UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) May 5, 2009

 

 

BRE Properties, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland		1-14306		94-1722214
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

525 Market Street, 4th Floor, San Francisco, CA		94105-2712
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (415) 445-6530

 

 

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencernent communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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ITEM 2.02.

Results of Operations and Financial Condition

On May 5, 2009, we issued a press release and supplemental financial data with respect to our financial results for the quarter ended March 31, 2009. Copies of the press release and supplemental financial data are furnished as Exhibit 99.1 and Exhibit 99.2 to this report, respectively. The information contained in this Item 2.02 and the attached Exhibit 99.1 and Exhibit 99.2 are furnished to, and not filed with, the Securities and Exchange Commission.

 

ITEM  8.01.

Other Events

May 5, 2009 we reported operating results for the quarter ended March 31, 2009. All per share results are reported on a fully diluted basis.

Funds from operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $34.8 million, or $0.66 per share, for first quarter 2009, as compared with $34.2 million, or $0.65 per share, for the same period in 2008. (A reconciliation of net income available to common shareholders to FFO is provided at the end of this report.) Net income available to common shareholders for the first quarter totaled $13.0 million, or $0.25 per share, as compared with $12.7 million, or $0.25 per share, for the same period 2008. FFO per share and earnings per share (EPS) results for the 2009 and 2008 periods include noncash charges totaling $0.03 per share associated with the implementation of the Financial Accounting Standards Board’s (FASB) Staff Position APB 14-1.

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Our 4.125% convertible senior notes are within the scope of FSP APB 14-1, and the implementation of this standard resulted in the recognition of additional noncash interest expense that totaled $1.6 million and $1.5 million for the three months ended March 31, 2009 and 2008, respectively.

Total revenues from continuing operations for the quarter were $83.7 million, as compared with $81.5 million a year ago. Adjusted EBITDA for the quarter totaled $58.4 million, as compared with $59.9 million in first quarter 2008. (A reconciliation of net income available to common shareholders to Adjusted EBITDA is provided at the end of this report.)

Same-store net operating income (NOI) decreased 1.1% for the quarter, as compared with the same period in 2008. (A reconciliation of net income available to common shareholders to NOI is provided at the end of this report.) Developed properties generated $1.9 million in additional NOI during the quarter, as compared with first quarter 2008.

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Same-Store Property Results

We define same-store properties as stabilized apartment communities that we have owned for at least five full quarters. Of the 21,480 apartment units we own, same-store units totaled 18,681 for the quarter.

On a year-over-year basis, revenue decreased 0.6% for the quarter. Average same-store market rent for the first quarter 2009 declined 1.6% to $1,489 per unit, from $1,513 per unit in first quarter 2008. Same-store physical occupancy levels averaged 93.2% during first quarter 2009, as compared with 94.3% in the same period 2008. Physical occupancy at the end of the first quarter was 93.4%. Rent concessions in the same-store portfolio totaled $1.8 million, or 9.2 days rent, for first quarter, as compared with $635,000, or 3.5 days, for the same period 2008. Property-level operating expense increased 0.7% from first quarter 2008.

On a sequential basis, same-store revenue declined 1.5%, expenses increased 3.3% and NOI decreased 3.3% against fourth quarter 2008 results.

Same-store results were impacted primarily by the increasing job losses in our operating markets. In Southern California, unemployment rates increased to 10.7% in the first quarter 2009 from 8.8% in the fourth quarter 2008; the San Francisco Bay area saw unemployment rates rise to 9.9% in the first quarter, from 7.3% in the previous quarter; Seattle’s unemployment rate increased to 8.7% from 6.3% during the same period. The following table depicts job losses in our core markets over the last 18 months:

 

Core Markets		Same-Store					Absolute Job Losses
		# Units		% NOI			12 months ended September 2008			6 months ended March 2009
San Diego		3,958		22.7	%		(17,100	)		(30,100	)
Inland Empire		3,249		14.0	%		(55,900	)		(48,000	)
Orange County		2,545		14.4	%		(38,800	)		(43,800	)
Los Angeles		2,075		11.6	%		(75,200	)		(103,100	)
San Francisco		2,928		20.2	%		(25,200	)		(86,700	)
Seattle		2,624		13.0	%		16,400			(62,200	)
Total Core Markets		17,379		95.9	%		(195,800	)		(373,900	)

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Community Development & Disposition Activity

During the first quarter, construction was completed and the final units were delivered at 5600 Wilshire (284 units) in Los Angeles, Calif. Currently, 214 units are leased; leasing velocity has averaged 30 units per month since the property opened. During the first quarter, we commenced unit deliveries at Park Viridian in Anaheim, Calif. and Taylor 28 in Seattle, Wash. When completed, Park Viridian will have 320 units, of which 124 were delivered, and 115 are currently leased; Taylor 28 will have 197 units, of which 81 were delivered, and 52 are currently leased.

Including the two sites that commenced delivery of units during the quarter, we currently have four communities under construction: one in Southern California, one in Northern California and two in Seattle, Washington, 1,083 units in total, an aggregate projected investment of $322.4 million and an estimated balance to complete totaling $76.0 million.

We own three land parcels representing 960 units of future development, and an estimated aggregate investment of $455 million upon completion. Two land parcels are in Southern California, and one is in Northern California.

We classified as held-for-sale two properties in Sacramento, Calif. and two in Seattle, Wash., totaling 1,339 units, in the first quarter, in addition to one property in the Inland Empire classified as held for sale in 2008.

Capital Markets Activity

Subsequent to the end of the first quarter, we completed tender offers for four series of senior unsecured notes. The results of this activity are detailed in the following table:

 

		Principal Amount Prior to Tender			Total Tendered			% Tendered			Principal Amount Remaining
5.750% Senior Notes due 2009		$	150,000,000		$	61,407,000		41	%		$	88,593,000
4.875% Senior Notes due 2010		$	150,000,000		$	119,421,000		80	%		$	30,579,000
7.450% Senior Notes due 2011		$	250,000,000		$	201,455,000		81	%		$	48,545,000
7.125% Senior Notes due 2013		$	130,000,000		$	89,982,000		69	%		$	40,018,000
TOTAL		$	680,000,000		$	472,265,000		69	%		$	207,735,000

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Also subsequent to the end of the quarter, we closed a $620 million 10-year, fixed-rate secured credit facility originated by Deutsche Bank Berkshire Mortgage for repurchase by Fannie Mae (NYSE: FNM). The facility consists of two $310 million tranches; the first was drawn in full upon closing; the second is expected to be drawn on or about August 4, 2009. Collateral for the facility comprises 15 multifamily properties totaling 4,651 units.

The total weighted average coupon of the senior notes tendered was 6.5%; the effective composite annual cost of the secured debt is 5.6%. Annualized interest savings from the recapitalization are estimated at $4.2 million.

Common and Preferred Dividends Declared

On April 30, 2009, our Board of Directors approved the payment of regular common and preferred stock dividends for the quarter ending June 30, 2009. All common and preferred dividends will be payable on Tuesday, June 30, 2009 to shareholders of record on Monday, June 15, 2009.

The board also declared that the second quarter 2009 common dividend will remain unchanged from the previous quarter: $0.5625 per share. The quarterly common dividend payment is equivalent to $2.25 per share on an annualized basis, and represents a yield of approximately 8.74% on yesterday’s closing price of $25.74 per share. We have paid uninterrupted quarterly dividends to shareholders since being founded in 1970.

Our 6.75% Series C preferred dividend is $0.421875 per share; the 6.75% Series D preferred dividend is $0.421875 per share.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, this report contains forward-looking statements regarding amounts to be drawn on our credit facility, dividend payment dates, our capital resources, portfolio performance and results of operations, and are based on our 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. Our 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 our most recent Annual Report on Form 10-K as they may be updated from time to time by our subsequent filings with the Securities and Exchange Commission, or SEC. Do not rely solely on forward-looking statements, which only reflect management’s analysis. We assume no obligation to update this information. For more details, refer to our SEC filings, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

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BRE Properties, Inc.

Consolidated Balance Sheets

First Quarter 2009

(Unaudited, dollar amounts in thousands except per share data)

 

		March 31, 2009				December 31, 2008 (1)
ASSETS
Real estate portfolio:
Direct investments in real estate:
Investments in rental properties		$	2,930,030			$	2,907,902
Construction in progress			204,857				295,074
Less: accumulated depreciation			(501,334	)			(509,647	)
			2,633,553				2,693,329
Equity interests in and advances to real estate joint ventures:
Investments in rental properties			62,507				62,497
Real estate held for sale, net			84,797				31,936
Land under development			126,841				123,609
Total real estate portfolio			2,907,698				2,911,371
Cash			5,845				7,724
Other assets			89,925				73,521
TOTAL ASSETS		$	3,003,468			$	2,992,616
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unsecured senior notes		$	1,457,662			$	1,505,905
Unsecured line of credit			365,000				245,000
Mortgage loans			134,000				151,496
Accounts payable and accrued expenses			60,775				91,039
Total liabilities			2,017,437				1,993,440
Redeemable noncontrolling interests			23,447				29,972
Shareholders’ equity:
Preferred Stock, $0.01 par value; 20,000,000 shares authorized: 7,000,000 shares with $25 liquidation preference issued and outstanding at March 31, 2009 and December 31, 2008 , respectively.			70				70
Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 51,241,008 and 51,149,745 at March 31, 2009 and December 31, 2008, respectively.			512				511
Additional paid-in capital			962,002				968,623
Total shareholders’ equity			962,584				969,204
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	3,003,468			$	2,992,616

 

(1)	Balance sheet is restated to reflect the adoption of APB 14-1 & SFAS No. 160.

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BRE Properties, Inc.

Consolidated Statements of Income

Quarters Ended March 31, 2009 and 2008

(Unaudited, dollar and share amounts in thousands)

 

		Quarter ended 3/31/09			Quarter ended 3/31/08
REVENUE
Rental income		$	80,437		$	78,376
Ancillary income			3,246			3,154
Total revenue			83,683			81,530
EXPENSES
Real estate expenses		$	25,441		$	24,381
Depreciation			20,528			19,224
Interest expense (1)			21,022			22,963
General and administrative			4,326			4,655
Total expenses			71,317			71,223
Other income			628			594
Income before minority interests, partnership income and discontinued operations			12,994			10,901
Partnership income			656			631
Income from continuing operations			13,650			11,532
Discontinued operations:
Discontinued operations, net (2)			2,841			4,705
Total discontinued operations			2,841			4,705
NET INCOME		$	16,491		$	16,237
Redeemable noncontrolling interest in income			545			580
Dividends attributable to preferred stock			2,953			2,953
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS		$	12,993		$	12,704
Net income per common share - basic		$	0.25		$	0.25
Net income per common share - assuming dilution		$	0.25		$	0.25
Weighted average shares outstanding - basic (3)			51,180			50,985
Weighted average shares outstanding - assuming dilution (3)			51,180			51,379

 

(1)	Income Statement for the three months ended March 31, 2008 has been restated to reflect the adoption of APB 14-1.

(2)	Details of net earnings from discontinued operations. For 2009, includes five operating properties classified as held for sale as of March 31, 2009. The 2008 totals include the properties mentioned above and six properties sold in 2008.

 

		Three months ended 3/31/09				Three months ended 3/31/08
Rental and ancillary income		$	4,925			$	9,435
Real estate expenses			(1,702	)			(3,294	)
Depreciation			(382	)			(1,401	)
Interest expense			—				(35	)
Income from discontinued operations, net		$	2,841			$	4,705

(3)	Share count for the three months ended March 31, 2008 restated to reflect retroactive adoption of EITF 03-6-1.

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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 real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited.

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 Ended 3/31/2009				Quarter Ended 3/31/2008
Net income available to common shareholders		$	12,993			$	12,704
Depreciation from continuing operations			20,528				19,224
Depreciation from discontinued operations			382				1,401
Redeemable noncontrolling interest in income			545				580
Depreciation from unconsolidated entities			449				402
Less: Redeemable noncontrolling interest in income not convertible into common shares			(106	)			(106	)
Funds from operations		$	34,791			$	34,205
Allocation to participating securities - diluted FFO(1)		$	(355	)		$	(181	)
Allocation to participating securities - diluted EPS(1)		$	(83	)		$	(58	)
Diluted shares outstanding - EPS			51,180				51,379
Net income per common share - diluted		$	0.25			$	0.25
Diluted shares outstanding - FFO			51,965				52,224
FFO per common share - diluted		$	0.66			$	0.65

 

(1)	Adjustment to the numerators for diluted FFO per common share and diluted net income per common share when applying the two class method under EITF 03-6-1.

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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:

 

		Quarter Ended 3/31/2009			Quarter Ended 3/31/2008
Net income available to common shareholders		$	12,993		$	12,704
Interest, including discontinued operations			21,022			22,998
Depreciation, including discontinued operations			20,910			20,625
EBITDA			54,925			56,327
Redeemable noncontrolling interest in income			545			580
Dividends on preferred stock			2,953			2,953
Adjusted EBITDA		$	58,423		$	59,860

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).

 

		Quarter Ended 3/31/2009			Quarter Ended 3/31/2008
Net income available to common shareholders		$	12,993		$	12,704
Interest, including discontinued operations			21,022			22,998
Depreciation, including discontinued operations			20,910			20,625
Redeemable noncontrolling interest in income			545			580
Dividends on preferred stock			2,953			2,953
General and administrative expense			4,326			4,655
NOI		$	62,749		$	64,515
Less Non Same-Store NOI			7,822			8,964
Same-Store NOI		$	54,927		$	55,551

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ITEM 9.01.

Financial Statements and Exhibits

 

(d)

Exhibits.

 

Exhibit Number		Description
99.1		Press release of BRE Properties, Inc. dated May 5, 2009, including attachments.
99.2		Supplemental Financial data dated May 5, 2009, including attachments.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

						BRE Properties, Inc. (Registrant)
Date: May 6, 2009						/s/ Edward F. Lange, Jr.
						Edward F. Lange, Jr. Executive Vice President and Chief Operating Officer

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Exhibit Index

 

Exhibit Number		Description
99.1		Press release of BRE Properties, Inc. dated May 5, 2009, including attachments.
99.2		Supplemental Financial data dated May 5, 2009, including attachments.