BRE Properties Reports Fourth Quarter and Year 2009 Results

BRE Properties, Inc. (NYSE:BRE) today reported operating results for the quarter and year ended December 31, 2009. All per share results are reported on a fully diluted basis.

Fourth Quarter 2009

Funds from operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $16.0 million, or $0.29 per share, for fourth quarter 2009, as compared with $36.1 million, or $0.69 per share, for the quarter ended December 31, 2008. FFO for the fourth quarter 2009 includes nonroutine charges totaling $14.4 million, or $0.26 per share, primarily from the abandonment of three development sites under contract. FFO for the fourth quarter 2008 included three nonroutine income items totaling $7.8 million, or $0.15 per share, and two nonroutine expense items totaling $5.7 million, or $0.11 per share. FFO for the 2009 and 2008 periods included the impact of an additional noncash interest expense totaling $1.6 million, or $0.03 per share in each period, as a result of the adoption of the new FASB convertible debt accounting standard. Excluding nonroutine items and noncash interest from adoption of the convertible debt accounting standard, core FFO per share declined 15% on a year-over-year basis. (A reconciliation of net income (loss) available to common shareholders to FFO is provided at the end of this release.)

Net loss to common shareholders for the fourth quarter totaled $7.2 million, or $0.13 per share, as compared with net income of $55.7 million, or $1.08 per share, for the same period 2008. The fourth quarter 2008 results included gains from property sales totaling $41.2 million, or $0.80 per share.

Total revenues from continuing operations for the quarter were $85.5 million, as compared with $86.9 million a year ago. Adjusted EBITDA for the quarter totaled $54.6 million, as compared with $59.6 million in fourth quarter 2008. (A reconciliation of net income (loss) available to common shareholders to Adjusted EBITDA is provided at the end of this release.)

12-Month Period Ended December 31, 2009

For the annual period, FFO totaled $120.8 million, or $2.23 per share, as compared with $141.8 million, or $2.69 per share, for the 12-month period in 2008. FFO for year 2009 included nonroutine income totaling $1.5 million or $0.03 per share, and nonroutine expenses of $13.5 million, or $0.25 per share. FFO for the year 2008 included nonroutine income totaling $7.8 million, or $0.15 per share, and nonroutine expenses of $5.7 million, or $0.11 per share. FFO for the 12-month periods in 2009 and 2008 reflected the net impact of the new convertible debt accounting standard, totaling $6.4 million, or $0.12 per share, and $6.2 million, or $0.12 per share, respectively. Excluding nonroutine items and the noncash charge related to new convertible debt accounting standard, core FFO per share declined 6.9% year-over-year.

Net income available to common shareholders for the 12-month period totaled $50.6 million, or $0.95 per share, as compared with $122.8 million, or $2.36 per share, for the same period 2008. The 2009 results included gains from property sales totaling $21.6 million, or $0.41 per share; the 2008 results included gains totaling $66.0 million, or $1.28 per share.

For the 12-month period in 2009, total revenues from continuing operations were $344.6 million, as compared with $345.3 million for the same period 2008. Adjusted EBITDA for the 12-month period totaled $226.0 million, as compared with $242.4 million for the same period in 2008.

BRE’s year-over-year earnings and FFO results reflected declines in the same-store property-level operating results, which were offset by income from recently developed properties, a lower interest rate environment and a reduction in corporate-level G&A expenses.

Same-store net operating income (NOI) declined $5.6 million 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 release.) Recently developed properties generated $1.9 million in additional NOI during the quarter, as compared with fourth quarter 2008.

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 21,245 apartment units owned directly by BRE, same-store units totaled 19,572 for the quarter.

On a year-over-year basis, overall same-store NOI declined 9.5% for the fourth quarter and 6.4% for the annual period. Average same-store market rent for the fourth quarter 2009 decreased 9.1% to $1,380 per unit, from $1,519 per unit in fourth quarter 2008. Physical occupancy levels averaged 95.1% during fourth quarter 2009, as compared with 93.8% for the same period in 2008. Rent concession impact in the same-store portfolio totaled $3.3 million, or 20 days rent, for fourth quarter 2009, as compared with $1.1 million, or 7.5 days, for the same period in 2008.

On a sequential basis, same-store NOI decreased 1.4%, revenue declined 1.9% and expenses decreased 2.9% against third quarter 2009 results. Effective rents were reduced 1.0% in the fourth quarter, as market rent reductions were offset by lower levels of concessions awarded. Concessions associated with new leases decreased from 15 days rent in the third quarter of 2009 to 12 days rent in the fourth quarter.

Same-store results were affected primarily by job losses in the company’s operating markets. At the end of the fourth quarter, unemployment rates in the company’s core markets were: Southern California, 11.6%; San Francisco Bay area, 10.5%; and Seattle, 9.1%. The following table depicts job losses in the company’s core markets over the last 12 months:

Community Development Activity

At the end of the fourth quarter 2009, BRE had two development communities in lease-up: Taylor 28 in Seattle, Wash., and Belcarra in Bellevue, Wash. When completed, Belcarra will have 296 units, of which 203 were delivered as of December 31; all 197 units at Taylor 28 have been delivered. The current physical occupancy rates at these communities are: 88% at Taylor 28 and 38% at Belcarra; leasing velocity has averaged 19 units and 40 units per month, respectively, since the communities opened. During the quarter, physical stabilization was reached at Park Viridian in Anaheim, Calif. (328 units). Average occupancy at Park Viridian was 90.4% during the fourth quarter and 95.2% for the month of December.

BRE currently has two communities under construction, Belcarra in Bellevue, noted above, and Villa Granada in Santa Clara, Calif., with a total of 566 units, an aggregate projected investment of $176.1 million and an estimated balance to complete totaling $16.4 million. Estimated completion dates are first and fourth quarter 2010, respectively.

During the fourth quarter, the company acquired a 6.62-acre parcel of land in Sunnyvale, Calif. for a purchase price of approximately $14.5 million. The site represents approximately 338 units of future development.

In total, BRE owns four land parcels, two in Southern California and two in Northern California, representing 1,298 units of future development, and an estimated aggregate investment of $580 million upon completion.

Capital Markets Activity

During the quarter, the company repurchased through open market transactions $33.2 million of its 4.125% convertible notes, at 97.8% of par, resulting in a net loss of $870,000, or $0.02 per share after accelerated amortization of fees and debt discounts. The principal amount outstanding on the $460 million original issue is $371.3 million as of December 31, 2009.

Under the at-the-market equity distribution agreement filed with the Securities and Exchange Commission on Form 8-K on May 14, 2009, the company issued 783,000 shares of common stock in the fourth quarter, at an average price of $31.86 per share, with total gross proceeds of $25.0 million. During 2009, the company issued approximately 3.8 million shares of common stock, at an average price of $27.52 per share, with total gross proceeds of $104.6 million. The remaining capacity under the equity distribution agreement on file totals $20.4 million.

Nonroutine Income and Expense Items

During the fourth quarter 2009, the company recorded a charge of $13.5 million, or $0.25 per share in Other Expenses, representing $12.9 million in abandoned pursuit costs on three development sites under option agreements that the company no longer intends to pursue and $600,000 in severance charges. Two sites were in Southern California, and one in Northern California.

Also during the fourth quarter, as previously noted, a net loss on retirement of debt was recorded for $870,000, or $0.02 per share. For the year ended December 31, 2009, the company recorded a net gain on retirement of debt totaling $1.5 million, or $0.03 per share.

During the quarter and year ended December 31, 2008, the company recorded nonroutine income of $7.8 million, or $0.15 per share, comprising: $4.4 million from a legal settlement, $1.0 million from a forfeited escrow deposit on a defaulted property sale and a $2.4 million gain on retirement of debt. A charge of $5.7 million, or $0.11 per share, was recorded in Other Expenses during the fourth quarter of 2008, representing abandonment of three development sites totaling $5.1 million and severance charges of $600,000.

Common and Preferred Dividends Declared

On January 28, 2010, the BRE Board of Directors approved regular common and preferred stock dividends for the quarter ending March 31, 2010. All common and preferred dividends will be payable on Wednesday, March 31, 2010 to shareholders of record on Monday, March 15, 2010. The quarterly common dividend payment of $0.375 is equivalent to $1.50 per share on an annualized basis, and represents a yield of approximately 4.6% on Monday’s closing price of $32.32 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.

2010 Earnings Outlook

Earnings per share (EPS) for the full year 2010 are estimated to be within a range of $1.03 to $1.23. EPS estimates for 2010 do not reflect gains associated with property sales.

Management estimates FFO per share for 2010 to range from $1.90 to $2.10, excluding noncash interest charges from convertible notes of $0.12 per share. Including the noncash interest charges, reported FFO is estimated to range from $1.78 to $1.98. The midpoint of the 2010 guidance range represents a 22.5% reduction from 2009 FFO levels, excluding the impact of nonroutine items. The estimated decline in earnings can be attributed to an anticipated reduction in real estate net operating income (NOI) from same-store operations, reduced levels of capitalized interest and increased weighted average shares outstanding due to equity issuance.

The company’s 2010 financial outlook is based on a number of assumptions and estimates, which are outlined in Attachment C to this release. The primary assumptions and estimates include:

Same-Store Operations

• A decline in same-store revenue of 3.5% to 5.5%;
• An increase in same-store expenses of 1.0% to 2.0%; and
• A decrease in same-store NOI of 5.5% to 8.5%.

Investment Activity

• Development advances are estimated to total approximately $50 million; capitalized interest is estimated to total approximately $10 million.
• No acquisitions or dispositions of operating properties are assumed in the guidance range.

Q4 2009 Analyst Conference Call

The company will hold a conference call on Wednesday, February 3, at 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# 45409530. A telephone replay of the call will be available for 31 days at 800.642.1687 or 706.645.9291 international, using the same ID# 45409530. A link to the live webcast of the call will be posted on www.breproperties.com in the Investors section. A webcast replay will be available for one month following the call.

Q1 2010 Earnings Dates

The company will report first quarter 2010 earnings after close of market on Tuesday, May 4, 2010, followed by a conference call on Wednesday, May 5, 2010 at 11:00 a.m. Eastern (8:00 a.m. Pacific).

About BRE Properties

BRE Properties, based in San Francisco, Calif., owns 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 73 apartment communities totaling 21,245 units in California, Arizona and Washington. The company invests in communities through acquisition and development, and currently has six properties in various stages of development and construction, totaling 1,864 units, and joint-venture interests in 13 additional apartment communities, totaling 4,080 units. BRE Properties is a real estate investment trust (REIT) listed in the S&P MidCap 400 Index. For more information on BRE Properties, please visit our Web site at www.breproperties.com.

"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 intentions. 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 effecting 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, inability 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.