BRE Properties Reports Second Quarter 2008 Results

Tue. July 29, 2008; Posted: 04:45 PM

Funds from operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $36.8 million, or $0.70 per share, for second quarter 2008, as compared with $35.6 million, or $0.68 per share, for the quarter ended June 30, 2007. Second quarter 2007 FFO included nonroutine income of $1.9 million, or $0.04 per share, in proceeds from a legal settlement. Excluding nonroutine income, core FFO per share growth was 9.4% year-over-year. (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 second quarter totaled $15.9 million, or $0.31 per share, as compared with $15.1 million, or $0.29 per share, for the same period 2007. The second quarter 2007 results included the nonroutine income item cited previously.

Total revenues from continuing operations for the quarter were $88.5 million, as compared with $81.8 million a year ago. Adjusted EBITDA for the quarter totaled $61.1 million, as compared with $58.6 million in second quarter 2007. (A reconciliation of net income available to common shareholders to Adjusted EBITDA is provided at the end of this release.)

Six-Month Period Ended June 30, 2008

For the year-to-date period, FFO totaled $72.5 million, or $1.38 per share, as compared with $67.8 million, or $1.29 per share, for the six-month period in 2007. FFO for the six-month period in 2007 included the nonroutine income item cited previously. Excluding nonroutine income, core FFO per share growth was 10.4% year-over-year.

Net income available to common shareholders for the six-month period totaled $30.2 million, or $0.58 per diluted share, as compared with $27.1 million, or $0.52 per diluted share, for the same period 2007. The 2007 year-to-date results included the nonroutine income item cited previously.

For the first half of 2008, total revenues from continuing operations were $175.0 million, as compared with $161.5 million for the same period 2007, representing growth of 8.4%. Adjusted EBITDA for the six-month period totaled $121.0 million, as compared with $115.1 million for the same period in 2007.

BRE's positive year-over-year earnings and FFO results were driven primarily by improved same-store property-level operating results, income from newly developed and redeveloped properties, a lower interest rate environment, and stable corporate-level G&A expenses.

Same-store net operating income (NOI) growth was 3.9% for the quarter, as compared with the same period in 2007. (A reconciliation of net income available to common shareholders to NOI is provided at the end of this release.) For the second quarter, same-store NOI increased $2.2 million relative to the same period in the prior year. Developed properties generated $1.9 million in additional NOI during the quarter, as compared with second quarter 2007.

Same-Store Property Results

BRE defines same-store properties as stabilized apartment communities owned by the company for at least five full quarters. Of the 22,680 apartment units owned directly by BRE, same-store units totaled 19,357 for the quarter.

On a year-over-year basis, overall same-store NOI growth was driven by revenue growth of 3.9% for the quarter. Average same-store market rent for the second quarter 2008 increased 3.9% to $1,495 per unit, from $1,439 per unit in second quarter 2007. Physical occupancy levels averaged 94.4% during second quarter 2008, matching occupancy levels in the same period 2007. Physical occupancy at the end of the second quarter was 94.5%. Rent concessions in the same-store portfolio totaled $840,000, or 4.0 days rent, for second quarter 2008, as compared with $800,000, or 3.6 days, for the same period 2007.

Same-store results depict stable operating conditions in San Diego, the San Francisco Bay area and Seattle, which represent 52% of the company's same-store NOI. Operating results in Los Angeles, Orange County and the Inland Empire (San Bernardino and Riverside Counties) reflect weak market fundamentals, affected by continuing job losses and excess supply of single-family housing. These Southern California markets represent 41% of the company's same-store NOI.

Community Development Activity

BRE currently has five communities under construction, two in Southern California, one in Northern California, and two in Seattle, Washington, with a total of 1,367 units, an aggregate projected investment of $457.0 million and an estimated balance to complete totaling $186.0 million.

BRE owns two land parcels representing 710 units of future development, and an estimated aggregate investment of $367.0 million upon completion. Construction starts for the parcels are in the second half of 2009. One land parcel is in Southern California; the other is in Northern California.

Dispositions

At June 30, the company had classified as held for sale six operating properties and one excess land parcel, with a total net book value of $113.0 million. The six operating properties are located in: Sacramento (four), the S.F. Bay area (one) and Seattle (one), totaling 1,484 units, with a total net book value of $96.0 million. The excess land parcel, with a book value of $17.0 million, is in Northern California.

Subsequent to the end of the quarter, the company sold a stabilized community, Pinnacle at Blue Ravine, a 260-unit property in Folsom, California, which was reported as held for sale at June 30, 2008. Sales proceeds totaled approximately $40.0 million. The transaction capitalization rate was approximately 6%, calculated on trailing 12 months of property-level NOI. Proceeds derived from the sale were used to repay floating rate debt. In connection with the transaction, the company will record a gain on sale of approximately $8.5 million ($0.16 per share) during third quarter 2008. The company remains on target to realize $150.0 million to $200.0 million in proceeds from asset sales in 2008.

Common and Preferred Dividends Declared

On July 24, 2008, the BRE Board of Directors approved regular common and preferred stock dividends for the quarter ending September 30, 2008. All common and preferred dividends will be payable on Tuesday, September 30, 2008 to shareholders of record on Monday, September 15, 2008.

The quarterly common dividend payment of $0.5625 is equivalent to $2.25 per share on an annualized basis, and represents a yield of approximately 4.85% on yesterday's closing price of $46.40 per share. BRE has paid uninterrupted quarterly dividends to shareholders since the company's founding in 1970.

The company's 6.75% Series C preferred dividend is $0.421875 per share; the 6.75% Series D preferred dividend is $0.421875 per share.

Earnings Outlook

The company has adjusted its FFO guidance for the full year 2008 to a range of $2.75 to $2.82 per share, from the previous range of $2.70 to $2.85. Guidance for earnings per share (EPS) has been revised to a range of $1.35 to $1.43, from the previous range of $1.15 to $1.30. The revised EPS guidance range includes approximately $0.16 per share gain from the sale of Pinnacle at Blue Ravine noted previously. For the year, management anticipates same-store revenue and NOI growth to range 3.5% to 4.5%. The FFO guidance range for 2008 does not include nonroutine income or expense items. With the exception of the sale disclosed above, EPS estimates do not include projected gains or losses associated with property sales. Management assesses the range of annual earnings estimates at the end of each quarter.

Q2 2008 Analyst Conference Call

The company will hold a conference call on Wednesday, July 30, 2008, 11:00 a.m. Eastern (8:00 a.m. Pacific) to review these results. The dial-in number to participate in the United States and Canada is 888.290.1473; the international number is 706.679.8398. Enter Conf. ID# 53323944. A telephone replay of the call will be available for 30 days at 800.642.1687 or 706.645.9291 international, using the same ID# 53323944. A link to the live webcast of the call will be posted on http://www.breproperties.com, in Investors, on the Corporate Profile page. A webcast replay will be available for one month following the call.

Q3 2008 Earnings Dates

The company will report third quarter 2008 earnings after close of market on November 4, 2008, followed by a conference call on November 5, 2008 at 11:00 a.m. Eastern (8:00 a.m. Pacific).

About BRE Properties

BRE Properties -- a real estate investment trust -- develops, acquires and manages apartment communities convenient to its residents' work, shopping, entertainment and transit in supply-constrained Western U.S. markets. BRE directly owns and operates 80 apartment communities totaling 22,680 units in California, Arizona and Washington. The company currently has seven other properties in various stages of development and construction, totaling 2,077 units, and joint venture interests in 13 additional apartment communities, totaling 4,080 units.

"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 intonations. 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 affecting 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, liability 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 Second Quarter 2008 (Unaudited, dollar amounts in thousands except per share data) June 30, June 30, ASSETS 2008 2007 Real estate portfolio: Direct investments in real estate: Investments in rental properties $2,852,184 $2,702,810 Construction in progress 270,226 327,256 Less: accumulated depreciation (474,726) (420,589) 2,647,684 2,609,477 Equity interests in and advances to real estate joint ventures: Investments in rental properties 62,399 44,747 Real estate held for sale, net 113,034 79,883 Land under development 116,621 118,196 Total real estate portfolio 2,939,738 2,852,303 Cash 10,804 11,937 Other assets 67,815 59,912 TOTAL ASSETS $3,018,357 $2,924,152 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Unsecured senior notes $1,540,000 $1,540,000 Unsecured line of credit 312,000 129,000 Mortgage loans 152,816 175,459 Accounts payable and accrued expenses 83,272 89,603 Total liabilities 2,088,088 1,934,062 Minority interests 30,981 31,473 Shareholders' equity: Preferred Stock, $0.01 par value; 20,000,000 shares authorized: 7,000,000 and 10,000,000 shares with $25 liquidation preference issued and outstanding at June 30, 2008 and June 30, 2007, respectively. 70 100 Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 51,045,125 and 50,727,018 at June 30, 2008 and June 30, 2007, respectively. 510 507 Additional paid-in capital 898,708 958,010 Total shareholders' equity 899,288 958,617 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,018,357 $2,924,152 BRE Properties, Inc. Consolidated Statements of Income Quarters Ended June 30, 2008 and 2007 (Unaudited, dollar and share amounts in thousands) Quarter Quarter Six months Six months ended ended ended ended 6/30/08 6/30/07 6/30/08 6/30/07 REVENUE Rental income $84,839 $78,320 $168,020 $154,691 Ancillary income 3,632 3,500 7,016 6,809 Total revenue 88,471 81,820 175,036 161,500 EXPENSES Real estate expenses $26,144 24,111 52,243 48,020 Depreciation 19,924 18,611 40,041 36,825 Interest expense 21,686 20,324 43,147 40,097 General and administrative 5,378 4,737 10,033 9,552 Total expenses 73,132 67,783 145,464 134,494 Other income 637 3,024 1,231 4,191 Income before minority interests, partnership income and discontinued operations 15,976 17,061 30,803 31,197 Minority interests (580) (570) (1,161) (1,149) Partnership income 683 508 1,315 952 Income from continuing operations 16,079 16,999 30,957 31,000 Discontinued operations: Discontinued operations, net (1) 2,823 2,615 5,103 4,996 Net gain on sales - - - - Total discontinued operations 2,823 2,615 5,103 4,996 NET INCOME 18,902 19,614 $36,060 35,996 Dividends attributable to preferred stock 2,953 4,468 5,906 8,936 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $15,949 $15,146 $30,154 $27,060 Net income per common share - basic $0.31 $0.30 $0.59 $0.53 Net income per common share - assuming dilution $0.31 $0.29 $0.58 $0.52 Weighted average shares outstanding - basic 51,020 50,705 51,005 50,660 Weighted average shares outstanding - assuming dilution 51,850 51,840 51,775 51,840 (1) Details of net earnings from discontinued operations. For 2008, includes six operating properties held for sale as of June 30, 2008. For 2007, totals also include two properties sold in the third quarter of 2007 and two properties sold in the fourth quarter of 2007. Quarter Quarter Six months Six months ended ended ended ended 6/30/08 6/30/07 6/30/08 6/30/07 Rental and ancillary income $4,524 $6,489 $8,924 $12,801 Real estate expenses (1,701) (2,502) (3,277) (4,885) Depreciation - (1,127) (509) (2,428) Interest expense - (245) (35) (492) Income from discontinued operations, net $2,823 $2,615 $5,103 $4,996 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) 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 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. We calculate FFO in accordance with the NAREIT definition. We believe that FFO is a meaningful supplemental measure of our 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 property, 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 our properties that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our properties, all of which have 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. Our FFO may not be comparable to the FFO of other REITs due to the fact that not all REITs use the NAREIT definition. Quarter Quarter Six Months Six Months Ended Ended Ended Ended 06/30/08 06/30/07 06/30/08 06/30/07 Net income available to common shareholders $15,949 $15,146 $30,154 $27,060 Depreciation from continuing operations 19,924 18,611 40,041 36,825 Depreciation from discontinued operations - 1,127 509 2,428 Minority interests 580 570 1,161 1,149 Depreciation from unconsolidated entities 415 272 817 526 Less: Minority interests not convertible to common (106) (105) (212) (210) Funds from operations $36,762 $35,621 $72,470 $67,778 Diluted shares outstanding - EPS 51,850 51,840 51,775 51,840 Net income per common share - diluted $0.31 $0.29 $0.58 $0.52 Diluted shares outstanding - FFO 52,695 52,720 52,620 52,730 FFO per common share - diluted $0.70 $0.68 $1.38 $1.29 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 BRE as EBITDA, excluding minority interests, gains or losses from sales of investments, preferred stock dividends and other expenses. We consider EBITDA and Adjusted EBITDA to be appropriate supplemental measures of our performance because they eliminate depreciation, interest, and, with respect to Adjusted EBITDA, gains (losses) from property dispositions and other charges, which permits investors to view income from operations without the impact of noncash 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 properties that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of EBITDA and Adjusted EBITDA as measures of our performance is limited. Below is a reconciliation of net income available to common shareholders to EBITDA and Adjusted EBITDA: Six Six Quarter Quarter months months ended ended ended ended 6/30/08 6/30/07 06/30/08 06/30/07 Net income available to common shareholders $15,949 $15,146 $30,154 $27,060 Interest, including discontinued operations 21,686 20,569 43,182 40,589 Depreciation, including discontinued operations 19,924 19,738 40,550 39,253 EBITDA 57,559 55,453 113,886 106,902 Minority interests 580 570 1,161 1,149 Dividends on preferred stock 2,953 4,468 5,906 8,936 Galleria Settlement - (1,900) - (1,900) Adjusted EBITDA $61,092 $58,591 $120,953 $115,087 Net Operating Income (NOI) We consider 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 property 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 by 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 our 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 our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI consistently with our definition and, accordingly, our 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 our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our 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). Six Six Quarter Quarter months months ended ended ended ended 6/30/08 6/30/07 06/30/08 06/30/07 Net income available to common shareholders $15,949 $15,146 $30,154 $27,060 Interest, including discontinued operations 21,686 20,569 43,182 40,589 Depreciation, including discontinued operations 19,924 19,738 40,550 39,253 Minority interests 580 570 1,161 1,149 Dividends on preferred stock 2,953 4,468 5,906 8,936 General and administrative expense 5,378 4,737 10,033 9,552 NOI $66,470 $65,228 $130,986 $126,539 Less Non Same-Store NOI 8,877 9,819 16,977 17,000 Same-Store NOI $57,593 $55,409 $114,009 $109,539

SOURCE BRE Properties, Inc.

http://www.breproperties.com

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