UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) November 4, 2013

 

 

BRE Properties, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland		1-14306		94-1722214
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

525 Market Street, 4th Floor, San Francisco, CA		94105-2712
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (415) 445-6530

 

 

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencernent communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

ITEM 2.02.

Results of Operations and Financial Condition

 

On November 4, 2013, we issued a press release and supplemental financial data with respect to our financial results for the quarter ended September 30, 2013. Copies of the press release and supplemental financial data are furnished as Exhibit 99.1 and Exhibit 99.2 to this report, respectively. The information contained in this Item 2.02 and the attached Exhibit 99.1 and Exhibit 99.2 are furnished to, and not filed with, the Securities and Exchange Commission.

 

ITEM 8.01

Other Events

 

November 4, 2013 (San Francisco) – We are a leading owner, operator and developer of high-quality apartment communities in targeted growth markets in California and Seattle, and our reported Core Funds from Operations (Core FFO) of $0.65 per share for the quarter ended September 30, 2013. The per share results reflect an increase of 4.8% over the comparable period in 2012. Core FFO is used to facilitate comparisons of our 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 FFO and Core FFO can be found in Exhibit B of our Supplemental Operating and Financial Data. During the quarter and nine months ended September 30, 2013, $585,000, or $0.01 per share, of acquisition related expenses are excluded from Core FFO. During the quarter and nine months ended September 30, 2012, a $15,000,000, or $0.195 per share, non-cash impairment charge is excluded from Core FFO.

  

Highlights

 

·

Third quarter 2013 same-store revenues increased 2.1% from second quarter 2013 levels. Year-over-year third quarter 2013 same-store revenues and net operating income (NOI) increased 4.6% and 5.3%, respectively. During the quarter, physical occupancy averaged 94.6%; annualized turnover was 71.3%; and average monthly revenue per occupied home was $1,734.

 

·

Core FFO results of $0.65 per share for the third quarter reflects: (1) solid same-store revenue growth and (2) favorable levels of G&A expense.

 

·

Acquired Jefferson at Hollywood, a 270-home community in the resurgent Hollywood sub-market of Los Angeles, California, for a total purchase price of $120.5 million.

 

Third Quarter 2013

 

Funds from Operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $49.7 million, or $0.64 per share, for the third quarter 2013, compared with $32.5 million, or $0.42 per share, for the third quarter 2012. Core FFO was $0.65 per share for the third quarter of 2013 compared with $0.62 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 third quarter 2013 totaled $22.1 million, or $0.29 per share, compared with net income of $12.9 million, or $0.17 per share, for the same period in 2012. Third quarter 2012 results included gains on sales of unconsolidated joint venture interests totaling $6.0 million, or $0.08 per share, and an asset impairment charge totaling $15.0 million, or $0.195 per share.

 

Our third quarter year-over-year earnings and 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 properties 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.

  

Same-Store Results

 

We defines same-store communities as stabilized apartment communities owned by the us for two comparable calendar year periods. Of the 21,396 apartment homes owned directly by us, same-store homes totaled 20,624 for the third quarter.

 

On a year-over-year basis, third quarter same-store revenues increased 4.6%. The revenue increase was driven by a 5.65% increase in revenue earned per occupied home during the period, coupled with a 100-basis-point decrease in year-over-year financial occupancy levels. Operating expenses increased 3.2%, resulting in a 5.3% increase in NOI. The increase in operating expenses was driven by higher real estate tax levels in the Seattle market and increased utility expenses throughout our portfolio in the third quarter of 2013 compared to the same quarter during 2012.

 

On a sequential basis, same-store revenue increased 2.1%, expenses increased 6.3% and NOI increased 0.3%. The sequential quarter increase in revenues was driven by a 2.4% increase in revenue earned per occupied home during the third quarter, coupled with a 30-basis-point decrease in financial occupancy. Same-store sequential expense growth reflected an unfavorable comparison to second quarter expense levels, which benefited from $1.0 million in real estate tax refunds received during that quarter. Excluding the impact of refunds received in the second quarter, sequential expense growth was 2.8%.

 

 

Company Initiatives

 

·

Acquisition. Jefferson at Hollywood was acquired on September 30, 2013, for a purchase price of $120.5 million. The community of 270 apartment homes is located in the resurgent Hollywood sub-market of Los Angeles, California. The community was acquired on an unencumbered basis with proceeds from our revolving credit facility. In connection with the acquisition, we intend to dispose of several slower growth, non-core communities through a reverse like-kind exchange. The exchange is expected to be completed by the first quarter of 2014.

 

·

Development. We funded $56 million of development advances on its four active construction projects during the third quarter. As of September 30, 2013, we had four communities under construction with a total estimated cost of approximately $725 million, of which approximately 67% (or two-thirds) has been funded, leaving approximately $240 million remaining to be funded. The current communities under construction are expected to be substantially delivered by the fourth quarter of 2014.

 

·

Dispositions. We are currently in various stages of marketing $300 to $400 million of operating communities for sale and currently expect that these community dispositions will close in the next two quarters. A portion of the proceeds will be used for the reverse like-kind exchange, the balance will be used to fund development advances. The communities being marketed for sale are located in Phoenix, Sacramento and Southern California and have average same-store revenue and net operating income growth of approximately 1.8% and 1.6%, respectively, for the nine months ended September 30, 2013 compared to the similar period in 2012.

 

Management believes the disposition of slower growth communities over time will contribute to a portfolio with greater concentrations in targeted markets and infill submarkets that can produce a sustainable, above-average growth rate.

 

During the third quarter, we did not issue any stock under its at-the-market (ATM) equity program.

  

  

Common and Preferred Dividends Declared

 

On November 4, 2013, our Board of Directors approved regular common and preferred stock dividends for the quarter ending December 31, 2013. All common and preferred dividends will be payable on Tuesday, December 31, 2013 to shareholders of record on Friday, December 13, 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 2.9% on Friday’s closing price of $54.86 per share. We have paid uninterrupted quarterly dividends to shareholders since our founding in 1970.

 

Our 6.75% Series D quarterly preferred dividend is $0.421875 per share.

 

 

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 75 multifamily communities (totaling 21,396 homes) and has a joint venture interest in an additional 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.

  

 

“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.

 

-XXX-

 

 

BRE Properties, Inc.

Consolidated Balance Sheets

Third Quarter 2013

(Unaudited, in thousands, except per share data)

  

 

		September 30,				December 31,
ASSETS		2013				2012
Real estate portfolio:
Direct investments in real estate:
Investments in rental communities		$	3,897,982			$	3,722,838
Construction in progress			483,481				302,263
Less: accumulated depreciation			(879,640	)			(811,187	)
			3,501,823				3,213,914
Equity investment in real estate joint ventures			6,451				40,753
Real estate held for sale, net			23,481				23,065
Land under development			38,382				104,675
Total real estate portfolio			3,570,137				3,382,407
Cash			7,876				62,241
Other assets			48,512				54,334
TOTAL ASSETS		$	3,626,525			$	3,498,982
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unsecured senior notes		$	950,000			$	990,018
Unsecured revolving credit facility			177,000				-
Mortgage loans payable			711,527				741,942
Accounts payable and accrued expenses			81,374				75,789
Total liabilities			1,919,901				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 September 30, 2013 and December 31, 2012, respectively.			22				22
Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 77,187,542 and 76,925,351 at September 30, 2013 and December 31, 2012, respectively.			772				769
Additional paid-in capital			1,701,079				1,685,691
Total shareholders' equity			1,701,873				1,686,482
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	3,626,525			$	3,498,982

  

  

BRE Properties, Inc.

Consolidated Statements of Income

Quarters and Nine Months Ended September 30, 2013 and 2012

(Unaudited, in thousands, except per share data)

 

 

		Quarter ended				Quarter ended				Nine months ended				Nine months ended
REVENUES		9/30/13				9/30/13				9/30/12				9/30/13
Rental income		$	100,314			$	93,755			$	294,248			$	275,602
Ancillary income			4,304				3,776				12,070				11,040
Total revenues		$	104,618			$	97,531			$	306,318			$	286,642
EXPENSES
Real estate		$	32,592			$	30,827			$	94,913			$	90,803
Provision for depreciation			27,543				24,501				79,183				73,103
Interest			15,948				16,998				49,935				50,488
General and administrative			5,055				5,093				17,393				17,152
Other expenses(1)			585				15,000				585				15,000
Total expenses			81,723				92,419				242,009				246,546
Other income			93				740				746				1,966
Net income before noncontrolling interests,
partnership income and discontinued operations			22,988				5,852				65,055				42,062
Income from unconsolidated entities			94				669				523				2,125
Net gain on sale of unconsolidated entities (2)			-				6,025				18,633				6,025
Income from continuing operations			23,082				12,546				84,211				50,212
Discontinued operations:
Discontinued operations, net (3)			-				1,360				1,028				4,251
Net gain on sales of discontinued operations (3)			-				-				17,394				8,279
Income from discontinued operations			-				1,360				18,422				12,530
NET INCOME		$	23,082			$	13,906			$	102,633			$	62,742
Redeemable noncontrolling interest in income			48				105				143				315
Dividends attributable to preferred stock			911				911				2,733				2,733
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS		$	22,123			$	12,890			$	99,757			$	59,694
Net income per common share - basic		$	0.29			$	0.17			$	1.29			$	0.78
Net income per common share - diluted		$	0.29			$	0.17			$	1.29			$	0.78
Weighted average shares outstanding - basic			77,170				76,813				77,086				76,471
Weighted average shares outstanding - diluted			77,350				77,130				77,310				76,840

  

(1)	During the three and nine months ended September 30, 2013, Other expenses related to acquisition costs for the community acquired during Q3'13 located in Los Angeles, California. During the three months and nine months ended September 30, 2012, Other expenses related to an impairment charge on land owned in Anaheim, California, that is no longer held for development. The land is recorded in Real estate held for sale, net at $23.5 million as of September 30, 2013 on the consolidated balance sheet.
(2)	During the nine months ended September 30, 2013, seven joint venture interests were sold for $53.4 million resulting in a net gain of $18.6 million. During the three months and nine months ended September 30, 2012, three joint venture communities were sold for $26.9 million resulting in a net gain of $6.0 million.
(3)	Includes one community sold during June 2013 and three communities sold during 2012.

 

		Quarter ended				Quarter ended				Nine months ended				Nine months ended
		9/30/13				9/30/12				9/30/13				9/30/12
Rental and ancillary income			-			$	2,819			$	2,113			$	8,950
Real estate expenses			-				(863	)			(717	)			(2,804	)
Provision for depreciation			-				(596	)			(368	)			(1,895	)
Discontinued operations, net			-			$	1,360			$	1,028			$	4,251

 

 

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)

Funds from Operations ("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 (NAREIT) 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. The Company calculates FFO in accordance with the NAREIT definition.

The Company believes that FFO is a  meaningful supplemental measure of the Company's 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 the communities that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of the communities, all of which have real economic effect and could materially impact the Company's 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. The Company's 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 Operations ("Core FFO")

The Company believes that Core Funds from Operations ("Core FFO") is a meangingful supplemental measure of our operating performance for the same reasons as FFO and adjusting for non-routine items that when excluded allows for more comparable periods. 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 9/30/2013				Quarter Ended 9/30/2012				Nine Months Ended 9/30/2013				Nine Months Ended 9/30/2012
Net income available to common shareholders		$	22,123			$	12,890			$	99,757			$	59,694
Depreciation from continuing operations			27,543				24,501				79,183				73,103
Depreciation from discontinued operations			-				596				368				1,895
Depreciation from unconsolidated entities			47				512				445				1,511
Net gain on sales of discontinued operations			-				-				(17,394	)			(8,279	)
Net gain on sale of unconsolidated entities			-				(6,025	)			(18,633	)			(6,025	)
Funds from Operations		$	49,713			$	32,474			$	143,726			$	121,899
Acquisition costs			585				-				585				-
Non cash asset impairment charge			-				15,000				-				-
Core Funds from Operations		$	50,298			$	47,474			$	144,311			$	121,899
Diluted shares outstanding - EPS			77,350				77,130				77,310				76,840
Net income per common share - diluted		$	0.29			$	0.17			$	1.29			$	0.78
Diluted shares outstanding - FFO			77,350				77,130				77,310				76,860
FFO per common share - diluted		$	0.64			$	0.42			$	1.86			$	1.59
Diluted shares outstanding -  Core FFO			77,350				77,130				77,310				76,860
Core FFO per common share - diluted		$	0.65			$	0.62			$	1.87			$	1.59

 

 

 

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 the Company as EBITDA, excluding minority interests, gains (losses) from sales of investments, preferred stock dividends and other expenses. BRE considers EBITDA and Adjusted EBITDA to be appropriate supplemental measures of the Company's performance because they eliminate depreciation, interest, and, with respect to Adjusted EBITDA,  gains (losses) from sales of investments and other charges, which permits investors to view income from operations without the impact of non cash 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 the Company's results from operations, the utility of EBITDA and Adjusted EBITDA as measures of the Company's performance is limited.  Below is a reconciliation of net income available to common shareholders to EBITDA and Adjusted EBITDA:

 

		Quarter Ended 9/30/2013				Quarter Ended 9/30/2012				Nine Months Ended  9/30/2013				Nine Months Ended 9/30/2012
Net income available to common shareholders		$	22,123			$	12,890			$	99,757			$	59,694
Interest, including discontinued operations			15,948				16,998				49,935				50,488
Depreciation, including discontinued operations			27,543				25,097				79,551				74,998
EBITDA			65,614				54,985				229,243				185,180
Redeemable noncontrolling interest in income			48				105				143				315
Net gain on sales of discontinued operations			-				-				(17,394	)			(8,279	)
Net gain on sale of unconsolidated entities			-				(6,025	)			(18,633	)			(6,025	)
Dividends on preferred stock			911				911				2,733				2,733
Other expenses			585				15,000				585				15,000
Adjusted EBITDA		$	67,158				64,976			$	196,677			$	188,924

 

Net Operating Income (NOI)

The Company considers 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 the 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 the Company's results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI consistently with the Company's definition and, accordingly, the Company's 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 the Company's performance. NOI should not be used as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its 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  9/30/2013				Quarter Ended  9/30/2012				Nine Months Ended 9/30/2013				Nine Months Ended  9/30/2012
Net income available to common shareholders		$	22,123			$	12,890			$	99,757			$	59,694
Interest, including discontinued operations			15,948				16,998				49,935				50,488
Depreciation, including discontinued operations			27,543				25,097				79,551				74,998
Redeemable noncontrolling interest in income			48				105				143				315
Net gain on sales of discontinued operations			-				-				(17,394	)			(8,279	)
Net gain on sale of unconsolidated entities			-				(6,025	)			(18,633	)			(6,025	)
Dividends on preferred stock			911				911				2,733				2,733
General and administrative expense			5,055				5,093				17,393				17,152
Other expenses			585				15,000				585				15,000
NOI		$	72,213			$	70,069			$	214,070			$	206,076
Less Non Same-Store NOI			2,139				3,498				6,818				10,380
Same-Store NOI		$	70,074			$	66,571			$	207,252			$	195,696

 

 

 

 

ITEM 9.01

Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit Number		Description
99.1		Press release of BRE Properties, Inc. dated November 4, 2013 including attachments.
99.2		Supplemental Financial data dated September 30, 2013 including attachments.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.  

 

	BRE Properties, Inc.
	(Registrant)
Date: November 4, 2013	/s/ John A. Schissel
	John A. Schissel
	Executive Vice President and Chief Financial Officer

 

 

 

Exhibit Index

 

Exhibit Number		Description
99.1		Press release of BRE Properties, Inc. dated November 4, 2013 including attachments.
99.2		Supplemental Financial data dated September 30, 2013 including attachments.