Overview: Pershing Square's new positions and disposals in 1Q14 (Part 4 of 7)
Bill Ackman’s Pershing Square took new stakes in Platform Specialty Products (PAH), Apartment Investment & Management Company (AIV), Allergan Inc. (AGN), and Home Properties Inc. (HME). Positions sold include General Growth Properties (GGP) and Procter & Gamble Co (PG).
Pershing Square disclosed a new position in Home Properties Inc. (HME) that accounts for 0.34% of Pershing Square’s $8.3 billion 1Q14 portfolio.
Home Properties is a self-administered and self-managed real estate investment trust (REIT) that owns, operates, acquires, develops, and rehabilitates apartment communities. The company’s properties are regionally focused, primarily in selected Northeast and Mid-Atlantic regions of the United States. Home Properties has a strategy of acquiring and repositioning mature “C” to “B-” apartment communities. Since its 1994 initial public offering (or IPO), the company has acquired and redeveloped 221 communities, containing nearly 62,000 units. The rehabilitation and revitalization process targets a minimum 10% cash-on-cash return (or COCR) on repositioning investments. It is expected that capital expenditures on repositioning investments in 2014 will be in line with 2013 levels as residents continue to have a preference for an upgraded apartment at a higher monthly rent in a recovering economic environment.
The company conducts its business through Home Properties L.P. and on December 31, 2013, held 84.8% of the limited partnership units in the umbrella partnership real estate investment trust (or UPREIT) general partnership. As of March 31, 2014, the company owned and operated 119 apartment communities with 41,532 apartments.
The company’s strategy is to grow primarily through acquisitions. It believes that it will have the opportunity to make acquisitions during 2014 and has projected $150 million to $250 million in purchases for the year. The company believes that the issuance of UPREIT units for property acquisitions will continue to be a potential source of capital for the company.
Home Properties missed on earnings and revenue estimates for 1Q14 results. For the quarter ending on March 31, 2014, funds from operations (FFO) were $67.6 million, or $1 per share, compared to $66.0 million, or $1.05 per share, for the same quarter in 2013, which equates to a 5.4% decrease on a per-share basis. FFO was below expectations as a result of costs related to severe winter weather. Net operating income (NOI) decreased by 0.8% from the first quarter of 2013.
The company posted revenue of $168.06 million, up 3.9% on a year-over-year (or YoY). Earnings per share (or EPS) for the quarter ended March 31, 2014 and was $0.79, compared to $0.99 for the same quarter in 2013. In its release, Home Properties stated that the $0.20 decrease in EPS is primarily attributable to a $9.1 million decrease in the gain on disposition of property.
For the first quarter of 2014, compared to expiring leases, new lease rents for the core properties declined by 0.2% while renewals increased 2.9%. Average physical occupancy for the core properties was 95% during the first quarter of 2014, down from 95.5% during the first quarter of 2013. Average monthly rental rates of $1,311 represented a 2.8% increase compared to the same period the previous year.
The management noted that “Rents on new leases, compared to expiring leases, increased steadily month-over-month into May, a positive sign of the typical upturn we expected during the Spring leasing season.” The company decreased the midpoint of its prior guidance by $0.04 per share to $4.48 and the range of FFO per share to $4.42 to $4.54. The guidance range of both FFO and operating FFO (or OFFO) per share results for the second quarter of 2014 is $1.09 to $1.13.
Home Properties announced a cash dividend of $0.73 per share for the quarter, and represents a 4.8% yield based on the April 28 closing price of $61.34. Peers include Equity Residential (EQR) and Essex Property Trust (ESS).
Browse this series on Market Realist:
- Part 1 - Must-know: Bill Ackman’s Pershing Square 1Q14 positions
- Part 2 - Why Pershing initiates position in Platform Specialty Products
- Part 3 - Why Pershing opened new position in AIMCO
- Financials Industry
- Company Earnings
- Home Properties
- General Growth Properties