BRE Properties Reports Second Quarter 2006 Results

SAN FRANCISCO, July 31 /PRNewswire-FirstCall/ -- BRE Properties, Inc., today reported operating results for the quarter and six-month period ended June 30, 2006.

Funds from operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $51.4 million, or $0.96 per diluted share, during second quarter 2006, as compared with $26.9 million, or $0.51 per diluted share for the quarter ended June 30, 2005. Second quarter 2006 FFO included two nonroutine income items: (i) recoveries from a litigation settlement, totaling $19.5 million, or $0.36 per share; and (ii) income from gains on sales of excess land in Bellevue, Washington and Anaheim, California, totaling $3.5 million, or $0.07 per diluted share. (A reconciliation of net income available to common shareholders to FFO is provided at the end of this release.)

Net income available to common shareholders for the second quarter totaled $70.6 million, or $1.33 per diluted share, as compared with $13.5 million, or $0.26 per diluted share, for the same period 2005. In addition to the two nonroutine income items referenced above, second quarter 2006 results included a net gain on sales totaling $38.3 million, or $0.72 per diluted share. Second quarter 2005 results included a net gain on sales totaling $5.4 million, or $0.10 per diluted share.

Adjusted EBITDA for the quarter totaled $52.8 million, as compared with $50.2 million in second quarter 2005. (A reconciliation of net income available to common shareholders to Adjusted EBITDA is provided at the end of this release.) For second quarter 2006, revenues totaled $82.1 million, as compared with $72.7 million a year ago, which excludes revenues from discontinued operations of $1.6 million in the current period and $5.8 million in the prior period.

For the year-to-date period, FFO totaled $78.5 million, or $1.47 per diluted share, as compared with $53.1 million, or $1.01 per diluted share for the six-month period in 2005.

Net income available to common shareholders for the six-month period totaled $78.0 million, or $1.49 per diluted share, as compared with $42.3 million, or $0.82 per diluted share, for the same period 2005. The 2006 year- to-date results included the three nonroutine items cited previously, totaling $61.3 million, or $1.17 per diluted share. The 2005 year-to-date results included a net gain on sales totaling $26.9 million, or $0.52 per diluted share.

Adjusted EBITDA for the six-month period totaled $106.0 million, as compared with $99.5 million for the same period in 2005. For first half of 2006, revenues totaled $160.9 million, as compared with revenues of $143.1 million for the same period 2005, which excludes revenues from discontinued operations of $6.6 million in the current period and $12.9 million in the prior period.

BRE's positive year-over-year earnings and FFO results were influenced by property level same-store performance, income from acquisitions and the lease- up of development properties. Positive overall net operating income (NOI) growth was offset by higher interest expense and modestly higher corporate general and administrative expenses.

Level of Investment and NOI by Region Quarter Ended June 30, 2006 Gross % Q2'06 Region # Units Investment % Investment NOI Southern California 11,428 $1,487,145 55% 56% Northern California 5,644 655,573 24% 25% Seattle 3,572 395,905 15% 13% Phoenix 1,334 118,035 4% 4% Unconsolidated Joint Ventures 2,672 38,644 2% 2% ($ amounts in 000s) Total 24,650 $2,695,302 100% 100%

Year-over-year same-store NOI growth was 5.8% and 6.2% for the quarter and year-to-date periods, respectively. For the second quarter, same-store NOI increased $2.8 million relative to the same period in the prior year. (A reconciliation of net income available to common shareholders to NOI is provided at the end of this release.) Acquisition activities during 2004 and 2005 increased second quarter 2006 NOI by $1.7 million, as compared with the same period in the prior year. Development and lease-up properties generated $1.2 million in additional NOI during the quarter, as compared with second quarter 2005.

Interest expense increased to $19.7 million during second quarter 2006, from $18.4 million in second quarter 2005, and to $40.5 million, from $36.4 million in the respective six-month periods. The year-over-year increase reflects the issuance of $150 million in unsecured notes in May 2005 as well as a rising short-term interest rate environment. On a sequential basis, interest expense dropped $1.1 million from first quarter 2006, reflecting a reduction of debt from property dispositions.

General and administrative expense totaled $4.7 million in second quarter 2006, as compared with $4.0 million in second quarter 2005. For the six-month period, G&A expense increased to $9.2 from $8.8 million in the same period in the prior year. G&A expense increases are attributed primarily to compensation and technology-related costs.

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 21,978 apartment units owned directly by BRE, same-store units totaled 19,976 for the quarter.

On a year-over-year basis, overall same-store NOI growth was driven by revenue growth and maintaining property-level operating margins at approximately 68%. Average same-store market rent for second quarter 2006 increased 9.1% to $1,330 per unit, from $1,219 per unit in second quarter 2005. Same-store physical occupancy levels averaged 95.0% during second quarter 2006, as compared with 94.4% in the same period 2005.

For the second quarter and year-to-date periods, property-level operating expense increased 10.4% and 8.4%, respectively. The absolute level of expense growth exceeded management expectations by approximately $1.0 million, due to the timing of turnover-related costs and property tax assessments. Management believes the level of percentage growth is not an accurate depiction of expected annualized expense growth. By end of the year, the company expects annual same-store expense growth of approximately 6.0%.

Same-Store % Growth Results Q2 2006 Compared with Q2 2005 % Change % NOI Revenue Expenses NOI # Units L.A./Orange County, California 35% 7.0% 13.6% 4.1% 6,591 San Diego, California 22% 7.0% 15.6% 3.9% 3,711 San Francisco, California 17% 6.9% 5.8% 7.3% 3,035 Sacramento, California 9% 4.8% 2.5% 6.0% 2,156 Seattle, Washington 13% 8.3% 7.6% 8.7% 3,149 Phoenix, Arizona 4% 13.3% 8.7% 16.3% 1,334 Total 100% 7.2% 10.4% 5.8% 19,976 Same-Store % Growth Results Six Months Ended June 30, 2006 Compared with 2005 % Change % NOI Revenue Expenses NOI # Units L.A./Orange County, California 32% 6.5% 9.7% 5.1% 5,967 San Diego, California 23% 6.6% 9.9% 5.4% 3,711 San Francisco, California 18% 6.7% 7.5% 6.3% 3,035 Sacramento, California 10% 5.9% 4.2% 6.7% 2,156 Seattle, Washington 13% 7.2% 7.1% 7.3% 3,149 Phoenix, Arizona 4% 12.4% 10.3% 13.8% 1,334 Total 100% 6.9% 8.4% 6.2% 19,352 Same-Store Average Occupancy and Turnover Rates Physical Occupancy Turnover Ratio Q2 2006 Q1 2006 Q2 2005 YTD 2006 YTD 2005 L.A./Orange County, California 94.6% 94.1% 94.6% 62% 61% San Diego, California 95.5% 95.1% 94.4% 68% 67% San Francisco, California 94.6% 95.9% 94.2% 56% 57% Sacramento, California 94.5% 95.6% 95.0% 66% 68% Seattle, Washington 95.6% 94.5% 94.6% 55% 57% Phoenix, Arizona 96.3% 97.5% 92.6% 69% 74% Average 95.0% 95.1% 94.4% 62% 63% Development Activity

During second quarter 2006, the company had three Southern California communities in the lease-up phase: The Heights, with 208 units, in Chino Hills; Galleria at Towngate, with 268 units, in Moreno Valley; and Bridgeport Coast, with 188 units, in Santa Clarita. At the end of the quarter, all units were delivered at The Heights, 190 of which were occupied. At Galleria at Towngate, 246 units were delivered, 177 of which were occupied. At Bridgeport Coast, 160 units were delivered, 117 of which were occupied.

Including the two properties in the final stage of construction, BRE currently has five communities under construction, with a total of 1,328 units, for an aggregate projected investment of $316.4 million and an estimated balance to complete totaling $116.9 million. Expected delivery dates for these units range from third quarter 2006 through fourth quarter 2007. Four development communities are in Southern California; the other is located in Northern California.

BRE owns five land parcels representing 1,362 units of future development, and an estimated aggregate investment of $402.8 million upon completion. Expected construction starts for four parcels are expected to occur during second half 2006; one is scheduled for the first half of 2007. The land parcels are located in Southern California, Northern California and the Seattle, Washington metro area.

Disposition Activity

On April 28, 2006, BRE announced the formation of a joint venture with a fund advised by JPMorgan Asset Management. Under the terms of the agreement, BRE contributed seven properties with 2,184 units located in the Denver, Colorado, and Phoenix, Arizona, markets, the total value of which is approximately $235 million. BRE holds a 15% interest in the joint venture and fee-manages the seven properties.

The company recorded a gain on sale of approximately $38.3 million, or $0.72 per share. The company used the net proceeds of approximately $200 million to pay down its floating rate unsecured credit facility.

In second quarter 2006, BRE closed two sales of excess land in Bellevue, Washington and Anaheim, California, totaling $22.2 million, with an aggregate gain of $3.5 million. The gain is included in Other income and contributed $0.07 per share to both FFO and EPS.

Financial and Other Information

At June 30, 2006, BRE's combination of debt and equity resulted in a total market capitalization of approximately $4.6 billion, with a debt-to-total market capitalization ratio of 31%. The company's outstanding debt of $1.4 billion carried a weighted average interest rate of 6.25% for the six-month period. BRE's coverage ratio of Adjusted EBITDA to interest expense was 2.7 times for the quarter. The weighted average maturity for outstanding debt is 4.34 years. At June 30, 2006, outstanding borrowings under the company's unsecured and secured lines of credit totaled $255 million, with a weighted average interest cost of 5.82%.

For second quarter 2006, cash dividend payments to common shareholders totaled $26.5 million, or $0.5125 per share, which represents an increase of 2.5% over prior year per share dividend levels.

Earnings Outlook

At July 31, 2006, 13 analysts contributed annual FFO estimates for BRE to First Call ranging from $2.48 to $2.57, for a consensus average of $2.51.

The company is raising its 2006 earnings guidance, as follows: * FFO guidance has been revised to a range of $2.60 to $2.67, from a range of $2.44 to $2.56. * EPS has been revised to a range of $1.70 to $1.77, from a range of $0.99 to $1.11.

At the midpoint of the guidance range, the company's FFO estimate reflects the impact of the land sales recorded during the second quarter, plus stronger than expected operating results, which may be offset by higher interest expense.

The company's EPS estimate reflects the gains recognized from property dispositions recorded during the second quarter.

FFO and EPS estimates may be subject to fluctuation as a result of several factors, including any change to underlying operating fundamentals, the timing associated with acquisition and disposition activity, the incurrence of any unexpected charges, and any gains or losses associated with disposition activity.

Q2 2006 Analyst Conference Call

The company will hold a conference call on Tuesday, August 1 at 8:30 a.m. Pacific (11:30 a.m. Eastern) to review these results. The dial-in number to participate in the U.S. and Canada is 888.290.1473; the international number is 706.679.8398. Enter Conf. ID# 1871721. A telephone replay of the call will be available for 30 days at 800.642.1687 or 706.645.9291 international, using the same ID# 1871721. A link to the live webcast of the call will be posted on http://www.breproperties.com/, in Investors, on the Corporate Profile page. A webcast replay will be available for one month following the call.

BRE Properties -- a real estate investment trust -- develops, acquires 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 78 apartment communities totaling 21,978 units in California, Arizona, Washington and Colorado. The company currently has 10 other properties in various stages of development and construction, totaling 2,701 units, and joint venture interests in nine additional apartment communities, totaling 2,661 units.

"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," "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. 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 liability to update this information. For more details, please refer to the Company's SEC filings, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

BRE Properties, Inc. Consolidated Balance Sheets Second Quarter 2006 (Unaudited, Dollar amounts in thousands except per share data) June 30, June 30, ASSETS 2006 2005 Real estate portfolio: Direct investments in real estate: Investments in rental properties $2,656,658 $2,671,796 Construction in progress 134,293 135,217 Less: accumulated depreciation (366,222) (315,537) 2,424,729 2,491,476 Equity interests in and advances to real estate joint ventures: Investments in rental properties 38,644 10,158 Land under development 106,206 81,735 Total real estate portfolio 2,569,579 2,583,369 Cash 4,365 5,111 Other assets 52,759 47,248 TOTAL ASSETS $2,626,703 2,635,728 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Unsecured senior notes $980,000 $998,023 Unsecured line of credit 180,000 189,000 Secured line of credit 75,000 75,000 Mortgage loans 203,087 216,482 Accounts payable and accrued expenses 61,408 52,296 Total liabilities 1,499,495 1,530,801 Minority interests 60,043 61,675 Shareholders' equity: Preferred Stock, $0.01 par value; 20,000,000 shares authorized: 10,000,000 shares with $25 liquidation preference issued and outstanding at June 30, 2006 and June 30, 2005, respectively. 100 100 Common stock, $0.01 par value, 100,000,000 shares authorized. Shares issued and outstanding: 51,385,437 and 50,837,086 at June 30, 2006 and 2005, respectively. 514 508 Additional paid-in capital 1,066,551 1,042,644 Total shareholders' equity 1,067,165 1,043,252 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,626,703 $2,635,728 BRE Properties, Inc. Consolidated Statements of Income Quarters and Six Months Ended June 30, 2006 and 2005 (Unaudited, dollar and share amounts in thousands) Six Six Quarter Quarter Months Months Ended Ended Ended Ended REVENUE 6/30/2006 6/30/2005 6/30/2006 6/30/2005 Rental income $78,466 $69,015 $153,848 $136,553 Ancillary income 3,621 3,676 7,075 6,550 Total revenue 82,087 72,691 160,923 143,103 EXPENSES Real estate expenses $26,163 $22,742 $51,325 $45,210 Depreciation 18,376 16,810 37,507 33,829 Interest expense 19,680 18,378 40,470 36,437 General and administrative 4,745 4,048 9,185 8,808 Other expenses 62 281 562 729 Total expenses 69,026 62,259 139,049 125,013 Other income 23,392 497 24,029 1,701 Income before minority interests, partnership income and discontinued operations 36,453 10,929 45,903 19,791 Minority interests (897) (915) (1,805) (1,705) Partnership income 444 102 578 247 Income from continuing operations 36,000 10,116 44,676 18,333 Discontinued operations: Discontinued operations, net (1) 783 2,479 3,961 6,044 Net gain on sales 38,302 5,374 38,302 26,897 Total discontinued operations 39,085 7,853 42,263 32,941 NET INCOME $75,085 $17,969 $86,939 $51,274 Dividends attributable to preferred stock 4,468 4,468 8,936 8,936 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $70,617 $13,501 $78,003 $42,338 Net income per common share - basic $1.38 $0.27 $1.52 $0.84 Net income per common share - assuming dilution $1.33 $0.26 $1.49 $0.82 Weighted average shares outstanding - basic 51,335 50,810 51,220 50,695 Weighted average shares outstanding - assuming dilution 53,520 51,560 52,435 51,440 (1) Details of net earnings from discontinued operations. For 2006 includes seven properties held for sale and contributed to a joint venture in April 2006. For 2005 also includes results from three properties sold during the first six months of 2005 Quarter Quarter Six months Six months ended ended ended ended 6/30/2006 6/30/2005 6/30/2006 6/30/2005 Rental and ancillary income $1,560 $5,791 $6,646 $12,905 Real estate expenses (777) (2,087) (2,685) (4,435) Depreciation -- (1,225) -- (2,426) Income from discontinued operations, net $783 $2,479 $3,961 $6,044 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 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.

Six Six Quarter Quarter Months Months Ended Ended Ended Ended 6/30/06 6/30/05 6/30/06 6/30/05 Net income available to common shareholders $70,617 $13,501 $78,003 $42,338 Depreciation from continuing operations 18,376 16,810 37,507 33,829 Depreciation from discontinued operations -- 1,225 -- 2,426 Minority interests 897 915 1,805 1,705 Depreciation from unconsolidated entities 243 216 338 418 Net gain on investments (38,302) (5,374) (38,302) (26,897) Less: Minority interests not convertible to common (406) (405) (811) (685) Funds from operations $51,425 $26,888 $78,540 $53,134 Diluted shares outstanding - EPS 53,520 51,560 52,435 51,440 Net income per common share - diluted $1.32 $0.26 $1.49 $0.82 Diluted shares outstanding - FFO 53,520 52,580 53,420 52,460 FFO per common share - diluted $0.96 $0.51 $1.47 $1.01 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, nonroutine items, 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:

Six Six Quarter Quarter Months Months Ended Ended Ended Ended 6/30/06 6/30/05 6/30/06 6/30/05 Net income available to common shareholders $70,617 $13,501 $78,003 $42,338 Interest 19,680 18,378 40,470 36,437 Depreciation 18,376 18,035 37,507 36,255 EBITDA 108,673 49,914 155,980 115,030 Minority interests 897 915 1,805 1,705 Net gain on sales (38,302) (5,374) (38,302) (26,897) Gain on sales of land (3,485) -- (3,485) -- Dividends on preferred stock 4,468 4,468 8,936 8,936 Other expenses 62 281 562 729 Redhawk Settlement (19,500) -- (19,500) -- Adjusted EBITDA $52,813 $50,204 $105,996 $99,503 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).

Six Six Quarter Quarter Months Months Ended Ended Ended Ended 6/30/06 6/30/05 6/30/06 6/30/05 Net income available to common shareholders $70,617 $13,501 $78,003 $42,338 Interest 19,680 18,378 40,470 36,437 Depreciation 18,376 18,035 37,507 36,255 Minority interests 897 915 1,805 1,705 Net gain on sales (38,302) (5,374) (38,302) (26,897) Dividends on preferred stock 4,468 4,468 8,936 8,936 General and administrative expense 4,745 4,048 9,185 8,808 Other expenses 62 281 562 729 NOI $80,543 $54,252 $138,166 $108,311 Less Non Same-Store NOI 30,359 6,819 43,568 19,204 Same-Store NOI $50,184 $47,433 $94,598 $89,107