BRE Properties Reports Third Quarter 2012 Results

BRE Properties Reports Third Quarter 2012 Results

Common and Preferred Dividends Declared

SAN FRANCISCO--(BUSINESS WIRE)-- BRE Properties, Inc. (NYS: BRE) today reported operating results for the quarter ended September 30, 2012. All per share results are reported on a fully diluted basis.


Third Quarter Operational and Financial Highlights

  • Quarterly funds from operations (FFO) totaled $32.5 million, or $0.42 per share. FFO for the third quarter includes a $15.0 million non-routine, non-cash impairment charge taken in conjunction with the decision to sell land in Anaheim, CA that the company previously intended to develop. Quarterly net income available to common shareholders totaled $12.9 million, or $0.17 per share.

  • Excluding the non-routine charge, FFO totaled $47.5 million, or $0.62 per share.

  • Year-over-year third-quarter same-store revenues and net operating income (NOI) increased 5.3% and 6.6%, respectively. On a sequential basis from the second quarter to the third quarter of 2012, same-store revenues and NOI both increased by 2.0%.

  • Physical occupancy averaged 95.5%; annualized turnover within the same-store portfolio was 71% for the quarter. Average revenue per occupied home for the quarter was $1,626.

  • Sold interests in three unconsolidated joint ventures for gross proceeds of $26.9 million and a gain on sales of $6.0 million.

  • Issued $300 million of 10.5 year senior unsecured notes with a coupon of 3.375%.

  • The company did not issue any stock under its at-the-market (ATM) equity program.

  • Fourth quarter FFO guidance announced in a range of $0.57 to $0.60 per share.

Third Quarter 2012

To reduce the overall size of the company's development pipeline, it has decided to take the following actions: (1) seek a joint venture partner for the development of two land parcels it owns in Pleasanton, CA; and (2) sell the two land parcels that compose its Park Viridian II site in Anaheim, CA which resulted in the previously noted impairment charge. The carrying value of the Anaheim parcels was reduced from $38.1 million to $23.1 million and is recorded in Other Assets as of September 30, 2012.

While there can be no assurances that the company will complete the contemplated actions, the active and wholly-owned development pipeline will have a total estimated cost of $871 million of which approximately $445 million remains to be funded through the first quarter of 2015. The active and wholly-owned pipeline consists of the company's Lawrence Station, Aviara, Solstice, Wilshire La Brea, Mission Bay and Redwood City projects.

To date, the company has funded $34 million, or 20%, of the $171 million total estimated development cost on the Pleasanton sites.

The company intends to fund the balance of the active and wholly-owned pipeline with proceeds from the future disposition of certain older, slower growth communities in its existing portfolio as well as from funds available under its $750 million unsecured revolving credit facility which had no outstanding balance as of the date of this release.

Funds from operations, the generally accepted measure of operating performance for real estate investment trusts, totaled $32.5 million, or $0.42 per share, for the third quarter of 2012, as compared with $41.5 million, or $0.55 per share, for the quarter ended September 30, 2011. Net income available to common shareholders for the third quarter totaled $12.9 million, or $0.17 per share, as compared with $17.1 million, or $0.23 per share, for the same period 2011 (a reconciliation of net income available to common shareholders to FFO is provided at the end of this release). The third quarter 2012 net income per share included gains on sales of unconsolidated partnership interests of $6.0 million, or $0.08 per share.

BRE's year-over-year earnings and FFO results reflect the impact of the following during 2012: (1) increases in same-store community-level operating results over 2011 levels; (2) incremental NOI from acquired and newly completed communities; and (3) a reduction in interest expense and preferred stock dividends due to lower leverage levels, offset by (4) a higher level of outstanding shares from equity issued in 2011 and 2012.

Same-Store Community Results

BRE defines same-store communities as stabilized apartment communities owned by the company for two comparable twelve month periods. Of the 21,240 apartment homes owned directly by BRE, same-store homes totaled 19,878 for the quarter.

On a year-over-year basis, overall same-store revenues and NOI increased 5.3% and 6.6%, respectively, for the third quarter. The revenue increase was driven by a 5.5% increase in revenue earned per occupied home during the quarter and a 20-basis-point decrease in year-over-year financial occupancy levels. Annualized turnover during the third quarter was 71%, as compared with 70% during the third quarter of 2011. Same-store expenses increased 2.4% over third quarter 2011 levels.

On a sequential basis, same-store revenue and NOI increased 2.0%, and expenses increased 1.9% over second quarter 2012 levels. The sequential quarter increase in revenues was driven by a 1.7% increase in revenue earned per occupied home during the third quarter and by a 30 basis-point increase in financial occupancy.

Investment Activity

As of September 30, 2012, the first 175 homes had been delivered on the company's Lawrence Station development in Sunnyvale, CA. At quarter end, the community had 87 occupied homes and had leased a total of 112 homes. Leasing velocity has averaged 37 homes per month since opening in late June.

During the quarter, BRE exercised its option contract to purchase a land site in Redwood City, CA for $11.4 million.

In September 2012, Calvera Point and Pinnacle at the Creek, two communities located in Denver, Colo., owned in unconsolidated joint ventures, were sold to third parties. Also in September, Pinnacle Galleria, a community located in Sacramento, CA also owned in an unconsolidated joint venture, was sold to a third party. BRE's share of the proceeds from the property sales totaled $26.9 million and resulted in a gain of $6.0 million (inclusive of a promote of $2.3 million). The gain and promote are excluded from FFO per share results.

Capital Markets Activity

On August 13, 2012, BRE issued $300 million of 10.5 year senior unsecured notes with a coupon of 3.375%. Proceeds derived from the offering were used to repay outstanding borrowings under the company's $750 million unsecured revolving credit facility. The company's revolving credit facility remains undrawn as of the date of this release. Excluding the revolving credit facility renewal in 2015, the company does not have any meaningful debt maturities until 2017.

Common and Preferred Dividends Declared

On October 30, 2012, BRE's Board of Directors approved regular common and preferred stock dividends for the quarter ending December 31, 2012. All common and preferred dividends will be payable on Monday, December 31, 2012 to shareholders of record on Friday, December 14, 2012. The quarterly common dividend payment of $0.385 is equivalent to $1.54 per share on an annualized basis and represents a yield of approximately 3.3% on Friday, October 26's closing price of $47.19 per share. BRE has paid uninterrupted quarterly dividends to shareholders since the company's founding in 1970.

The company's 6.75% Series D quarterly preferred dividend is $0.421875 per share.

Earnings Guidance Update

The company updated annual FFO guidance to a range of $2.16 to $2.19 per share, from a previously guided range of $2.32 to $2.38 per share. Excluding the impact of the third quarter non-routine, non-cash impairment charge, the updated annual range equates to $2.35 to $2.38 per share.

The company has established an FFO guidance range of $0.57 to $0.60 per share for the fourth quarter of 2012. The difference between the company's third quarter 2012 FFO of $0.62 per share and the midpoint of the fourth quarter guidance range of $0.585 per share is due to: (1) loss of income allocations and management fees from unconsolidated communities sold during the third quarter; (2) loss of NOI from properties expected to be sold during the fourth quarter; (3) an expected increase in general and administrative expenses; (4) lower levels of capitalized interest; and (5) higher interest expense associated with the issuance of the $300 million senior unsecured notes and subsequent repayment of amounts outstanding under the revolving credit facility.

For the fourth quarter of 2012, the company expects EPS in the range of $0.23 to $0.26. The company expects EPS for the full year 2012 to be in the range of $1.01 to $1.04. Fourth quarter and annual EPS ranges exclude the impact of gains or losses on any future community sales.

Q3 2012 Analyst Conference Call

The company will hold a conference call on Wednesday, October 31, 2012 at 11:00 a.m. Eastern (8:00 a.m. Pacific) to review these results. The dial-in number to participate in the United States and Canada is 800.316.8317; the international number is 719.325.2388. Enter Conf. ID# 2647496. A telephone replay of the call will be available for 14 days at 877.870.5176 or 858.384.5517 international, using the same ID# 2647496. A link to the live webcast of the call will be posted on www.breproperties.com, in the Investors section. A webcast replay will be available for 90 days following the call.

Q4 2012 Earnings Dates

The company will report fourth quarter and annual 2012 earnings in February 2013. Annual 2013 earnings guidance will be provided in conjunction with year-end results.

About BRE Properties

BRE Properties, based in San Francisco, California, focuses on the development, acquisition and management of apartment communities located primarily in the major metropolitan markets of Southern and Northern California and Seattle. BRE directly owns 75 multifamily communities (totaling 21,240 homes) and has joint venture interests in an additional 8 apartment communities (totaling 2,864 homes). BRE Properties is a real estate investment trust (REIT) listed in the S&P MidCap 400 Index. For more information on BRE Properties, please visit our website at www.breproperties.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, this news release contains forward-looking statements regarding the company's capital resources, portfolio performance and results of operations, and is based on the company's current expectations and judgment. You should not rely on these statements as predictions of future events because there is no assurance that the events or circumstances reflected in the statements can be achieved or will occur. Forward-looking statements are identified by words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates," or "anticipates" or their negative form or other variations, or by discussions of strategy, plans or intentions. The following factors, among others, could affect actual results and future events: defaults or nonrenewal of leases, increased interest rates and operating costs, failure to obtain necessary outside financing, difficulties in identifying properties to acquire and in effecting acquisitions, failure to successfully integrate acquired properties and operations, inability to dispose of assets that no longer meet our investment criteria under applicable terms and conditions, risks and uncertainties affecting community development and construction (including construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities), failure to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and increases in real property tax rates. The company's success also depends on general economic trends, including interest rates, tax laws, governmental regulation, legislation, population changes and other factors, including those risk factors discussed in the section entitled "Risk Factors" in the company's most recent Annual Report on Form 10-K as they may be updated from time to time by the company's subsequent filings with the Securities and Exchange Commission, or SEC. Do not rely solely on forward-looking statements, which only reflect management's analysis. The company assumes no obligation to update this information. For more details, refer to the company's SEC filings, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

BRE Properties, Inc.

Consolidated Balance Sheets

Third Quarter 2012

(Unaudited, dollar amounts in thousands except per share data)

September 30,

December 31,

ASSETS

2012

2011

Real estate portfolio:

Direct investments in real estate:

Investments in rental communities

$

3,688,763

$

3,607,045

Construction in progress

299,573

246,347

Less: accumulated depreciation

(800,788

)

(729,151

)

3,187,548

3,124,241

Equity in real estate joint ventures:

Investments

41,008

63,313

Land under development

109,694

101,023

Total real estate portfolio

3,338,250

3,288,577

Cash

30,046

9,600

Other assets

76,607

54,444

TOTAL ASSETS

$

3,444,903

$

3,352,621

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Unsecured senior notes

$

990,018

$

724,957

Unsecured line of credit

-

129,000

Mortgage loans payable

742,233

808,714

Accounts payable and accrued expenses

67,063

63,273

Total liabilities

1,799,314

1,725,944

Redeemable and other noncontrolling interests

8,107

16,228

Shareholders' equity:

Preferred Stock, $0.01 par value; 20,000,000 shares authorized: 2,159,715 shares with $25 liquidation preference issued and outstanding at September 30, 2012 and December 31, 2011, respectively.

22

22

Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 76,831,467 and 75,556,167 at September 30, 2012 and December 31, 2011, respectively.

768

756

Additional paid-in capital

1,636,692

1,609,671

Total shareholders' equity

1,637,482

1,610,449

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY

$

3,444,903

$

3,352,621

BRE Properties, Inc.

Consolidated Statements of Income

Quarters and Nine Months Ended September 30, 2012 and 2011

(Unaudited, dollar and share amounts in thousands)

Quarter ended

Quarter ended

Nine months ended

Nine months ended

REVENUES

9/30/12

9/30/11

9/30/12

9/30/11

Rental income

$

96,431

91,036

$

283,632

264,267

Ancillary income

3,919

3,532

11,460

10,155

Total revenues

100,350

94,568

295,092

274,422

EXPENSES

Real estate

$

31,690

30,773

$

93,415

$

88,595

Provision for depreciation

25,097

25,413

74,922

76,724

Interest

16,998

18,374

50,488

56,861

General and administrative

5,093

5,678

17,151

16,071

Other expenses (1)

15,000

149

15,000

402

Total expenses

93,878

80,387

250,976

238,653

Other income

740

677

1,966

1,878

Net income before noncontrolling interests, partnership income and discontinued operations

7,212

14,858

46,082

37,647

Income from unconsolidated entities

669

791

2,125

2,162

Net gain on sale of unconsolidated entities

6,025

2,248

6,025

2,248

Income from continuing operations

13,906

17,897

54,232

42,057

Discontinued operations:

Discontinued operations, net (2)

-

799

231

2,347

Net gain on sales of discontinued operations

-

-

8,279

-

Income from discontinued operations

-

799

8,510

2,347

NET INCOME

$

13,906

$

18,696

$

62,742

44,404

Redeemable and other noncontrolling interest in income

105

332

315

1,003

Redemption related preferred stock issuance cost

-

155

-

3,771

Dividends attributable to preferred stock

911

1,138

2,733

6,744

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$

12,890

$

17,071

$

59,694

$

32,886

Net income per common share - basic

$

0.17

$

0.23

$

0.78

$

0.47

Net income per common share - diluted

$

0.17

$

0.23

$

0.78

$

0.47

Weighted average shares outstanding - basic

76,813

74,965

76,471

69,950

Weighted average shares outstanding - diluted

77,130

75,390

76,840

70,400

(1)

For the quarter and nine months ended September 30, 2012, Other expenses included an impairment charge related to a land parcel in Land under development that was transferred to Other assets. For the quarter and nine months ended September 30, 2011, Other expenses included $149,000 and $402,000, respectively, related to acquisition costs.

(2)

Includes one community sold during 2012 and two communities sold during 2011.

Quarter ended

Quarter ended

Nine months ended

Nine months ended