Property Operations Continue to Exceed Expectations With Same-Community Net
Operating Income Up 7.6 Percent
CLEVELAND, Oct. 26 /PRNewswire-FirstCall/ -- Associated Estates Realty
Corporation (NYSE: AEC) today reported net loss available to common
shareholders of $7.9 million, or $0.47 per share, for the third quarter
ended September 30, 2006, compared with net income available to common
shareholders of $12.9 million, or $0.67 per share, for the third quarter
ended September 30, 2005. Third quarter 2006 results include gains from
property sales of approximately $0.20 per share and defeasance and
prepayment costs of $0.45 per share. Third quarter 2005 results include
gains from property sales of $0.90 per share.
Funds from Operations (FFO) for the third quarter of 2006 was a
negative $0.19 per share and includes $7.5 million, or approximately $0.45
per share, in defeasance and prepayment costs. Excluding defeasance and
prepayment costs, FFO for the third quarter of 2006 would have been $0.26
per share compared with last year's third quarter FFO of $0.22 per share,
or an 18.2 percent increase per share.
Total revenue for the third quarter of 2006 was $38.4 million compared
with $36.3 million for the third quarter of 2005, an increase of 5.8
percent.
Same-Community (Market-Rate) Portfolio Results
Third-quarter revenue from the Company's same-community portfolio was
up 6.0 percent, and total property operating expenses for the
same-community portfolio increased 4.1 percent, resulting in a 7.6 percent
increase in net operating income (NOI), compared with the third quarter
last year. Physical occupancy was 95.3 percent at the end of the third
quarter of 2006, a 1.2 percent occupancy increase over the third quarter of
2005.
For the third quarter, the average net collected rent per unit for the
same-community portfolio increased 6.1 percent to $761 per month. Net
collected rent per unit for the Company's same-community Midwest portfolio
grew 4.8 percent, while net collected rent per unit for the Company's same-
community Mid-Atlantic/Southeast markets grew 9.7 percent.
"NOI growth at our same-community portfolio continues to exceed our
expectations as we aggressively drive revenue and focus on containing
operating expenses," said John T. Shannon, senior vice president of
operations.
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.
Year to Date Performance
For the nine months ended September 30, 2006, net income available to
common shareholders was $9.9 million, or $0.58 per share, compared with net
income available to common shareholders of $5.7 million, or $0.29 per share
for the comparable period in 2005. The results for these nine-month periods
include gains from property sales of $2.24 per share in 2006 and $1.10 per
share in 2005. Additionally, the results for 2006 include defeasance and
prepayment costs of $0.85 per share.
FFO for the nine months ended September 30, 2006 was a negative $0.19
per share and includes $14.6 million in defeasance and prepayment costs, or
approximately $0.85 per share. During this period, the Company repaid
$193.5 million in debt, of which $71.3 million was funded by property sales
and $122.2 million was funded by 6.1 percent mortgage loans. Excluding
defeasance and prepayment costs associated with paying down debt, FFO for
the first nine months of 2006 would have been $0.66 per share. FFO for the
first nine months of 2005 was $0.54 per common share and included non-cash
redemption costs of approximately $0.11 per share associated with the
redemption of the Company's Class A Preferred Shares in January 2005.
Excluding these costs, FFO for the first nine months of 2005 would have
been $0.65 per share.
Corporate Activities
In 2006, the Company expects property sales to total between $75 and
$100 million. During the third quarter, the Company sold one of its two
congregate care communities and one of its affordable communities,
recognizing gains of $3.4 million. The Company expects to use sales
proceeds primarily to pay down debt and fund capital improvement programs.
Stock Repurchase
The Company has expanded its $50.0 million common share buyback program
to include the ability to repurchase its Class B Series II Preferred
Shares. Through September 30, 2006, the Company has repurchased 2.8 million
common shares under the buyback plan at a cost of $27.6 million, for an
average price of $9.83 per share.
Outlook
The Company expects total year results to be at the low end of the
range previously provided of $0.98 to $1.02, before the impact of
defeasance and prepayment costs. This performance would generate
year-over-year FFO per share growth of 7.7 percent.
Assumptions relating to the Company's earnings guidance can be found on
page 24 of the third 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,
October 26, 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 November 9, 2006.
Company Profile
Based in Richmond Heights, Ohio, Associated Estates Realty Corporation
is one of the largest multifamily real estate investment trusts (REITs) in
the nation. The Company directly or indirectly owns, manages or is a joint
venture partner in 103 multifamily properties containing a total of 21,348
units located in 10 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 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 Nine Months Ended
September 30, September 30,
2006 2005 2006 . 2005
Total revenue $38,367 $36,303 $113,637 $105,197
Net (loss) income (6,671) 14,210 13,668 11,705
Net (loss) income applicable
to common shares(1) (7,933) 12,949 9,883 5,674
Add: Depreciation - real
estate assets 7,772 8,118 23,386 24,433
Depreciation - real
estate assets -
joint ventures 242 240 720 719
Amortization of joint
venture deferred costs 8 8 26 25
Amortization of
intangible assets 163 366 819 1,039
Less: Gain on disposition
of properties (3,397) (17,406) (38,120) (21,437)
Funds from operations
(FFO) (2) (3,145) 4,275 (3,286) 10,453
Funds from operations (FFO)
adjusted for defeasance
costs, other prepayment
costs and/or preferred
share redemption costs (3) 4,346 4,275 11,288 12,616
Add: Depreciation - other
assets 328 399 1,020 1,231
Depreciation - other
assets - joint ventures 51 39 141 134
Amortization of
deferred financing
fees 255 261 792 885
Amortization of
deferred financing
fees - joint ventures 12 13 36 35
Less: Fixed asset additions (1,944) (2,923) (5,262) (5,640)
Fixed asset additions
- joint ventures (65) (45) (119) (74)
Funds available for
distribution
(FAD) (4) 2,983 2,019 7,896 9,187
Per share:
Net (loss) income
applicable to common
shares - basic and
diluted (1) $(0.47) $0.67 $0.58 $0.29
Funds from operations
- basic and diluted (2) (0.19) 0.22 (0.19) 0.54
- adjusted for defeasance
costs, other prepayment
costs and/or preferred
share redemption
costs (3) 0.26 0.22 0.66 0.65
Dividends per share 0.17 0.17 0.51 0.51
Weighted average shares
outstanding - basic
and diluted 16,892 19,257 17,016 19,478
(1) After dividends and original costs associated with the preferred share
redemption, of $1,262, $1,261, $3,785 and $6,031, equivalent to $0.07,
$0.07, $0.22, and $0.31 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 $7,491,000
and $14,574,000 for the quarter and nine months ended September 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, 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 five and 13 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
SOURCE Associated Estates Realty Corporation
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Related links:
http://www.aecrealty.com
http://ir.aecrealty.com/results.cfm
CONTACT:
Kimberly Kanary of Associated Estates Realty
Corporation, +1-216-797-8752
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