Brand Name Recognition This method of repositioning properties has enabled the company to create a brand identification among residents. “I think we have a strong brand and as our presence increases in each of the markets, our brand becomes more and more valuable to us,” says Nelson Leenhouts. And brand name recognition is very important, especially during an economic downturn when people are living in apartments longer.
For the first time since the company went public in 1994, it missed its numbers in the last quarter of 2000. “We are a very predictable mainstream American apartment business,” says Nelson Leenhouts. “We had 22 quarters where we made our numbers.”
The spike in gas prices caught the company off guard, because at 70 percent of Home Properties’ communities, gas is included in the rent, says Nelson Leenhouts. To ensure that the company doesn’t get caught unprepared again, it’s working with a consulting company to purchase gas on a long-term, fixed-rate basis. This way, the company will have predictable gas costs.
And while missing the company’s numbers might seem like a failure, Nelson Leenhouts can turn a problem into an opportunity, says Falk. “With the increase in utility expenses that we’ve been faced with, obviously the Street was nervous about how things would go for us – how bad of a hit it would be on our bottom line. With a very short-term perspective, one might overreact to that concern,” she says.
However, while the company felt the blow for including gas in the cost of rent, it believes that, long-term, the problem will net itself out. “The perceived value of the gas [to the residents] may be greater than what it is costing us,” says Falk, so including gas in the rent still makes sense to the company.
That’s why the company decided against submetering and ratio-allocated utility billing system options, explains Nelson Leenhouts. “We think our residents are very intelligent, and that if we were simply to add on a gas surcharge, like a hotel does, they would say ‘gee, that doesn’t make sense.’ We chose to raise the rents instead and we had tremendous success,” he says.
But while the cost of gas was a setback for many multifamily companies, Nelson Leenhouts is not going to let that stop him from growing. The company grew from 3,000 units in 1994 to more than 50,000 units in 2000. Now, the company is the 10th largest apartment management company in the country.
The company has grown in units managed by an average of 46 percent on a compounded basis for the last six years, including last year, when it only grew by 13 percent. More importantly, FFO has grown 10 percent on a compound annual basis since 1994, while paying out a dividend in excess of 7 percent of its stock price. The stock price has grown from $19 per share to $29.80 per share as of July 10.
This year, the company will reach its goal of 10 percent FFO growth “by strengthening our acquisitions department, utilizing the wonderful local talent that we have in each market, working closely with our regional offices and just working harder,” says Nelson Leenhouts.