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BRE Tops Q2 Estimates, Ups Outlook

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BRE Properties Inc.’s second-quarter 2013 core fund from operations (FFO) of 63 cents per share surpassed the Zacks Consensus Estimate of 60 cents. Moreover, core FFO at this apartment real estate investment trust (REIT) came above the year-ago quarter figure of 59 cents by 6.8%. Results were also above the company’s guidance range of 56–60 cents.

Quarterly results came on the back of increase in same-store community-level operating results and net operating income (NOI) from newly completed properties. However, this was partly offset by a dip in NOI from operating assets sold in 2012 and 2013, and decrease in partnership and management fee income from joint venture interests disposed in 2012 and 2013. Nevertheless, the company increased the core FFO per share guidance for full-year 2013.

BRE Properties’ total revenue during the quarter rose 6.9% year over year to $101.9 million and comfortably surpassed the Zacks Consensus Estimate of $98 million as well.

Quarter in Detail

BRE Properties’ adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $66.4 million, up 6.1% year over year.

Same-store revenues increased 4.7% year over year. This reflected a 5.2% increase in revenue earned per occupied unit during the period and a 50 basis point fall in financial occupancy levels from the prior-year quarter. Average revenue per occupied home was $1,694.

On the other hand, operating expenses dipped 0.8% year over year due to received property tax refunds and reduction in repairs and maintenance expenses. As a result, same-store NOI upped 7.1% year over year. Average physical occupancy in the same-store portfolio was 95.0% at the quarter-end.

As of Jun 30, 2013, BRE Properties had cash reserves of $3.4 million, compared with $21.7 million at the prior-quarter end.

Notable Activities in 2Q

BRE Properties completed the disposition of 2 apartment communities – Summerwind Townhomes (200-home) and Arcadia Cove (432-home) – in Los Angeles and Phoenix, respectively. The company garnered a combined net gain of $21.0 million from the divestitures.

Moreover, during the quarter, the company successfully completed the development of a 166-home luxury apartment community – Aviara – in Mercer Island in Seattle, Wash. As of Jul 29, the property had 115 occupied homes and a total of 132 leased homes.

As of Jun 30, 2013, BRE Properties’ projected cost for its active and wholly-owned development pipeline was $725 million. Of this, about $293 million remains to be funded through the fourth quarter of 2014.

2013 Outlook Raised

For full-year 2013, BRE Properties raised its core FFO outlook and now expects it in the range of $2.44–$2.50 per share (prior guidance being $2.35–$2.45).

For third-quarter 2013, the company estimates core FFO per share to range from 62–65 cents. Notably, the outlook represents increased same-store NOI levels, offset by income lost due to the dispositions completed in the second quarter.


Concurrent with second-quarter 2013 earnings release, BRE Properties declared a quarterly common dividend of 39.5 cents per share, which will be paid on Sep 30, 2013 to stockholders of record as of Sep 13. Notably, the company has paid uninterrupted quarterly dividends to shareholders since its inception in 1970.

Our Viewpoint

BRE Properties posted better-than-expected second-quarter results on the back of increased revenues and operating margins. Moreover, the guidance increase boosts investors’ confidence on the stock and is thus encouraging. Going forward, we expect the divestitures and significant development projects to improve BRE Properties’ portfolio in supply-constrained premium markets of the country and enable it to outperform competitive pressure. However, with continued job cuts, demand for high-end apartment homes will likely be affected, as renters will move over to less expensive B-class properties. This remains a plausible concern for BRE Properties.

BRE Properties currently carries a Zacks Rank #4 (Sell). However, REITs that are performing better and deserve a look include Camden Property Trust (CPT - Free Report) , Campus Crest Communities, Inc. and UDR Inc. (UDR - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).

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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