8-K 1 d8k.htm FORM 8-K Prepared by R.R. Donnelley Financial -- Form 8-K
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported): July 15, 2002
 
 
BRE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
(State or other jurisdiction of Incorporation)
  
0-5305
(Commission File Number)
  
94-1722214
(I.R.S. Employer Identification Number)
 
44 Montgomery Street, 36th Floor, San Francisco, CA 94104-4809
(Address of principal executive offices, including zip code)
 
415-445-6530
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)
 

ITEM 5.    OTHER EVENTS
 
SECOND QUARTER RESULTS
  
YEAR-TO-DATE HIGHLIGHTS
•    $69 million total revenue
  
•    $131 million property acquisitions
•    $0.42 EPS
  
•    $60 million developments completed
•    $0.67 per share FFO
  
•    $135 million total revenue
•    $0.4875 per share cash dividend
  
•    $0.86 EPS
•    73% FFO payout ratio
  
•    $1.34 per share FFO
 
On July 15, 2002, BRE PROPERTIES, INC. reported operating results for the quarter and six months ended June 30, 2002. Net income available to common shareholders for the second quarter totaled $19.4 million, or $0.42 per diluted share, as compared with $19.2 million, or $0.41 per diluted share, for the same period 2001, which included expenses and losses associated with the company’s Internet investment of $2.9 million, or $0.06 per share. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter totaled $47.0 million, up from $46.3 million in the same quarter 2001. For the second quarter 2002, revenues totaled $68.7 million, as compared with $66.2 million a year ago.
 
Net income available to common shareholders for the six-month period totaled $39.6 million, or $0.86 per diluted share, as compared with $36.8 million, or $0.79 per diluted share, for the same period 2001, which included expenses and losses associated with the company’s Internet investment of $7.2 million, or $0.15 per share. Year-to-date, EBITDA totaled $93.1 million, up from $91.7 million a year ago, an increase of 1.5%. For the six months ended June 30, 2002, revenues totaled $135.3 million, as compared with revenues of $131.6 million for the same period 2001.
 
For the second quarter, funds from operations (FFO), the generally accepted measure of operating performance for real estate investment trusts, totaled $32.2 million, or $0.67 per diluted share, compared with $33.2 million, or $0.68 per diluted share, for the same period 2001. For the six-month period, FFO totaled $64.3 million, or $1.34 per diluted share, compared with $65.6 million, or $1.35 per diluted share, in the same period 2001.

 
BRE’s overall operating results were influenced by year-over-year same-store performance, and income derived from apartment communities developed and acquired during the last 12 months. For the second quarter 2002, same-store net operating income (NOI) decreased 4% as compared with second quarter 2001 results. On a sequential basis, same-store NOI decreased 1% from first quarter 2002. The company’s operating results continue to reflect depressed regional and national conditions, which have reduced market-level rents and occupancy.
 
Same-Store Property Results
 
BRE defines same-store properties as stabilized apartment communities owned by the company for at least five full quarters. Of the 22,245 apartment units owned by BRE, same-store units totaled 19,574 for the quarter and 19,226 for the year-to-date period.
 
Lower average monthly rents and a reduced level of physical occupancy influenced same-store property results. On a year-over-year basis, average market level rents in the same-store portfolio decreased 4% to $1,096 from $1,143. Physical occupancy levels averaged 94% during the quarter, as compared with 95% during second quarter 2001.

 
Same-Store % Growth Results
Q2 2002 Compared to Q2 2001
 
    
# of
Units
   
% of NOI
       
% Change Revenue
       
% Change Expenses
       
% Change NOI
  
San Francisco
   
3,488
   
28
%
     
-9
%
     
7
%
     
-13
%
San Diego
   
2,923
   
17
%
     
5
%
     
3
%
     
5
%
L.A./Orange County
   
2,976
   
15
%
     
5
%
     
-1
%
     
7
%
Seattle
   
2,316
   
10
%
     
-4
%
     
8
%
     
-10
%
Phoenix
   
2,694
   
10
%
     
-5
%
     
4
%
     
-9
%
Sacramento
   
1,896
   
9
%
     
3
%
     
5
%
     
2
%
Salt Lake City
   
1,517
   
5
%
     
0
%
     
-2
%
     
2
%
Denver
   
984
   
4
%
     
-5
%
     
2
%
     
-8
%
Portland
   
780
   
2
%
     
0
%
     
9
%
     
-6
%
    
  
    
    
    
Total/Average
   
19,574
   
100
%
     
-2
%
     
4
%
     
-4
%
    
  
    
    
    
 
Same-Store % Growth Results
YTD 2002 Compared to YTD 2001
 
    
# of
Units
   
% of NOI
       
% Change Revenue
       
% Change Expenses
       
% Change NOI
  
San Francisco
   
3,488
   
28
%
     
-9
%
     
6
%
     
-12
%
San Diego
   
2,575
   
15
%
     
5
%
     
5
%
     
5
%
L.A./Orange County
   
2,976
   
15
%
     
6
%
     
-1
%
     
9
%
Seattle
   
2,316
   
10
%
     
-3
%
     
4
%
     
-6
%
Phoenix
   
2,694
   
10
%
     
-5
%
     
4
%
     
-9
%
Sacramento
   
1,896
   
9
%
     
4
%
     
4
%
     
4
%
Salt Lake City
   
1,517
   
6
%
     
3
%
     
-1
%
     
4
%
Denver
   
984
   
5
%
     
-3
%
     
0
%
     
-4
%
Portland
   
780
   
2
%
     
1
%
     
6
%
     
-3
%
    
  
    
    
    
Total/Average
   
19,226
   
100
%
     
-1
%
     
3
%
     
-3
%
    
  
    
    
    

 
Same-Store Occupancy and Turnover Rates
Q2 2002 Compared to Q2 2001
      
Occupancy Levels
       
Turnover Ratio
  
      
Q2 2002
       
Q2 2001
       
Q2 2002
       
Q2 2001
  
San Francisco
     
95
%
     
93
%
     
68
%
     
80
%
San Diego
     
96
%
     
95
%
     
64
%
     
64
%
L.A./Orange County
     
96
%
     
97
%
     
55
%
     
53
%
Sacramento
     
95
%
     
96
%
     
88
%
     
73
%
Seattle
     
94
%
     
96
%
     
62
%
     
50
%
Portland
     
93
%
     
95
%
     
64
%
     
69
%
Salt Lake City
     
93
%
     
93
%
     
80
%
     
110
%
Denver
     
93
%
     
97
%
     
79
%
     
89
%
Phoenix
     
92
%
     
93
%
     
81
%
     
75
%
Total/Average
     
94
%
     
95
%
     
70
%
     
71
%
 
San Francisco Bay Area Performance
 
In the second quarter, BRE’s S.F. Bay area communities continued to experience improved occupancy and resident turnover levels as compared to first quarter 2002. During the second quarter, physical occupancy averaged 95%, increasing from 93% during the first quarter. Annualized resident turnover in this market was 68% for the quarter, down from the 1Q 2002 annualized level of 71%. However, market-level rents have not fully stabilized, declining approximately 1% during the second quarter. The continued decline in market-level rents, while slowing, contributed to a sequential decline of 2% in same-store NOI. The following table provides sequential operating data for the S.F. Bay area for the past six quarters.

 
 
                
S.F. Bay Area Operating Metrics
Past Six Quarters Ending June 30, 2002
      
Market Rent
Per Unit
     
Market Rent
% Change
     
Average Physical
Occupancy
     
Annualized
Turnover
Q1 2001
     
$1,963
     
-1.O%
     
96%
     
53%
Q2 2001
     
$1,833
     
-6.6%
     
93%
     
80%
Q3 2001
     
$1,755
     
-4.3%
     
93%
     
77%
Q4 2001
     
$1,599
     
-8.9%
     
92%
     
81%
Q1 2002
     
$1,573
     
-1.6%
     
93%
     
71%
Q2 2002
     
$1,551
     
-1.4%
     
95%
     
68%
% Change in Market Rent Q1 2001 to Q2 2002: -21%
 
Acquisition and Development Activity
 
In mid-June, the company acquired three Southern California apartment communities, for a total cost of approximately $75 million. The properties include: Bernardo Crest, comprising 216 one-, two- and three-bedroom garden apartments, located adjacent to downtown Rancho Bernardo, a master-planned community within the City of San Diego; Mission Trails, located northeast of Mission Valley in San Diego, with 208 one- and two-bedroom apartment homes; and Boulder Creek, near the University of California at Riverside, with 264 studio, one- and two-bedroom apartment homes. The acquisition of these properties increases BRE’s Southern California portfolio to a total of 28 communities, 7,251 units.
 
During the second quarter, BRE acquired the ownership interests of its joint venture partners in two communities: Pinnacle Blue Ravine, a 260-unit apartment community located in Sacramento, California; and Pinnacle Sonata, a 268-unit community located in Bothell, Washington. The company also consolidated its investment in a third joint venture property, Pinnacle Stonecreek, a 226-unit community located in Phoenix, Arizona. The transactions resulted in an increase in real estate assets of $79.3 million, and an increase in secured indebtedness of $15.5 million. The communities are now wholly owned by BRE.

 
At June 30, 2002, the company had four communities in the lease-up phase. Apartment units delivered and in service totaled 621 units, which will increase to 809 units upon the completion of construction. Average occupancy for the lease-up communities was 75% of delivered units, and 58% of total units at the end of second quarter 2002.
 
BRE currently has six communities with 1,493 units in development, at a total estimated cost of approximately $240 million. Four development communities are located in Southern California and two in the Denver, Colorado region. Expected delivery dates for these communities range from third quarter 2002 to first quarter 2004. In addition, the company owns two parcels of land in Southern California that represent 344 units of future development. It is anticipated that construction on the two sites will commence by fourth quarter 2002.
 
Financial Information
 
On June 20, BRE closed the offering of three million shares of 8.08% Series B Cumulative Redeemable Preferred Stock at $25 per share. The Series B Preferred Stock will be redeemable at $25 per share on or after June 20, 2007. The preferred shares trade on the NYSE under the symbol BRE_prb.
 
The net proceeds of the offering will be used to invest in additional multifamily apartment communities and, pending such use, were used to repay borrowings under the company’s unsecured credit facility, which had an outstanding balance of $287 million as of June 30, 2002.
 
At June 30, 2002, BRE’s combination of debt and equity resulted in a total market capitalization of approximately $2.7 billion, with a debt-to-total market capitalization ratio of 41%. BRE’s outstanding debt of $1.l billion carried a weighted average interest rate of 5.75%. For the quarter, BRE’s coverage ratio of EBITDA to interest expense was 3.4 times. The weighted average maturity for BRE’s debt is seven years, excluding amounts drawn on the company’s line of credit, and six years when amounts currently drawn are included.

 
For Q2 2002, cash dividend payments to common shareholders totaled $22.4 million, or $0.4875 per share, a 5% per share increase from $21.7 million, or $0.465 per share, for the same period 2001. Correspondingly, the FFO payout ratio for Q2 2002 was 73%, as compared with 68% for Q2 2001. Cash dividend payments for the six months ended June 30, 2002 reached $44.8 million, or $.975 per share, as compared to $43.3 million, or $0.93 per share in same period last year. The year-to-date 2002 FFO payout ratio was 73%, as compared to 69% for the first six months in 2001.

BRE Properties, Inc.
Financial Summary
June 30, 2002
 
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands)
 
    
June 30, 2002
     
June 30, 2001
  
Assets
              
Real estate portfolio
              
Direct investments in real estate:
              
Investments in rental properties
   
$2,023,196
 
   
$1,682,019
 
Construction in progress
   
85,065
 
   
59,586
 
Less: accumulated depreciation
   
(180,103
)
   
(141,387
)
    
  
    
1,928,158
 
   
1,600,218
 
    
  
Equity interests in and advances to real estate joint ventures:
              
Investments in rental properties
   
11,104
 
   
30,288
 
Construction in progress
   
51,247
 
   
39,067
 
    
  
    
62,351
 
   
69,355
 
    
  
Land under development
   
19,615
 
   
23,856
 
    
  
Total real estate portfolio
   
2,010,124
 
   
1,693,429
 
Cash
   
4,877
 
   
2,000
 
Other assets
   
51,559
 
   
51,043
 
    
  
Total assets
   
$2,066,560
 
   
$1,746,472
 
    
  
Liabilities and shareholders’ equity
              
Liabilities
              
Unsecured senior notes
   
$623,672
 
   
$483,000
 
Unsecured line of credit
   
287,000
 
   
154,000
 
Mortgage loans
   
215,979
 
   
212,711
 
Accounts payable and accrued expenses
   
34,205
 
   
29,560
 
    
  
Total liabilities
   
1,160,856
 
   
879,271
 
    
  
Minority interest
   
51,507
 
   
59,267
 
    
  
Shareholders’ equity
              
Preferred stock, $.01 par value; $25 liquidation preference;
              
10,000,000 shares authorized. 2,150,000 shares 8.50% Series A cumulative redeemable issued and outstanding; 3,000,000 shares 8.08% Series B cumulative redeemable issued and outstanding. (No Series B outstanding at June 30, 2001.)
   
128,750
 
   
53.750
 
Common stock; $.01 par value, 100,000,000 shares authorized.
              
Shares issued and outstanding: 45,990,253 and 46,504,843 at
              
June 30, 2002 and 2001, respectively.
   
460
 
   
465
 
Additional paid-in capital
   
724,987
 
   
753,719
 
    
  
Total shareholders’ equity
   
854,197
 
   
807,934
 
    
  
Total liabilities and shareholders’ equity
   
$2,066,560
 
   
$1,746,472
 
    
  

BRE Properties, Inc.
Financial Summary
June 30, 2002
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
 
    
Quarter ended
   
Six months ended
    
June 30, 2002
   
June 30, 2001
   
June 30, 2002
   
June 30, 2001
REVENUE
                    
Rental income
   
$64,353
   
$60,482
   
$126,900
   
$120,957
Partnership and ancillary income
   
4,095
   
4,257
   
7,963
   
7,631
Other income
   
247
   
1,483
   
462
   
2,995
    
  
  
  
Total revenue
   
68,695
   
66,222
   
135,325
   
131,583
EXPENSES
                    
Real estate expenses
   
19,301
   
17,386
   
37,574
   
34,941
Depreciation
   
11,607
   
9,896
   
22,364
   
19,158
Interest expense
   
13,678
   
12,176
   
26,766
   
24,207
General and administrative
   
2,410
   
2,560
   
4,613
   
4,915
Internet business (1)
   
—
   
2,855
   
—
   
7,163
    
  
  
  
Total expenses
   
46,996
   
44,873
   
91,317
   
90,384
Income before gains (losses) on sales of real estate investments and minority interest in consolidated subsidiaries
   
21,699
   
21,349
   
44,008
   
41,199
Gains (losses) on sales of real estate investments
   
—
   
—
   
—
   
—
    
  
  
  
Income before minority interest in consolidated subsidiaries
   
21,699
   
21,349
   
44,008
   
41,199
Minority interest
   
954
   
1,047
   
1,923
   
2,095
    
  
  
  
NET INCOME
   
$20,745
   
$20,302
   
$42,085
   
$39,104
DIVIDENDS ATTRIBUTABLE TO PREFERRED STOCK
   
1,308
   
1,142
   
2,450
   
2,284
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
   
$19,437
   
$19,160
   
$39,635
   
$36,820
    
  
  
  
Net income per share—Basic
   
$0.42
   
$0.41
   
$0.86
   
$0.79
    
  
  
  
Net income per share—Assuming dilution
   
$0.42
   
$0.41
   
$0.86
   
$0.79
    
  
  
  
Funds from operations (2)
   
$32,169
   
$33,151
   
$64,319
   
$65,588
Per share funds from operations-Assuming dilution (2)
   
$0.67
   
$0.68
   
$1.34
   
$1.35
Weighted average shares outstanding—Basic
   
45,950
   
46,430
   
45,895
   
46,320
Weighted average shares outstanding—Assuming dilution
   
48,080
   
48,680
   
47,960
   
48,680
 
(1)
 
Internet business expenses relate to our prior investment in VelocityHSI, Inc. VelocityHSI filed for bankruptcy protection during third quarter 2001. BRE’s investment in and advances to VelocityHSI were written down to zero during second quarter 2001. A reserve of $2,400,000 for potential BRE liabilities related to VelocityHSI was provided for as part of our second quarter 2001 charge. Our investment in VelocityHSI was recorded under the equity method of accounting. The recognition of our portion of income or losses was recorded on a 90-day lag basis, with losses applied to the extent of our investment in and receivables from VelocityHSI, and was added back to determine FFO from real estate. The effect of including this expense in FFO would be ($ 0.06) and ($0.15) for the quarter and six months ended June 30, 2001, respectively. There is no impact from VelocityHSI in 2002.
 
(2)
 
Calculated using the FFO definition from NARElT’s October 1999 White Paper (as amended).

 
FORWARD LOOKING STATEMENTS
 
In addition to historical information, we have made forward-looking statements in this report on Form 8-K. These forward-looking statements pertain to, among other things, our capital resources, 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, increased interest rates and operating costs, failure to obtain necessary outside financing, difficulties in identifying properties to acquire and in effecting acquisitions, failure to successfully integrate acquired properties and operations, 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 as 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. For more details, please refer to the company’s SEC filings, including our most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q.
 
ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS
 
(c) Exhibits: None.

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: July 23, 2002
By:
  
/s/    EDWARD F. LANGE, JR.      
   
Edward F. Lange, Jr.
Executive Vice President, Chief Financial Officer and Secretary