Home Properties invests in, develops, renovates, and operates multifamily residential properties, primarily in growth markets in the Northeast and Mid-Atlantic. The self-administered real estate investment trust (REIT) owns and manages a portfolio of more than 120 apartment communities with around 42,000 individual units. It invests in communities for which it can provide a little TLC (such as improved landscaping, interior upgrades, and amenities such as swimming pools) to boost property values post-rehabilitation. The REIT also develops new properties, usually on raw land adjacent to existing properties in its portfolio.
Lone Star Funds
acquired the REIT in late 2015, taking it private.
Change in Company Type
In October 2015, Lone Star Funds agreed to acquire Home Properties. The deal took the company off the New York Stock Exchange, making it a privately-held company.
Home Properties divides its properties into two segments. Core properties, which made up 96% of total revenue in the form of rental income in 2014, includes apartment communities that it's owned for more than one calendar year. Non-Core Properties (4% of revenue) consist of rental income from Home Properties' apartment communities that it purchased, developed, or redeveloped during 2013 and 2014.
The REIT's properties are mostly located in around major urban centers on the East Coast. About half of its apartment units were located in Washington DC and Baltimore in 2014, while the others were in Philadelphia, Long Island, Northern New Jersey, Boston, Chicago, and Southeast Florida.
Sales and Marketing
The company spent $ on advertising in 2014, compared to $4,636 and $4,684 in 2013 and 2012, respectively. It's spent less of its advertising dollars on print media and more emphasis on internet advertising and referral programs in recent years.
Home Properties revenues and profits have been rising over the past few years, mostly thanks to added rental revenue from new property acquisitions, along with rental rate increases and strong gains in property valuations with the strengthened housing and rental markets.
The REIT's revenue inched higher by 1% to $671.9 million in 2014 from a combination of higher rental income from recently acquired properties and higher rental income from Core existing properties thanks to stable occupancy rates (which were 95.2% during 2014 and 2013) and a 2.7% hike in rental rates, which reached an average monthly rate of $1,329 per apartment unit.
Despite generating higher revenue in 2014, Home Properties' net income dipped by 1% to $189.5 million during the year due to a combination of higher depreciation and amortization expenses mostly from its properties acquired during 2013, a $5.3 million impairment charge on its discontinued property developments, and due to losses on its sold off properties. The REIT's operating cash levels rose by 2% to $301.8 million in 2014 mostly as the company spent less on interest expenses after paying off its maturing debt over the past year.
Home Properties focuses on high-growth markets which have high barriers to entry, in suburbs of major metropolitan areas near major highways, primarily targeting East Coast cities of Baltimore, Boston, Chicago, New York City, Philadelphia, and Washington, DC. The REIT occasionally sells properties that are no longer a strategic fit or are less efficient to operate.
In particular, the REIT targets acquisitions of mature C/B- apartment communities to reposition them to B/B+ properties to boost property valuations and rental rates. Its repositioning strategy targets a minimum 10% cash-on-cash return on investment, which the company expected to continue achieving in 2015 as its residents preferred upgraded apartments in exchange for higher monthly rental rates amidst the recovering economic environment. All told, since its IPO in 1994, Home Properties has acquired and redeveloped 224 communities spanning 63,000 units.
Mergers and Acquisitions
In February 2015, Home Properties bought Matawan, New Jersey-based Longbrook Apartments for $31 million cash; equating to a price of $128,600 per apartment unity. The 241-unit community was 87.1% occupied with monthly rents averaging $1,243.
In January 2015, the company purchased both The Mansions of Mountshire and The Mansions Apartments in the northwest suburbs of Chicago. The community, which had a 91.8% occupancy rate and sported monthly rents averaging $1,103 per unit, spanned 710 units and was renamed Park Grove Apartments.
In November 2014, the REIT acquired The Lakes of Schaumburg, a 428-unit apartment community located in Schaumburg, Illinois (an affluent submarket of Chicago. The complex was 95.7% occupied with monthly rents averaging $1,194 per unit.