BRE Properties Reports Second Quarter 2012 Results

BRE Properties, Inc. (NYSE:BRE) today reported operating results for the quarter ended June 30, 2012. All per share results are reported on a fully diluted basis.

Second Quarter Operational and Financial Highlights
  • Quarterly funds from operations (FFO) totaled $45.8 million, or $0.59 per share. Quarterly net income available to common shareholders totaled $28.7 million, or $0.37 per share.
  • Year-over-year second-quarter same-store revenues and net operating income (NOI) increased 5.1% and 5.6%, respectively. On a sequential basis from the first quarter to the second quarter of 2012, same-store revenues and NOI increased 1.4% and 1.5%, respectively.
  • Physical occupancy averaged 95.4%; annualized turnover within the same-store portfolio was 65% for the quarter. Average revenue per occupied home for the quarter was $1,599.
  • Sold a 96 home community in San Diego for gross proceeds of $12.6 million and a gain on sale of $8.3 million.
  • The company did not issue any stock under its at-the-market (ATM) equity program.
  • Annual same-store guidance updated with the expectation that 2012 same-store revenues will increase in a range of 5.00% to 5.75% from 2011 levels, and 2012 same-store NOI will increase in a range of 5.75% to 6.75%.
  • 2012 FFO guidance updated to $2.32 to $2.38 per share. Third quarter guidance announced in a range of $0.58 to $0.61 per share.

Second Quarter 2012

Funds from operations, the generally accepted measure of operating performance for real estate investment trusts, totaled $45.8 million, or $0.59 per share, for second quarter 2012, as compared with $34.9 million, or $0.49 per share, for the quarter ended June 30, 2011. FFO for the second quarter 2011 included a $3.6 million, or $0.05 per share, preferred stock redemption charge (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 second quarter totaled $28.7 million, or $0.37 per share, as compared with $6.2 million, or $0.09 per share, for the same period 2011. The second quarter 2011 results included the preferred stock redemption charge cited previously.

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, which was 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 5.1% and 5.6%, respectively, for the second quarter. The revenue increase was driven by a 5.4% increase in rental rates earned per home during the quarter and a 30-basis-point decrease in year-over-year financial occupancy levels. Annualized turnover during the second quarter was 65%, as compared with 64% during the second quarter of 2011. Same-store expenses increased 4.1% over second quarter 2011 levels, reflecting the expected increase in property tax expenses and costs associated with the adoption of a third-party revenue management system.

On a sequential basis, same-store revenue increased 1.4%, NOI increased 1.5% and expenses increased 1.1% over first quarter 2012 levels. The sequential quarter increase in revenues was driven by a 1.6% increase in rental rates earned per home during the second quarter, offset by a 20 basis-point reduction in financial occupancy.

Investment Activity

In June, the first 28 homes were delivered on the company’s Lawrence Station construction project in Sunnyvale, CA. The community is expected to be completed in the first quarter of 2013. Including Lawrence Station, BRE currently has four communities under construction, with a total of 1,260 homes, an aggregate projected investment of $554 million and an estimated balance to complete totaling $235 million.

During the quarter BRE exercised its option contract to purchase a second land site in Pleasanton, CA for $11.1 million. Including the newly acquired Pleasanton site, BRE owns four land parcels representing 1,265 homes of future development and an estimated aggregate investment of $513 million upon completion with an estimated balance to complete of $389 million.

In May, BRE sold Countryside Village, a 96 home community located in San Diego for gross sales proceeds of $12.6 million. In conjunction with the transaction, the company recorded a gain on sale of $8.3 million.

Capital Markets Activity

During the second 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.

Common and Preferred Dividends Declared

On August 1, 2012, BRE’s Board of Directors approved regular common and preferred stock dividends for the quarter ending September 30, 2012. All common and preferred dividends will be payable on Friday, September 28, 2012 to shareholders of record on Friday, September 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 2.9% on Monday’s closing price of $52.35 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 $2.32 to $2.38 per share from a previously guided range of $2.30 to $2.40 per share.

The revised guidance range reflects updates to the following items:

Same-Store Operations
  • Same-store 2012 revenues are now expected to increase over 2011 same-store revenue levels in a range of 5.00% to 5.75%, from a previously guided increase ranging from 5.00% to 6.75%.
  • Same-store expense for 2012 is estimated to increase over 2011 same-store expense levels in a range of 3.25% to 3.75%, from a previously guided increase ranging from 4.0% to 4.5%.
  • Same-store NOI for 2012 is estimated to increase over 2011 same-store NOI levels in a range of 5.75% to 6.75%, from a previously guided increase ranging from 5.25% to 8.00%.

The updated guidance reflects the strong market fundamentals experienced in the company’s Northern California and Seattle markets as well as the slower growth economic conditions experienced in the first half of 2012 in the company’s Southern California markets, in particular San Diego.

General and Administrative Expense

  • Annual G&A expense is expected to total $22.0 to $23.0 million (range unchanged).

Interest Expense
  • Annual interest expense is now expected to total $66.0 to $70.0 million (previous range was $68.5 million to $72.0 million).
  • Capitalized interest is expected to total $21.0 to $22.0 million (previous range was $20.0 to $21.5 million).

Investment / Capital Markets Activity – second half 2012
  • Proceeds from community dispositions in a range of $120 to $150 million. Annual total expected to be $130 to $160 million.
  • Development advances are expected to total $100 to $120 million. Annual total expected to be $190 to $210 million.
  • Issuance of unsecured bonds in a range of $0 to $300 million.
  • Issuance of equity under the company’s ATM equity program of $0 to $30 million.

The company has established an FFO guidance range of $0.58 to $0.61 per share for the third quarter of 2012. The third quarter range reflects the positive impact of incremental NOI from property operations offset by potential dilution from the timing associated with capital raising activities. Third quarter and annual FFO guidance does not include any nonroutine income or expense items (including gains or losses associated with the sale of land).

For the third quarter of 2012, the company expects EPS in the range of $0.25 to $0.28. The company expects EPS for the full year 2012 to be in the range of $1.11 to $1.17. Third quarter and annual EPS ranges exclude the impact of gains or losses on any future community sales.

Q2 2012 Analyst Conference Call

The company will hold a conference call on Wednesday, August 1, 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 888.329.8889; the international number is 719.325.2488. Enter Conf. ID# 5425680. 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# 5425680. 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.

Q3 2012 Earnings Dates

The company will report third quarter 2012 earnings after the close of market on Tuesday, October 30, 2012, followed by a conference call on Wednesday, October 31, 2012 at 11:00 a.m. Eastern (8:00 a.m. Pacific).

About BRE Properties

BRE Properties, based in San Francisco, California, focuses on the development, acquisition and management of apartment communities located primarily in major metropolitan markets in Southern and Northern California and Seattle. BRE directly owns 75 multifamily communities (totaling 21,240 homes) and has joint venture interests in an additional 11 apartment communities (totaling 3,592 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
Second Quarter 2012
(Unaudited, dollar amounts in thousands except per share data)
   
June 30, December 31,
ASSETS   2012   2011
 
Real estate portfolio:
Direct investments in real estate:
 
Investments in rental communities $ 3,630,399 $ 3,607,045
Construction in progress 310,231 246,347
Less: accumulated depreciation   (775,909 )   (729,151 )
  3,164,721     3,124,241  
Equity in real estate joint ventures:
Investments 62,118 63,313
 
Land under development   124,288     101,023  
 
Total real estate portfolio 3,351,127 3,288,577
 
Cash 2,968 9,600
Other assets   54,645     54,444  
 
TOTAL ASSETS $ 3,408,740   $ 3,352,621  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY        
 
Liabilities:
Unsecured senior notes $ 690,018 $ 724,957
Unsecured line of credit 251,000 129,000
Mortgage loans payable 742,463 808,714
Accounts payable and accrued expenses   65,715     63,273  
 
Total liabilities   1,749,196     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 June 30, 2012 and December 31, 2011, respectively. 22 22
Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 76,795,641 and 75,556,167 at June 30, 2012 and December 31, 2011, respectively. 768 756
Additional paid-in capital   1,650,647     1,609,671  
 
Total shareholders' equity   1,651,437     1,610,449  
 
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY   3,408,740   $ 3,352,621  
 
 
BRE Properties, Inc.
Consolidated Statements of Income
Quarters and Six Months Ended June 30, 2012 and 2011
(Unaudited, dollar and share amounts in thousands)
       
Quarter ended Quarter ended Six months ended Six months ended
REVENUES   6/30/12 6/30/11 6/30/12 6/30/11
 
Rental income $ 94,299 87,913 $ 187,201 173,234
Ancillary income   3,824     3,456     7,542     6,624  
Total revenues 98,123 91,369 194,743 179,858
 
EXPENSES          
 
Real estate $ 30,875 $ 29,232 $ 61,725 $ 57,824
Provision for depreciation 24,850 27,421 49,825 51,311
Interest 16,272 18,739 33,490 38,487
General and administrative 6,211 5,159 12,058 10,394
Other expenses (1)   -     111     -     254  
Total expenses 78,208 80,662 157,098 158,270
 
Other income 706 597 1,225 1,202
 

Net income before noncontrolling interests, partnership income and discontinued operations
20,621 11,304 38,870 22,790
 
Income from unconsolidated entities   728     731     1,456     1,372  
Income from continuing operations 21,349 12,035 40,326 24,162
 
Discontinued operations:
Discontinued operations, net (2) 84 741 231 1,547
Net gain on sales of discontinued operations   8,279     -     8,279     -  
Income from discontinued operations 8,363 741 8,510 1,547
 
NET INCOME   29,712     12,776     48,836   $ 25,709  
 
Redeemable and other noncontrolling interest in income 105 335 210 671
 
Redemption related preferred stock issuance cost - 3,616 - 3,616
 
Dividends attributable to preferred stock   911     2,653     1,822     5,606  
 
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 28,696   $ 6,172   $ 46,804   $ 15,816  
 
Net income per common share - basic $ 0.37   $ 0.09   $ 0.61   $ 0.23  
 
Net income per common share - diluted $ 0.37   $ 0.09   $ 0.61   $ 0.23  
 
 
Weighted average shares outstanding - basic   76,735     70,025     76,323     67,760  
 
Weighted average shares outstanding - diluted   77,070     70,285     76,700     68,190  
 

(1)  For the quarter and six months ended June 30, 2011, Other expenses included 111,000 and 254,000, respectively, related to acquisition costs.

(2)  Includes one community sold during 2012 and two communities sold during 2011.
 
Quarter ended Quarter ended Six months ended Six months ended
6/30/12 6/30/11 6/30/12 6/30/11
Rental and ancillary income $ 175 $ 2,094 $ 498 $ 4,210
Real estate expenses (72 ) (837 ) (191 ) (1,636 )
Provision for depreciation   (19 )   (516 )   (76 )   (1,027 )
Income from discontinued operations, net $ 84   $ 741   $ 231   $ 1,547  
 
   
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.
 
 

Quarter Ended6/30/2012
 

Quarter Ended6/30/2011

Six Months Ended6/30/2012
 

Six Months Ended6/30/2011
 
Net income available to common shareholders $ 28,696 $ 6,172 $ 46,804 $ 15,816
Depreciation from continuing operations 24,850 27,421 49,825 51,311
Depreciation from discontinued operations 19 516 76 1,027
Redeemable and other noncontrolling interest in income 105 335 210 671
Depreciation from unconsolidated entities 504 514 999 1,020
Net gain on sales of discontinued operations (8,279 ) - (8,279 ) -
Less: Redeemable noncontrolling interest in income not convertible into common shares   (105 )     (105 )   (210 )     (210 )
Funds from operations $ 45,790     $ 34,853   $ 89,425     $ 69,635  
 
Diluted shares outstanding - EPS 77,070 70,285 76,700 68,190
Net income per common share - diluted $ 0.37     $ 0.09   $ 0.61     $ 0.23  
 
Diluted shares outstanding - FFO 77,070 70,900 76,740 68,810
FFO per common share - diluted $ 0.59     $ 0.49   $ 1.17     $ 1.01  
 
 
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 Ended6/30/2012
 

Quarter Ended6/30/2011

Six Month Ended6/30/2012
 

Six Month Ended6/30/2011
 
Net income available to common shareholders $ 28,696 $ 6,172 $ 46,804 $ 15,816
Interest, including discontinued operations 16,272 18,739 33,490 38,487
Depreciation, including discontinued operations   24,869       27,937   49,901       52,338
EBITDA 69,837 52,848 130,195 106,641
Redeemable and other noncontrolling interest in income 105 335 210 671
Net gain on sales (8,279 ) - (8,279 ) -
Dividends on preferred stock 911 2,653 1,822 5,606
Other expenses - 111 - 254
Redemption related to preferred stock issuance cost   -       3,616   -       3,616
Adjusted EBITDA $ 62,574     $ 59,563 $ 123,948     $ 116,788
 
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 Ended6/30/2012
 

Quarter Ended6/30/2011

Six Month Ended6/30/2012
 

Six Month Ended6/30/2011
 
Net income available to common shareholders $ 28,696 $ 6,172 $ 46,804 $ 15,816
Interest, including discontinued operations 16,272 18,739 33,490 38,487
Depreciation, including discontinued operations 24,869 27,937 49,901 52,338
Redeemable and other noncontrolling interest in income 105 335 210 671
Net gain on sales (8,279 ) - (8,279 ) -
Dividends on preferred stock 911 2,653 1,822 5,606
General and administrative expense 6,211 5,159 12,058 10,394
Other expenses - 111 - 254
Redemption related to preferred stock issuance cost   -       3,616   -       3,616
NOI $ 68,785     $ 64,722 $ 136,006     $ 127,182
Less Non Same-Store NOI   6,474       5,699   12,313       10,658
Same-Store NOI $ 62,311     $ 59,023 $ 123,693     $ 116,524
 

Copyright Business Wire 2010

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