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
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
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
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
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
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.
Education Realty Trust, Inc.
American Residential Properties, Inc.
). All these stocks carry the same rank as BRE Properties.
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
AMERICAN RES PR (ARPI): Free Stock Analysis
BRE PROPERTIES (BRE): Free Stock Analysis
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