BRE Properties' CEO Discusses Q1 2012 Results - Earnings Call Transcript

BRE Properties, Inc. (BRE)

Q1 2012 Earnings Call

May 2, 2012 11:00 am ET

Executives

Constance B. Moore – President and Chief Executive Officer

Scott A. Reinert – Executive Vice President, Operations

John A. Schissel – Executive Vice President and Chief Financial Officer

Stephen C. Dominiak – Executive Vice President and Chief Investment Officer

Analysts

Michael Salinsky – RBC Capital Markets

Swaroop Yalla – Morgan Stanley

Jana Galan – Bank of America/Merrill Lynch

Eric Wolfe – Citigroup Inc.

Derek Bower – UBS

Ross Nussbaum – UBS

Richard Anderson – BMO Capital Markets

Nicholas Yulico – Macquarie Research

David Bragg – Zelman & Associates

Andrew James Mcculloch – Green Street Advisors, Inc.

Karin Ford – KeyBanc Capital Markets

Presentation

Operator

Good morning. My name is Cameron, and I will be your conference operator today. At this time, I would like to welcome everyone to the BRE Properties First Quarter 2012 Earnings Conference Call. Today’s call is being recorded (Operator Instructions) After the speakers remarks there will be a question-and-answer session.

I would now like to turn the call over to Ms. Constance Moore, President and Chief Executive Officer. Please go ahead.

Constance B. Moore

Thank you, Cameron. Good morning, everyone. Thank you for joining BRE’s first quarter 2012 earnings call. Before we begin our conversation, I’d like to remind listeners that our comments and answers to your questions may include both historical and future references. We do not make statements we do not believe are accurate and fairly represent BRE’s performance and prospects, given everything that we know today, but when we use words like expectations, projections or outlook, we are using forward-looking statements, which by their very nature are subject to risk and uncertainty. We encourage listeners to read BRE’s Form 10-K for a full description of potential risk factors and our 10-Qs for interim updates.

This morning management's commentary will cover our financial and operating results for the first quarter, and the investment environment. John, Scott, and I will provide the prepared remarks. Steve Dominiak will be available during the question-and-answer period.

We are pleased with our first quarter results as our financial and operating result came hence through the high-end of our expectations. Reported FFO per share totaled $0.57 compared with the range we provided at the start of the year of $0.54 to $0.56. The $0.02 variance from the midpoint was driven primarily by property-level expense saving from a mild west coast winter, and G&A expense at the low-end of expectation.

We continue to see very healthy revenue growth across the majority of our portfolio. Year-over-year first quarter same-store revenue increased 5.8% and increased over the fourth quarter pay of 5.5%. The San Francisco Bay Area and Seattle remain our strongest market. In Southern California, Los Angeles is our strongest market, and Orange County is positioned for stronger growth as we enter the prime-leasing sequence. San Diego remains our most challenged market and reflects the Tale of Two Cities, with the Northern half of the city much stronger than the Southern portion, which has been impacted by military troop rotation.

The big four drivers of our drivers of apartment were demographic, supply, propensity to rent and job growth continue to support the demand for multi-family both at the property level and at the rate level.

Multi-family construction activity is increasing in several of our market albeit still below peak level. Seattle and San Jose will see a noticeable increase in deliveries over the next 12 to 24 months. And while there maybe pockets of supply as these properties lease up, both of these markets have some of the strongest job and more importantly, wage growth in the country, which will support the absorption of new products in these markets.

Rent-to-own gaps remained very wide in the Bay Area and Orange County at $500 to $600 a month.

While the gaps have compressed a bit in L.A., San Diego and Seattle, we are not losing a significant number of residents to home purchases. Across the portfolio, move-outs to home purchases were 10.3%, slightly lower than prior year’s pace at 10.5%. L.A. move-outs to home purchases were only at 8.1% and Orange County was even lower at 6.7%. Seattle represents our market with the highest move-outs at 12.8%, that’s still below average for this market.

New investment activity during the quarter was focused on the funding of our four properties that are under construction. We expect first delivered homes in June for our Lawrence Station asset in Sunnyvale. We’ve a balance-to-fund of approximately $275 million on our four communities under construction. Two of the four cycle, we fully delivered by mid 2013 and Wilshire La Brea and Solstice will start delivering in the fourth quarter of 2013 and into early 2014.

While there is talk of supply becoming a challenge nationally, our West Coast markets were still issuing from it at a slower pace than historical norm. The current monthly average of permits issued in our markets is about 2,500 per month, which is lower than average for the last 15 year of 4,200 per month. Given both the level of competition and opportunities for acquisition, our investment activity is focused on our development pipeline.

At the beginning of the year, we anticipated funding our development requirements with a mix of ATM equity, community dispositions and drives under our revolving credit facility. After recent $40 million of credit under the ATM in the first quarter, we now expect to lean more heavily towards community sales as the source of capital. We currently expect to sell a $130 million to $180 million of community properties prior to year.

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