BRE Properties Beats Q4 FFO Estimates


The apartment real estate investment trust (:REIT), BRE Properties Inc. (BRE) reported fourth-quarter 2013 core fund from operations (:FFO) of 67 cents per share, which exceeded the Zacks Consensus Estimate by 2 cents and the year ago-quarter figure by 6 cents. Results also came a penny ahead of the company’s previously issued guidance of 63 cents – 66 cents per share.

At BRE Properties, which is to merge with Essex Property Trust Inc. (ESS), quarterly results were aided by increase in same-store community-level operating results on a year-over-year basis and net operating income (:NOI) from two newly completed communities in the last 12 months.

However, this was partially offset by a dip in NOI from operating assets sold in 2012 and 2013 and a decrease in interest expense due to elevated capitalized interest in 2013 and decline in partnership and management fee income from joint venture interests offloaded in 2012 and 2013.

For full-year 2013, the company reported core FFO per share of $2.54 on revenues of $404.0 million. This compared with the year-ago core FFO per share of $2.39 on revenues of $375.6 million.

Quarter in Detail

BRE Properties’ total revenue during the quarter rose 9.3% year over year to $105.6 million and comfortably surpassed the Zacks Consensus Estimate of $102 million. Same-store (19,952 apartment homes) revenues increased 4.9% year over year in the fourth quarter. This reflected a 5.2% rise in revenue earned per occupied home, partially dwarfed by a 30 basis point fall in financial occupancy levels from the prior-year quarter.

On the other hand, same-store operating expenses rose 1.5% and as a result, same-store NOI upped 6.4% year over year. Notably, during the quarter, physical occupancy averaged 95.3%; annualized turnover was 49.0%; and average monthly revenue per occupied home was $1,755.

As of Dec 31, 2013, BRE Properties had cash reserves of $8.4 million, compared with $62.2 million as of Dec 31, 2012.

Portfolio Restructuring Activities

During the quarter under review, BRE accomplished the sale of two wholly-owned apartment communities – One in Riverside, California and the other in Santa Ana, California. The moves helped reap net proceeds of $115.5 million and enjoy gains on sale of $39.9 million. Furthermore, as of Dec 31, 2013 BRE had 4 communities under construction with a total estimated cost of approximately $725 million. Of this around 75% has been funded.


Concurrent with the fourth-quarter 2013 earnings release, BRE Properties declared a quarterly common dividend of 39.5 cents per share, which will be paid on Mar 31, 2014 to stockholders of record as of Mar 14.

In Conclusion

The better-than-expected results at BRE Properties are encouraging. The company is set to merge with Essex Property during the first-quarter of 2014 in a cash-and-stock deal, creating the leading public owner of multifamily properties in the attractive West Coast markets.

With a solid management team at Essex and a significant geographic overlap, we believe that this combined entity can enjoy a strong property base in the region and effectively leverage on the attractive market fundamentals, operating efficiencies and reward shareholders accordingly. Hence, BRE Properties currently has a Zacks Rank #2 (Buy).

Other well performing REITs include Education Realty Trust, Inc. (EDR) and UDR, Inc. (UDR). Both these stocks carry the same rank as that of BRE Properties.

Note: 1. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

2. Financial occupancy is defined as the percentage of total gross leasable area for which a tenant is obligated to pay rent under the terms of the lease agreement, regardless of the actual use or occupation by that tenant of the area being leased, and excludes tenants in abatement periods. It is obtained by dividing actual rental revenue by total possible rental revenue.


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