Market Overview

BRE Properties Reports Fourth Quarter and Annual 2013 Results

Share:
SAN FRANCISCO--(BUSINESS WIRE)--

BRE Properties, Inc. (NYSE: 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 $0.67 per share for the quarter ended December 31, 2013, and $2.54 per share for the year ended December 31, 2013. The per share results reflect an increase of 9.8% and 6.3% compared to the fourth quarter and full year periods in 2012, respectively. Core FFO is used to facilitate comparisons of BRE's earnings results and excludes certain non-core items that 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 net income available to common shareholders to both FFO and Core FFO can be found in Exhibit B of BRE's Supplemental Operating and Financial Data. For the quarter ended December 31, 2013, reconciling Core FFO excluded legal settlement proceeds totaling $19.8 million or $0.255 per share (recorded in Other income), and transaction costs related to the proposed merger transaction with Essex Property Trust, Inc. (NYSE: ESS) totaling $3.4 million or $0.045 per share (recorded in Other expenses). For the year ended December 31, 2013, $585,000, or $0.01 per share, of acquisition related expenses are also excluded from Core FFO. For the year ended December 31, 2012, a $15,000,000, or $0.195 per share, non-cash impairment charge is excluded from Core FFO.

Highlights

  • Year-over-year fourth quarter 2013 same-store revenues and net operating income (NOI) increased 4.9% and 6.4%, respectively. During the quarter, physical occupancy averaged 95.3%; annualized turnover was 49.0%; and average monthly revenue per occupied home was $1,755.
  • Annual 2013 same-store revenues and net operating income (NOI) increased 4.8% and 6.1%, respectively. For the annual period, physical occupancy averaged 95.0%; turnover was 59.7%; and average monthly revenue per occupied home was $1,720.
  • Core FFO results of $0.67 per share for the fourth quarter were $0.01 ahead of the Company's previously provided guidance of $0.63 to $0.66 per share and reflect: (1) higher than expected same-store revenue growth and (2) lower than expected same-store expense growth.
  • During the fourth quarter, BRE completed the sales of two wholly-owned apartment communities. One located in Riverside, California and the other located in Santa Ana, California for net proceeds of $115.5 million and total gains on sale of $39.9 million.

“We are pleased with our results for the fourth quarter and full year 2013 and the positive impact on the Company's growth profile that our dispositions and deliveries from our development pipeline will have on the portfolio going forward,” commented Constance B. Moore, Chief Executive Officer of BRE Properties. “During 2013, we made significant progress on improving the concentration of our portfolio in targeted high barrier to entry markets, maximizing our operating performance and executing on our development pipeline, which was 75% completed as of year-end. Our financial position and credit metrics remain exceptionally strong. Since the announcement of our proposed merger with Essex, we have been working diligently with the Essex team toward the successful integration of the two companies and the completion of the merger, which will result in a must-own sharpshooter REIT.”

Fourth Quarter 2013

Funds from Operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $68.1 million, or $0.88 per share, for the fourth quarter of 2013, compared with $47.0 million, or $0.61 per share, for the fourth quarter of 2012. Core FFO was $0.67 per share for the fourth quarter of 2013 compared with $0.61 per share for the prior year period. (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 of 2013 totaled $79.4 million, or $1.02 per share, compared with net income of $73.8 million, or $0.96 per share, for the same period in 2012. The fourth quarter 2013 results include gains on sales of real estate totaling $39.9 million, or $0.52 per share. The fourth quarter 2012 results included gains on sales of approximately $53.9 million, or $0.70 per share.

BRE's fourth quarter year-over-year earnings and Core FFO results reflect the impact of the following factors during 2013: (1) increases in same-store community-level operating results over 2012 levels; and (2) incremental NOI from two newly completed communities in the last 12 months; offset by (1) a reduction in NOI from operating communities sold in 2012 and 2013; (2) a reduction of partnership and management fee income from joint venture interests sold in 2012 and 2013; and (3) a reduction in interest expense due to an increased level of capitalized interest in 2013.

BRE received a legal settlement in the amount of $19.8 million in connection with a construction litigation claim against the general contractor of BRE's Avenue 64 apartment community, located in Emeryville, California. The settlement amount is expected to cover the cost of remediation work, which is expected to commence in 2014. Physical occupancy averaged 97.4% at the Avenue 64 community during the fourth quarter of 2013.

Same-Store Results

BRE defines same-store communities as stabilized apartment communities owned by the Company for two comparable calendar year periods. Of the 20,724 apartment homes owned directly by BRE, same-store homes totaled 19,952 for the fourth quarter.

On a year-over-year basis, fourth quarter same-store revenues increased 4.9%. The revenue increase was driven by a 5.2% increase in revenue earned per occupied home during the period, coupled with a 30 basis point decrease in year-over-year financial occupancy levels. Operating expenses increased 1.5%, resulting in a 6.4% increase in NOI.

On a sequential basis, same-store revenue increased 1.4%, expenses decreased 2.1% and NOI increased 2.9%. The sequential quarter increase in revenues was driven by a 50 basis point increase in revenue earned per occupied home during the fourth quarter, coupled with an 80 basis point increase in financial occupancy. The decrease in sequential same-store expenses was driven by lower unit turnover expense in the fourth quarter. Annualized fourth quarter turnover was 49% compared to 71% in the third quarter.

Company Initiatives

  • Development. BRE funded approximately $60 million of development advances on its four active construction projects during the fourth quarter. As of December 31, 2013 BRE had four communities under construction with a total estimated cost of approximately $725 million, of which approximately 75% has been funded, leaving approximately $180 million remaining to be funded. The current communities under construction are expected to be substantially delivered by the fourth quarter of 2014.
  • Dispositions. In November 2013, BRE completed the sale of Mission Grove Park, a 432-home, wholly-owned apartment community in Riverside, California, for total net proceeds of $74.8 million. In December, BRE completed the sale of Villa Santana, a 240-home wholly-owned apartment community in Santa Ana, California for total net proceeds of $40.7 million. The sale of these communities resulted in a combined net gain of $39.9 million. Both communities were held on an unencumbered basis. BRE is currently in various stages of marketing $250 to $300 million of operating communities for sale. A portion of the proceeds will be used to repay amounts outstanding under BRE's revolving credit facility with the balance to fund development advances. The communities being marketed for sale are located in Phoenix, Sacramento and San Diego with weighted average same-store revenue and net operating income growth of approximately 1.6% and 1.8%, respectively, for the year ended December 31, 2013 compared to the similar period in 2012. BRE's annual same-store revenue and net operating growth in 2013 would have improved by 22 basis points to 5.0% and 28 basis points to 6.4%, respectively, if all of the communities currently marketed for sale were excluded from 2013 same-store results.

During 2013, BRE did not issue any stock under its at-the-market (ATM) equity program.

Common Dividends Declared

On February 3, 2014, BRE's Board of Directors approved regular common stock dividends for the quarter ending March 31, 2014. All common dividends will be payable on Monday, March 31, 2014 to shareholders of BRE common stock of record as of the close of market on Friday, March 14, 2014. 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 2.7% on the closing price of $59.10 per share as of Friday, January 31, 2014. BRE has paid uninterrupted quarterly dividends to its shareholders since BRE's founding in 1970. If the pending merger with Essex closes prior to the close of the market on March 14, 2014, this regular common stock dividend for the quarter ending March 31, 2014 will not be paid on BRE common stock. Rather, each share of BRE common stock will be converted into the right to receive (i) 0.2971 shares of Essex common stock and (ii) $12.33 in cash, without interest, each subject to certain adjustments provided for in the merger agreement and subject to any applicable withholding tax. As holders of Essex common stock, the former holders of BRE common stock will be entitled to the regular quarterly dividend for the quarter ending March 31, 2014 declared by Essex, if such former BRE shareholders continue to be holders of Essex common stock as of the close of market on March 14, 2014. If the pending merger with Essex closes after the close of market on March 14, 2014 but before March 31, 2014, this regular common stock dividend for the quarter ending March 31, 2014 will be paid by the successor company in the merger.

Series D Preferred Stock Redemption

BRE issued a Notice of Redemption on January 21, 2014 to all holders of record of its outstanding 6.75% Series D Cumulative Redeemable Preferred Stock (or Series D Preferred Stock) at a redemption price of $25.23438 per share. The redemption price is equal to the original issue price of $25.00 per share, plus accrued and unpaid dividends through the redemption date, which is February 20, 2014. From the redemption date forward, none of the 2,159,715 shares of Series D Preferred Stock called for redemption will remain outstanding and dividends will no longer accrue. In accordance with accounting guidance, the initial issuance costs totaling approximately $1.9 million associated with this series of perpetual preferred stock will be recognized as a reduction of earnings in arriving at both the net income available to common shareholders and funds from operations (FFO). BRE will record this charge in the first quarter of 2014.

In light of its proposed merger with Essex Property Trust, Inc., BRE Properties will not be holding a conference call to discuss its fourth quarter and full year 2013 results and will not provide guidance for 2014 results.

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 73 multifamily communities (totaling 20,724 homes) with an additional four communities under construction (totaling 1,382 homes) and a joint venture interest in one apartment community (totaling 252 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.

On January 29, 2014 Essex filed with the SEC a registration statement on Form S-4 that includes a joint proxy statement of Essex and BRE that also constitutes a prospectus of Essex. Essex and BRE also plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy statement/prospectus and other relevant documents filed by Essex and BRE with the SEC at the SEC's website at www.sec.gov. Copies of the documents filed by Essex with the SEC will be available free of charge on Essex's website at www.essexpropertytrust.com or by contacting Essex Investor Relations at (650) 494-3700. Copies of the documents filed by BRE with the SEC will be available free of charge on BRE's website at www.breproperties.com or by contacting BRE Investor Relations at (415) 445-3745.

Essex and BRE and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Essex's executive officers and directors in Essex's definitive proxy statement filed with the SEC on April 1, 2013. You can find information about BRE's executive officers and directors in BRE's definitive proxy statement filed with the SEC on March 11, 2013. Additional information regarding the interests of such potential participants is included in the joint proxy statement/prospectus and will be included in other relevant documents filed with the SEC if and when they become available. You may obtain free copies of these documents from Essex or BRE using the sources indicated above.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

“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 2013

(Unaudited, in thousands, except per share data)
   
December 31, December 31,
ASSETS   2013   2012
 
Real estate portfolio:
Direct investments in real estate:
Investments in rental communities $ 3,918,341 $ 3,722,838
Construction in progress 442,931 302,263
Less: accumulated depreciation   (884,472 )   (811,187 )
  3,476,800     3,213,914  
 
Equity investment in real estate joint ventures 6,363 40,753
 
Real estate held for sale, net 23,481 23,065
 
Land under development   40,794     104,675  
 
Total real estate portfolio 3,547,438 3,382,407
 
Cash 8,432 62,241
Other assets   52,976     54,334  
 
TOTAL ASSETS $ 3,608,846   $ 3,498,982  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY        
 
Liabilities:
 
Unsecured senior notes
View Comments and Join the Discussion!