Home Properties Earnings Call Nuggets: Timing of Selling Assets and Blizzards
Home Properties, Inc. (NYSE:HME) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Timing of Selling Assets
Gaurav Mehta – Cantor Fitzgerald: First question that I have is on the transaction market in your prepared remarks you mentioned that you are expecting to sell assets earlier in the year and acquire later in the year. Can you provide us certain details on that and what’s driving the timing?
David P. Gardner – EVP and CFO: Well, I think we generally don’t like providing any specific details on specific assets being sold until there’s absolute certainty or we’re closing. It doesn’t do us any good to publically have discussions there. The timing is I think more of an acknowledgement of a process that we started later last year where we have had closings that occurred in the fourth quarter and some properties that we certainly expect to close in the very near future, properties that have already being identified and heavily marketed for sale, so the anticipation is that process will continue in a heavier fashion early. Typically, the historic thing if you look back at our acquisition activity, it’s tended to occur mid-year to the fall period. So I think – as our guidance is supposed – we’re trying to imitate a balance over the year, as expected, but certainly based on what’s in the pipeline today, on both sides we expect just a lot more early activity on sales versus acquisitions.
Gaurav Mehta – Cantor Fitzgerald: A follow-up question on the CapEx side; it looks like you adjusted your 2012 CapEx and it’s partly driven by inflation. Can you talk about your inflation expectations for 2013?
Edward J. Pettinella – President and CEO: For our modeling purposes for 2013, we’re assuming CPI moves approximately 2%. You’re right, I think the only adjustment on our CapEx has been inflation related.
David P. Gardner – EVP and CFO: I think most of our expense line changes are much more driven by timing comparisons and expectations for weather known issues relative to tax increases and so for so many of the line items – you throw CPI out the door, but on CapEx, that’s a more routine expenditure that inflationary increase is warranted there.
Gaurav Mehta – Cantor Fitzgerald: So, the inflation expectation that you have, it’s pretty much in line with what you have been seeing in last couple of years right somewhat out of ordinary?
David P. Gardner – EVP and CFO: No.
Richard Anderson – BMO Capital Markets: So, it looks like we might have $0.05 of snow today up there, are you going to be okay not beating your number $0.05 in the first quarter?
David P. Gardner – EVP and CFO: Well, we had a good January, so that’s helping us out. It’s only blossom. It’s only a little part of our portfolio, so seriously it’s the hardest thing to predict, if it’s going to be cold, if it’s going to be warm, if it’s going to have storms or nor not. We’re looking out the window now…
Richard Anderson – BMO Capital Markets: Plus some blizzard here.
David P. Gardner – EVP and CFO: Pretty much a blizzard. So, you’re just never know. Certainly when you are talking about 20 inches, now you are talking about loaders. You’re not talking about just pushing it. You are talking about actually lifting it up and taking it out. So, it is the most difficult thing we run into when we’re projecting our results and we had some good luck last year.
Richard Anderson – BMO Capital Markets: I couldn’t let you off the hook again on that issue. Definition of FFO and operating FFO but you add back I think you add back early termination of debt costs, is that right?
David P. Gardner – EVP and CFO: Yes, historically we’ve always distinguished debt extinguishment costs incurred strictly from a sale transaction we have viewed that differently then let’s say I just decide hey I have a mortgage and it’s a high rate and I really don’t like it I know I think I can pay it off early incur some expenses and then I can get a much more competitive rate today and I think that makes economic sense to do that. If we did that and incurred that expense like anybody else you would expect to see that prepayment penalty and normal interest expense. As part of your FFO calculation. When the expense is triggered because the debt is paid off strictly because it’s a secured debt, you are selling the property you don’t have a choice. It’s not a decision you’re making because the rate is too high and you want to replace it, it’s totally triggered from a sale event. We have always grouped that in number one it obviously ends up in disc ops. But we’ve also grouped it in as basically an adjustment to a gain on sale, and therefore we’ve excluded it in our defined FFO.
Richard Anderson – BMO Capital Markets: Last question for me is on the rent to income data that you provide I’m curious, the decline from ’07 to 2012 do you know what the average number of people per unit was in 2007 versus what it is today at the year-end 2012 and how that might have impacted that ratio?
David P. Gardner – EVP and CFO: We certainly don’t have specific detailed information on that. We do – we would accept the notion that back in the periods where the income levels were lower than it’s probably more a reflection of – it’s a combination of reflection of some normal appreciation in the range base, but also a recognition that back then maybe a single person felt more confident in renting a unit versus people doubling up or having more bodies that are out on lease and therefore the income is a little higher. It’s more anecdotal. We don’t measure that specifically, so we can’t really answer the detailed answer of that. I think at the end of day we like the fact that hey, whoever is signing the lease, there’s more income there to service the rent and we think that one way or another puts us in a better position, in a really expanding economy, if maybe the opposite starts happening and people split up and that ratio goes down a little bit. But we think right now, with kind of a rocky recovery, we’re still in a very good position.
Richard Anderson – BMO Capital Markets: Do you know what the average person per unit is today? One and a half people or…
David P. Gardner – EVP and CFO: No, I don’t.