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Growth & Income

Home Properties, Inc. (HME - Snapshot Report) delivered stellar second quarter 2012 results with a 29.1% year-over-year increase in FFO (fund from operations). The apartment REIT (real estate investment trust) also offers an impressive dividend yield of 4.2%. Earnings for this Zacks #2 Rank (Buy) are presently expected to grow 13.6% in 2012 and 6.6% in 2013.

Strong Second Quarter

Home Properties reported strong second quarter results on August 2, with a 15.4% year-over-year growth in total revenues to $162.4 million. Same-store net operating income increased 8.0% year over year. This was the highest second quarter increase recorded in the past six years, driven by same-store total revenue growth of 4.8% and a 0.3% decrease in operating expenses.

Second quarter 2012 FFO of 96 cents per share compared favorably with the year-ago FFO of 87 cents and was in line with the Zacks Consensus Estimate. Average physical occupancy for same-store properties remained solid at 96.2%, while average monthly rental rates surged 4.5% year over year to $1,218.

Outlook Raised

Based on better-than-expected second quarter results, management raised its FFO guidance for 2012 to between $3.96 and $4.04 per share from the earlier range of $3.87 – $3.99. For the third quarter of 2012, FFO is expected at $1.03 to $1.07 per share.

Analysts have revised their earnings estimates upward for both 2012 and 2013, driving the stock to attain a Zacks #2 Rank (Buy). Over the past 30 days, the Zacks Consensus Estimate for 2012 increased 1.0% to $4.02, which is at the higher end of the company’s guidance at an implied year-over-year growth of 13.6%. For 2013, the Zacks Consensus Estimate has increased by 4 cents or 0.9% to $4.29, representing growth of 6.6%.

Dividend Payout

Home Properties paid a dividend of 66 cents per share in the second quarter of 2012, marking a 6.5% increase over the year-ago quarter. The company has historically paid an uninterrupted dividend since 1995, even during the recession. The current dividend payment affirms a yield of 4.2%.

Reasonable Valuation

Home Properties’ valuation metrics are at a discount on a price-to-earnings (P/E) and price-to-sales (P/S) basis. Shares of Home Properties are currently trading at a forward P/E of 15.73x versus the peer group average of 18.87x. On a P/S basis, Home Properties is currently trading at 4.96x versus 7.62x for the peer group average. Its PEG ratio is 1.94 based on a 5-year FFO growth rate of 8.1%.

Since April 16, 2012, Home Properties shares have fared better than the simple moving average for 200 days or SMA (200). The year-to-date return for the stock is fairly decent at 13.9% compared to an S&P 500 tally of 10.7%.

With a favorable supply/demand relationship, rising earnings estimates, robust growth projections, and a healthy dividend yield, Home Properties offers an enticing upside potential going forward. In addition, a continued focus on stable markets in major metropolitan areas bode well for its long-term growth.

Based in Rochester, New York, Home Properties owns and operates apartment communities primarily along the East Coast of the U.S. The company provides quality housing alternatives at affordable prices to a broad range of middle-income residents. Presently, its portfolio includes 127 apartment communities containing 44,232 apartment units. The company currently has a market cap of $3.1 billion.

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