Property Operations Continue to Exceed Expectations with Same-Communities
Net Operating Income Up 3.4 Percent; Company Moves Portfolio Realignment
Strategy Forward with Two Asset Sales
CLEVELAND, July 27 /PRNewswire-FirstCall/ -- Associated Estates Realty
Corporation (NYSE: AEC) today reported net income available to common
shareholders of $26.7 million, or $1.58 per share, for the second quarter
ended June 30, 2006, compared with a net loss available to common
shareholders of $432,000, or $0.02 per share, for the second quarter ended
June 30, 2005. The second quarter results include gains from property sales
of approximately $2.06 per share in 2006 and $0.21 per share in 2005.
Funds from Operations (FFO) for the second quarter of 2006 were $0.01
per share and include $3.5 million in defeasance costs, or approximately
$0.21 per share, associated with the prepayment of $36.0 million in debt.
Excluding these costs, FFO for the second quarter of 2006 would have been
flat compared with last year's second quarter FFO of $0.22 per share.
"Our second quarter FFO per share, excluding defeasance costs, was in
line with our expectations," said Lou Fatica, vice president, chief
financial officer and treasurer.
Total revenues for the second quarter of 2006 were $38.5 million,
compared with $35.9 million for the second quarter of 2005, an increase of
7.2 percent.
Same-Communities (Market-Rate) Portfolio Results
Revenues for the second quarter from the Company's same-communities
(market-rate) portfolio were up 5.3 percent and total property operating
expenses for the same-communities (market-rate) portfolio increased 7.5
percent, resulting in a 3.4 percent increase in net operating income (NOI),
compared with the second quarter last year. Physical occupancy was 95.2
percent at the end of the second quarter of 2006 compared with 95.0 percent
at the end of the second quarter of 2005.
For the second quarter, the average net collected rent per unit for the
same-communities (market-rate) properties increased 5.4 percent to $748 per
month, compared with the second quarter of 2005. Net collected rent per
unit for the Company's same-communities (market-rate) Midwest portfolio
grew 3.8 percent, while net collected rent per unit for the Company's
same-communities (market-rate) properties in the Mid-Atlantic/Southeast
markets grew 9.5 percent.
"Revenue growth in our same-communities (market-rate) portfolio
continued to exceed our expectations," said John T. Shannon, senior vice
president of operations. Shannon noted that the revenue growth was
primarily driven by increased rental rates, reduced concessions and
slightly higher occupancy.
"We expect the momentum from our same-communities (market-rate)
portfolio performance to continue to drive our results in the second half
of the year," he added.
Additional quarterly financial information, including performance by
region for the Company's same-communities (market-rate) 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, 2006, net income available to common
shareholders was $17.8 million, or $1.04 per share, compared with a net
loss available to common shareholders of $7.3 million, or $0.37 per share
for the comparable period of 2005. The results for these periods include
gains from property sales of $2.03 per share and $0.21 per share,
respectively.
Funds from Operations (FFO) for the six months ended June 30, 2006 were
$(0.01) per share and include $7.1 million in defeasance costs, or
approximately $0.42 per share, associated with the prepayment of $71.3
million in debt. Excluding these costs, FFO for the first half of 2006
would have been $0.41 per share. FFO for the first half of 2005 was $0.32
per share and includes non-cash redemption costs of approximately $2.2
million, or $0.11 per share, associated with the redemption of the
Company's Class A Shares in January 2005. Excluding these costs, FFO for
the first half of 2005 would have been $0.43 per share.
Corporate Activities
During the second quarter, the Company sold two Northeast Ohio
high-rise apartment communities, as previously announced, at a blended
after-capital cap rate of approximately 5.0%. Average occupancy at these
communities was 91.0%. The net sales proceeds of $41.3 million were used to
pay down debt.
The Company continues to expect to sell a total of $75 million in
assets during 2006. Sales proceeds are currently expected to be used
primarily to pay down debt and fund capital improvement programs in the
Company's same- communities (market-rate) portfolio.
Outlook
The Company expects the majority of its FFO contributions to be
delivered in the second half of the year as a result of the expected timing
of property sales, and the use of sales proceeds to pay down debt.
"We are reiterating our expected FFO per share guidance of $0.98 to
$1.02 per share for the year, excluding the effect of defeasance costs,"
said Fatica.
Assumptions relating to the Company's earnings guidance can be found on
page 24 of the second 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,
July 27, at 2:00 p.m. Eastern. To participate in the call:
Via Telephone: The dial in number is 800-362-0571, and the passcode 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 10, 2006.
Company Profile
Associated Estates Realty Corporation, one of the largest multifamily
property owners in the United States, 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 105 multifamily properties containing a total of 21,699 units
located in 10 states.
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 (loss) 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 2006 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 revenues; 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 Three Months Ended For the Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Total revenue $38,466 $35,875 $75,898 $69,549
Net income (loss) 27,962 830 20,339 (2,505)
Net income (loss)
applicable to common
shares (1) 26,701 (432) 17,816 (7,275)
Add: Depreciation -
real estate assets 7,728 8,188 15,614 16,314
Depreciation -
real estate assets -
joint ventures 240 239 480 480
Amortization of joint
venture deferred costs 9 9 17 17
Amortization of
intangible assets 216 429 656 673
Less: Gain on disposition
of properties (34,723) (4,032) (34,723) (4,032)
Funds from operations
(FFO) (2) 171 4,401 (140) 6,177
Funds from operations (FFO)
adjusted for defeasance
costs and/or preferred
share redemption costs (3) 3,695 4,401 6,944 8,340
Add: Depreciation - other
assets 329 406 692 832
Depreciation - other
assets - joint ventures 45 44 89 94
Amortization of deferred
financing fees 256 352 538 624
Amortization of deferred
financing fees - joint
ventures 12 16 24 23
Less: Fixed asset
additions (2,046) (1,756) (3,318) (2,717)
Fixed asset additions
- joint ventures (32) (16) (54) (29)
Funds available for
distribution
(FAD) (4) $ 2,259 $ 3,447 $ 4,915 $ 7,167
Per share:
Net income (loss)
applicable to common
shares - basic and
diluted(1) $1.58 $ (0.02) $1.04 $(0.37)
Funds from operations -
basic and diluted (2) $0.01 $0.22 $(0.01) $0.32
- adjusted for
defeasance costs
and/or preferred
share redemption
costs (3) $0.22 $0.22 $0.41 $0.43
Dividends per share $0.17 $0.17 $0.34 $0.34
Weighted average shares
outstanding- basic and
diluted 16,872 19,598 17,076 19,585
(1) After dividends and original costs associated with the preferred share
redemption, of $1,261, $1,262, $2,523 and $4,770, equivalent to $0.07,
$0.06, $0.15, and $0.24 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 and/or preferred
redemption costs as FFO, as defined above, plus the add back of
defeasance costs of $3,524,000 and $7,083,000 for the quarter and six
months ended June 30, 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, the
defeasance 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 four and eight loans,
respectively. 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.
Should you have any questions concerning this release, please contact:
Barbara E. Hasenstab, Vice President of Investor Relations and Corporate
Communications, 216-797-8798 or IR@aecrealty.com. The full text and
supplemental schedules of this press release are available on AEC's home
page 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. AEC's web
site is linked to Sharebuilder, an online service that allows investments
in shares of AEC common stock directly on a recurring basis. 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
http://ir.aecrealty.com/results.cfm/
CONTACT:
Barbara Hasenstab of Associated Estates
Realty Corporation, +1-216-797-8798
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