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BRE Properties (NYSE:BRE)

Q2 2013 Earnings Call

July 31, 2013 11:00 am ET

Executives

Constance B. Moore - Chief Executive Officer, President, Director and Member of Executive Committee

Scott A. Reinert - Executive Vice President of Property Operations

John A. Schissel - Chief Financial Officer and Executive Vice President

Stephen C. Dominiak - Chief Investment Officer and Executive Vice President

Analysts

Jana Galan - BofA Merrill Lynch, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Steve Sakwa - ISI Group Inc., Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Richard C. Anderson - BMO Capital Markets U.S.

David Bragg - Green Street Advisors, Inc., Research Division

Nicholas Joseph - Citigroup Inc, Research Division

Operator

Good morning. My name is Beth, and I'll your conference operator today. At this time, I would like to welcome everyone to the BRE Properties, Inc. Second Quarter 2013 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Ms. Constance Moore, President and Chief Executive Officer. Please go ahead.

Constance B. Moore

Good morning, and thank you, Beth. Thank you for joining BRE's Second Quarter 2013 Earnings Call. Before we begin our conversation, I'd like to remind listeners that our comments and our answers to your questions may include both historical and future references. We do not make statements we do not believe are accurate and fairly represent BRE's performance and prospects, given everything that we know today. So when we use words like expectations, projections or outlook, we are using forward-looking statements, which, by their very nature, are subject to risks and uncertainties. We encourage listeners to read BRE's Form 10-K for all -- for a full description of potential risk factors and our 10-Q for interim updates.

This morning, management's commentary will cover our financial and operating results for the quarter, the operating environment and an update on our investment activity, our financial position and outlook for the balance of the year. John, Scott and I will provide the prepared remarks. Steve Dominiak will be available during the Q&A session.

And before I turn to our results, let me briefly discuss the public letter that was released this morning. I can confirm that the board has just received the letter, and beyond that, I cannot comment at this time. What I can say is that this board and management team has always -- have always been committed to maximizing the value of the company and will consider any legitimate proposal that is in the best interest of shareholders.

So now let me turn to our results. FFO per share totaled $0.63 for the second quarter, which exceeded the $0.56 to $0.60 range we provided in April due to several factors which John will detail for you in his comments. Most notably, property level expenses came in $1.6 million or $0.02 lower than anticipated due primarily to the timing of property tax refund. We are updating our annual funds from operations guidance to a range of $2.44 to $2.50 per share, raising the midpoint $0.07 or close to 3% from our original guidance.

We remain focused on our strategic plan to improve the concentration of our portfolio in our target high-barrier entry markets in California and Seattle. We continue to execute on our development project as expected, and we are extremely pleased with the product and as important, the value we are creating. At the same time, by funding much of the development capital with strategic dispositions of our non-core properties, we are preserving our balance sheet capacity and further improving BRE's portfolio quality. By continuing to sell slower-growth properties in communities in our non-core markets and submarkets, we believe we can significantly improve the growth profile of our portfolio in the coming quarters and years.

With regard to our development activity, let me update you on our progress. Our Lawrence Station community in Sunnyvale, which was completed last December on time and under budget, completed its lease-up during the second quarter. Occupancy averaged 88% for the quarter and was 97% for the month of June. With rents at almost $3 per foot, we're approximately 8% to 9% above our trended underwritten rent. We anticipate a stabilized yield in the mid-60s as lease-up concessions burn off early next year.

Aviara, our community on Seattle's Mercer Island, finished construction in June, again, on time and on budget. It is now 80% leased and 69% occupied. We expect to be fully leased in September. Rents are $2.12 per foot, which are on top of our expectation. The balance of the pipeline is progressing as expected. At both Wilshire La Brea and Solstice, we are on track to deliver the first units in the fourth quarter of this year. The 4 projects currently under construction have $293 million remaining to be funded over the next 18 months. Construction at all 4 communities will be completed by the end of 2014, meaningfully reducing the company's development exposure.

With this in mind, after considering alternatives to fund our 2 Pleasanton sites with joint venture capital, we have elected to develop these communities on balance sheet. Pleasanton projects are expected to commence construction in the first half of 2014 and to be completed by mid-2016. The decision to develop the Pleasanton sites on balance sheet fits within our strategic goal by improving the quality and growth profile of our portfolio, increasing our investment presence in the San Francisco Bay Area, maintaining a simple structure and balance sheet and continuing our commitment to development by identifying the next generation of homes to be developed after the company completes the 4 communities currently under construction.

On the disposition front, we sold Summerwind Townhomes in late June for $47 million. The community was targeted for sale due to the growth characteristics of its submarket location within Los Angeles, California. Also in June, the company completed the sale of a joint venture interest of an asset located in Phoenix. This was the last joint venture interest from our JPMorgan investments in Denver and Phoenix, which we formed in 2006 to reduce our exposure to and eventually exit from those markets. Including these transactions, year-to-date disposition proceeds total $100 million.

We're in the process of marketing additional assets in southern California and continue to expect full year disposition proceeds of $175 million to $225 million, matching our development spend for the year. When the southern California asset sales are completed, we expect southern California to represent 50 -- 55% of our same-store NOI, down from a peak level of 63% in 2011.

We continue to look at acquisitions of stabilized properties, although cap rates remain at or below 4%, 4% in our target markets and submarkets, despite the recent increase in the 10-year treasury yields. We identify existing properties to acquire in our core markets that would likely enable us to increase our disposition volume as we would acquire any operating assets through a tax-deferred exchange.

Scott will provide more color, but from a high level, our portfolio is performing in line to slightly better than our expectations at the outset of the year. The northern California and Seattle markets are performing better than we had anticipated. In southern California, the recovery has not been as robust, given the broad-based diversity of jobs in this region. Each of our markets in southern California has displayed varying degrees of strength. Overall, revenue growth has come in slightly above the midpoint of our expectations, and the markets all benefit from high-cost single-family housing and relatively limited levels of new supply.

In summary, as we outlined at the start of the year, we continue to focus on improving the quality of our portfolio. We are concentrating assets in our core higher-growth target submarkets and selling assets in non-core markets and second-tier locations to drive better long-term results with greater stability supporting higher valuation. We are encouraged by our success to date and look forward to updating you on further progress through the end of 2013 and into 2014.

And with that, let me turn this call over to Scott.

Scott A. Reinert

Thank you, Connie. Good morning, everyone. As Connie just mentioned, we're halfway through the year, and we're making good progress on our strategic plan and key priorities. And as such, we're delivering results in the upper end of our initial guidance ranges. Our outlook for 2013 was predicated on the following considerations: number one, job growth and job quality throughout our markets; two, the impact of expected new apartment supply in certain of our markets; and three, the impact that a strengthening single-family home market may have on each of our markets.

And now that we're at midyear, here's how we see those factors playing out.

Starting first with southern California. We expected job growth of 1.2% to 1.7% in 2013, and on a trailing 12-month basis, jobs have increased by 1.2%. What we've seen is stronger job growth in the early part of the year, combined with some recent slowing. And while, in general, this slowing hasn't impacted us, it's something we're watching very closely.

In terms of new supply, there really hasn't been much of an impact on our overall results in our southern California markets. Move-outs to home purchases remained very low at 9.7% in southern Cal versus 9% in the prior year. Blended new lease activities, that's both renewals and old-to-new move-ins in southern California grew at 3.9% during the second quarter, up from the first quarter pace of 2.6%. Growth improved each month throughout the quarter and reached 4.5% in June.

Most notable about our recent results in southern California is the recent improvements in San Diego, where, in June, new and renewal leases were each at 5.1% over the prior lease. In July, San Diego continued to advance, with new move-ins again averaging 5.1% and renewals increasing at 5.5%. We're encouraged by the improvement in San Diego rent growth, the year-over-year improvement in renewal growth rates throughout southern California and we remain cautiously optimistic for additional strengthening of the economy.

As Connie alluded to, we continue to look to sell some of our slower-growth assets in southern California, enabling us to improve our internal growth profile within the market. To that end, we're pleased with the progress we are making, including the recent sale of the Summerwind asset in L.A., where the year-over-year rent growth in 2013 was essentially flat and otherwise would have muted our growth there.

Moving to Seattle. Seattle continues to absorb the new supply that we previewed at the beginning of the year. Job growth is up 2.2% or 37,000 new jobs in the past 12 months, which is just ahead of our projections. And while the pace of job growth is slower than 2012, it remains very healthy and appears to be keeping up with the pace of new deliveries. Home purchase activity is running lower than this same time a year ago by 320 basis points and has been fairly consistent in the past 3 quarters at around 15.5%.

The greater Seattle area will be delivering 6,400 units in 2013, with roughly 3,500 units already being delivered through June and 2,000 of those 3,500 having been added to the downtown Lake Union Queen Anne market. Move-in concessions of up to 1 month free are typical. Our 2 downtown Seattle assets are seeing some impact of the new supply coming into the market as reflected in their new and renewal growth rates less than our Seattle average. However, occupancy has remained stable at 95% to 96%. The balance of our Seattle portfolio, 11 communities and just over 3,100 units, is performing very well in spite of the new supply in the MSA. The Redmond area was strongest during the quarter, producing growth of almost 9% on new and renewal leases.

Our Bay Area results are exceeding our expectations based on stronger-than-expected results from our East Bay asset. The Bay Area produced jobs on a trailing 12-month basis of 2.3%, with San Jose leading the way at 2.9%. We have revenue growth of 11% on our 2 most recent 2011 East Bay acquisitions, Jack London Square and Lafayette Highlands. East Bay has had limited new supply impacting the area, and with revenue growth of 9.4% in the second quarter, it matched the performance of our Silicon Valley asset.

On the single-family housing front, as with all of our core markets, pricing and inventory are at healthy levels and remain very expensive. In the Bay Area, Q2 move-outs to home purchase dropped 120 basis points year-over-year to 12.9% and remains flat year-to-date to last year's level.

In San Jose, revenue growth remains strong even as the market continues to absorb new units. The Irvine Company has delivered 1,750 new units over the past year, with roughly 1,200 already being absorbed. Our REIT competitors have also begun leasing an additional 1,000 in north San Jose, and the bottom line is that new absorption to date continues to be met by the strength of the jobs market.

From an operating perspective, I'm very encouraged about our current market conditions. Apartment fundamentals remain strong in our markets. Turnover remains in check with year-to-date levels below last year and home purchases flat to down from 2012. We were very focused on increasing rental rates throughout the second quarter and are continuing to push rents into the early part of the third quarter. In July, new and renewal leases came in at a combined 6% increase, and our August and September renewal notices have gone out in a range of 5% to 6%. Through the back half of the third quarter, we will focus on building occupancy as we prepare for the typical seasonal slowdowns in traffic and leasing activity of the fourth quarter.

Finally, I'd like to make a few comments on the reinvestment program that we kicked off mid last year. During the second quarter, we initiated our 2013 starts and now have over 15% of our same-store portfolio going through renovation. Portfolio-wide same-store occupancy can run upwards of 40 to 60 basis points lower with this level of rehab. Excluding the rehab communities, same-store occupancy ran 95.4% for the second quarter, consistent with prior year occupancy levels. On an annual basis, we expect the renovations to be revenue-neutral as lower occupancies are offset by higher rents, so there may be some fluctuation by quarter and by region.

As Connie discussed earlier, we are strategically focused on improving the growth profile of our portfolio, and the reinvestment program is another element of portfolio improvement that we are executing. I'm excited about the product we're delivering, and the early return results are better than expected.

And with that, I'll turn the call over to John.

John A. Schissel

Thanks, Scott. My comments will focus on the guidance aspects of our results and outlook. As we reported, FFO and Core FFO for the second quarter was $0.63 per share, which exceeded, by $0.03 per share, the high end of guidance we provided in April of this year. This reflects a number of factors, as we detailed in our earnings release, and include: same-store revenue results coming in at the upper end of our expectations for the majority of our markets; lower-than-anticipated operating expenses, which consisted of both a favorable spend on R&M and also $1 million of tax refunds that we received; lower G&A costs than originally forecasted, related to both timing on certain legal items, as well as favorable resolution of certain matters; and lastly, the positive impact from the cash flow of the 2 community dispositions, 1 wholly owned and 1 JV, which occurred at the end of the quarter.

As we look at third quarter earnings, we have provided a range of $0.62 to $0.65 per share. At the midpoint, this is slightly above the second quarter earnings. The sequential growth in same-store revenue is muted by a higher absolute level of operating expenses on a sequential basis due to the positive impact of the tax refunds we received in the second quarter and the sequential impact from the lost income of the wholly-owned and joint venture dispositions in the second quarter. Interest will trend down and G&A should also trend lower, but G&A can be more volatile from quarter-to-quarter due primarily to timing associated with legal fees and settlements. We don't expect any community sales to close until the fourth quarter. Expenses elsewhere are tracking where we expected.

With respect to full year guidance, operational guidance for the same-store portfolio is being updated to reflect portfolio revenue growth trending towards the upper end of our original guidance and also lower expenses both from reduced repairs and maintenance and payroll spend, as well as the benefit of the $1 million in tax refunds in the second quarter. The impact of these factors result in raising both the midpoints of revenue and net operating income expectation.

We are also adjusting our Core FFO range from our February outlook of $2.35 to $2.45 per share to $2.44 to $2.50 per share. The $0.07 increase at the midpoint primarily reflects the previously-mentioned update in our operational outlook; the impact from timing on community sales. Sales completed in the first half of the year were back ended, and sales we expect to compete in the second half of the year will also likely be back ended; higher levels of capitalized interest both from the timing of the development spend this year, as well as the impact from Pleasanton, which we had previously assumed no additional capitalized interest after June.

On the capital side, we expect development advances to total $90 million to $110 million for the second half of the year, which will be match-funded with community sales. Our financial position and liquidity levels remain extremely strong, and we continue to retain significant financial flexibility. At this time, we have only $50 million unfunded debt maturities over the next 3.75 years. And at quarter end, June 30, we had no outstanding balance under our $750 million revolving credit facility. At the end of the second quarter, debt to EBITDA was reported in the mid-6s. Our secured debt as a percentage of gross assets is less than 20%, and our unencumbered asset NOI is approximately 74% of total NOI.

With that, I'll turn it back to Connie.

Constance B. Moore

Great. Thank you, John. Beth, we're now open for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from Jana Galan with Bank of America Merrill Lynch.

Jana Galan - BofA Merrill Lynch, Research Division

I understand you can't comment on today's letter, but I believe Land & Buildings has reached out earlier in the year and then in June. And if you could maybe speak to -- as to why the board chose not to consider those letters or what would sound lacking in those offers.

Constance B. Moore

Well, I'm not going to comment on those. I said in my opening remarks that the company will consider any legitimate proposals it receives.

Jana Galan - BofA Merrill Lynch, Research Division

Okay. And then maybe if I could just ask on the expenses, are you expecting any other property tax rebates this year?

John A. Schissel

This is John. We don't, but we have active appeals going on. We just don't know if we'll be successful or the timing of that. It's hard to predict.

Jana Galan - BofA Merrill Lynch, Research Division

Okay. So no the further ones are in guidance?

John A. Schissel

That's correct. We have no knowledge of any successful appeals at this time.

Constance B. Moore

We still are appealing.

Operator

Moving on now to Nicholas Joseph with Citi.

Michael Bilerman - Citigroup Inc, Research Division

It's Michael Bilerman here with Nick. There was a comment in your opening remarks that cap rates for core products in your markets are -- cap rate is 4% and below. And I'm just curious, what percentage of your portfolio do you consider core?

Constance B. Moore

Well, core -- I would say probably in terms of core urban location, 35%.

Michael Bilerman - Citigroup Inc, Research Division

And then the balance would be at cap rates how far north of that?

Constance B. Moore

Well, I mean, again -- and remember, Michael, when we're talking that 4% cap rate, that is a buyer's cap rate. So for example, now we have -- we probably have another 20% that would be similar to the Summerwind asset that we closed in the second quarter. And our cap -- the buyer's cap rate on that was in the high-5%. Our cap rate, the selling cap rate, because of the Prop 13 adjustment, because of the age in terms of how long we held that asset, was in the low- to mid-6s.

Michael Bilerman - Citigroup Inc, Research Division

And if I can just -- sorry, go ahead.

Constance B. Moore

[Indiscernible] because when I'm talking about 4% or less, that would be for us going out and looking at a new acquisition or any investor looking at a new acquisition today in California. In core coast of California, you are looking at cap rates of 4% or in many cases, sub-4%.

Michael Bilerman - Citigroup Inc, Research Division

That leads to a follow-up, and I respect your desire to not comment specifically on the letter. You said in your opening remarks that the company will consider any legitimate proposals that are in the best interest of shareholders, effectively saying that the offer is not legitimate, which is fine. That's your and the board's view. But I guess, if you take a step back, there clearly has been interest in the company over the last 12 months, whether it be Essex, whether it be John and his partners or others and there clearly has been interest in the sector, right? You can read the Colonial, MAA proxy and see the private equity interest that was there and also the public-to-public interest that was there. Obviously, we had Archstone go to the Avalon and EQR. And so I'm curious, just from the standpoint of, at some point, you have been disappointed with where the stock is. The board has been disappointed where the stock is. You've communicated that we're going to give it another year. I guess, why shouldn't the board be more aggressive at starting a process to narrow that disconnect rather than just waiting for someone to knock on the door with a real hard offer that is legitimate rather than not being? But at some point, do you need to run a process to ferret out the interest that appears to be in the multi-family space?

Constance B. Moore

Well, first of all, Michael, thanks for the question. There was a lot of thoughts in there. I think it's dangerous to make assumptions about what has or has not gone on. And I think that the board feels that it is running a process, and it's running a process like executing our business plan. It has a very clear understanding of the value of this development pipeline. So we have a very clear strategy. We're executing on that strategy. That's not to say that the door is bolted shut. As I said, we would consider any legitimate proposal. But I do think it is dangerous to start making assumptions about what may or may not have occurred.

Operator

And moving on, our next question will come from Jeffrey Donnelly with Wells Fargo.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Just actually maybe one follow-up to that, Connie. Are you permitted to identify the parties, beyond Land & Buildings, who are involved on that consortium that sent in the offer?

Constance B. Moore

I have no comment.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Okay. And then, just switching gears, just considering the company's decision to fund the development of those 2 Pleasanton development sites on balance sheet. In past calls, you said that pricing on development sites had become fairly frothy. Instead of an on versus off decision, did you guys give consideration to even selling those sites?

Constance B. Moore

We did. We've looked at all potential alternatives for that site. But as we continued to evaluate the conversations that we had and we've looked at -- again, principally, as I said in my commentary, that our current development pipeline will be completed by the end of '14, and we said we really want to continue to expand our exposure to not only the Bay Area but to transit-oriented sites. And we said we own these 2 sites. And sites, again, to acquire are very difficult. And so it really made sense for us, when we looked at all of the alternatives, for us to build this on balance sheet. So we did consider all alternatives.

Operator

And moving on, our next question will come from Steve Sakwa with ISI Group.

Steve Sakwa - ISI Group Inc., Research Division

Connie, I guess I wanted to talk about cap rates and pricing and kind of growth expectations. If buyers are kind of buying assets in the low-4s and you've even quoted maybe some deals in the 3s, in order to kind of get an acceptable IRR, which, you would say, has got to be unlevered in the maybe 6.5% range, you're basically talking about NOI growth that's got an average north of 4% over a 10-year period. And so unless my math is wrong, are you or buyers, do you think, underwriting that kind of growth? Or do you just think they're accepting sub-6 unlevered IRRs?

Constance B. Moore

Well, it's always hard -- I'm going to let Steve answer that question. It's always hard for us to understand what others are underwriting. We know what -- how we'd look at it. But, Steve, I'll let you sort of talk about what you think the competition is out there.

Stephen C. Dominiak

I'd agree with Connie. It's hard to know what those assumptions are. However, when we look at some of the past trades, using our underwriting, I do think some of the IRRs are in the mid to -- mid-single digits.

Steve Sakwa - ISI Group Inc., Research Division

Mid-single digits being 5% unlevered IRRs?

Stephen C. Dominiak

In the 6, 7-ish range.

Steve Sakwa - ISI Group Inc., Research Division

And that's using what, like a 4-plus percent NOI growth rate or something higher?

Stephen C. Dominiak

Yes.

Operator

And moving on, we'll now go to Ross Nussbaum with UBS.

Ross T. Nussbaum - UBS Investment Bank, Research Division

It's Ross Nussbaum, UBS. Based on your new and renewal rent growth numbers for the second quarter and early Q3 in San Diego, it very much seems like things have rapidly improved, at least from the numbers you've been reporting in Q1 and before that. I'm trying to get a sense of, is it the overall market, is it specific assets, are you doing something different on management, is it revenue management software? What's triggered that big jump in what you're getting now on the leasing?

Scott A. Reinert

Ross, it's Scott Reinert here. So yes, we've been looking at that very closely. Job growth has been pretty strong in San Diego. That's certainly one function. Another function, I think, is that we have been -- we've had favorable impacts from the lack of military troop rotations out of the area. I think that's helped stabilize the region and the economy. It's been very interesting. I think when we spoke with you at NAREIT in June, we talked about it being a fairly recent occurrence. And so we're very happy about the change and impressed with the growth that we're seeing. I think it's a combination of the military impacts on the region and some decent job growth down there. Another interesting aspect of it is, as I look at it more closely, our -- what we would consider our C-class properties based on rental rates, our C-class properties outperformed the As and Bs in San Diego during the second quarter. So I think that's part of it.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Okay, appreciate that. And then, Connie, I'm wondering if you are willing to offer up the definition of the word, legitimate, as you've used it several times in this call. I'm just trying to get my arms around the difference between a legitimate and an illegitimate proposal.

Constance B. Moore

I don't think there's any need to look at -- you can look at Webster's dictionary to determine the word, what it means.

Operator

And moving on, we'll now go to Rich Anderson with BMO Capital Markets.

Richard C. Anderson - BMO Capital Markets U.S.

So let me just look at this a little differently. Do you think a 4.75% cap rate on your portfolio is a legitimate cap rate for your Land & Buildings?

Constance B. Moore

Rich, I think it's sort of looks at our, "Are we a going concern?"

Richard C. Anderson - BMO Capital Markets U.S.

I mean, I'm just saying 4.75%, is that a reasonable -- when you talk about a 4% cap on deals that are happening and you look at your entire portfolio, does 4.75% kind of make for a reasonable representation of the BRE portfolio, given you're West Coast?

Constance B. Moore

I think it's much like Steve Sakwa's question. It's really the market decides, right? I mean, I think that the market will decide what this portfolio is worth and what their expectations are for a return, whether it's in its current form or not. Archstone, I think, was sold at a 4.75%, so -- and much of that had already been Prop 13 adjusted. So you decide.

Richard C. Anderson - BMO Capital Markets U.S.

Okay. And then if I could just have a follow-up on the Pleasanton development and the decision to go on balance sheet with that. I mean, what is -- you mentioned you want -- you're going to kind of lose some exposure from a development standpoint starting in 2014 or later. But is -- was there a market for private equity or a joint venture partner declining in your mind? Or was it purely just a decision on your part to go fully on balance sheet with that project?

John A. Schissel

Rich, this is John. I would say there was a very healthy market, but I would also say it probably wasn't as healthy as a year ago. Those who want to own outright still have a very strong demand, as we're seeing and as Steve has seen, in the marketplace. But some of the financial partners maybe have dialed back slightly and I say slightly, their appetite, but there was still very strong demand.

Operator

[Operator Instructions] And we will now move to Dave Bragg with Green Street Advisors.

David Bragg - Green Street Advisors, Inc., Research Division

The valuation of your development platform seems to be one of the key considerations or a consideration that management and the board seems to have that's different than investors. And I'm wondering if the Pleasanton deal is some sort of case study in this in which you were -- you brought it to the market, evaluated the private market interest in this, and it was not as strong as BRE expected it to be. Can you kind of just talk through what you found, how far off those potential bids were from your expectations?

John A. Schissel

Yes, Dave. This is John. I think it's hard to summarize in 1 or 2 bullet points because we had a couple of objectives. I would say some of the economic structures offered were not what we had hoped. There's no doubt about that. But it also was in concert with the fact that as we looked at how competitive land pricing has gotten in the Bay Area and our need to find the next generation of development, albeit at lower levels, and our desire to increase our Bay Area exposure, the combination of those elements led us to move forward in the manner in which we've discussed.

David Bragg - Green Street Advisors, Inc., Research Division

Okay. And now with this deal, what would your 2014 development advances be?

John A. Schissel

Right now, probably around $250 million, $225 million to $250 million.

David Bragg - Green Street Advisors, Inc., Research Division

All right. Last question. I think this has been in the press release in the past 2 quarters. Upfront, there's a comment that the company plans to continue to sell strategic sales of certain slower-growth communities. I know that the L.A. area deal sold during the quarter is an example of that. What percentage of the portfolio would fit this definition?

John A. Schissel

Well, I think near term, you could look at another $300 million to $500 million.

David Bragg - Green Street Advisors, Inc., Research Division

Right. That's your plans, yes. But does that fit the definition of slower-growth communities and then so after that, you have the appropriate growth profile?

John A. Schissel

No. I would say there's still $200 million to $400 million that, in a perfect world, we would look closely at selling. But that's -- there's no pressure. Those are assets that are performing well, and it would just depend on other capital sources available to us. Everybody has assets that they'd like to turn back.

Constance B. Moore

Yes, that they'd rather not have. So there's sort of the immediate need. Obviously, some of that will be used to fund the development pipeline. As John mentioned, the development is down for next year. And then, as I mentioned in my commentary, to the extent that there is an acquisition that we feel adds to our portfolio in our core locations, improves our growth profile, it will also allow us to accelerate some of those other assets that we'd like to sell and use it as a trade because, as you might imagine, David, some of our assets we've held for a very, very long time and our tax base is quite large. And so rather than try to manage that through the dividends or special dividends, we'll do an exchange and acquire new assets that way. So that will be another way that we will continue to change the portfolio.

Operator

And moving on to a follow-up from Nicholas Joseph with Citi.

Nicholas Joseph - Citigroup Inc, Research Division

I was wondering if you can walk through the different expected yields on current rents for the 4 current development projects and then the 2 Pleasanton assets. I remember, on the third quarter call, you discussed that there could be a potential impairment taken on one of the sites, so maybe on current cost.

Stephen C. Dominiak

Sure, Nick. This is Steve. Solstice, which is our Sunnyvale site, current return is in the mid-7s. Wilshire La Brea is right around 4. Radius in Redwood City is in the low-7s, and Mission Bay is in the high-5s. So together, the current return is in the mid-5 for all 4 of those projects. Pleasanton, both sites in Pleasanton are in the low-5, which, I'll point out, that's an asset just -- a 7-year-old asset traded just across the freeway at a very low-4 cap rate at a per-unit cost higher than our basis -- our expected basis in the project. So there won't be any impairment on Pleasanton.

Constance B. Moore

And let me just comment on those deals, and I know we've beaten this dead horse. But just to make sure that yields are comparable among companies, remember that our quoted yields have a management fee in there that said -- flips that return by about 35 basis points.

Nicholas Joseph - Citigroup Inc, Research Division

Okay. And then on those 2 Pleasanton in the low-5s, is that on current or trended rents?

John A. Schissel

Current.

Operator

And this does end our Q&A portion of the call. I would now like to turn this call back over to Ms. Moore for closing remarks.

Constance B. Moore

Great. Thank you very much for your interest this morning. Got a little fireworks this morning, but we look forward to continuing to execute on our plan and talking you later in the year. Thanks, guys.

Operator

And that does conclude today's program. Thank you, all, for joining.

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Source: BRE Properties Management Discusses Q2 2013 Results - Earnings Call Transcript

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