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CLEVELAND, July 27, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- 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 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 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 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 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 www.aecrealty.com
SOURCE Associated Estates Realty Corporation
Barbara Hasenstab of Associated Estates Realty Corporation, +1-216-797-8798
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