BRE Properties Reports First Quarter 2013 Results
BRE Properties Reports First Quarter 2013 Results
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 $0.58 per share for the quarter ended March 31, 2013. The per share results reflect an increase of 1.8% over the comparable period in 2012. 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.
A reconciliation of FFO and Core FFO can be found in Exhibit B of the Company's Supplemental Operating and Financial Data. During the quarters ended March 31, 2013 and 2012 there were no reconciling differences between FFO and Core FFO.
First Quarter 2013 Highlights
First quarter same-store revenues and net operating income (NOI) increased 4.9% and 5.3%, respectively, compared to the first quarter 2012. During the quarter, physical occupancy averaged 95.2%; annualized turnover was 54%; and average revenue per occupied home was $1,666.
BRE completed the sale of six joint venture interests (four in Denver and two in Phoenix) to its joint venture partner for a total sales price of $47.4 million and a gain on sale of $15.0 million.
The Company delivered the first 54 homes at Aviara, a 166-home community located on Mercer Island in Seattle, Washington. Also during the quarter, the Company commenced construction of MB360, a 360-home luxury apartment community located in San Francisco, California.
Second quarter 2013 FFO per share guidance announced in a range of $0.56 - $0.60.
"We are pleased with the progress we have achieved in executing our strategic initiatives so far in 2013," commented Constance B. Moore, Chief Executive Officer of BRE Properties. "During the first quarter, we completed the disposition of $47 million of interests in non-core communities; delivered the first homes at our Mercer Island development as planned; and commenced construction of our Mission Bay community in San Francisco. As we move forward, we remain focused on our key initiatives: maximizing the operating performance of our portfolio, and successfully executing on our development and strategic disposition programs. We believe this strategy preserves our balance sheet strength while improving our portfolio quality, which should position BRE to generate strong sustainable returns in the coming years."
First Quarter 2013
Funds from operations, the generally accepted measure of operating performance for real estate investment trusts, totaled $45.1 million, or $0.58 per share, for the first quarter 2013, compared with $43.6 million, or $0.57 per share, for the first quarter 2012. Core FFO was also $0.58 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 first quarter 2013 totaled $34.0 million, or $0.44 per share, compared with net income of $18.1 million, or $0.24 per share, for the same period 2012. The first quarter 2013 results included a gain on sale of joint venture interests totaling $15.0 million or, $0.19 per share.
BRE's first quarter year-over-year earnings and FFO results reflect the impact of the following during 2013: (1) increases in same-store property-level operating results over 2012 levels; and (2) incremental NOI from newly completed properties in the last 24 months; offset by (1) a reduction in NOI from operating properties sold in 2012; (2) a reduction of partnership and management fee income from joint venture interests sold in 2012 and 2013; and (3) a higher level of outstanding shares from equity issued in the first quarter of 2012.
Same-Store Results
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 20,824 for the first quarter.
On a year-over-year basis, first quarter same-store revenues increased 4.9% compared to first quarter 2012. The revenue increase was driven by a 5.0% increase in revenue earned per occupied unit during the period, coupled with a 10-basis-point decrease in year-over-year financial occupancy levels. Operating expenses increased 4.0%, resulting in a 5.3% increase in NOI. Operating expenses were driven by increases in property taxes in the Seattle market and an overall higher level of utility and insurance costs.
On a sequential basis, same-store revenue increased 0.1%, expenses increased 2.1% and NOI decreased 0.8% over fourth quarter 2012 levels. The sequential quarter increase in revenues was driven by a 0.4% increase in revenue earned per occupied unit during the fourth quarter, coupled with a 30-basis-point decrease in financial occupancy.
Company Initiatives
Dispositions. In February 2013, the Company completed the sale of its 15% interest in six joint venture communities to its venture partner in the communities; four in Denver and two in Phoenix for a combined gross sales price of $47.4 million. The combined gross sales price of the communities represents a 5.7% weighted average seller's capitalization rate based on the communities' 2012 NOI. The ventures contributed $3.8 million in FFO in 2012 through the combination of BRE's equity share in the NOI and management fees earned as a third party manager.
Development. In March 2013, the Company delivered first homes at Aviara, a 166-unit luxury apartment community located in Mercer Island, Washington. The community has a total estimated cost of $44.5 million and has $2.9 million left to fund. As of April 29, 2013, the community had 25 occupied homes and a total of 47 leased homes. Construction is expected to be completed in the second quarter of 2013.
In March, the Company commenced construction of MB360, a 360-home luxury apartment community located within the Mission Bay sub-market in San Francisco, California. MB360 is projected to be completed in the fourth quarter of 2014, at a total cost of $227 million, or $630,000 per home. At March 31, 2013, the Company had funded $77.4 million of the development costs.
As of March 31, 2013, the Company's active and wholly-owned development pipeline has a total estimated cost of approximately $770 million, of which approximately $349 million remains to be funded through the fourth quarter of 2014. The active and wholly-owned pipeline consists of the Company's Aviara, Solstice, Wilshire La Brea, Radius and MB360 projects.
The Company intends to fund the capital commitments related to its active and wholly-owned development projects primarily with proceeds from strategic asset sales of certain 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 end of the quarter. Management believes the disposition of 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.
During the first quarter, the company did not issue any stock under its at-the-market (ATM) equity program. The remaining capacity under the equity distribution agreements total $123.6 million.
Earnings Guidance
The Company reaffirms its outlook for Core FFO per diluted share and operating guidance for the full year 2013 previously included in its February 4, 2013 earnings release. The Company also intends to update its annual Core FFO per share and operating guidance ranges in conjunction with its second quarter 2013 earnings release. The Company has established an FFO guidance range of $0.56 to $0.60 per share for the second quarter of 2013. The mid-point of the second quarter guidance range compared to first quarter results reflects higher levels of same-store NOI, offset by lost income from the sale of six joint venture communities and the disposition of another community that is under contract to be sold during the second quarter.
Second quarter and annual FFO guidance does not include any non-routine income or expense items.
Common and Preferred Dividends Declared
On April 30, 2013, BRE's Board of Directors approved regular common and preferred stock dividends for the quarter ending June 30, 2013. All common and preferred dividends will be payable on Friday, June 28, 2013 to shareholders of record on Friday, June 14, 2013. The quarterly common dividend payment of $0.395 is equivalent to $1.58 per share on an annualized basis and represents a yield of approximately 3.2% on Monday's closing price of $50.05 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.
Q1 2013 Analyst Conference Call
The Company will hold an analyst conference call on Wednesday, May 1, 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 877.681.3377; the international number is 719.325.4934 Enter Conf. ID# 4226556. 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# 4226556. 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 homes) and has joint venture interests in an additional 2 apartment communities (totaling 684 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 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 | ||||
First Quarter 2013 | ||||
(Unaudited, in thousands, except per share, unit and per unit data) | ||||
March 31, | December 31, | |||
ASSETS | 2013 | 2012 | ||
Real estate portfolio: | ||||
Direct investments in real estate: | ||||
Investments in rental communities | $3,748,602 | $3,722,838 | ||
Construction in progress | 404,778 | 302,263 | ||
Less: accumulated depreciation | (836,827) | (811,187) | ||
3,316,553 | 3,213,914 | |||
Equity in real estate joint ventures: | ||||
Investments | 8,854 | 40,753 | ||
Real estate held for sale, net | 23,347 | 23,065 | ||
Land under development | 35,498 | 104,675 | ||
Total real estate portfolio | 3,384,252 | 3,382,407 | ||
Cash | 21,680 | 62,241 | ||
Other assets | 52,550 | 54,334 | ||
TOTAL ASSETS | $3,458,482 | $3,498,982 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Liabilities: | ||||
Unsecured senior notes | $950,000 | $990,018 | ||
Unsecured revolving credit facility | - | - | ||
Mortgage loans payable | 741,636 | 741,942 | ||
Accounts payable and accrued expenses | 72,737 | 75,789 | ||
Total liabilities | 1,764,373 | 1,807,749 | ||
Redeemable noncontrolling interests | 4,751 | 4,751 | ||
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 March 31, 2013 and December 31, 2012, respectively. | 22 | 22 | ||
Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 77,057,622 and 76,925,351 at March 31, 2013 and December 31, 2012, respectively. | 771 | 769 | ||
Additional paid-in capital | 1,688,565 | 1,685,691 | ||
Total shareholders' equity | 1,689,358 | 1,686,482 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $3,458,482 | $3,498,982 | ||
BRE Properties, Inc. | ||||
Consolidated Statements of Income | ||||
Quarter Ended March 31, 2013 and 2012 | ||||
(Unaudited, in thousands, except per share, unit and per unit data) | ||||
Quarter ended | Quarter ended | |||
REVENUES | 3/31/13 | 3/31/12 | ||
Rental income | $97,165 | $91,249 | ||
Ancillary income | 3,712 | 3,615 | ||
Total revenues | 100,877 | 94,864 | ||
EXPENSES | ||||
Real estate | $32,056 | $30,312 | ||
Provision for depreciation | 25,827 | 24,667 | ||
Interest | 17,332 | 17,218 | ||
General and administrative | 6,382 | 5,847 | ||
Total expenses | 81,597 | 78,044 | ||
Other income | 363 | 520 | ||
Net income before noncontrolling interests, partnership income and discontinued operations | 19,643 | 17,340 | ||
Income from unconsolidated entities | 318 | 727 | ||
Net gain on sale of unconsolidated entities (1) | 15,025 | - | ||
Income from continuing operations | 34,986 | 18,067 | ||
Discontinued operations: | ||||
Discontinued operations, net (2) | - | 1,057 | ||
Income from discontinued operations | - | 1,057 | ||
NET INCOME | $34,986 | $19,124 | ||
Redeemable noncontrolling interest in income | 48 | 105 | ||
Dividends attributable to preferred stock | 911 | 911 | ||
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS | $34,027 | $18,108 | ||
Net income per common share - basic | $0.44 | $0.24 | ||
Net income per common share - diluted | $0.44 | $0.24 | ||
Weighted average shares outstanding - basic | 76,990 | 76,000 | ||
Weighted average shares outstanding - diluted | 77,250 | 76,380 | ||
(1) During the three months ended March 31, 2013, six joint venture interests were sold for $47.4 million resulting in a net gain of $15.0 million. | ||||
(2) Includes three communities sold during 2012. | ||||
Quarter ended | Quarter ended | |||
3/31/13 | 3/31/12 | |||
Rental and ancillary income | $0 | $2,080 | ||
Real estate expenses | - | (658) | ||
Provision for depreciation | - | (365) | ||
Discontinued operations, net | $0 | $1,057 | ||
BRE Properties, Inc. | ||||
Non-GAAP Financial Measure Reconciliations and Definitions | ||||
(Dollar amounts in thousands) | ||||
This document includes certain non-GAAP financial measures that management believes are helpful in understanding our business, as further described below. BRE's definition and calculation of non-GAAP financial measures may differ from those of other REITs, and may, therefore, not be comparable. The non-GAAP financial measures should not be considered an alternative to net income or any other GAAP measurement of performance and should not be considered an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. | ||||
Funds from Operations (FFO) | ||||
FFO is used by industry analysts and investors as a supplemental performance measure of an equity REIT. FFO is defined by the National Association of Real Estate Investment Trusts as net income or loss (computed in accordance with accounting principles generally accepted in the United States) excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated real estate assets, plus depreciation and amortization of real estate assets and adjustments for unconsolidated partnerships and joint ventures. We calculate FFO in accordance with the NAREIT definition. | ||||
We believe that FFO is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation. Because real estate values have historically risen or fallen with market conditions, management considers FFO an appropriate supplemental performance measure because it excludes historical cost depreciation, as well as gains or losses related to sales of previously depreciated community, from GAAP net income. By excluding depreciation and gains or losses on sales of real estate, management uses FFO to measure returns on its investments in real estate assets. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our communities that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our communities, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. | ||||
Management also believes that FFO, combined with the required GAAP presentations, is useful to investors in providing more meaningful comparisons of the operating performance of a company's real estate between periods or as compared to other companies. FFO does not represent net income or cash flows from operations as defined by GAAP and is not intended to indicate whether cash flows will be sufficient to fund cash needs. It should not be considered an alternative to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. Our FFO may not be comparable to the FFO of other REITs due to the fact that not all REITs use the NAREIT definition. | ||||
Core Funds from Operation ("Core FFO") | ||||
Core funds from operations ("Core FFO") begins with FFO as defined by the NAREIT White Paper and is adjusted for: the impact of any expenses relating to non-operating asset impairment and valuation allowances; property acquisition costs and pursuit cost write-offs (other expenses); gains and losses from early debt extinguishment, including prepayment penalties and preferred share redemptions; executive level severance costs; gains and losses on the sales of non-operating assets, and other non-comparable items. | ||||
Quarter Ended | Quarter Ended | |||
Net income available to common shareholders | $34,027 | $18,108 | ||
Depreciation from continuing operations | 25,827 | 24,667 | ||
Depreciation from discontinued operations | - | 365 | ||
Depreciation from unconsolidated entities | 297 | 495 | ||
Net gain on sale of unconsolidated entities | (15,025) | - | ||
Funds from operations | $45,126 | $43,635 | ||
Core Funds from operations | $45,126 | $43,635 | ||
Diluted shares outstanding - EPS | 77,250 | 76,380 | ||
Net income per common share - diluted | $0.44 | $0.24 | ||
Diluted shares outstanding - FFO | 77,250 | 76,440 | ||
FFO per common share - diluted | $0.58 | $0.57 | ||
Diluted shares outstanding - Core FFO | 77,250 | 76,440 | ||
Core FFO per common share - diluted | $0.58 | $0.57 | ||
BRE Properties, Inc. | ||||
Non-GAAP Financial Measure Reconciliations and Definitions | ||||
(Dollar amounts in thousands) | ||||
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA | ||||
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined by BRE as EBITDA, excluding minority interests, gains or losses from sales of investments, preferred stock dividends and other expenses. We consider EBITDA and Adjusted EBITDA to be appropriate supplemental measures of our performance because they eliminate depreciation, interest, and, with respect to Adjusted EBITDA, gains (losses) from community dispositions and other charges, which permits investors to view income from operations without the impact of noncash depreciation or the cost of debt, or with respect to Adjusted EBITDA, other non-operating items described above. | ||||
Because EBITDA and Adjusted EBITDA exclude depreciation and amortization and capture neither the changes in the value of our communities that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our communities, all of which have real economic effect and could materially impact our results from operations, the utility of EBITDA and Adjusted EBITDA as measures of our performance is limited. Below is a reconciliation of net income available to common shareholders to EBITDA and Adjusted EBITDA: | ||||
Quarter Ended | Quarter Ended | |||
Net income available to common shareholders | $34,027 | $18,108 | ||
Interest, including discontinued operations | 17,332 | 17,218 | ||
Depreciation, including discontinued operations | 25,827 | 25,032 | ||
EBITDA | 77,186 | 60,358 | ||
Redeemable noncontrolling interest in income | 48 | 105 | ||
Dividends on preferred stock | 911 | 911 | ||
Net gain on sale of unconsolidated entities | (15,025) | - | ||
Adjusted EBITDA | $63,120 | $61,374 | ||
Net Operating Income (NOI) | ||||
We consider community level and portfolio-wide NOI to be an appropriate supplemental measure to net income because it helps both investors and management to understand the core community operations prior to the allocation of general and administrative costs. This is more reflective of the operating performance of the real estate, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impact to overhead from acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets. | ||||
Because NOI excludes depreciation and does not capture the change in the value of our communities resulting from operational use and market conditions, nor the level of capital expenditures required to adequately maintain the communities (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI consistently with our definition and, accordingly, our NOI may not be comparable to such other REITs' NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. NOI also should not be used as a supplement to or substitute for cash flow from operating activities (computed in accordance with GAAP). | ||||
Quarter Ended | Quarter Ended | |||
Net income available to common shareholders | $34,027 | $18,108 | ||
Interest, including discontinued operations | 17,332 | 17,218 | ||
Depreciation, including discontinued operations | 25,827 | 25,032 | ||
Redeemable noncontrolling interest in income | 48 | 105 | ||
Net gain on sale of unconsolidated entities | ||||
