 percent.
"We are pleased with the strong growth in revenue and net operating
income for our same-community portfolio," said John T. Shannon, senior vice
president of operations. "We expect the momentum from our same-community
portfolio performance to continue to drive results in 2007," he continued.
Additional quarterly financial information, including performance by
region for the Company's portfolio, is included in the Company's
supplemental fact booklet, which is available on the "Investor Relations"
section of the Company's web site at http://www.aecrealty.com, or by clicking on
the following link: http://ir.aecrealty.com/results.cfm.
Full Year Performance
For the twelve months ended December 31, 2006, net income available to
common shareholders was $22.0 million, or $1.29 per share, compared with
net income available to common shareholders of $28.9 million, or $1.51 per
share for the comparable period in 2005. The results for these twelve-month
periods include gains from property sales of $3.18 per share in 2006 and
$2.53 per share in 2005. Additionally, the results for 2006 include
defeasance and prepayment costs of approximately $0.91 per share.
FFO for the year ended December 31, 2006 was $0.06 per share and
includes $15.5 million in defeasance and prepayment costs, or approximately
$0.91 per share. During this period, the Company repaid $201.8 million in
debt, of which $69.6 million was funded by property sales and $132.2
million was funded by mortgage loans. Excluding defeasance and prepayment
costs associated with paying down debt, FFO for the year 2006 would have
been $0.97 per share. FFO for the year 2005 was $0.91 per common share,
excluding non-cash redemption costs of approximately $0.12 per share
associated with the redemption of the Company's Class A Preferred Shares in
January 2005.
Corporate Activities
In 2006, the Company sold eight properties for a total of $92.5
million. Net sales proceeds were primarily used to pay down debt,
repurchase our common shares and fund capital improvement programs.
The Company expects to sell between $50 and $75 million of properties
during 2007, while acquiring $50 million of properties.
Stock Repurchase
For 2006, the Company repurchased 985,000 common shares at a cost of
$10.2 million, or an average price of $10.34 per share. No shares were
repurchased during the fourth quarter.
To date, the Company has repurchased a total of 2.8 million common
shares at a cost of $27.6 million, or an average price of $9.83 per share,
with $22.4 million remaining for both common and Class B Series II
Preferred shares under the current buyback program.
2007 Outlook
The Company said its current FFO expectations for the year 2007 are in
the range of $1.08 to $1.12 per share, excluding defeasance and other
prepayment costs. Assumptions relating to the Company's earnings guidance
can be found on page 24 of the fourth quarter 2006 supplemental fact
booklet posted on the Company's website at http://www.aecrealty.com.
Conference Call
A conference call to discuss the results will be held today, Thursday,
February 8, at 2:00 p.m. Eastern. To participate in the call:
Via Telephone: The dial in number is 800-896-8445, and the passcode is
"Estates."
Via the Internet (listen only): Access the Company's Investor Relations
page at http://ir.aecrealty.com/. Please log on at least 15 minutes prior
to the scheduled start time in order to register, download and install any
necessary audio software. Select the "Webcast" link at the top of the page
and follow the brief instructions to register for the event. The webcast
will be archived through February 22, 2007.
Company Profile
Associated Estates Realty Corporation is a real estate investment trust
("REIT"), headquartered in Richmond Heights, Ohio, a suburb of Cleveland.
The Company directly or indirectly owns, manages or is a joint venture
partner in 100 multifamily properties containing a total of 20,758 units
located in nine states. For more information about the Company, please
visit its website at: http://www.aecrealty.com.
FFO is a non-Generally Accepted Accounting Principle (GAAP) measure.
The Company generally considers FFO to be a useful measure for reviewing
the comparative operating and financial performance of the Company because
FFO can help one compare the operating performance of a company's real
estate between periods or as compared to different REITs. A reconciliation
of net (loss) income applicable to common shares to FFO is included in the
table at the end of this press release and in the Company's supplemental
financial information to be furnished with this earnings release to the
Securities and Exchange Commission on Form 8K.
Safe Harbor Statement
This news release contains forward-looking statements based on current
judgments and knowledge of management, which are subject to certain risks,
trends and uncertainties that could cause actual results to vary from those
projected, including but not limited to, expectations regarding the
Company's 2007 performance, which are based on certain assumptions.
Accordingly, readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of this news
release. These forward-looking statements are intended to be covered by the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words "expects," "projects," "believes," "plans," "anticipates,"
and similar expressions are intended to identify forward-looking
statements. Investors are cautioned that the Company's forward-looking
statements involve risks and uncertainty, that could cause actual results
to differ from estimates or projections contained in these forward-looking
statements, including without limitation the following: changes in the
economic climate in the markets in which the Company owns and manages
properties, including interest rates, the ability of the Company to
consummate the sales of properties pursuant to its current plan, the
overall level of economic activity, the availability of consumer credit and
mortgage financing, unemployment rates and other factors; risks of a
lessening of demand for the multifamily units owned or managed by the
Company; competition from other available multifamily units and changes in
market rental rates; increases in property and liability insurance costs;
changes in real estate taxes and other operating expenses (e.g., cleaning,
utilities, repair and maintenance costs, insurance and administrative
costs, security, landscaping, staffing and other general costs); weather
and other conditions that might adversely affect operating expenses;
expenditures that cannot be anticipated such as utility rate and usage
increases, unanticipated repairs, and real estate tax valuation
reassessments or millage rate increases; inability of the Company to
control operating expenses or achieve increases in revenue; the results of
litigation filed or to be filed against the Company; changes in tax
legislation; risks of personal injury claims and property damage related to
mold claims because of diminished insurance coverage; catastrophic property
damage losses that are not covered by the Company's insurance; risks
associated with property acquisitions such as environmental liabilities,
among others; changes in government regulations affecting properties the
rents of which are subsidized and certain aspects of which are regulated by
the United States Department of Housing and Urban Development ("HUD") and
other properties owned by the Company; inability to renew current contracts
with HUD for rent-subsidized properties at existing rents; changes in or
termination of contracts relating to third party management and advisory
business; risks related to the Company's joint ventures; and risks related
to the perception of residents and prospective residents as to the
attractiveness, convenience and safety of the Company's properties or the
neighborhoods in which they are located.
ASSOCIATED ESTATES REALTY CORPORATION
Financial Highlights
(in thousands, except per share data)
For the For the
Three Months Twelve Months
Ended Ended
December 31, December 31,
2006 2005 2006 2005
Total revenue $36,433 $35,397 $145,761 $136,411
Net income 13,353 24,501 27,021 36,206
Net income applicable
to common shares(1) 12,092 23,239 21,975 28,913
Add: Depreciation --
real estate assets 7,819 7,923 31,205 32,355
Depreciation --
real estate assets --
joint ventures 241 239 962 959
Amortization of
joint venture
deferred costs 9 9 34 34
Amortization of
intangible assets 28 453 847 1,492
Less: Gain on
disposition
of properties (15,972) (27,099) (54,093) (48,536)
Funds from
operations (FFO) (2) 4,217 4,764 930 15,217
Funds from operations (FFO)
excluding defeasance costs,
other prepayment costs
and/or preferred share
redemption costs (3) 5,165 4,764 16,453 17,380
Add: Depreciation --
other assets 318 386 1,337 1,617
Depreciation --
other assets --
joint ventures 41 43 181 177
Amortization of deferred
financing fees 243 270 1,035 1,156
Amortization of deferred
financing fees --
joint ventures 12 12 48 47
Less: Fixed asset additions (1,746) (2,512) (7,008) (8,152)
Fixed asset
additions --
joint ventures (21) (74) (140) (148)
Funds available
for distribution
(FAD) (4) 4,012 2,889 11,906 12,077
Per share:
Net income applicable
to common shares --
basic and diluted (1) $0.71 $1.28 $1.29 $1.51
Funds from operations
-- basic and diluted (2) 0.25 0.26 0.06 0.79
-- adjusted for defeasance
costs, other
prepayment costs
and/or preferred
share redemption
costs (3) 0.30 0.26 0.97 0.91
Dividends per share 0.17 0.17 0.68 0.68
Weighted average shares
outstanding
-- basic and diluted 17,043 18,214 17,023 19,162
(1) After dividends and original costs associated with the preferred share
redemption, of $1,261, $1,262, $5,046 and $7,293, equivalent to $0.07,
$0.07, $0.30, and $0.38 per common share, respectively.
(2) The Company defines funds from operations (FFO) as the inclusion of
all operating results, both recurring and non-recurring, except those
results defined as "extraordinary items" under generally accepted
accounting principles (GAAP), adjusted for depreciation on real estate
assets and amortization of intangible assets and gains and losses from
the disposition of properties and land. Adjustments for joint ventures
are calculated to reflect FFO on the same basis. FFO does not
represent cash generated from operating activities in accordance with
GAAP and is not necessarily indicative of cash available to fund cash
needs and should not be considered an alternative to net income as an
indicator of the Company's operating performance or as an alternative
to cash flow as a measure of liquidity. The Company generally
considers FFO to be a useful measure for reviewing the comparative
operating and financial performance of the Company because FFO can
help one compare the operating performance of a company's real estate
between periods or as compared to different REITs. It should be noted,
however, that certain other real estate companies may define FFO in a
different manner.
(3) The Company defines FFO excluding defeasance costs, other prepayment
costs and/or preferred redemption costs as FFO, as defined above, plus
the add back of defeasance and other prepayment costs of $948,000 and
$15,523,000 for the quarter and twelve months ended December 31, 2006,
respectively, and the $2,163,000 original issuance costs associated
with the redemption of preferred shares during the first quarter of
2005. In accordance with GAAP, these prepayment costs are included as
interest expense in the Company's Consolidated Statement of
Operations. These costs are the costs associated with the defeasance
(prepayment) of two and 15 loans, respectively. Additionally,
included are the write-off of costs associated with the prepayment of
three other loans. Also, in accordance with GAAP, the Company
reclassified the original issuance costs associated with the
redemption of the Series A Preferred Shares in January 2005. The
Company is providing this calculation as an alternative FFO
calculation as it considers it a more appropriate measure of comparing
the operating performance of a company's real estate between periods
or as compared to different REITs.
(4) The Company defines FAD as FFO plus depreciation other and
amortization of deferred financing fees less recurring fixed asset
additions. Fixed asset additions exclude development, investment,
revenue enhancing and non-recurring capital additions. Adjustments for
joint ventures are calculated to reflect FAD on the same basis. The
Company considers FAD to be an appropriate supplemental measure of the
performance of an equity REIT because, like FFO, it captures real
estate performance by excluding gains or losses from the disposition
of properties and land and depreciation on real estate assets and
amortization of intangible assets. Unlike FFO, FAD also reflects that
recurring capital expenditures are necessary to maintain the
associated real estate.
The full text and supplemental schedules of this press release are
available on AEC's website at http://www.aecrealty.com. To receive a copy of the
results by mail or fax, please contact Investor Relations at
1-800-440-2372, ext. 8752. For more information, access the Investor
Relations "News" section of http://www.aecrealty.com
For more information regarding the content
of this news release, please contact:
Kimberly Kanary
216-797-8752
SOURCE Associated Estates Realty Corporation
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