BRE Properties Inc.
's (
BRE
) fourth quarter 2012 core fund from operations (FFO) of 61 cents
per share were a penny ahead of the Zacks Consensus Estimate of
60 cents. Moreover, core FFO at this real estate investment trust
(REIT) exceeded the year-ago quarter's figure of 57 cents per
share. Simultaneously, the company announced a 2.6% hike in its
2013 quarterly dividend.
For full year 2012, BRE Properties' core FFO came in at $2.39 per
share, surpassing the Zacks Consensus Estimate of $2.27 per share
and up from $2.20 per share reported a year ago.
The better-than-expected results at BRE Properties, which
escalated 7.0% quarterly and 8.6% yearly, were backed by improved
performances in same-store property-level operating results,
incremental net operating income (NOI) from acquired and newly
completed properties as well as a reduction in interest expense.
It was, however, partially offset by higher level of outstanding
shares.
Including non-recurring items, reported FFO came in at $46.9
million or 61 cents per share in fourth quarter 2012, up from
$43.3 million or 57 cents per share in the prior-year quarter.
For full year 2012, FFO totaled $168.9 million or $2.19 per
share, well ahead of $154.4 million or $2.14 per share recorded a
year ago.
BRE Properties' total revenue during the quarter was $100.3
million, reflecting an increase of 6.8% from the year-ago
quarter. Total revenue also surpassed the Zacks Consensus
Estimate of $97 million. For full year 2012, the company
generated total revenue of $390.1 million, up 7.5% year over year
and ahead of the Zacks Consensus Estimate of $385 million.
Quarter in Detail
BRE Properties' adjusted earnings before interest, tax,
depreciation and amortization (EBITDA) were $65.6 million for the
reported quarter, ahead of $61.9 million reported in the
year-earlier quarter. Average revenues stood at $1,645 per
occupied home.
Overall, same-store revenues and NOI increased 5.6% and 6.2%,
respectively, year over year. This was driven by higher rental
rates per unit during the quarter (up 5.5%) along with a 10 basis
point increase in financial occupancy. Average physical occupancy
in the same-store portfolio was 95.7% in fourth quarter 2012.
As of Dec 31, 2012, the company had cash reserves of $62.2
million.
Notable Activities During 4Q
During fourth quarter 2012, BRE Properties completed the sale of
2 San Diego apartment communities for $77.0 million in total.
During the reported quarter, BRE Properties accomplished the
construction of Lawrence Station -- a 336-home community located
in Sunnyvale, Calif. -- for a total cost of around $110.0
million. In addition, in the fourth quarter, the company started
construction of Radius -- a 264-unit luxury apartment community
located in Redwood City, Calif. -- with an estimated total cost
of $98 million.
As of Dec 31, 2012, BRE Properties' projected cost for its active
and wholly-owned development pipeline is $770 million. Of this,
about $395 million remains to be funded through the first quarter
of 2015. This pipeline comprises the company's Aviara, Solstice,
Wilshire La Brea, Redwood City and Mission Bay projects.
2013 Outlook
For full year 2013, BRE Properties expects core FFO in the range
of $2.35 - $2.45 per share. The guidance is based on same-store
revenue growth of 3.50% - 4.75% and a same-store NOI growth of
3.40% - 5.55%.
For first quarter 2013, the company estimates FFO per share to
range from $0.54 to $0.58. This would represent a decline from
fourth quarter 2012 FFO per share and would reflect a loss of NOI
from San Diego communities sold in the fourth quarter. Alongside,
it would reflect a sequential increase in both general and
administrative expenses and operating expenses in the first
quarter as well as the potential loss of NOI from community
disposition activity.
Dividend Hike
Concurrent with its fourth quarter 2012 earnings release, BRE
Properties declared a quarterly common dividend of $0.395 per
share for 2013. This represents a hike of 2.6% from the prior
dividend rate. The increased dividend will be paid on Mar 29,
2013 to shareholders of record as on Mar 15.
Our Take
We are encouraged by the improved performance at BRE Properties.
This leading multi-family apartment REIT focuses primarily on the
supply-constrained markets of Western U.S.
It experiences strong occupancy levels and high operating margins
through operating efficiencies and cost controls, and by
deploying new and recycled capital to supply-constrained markets
of Western U.S. This provides compelling growth potential to the
company. Moreover, dividend hikes boost investors' confidence on
the stock.
In addition to BRE Properties, 3 other REITs have raised their
dividends recently. These include
Simon Property Group Inc
. (
SPG
) that raised its dividend by 4.5% sequentially;
AvalonBay Communities Inc.
(
AVB
), which hiked its dividend by 10.3%; and
Apartment Investment and Management Company
(
AIV
) that made a 20% sequential hike in its quarterly cash dividend
rate.
BRE currently retains a Zacks Rank #3 (Hold).
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.
APARTMENT INVT (AIV): Free Stock Analysis
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AVALONBAY CMMTY (AVB): Free Stock Analysis
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BRE PROPERTIES (BRE): Free Stock Analysis
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SIMON PROPERTY (SPG): Free Stock Analysis
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