10-Q 1 v358509_10q.htm QUARTERLY REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

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

Commission file number 1-14306

BRE PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	94-1722214
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

525 Market Street 4^thFloor San Francisco, CA	94105-2712
(Address of Principal Executive Offices)	(Zip Code)

(415) 445-6530

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	x	Accelerated Filer	¨

Non-Accelerated Filer	¨ (Do not check if a smaller reporting company)	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Number of shares of common stock outstanding as of October 28, 2013 77,188,152

BRE PROPERTIES, INC.

INDEX TO FORM 10-Q

September 30, 2013

	Page No.
PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements:	3

Consolidated Balance Sheets – September 30, 2013 (unaudited) and December 31, 2012	3

Consolidated Statements of Income (unaudited) – three months ended September 30, 2013 and 2012	4

Consolidated Statements of Income (unaudited) – nine months ended September 30, 2013 and 2012	5

Consolidated Statements of Cash Flows (unaudited) – nine months ended September 30, 2013 and 2012	6-7

Condensed Notes to Consolidated Financial Statements (unaudited)	8-17

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-27

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk	28

ITEM 4: Controls and Procedures	28

PART II OTHER INFORMATION

ITEM 1: Legal Proceedings	29
ITEM 1A: Risk Factors	29
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds	29
ITEM 3: Defaults Upon Senior Securities	29
ITEM 4: (Removed and Reserved)	29
ITEM 5: Other Information	29
ITEM 6: Exhibits	30

SIGNATURES	31
EXHIBIT INDEX	32

PART I FINANCIAL INFORMATION

ITEM 1 - Financial Statements.

BRE Properties, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share data)

	September 30,			December 31,
	2013			2012
	(unaudited)
Assets
Real estate portfolio:
Direct investments in real estate:
Investments in rental communities	$	3,897,982		$	3,722,838
Construction in progress		483,481			302,263
Less: accumulated depreciation		(879,640	)		(811,187	)
		3,501,823			3,213,914

Equity investment in real estate joint ventures		6,451			40,753
Real estate held for sale, net		23,481			23,065
Land under development		38,382			104,675
Total real estate portfolio		3,570,137			3,382,407
Cash		7,876			62,241
Other assets		48,512			54,334
Total assets	$	3,626,525		$	3,498,982

Liabilities and Shareholders’ Equity
Liabilities:
Unsecured senior notes	$	950,000		$	990,018
Unsecured revolving credit facility		177,000			-
Mortgage loans payable		711,527			741,942
Accounts payable and accrued expenses		81,374			75,789
Total liabilities		1,919,901			1,807,749

Redeemable noncontrolling interest		4,751			4,751
Shareholders’ equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized; 2,159,715 shares with $25 liquidation preference issued and outstanding at September 30, 2013 and December 31, 2012.		22			22
Common stock, $0.01 par value, 100,000,000 shares authorized; 77,187,542 and 76,925,351 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively.		772			769
Additional paid-in capital		1,886,519			1,879,250
Cumulative dividends in excess of accumulated net income		(185,440	)		(193,559	)
Total shareholders’ equity		1,701,873			1,686,482
Total liabilities and shareholders’ equity	$	3,626,525		$	3,498,982

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

Consolidated Statements of Income (unaudited)

(Amounts in thousands, except per share data)

	For the three months ended
	September 30,
	2013		2012
Revenues
Rental income	$	100,314	$	93,755
Ancillary income		4,304		3,776
Total revenues		104,618		97,531
Expenses
Real estate		32,592		30,827
Provision for depreciation		27,543		24,501
Interest		15,948		16,998
General and administrative		5,055		5,093
Other expenses		585		15,000
Total expenses		81,723		92,419
Other income		93		740
Income before noncontrolling interests, income from investments in unconsolidated entities and discontinued operations		22,988		5,852
Income from unconsolidated entities		94		669
Net gain on sales of unconsolidated entities		-		6,025
Income from continuing operations		23,082		12,546
Income from discontinued operations, net		-		1,360

Income from discontinued operations		-		1,360
Net income	$	23,082	$	13,906
Redeemable noncontrolling interest in income		48		105
Net income attributable to controlling interests	$	23,034	$	13,801
Dividends attributable to preferred stock		911		911
Net income available to common shareholders	$	22,123	$	12,890
Per common share data - Basic
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	0.29	$	0.15
Income from discontinued operations		-		0.02
Net income available to common shareholders	$	0.29	$	0.17
Weighted average common shares outstanding – basic		77,170		76,813
Per common share data - Diluted
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	0.29	$	0.15
Income from discontinued operations		-		0.02
Net income available to common shareholders	$	0.29	$	0.17
Weighted average common shares outstanding – diluted		77,350		77,130
Dividends declared and paid per common share	$	0.395	$	0.385

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

Consolidated Statements of Income (unaudited)

(Amounts in thousands, except per share data)

	For the nine months ended
	September 30,
	2013		2012
Revenues
Rental income	$	294,248	$	275,602
Ancillary income		12,070		11,040
Total revenues		306,318		286,642
Expenses
Real estate		94,913		90,803
Provision for depreciation		79,183		73,103
Interest		49,935		50,488
General and administrative		17,393		17,152
Other expenses		585		15,000
Total expenses		242,009		246,546
Other income		746		1,966
Income before noncontrolling interests, income from investments in unconsolidated entities and discontinued operations		65,055		42,062
Income from unconsolidated entities		523		2,125
Net gain on sales of unconsolidated entities		18,633		6,025
Income from continuing operations		84,211		50,212
Income from discontinued operations, net		1,028		4,251
Net gain on sales of discontinued operations		17,394		8,279
Income from discontinued operations		18,422		12,530
Net income	$	102,633	$	62,742
Redeemable noncontrolling interest in income		143		315
Net income attributable to controlling interests	$	102,490	$	62,427
Dividends attributable to preferred stock		2,733		2,733
Net income available to common shareholders	$	99,757	$	59,694
Per common share data - Basic
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	1.05	$	0.62
Income from discontinued operations		0.24		0.16
Net income available to common shareholders	$	1.29	$	0.78
Weighted average common shares outstanding – basic		77,086		76,471
Per common share data - Diluted
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	1.05	$	0.62
Income from discontinued operations		0.24		0.16
Net income available to common shareholders	$	1.29	$	0.78
Weighted average common shares outstanding – diluted		77,310		76,840
Dividends declared and paid per common share	$	1.185	$	1.155

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

	For the nine months ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	102,633		$	62,742
Adjustments to reconcile net income to net cash flows provided by operating activities:
Net gain on sales of discontinued operations		(17,394	)		(8,279	)
Net gain on sales of unconsolidated entities		(18,633	)		(6,025	)
Non cash interest on convertible debt		-			36
Income from unconsolidated entities		(523	)		(2,125	)
Distributions of earnings from unconsolidated entities		538			3,484
Non cash asset impairment charge		-			15,000
Provision for depreciation		79,183			73,103
Provision for depreciation from discontinued operations		368			1,895
Amortization of deferred financing costs		2,367			2,249
Non cash stock based compensation expense		5,348			4,281
Change in other assets		2,899			(362	)
Change in accounts payable and accrued expenses		(165	)		1,870
Net cash flows provided by operating activities		156,621			147,869
Cash flows from investing activities:
Acquisition of operating real estate communities		(120,515	)		-
Additions to land under development and predevelopment cost		(7,290	)		(41,865	)
Additions to construction in progress		(146,012	)		(103,371	)
Rehabilitation expenditures and other		(32,078	)		(21,856	)
Capital expenditures		(18,086	)		(14,411	)
Proceeds from sale of unconsolidated entities, net of closing costs		53,408			26,919
Proceeds from sale of operating community, net of closing costs		46,840			12,309
Net cash flows used in investing activities		(223,733	)		(142,275	)
Cash flows from financing activities:
Principal payments on mortgage loans		(30,415	)		(66,481	)
Repayment of unsecured notes		(40,018	)		(35,000	)
Proceeds from issuance of unsecured notes, net		-			295,266
Lines of credit:
Advances		264,000			193,000
Repayments		(87,000	)		(322,000	)
Cash dividends paid to common shareholders		(91,638	)		(88,969	)
Cash dividends paid to preferred shareholders		(2,733	)		(2,733	)
Distributions to redeemable noncontrolling interests		(143	)		(315	)
Shares retired for tax withholding		(3,886	)		(2,982	)
Proceeds from exercises of stock options and other, net		3,929			5,341
Proceeds from dividend reinvestment plan		651			738
Proceeds from issuance of common shares, net		-			38,987
Net cash flows provided by financing activities		12,747			14,852
(Decrease)/Increase in cash		(54,365	)		20,446
Cash balance at beginning of period		62,241			9,600
Cash balance at end of period	$	7,876		$	30,046

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

	For the nine months ended
	September 30,
	2013			2012
Supplemental information
Cash paid for interest, net of amounts capitalized	$	61,433		$	59,342
Transfer of net investment in rental properties to held for sale	$	29,573		$	-
Transfer of land under development to other assets	$	-			23,000
Transfers of direct investments in real estate-construction in progress to investments in rental communities	$	41,400		$	50,473
Transfer of land under development to direct investments in real estate-construction in progress	$	71,576		$	-
Change in accrued improvements to direct investments in real estate	$	(205	)	$	(1,380	)
Change in accrued development costs for construction in progress and land under development	$	(4,386	)	$	487
Change in redemption value of redeemable noncontrolling interests	$	-		$	(3,789	)
Conversion of redeemable noncontrolling interest units	$	-		$	(4,332	)

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2013

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements have been omitted. The consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2012 of BRE Properties, Inc. (the “Company” or “BRE”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments only) necessary for a fair presentation of the Company’s consolidated financial statements for the interim periods presented.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE B – UPDATE OF SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in Rental Communities

Rental communities are recorded at cost, less accumulated depreciation, less an adjustment, if any, for impairment. Costs associated with the purchase of operating communities are recorded to land, building and intangibles when applicable, based on their fair value in accordance with Financial Accounting Standards Board (FASB) business combination guidance. Land value is assigned based on the purchase price if land is acquired separately, or estimated fair market value based upon market comparables if acquired in a merger or in an operating community acquisition.

Where possible, the Company stages its construction to allow leasing and occupancy during the construction period, which BRE believes minimizes the duration of the lease up period following completion of construction. The Company’s accounting policy related to communities in the development and leasing phase is to expense all operating cost associated with completed apartment homes, including costs associated with the lease up of the development. Projects under development are carried at cost, including direct and indirect soft costs incurred to ready the assets for their intended use and which are specifically identifiable, including capitalized interest and property taxes until homes are placed in service. Interest is capitalized on the construction in progress at a rate equal to the Company’s weighted average cost of debt. The Company has a development group which manages the design, development and construction of apartment communities. Project costs related to the development and construction of apartment communities (including interest and related loan fees, property taxes, and other direct costs including municipal fees, permits, architecture, engineering and other professional fees) are capitalized as a cost of the project. Indirect development costs, including salaries and benefits, office rent, and associated costs for those individuals directly responsible for and who spend all of their time on development activities are also capitalized and allocated to the projects to which they relate. Capitalized development compensation totaled approximately $1,772,000 and $1,700,000 for the three months ended September 30, 2013 and September 30, 2012, respectively. Capitalized development compensation totaled approximately $5,823,000 and $6,100,000 for the nine months ended September 30, 2013, and September 30, 2012, respectively. Indirect costs not related to development and construction activity are expensed as incurred. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and improvements that increase the value of the community or extend its useful life are capitalized.

Direct investment development projects are considered placed in service as certificates of occupancy are issued and the homes become ready for occupancy. Depreciation begins as homes are placed in service. Land acquired for development is capitalized and reported as land under development until the development plan for the land is finalized. Once the development plan is finalized, construction contracts are signed, and construction has commenced, the costs are transferred to the balance sheet line item Construction in progress.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which generally range from 35 to 40 years for buildings and three to ten years for other property assets. The determination as to whether expenditures should be capitalized or expensed, and the period over which depreciation is recognized, requires management’s judgment.

In accordance with FASB guidance on accounting for the impairment or disposal of long-lived assets, the Company’s investments in real estate are periodically evaluated for indicators of impairment. The evaluation of impairment and the determination of estimated fair value are based on several factors, and future events could occur which would cause management to conclude that indicators of impairment exist and a reduction in carrying value to estimate fair value is warranted. Impairment is first triggered when the carrying amount of an asset may not be recoverable. To determine impairment, the test consists of comparing the undiscounted net cash flows expected to be produced by the asset to the carrying value of the asset. If the total future undiscounted net cash flows are less than the carrying amount of the real estate, impairment exists. If impairment exists and the carrying amount of the real estate exceeds its fair value, an impairment loss is recognized equal to the amount of the excess carrying amount over the fair value. Based on periodic tests of recoverability of long-lived assets, for the three months and nine months ended September 30, 2013 and 2012, the Company did not record any impairment losses for wholly-owned operating real estate assets.

The Company also assesses land held for development for impairment if the intent changes with respect to the development of the land. There was no land held for development for which an adjustment for impairment in value was made for the three months and nine months ended September 30, 2013. During the three months and nine months ended September 30, 2012, the Company recorded a $15,000,000 non-cash asset impairment charge on land held for development located in Anaheim, California, as a result of changes in the future plans to develop the project. At September 30, 2013, the land is classified as held for sale on the consolidated balance sheet.

FASB guidance also requires that the results of operations of any communities that have been sold, or otherwise qualify as held for sale, be presented as discontinued operations in the Company’s consolidated financial statements in all periods presented. The community specific real estate classified as held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs. Depreciation ceases once an asset is classified as held for sale. The Company classifies an asset as held for sale once all of the guidance criteria are met.

Reportable Segments

FASB guidance requires certain descriptive information to be provided about an enterprise’s reportable segments. BRE has determined that each of its operating communities, which comprised 99% of BRE’s consolidated assets at September 30, 2013 and December 31, 2012 and approximately 99% of its total consolidated revenues for the three months and nine months ended September 30, 2013 and 2012, represents an operating segment. The Company aggregates its operating segments into five reportable segments based upon geographical region with same-store communities aggregated into four reportable segments and non same-store communities aggregated into one reportable segment.

“Same-store” communities are defined as communities that have been completed, stabilized and owned by the Company for two comparable calendar year periods. The Company defines “stabilized” as communities that have reached a physical occupancy of at least 93%. Physical occupancy is calculated by dividing the total occupied homes by the total homes in the communities.

NOTE C – STOCK-BASED COMPENSATION

FASB guidance requires all share-based payments to employees to be recognized in the income statement based on their grant date fair values.

Stock-based compensation cost is measured at the grant date fair value and is recognized, net of estimated forfeitures, as expense over the requisite service period, which is generally the vesting period. The cost related to stock-based compensation included in the determination of consolidated net income includes all awards outstanding that vested during these service periods. Under the 1999 BRE Stock Incentive Plan, as amended, and the Fifth Amended and Restated Non-Employee Director Stock Option and Restricted Stock Plan, the Company awards service based restricted stock, performance based restricted stock without market conditions, performance based restricted stock with market conditions, and stock options.

The Company measures the value of the service based restricted stock and performance based restricted stock without market conditions at fair value on the grant date, based on the number of units granted and the market value of its common stock on that date. Guidance requires compensation expense to be recognized with respect to the restricted stock if it is probable that the service or performance condition will be achieved. As a result, the Company records the fair value, net of estimated forfeitures, as stock-based compensation expense on a straight-line basis over the vesting period for service based restricted stock. For service based restricted stock awards, the Company evaluates its forfeiture rate at the end of each reporting period based on the probability of the service condition being met. For performance based restricted stock awards without market conditions, the Company records the fair value, net of estimated forfeitures, as stock-based compensation expense using the accelerated attribution method with each vesting tranche valued as a separate award. The fair value of performance based restricted stock awards with market conditions is determined using a Monte Carlo simulation to estimate the grant date fair value. The Company records the fair value of these awards with market conditions, net of estimated forfeitures, as stock-based compensation over the vesting period regardless of whether the market conditions are satisfied in accordance with share-based payment guidance.

The Company estimates the fair value of its options using a Black-Scholes valuation model using various assumptions to determine their grant date fair value. The Company amortizes the fair value, net of estimated forfeitures, as stock-based compensation expense on a straight-line basis over the vesting period. The cost related to stock-based compensation included in the determination of consolidated net income for the three months and nine months ended September 30, 2013 and 2012 includes all awards outstanding and vested during these periods.

Stock based compensation awards under BRE’s plans vest over periods ranging from one to six years. At September 30, 2013, compensation cost related to unvested awards not yet recognized totaled approximately $16,500,000 and the weighted average period over which it is expected to be recognized is 3.19 years. During the nine months ended September 30, 2013, 217,869 restricted shares were awarded and 178,339 restricted shares vested. During the nine months ended September 30, 2013, zero stock options were awarded and 142,702 options were exercised.

NOTE D – CONSOLIDATION OF VARIABLE INTEREST ENTITIES

Arrangements that are not controlled through voting or similar rights are reviewed under the accounting guidance for variable interest entities (VIEs). A Company is required to consolidate the assets, liabilities and operations of a VIE if it is determined to be the primary beneficiary of the VIE.

In June 2009, the FASB changed the consolidation analysis for VIEs to require a qualitative analysis to determine the primary beneficiary of the VIE. The determination of the primary beneficiary of a VIE is based on whether the entity has the power to direct matters that most significantly impact the activities of the VIE and has the obligation to absorb losses, or the right to receive benefits, of the VIE which could potentially be significant to the VIE. The guidance requires an ongoing reconsideration of the primary beneficiary and also amends the events triggering a reassessment. Additional disclosures for VIEs are required, including a description about a reporting entity’s involvement with VIEs, how a reporting entity’s involvement with a VIE affects the reporting entity’s financial statements, and significant judgments and assumptions made by the reporting entity to determine whether it must consolidate the VIE.

Under the guidance, an entity is a VIE and subject to consolidation, if by design a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders or b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company reviewed the consolidation guidance and concluded that its joint venture LLC is not a VIE. The Company further reviewed the management fees paid to it by its joint venture and determined that they do not create a variable interest in the entity. As of September 30, 2013, the Company had no land purchase options outstanding from third party entities. As the Company had no land purchase options outstanding during the nine months ended September 30, 2013, the Company determined that there was no VIE consideration required.

Under applicable accounting guidance, the managing member of a limited liability company, or LLC, is presumed to control the joint venture LLC and must prove non-managing member(s) have certain rights that preclude the managing member from exercising unilateral control. The Company has reviewed its control as the managing partner of the Company’s joint venture asset and concluded that it does not have control over any of the LLC managed by the Company. As a result, the Company has applied the equity method of accounting to its investment in a joint venture.

BRE consolidates entities not deemed to be VIEs that it has the ability to control. The accompanying consolidated financial statements include the accounts of the Company, the Operating Company and other controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

NOTE E – REAL ESTATE PORTFOLIO

FASB guidance on property acquisitions requires the acquiring entity in a business combination to recognize the fair value of assets acquired and liabilities assumed in the transaction and recognize contingent consideration arrangements and pre-acquisition loss and gain contingencies at their acquisition-date fair value. The acquirer is required to expense, as incurred, acquisition related transaction costs. BRE expenses costs associated with the pursuit of potential acquisitions to General and Administrative expenses. Once an acquisition is probable the costs are categorized and expensed in Other expenses.

Acquisitions

Costs associated with the purchase of operating communities are recorded to land, building and intangibles when applicable, based on their fair value in accordance with FASB business combination guidance.

On September 30, 2013, the Company acquired the Jefferson at Hollywood, a 270 home community located in Los Angeles, California for a total purchase price of $120,500,000. The acquisition was recorded in Investments in rental communities on the consolidated balance sheet. Costs related to the acquisition of $585,000 for the nine months ended September 30, 2013, were recorded in Other expenses on the consolidated statements of income.

No land parcels were acquired during the nine months ended September 30, 2013.

During the nine months ended September 30, 2012, the Company acquired a parcel of land for future development in Redwood City, California for a purchase price of $11,400,000. The Company also acquired a parcel of land for future development in Pleasanton, California for a purchase price of $11,100,000.

Discontinued operations and dispositions

Accounting guidance requires the results of operations for communities sold during the period or designated as held for sale at the end of the period to be classified as discontinued operations. The community-specific components of net earnings that are classified as discontinued operations include all community-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale, and community-specific interest expense to the extent there is secured debt on the community. In addition, the net gain or loss on the eventual disposal of communities held for sale is reported as discontinued operations.

At September 30, 2013, the Company had land owned in Anaheim, California, with a net carrying value of $23,481,000 classified as held for sale on the consolidated balance sheet.

On June 28, 2013, the Company sold one community, Summerwind Townhomes, with 200 homes located in Los Angeles, California. The net proceeds from the sale were $46,840,000, resulting in a net gain of $17,394,000.

During 2012, the Company sold three communities located in San Diego, California: Countryside Village, with 96 homes in El Cajon submarket; Terra Nova Villas, with 233 homes in Chula Vista; and Canyon Villa, with 183 homes in Chula Vista. The net proceeds from the three sales were $88,236,000 resulting in a combined net gain of $62,136,000.

The following is a breakdown of the combined results of operations for the operating communities included in discontinued operations:

	For the three months ended					For the nine months ended
	September 30,					September 30,
	2013		2012			2013			2012
(amounts in thousands)
Rental and ancillary income	$	-	$	2,819		$	2,113		$	8,950
Real estate expenses		-		(863	)		(717	)		(2,804	)
Provision for depreciation		-		(596	)		(368	)		(1,895	)
Income from discontinued operations, net	$	-	$	1,360		$	1,028		$	4,251

Sale of unconsolidated entities

On February 28, 2013, the Company sold its joint venture interest to its joint venture partner in four communities located in Denver, Colorado with a total of 1,616 homes and two communities located in Phoenix, Arizona with a total of 564 homes. The Company had a 15% equity ownership in each community. The Company’s total net proceeds were $47,393,000 and the Company recognized a net gain of $15,025,000.

On June 13, 2013, the Company sold the joint venture asset Arcadia Cove, a 432 home community located in Phoenix, Arizona. The Company had a 15% equity ownership in the community and received net proceeds of $6,015,000 and the Company recognized a net gain of $3,608,000.

NOTE F – EQUITY

On February 24, 2010, the Company entered into Equity Distribution Agreements (EDAs) with each of Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Wells Fargo Securities, LLC (collectively, the “sales agents”) under which it may issue and sell from time to time through or to its sales agents shares of its common stock having an aggregate offering price of up to $250,000,000.

No shares were issued under the EDAs during the nine months ended September 30, 2013. During the nine months ended September 30, 2012, 815,045 shares were issued under the EDAs, with an average share price of $49.09 for total gross proceeds of approximately $40,000,000 and total commission paid to the sales agents of approximately $800,000. As of September 30, 2013, the remaining capacity under the EDAs totals $123,600,000. Proceeds from the sale of shares under the EDAs were used for general corporate purposes that include reducing borrowings under the Company’s revolving credit facility, the repayment of other indebtedness, the redemption or other repurchase of outstanding debt or equity securities, funding for development activities and financing for acquisitions.

During the nine months ended September 30, 2013, 249,178 net shares of common stock were issued under the Company’s stock-based compensation plans and 13,013 shares of common stock were issued under the Company’s direct stock purchase and dividend reinvestment plan.

Consolidated Statements of Stockholders’ Equity

(Dollar amounts in thousands, except share and per share data)

Common Stock Shares	September 30, 2013
Balance at beginning of year		76,925,351
Stock options exercised, net of shares tendered		137,349
Vested restricted shares, net of shares tendered		111,829
Shares issued pursuant to dividend reinvestment plan		13,013
Balance at end of period		77,187,542
Preferred stock shares
Balance at beginning of year		2,159,715
Balance at end of period		2,159,715
Common stock
Balance at beginning of year	$	769
Stock options exercised, net of shares tendered		2
Vested restricted shares, net of shares tendered		1
Shares issued pursuant to dividend reinvestment plan		-
Balance at end of period	$	772
Preferred stock
Balance at beginning of year	$	22
Balance at end of period	$	22
Additional paid-in capital
Balance at beginning of year	$	1,879,250
Stock options exercised, net of shares tendered and other, net		3,929
Shares retired for tax withholding		(3,886	)
Stock based compensation		6,575
Dividend reinvestment plan		651
Balance at end of period	$	1,886,519
Cumulative dividends in excess of accumulated net income
Balance at beginning of year	$	(193,559	)
Net income		102,633
Cash dividends declared and paid to common shareholders		(91,638	)
Cash dividends declared and paid to preferred shareholders		(2,733	)
Other noncontrolling interest in income		(143	)
Balance at end of period	$	(185,440	)
Redeemable noncontrolling interests
Balance at beginning of year	$	4,751
Other noncontrolling interests in income		143
Distributions to other noncontrolling interests		(143	)
Balance at end of period	$	4,751

NOTE G – LEGAL MATTERS

The Company is involved in various legal actions arising in the ordinary course of business for which losses are expected to be covered under the Company’s insurance policies. As of September 30, 2013, the risk of material loss from such legal actions impacting the Company’s financial condition or results from operations has been assessed as remote.

NOTE H – DEBT

On February 15, 2013, the Company’s 7.130% senior notes came due and the aggregate principal balance of $40,018,000 was paid in full.

On May 10, 2013, the Company prepaid a mortgage on a single community for $29,884,000 ninety days prior to its scheduled maturity, with no prepayment penalty.

During the nine months ended September 30, 2012, the Company exercised its right to redeem for cash all of the $35,000,000 outstanding convertible senior unsecured notes, at a redemption price equal to 100% of the principal amount of the notes outstanding, plus accrued and unpaid interest up to, but excluding, February 21, 2012.

On February 1, 2012, the Company prepaid a mortgage on a single community for $65,866,000 ninety days prior to its scheduled maturity, with no prepayment penalty.

On January 4, 2012, the Company entered into a $750,000,000 unsecured revolving credit facility (the “Credit Agreement”). The unsecured revolving credit facility has an initial term of 39 months, terminates on April 3, 2015 and replaces its previous $750,000,000 unsecured revolving credit facility. Based on the Company’s current debt ratings, the unsecured revolving credit facility accrues interest at LIBOR plus 120 basis points. In addition, the Company pays a 0.20% annual facility fee on the total commitment of the facility. Majority owned subsidiaries no longer guarantee the unsecured revolving credit facility. Borrowings under the Company’s unsecured revolving credit facility totaled $177,000,000 at September 30, 2013. Borrowings under the unsecured revolving credit facility are used to fund acquisition and development activities as well as for general corporate purposes. Balances on the unsecured revolving credit facility are typically reduced with available cash balances.

On August 13, 2012, the Company completed an offering of $300,000,000 10.5-year senior unsecured notes. The notes will mature on January 15, 2023 and bear interest at a fixed coupon rate of 3.375%. Net proceeds from the offering, after all discounts, commissions, and issuance costs, totaled approximately $295,400,000 and were used for general corporate purposes including reducing the Company’s unsecured revolving credit facility balance.

The Company’s indebtedness contains financial covenants as to minimum net worth, interest coverage ratios, maximum secured debt, total debt to capital, and cash on hand among others. The Company was in compliance with all such financial covenants during the nine months ended September 30, 2013.

The following is a consolidated summary of BRE’s total outstanding debt as of September 30, 2013 (amounts in thousands):

					Mortgage loans payable
Year of maturity	Unsecured senior notes		Unsecured revolving credit facility		Amortization		Balloon		Total mortgage loans payable		Total		Weighted Avg Rate ⁽¹⁾
2013	$	-	$	-	$	66	$	-	$	66	$	66		5.74	%
2014		50,000		-		3,839		-		3,839		53,839		4.77	%
2015		-		177,000		7,962		-		7,962		184,962		1.56	%
2016		-		-		9,041		-		9,041		9,041		5.64	%
2017		300,000		-		9,307		-		9,307		309,307		5.50	%
2018		-		-		9,853		-		9,853		9,853		5.63	%
2019		-		-		6,492		317,975		324,467		324,467		5.59	%
2020		-		-		3,346		343,646		346,992		346,992		5.61	%
2021		300,000		-		-		-		-		300,000		5.20	%
2022		-		-		-		-		-		-		0.00	%
2023		300,000		-		-		-		-		300,000		3.38	%
	$	950,000	$	177,000	$	49,906	$	661,621	$	711,527	$	1,838,527		4.72	%

⁽¹⁾

Represents the weighted average coupon interest rates of debt maturities in the year in which they become due. These rates do not include the amortization of upfront issuance fees.

NOTE I – NEW ACCOUNTING PRONOUNCEMENTS

In February 2013, the FASB issued an accounting standards update requiring enhanced disclosures about items reclassified out of accumulated other comprehensive income (AOCI) and changes in AOCI balances that should be applied prospectively for public entities with interim and annual periods beginning after December 15, 2012. For items reclassified to net income in their entirety, the Accounting Standards Update (ASU) requires information about the effect of significant reclassification items on line items of net income by component of other comprehensive income (OCI). For other AOCI reclassification items not required to be reclassified directly to net income in their entirety, companies must cross-reference to the note where additional details about the effects of the reclassification are disclosed. The update also requires disclosure of more information about changes in AOCI balances, requiring companies to present current-period reclassifications out of AOCI and other amounts of current-period OCI separately for each component of OCI on the face of the financial statements or in the notes. The adoption of this guidance had no impact on the Company’s financial statements during the nine months ended September 30, 2013.

NOTE J – FAIR VALUE MEASUREMENT

Under FASB guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the FASB and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities classified as Level 1 fair value generally are G-7 government and agency securities, equities listed in active markets, investments in publicly traded mutual funds with quoted market prices and listed derivatives.

Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets that are generally included in this category are stock warrants for which there are market-based implied volatilities, unregistered common stock and thinly traded common stock.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Generally, assets carried at fair value and included in this category include stock warrants for which market-based implied volatilities are not available.

Financial Instruments Not Carried at Fair Value

The fair values of the Company’s financial instruments including such items in the financial statement captions as cash, other assets, accounts payable and accrued expenses, and the unsecured revolving credit facility, approximate their carrying or contract values based on their nature, terms and interest rates. The fair value of debt is estimated using discounted cash flow analyses with an interest rate similar to that of current market borrowing arrangements with similar terms.

As of September 30, 2013, the Company has estimated that the fair value of its mortgage loans payables is approximately $799,700,000 (carrying value of $711,527,000). During the same period, the Company has estimated that the fair value of its unsecured senior notes is approximately $1,017,600,000 (carrying value of $950,000,000). These valuations were estimated using the rates of comparable debt instruments available in the market place, which are Level 2 measurements.

Fair Value Measurements

The estimated fair values of investment securities classified as deferred compensation plan investments are based on quoted market prices utilizing public information for the same transactions and are therefore classified as Level 1. The Company’s deferred compensation plan investments are recorded in Other assets and totaled $4,562,000 and $4,111,000 at September 30, 2013 and at December 31, 2012, respectively.

There were no transfers of assets measured at fair value between Level 1 and Level 2 of the fair value hierarchy for the nine months ended September 30, 2013.

NOTE K – SEGMENT REPORTING

FASB guidance requires certain descriptive information to be provided about an enterprise’s reportable segments. BRE has determined that each of its operating communities, which comprised 99% of BRE’s consolidated assets at September 30,2013 and 2012 and approximately 99% of its total consolidated revenues for the three and nine months ended September 30, 2013 and 2012, represents an operating segment. The Company aggregates its operating segments into reportable segments defined as the geographical regions in which its apartment communities are located: Southern California, San Francisco Bay Area and the Seattle area.

Segment Reporting guidance requires that segment disclosures present the measure(s) used by the chief operating decision makers to decide how to allocate resources and for purposes of assessing such segments’ performance. The Company’s chief operating decision makers are comprised of several members of its executive management team who use net operating income (“NOI”) as a primary financial measure to assess the performance of the business.

The Company’s operating and investment activities are primarily focused on the ownership, development and operation of multifamily communities in the major metropolitan markets within the state of California, and in the metropolitan area of Seattle, Washington. The Company evaluates performance and allocates resources primarily based on the NOI of an individual multifamily community. The Company defines NOI as the excess of all revenue generated by the community (primarily rental revenue) less direct real estate expenses. Accordingly, NOI does not take into account community-specific costs such as depreciation and interest expense.

The Company monitors the operating results of each community on a “same-store” and “non same-store” basis. “Same-store” communities are defined as communities that have been completed, stabilized and owned by the Company for two comparable calendar year periods. The company defines “stabilized” as communities that have reached a physical occupancy of at least 93%. A comparison of operating results for same-store communities is meaningful as these communities have stabilized occupancy and operating expenses, there is no plan to conduct significant redevelopment activities and the community is not held for disposition within the current year.

To better understand the Company’s overall results, the 75 wholly or majority owned apartment communities can be characterized as follows:

20,624 homes in 72 communities were owned, completed and stabilized for all of 2013 and 2012 (“same-store”) communities;

502 homes in two completed development communities, which are experiencing lease-up and stabilization during 2013 and 2012 and as a result did not have comparable year-over-year operating results (“non same-store”); and

270 homes in one community acquired on September 30, 2013, which as a result did not have comparable year-over-year operating results (“non same-store”).

Operating results are aggregated into five reportable segments based upon geographical region with same-store communities aggregated into four reportable segments and non same-store communities aggregated into one reportable segment. The following table details rental income and NOI for the Company’s reportable segments for the three months and nine months ended September 30, 2013 and 2012 months, and reconciles NOI to net income available to common shareholders per the consolidated statements of operations:

	For the three months ended				For the nine months ended
	September 30,				September 30,
(amounts in thousands)	2013		2012		2013		2012
Revenues⁽¹⁾:
Southern California ⁽²⁾	$	56,758	$	55,161	$	168,082	$	163,260
San Francisco Bay Area		25,987		24,005		75,763		70,002
Seattle		14,611		13,770		42,859		40,188
Non core markets ⁽³⁾		3,944		3,901		11,853		11,634
Same-store revenues		101,300		96,837		298,557		285,084
Non same-store communities⁽⁴⁾		3,318		694		7,761		1,558
Total community revenues	$	104,618	$	97,531	$	306,318	$	286,642

Net operating income:
Southern California ⁽²⁾	$	38,807	$	37,553	$	116,026	$	111,799
San Francisco Bay Area		19,088		17,284		55,629		50,105
Seattle		9,757		9,334		28,178		26,532
Non core markets ⁽³⁾		2,422		2,400		7,419		7,260
Same-store net operating income		70,074		66,571		207,252		195,696
Non Same-store communities⁽⁴⁾		1,952		133		4,153		143
Total community net operating income	$	72,026	$	66,704	$	211,405	$	195,839
Other income		93		740		746		1,966
Income from unconsolidated entities		94		669		523		2,125
Gain on sale of unconsolidated entities		-		6,025		18,633		6,025
Income from discontinued operations, net		-		1,360		1,028		4,251
Net gain on sales of discontinued operations		-		-		17,394		8,279
Net operating income	$	72,213	$	75,498	$	249,729	$	218,485
Less:
Provision for depreciation		27,543		24,501		79,183		73,103
Interest		15,948		16,998		49,935		50,488
General and administrative		5,055		5,093		17,393		17,152
Other expenses		585		15,000		585		15,000
Dividends attributable to preferred stock		911		911		2,733		2,733
Redeemable and other noncontrolling interests in income		48		105		143		315
Net income available to common shareholders	$	22,123	$	12,890	$	99,757	$	59,694

The following table details the assets of the Company’s reportable segments:

	As of September 30, 2013							As of December 31, 2012 ⁽⁵⁾
(amounts in thousands)	Communities		Homes		Total Asset Value			Total Asset Value
Assets
Southern California⁽²⁾		41		11,669	$	2,124,886		$	2,034,627
San Francisco Bay Area		15		4,197		829,465			612,465
Seattle		13		3,456		530,142			522,444
Non-core markets⁽³⁾		3		1,302		132,084			130,893
Total Same-store communities		72		20,624		3,616,577			3,300,429
Non Same-store communities⁽⁴⁾		3		772		281,405			422,409
Total investment in rental communities		75		21,396	$	3,897,982		$	3,722,838
Accumulated depreciation						(879,640	)		(811,187	)
Construction in progress						483,481			302,263
Equity investment in real estate joint ventures						6,451			40,753
Real estate held for sale, net						23,481			23,065
Land under development						38,382			104,675
Cash						7,876			62,241
Other assets						48,512			54,334
Total assets					$	3,626,525		$	3,498,982

⁽¹⁾

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Company’s total revenue during the three and nine months ended September 30, 2013 and 2012.

⁽²⁾

Consists of 11 communities in San Diego, 5 in Inland Empire, 13 in Los Angeles, and 12 in Orange County.

⁽³⁾

Consists of one same-store community in Sacramento, California and two same-store communities in Phoenix, Arizona.

⁽⁴⁾

2013 Non same-store communities’ totals includes one community fully delivered in 2012, one community fully delivered in the second quarter of 2013, one community acquired during the third quarter of 2013 and commercial properties that will be later developed as multi-family.

⁽⁵⁾

Data represents balances for same-store pools established in the year ended December 31, 2012.

NOTE L – SUBSEQUENT EVENTS

The Company has evaluated and disclosed subsequent events through the date of the issuance of the financial statements.

Subsequent to the quarter ended September 30, 2013, the Company received a legal settlement amount of $19,750,000 in connection with a construction litigation claim against its general contractor of the Avenue 64 apartment community, located in Emeryville, California. The Company fully expects the settlement amount to cover all of the cost of the remediation work, which is expected to begin in the first quarter of 2014. The community is currently 97% occupied as of September 30, 2013.

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

In addition to historical information, we have made forward-looking statements in this Quarterly Report on Form 10-Q. These forward-looking statements pertain to, among other things, our capital resources, financial liquidity, portfolio performance and results of operations. Forward-looking statements involve numerous risks and uncertainties. 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 in their negative form or other variations, or by discussions of strategy, plans or intentions. Forward-looking statements are based on assumptions, data or methods that may be incorrect or imprecise or incapable of being realized. The following factors, among others, could affect actual results and future events: defaults or non-renewal of leases, illiquidity of real estate and reinvestment risk, our regional focus primarily in the major metropolitan markets within the state of California and in the metropolitan area of Seattle, Washington, insurance coverage, increased interest rates and operating costs, failure to obtain necessary outside financing, difficulties in identifying communities to acquire and in effecting acquisitions, failure to successfully integrate acquired communities and operations, 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, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws and increases in real property tax rates. Our success also depends upon economic trends, including interest rates, income tax laws, governmental regulation, legislation, population changes and other factors. Do not rely solely on forward-looking statements, which only reflect management’s analysis. We assume no obligation to update forward-looking statements.

Executive Summary

We are a self-administered equity real estate investment trust, or REIT, focused on the ownership, operation, development, and acquisition of apartment communities. Our operating and investment activities are primarily focused on the major metropolitan markets within the state of California, and in the metropolitan area of Seattle, Washington. Our segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments’ performance.

This table summarizes information about our 2013 operating communities:

	Same-store Communities¹										Total Communities ²
					% of			% of							% of			% of
	# of		# of		Same-store			Same-store			# of		# of		Total			Total
Regions	Communities		Homes		Revenue			NOI			Communities		Homes		Revenue			NOI
San Diego		11		3,640		17	%		17	%		11		3,640		17	%		17	%
Inland Empire		5		1,173		5	%		5	%		5		1,173		5	%		5	%
Orange County		12		3,789		18	%		18	%		12		3,789		17	%		17	%
Los Angeles		13		3,067		16	%		16	%		14		3,337		16	%		16	%
San Francisco		15		4,197		25	%		27	%		16		4,533		27	%		28	%
California		56		15,866		81	%		83	%		58		16,472		82	%		83	%

Seattle		13		3,456		14	%		14	%		14		3,622		14	%		14	%

Phoenix		2		902		3	%		2	%		2		902		3	%		2	%
Sacramento		1		400		2	%		1	%		1		400		1	%		1	%
Non-Core		3		1,302		5	%		3	%		3		1,302		4	%		3	%
		72		20,624		100	%		100	%		75		21,396		100	%		100	%

⁽¹⁾

“Same-store” communities are defined as communities that have been completed, stabilized and owned by us for two comparable calendar year periods. The term stabilized refers to communities that have reached physical occupancy of at least 93%.

⁽²⁾

Includes one community acquired and two developed communities in lease up phase that have been stabilized for less than two twelve month periods.

For the nine months ended September 30, 2013 same-store communities totaled 20,624 homes. For the nine months ended September 30, 2013, our non same-store pool is comprised of 772 homes with two communities in various stages of lease up and one community acquired on September 30, 2013.

At September 30, 2013, our portfolio had real estate assets with a net book value of approximately $3.6 billion that included 75 wholly or majority-owned communities, aggregating 21,396 homes; one multifamily community owned in a joint venture, comprised of 252 homes; one land asset held for sale; and six (five in Northern California and one in Southern California) wholly or majority-owned communities in various stages of construction and development, totaling 1,888 homes. We earn revenue and generate cash primarily by collecting monthly rent from our community residents.

Results of Operations

Comparison of the three months ended September 30, 2013 and 2012

Rental and ancillary income

A summary of the components of revenues for the three months ended September 30, 2013 and 2012 is as follows (dollar amounts in thousands):

	For the three months ended September 30,
	2013					2012
			% of Total					% of Total			$ change from		% change from
	Revenues		Revenues			Revenues		Revenues			2012 to 2013		2012 to 2013
Rental income	$	100,314		95.9	%	$	93,755		96.1	%	$	6,559		7.0	%
Ancillary income		4,304		4.1	%		3,776		3.9	%		528		14.0	%
Total revenues	$	104,618		100.00	%	$	97,531		100.00	%	$	7,087		7.3	%

The total increase in revenues for the three months ended September 30, 2013 as compared with the three months ended September 30, 2012, was generated from an increase in same-store and non same-store revenue as follows (dollar amounts in thousands):

	2013		% Change from
	Change		2012 to 2013
Same-store communities	$	4,463		4.6	%
Non same-store communities		2,624		378.1	%
Total increase in rental and ancillary revenues (excluding revenues from discontinued operations)	$	7,087		7.3	%

The increase in same-store revenue was primarily due to a 5.7% increase in average monthly revenue earned per home in the same-store portfolio from $1,641 per home in the third quarter of 2012 to $1,734 per home in the third quarter of 2013. Average monthly revenue is comprised of rental and ancillary income earned on occupied homes during the period. Financial occupancy levels averaged 94.4% during second quarter 2013, as compared with 95.4% for the same period in 2012. The $2,624,000 increase in revenue from 2013 non same-store communities represents the increase in the number of communities in lease up in the third quarter of 2013.

Real estate expenses

A summary of the categories of real estate expenses for the three months ended September 30, 2013 and 2012 is as follows (dollar amounts in thousands):

	For the three months ended September 30,
	2013					2012
			% of Total					% of Total			$ change from		% change from
	Expenses		Expenses			Expenses		Expenses			2012 to 2013		2012 to 2013
Same-store communities	$	31,226		95.8	%	$	30,266		98.2	%	$	960		3.2	%
Non same-store communities		1,366		4.2	%		561		1.8	%		805		143.5	%
Total real estate expenses	$	32,592		100.00	%	$	30,827		100.00	%	$	1,765		5.7	%

Same-store expenses increased $960,000 from the quarter ended September 30, 2012 to the quarter ended September 30, 2013 primarily due to increases in property taxes primarily in our Seattle assets, utilities, and management fees. Non same-store expenses increased approximately $805,000 from the quarter ended September 30, 2012 to the quarter ended September 30, 2013, which represents the increase in number of developed communities in lease up in the third quarter of 2013.

Provision for depreciation

The provision for depreciation totaled $27,543,000 and $24,501,000 for the three months ended September 30, 2013 and 2012, respectively. The increase of $3,042,000 or 12.4% is due to a greater depreciable asset base, primarily driven by recently completed development communities delivered in 2012 and 2013.

Interest expense

Interest expense was $15,948,000 (net of $6,550,000 of interest capitalized to the cost of apartment communities under development and construction) for the three months ended September 30, 2013, a decrease of $1,050,000 or 6.2% from the same period in 2012. Interest expense was $16,998,000 for the quarter ended September 30, 2012 (net of $5,806,000 of interest capitalized to the cost of apartment communities under development and construction). The decrease in the quarter over quarter interest expense is primarily due to an increase in capitalized interest levels. The average balance of construction in progress and land under development totaled $494,400,000 and $432,200,000 during the three months ended September 30, 2013 and 2012, respectively.

General and administrative expenses

General and administrative expenses totaled $5,055,000 and $5,093,000 for the three months ended September 30, 2013 and 2012, respectively. General and administrative expenses decreased $38,000 or 0.7%.

Other income

Other income for the three months ended September 30, 2013 and 2012 is comprised of the following (dollar amounts in thousands):

	For the three months ended September 30,
	2013		2012
Management fees ⁽¹⁾	$	28	$	438
Interest income		51		94
Other		14		208
Total other income	$	93	$	740

⁽¹⁾

The decrease in management fees is primarily due to decrease in joint venture interests from the three months ended September 30, 2012 to September 30, 2013.

Other expenses

During the three months ended September 30, 2013, there were $585,000 of acquisition fees related to the acquisition of Jefferson at Hollywood, a 270 home community located in Los Angeles, California. During the three months ended September 30, 2012, a $15,000,000 non cash impairment charge was recorded in Other expenses in conjunction with the decision to sell land in Anaheim, California that we previously intended to develop (dollar amounts in thousands).

	For the three months ended September 30,
	2013		2012
Acquisition fees	$	585	$	-
Non cash impairment charge		-		15,000
Total other expenses	$	585	$	15,000

Income from unconsolidated entities and gain on sale of unconsolidated entities

Income from unconsolidated entities totaled $94,000 and $669,000 for the three months ended September 30, 2013 and 2012, respectively. The totals represent our share of net income from the joint venture community we own. The decrease is due to the sales of our joint venture investments during 2012 and 2013.

On June 13, 2013, we sold the joint venture asset Arcadia Cove, a 432 home community located in Phoenix, Arizona. We had a 15% equity ownership in the community, received net proceeds of $6,015,000 and recognized a net gain of $3,608,000.

On February 28, 2013, we sold our joint venture interest in four communities located in Denver, Colorado with a total of 1,616 homes and two communities located in Phoenix, Arizona with a total of 564 homes to our joint venture partner. We had a 15% equity ownership in each community. Our total net proceeds were $47,393,000. We recognized a net gain on sale of $15,025,000.

On September 12, 2012, we sold our joint venture asset Calavera Point, a 276 home community located in Westminister, Colorado. We had a 15% equity ownership in the community and received net proceeds of $5,557,000. We recognized a net gain on sale of approximately $913,000.

On September 25, 2012, we sold our joint venture asset Pinnacle at the Creek, a 216 home community located in Centennial, Colorado. We had a 15% equity ownership in the community and received net proceeds of $4,779,000. We recognized a net gain on sale of $1,844,000.

On September 26, 2012, we sold our joint venture asset Pinnacle at Galleria, a 236 home community, located in Roseville, California. We had a 35% equity ownership in the community and received net proceeds of $16,583,000. A net gain on sale of $3,268,000 was recognized.

As of September 30, 2013, we held a minority interest in one consolidating joint venture asset located in Phoenix, Arizona that consists of 252 homes.

Discontinued operations

Accounting guidance requires the results of operations for communities sold during the period or designated as held for sale at the end of the period to be classified as discontinued operations. The property-specific components of net earnings that are classified as discontinued operations include all property-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale and property specific interest expense to the extent there is secured debt on the property. In addition, the net gain or loss on the eventual disposal of communities held for sale is reported as discontinued operations.

As of September 30, 2013, land owned in Anaheim, California, with a net carrying value of $23,481,000, was classified as held for sale on the consolidated balance sheet. There were no other non-operating assets classified as held for sale as of September 30, 2013.

On June 28, 2013, we sold one community, Summerwind Townhomes, with 200 homes located in Los Angeles, California. The net proceeds from the sale were $46,840,000, resulting in a net gain of $17,394,000.

There were no operating communities held for sale as of September 30, 2013.

During 2012, we sold three communities located in San Diego, California: Countryside Village, with 96 homes in El Cajon submarket; Terra Nova Villas, with 233 homes in Chula Vista; and Canyon Villa, with 183 homes in Chula Vista. The net proceeds from the three sales were $88,236,000 resulting in a combined net gain of $62,136,000.

For the quarter ended September 30, 2012, the net income from the three operating communities sold during 2012 was included in the discontinued operations line on the consolidated statements of income and totaled $1,360,000.

Dividends attributable to preferred stock

Dividends attributable to preferred stock for the quarters ended September 30, 2013 and 2012 represent the dividends on our outstanding 6.75% Series D Cumulative Redeemable Preferred Stock. All of our current outstanding shares of Series D Cumulative Redeemable preferred stock have a $25.00 per share liquidation preference. As of September 30, 2013, 2,159,715 shares of 6.75% Series D Cumulative Redeemable Preferred Stock remain outstanding.

For the three months ended September 30, 2013 and 2012, we paid $911,000 in dividends on our 6.75% Series D Cumulative Redeemable Preferred Stock.

Net income available to common shareholders

As a result of the various factors mentioned above, net income available to common shareholders for the quarter ended September 30, 2013, was $22,123,000, or $0.29 per diluted share, as compared with $12,890,000, or $0.17 per diluted share, for the same period in 2012.

Results of Operations

Comparison of the nine months ended September 30, 2013 and 2012

Rental and ancillary income

A summary of the components of revenues for the nine months ended September 30, 2013 and 2012 is as follows (dollar amounts in thousands):

	For the nine months ended September 30,
	2013					2012
			% of Total					% of Total			$ change from		% change from
	Revenues		Revenues			Revenues		Revenues			2012 to 2013		2012 to 2013
Rental income	$	294,248		96.1	%	$	275,602		96.1	%	$	18,646		6.8	%
Ancillary income		12,070		3.9	%		11,040		3.9	%		1,030		9.3	%
Total revenues	$	306,318		100.00	%	$	286,642		100.00	%	$	19,676		6.9	%

The total increase in revenues for the nine months ended September 30, 2013, as compared with the nine months ended September 30, 2012, was generated from an increase in same-store and non same-store revenue as follows (dollar amounts in thousands):

	2013		% Change from
	Change		2012 to 2013
Same-store communities	$	13,473		4.7	%
Non same-store communities		6,203		398.1	%
Total increase in rental and ancillary revenues (excluding revenues from discontinued operations)	$	19,676		6.9	%

The increase in same-store revenue was primarily due to a 5.3% increase in average monthly revenue earned per home in the same-store portfolio from $1,612 per home in the nine months ended September 30, 2012 to $1,697 per home in the nine months ended September 30, 2013. Average monthly revenue is comprised of rental and ancillary income earned on occupied homes during the period. Financial occupancy levels averaged 94.8% during the nine months ended September 30, 2012, as compared with 95.3% for the same period in 2012. The $6,203,000 increase in revenue from 2013 non same-store communities represents the increase in the number of development communities in lease up in the nine months ended September 30, 2013.

Real estate expenses

A summary of the categories of real estate expenses for the nine months ended September 30, 2013 and 2012 is as follows (dollar amounts in thousands):

	For the nine months ended September 30,
	2013					2012
			% of Total					% of Total			$ change from		% change from
	Expenses		Expenses			Expenses		Expenses			2012 to 2013		2012 to 2013
Same-store communities	$	91,305		96.2	%	$	89,388		98.4	%	$	1,917		2.1	%
Non same-store communities		3,608		3.8	%		1,415		1.6	%		2,193		155.0	%
Total real estate expenses	$	94,913		100.00	%	$	90,803		100.00	%	$	4,110		4.5	%

The same-store expense increase of $1,917,000 for the nine months ended September 30, 2013 is primarily due to increases in property taxes primarily on our Seattle assets, utilities, management fees and payroll, insurance which were offset by property tax refunds received in 2013 which related to prior periods. Non same-store expenses increased approximately $2,193,000 from the nine months ended September 30, 2012, which represents the increase in the number of development communities in lease up in the nine months ended September 30, 2013.

Provision for depreciation

The provision for depreciation totaled $79,183,000 and $73,103,000 for the nine months ended September 30, 2013 and 2012, respectively. The increase of $6,080,000 or 8.3% is due to a greater depreciable asset base, primarily driven by recently completed development communities delivered in 2012 and 2013.

Interest expense

Interest expense was $49,935,000 (net of $18,199,000 of interest capitalized to the cost of apartment communities under development and construction) for the nine months ended September 30, 2013, a decrease of $553,000 or 1.1% from the same period in 2012. Interest expense was $50,488,000 for the nine months ended September 30, 2012 (net of $16,023,000 of interest capitalized to the cost of apartment communities under development and construction). The decrease in the year over year interest expense is primarily due to an increase in capitalized interest levels. The average balance of construction in progress and land under development totaled $456,600,000 and $399,700,000 during the nine months ended September 30, 2013 and 2012, respectively.

General and administrative expenses

General and administrative expenses totaled $17,393,000 and $17,152,000 for the nine months ended September 30, 2013 and 2012, respectively. General and administrative expenses increased $241,000, or 1.4%, primarily as a result of increased compensation and associate benefits.

Other income

Other income for the nine months ended September 30, 2013 and 2012 is comprised of the following (dollar amounts in thousands):

	For the nine months ended September 30,
	2013		2012
Management fees ⁽¹⁾	$	355	$	1,289
Interest income		171		274
Other		220		403
Total other income	$	746	$	1,966

⁽¹⁾

The decrease in management fees is primarily due to decrease in joint venture interests from the nine months ended September 30, 2012 to September 30, 2013

Other expenses

During the nine months ended September 30, 2013, there were $585,000 of acquisition fees related to the acquisition of Jefferson at Hollywood, a 270 home community located in Los Angeles, California. During the nine months ended September 30, 2012, a $15,000,000 non-cash impairment charge was recorded in Other expenses in conjunction with the decision to sell land in Anaheim, California that we previously intended to develop (dollar amounts in thousands):

	For the nine months ended September 30,
	2013		2012
Acquisition fees	$	585	$	-
Non cash impairment charge		-		15,000
Total other expenses	$	585	$	15,000

Income from unconsolidated entities and gain on sale of unconsolidated entities

Income from unconsolidated entities totaled $523,000 and $2,125,000 for the nine months ended September 30, 2013 and 2012, respectively. The totals represent our share of net income from the joint venture communities we own. The decrease is due to the sales of our joint venture investments during 2012 and 2013.

As of September 30, 2013, we held a minority interest in one consolidating joint venture asset located in Phoenix, Arizona that consists of 252 homes.

Discontinued operations

Accounting guidance requires the results of operations for communities sold during the period or designated as held for sale at the end of the period to be classified as discontinued operations. The property-specific components of net earnings that are classified as discontinued operations include all property-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale and property specific interest expense to the extent there is secured debt on the property. In addition, the net gain or loss on the eventual disposal of communities held for sale is reported as discontinued operations.

As of September 30, 2013, land owned in Anaheim, California, with a net carrying value of $23,481,000 was classified as held for sale on the consolidated balance sheet. There were no other non-operating assets classified as held for sale for the nine months ended September 30, 2013.

There were no operating communities held for sale as of September 30, 2013.

For the nine months ended September 30, 2013 and 2012, the net income from the one operating community sold during 2013 and the three operating communities sold during 2012 were included in the discontinued operations line on the consolidated statement of income and totaled $1,028,000 and $4,251,000, respectively.

Dividends attributable to preferred stock

Dividends attributable to preferred stock for the nine months ended September 30, 2013 and 2012, represent the dividends on our outstanding 6.75% Series D Cumulative Redeemable Preferred Stock. All of our current outstanding shares of Series D Cumulative Redeemable preferred stock have a $25.00 per share liquidation preference. As of September 30, 2013, 2,159,715 shares of 6.75% Series D Cumulative Redeemable Preferred Stock remain outstanding.

For the nine months ended September 30, 2013 and 2012, we paid $ 2,733,000 in dividends on our 6.75% Series D Cumulative Redeemable Preferred Stock.

Net income available to common shareholders

As a result of the various factors mentioned above, net income available to common shareholders for the nine months ended September 30, 2013, was $99,757,000, or $1.29 per diluted share, as compared with $59,694,000, or $0.78 per diluted share, for the same period in 2012.

Liquidity and Capital Resources

In the event that we do not have sufficient cash available to us from our operations to continue operating our business as usual, we may need to find alternatives to fund our liquidity needs. Such alternatives may include, without limitation: (a) divesting of communities at less than optimal terms; (b) issuing and selling our debt and equity in public or private transactions under less than optimal conditions; (c) entering into leases with new tenants at lower rental rates or less than optimal terms; (d) entering into lease renewals with our existing tenants without an increase in rental rates; (e) reducing the level of dividends to common shareholders to the minimum level necessary to maintain our corporate REIT status under the Internal Revenue Code; or (f) paying a portion of our dividends in stock rather than cash. Taking such measures to increase liquidity may have a materially adverse effect on us and our ability to make distributions to our shareholders and pay amounts due on our debt.

Our dividend per share amounts for the quarters ending September 30, 2013 and 2012 were $0.395 and $0.385, respectively. The quarterly common dividend payment of $0.395 is equivalent to $1.58 per common share on an annualized basis.

Depending upon the availability and cost of external capital, we anticipate making additional investments in multifamily apartment communities. These investments are expected to be funded through a variety of sources. These sources may include internally generated cash, temporary borrowings under our unsecured revolving credit facility, proceeds from community sales, public and private offerings of debt and equity securities, and in some cases the assumption of secured borrowings. To the extent that these additional investments are initially financed with temporary borrowings under our unsecured revolving credit facility, we would anticipate raising long-term financing or permanent capital through a combination of public and private offerings of debt and equity securities, proceeds from community sales and secured debt issuance. However, such financing may not be available on favorable terms, or at all. We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service and dividend requirements, and finance future investments. For the nine months ended September 30, 2013, cash flows generated from operating activities were in excess of distributions to common shareholders, preferred shareholders and non-controlling interest members by approximately $62,000,000. Due to the timing associated with operating cash flows, there may be certain periods where cash flows generated by operating activities are less than distributions. We believe our unsecured revolving credit facility provides adequate liquidity to address temporary cash shortfalls. We expect that annual cash flows from operations will exceed annual distributions to equity holders for the year ended December 31, 2013, which is consistent with prior years. Annual cash flows from operating activities exceeded annual distributions to common shareholders, preferred shareholders and redeemable non-controlling interest members by approximately $79,200,000 and $54,000,000 for the years ended December 31, 2012 and 2011, respectively.

During the nine months ended September 30, 2013 and 2012 we invested $203,466,000 and $181,503,000, respectively in capital expenditures:

	For the nine months ended September 30,				Expected 2013 Annual Range
(amounts in thousands)	2013		2012		Low		High
New development (including land)	$	153,302	$	145,236	$	195,000	$	210,000
Rehab expenditures		32,078		21,856		45,000		55,000
Capital expenditures		18,086		14,411		22,000		25,000
Total capital expenditures	$	203,466	$	181,503	$	262,000	$	290,000

Capitalized soft costs totaling $26,204,000 and $23,865,000, for the nine months ended September 30, 2013 and 2012, respectively, are included in total capital expenditures in the table above. A detail of capitalized soft costs is shown below:

	For the nine months ended September 30,
(amounts in thousands)	2013		2012
Payroll expense	$	8,005	$	7,842
Interest expense		18,199		16,023
Total soft cost capital expenditures	$	26,204	$	23,865

We had a total of $950,000,000 carrying amount in unsecured senior notes at September 30, 2013, consisting of the following:

Maturity	Unsecured Senior		Interest
(amounts in thousands)	Note Balance		Rate ⁽¹⁾
March 2014	$	50,000	$	4.700	%
March 2017		300,000		5.500	%
March 2021		300,000		5.200	%
March 2023		300,000		3.375	%
Total/ Weighted Average Interest Rate	$	950,000	$	4.692	%

⁽¹⁾

Represents the weighted average coupon interest rate in the year in which they become due. These rates do not include amortization of upfront issuance fees.

On May 10, 2013, we prepaid a mortgage on a single community for $29,884,000 ninety days prior to its scheduled maturity, with no prepayment penalty.

On February 15, 2013, our 7.130% senior notes outstanding came due and we paid in full the aggregate principal balance of $40,018,000.

At September 30, 2013, we had mortgage indebtedness with a total principal amount outstanding of $711,527,000 at a weighted average rate of 5.60% and remaining terms ranging from one to seven years. For the periods ending September 30, 2013, and December 31, 2012, respectively, unencumbered real estate net operating income represented 72.9% and 72.5% of our total real estate net operating income.

As of September 30, 2013, 2,159,715 shares of 6.75% Series D Cumulative Redeemable Preferred Stock were outstanding.

As of September 30, 2013, we had total outstanding debt balances of approximately $1,838,500,000 and total outstanding consolidated shareholders’ equity and redeemable noncontrolling interests of approximately $1,706,600,000, representing a debt to total book capitalization ratio of 51.9%.

On January 5, 2012, we entered into a new $750,000,000 unsecured revolving credit facility (the “Credit Agreement”). The unsecured revolving credit facility has an initial term of 39 months, terminates on April 3, 2015 and replaces our previous $750,000,000 unsecured revolving credit facility. Based on our current debt ratings, the unsecured revolving credit facility accrues interest at LIBOR plus 120 basis points. In addition, we pay a 0.20% annual facility fee on the capacity of the unsecured revolving credit facility. Borrowings under our unsecured revolving credit facility totaled $177,000,000 at September 30, 2013.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities in open market purchases or privately negotiated transactions. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Our indebtedness contains financial covenants as to minimum net worth, interest coverage ratios, maximum secured debt, total debt to capital, and cash on hand among others. We were in compliance with all such financial covenants during the nine months ended September 30, 2013 and 2012.

We anticipate that we will continue to require outside sources of financing to meet our long-term liquidity needs beyond 2013, such as scheduled debt repayments, construction funding and potential property acquisitions. As of September 30, 2013, scheduled debt principal payments through December 31, 2013 totaled approximately $66,000.

On February 24, 2010, we entered into Equity Distribution Agreements (EDAs) with each of Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Wells Fargo Securities, LLC (collectively, the “sales agents”) under which we may issue and sell from time to time through or to our sales agents shares of our common stock having an aggregate offering price of up to $250,000,000. No shares were issued under the EDA’s during the nine months ended September 30, 2013. During 2012, 815,045 shares were issued under the EDAs, with an average share price of $49.09 for total gross proceeds of approximately $40,000,000 and total commission paid to the sales agents of approximately $800,000. As of September 30, 2013, the remaining capacity under the EDAs totals $123,600,000. We intend to use any net proceeds from the sale of our shares under the EDAs for general corporate purposes, which may include reducing borrowings under our unsecured revolving credit facility, the repayment of other indebtedness, the redemption or other repurchase of outstanding debt or equity securities, funding for development activities and financing for acquisitions.

We continue to consider other sources of possible funding, including new joint ventures and additional secured construction and term debt. We own unencumbered real estate assets that could be sold, contributed to joint ventures or used as collateral for financing purposes (subject to certain lender restrictions). We also own encumbered assets with significant equity that could be further encumbered should other sources of capital not be available (subject to certain lender restrictions).

Construction in progress and land under development

The following table provides data on our multifamily communities that are currently under various stages of development and construction. Completion of the development communities is subject to a number of risks and uncertainties, including construction delays and cost overruns. We cannot provide assurance that these communities will be completed, or that they will be completed by the estimated dates, or for the estimated amounts, or will contain the number of proposed homes shown in the table below. In addition to the communities below, we have predevelopment costs on two future development projects totaling approximately $16,800,000 in Other assets on the Consolidated Balance Sheets as of September 30, 2013.

(Dollar amounts in millions) Property name	Location	Proposed Number of Homes		Costs Incurred to Date - September 30, 2013⁽¹⁾		Estimated Total Cost		Estimated Cost to Complete		Estimated Completion Date ⁽²⁾
Construction in Progress
Solstice	Sunnyvale, CA		280	$	102.9	$	121.9	$	19.0	1Q/2014
Wilshire La Brea	Los Angeles, CA		478		232.7		277.3		44.6	4Q/2014
Radius	Redwood City, CA		264		44.9		97.8		52.9	4Q/2014
MB360	San Francisco, CA		360		103.0		227.2		124.2	4Q/2014
Total Construction in Progress			1,382	$	483.5	$	724.2	$	240.7

Property name	Location	Proposed Number of Homes		Costs Incurred to Date - September 30, 2013⁽¹⁾		Estimated Total Cost⁽³⁾
Land Under Development⁽⁴⁾
Pleasanton I	Pleasanton, CA		251	$	22.5		TBR
Pleasanton II	Pleasanton, CA		255		15.9		TBR
Total Land Owned			506	$	38.4	$	171.0

Reflects all recorded costs as of September 30, 2013, recorded on our Consolidated Balance Sheets as “Direct investments in real estate-construction in progress.”

“Completion” is defined as our estimate of when an entire project will have a final certificate of occupancy issued and be ready for occupancy.

Reflects the aggregate cost estimates including land. Specific community cost estimates To Be Reported (TBR) once entitlement approvals are received and the Company is prepared to begin construction.

⁴

Represents projects in various stages of pre-construction development. Projects are transferred to construction in progress when construction contracts are finalized and construction activity has commenced.

Dividends Paid to Common and Preferred Shareholders and Distributions to Redeemable Noncontrolling Interest Members

A cash dividend has been paid to common shareholders each quarter since our inception in 1970. Our dividend per share amounts for the nine months ended September 30, 2013 and 2012 were $1.185 and $1.155 per share, respectively. Total dividends paid to common shareholders for the nine months ended September 30, 2013 and 2012 were $91,638,000 and $88,969,000, respectively.

For the nine months ended September 30, 2013 and 2012, we paid $2,733,000 in dividends on our 6.75% Series D Cumulative Redeemable Preferred Stock.

Total distributions to redeemable noncontrolling interests of our consolidated subsidiaries were $143,000 and $315,000 for the nine months ended September 30, 2013 and 2012, respectively.

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk.

Information concerning market risk is incorporated herein by reference to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2012. There has been no material change in the quantitative and qualitative disclosure about market risk since December 31, 2012.

ITEM 4 – Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that there are reasonable assurances that our controls and procedures will achieve the desired control objectives. Also, we have investments in certain unconsolidated entities. As we do not control these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As of September 30, 2013, the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

ITEM 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

ITEM 3. Defaults Upon Senior Securities.

None.

ITEM 4. (Removed and Reserved).

ITEM 5. Other Information.

None.

ITEM 6.		Exhibits.

4.1		Form of 3.375% Senior Note due 2023 (previously filed on August 7, 2012 as Exhibit 4.6 to the Registrant’s Current Report on Form 8-K and incorporated by reference herein).

10.1		Form of Restricted Stock Award Agreement under 1999 BRE Stock Incentive Plan (previously filed on July 2, 2013 as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A and incorporated by reference herein).

11		Statement Re: Computation of Per Share Earnings.

12		Statement of Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the BRE Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) notes to the Consolidated Financial Statements.

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 thereunto duly authorized.

		BRE PROPERTIES, INC.
		(Registrant)

Date: November 6, 2013		/s/ John A. Schissel
		John A. Schissel
		Executive Vice President, Chief Financial Officer (Principal Financial Officer)

Date: November 6, 2013

/s/ Peter C. Olson

Peter C. Olson

Senior Vice President, Chief Accounting Officer

(Principal Accounting Officer)

Exhibit Index

Exhibits.

4.1		Form of 3.375% Senior Note due 2023 (previously filed on August 7, 2012 as Exhibit 4.6 to the Registrant’s Current Report on Form 8-K and incorporated by reference herein).

10.1		Form of Restricted Stock Award Agreement under 1999 BRE Stock Incentive Plan (previously filed on July 2, 2013 as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A and incorporated by reference herein).

11		Statement Re: Computation of Per Share Earnings.

12		Statement of Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the BRE Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) notes to the Consolidated Financial Statements.