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BRE Shares Dip Despite Y/Y FFO Rise

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The apartment real estate investment trust (REIT), BRE Properties Inc. reported third-quarter 2013 core fund from operations (FFO) of 65 cents per share, which surpassed the Zacks Consensus Estimate by 1.6% and the year-ago figure by 4.8%. Also, the company increased the core FFO per share guidance for full-year 2013 for the second time.

Despite posting decent quarterly results, the stock was down 1.42% in yesterday’s regular trading session due to soft share market conditions and rising yields on the U.S. Treasury 10-year note.

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 newly completed assets. 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.

Quarter in Detail

BRE Properties’ total revenue during the quarter rose 7.3% year over year to $104.6 million and comfortably surpassed the Zacks Consensus Estimate of $101 million.

Also, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased 3.4% year over year to $67.2 million in the quarter under review.

Same-store (20,624 apartment homes) revenues increased 4.6% year over year in the third quarter. This reflected a 5.65% rise in revenues earned per occupied unit and a 100 basis point fall in financial occupancy levels from the prior-year quarter.

On the other hand, same-store operating expenses upped 3.2% year over year due to higher utility expenses across the company’s portfolio and a rise in real estate tax levels in the Seattle market. As a result, same-store NOI upped 5.3% year over year.

Average physical occupancy in the same-store portfolio was 94.6% at the quarter end. Notably, average revenue per occupied unit was $1,734 per month.

As of Sep 30, 2013, BRE Properties had cash reserves of $7.9 million, up from $3.4 million at the prior-quarter end.

Portfolio Restructuring Activities

During the quarter, BRE Properties bought a Calif.-based Class A community – Jefferson at Hollywood – for $120.5 million. The 270 apartment-homes community is positioned in the popular Hollywood sub-market of Los Angeles.

Moreover, during the quarter, the company funded 4 active construction projects with the payment of $56 million toward development advances. As of Sep 30, 2013, BRE Properties’ projected cost for its active development pipeline was $725 million, of which about 67% of the cost has been funded.

Notably, BRE Propertiesispresently in various stages of marketing $300 to $400 million worth of operating communities, located in Phoenix, Sacramento and Southern California, for divestiture. Also, the company currently expects the sale to complete by the next two quarters. BRE Properties intends to use a portion of the proceeds for investments in the reverse like-kind exchange and the remainder will be utilized to finance development advances.

2013 Outlook Upped

For full-year 2013, BRE Properties raised its core FFO outlook for the second time this year. The company now expects it in the range of $2.50– $2.53 per share (the prior guidance being $2.44–$2.50).

For fourth-quarter 2013, the company estimates core FFO per share to range from 63–66 cents. Notably, the outlook represents increased operating NOI levels, offset by income lost due to the dispositions completed in the fourth quarter and a rise in general & administrative expenses sequentially.


Concurrent with the third-quarter 2013 earnings release, BRE Properties declared a quarterly common dividend of 39.5 cents per share, which will be paid on Dec 31, 2013 to stockholders of record as of Dec 13. Notably, the company has paid uninterrupted quarterly dividends to shareholders since its inception in 1970.

In Conclusion

BRE Properties’ decent third-quarter results came on the back of increased revenues and operating margins. Moreover, the guidance increase boosts investors’ confidence in the stock and is thus encouraging. Going forward, we expect the portfolio restructuring activities to improve BRE Properties’ portfolio in supply-constrained premium markets of the country and enable it to outperform competitive pressure.

BRE Properties currently carries a Zacks Rank #2 (Buy). Other well performing REITs include Cousins Properties Inc. (CUZ - Free Report) , Education Realty Trust, Inc. (EDR - Free Report) and American Residential Properties, Inc. . All these stocks carry the same rank as 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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