Second Quarter Positively Impacted by Successful Execution of Strategic
Objectives
CLEVELAND, July 26 /PRNewswire-FirstCall/ -- Associated Estates Realty
Corporation (NYSE: AEC) today reported net income applicable to common
shares of $8.8 million or $0.51 per common share (basic and diluted), for
the second quarter ended June 30, 2007, compared with net income applicable
to common shares of $26.7 million or $1.58 per common share (basic and
diluted), for the second quarter ended June 30, 2006. The second quarter
2007 results include gains from property sales of $0.73 per share compared
to $2.06 per share for the same period in 2006.
Funds from operations (FFO) for the quarter were $0.24 per common share
(basic and diluted), compared with $0.01 per common share (basic and
diluted) for the second quarter ended June 30, 2006. The results for the
second quarter of 2007 include $1.6 million in defeasance costs and/or
prepayment costs associated with the repayment of $32.0 million in debt and
$172,000 of costs associated with the repurchase of 111,500 depository
shares of the Company's Class B Preferred Shares. Excluding these costs,
FFO for the second quarter of 2007 would have been $0.34 per common share
(basic and diluted) versus $0.22 per common share for last year's second
quarter. Included in the Company's second quarter results was the
contribution of $1.6 million or approximately $0.09 per common share
related to the settlement of a lawsuit. Excluding the above costs and
settlement proceeds, core FFO growth increased 13.6 percent, based on
improved same community results and lower interest costs.
Commenting on the Company's quarterly results, John Shannon, senior
vice president of operations, said, "Our performance is ahead of what we
expected over the last several quarters. We're full, we're pushing rents
and we're burning off concessions and making good headway in terms of
successfully executing our long-term strategic plan to shed non-core assets
and move into higher growth markets."
A reconciliation of net 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.
Total revenue for the quarter was $38.5 million compared with $34.9
million for the second quarter of 2006, an increase of 10.3 percent.
Same Community (Market-Rate) Portfolio Results
Revenues for the quarter from the Company's same community portfolio
were up 4.4 percent, and total property operating expenses for the same
community portfolio increased 4.0 percent, resulting in a 4.7 percent
increase in net operating income (NOI), compared with the second quarter of
2006. Physical occupancy was 96.3 percent at the end of the second quarter
of 2007 compared with 95.7 percent at the end of the second quarter of
2006. For the second quarter, the average net collected rent per unit for
the same community properties increased 4.3 percent to $807 per month,
compared with the second quarter of 2006. Net collected rent per unit for
the Company's same community Midwest portfolio grew 4.2 percent, while net
collected rent per unit for the Company's same community properties in the
Mid-Atlantic/Southeast markets grew 4.3 percent.
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.
First Half Performance
For the six months ended June 30, 2007, net income applicable to common
shares was $8.0 million or $0.47 per share compared to net income
applicable to common shares of $17.8 million or $1.04 per share for the
period ended June 30, 2006. The results for the six month period ended June
30, 2007 include gains from property sales of $0.99 per share compared to
$2.03 per share for the six months ended June 30, 2006.
Funds from operations for the first six months ended June 30, 2007 were
$0.37 per share and include defeasance and/or prepayment costs of $4.2
million, or approximately $0.25 per share associated with the repayment of
$62.9 million in debt and $172,000, or approximately $0.01 per share of
costs associated with the repurchase of 111,500 depository shares of the
Company's Class B Preferred Shares. Excluding these costs, FFO for the
first half of 2007 would have been $0.63 per share. Included in the
Company's first half results was the contribution of $1.6 million or
approximately $0.09 per common share related to the settlement of a
lawsuit.
Revenues for the six month period ended June 30, 2007 for the Company's
same community portfolio were up 4.8 percent and total property operating
expenses for the same community portfolio increased 2.0 percent, resulting
in a 7.2 percent increase in NOI compared with the first six months of
2006.
Increased Acquisition/Disposition Activities
During the quarter, the Company completed the sale of a 949-unit
high-rise property in Euclid, Ohio, a suburb of Cleveland. The $34.6
million sale price reflects a blended cap rate of 4.5 percent based on
trailing 12 month NOI and after a 3.0 percent management fee and $500 per
unit of capex. Year to date dispositions total $39.8 million. Also during
the quarter, the Company acquired a 268-unit Class AA property in Norfolk,
Virginia and acquired its joint venture partner's 51.0 percent interest in
an 843-unit, Class A property in the greater Atlanta market. The Norfolk
acquisition represents the Company's initial move into the Virginia
marketplace and the Georgia acquisition bolsters the Company's presence in
the robust Atlanta marketplace. Year to date acquisitions total $91.3
million.
Stock Repurchases
During the quarter the Company completed the repurchase of 111,500
depository shares of the Company's 8.7% Class B Series II Preferred Shares
for $2.9 million, leaving $19.5 million available under the previously
board authorized $50.0 million stock repurchase program.
2007 Outlook
As a result of the increased acquisition activity completed during the
second quarter and the expected acceleration of second half 2007
dispositions, the Company now expects to acquire $90.0 million to $150.0
million of properties in 2007 and to dispose of $100.0 million to $150.0
million of properties. Previously the Company had reported that it expected
to acquire $50.0 million of properties in 2007 and dispose of $50.0 to
$75.0 million of properties. At the same time, the Company is adjusting its
2007 full year FFO guidance from a range of $1.08 to $1.12 per share to a
range of $1.19 to $1.23 per share to reflect the $0.09 per share of
additional rental revenue related to the settlement that occurred during
the second quarter and a $0.02 per share increase in the Company's full
year core operating expectations.
Conference Call
A conference call to discuss the results will be held today, Thursday,
July 26, at 2:00 p.m. (EDT). To participate in the call:
Via Telephone: The dial in number is 800-896-8445, and the pass code is
"Estates."
Via the Internet (listen only): Access the Investor Relations page on
the Company's website at http://www.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 "Live Webcast" link at
the top of the page and follow the brief instructions to register for the
event. The webcast will be archived through August 9, 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 99 multifamily properties containing a total of 19,969 units
located in ten 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 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 sale 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; the ability of
the Company to refinance debt on favorable terms at maturity; the ability
of the Company to defease or prepay debt pursuant to its current plan;
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; unanticipated increases 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 conditions that 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; 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; and the Company's ability to
acquire properties at prices consistent with our investment criteria.
For more information regarding the content of this news release, please
contact:
Michael Lawson
(216) 797-8798
ASSOCIATED ESTATES REALTY CORPORATION
Financial Highlights
(in thousands, except per share data)
For the Three Months For the Six Months
Ended Ended
June 30, June 30,
2007 2006 2007 2006
Total revenue $38,452 $34,946 $73,929 $68,938
Net income 10,229 27,962 10,679 20,339
Net income applicable to
common shares(1) 8,796 26,701 7,984 17,816
Add: Depreciation - real
estate assets 7,472 7,728 14,921 15,614
Depreciation - real
estate assets -
joint ventures 240 240 481 480
Amortization of joint
venture deferred costs 8 9 17 17
Amortization of
intangible assets 30 216 39 656
Less: Gain on disposition of
properties (12,482) (34,723) (17,043) (34,723)
Funds from Operations (FFO) (2) 4,064 171 6,399 (140)
Funds from Operations (FFO)
adjusted for defeasance
costs, other prepayment costs
and/or preferred share
repurchase costs(3) 5,797 3,695 10,795 6,944
Add: Depreciation - other
assets 299 330 603 692
Depreciation - other
assets - joint
ventures 36 45 82 89
Amortization of deferred
financing fees 276 256 511 538
Amortization of deferred
financing fees - joint
ventures 12 12 24 24
Less: Fixed asset
additions (2,692) (2,046) (3,671) (3,318)
Fixed asset additions
- joint ventures (5) (32) (24) (54)
Funds available for
distribution (FAD) (4) $3,723 $2,260 $8,320 $4,915
Per share:
Net income applicable
to common shares -
basic and diluted (1) $0.51 $1.58 $0.47 $1.04
Funds from operations -
basic and diluted (2) $0.24 $0.01 $0.37 ($0.01)
- adjusted for defeasance
costs, other prepayment
costs and/or preferred
share repurchase costs(3) $0.34 $0.22 $0.63 $0.41
Dividends per share $0.17 $0.17 $0.34 $0.34
Weighted average shares
outstanding - basic
and diluted 17,153 16,872 17,131 17,076
(1) After dividends and original costs associated with the preferred
share repurchase, of $1,433, $1,261, $2,695 and $2,523, equivalent
to $0.08, $0.07, $0.16, and $0.15 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 repurchase costs as FFO, as defined above,
plus the add back of defeasance costs and other prepayment costs of
$1,561,000 and $4,224,000 for the quarter and six months ended June
30, 2007, respectively and $3,524,000 and $7,084,000 for the quarter
and six months ended June 30, 2006, respectively. Also, added back
is $172,000 of preferred stock repurchase costs for both the quarter
and six months ended June 30, 2007. In accordance with GAAP, these
prepayment costs are included as interest expense in the Company's
Consolidated Statement of Operations. Also, in accordance with
GAAP, the Company reclassified the original issuance costs
associated with the repurchase of 111,500 depository shares of the
Series B Preferred Shares for the three and six months ended June 30,
2007. 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. For more information, access the Investor Relations "News"
section of http://www.aecrealty.com.
SOURCE Associated Estates Realty Corporation
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Related links:
http://www.aecrealty.com
CONTACT:
Michael Lawson, Associated Estates Realty
Corporation, +1-216-797-8798
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