BRE Properties Inc.
) first quarter 2013 core fund from operations (FFO) of 58 cents
per share fell a penny short of the Zacks Consensus Estimate of
59 cents. However, core FFO at this real estate investment trust
(REIT) rose by a cent from the year-ago quarter.
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Quarterly results reflect improved performances in same-store
property-level operating results, incremental net operating
income (NOI) from newly completed properties. However, the
positives were offset by a reduction in NOI from operating
properties sold in 2012, decrease in partnership and management
fee income from joint venture interests disposed in 2012 and
2013, as well as elevated level of outstanding shares.
Including non-recurring items, reported FFO came in at $45.1
million or 58 cents per share in first quarter 2013, compared
with $43.6 million or 57 cents per share in the prior-year
BRE Properties' total revenue during the quarter was $100.9
million, reflecting an increase of 6.3% from the year-ago
quarter. Total revenue also surpassed the Zacks Consensus
Estimate of $98 million.
Quarter in Detail
BRE Properties' adjusted earnings before interest, tax,
depreciation and amortization (EBITDA) were $63.1 million for the
reported quarter, up 2.8% year over year. Average revenue per
occupied home was $1,666.
During the reported quarter, same-store revenues increased 4.9%
year over year. This reflected a 5.0% increase in revenue earned
per occupied unit during the period and a 10-basis-point decrease
in financial occupancy levels from the prior-year quarter.
However, operating expenses increased 4.0% year over year as a
result of elevation in property taxes in the Seattle market and
an overall higher level of utility and insurance costs. As a
result, same-store net operating income (NOI) increased 5.3% from
the year-ago quarter. Average physical occupancy in the
same-store portfolio was 95.2% in first-quarter 2013.
As of Mar 31, 2013, the company had cash reserves of $21.7
million, compared with $62.2 million as of the prior-quarter end.
Notable Activities During 1Q
During the reported quarter, BRE Properties accomplished the sale
of 6 joint venture (JV) interests (4 in Denver and 2 in Phoenix)
to its JV partner. The total sale price was $47.4 million and the
company generated a gain of $15.0 million on the sale.
Furthermore, the company delivered the first 54 homes at Aviara.
It is a 166-home community situated on Mercer Island in Seattle,
Wash. The total estimated cost is $44.5 million and $2.9 million
is left to be funded. The company expects to complete the
construction in the second quarter of 2013.
The company also started the construction of MB360, a 360-home
luxury apartment community sited in San Francisco. The company
expects to complete it in the fourth quarter of 2014 for a total
cost of $227 million. As of Mar 31, 2013, the company financed
$77.4 million of the development costs.
As of Mar 31, 2013, BRE Properties' projected cost for its active
and wholly-owned development pipeline is $770 million. Of this,
about $349 million remains to be funded through the fourth
quarter of 2014. This pipeline comprises the company's Aviara,
Solstice, Wilshire La Brea, Radius and MB360 projects.
For full-year 2013, BRE Properties has reaffirmed its outlook and
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 same-store NOI growth of 3.40% - 5.55%. The company plans to
update its outlook for the full year concurrent with the
second-quarter earnings release.
For second-quarter 2013, the company estimates FFO per share to
range from 56 cents to 60 cents. Notably, the mid-point of this
guidance range compared with the first quarter results represents
increased same-store NOI levels, offset by income lost due to the
sale of 6 joint venture communities as well as another
community's disposition, which is slated to occur during the
Concurrent with its first quarter 2013 earnings release, BRE
Properties declared a quarterly common dividend of 39.5 cents per
share for the second quarter 2013. The dividend will be paid on
Jun 28, 2013 to shareholders of record as on Jun 14. Notably, the
company has paid uninterrupted quarterly dividends to
shareholders since its founding in 1970.
BRE Properties experiences strong occupancy levels and high
operating margins. Moreover, we expect the divesture 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 is likely to be affected as renters move down to less
expensive B class properties.
BRE Properties currently carries a Zacks Rank #4 (Sell). However,
REITs that are performing better and deserve a look include
Camden Property Trust
Simon Property Group Inc.
Acadia Realty Trust
), all carrying 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.