One Tuesday, two more REITs hosted their fourth-quarter earnings conference calls. And there were no huge surprises. Up first was San Francisco–based BRE Properties, which provided better-than-expected earnings in the fourth quarter of 2011 and promising guidance for 2012. The company saw its funds from operations (FFO) finish the fourth quarter at $43.3 million, a drastic improvement from the total $9.8 million on the books to end the fourth quarter in 2010. Year-over-year fourth-quarter same-store revenues and net operating income (NOI) didn’t show quite as much disparity, coming in at a 5.5 percent and a 6.6 percent increase, respectively. BRE last quarter completed 2,400 new leases, a 2.1 percent gain, and 2,200 renewals, a 4.5 percent gain over Q3.
With its core growth markets along the West Coast, BRE decided to trim its exposure to inland properties during the fourth quarter. This was highlighted by the sale of two assets in California’s Inland Empire for a combined $16.5 million in gains. The firm's main investment strategy over the next few years involves putting $200 million to $250 million into development advances on properties.
“We have a very attractive development pipeline we're going to focus on. And that's going to become the primary driver of our growth for the foreseeable future. It doesn't mean we won’t look at acquisitions, but right now we’re focused on executing on the development pipeline, given that we bought some terrific assets over the last couple of years,” said BRE president and CEO Constance Moore during the conference call.
According to BRE, market rent growth expectations for 2012 are as follows: Seattle, 7.4 percent; San Francisco Bay Area, 6.5 percent; Los Angeles, 5.5 percent; Orange County (Calif.), 5.0 percent; and San Diego, 2.5 percent.
The second company to report earnings Tuesday was Associated Estates Realty. The Richmond Heights, Ohio–based REIT showed positive results for the fourth quarter of 2011 thanks largely to strong fundamentals in the company’s core Midwest market. Revenue from Midwest properties was up 6.5 percent, and revenue from Mid-Atlantic properties was up 4.2 percent in the fourth quarter over the previous quarter.
Same-community holdings also saw a modest increase, with NOI growing 4 percent year-over-year and revenue gaining 4.4 percent. Occupancy in the fourth quarter was 95.1 percent. Same-community new lease rents were up 1.2 percent for the fourth quarter, and renewals lease rents were up 5.8 percent. Resident turnover was at 48.9 percent for the quarter, and senior vice president of operations John Shannon was optimistic that things will only get better as 2012 rolls on.
“We are well-positioned to have another good year in 2012, and we are off to a good start, as we finished January at 95.4 percent physical occupancy and our net collected rents are up better than 5.5 percent,” Shannon told investors and analysts on the earnings call.
The company’s 2012 guidance calls for zero to $150 million in acquisitions and $50 million to $75 million in property sales. Plus, Shannon mentioned that cap rates have largely stabilized, with Associated Estates’ Midwest properties in the 7 percent to 8.5 percent range and the Mid-Atlantic in the low–5 percent range.