BRE Properties, Inc. (NYSE:BRE) today reported operating results for the quarter and year ended December 31, 2010. All per share results are reported on a fully diluted basis.

Operational and Financial Highlights
  • Annual funds from operations (FFO) totaled $98.9 million, or $1.58 per share. Per share results included a loss on retirement of debt totaling $23.5 million, or $0.38 per share. Fourth quarter FFO totaled $9.8 million, or $0.15 per share. Per share results included a loss on retirement of debt totaling $22.9 million, or $0.36 per share.
  • Annual net income available to common shareholders totaled $41.6 million, or $0.67 per share. Fourth quarter net income available to common shareholders totaled $149,000, or $0.00 per share.
  • Year-over-year annual same-store revenues and net operating income (NOI) decreased 2.0% and 3.7%, respectively. Physical occupancy averaged 95.6%; annual turnover in the same-store portfolio was 61%.
  • Year-over-year fourth quarter same-store revenues and NOI both increased 0.4%. Physical occupancy averaged 95.5%; annualized turnover in the same-store portfolio was 55%.
  • Sold one asset in the Inland Empire during the fourth quarter for a sales price of $30.0 million and a gain on sale of $15.2 million. Annual disposition activity totaled four communities (three in the Inland Empire and one in Seattle) for a combined sales price of $167.3 million. The dispositions produced gains on sale totaling $40.1 million.
  • Annual acquisition activity consisted of four stabilized properties with 1,037 units, for a total purchase price of $292 million, and one land parcel for future development of 280 units for $19 million.
  • Annual capital markets activity included: $301 million of equity issuance, $300 million of 5.20% unsecured senior notes due March 2021 and the repurchase of $336 million of convertible notes.
  • 2011 FFO guidance announced in a range of $2.06 to $2.18 per share. Same-Store revenue and NOI are expected to increase in ranges of 3.00% to 4.25% and 3.00% to 5.30%, respectively.

Fourth Quarter 2010

Funds from operations, the generally accepted measure of operating performance for real estate investment trusts, totaled $9.8 million, or $0.15 per share, for fourth quarter 2010, as compared with $16.0 million, or $0.29 per share, for the quarter ended December 31, 2009. FFO for the fourth quarter 2010 included a loss on retirement of debt totaling $22.9 million, or $0.36 per share. FFO for the fourth quarter 2009 included nonroutine charges totaling $14.4 million, or $0.26 per share, primarily from the abandonment of three development sites under contract. (A reconciliation of net income (loss) available to common shareholders to FFO is provided at the end of this release.)

Net income available to common shareholders for the fourth quarter totaled $149,000, or $0.00 per share, as compared with a net loss of $7.2 million, or $0.13 per share, for the same period 2009. The fourth quarter 2010 results included a gain from a property sale totaling $15.2 million, or $0.24 per share.

Total revenues from continuing operations for the quarter were $89.2 million, as compared with $81.0 million a year ago. Adjusted EBITDA for the quarter totaled $57.1 million, as compared with $54.6 million in fourth quarter 2009. (A reconciliation of net income (loss) available to common shareholders to Adjusted EBITDA is provided at the end of this release.)

12-Month Period Ended December 31, 2010

For the annual period, FFO totaled $98.9 million, or $1.58 per share, as compared with $120.8 million, or $2.23 per share, for the 12-month period in 2009. FFO for year 2010 included a loss on retirement of debt totaling $23.5 million or $0.38 per share. FFO for year 2009 included a net gain on retirement of debt totaling $1.5 million or $0.03 per share and nonroutine expenses of $13.5 million, or $0.25 per share.

Net income available to common shareholders for the 12-month period totaled $41.6 million, or $0.67 per share, as compared with $50.6 million, or $0.95 per share, for the same period 2009. The 2010 results included gains from property sales totaling $40.1 million, or $0.65 per share; the 2009 results included gains totaling $21.6 million, or $0.41 per share.

BRE’s year-over-year earnings and FFO results reflect the impact of the following during 2010: (1) declines in same-store property-level operating results from 2009 levels; (2) normalized levels of G&A expense (G&A levels in 2009 were reduced by out-of-the-money stock-based compensation awards), (3) the impact of acquisition costs from investment transactions; and (4) the impact of the loss on retirement of debt. The company also carried a higher level of outstanding shares from equity issued in 2009 and 2010.

For the 12-month period in 2010, total revenues from continuing operations were $341.9 million, as compared with $326.2 million for the same period 2009. Adjusted EBITDA for the 12-month period totaled $222.8 million, as compared with $226.0 million for the same period in 2009.

Same-Store Property Results

BRE defines same-store properties as stabilized apartment communities owned by the company for at least five full quarters. Of the 21,318 apartment units owned directly by BRE, same-store units totaled 18,914 for the quarter.

On a year-over-year basis, overall same-store revenues and NOI both increased 0.4% for the fourth quarter. The revenue increase was driven by higher rental rates earned per unit during the period as year-over-year occupancy levels were relatively flat. For the annual period, overall same-store revenues and NOI decreased 2.0% and 3.7%, respectively, from 2009 levels. The revenue decrease in 2010 was driven by a 3.5% decrease in rental rates earned per unit, offset by a 140 basis-point increase (94.3% in 2009 to 95.7% in 2010) in financial occupancy. Annualized turnover during the fourth quarter was 55%, as compared with 58% during the fourth quarter of 2009; annual turnover is 61%, compared with 65% for the same period in 2009.

On a sequential basis, same-store NOI increased 0.6%, revenue declined 0.8% and expenses decreased 3.6% against third quarter 2010 levels. The sequential quarter decline in revenues was driven by a 90 basis-point decline in average financial occupancy from 96.2% to 95.3%.

Investment Activity

On December 29, 2010, BRE sold Parkside Village, a 304-unit property in the Inland Empire, for total sales proceeds of $30.0 million; with a gain on sale of $15.2 million. During 2010, three properties were sold in the Inland Empire, reducing the company’s exposure in this market to 7.4% of total NOI from 11.2% in 2009. Annual disposition activity totaled four communities (three in the Inland Empire and one in Seattle) for combined proceeds totaling $165 million. The dispositions produced gains on sale totaling $40.1 million.

During the fourth quarter 2010, BRE had one development community in lease-up: Villa Granada in Santa Clara, Calif. (270 units). The current physical occupancy at Villa Granada is 84%. Since the community opened, leasing velocity has averaged 27 units per month. Average occupancy for the fourth quarter was 72%.

During the quarter, construction commenced on Lawrence Station, a 336-unit community in Sunnyvale Calif; the estimated completion date is the first quarter 2013.

In addition to Lawrence Station, BRE owns five land parcels (two in Southern California, two in Northern California and one in Seattle) representing approximately 1,400 units of future development, and an estimated aggregate investment of approximately $635 million upon completion.

Capital Markets Activity

On October 14, 2010, the company completed a tender offer for 4.125% convertible notes (GAAP interest cost on the convertible notes is 6.01%) that was announced in September concurrent with a $300 million unsecured note offering (5.20% coupon, March 2021 maturity). Approximately 90.2% of the notes outstanding prior to the tender offer ($321.3 million of the $356.3 million) were tendered. After giving effect to the purchase of the tendered convertible notes, an aggregate principal amount of $35.0 million remains outstanding.

In connection with the tender, a loss on retirement of debt totaling $22.9 million, or $0.36 per share for fourth quarter 2010 and $0.37 per share for the annual period was recognized in the fourth quarter. For the year ended December 31, 2010, the company recorded a loss on retirement of debt totaling $23.5 million, or $0.38 per share.

Under the at-the-market equity distribution agreement filed with the Securities and Exchange Commission on Form 8-K on February 25, 2010, the company issued 581,000 shares of common stock in the fourth quarter, at an average share price of $43.02 per share, with total gross proceeds of $25.0 million. The remaining capacity under the equity distribution agreement totals $225.0 million.

Common and Preferred Dividends Declared

On January 27, 2011, the BRE board of directors approved regular common and preferred stock dividends for the quarter ending March 31, 2011. All common and preferred dividends will be payable on Thursday, March 31, 2011 to shareholders of record on Tuesday, March 15, 2011. The quarterly common dividend payment of $0.375 is equivalent to $1.50 per share on an annualized basis, and represents a yield of approximately 3.4% on Friday’s closing price of $44.28 per share. BRE has paid uninterrupted quarterly dividends to shareholders since the company’s founding in 1970.

The company’s 6.75% Series C preferred dividend is $0.421875 per share; the 6.75% Series D preferred dividend is $0.421875 per share.

2011 Earnings Outlook

Earnings per share (EPS) for the full year 2011 are estimated to be within a range of $0.52 to $0.64.

Management estimates FFO per share for 2011 to range from $2.06 to $2.18. The estimated increase in earnings can be attributed to an expected increase in NOI from same-store operations, increased NOI from properties acquired in 2010, offset by loss of NOI from properties sold in 2010, and an increase in the total weighted average shares outstanding.

For the first quarter of 2011, the company expects EPS to range from $0.12 to $0.14. The company estimates FFO per share in the first quarter of 2011 to range of $0.50 to $0.52.

The company’s 2011 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:

Same-Store Operations
  • An increase in same-store revenue in a range of 3.00% to 4.25%;
  • An increase in same-store expenses in a range of 2.00% to 3.00%; and
  • An increase in same-store NOI in a range of 3.00% to 5.30%.

Investment Activity
  • Development advances are estimated to range from $90 to $120 million; capitalized interest is estimated to range from $11.5 to $12.5 million.

Q4 2010 Analyst Conference Call

The company will hold a conference call on Tuesday, February 8, 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 888.290.1473; the international number is 706.679.8398. Enter Conf. ID# 24414079. A telephone replay of the call will be available for 14 days at 800.642.1687 or 706.645.9291 international, using the same ID# 24414079. 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 30 days following the call.

Q1 2011 Earnings Dates

The company will report first quarter 2011 earnings after close of market on Tuesday, May 3, 2011, followed by a conference call on Wednesday, May 4, 2011 at 11:00 a.m. Eastern (8:00 a.m. Pacific).

About BRE Properties

BRE Properties, based in San Francisco, Calif., owns and manages apartment communities convenient to its residents’ work, shopping, entertainment and transit in supply-constrained Western U.S. markets. BRE directly owns and operates 75 apartment communities totaling 21,318 units in California, Arizona and Washington. The company invests in communities through acquisition and development, and currently has six properties in various stages of development and construction, totaling 1,742 units, and joint-venture interests in 13 additional apartment communities, totaling 4,080 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 2010
(Unaudited, dollar amounts in thousands except per share data)
               
December 31, December 31,
ASSETS         2010             2009  
 
Real estate portfolio:
Direct investments in real estate:
 
Investments in rental properties $ 3,464,466 $ 3,180,633
Construction in progress 29,095 101,354
Less: accumulated depreciation   (640,456 )   (583,953 )
  2,853,105     2,698,034  
Equity in real estate joint ventures:
Investments 61,132 61,999
 
Land under development   183,291     155,532  
 
Total real estate portfolio 3,097,528 2,915,565
 
Cash 6,357 5,656
Other assets   52,362     58,787  

 
TOTAL ASSETS $ 3,156,247   $ 2,980,008  

 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY                  
 
Liabilities:
Unsecured senior notes $ 773,076 $ 826,918
Unsecured line of credit 209,000 288,000
Mortgage loans payable 810,842 752,157
Accounts payable and accrued expenses   52,070     56,409  
 
Total liabilities   1,844,988     1,923,484  
 
Redeemable noncontrolling interests   34,866     33,605  
 
Shareholders' equity:
 
Preferred Stock, $0.01 par value; 20,000,000 shares authorized: 7,000,000 shares with $25 liquidation preference issued and outstanding at December 31, 2010 and December 31, 2009 , respectively. 70 70
 
Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 64,675,815 and 55,136,359 at December 31, 2010 and December 31, 2009, respectively. 647 551
 
Additional paid-in capital   1,275,676     1,022,298  
 
Total shareholders' equity   1,276,393     1,022,919  
 
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 3,156,247   $ 2,980,008  
 

 

 

 

 
 
BRE Properties, Inc.
Consolidated Statements of Income
Quarters Ended December 31, 2010 and 2009
(Unaudited, dollar and share amounts in thousands)
        Quarter ended     Quarter ended         Twelve months ended     Twelve months ended
REVENUES         12/31/10         12/31/09             12/31/10         12/31/09  
 
Rental income $ 86,162 $ 78,248 $ 329,280 $ 313,987
Ancillary income   3,012     2,735     12,693     12,193  
Total revenues 89,174 80,983 341,973 326,180
 
EXPENSES                              
 
Real estate $ 28,704 $ 25,902 $ 111,326 $ 102,734
Provision for depreciation 24,223 21,443 91,784 82,906
Interest 21,428 21,292 84,894 82,734
General and administrative 5,116 4,742 20,570 17,390
Other expenses (1)   211     13,522     5,298     13,522  
Total expenses 79,682 86,901 313,872 299,286

 
Other income 681 876 2,934 3,459

 
Net (loss)/gain from extinguishment of debt   (22,949 )   (870 )   (23,507 )   1,470  
Net (loss)/income before noncontrolling interests, partnership income and discontinued operations
(12,776 ) (5,912 ) 7,528 31,823
Partnership income   586     531     2,178     2,329  
(Loss)/Income from continuing operations (12,190 ) (5,381 ) 9,706 34,152
Discontinued operations:
Discontinued operations, net (2) 401 1,572 5,018 8,614
Net gain on sales of discontinued operations   15,226     -     40,111     21,574  
Income from discontinued operations 15,627 1,572 45,129 30,188
NET INCOME/(LOSS) $ 3,437 ($3,809 ) $ 54,835 $ 64,340
Redeemable noncontrolling interest in income 335 394 1,446 1,885
Dividends attributable to preferred stock   2,953     2,953     11,813     11,813  
NET INCOME/(LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 149     ($7,156 ) $ 41,576   $ 50,642  
Net income/(loss) per common share - basic $ 0.00     ($0.13 ) $ 0.67   $ 0.95  
Net income/(loss) per common share - assuming dilution $ 0.00     ($0.13 ) $ 0.67   $ 0.95  
Weighted average shares outstanding - basic   64,305     54,540     61,420     52,760  
Weighted average shares outstanding - assuming dilution   64,305     54,540     61,420     52,761  
 
(1 ) For the three months ended December 31, 2010; $211,000 of acquisition costs were reported in other expenses. During the twelve months ended December 31, 2010, other expenses include a $1,300,000 one-time charge associated with resignation of our COO and $3,998,000 related to acquisition costs. For the three and twelve months ended December 31, 2009; other expenses include a $12,900,000 abandonment charge related to three sites under option agreements or letters of intent and a $600,000 severance charge.
(2 ) For 2009 and 2010, includes four operating properties sold during the twelve months ending December 31, 2010. The 2009 totals also include results from two properties sold in 2009.
 
 
Quarter ended Quarter ended Twelve months ended Twelve months ended
  12/31/10     12/31/09     12/31/10     12/31/09  
Rental and ancillary income $ 885 $ 4,498 $ 12,458 $ 22,666
Real estate expenses (369 ) (1,640 ) (4,840 ) (8,538 )
Provision for depreciation   (115 )   (1,286 )   (2,600 )   (5,514 )
Income from discontinued operations, net $ 401   $ 1,572   $ 5,018   $ 8,614  

 

 

Exhibit B: 2011 Financial Outlook
               
 
2011: EPS & FFO per share guidance                      
 
Low End High End
Earnings per share $ 0.52 $ 0.64
Depreciation per share $ 1.54 $ 1.54
Funds from operations per share $ 2.06 $ 2.18
 
 
2011: Same-store outlook                      
 
Low End High End
Same-store revenue (2011 vs 2010) 3.00 % 4.25 %
Same-store expense (2011 vs 2010) 3.00 % 2.00 %
Same-store net operating income (2011 vs 2010) 3.00 % 5.31 %
 
 
2011: Other elements of guidance                      
 
2011 Same-store and non same-store pools
Communities Units
Ending 2010 Communities
Same-store 66 18,914
 
Non same-store
Lease-up communities 5 1,367
Acquisition communities (acquired in 2010) 4 1,037
Renovation communities 0 0
 
2011 pool adjustments
2010 lease-up communities moved to 2011 same-store 3 801
2010 same-store communities moved to 2011 renovation 1 440
 
2011 Communities
Same-store 68 19,275
 
Non same-store
Lease-up communities 2 566
Acquisition communities (acquired in 2010) 4 1,037
Renovation communities 1 440
 
Operating and capital elements Level / Range
Occupancy (same-store) 95.5%
LIBOR (average) 50 - 60 bps
 
Acquisitions $55,000,000
Dispositions - -
Development advances $ 90,000,000 - $ 120,000,000
Capitalized interest $ 11,500,000 - $ 12,500,000
Recurring capital expenditures $ 20,000,000 - $ 22,000,000
 
Capital - Combined debt and equity issuance $ 350,000,000 - $ 450,000,000
 
Detail of increase in shares outstanding Low End High End
Weighted average shares oustanding 2010 62,280,000 62,280,000
Impact of shares issued in 2010 weighted avg. outstanding for 2011 2,814,000 2,814,000
Impact of additional share issuance in 2011 Outlook (weighted avg.)   706,000     1,906,000  
2011 Outlook weighted average shares oustanding 65,800,000 67,000,000
                                   
2011: Detail of financial outlook line items against comparable 2010 actual results (dollar amounts in thousands)  
 

 
2010 2011 2011
Actual   Low End High End
 
Rental and ancillary revenues
Same-store (1) $318,201 $327,747 3.00% $331,725 4.25%

 
 
Non same-store (1)
Lease-up communities 5,636 10,350 10,700
Acquisition communities 10,191 22,948 23,227
Renovation communities 6,853 6,900 6,900
Commercial & other 1,091 400 400
Total rental and ancillary revenues 341,973 368,345 372,952
 
Real estate expenses
Same-store (1) 101,999 105,059 3.00% 104,039 2.00%

 
 
Non same-store (1)
Lease-up communities 2,479 3,600 3,600
Acquisition communities 3,491 7,775 7,680
Renovation communities 1,983 2,000 2,000
Commercial & other 1,375 1,100 1,100
Total real estate expenses 111,326 119,534 118,419
 
Property level net operating income
Same-store (1) 216,202 222,688 3.00% 227,686 5.31%

 
 
Non same-store (1)
Lease-up communities 3,157 6,750 7,100
Acquisition communities 6,701 15,173 15,547
Renovation communities 4,870 4,900 4,900
Commercial & other (284) (700) (700)
Total property level net operating income 230,646 248,811 254,533
 

2011 acquisition communities (net)(2)
0 1,700 1,700
 
Non real estate expenses
Provision for depreciation 91,784 100,500 100,500
General & administrative 20,570 22,750 21,250
Interest expense 84,894 85,000 82,000
Other expenses 5,298 0 0
Loss on retirement of debt 23,507 0 0
Total non real estate expenses 226,052 208,250 203,750
 
Partnership and other income
Partnership income 2,178 2,175 2,275
Other income non property related 2,934 1,800 1,900
Total partnership and other income 5,113 3,975 4,175
 
Discontinued operations - communities sold
Net operating income 7,618 0 0
Depreciation (2,600) 0 0
Gain on sales of discontinued operations 40,111 0 0
Total discontinued operations 45,128 0 0
 
Redeemable noncontrolling interest in income 1,446 1,350 1,350
Preferred stock dividends 11,813 11,813 11,813
     
Net income available to common shareholders $41,577 $33,074 $43,495
 
Reconciliation to funds from operations
Depreciation from continuing and discontinued ops 94,384 100,500 100,500
Depreciation from unconsolidated entities 1,991 2,000 2,000
Convertible redeemable noncontrolling interests in income 1,027 925 925
Gain on sales of discontinued operations (40,111) 0 0
     
Funds from operations $98,868 $136,499 $146,920
Numerator adjustment for EITF 03-06-01 (543) (800) (800)
 
Diluted shares outstanding - FFO 62,280 65,800 67,000
     
FFO per common share $1.58 $2.06 $2.18

 
 
(1) 2010 Actual Same-store and Non Same-store communities are presented to reflect results for the comparable 2011 community pool composition.
(2) Net operating income from a property we expect to acquire in 2011, shown net of related expensed acquistion costs.
 
 
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 property, 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 properties that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our properties, all of which have
 
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.
 
Quarter Ended 12/31/2010     Quarter Ended 12/31/2009 Twelve Months Ended 12/31/2010     Twelve Months Ended 12/31/2009
 
 
Net income/(loss) available to common shareholders $ 149 $ (7,156 ) $ 41,576 $ 50,642
Depreciation from continuing operations 24,223 21,443 91,784 82,906
Depreciation from discontinued operations 115 1,286 2,600 5,513
Redeemable noncontrolling interest in income (1) - - 1,446 1,885
Depreciation from unconsolidated entities 501 472 1,991 1,841
Net gain on investments (15,226 ) - (40,111 ) (21,574 )
Less: Redeemable noncontrolling interest in income not convertible into common shares (1)   -         -     (420 )       (424 )
Funds from operations $ 9,762       $ 16,045   $ 98,866       $ 120,789  
               
Allocation to participating securities - diluted FFO (2) $ (35 )     $ (151 ) $ (544 )     $ (1,233 )
               
Allocation to participating securities - diluted EPS (2) $ 25       $ 98   $ (165 )     $ (458 )
 
Diluted shares outstanding - EPS 64,305 54,540 61,420 52,761
 
Net income per common share - diluted $ -       $ (0.13 ) $ 0.67       $ 0.95  
 
Diluted shares outstanding - FFO 64,500 54,580 62,280 53,541
FFO per common share - diluted $ 0.15       $ 0.29   $ 1.58       $ 2.23  
 
 
(1) OP units are dilutive for the twelve months ending December 31, 2010, and December 31, 2009, but anti-dilutive for the quarters ending December 31, 2010 and December 31, 2009.
(2) Adjustment to the numerators for diluted FFO per common share and diluted net income per common share calculations when applying the two class method for calculating EPS.
 
 
                               
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 property 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 properties that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our properties, 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

Twelve Months Ended

Twelve Months Ended
 

12/31/2010
       

12/31/2009
   

12/31/2010
       

12/31/2009
 
 
Net income/(loss) available to common shareholders $ 149 $ (7,156 ) $ 41,576 $ 50,642
Interest, including discontinued operations 21,428 21,292 84,894 82,734
Depreciation, including discontinued operations   24,338         22,729     94,384         88,419  
EBITDA 45,915 36,865 220,854 221,795
Redeemable noncontrolling interest in income 335 394 1,446 1,885
Net gain on sales (15,226 ) - (40,111 ) (21,574 )
Dividends on preferred stock 2,953 2,953 11,813 11,813
Other expenses 211 13,522 5,298 13,522
Net loss/(gain) on extinguishment of debt   22,949         870     23,507         (1,470 )
Adjusted EBITDA $ 57,138       $ 54,604   $ 222,807       $ 225,971  
 
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 property 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

Twelve Months Ended

Twelve Months Ended

12/31/2010
   

12/31/2009

12/31/2010
   

12/31/2009
 
Net income/(loss) available to common shareholders $ 149 $ (7,156 ) $ 41,576 $ 50,642
Interest, including discontinued operations 21,428 21,292 84,894 82,734
Depreciation, including discontinued operations 24,338 22,729 94,384 88,419
Redeemable noncontrolling interest in income 335 394 1,446 1,885
Net gain on sales (15,226 ) - (40,111 ) (21,574 )
Dividends on preferred stock 2,953 2,953 11,813 11,813
General and administrative expense 5,116 4,742 20,570 17,390
Other expenses 211 13,522 5,298 13,522
Net loss/(gain) on extinguishment of debt   22,949         870     23,507         (1,470 )
NOI $ 62,253       $ 59,346   $ 243,377       $ 243,361  
Less Non Same-Store NOI   9,087         6,380     32,830         24,786  
Same-Store NOI $ 53,166       $ 52,966   $ 210,547       $ 218,575  

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