BRE Properties Reports Fourth Quarter and Full Year 2012 Results
2013 Core FFO Guidance Provided
Common and Preferred Dividends Declared
SAN FRANCISCO--(BUSINESS WIRE)-- BRE Properties, Inc. (NYS: BRE) , a leading owner, operator and developer of high-quality apartment communities in targeted growth markets in California and Seattle, today reported Core Funds From Operations (Core FFO) of $0.61 per share for the quarter ended December 31, 2012, and $2.39 per share for the year ended December 31, 2012. The per share results reflect an increase of 7.0% and 8.6% compared to the fourth quarter and full year periods in 2011, respectively. Core FFO is used to facilitate comparisons of the Company's earnings results and excludes certain non-core items that by their nature are not comparable when comparing periods or earnings performance between periods. All per share results are reported on a fully diluted basis.
Funds From Operations (FFO) on a per share basis were $0.61 per share for the fourth quarter ended December 31, 2012 and $2.19 per share for the year ended December 31, 2012. A reconciliation of FFO and Core FFO can be found in Exhibit C of the Company's Supplemental Financial Information package.
Fourth Quarter, 2012 Highlights and 2013 Outlook
Fourth quarter same-store revenues and net operating income (NOI) increased 5.6% and 6.2%, respectively, compared to the fourth quarter 2011. During the quarter, physical occupancy averaged 95.7%; annualized turnover was 55.5%; and average revenue per occupied home was $1,645.
For the full year 2012, same-store revenues and net operating income (NOI) increased 5.5% and 6.4% over 2011, respectively.
During the fourth quarter, BRE completed the sale of two San Diego apartment communities for a combined gross sales price of $77.0 million. For the full year 2012, the Company sold six communities, including three in which it owned joint venture interests, for aggregate net proceeds to the company of $115.1 million.
During the fourth quarter, the Company completed construction of Lawrence Station, a 336-home community located in Sunnyvale, California. The project was completed on time and on budget at a total cost of approximately $110.0 million. Also in the fourth quarter, the Company commenced construction of Radius, a 264-unit luxury apartment community located in Redwood City, California, with a projected total cost of $98 million.
2013 Core FFO guidance announced in a range of $2.35 to $2.45 per share. Same-store revenue and NOI are expected to increase within the ranges of 3.50% to 4.75% and 3.40% to 5.55%, respectively.
"We finished 2012 on a strong note, producing solid results for the year," commented Constance Moore, Chief Executive Officer of BRE Properties. "In addition, during the fourth quarter we completed $77 million of strategic dispositions; delivered our Lawrence Station development on time and on budget; and commenced construction of our Radius community in Redwood City, California. Our key initiatives as we enter 2013 remain unchanged: to build on our successful implementation of LRO last year and drive operating performance from our portfolio; and to successfully execute on our development program that is financed with proceeds from our capital recycling efforts through strategic dispositions. While our outlook reflects the impact of these expected dispositions, we believe this strategy preserves our balance sheet strength while improving our portfolio quality which will result in positioning BRE to generate sustainable sector-leading growth and achieve a premium valuation in the coming years."
Fourth Quarter 2012
Funds from operations, the generally accepted measure of operating performance for real estate investment trusts, totaled $46.9 million, or $0.61 per share, for the fourth quarter 2012, compared with $43.3 million, or $0.57 per share, for the fourth quarter 2011. Core FFO was also $0.61 per share for the quarter. (A reconciliation of net income available to common shareholders to FFO is provided at the end of this release.)
Net income available to common shareholders for the fourth quarter 2012 totaled $73.8 million, or $0.96 per share, compared with net income of $33.6 million, or $0.44 per share, for the same period 2011. The fourth quarter 2012 results included a gain on sale of real estate totaling $53.9 million or, $0.70 per share. The fourth quarter 2011 results included gains on sales of approximately $16.5 million, or $0.22 per share.
BRE's fourth quarter year-over-year earnings and FFO results reflect the impact of the following during 2012: (1) increases in same-store property-level operating results over 2011 levels; (2) incremental NOI from acquired and newly completed properties in the last 24 months; and (3) a reduction in interest expense due to lower leverage levels and higher levels of capitalized interest; which were offset by (1) a higher level of outstanding shares from equity issued in 2011 and the first quarter of 2012 and (2) a reduction in NOI from properties sold in 2011 and 2012.
12-Month Period Ended December 31, 2012
For the annual period, FFO totaled $168.9 million, or $2.19 per share, compared with $154.4 million, or $2.14 per share, for 2011. FFO for the annual period in 2012 includes a $15.0 million, or $0.195 per share, impairment charge for land held for sale recorded in the third quarter of 2012. FFO for the annual period in 2011 included: (1) acquisition-related expenses totaling $402,000, or $0.006 per share; and (2) a $3.8 million, or $0.05 per share, preferred stock redemption charge. Core FFO for 2012 was $2.39 per share compared to $2.20 per share in 2011.
Net income available to common shareholders for 2012 totaled $133.5 million, or $1.74 per diluted share, compared with $66.5 million, or $0.93 per diluted share, for the same period in 2011. Annual 2012 results included gains on sales of real estate of approximately $68.2 million, or $0.89 per share and the impairment charge cited above. Annual 2011 results included gains on sales of real estate of approximately $18.8 million, or $0.26 per share and the acquisition-related expenses and preferred stock redemption charge cited above.
BRE defines same-store communities as stabilized apartment communities owned by the Company for two comparable calendar year periods. Of the 21,160 apartment homes owned directly by BRE, same-store homes totaled 19,462 for the fourth quarter.
On a year-over-year basis, fourth quarter same-store revenues increased 5.6% compared to fourth quarter 2011. The revenue increase was driven by a 5.5% increase in revenue earned per occupied unit during the period, coupled with a 10-basis-point increase in year-over-year financial occupancy levels. Operating expenses increased 4.4%, resulting in a 6.2% increase in NOI.
On a sequential basis, same-store revenue increased 1.0%, NOI increased 2.1% and expenses decreased 1.2% over third quarter 2012 levels. The sequential quarter increase in revenues was driven by a 0.9% increase in revenue earned per occupied unit during the fourth quarter, coupled with a 10-basis-point increase in financial occupancy.
Dispositions. In December 2012, the Company completed the sale of two apartment communities in San Diego for a combined gross sales price of $77.0 million. The combined gross sales price of the communities represents a 6.2% weighted average seller's capitalization rate based on the communities' annualized NOI. The implied capitalization rate, after giving effect to the reassessed value upon sale under Proposition 13, is estimated at 5.6%. The sale of these two communities resulted in a total gain of approximately $53.9 million in the fourth quarter. Both communities were owned on an unencumbered basis.
For the full year 2012, BRE sold three wholly-owned communities, for total net proceeds of $88.2 million and sold three communities in which it maintained joint venture interests for total net proceeds of $26.9 million. The sale of these communities and interests resulted in an aggregate gain of approximately $68.2 million. Gains related to the sales of these communities are included in the Company's net income. FFO and Core FFO included no gains from the sale of these properties and interests.
Development. In December 2012, the Company completed development of Lawrence Station, a 336-unit luxury apartment community located in Sunnyvale, California. Lawrence Station is centrally located to many of Silicon Valley's largest employers including Apple, Yahoo, Intel, Google, and Cisco Systems; and enjoys easy access to light rail, Amtrak and San Jose International Airport. The community was built for a total cost of $110 million and was completed on time and on budget. As of December 31, 2012, the community had 158 occupied homes and a total of 183 leased homes.
In October, the Company commenced construction of Radius, a 264-unit luxury apartment community located in Redwood City, California. Radius is projected to be completed in the fourth quarter of 2014, at a total cost of $98 million, or $371,000 per unit. At December 31, 2012, the Company had funded $24 million of the development costs.
As previously communicated, the Company expects to reduce its outstanding development commitments through the completion of its active development projects, the disposition of its land site in Anaheim, California and the contribution of its two Pleasanton, California land parcels into a joint venture. The Anaheim land site is currently being marketed for sale and an update will be provided when a sale has been completed. The Company is completing construction documentation for the Pleasanton sites. It expects to commence the search for a joint venture partner in the first quarter of 2013.
The Company remains committed to creating long-term value through a targeted development program, focused on core in-fill submarkets, appropriately sized for the balance sheet. BRE continues to review potential development opportunities and expects to target a stabilized development program going forward within a range of 10% to 15% of its real estate portfolio base.
As of December 31, 2012, the Company's active and wholly-owned development pipeline has a total estimated cost of $770 million, of which approximately $395 million remains to be funded through the first quarter of 2015. The active and wholly-owned pipeline consists of the Company's Aviara, Solstice, Wilshire La Brea, Redwood City and Mission Bay projects.
The Company intends to fund the existing capital commitments related to its current development projects primarily with proceeds from strategic asset sales 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.
The Company also expects to continue to identify properties within its portfolio that no longer meet its investment criteria. Management believes the disposition of these slower-growth assets over time will contribute to a portfolio with greater concentrations in targeted markets and infill submarkets that can produce a sustainable, sector-leading growth rate. The Company expects to be prudent in the execution of its disposition plans, balancing strategic portfolio goals with capital needs, tax implications, and balance sheet metrics.
2013 Earnings Guidance
Earnings per share (EPS) for the full year 2013 are estimated to be within a range of $1.00 to $1.10.
Management estimates Core FFO per share for 2013 to range from $2.35 to $2.45. At the midpoint, Core FFO is $0.01 ahead of 2012 Core FFO, reflecting: (1) an expected increase in NOI from same-store operations; and (2) increased NOI from communities in lease-up in 2012; (3) offset by the loss of NOI from communities sold in 2012 and expected community sales in 2013.
For the first quarter of 2013, the Company estimates FFO per share to range from $0.54 to $0.58. The difference between the Company's fourth quarter 2012 FFO of $0.61 per share and the midpoint of the first quarter 2013 guidance range of $0.56 is primarily due to: (1) loss of NOI from San Diego communities sold in the fourth quarter; (2) a sequential increase in both general and administrative expenses and operating expenses in Q1 2013; and (3) the potential loss of NOI from community disposition activity.
The Company's 2013 financial outlook is based on a number of assumptions and estimates, which are outlined in Attachment B to this release. The primary assumptions and estimates include:
An increase in same-store revenue in a range of 3.50% to 4.75%;
An increase in same-store expenses in a range of 3.00% to 3.75%; and
An increase in same-store NOI in a range of 3.40% to 5.55%.
Projected Investment Activity
Development advances are estimated to range from $190 to $225 million; capitalized interest is estimated to range from $22.0 to $23.5 million.
Proceeds from property dispositions are expected to be the primary source of capital. The Company currently anticipates that proceeds from community / land sales proceeds will total $150 to $250 million in 2013. At this time, the Company does not expect to call for redemption its outstanding Series D preferred shares during 2013.
Core FFO guidance does not include any non-routine income or expense items (including gains or losses associated with the sale of land).
Common and Preferred Dividends Declared
On February 4, 2013, BRE's Board of Directors approved common and preferred stock dividends for the quarter ending March 31, 2013. All common and preferred dividends will be payable on Friday, March 29, 2013 to shareholders of record on Friday, March 15, 2013.
The board also approved a 2.6% increase for the 2013 common dividend to $0.395 per share quarterly. The quarterly dividend payment is equivalent to $1.58 per share on an annualized basis, and represents a yield of approximately 3.17% on Friday's closing price of $49.77 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.
Q4 2012 Analyst Conference Call
The Company will hold an analyst conference call on Tuesday, February 5, 2013 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 877.723.9511; the international number is 719.325.4815 Enter Conf. ID# 5089643. 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# 5089643. 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.
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 74 multifamily communities (totaling 21,160 units) and has joint venture interests in an additional 8 apartment communities (totaling 2,864 units). 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 property 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
Fourth Quarter 2012
(Unaudited, in thousands, except per share, unit and per unit data)
Real estate portfolio:
Direct investments in real estate:
Investments in rental communities
Construction in progress
Less: accumulated depreciation
Equity in real estate joint ventures:
Real estate held for sale, net
Land under development
Total real estate portfolio
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured senior notes
Unsecured line of credit
Mortgage loans payable
Accounts payable and accrued expenses
Redeemable and other noncontrolling interests
Preferred Stock, $0.01 par value; 20,000,000 shares authorized: 2,159,715 shares with $25 liquidation preference issued and outstanding at December 31, 2012 and December 31, 2011, respectively.
Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 76,925,351 and 75,556,167 at December 31, 2012 and December 31, 2011, respectively.
Additional paid-in capital
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
BRE Properties, Inc.
Consolidated Statements of Income
Quarters and Twelve Months Ended December 31, 2012 and 2011
(Unaudited, in thousands, except per share, unit and per unit data)
Twelve months ended
Twelve months ended
Provision for depreciation
General and administrative
Other expenses (1)
Net income before noncontrolling interests, partnership income and discontinued operations
Income from unconsolidated entities
Net gain on sale of unconsolidated entities
Income from continuing operations
Discontinued operations, net (2)
Net gain on sales of discontinued operations
Income from discontinued operations
Redeemable and other noncontrolling interest in income
Redemption related preferred stock issuance cost
Dividends attributable to preferred stock
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS