Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Constance Moore – President and CEO

Ed Lange – EVP, COO and CFO

Analysts

Dustin Pizzo – Banc of America

Greg [ph] – Citigroup

David Cohen – Morgan Stanley

Johan Memogia [ph] – Goldman Sachs

Lou Taylor – Deutsche Bank

Rich Anderson – BMO Capital Markets

Alex Goldfarb – UBS

Todd Stender – KBW

Jeffrey Donnelly – Wachovia

Todd Thomas – KeyBanc Capital Markets

Michael Salinsky – RBC Capital Markets

Haendel St. Juste – Green Street Advisors

BRE Properties, Inc. (BRE) Q1 2008 Earnings Call Transcript April 30, 2008 11:00 AM ET

Operator

Good morning. My name is Brook and I will be your conference operator today. At this time, I would like to welcome everyone to the BRE Properties First Quarter 2008, earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answers session (Operator instructions) I would now like to turn the conference over to Ms. Constance Moore, President and Chief Executive Officer. Thank you Ms. Moore, you may begin your conference.

Constance Moore

Thank you, Brook and good morning everyone. Thank you for joining BRE's first quarter earnings call for 2008. If you are joining us on the internet today, please feel free to e-mail your questions to askbre@breproperties.com at any time during this mornings call. Before we begin our conversation, I would like to remind our listeners that our comments and answers to your questions may include both historical and future references. We do not make statements that we do not believe are accurate and fairly represent BRE's performance and prospects given everything that we know today.

But when we use words like expectations, projections or outlook, we are using forward-looking statement, which by their very nature are subject to risks and uncertainty. We strongly encourage listeners to read BRE's Form 10-K for a full description of potential risk factors and our 10-Q for interim updates. During our call this morning, management's commentary will cover our operating results, our investment activities and financial reporting. Ed and I will then provide the commentary and Brad and Deirdre will be available during the Q&A session.

Let me start with our fourth quarter results and a few takeaways. We had a good start to the year. We reported our Funds from Operations with $0.68 per share. There were non non-operating items in these results. This represents year-over-year growth of 11.5%. Our results came in as we expected. We are maintaining the estimates for both earnings per share and FFO that we provided in December. Year-over-year same store NOI growth was 4.2%, reflecting the same store revenue growth of 4.6% and property level expense growth of 5.6%.

The expense growth for the quarter was higher than our guidance for the full year which we indicated at about 3% to 4%. This is largely related to the timing of expenses in 2007. For the quarter, the expenses came in on target and our expectations for the full year are unchanged. As we indicated in the earnings release, we continue to see positive operating conditions in San Francisco, Seattle and San Diego. Year-over-year revenue growth in these markets range from 5% to 9%.

Those operating markets with the greatest exposure to single family housing specifically Sacramento, The Inland Empire and Phoenix continue to struggle. Revenue growth in Phoenix was down 1% and Sacramento revenue was flat and in the Inland Empire revenue growth was up 2.5%. Our chief highlights for the quarter was our announcement that Henry Hirvela will be joining the Executive Management Team at BRE as our new Chief Financial Officer. We welcome Henry to the team and look forward to him getting up the speed; he will start next week. Henry has a solid background as a Chief Financial Officer with public companies, with experience outside of real estate specifically with our highways, should prove beneficiary as we continue to build a share service platform at BRE. Henry is a terrific guy and we look forward to his long relationship with us.

Ed will discuss the same store operations and financial topics; I will now continue with our investment activities. During the quarter we classified five properties as held for sale and started the marketing process for each community. Consistent with the plan we outlined in our last quarter call four of these assets are in Sacramento and one is in the county of Vallejo on the I-80 corridor between the Bay Area and Sacramento. These properties along with the Seattle assets that we classified as held for sale in 2007 represent about a 100 million in book capital.

If all the properties sell this year we will expect gross proceeds to range to $180 million and $200 million. We are still very early in the sales process and we will have more to report at the end of the second quarter. Transaction cap rates for stabilized apartments remained sticky, but there has not been a lot of transaction to benchmark off those. If anything high-quality assets in markets have seen very little pricing change. Lower quality assets and markets have shown greater cap rate sensitivity. If you look at our supplement in the NAV exhibit on page 15 you will see we have adjusted our composite cap rates for the portfolio, but only modestly.

Coastal California cap rates remained firm ranging from 4% to mid 5% to 5.5% depending on the location and property quality. Cap rates in Seattle have a fairly wide range of 4.5% to 5.75% which was driven by sub-market locations, age and the quality of the assets. Sacramento and Phoenix cap rates appear to be priced from the low-to-mid 5 to 6 in the quarter at the upper end. Based on what we were seeing the Company's composite cap rate today is about 5% to 5.2%.

We will turn now to our construction and new development activities. There is no material news to report with the development program. Cost and schedules remain consistent with our reporting last quarter. Three of our construction sites, in Pasadena, Orange and Emeryville were completed and received final certificates of occupancy during this first quarter. Leasing is proceeding well at all three sites, Pasadena, and Emeryville should achieve cyclical stabilization mid year and we will begin to burn Op rates in concession which should take about 9 to 12 months. Orange is leasing well but this is the large community with 460 units. We have 61% occupied, traffic did begin to pick up in March as we expected and we are still targeting in November, December, for physical stabilization.

The four remaining construction sites are progressing very well. These properties have driven almost 1100 units, with the balance to conclude of about $147 million, which will be balanced over the next 12 to 18 months. First unit delivery for our 5600 Wilshire community remained targeted for late this year. Unit deliveries at the other three sites Park Viridian and Anaheim and our two sites from Seattle totaled 28 and Belcarra will be spread over 2009.

As we have reported last year we have three sites that we will start construction during 2008. In the next 90 days we planned to start construction at our Santa Clara site, a 271 unit site of property, a great site and a very strong Silicon Valley submarket. During the second half of the year we planned to begin construction of the second phase of our Pasadena Community adding another 212 units and then the total number of units for this property to 400.

We finally plan to commence construction in Seattle at our development site on Mercer Island totaling 166 units. These are all podium developments and will require a couple of years to complete. The aggregate total expected investment for these three communities is approximately 224 million. Before handing the call over to Ed, let me just say by saying we're pleased with the operating results for the quarter, this is a good start for the year. As we indicated last quarter given the range of regional economic conditions strong in certain markets, recessionary in other, this is going to be challenging year and perhaps stronger. We started the year with a pretty wide guidance range that considered modest job growth at the high-end and abrupt and painful mid-year economic contraction across the Board at the lower end.

Our result came in as expected and we are not surprised with the job numbers. We expected Seattle and the Bay Area to continue to expand. We also expected the loss of construction jobs to impact the Inland Empire in Sacramento and it was clear that the financial related jobs would impact Orange County. We started the year well with physical occupancy and continued to push rents where pricing power is available. We are maintaining initial guidance we established for the year. We'll take a little early stand at the end of the second quarter and with that, let me turn the call over to Ed.

Ed Lange

Hey, thanks, Connie. Good morning everyone. As Connie indicated the overall results of the quarter were in line with our expectations more than 4.5% same store revenue growth, good contributions from properties and lease up and emission Peaks rehab property in the Bay Area. The regulatory operating metrics from the same store pool all and offers some market commentary. Against the current economic backdrop, it wasn't really balanced between the occupancy and market run growth. Whereas in total it was modest, a good level of resident renewal activity. Overall price is down about 5% from last year but very much on top of this and a little stronger than what we expected. Physical occupancy averaged just over 94% for the quarter ended the period at 95%.

Our occupancy is strong as where you would expect. Seattle and San Francisco both are running at or above 95% in San Diego which averaged 95.5% during the quarter and ended the period 96%. Inland Empire is running at 93% which is above the general market conditions, which are at or above 91%. We have got a strong team on growing that market and it's apparent in the results. Orange County is running close to 95% occupied, while we are beginning to see a pick up in traffic. Los Angeles occupancy was 93.5% from the quarter ended the period with 94 impacted by the writers' strike and the multipliers various entertainment gilds supported the strike. Market rent was up just over 4% year-over-year averaging 14.75 across the same-store portfolio. Sequential market rents were flat in the fourth quarter pretty much as planned. We pushed market rent in Seattle and San Francisco and NOI growth in most markets was 8.5% to 9%.

In Seattle, we have done a great job in transforming the market rent growth and the revenue growth. In San Francisco, we had a nice move with the rents in March and we need to turn that into revenue. Rent growth in Southern Cal is up 3.5% to 4.5%. As expected the Inland Empire rents were flat, but in Sacramento and Phoenix with new rents down 1.5% to 2% from last year in response to home rentals, so the conditions in both of those markets have not stabilized. Traffic as I said early is down 5% from last year, we registered almost 10,000 piece of the traffic during the quarter across the same-store pool. Down, but slightly great or right on top of what we expected. Markets generating fairly heavy traffic levels improved San Diego, San Francisco, Seattle and the Inland Empire.

Traffic was down in Los Angeles, again the impact of the strike. In Orange County traffic dipped in February to comeback very nicely in March and April. Sacramento and Phoenix both have traffic levels at or greater than last year indicative of the churning that's going on in both regions. Across the board and our core markets traffic is quite focused; 70% of our traffic is even direct or indirect in our marketing, the net closing ratios are running about 30%, which indicates that we got the right balance with pricing. Concessions from rental is not existing in the same store portfolio running about 3.5 days rent, very close to last year.

Our leased-up properties – used concessions has been maintained leasing velocity and then once we get closer to 90% occupancy we will burn off the concessions. At Pasadena and Emeryville we have used up to about 4 weeks concession and we should begin the burnings concession out beginning in third quarter. In Orange we use concessions of 4 to 6 week range in response to generally tougher economic conditions there in the near term supply of almost with the Platinum Triangle, where the property is located. On the side note, we see Orange proceeding very well and while at the end of the first quarter we were at 62% occupied and we had a great month of April and we now stand very close to 70% leased, so, a very good progress with that property.

On the resident turnover side it's running above 54% at the moment down slightly from last year and the markets higher than the 50%. Our remunerations on the high priority is almost 50%, obviously move outs for home purchases have declined, the revenue seems to hunkering down for this tougher economic cycle. Rent increases or renewals are being accepted. We will probably see the average length of stay move out during the next year or so, which will help our turnover expense. Our turnover related expense is down from the year ago both in terms of volume and turnover activity and a modest reduction in the cost return.

Overall, we like the way we are sitting at the moment. Investment markets are dealing with housing over supply for sure in the Inland Empire, Sacramento and Phoenix, but in general the balance between t he occupancy pricing with no real concession is really quite good hanging into the second quarter. Our 30 day available figure, vacancy of scheduled to move outs is running about 7% across the same-store pool, which combined with all the other metrics, houses that were perfectly priced. However, it definitely get tougher from here. While we firmly expected to see the level of financial home construction job losses, we are beginning to see manufacturing job losses coming to the numbers. But, job losses are being offset by job growth in healthcare and education, hospitality, transportation, utilities and professional services, certainly not a very inspiring jobs picture at the moment. Over the lack of supply in most of our core markets, the level of unemployment has not at this time changed our expectations or views regarding same-store performance for the year. On the financial side there is no real material items to report, just really two items to review. Corporate G&A for the quarter came in flat from the first quarter of '07 ahead of our expectations at the start of the year.

If you recall the early fourth quarter on our earnings call, we went through that time that I already estimated for June and assumed the full years comp for the new CFO and other estimates for pursue write-offs, potential insurance claims, legal profession cost and other items that was less than settle I called them basically wholly shift factors based – built into the estimate. Well, most of those factors did not materialize in the first quarter. So, we'll leave our efforts for G&A along until we get to mid year. On the asset held for sale, on the balance sheet that – the figure on the balance sheet also includes a parcel of land in Santa Clara that we expect to transact in the second half of this year.

The proceeds from all of our asset sales will be used primarily to pay down debt and with that I think we can open up for questions.

Constance Moore

Okay, Brook, we are ready for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Dustin Pizzo with Banc of America.

Dustin Pizzo – Banc of America

Hey, good morning everyone.

Constance Moore

Hi, Dustin.

Dustin Pizzo – Banc of America

I just first just on the individual markets a bit. In San Francisco I mean what's preventing you there and I don't know if preventing is necessary the right word, but from turning the market rent increases into revenues and to that end should we expect the revenue growth number to kind of move back up in that market as we progress to the year and then just on the San Diego is the turnaround that we are seeing there this quarter sustainable in your views as we move forward?

Ed Lange

Well, I think prevents is the wrong word. I think that if you recall last year we had very strong market rent and revenue growth figures for the Bay Area. We put up about 4.5% revenue growth, the market rent growth came we held market rents pretty much flat January and February. We let market rents go in March now we're going to chase it. So I think like with most market it's not a nice linear move in a series of stair steps. We pushed market rents down, we're going to turn it into revenue. So, we will see that I'll say that variance or that gap between market rent growth and rev growth should narrow during the year. So, nothing truly changed with our expectations. On San Diego, we've seen some nice movements with San Diego for the last three quarters. If you look back over the third quarter, fourth quarter figures, we started having some nice recovery there and hard to say from a sustainable standpoint job growth year-over-year at the end of first quarter was flat over the last year, they did have 1% job growth in San Diego in 2007. I think the two bigger points in San Diego that we observed here is that San Diego from our viewpoint is about 12 to 18 months ahead of the Inland Empire, Sacramento and other markets that had the over supply issues with housing. We have seen some very nice absorption of housing in the two unlisted markets, south of Dea which is where a lot of the oversupply was and as that absorption of housing and condominium has occured. We have also seen a slowdown in the troop rotations with the Persian Gulf activity. So that those two things we're – and we have been waiting for a while. We had said in '06 and during '07 that if the condo situations settle down in San Diego and the troop rotations situations settle down in San Diego, we would see San Diego snap right back and I think that's what we're seeing right now. We're running 96% occupied although no concessions in our portfolio in San Diego and we will push market rent growth year-over-year about 3.5% to 4% so I would say, I think you are running at a very nice pace right now

Dustin Pizzo – Banc of America

All right. That's helpful and then Connie just on the comments that you made on the assets that are held for sale and I guess specifically saying if you guys sell them all this year. I mean where are your expectation for pricing and time just given some the anecdotal evidence we have been hearing. At least more recently about a slow down in transaction activity despite the availability of the GSE fund financing out there?

Constance Moore

Well I think one it's early. I think, we just really started the marketing process but I think our pricing expectations are consistent with the ranges that you are seeing on any of these schedules. We sort of list the cap rates, the market cap rates in each one of our market and so I think as you look at Sacramento in there its right in there. I think we will have better handle on it during our second quarter call. Obviously we will be the marketing process will be going pretty hot and heavy during the second quarter so we will give you a better update as we approach the second and third quarter.

Operator

Your next question comes from Craig Melcher with Citigroup.

Greg – Citigroup

Hi, it's Greg for Craig [ph]. So, I know operating trends are going as expected right now, but if looking at the Moody's dropping forecast for '08 is down to 0.2% from 0.8% when you first issued guidance. So, even things are okay now, if you are looking ahead how could this not put some pressure on the same-store guidance.

Ed Lange

We are not going to comment on guidance until midyear. And I think Connie provided a very good explanation that when we start guidance in December, the high end of guidance was based offered for a job forecast number for our portfolio. That was 0.9%, so less than 1% job growth, which will be considered in most time and very, very modest job growth. They've been to the range, whereas Connie indicated a very abrupt midyear contraction or as I would like to say the economy drives into a brick wall at or about mid year. So, I think that the guidance range for same-store portfolio for our same-store NOI growth contemplates a potential drive into the brick wall. We are seeing good job growth in Seattle, we are seeing pretty good job growth, up a 0.5% in the Bay Area then unfortunately the job numbers never willing to capture job growth as going in the San Diego area from the tech area. So that the Bay Area numbers always ladies and gentlemen what is really going on, so that Seattle and San Francisco are posting pretty good job numbers, San Diego is flat. So that, we could still end up the year with a job growth number for our portfolio that's in the positive territory, which I think speaks to the description or the discussion when we gave our guidance, that very challenging year we are going to have some market likes Seattle, San Francisco actually perform very, very well this year and we are going to have other markets that are going to be challenged, but, in general we think we have captured the economic the full economic range of alternatives that could impact us this year in our guidance. So there is really no reason for us to comment, until we get to midyear and see exactly where we are.

Constance Moore

And if we hit the brick wall.

Greg – Citigroup

Okay. And then following up from the San Diego question. Revenue growth and some of the other weaker market, Inland Empire or you see Phoenix show some signs of improvement also. Do you think these markets are still in the corner or could we see some softness could you best add any color on that?

Ed Lange

If I have I didn't quite catch your question, your are asking if our Phoenix or Sacramento are beginning to turn the corner…

Greg – Citigroup

Phoenix, Orange County and Inland Empire

Ed Lange

No. Like I said in the commentary, none of these markets that are being impacted by housing over supply have reached bottom yet. Foreclosure numbers were up dramatically in all of those markets we are also seeing a very, very strong levels of housing supply, easily 20 to 30 days worth of supply if not longer, 20 months worth of supply if not longer, in most of these markets. So, that it is hard, I think it will be challenging for anyone to try there and call bottom at this point in time. I think the Orange County what we were seeing which is interesting is for all the Hubbub we have got negative job growth for sure, but with the impact Orange County's has had from the financial and mortgage market layoff, job growth for that market was down 1.8%. We are having 95% occupied, market rents are up 3.5%. I think it just shows the lack of supply in that market, and if you go back and look at which could interesting to look at, what was going on in Southern California during the tech lead recession '01, '02 and '03. We will see that in Orange County and Los Angeles, we did have two years where job growth turned negative, but we all the monthly fairing operators ran 95%, 96% occupied reporting up 3.5% market rent growth. So, that the I think as long as the unemployment picture doesn't deteriorate materially from this point. Southern California can still operate with 95% occupancy in some modest rent growth. It doesn't have to go flat or negative.

Constance Moore

Okay, as Ed said in his commentary I mean we are clearly seeing turnover and what we may have people stay longer because housing in our Costal California market is still – even though it has declined in the number of markets it is still unaffordable for most people.

Operator

Your next question comes from David Cohen with Morgan Stanley.

David Cohen – Morgan Stanley

Hay, good morning. Just on the asset sales in Sacramento, can you just talk about why you guys choose to sell the Sacramento assets maybe kind of basically selling I think a weaker market in the tough time as opposed to maybe selling into a strength of some of the your markets and waiting for Sacramento to get better and selling maybe better rates, better cap rates later on.

Ed Lange

Okay, let me think I think if your back and look at some of the transcripts from our calls from last year, we have been talking about Sacramento in our program or plans to selling that market now for over twelve months, so I think it would help, if you go back and look at that. I think the calculations or the math is pretty easy from our standpoint. If you look back over the last ten years, Sacramento from the market standpoint really only generated about 3.5% market rent growth on average, which was about half of the market rent growth that we can get out of our core or other core California markets. So, for a long-term perspective Sacramento is not going to generate the type of market rent growth that we can pull from our other core markets and so that's what we have been even talking about for the past year is that with Sacramento represented on our balance sheet was a non-core market and sort of a pocket and dry powder where when we started our sales program last year, we started with about $175 million of book capital, a return on invested capital that was at or above 10% and with prevailing cap rates we are sitting on essentially $300 million of cash and our program was going to be over an 18 month period or so, it was to exit that market, harvest the $300 million of cash and apply it to the balance sheet and that makes a lot more sense to us than selling lot of our core markets where those locations are very difficult to replace.

Constance Moore

And moreover have outstanding revenue growth over the long-term. I think that's what we are really doing is improving the core portfolio and getting our investments in our core markets and again existing the market that we have described for a long time it's not a core market.

Greg – Citigroup

Okay and just a follow up. Excuse me, I am a little bit newer to the story, but in terms of the turnover which was lower this quarter, I am just curious as you look at the history of your turnover is it would you consider like a 3% decline as statistically significant in terms of one quarter over another and as we look forward would you continue to expect that to continue to be lower?

Ed Lange

No, I don't think that it's not statistically meaningful. We would expect our portfolio, in this type of economic environment to run in the low to mid-50s.

Operator

Your next question comes from Jay Habermann with Goldman Sachs.

Johan Memogia – Goldman Sachs

Hey, guys its Johan Memogia [ph] with Jay Habermann. I'm just wondering if we could get some color on the lease-up on the two developments brought into services over the quarter and, what you are seeing in terms of yield versus your expectations?

Ed Lange

I thought Connie's comments and my comments covered them pretty well. We are getting great leasing velocity at both Pasadena and Emeryville. We expect to be at physical stabilization mid-year and then we have got go through the process of burning our concessions that takes more than the 12 months and then we would be add our economic target return on investment capital, which for both those properties we target and it's expected to be in the high 6% to 7% range. With Orange, we are having a very good leasing velocity we're sitting at 70% lease, so it is a very big property 460 units. It's going to take all year to lease while we have laid out that expectation for the last two quarters. We would expect to be in physical stabilization at the end of this year. I think your question, we talked about this in detail in last quarters? What is going to be the condition of Orange County at the end of 2008? Therefore, we start to see some recover in Orange County. We maybe able to be the position begin burning off our concessions. If we can't it will take us 2009 to do that, we would expect to be at our targeted economic year, at about 7.5% by the end of '09. To be extent that we can't burn off concessions, or we have got a continued rent concessions into 2009, which maybe a possibility. I mean Orange County may not recover. We have got supply coming into the Platinum Triangle that we all are going to have to deal with. It could extent our ability to reach our economic return on investment capital by 12 to 18 months and I don't think any of those expectations have changed in the last 90 days.

Johan Memogia – Goldman Sachs

Great. Thanks. And as a follow-up on I notice that your CapEx – your capital expenditures were gone quite a bit this quarter, and just some color on what was driving that? And what would be a good your good run rate to assume going forward?

Ed Lange

Well, I think it's definitely the timing of expenditures and getting ramped up. Every year there is a dip in our CapEx in the first quarter. The real CapEx will get underway in the second quarter and the bulk of the expenditures are in the second quarter and third quarter with some of the fourth quarter. I think the right run rate right now for our portfolio is running in about $1000 a unit.

Operator

Your next question comes from Lou Taylor with Deutsche Bank.

Lou Taylor – Deutsche Bank

Hi, thanks. Just one last question on Sacramento. Connie do you expect the disposition to be a single package or broken up into in a multiple or single asset sales?

Constance Moore

Our expectation Lou, is that it will be a single asset and it's really drawing on an institutional bid in Sacramento, so it is likely to be private buyers similar to what we did last 18. We sold two assets last year, two in Sacramento and both were the private buyers, so that's really our expectations.

Lou Taylor – Deutsche Bank

Okay. And then second question pertains to just single family home move outs. There was a change in the Fannie Freddie guidelines, which bumped the mortgages that was they would accept, but it didn't go into effect until late March. Did you see much movement or change in your move outs in April possibly due to the new Fannie Freddie guidelines?

Ed Lange

Oh, no.

Constance Moore

There is a down payment requirement now, but that's the challenge right now and we need the the longer assets, the net assets come up with money down there. So.

Operator

Your next question comes from Rich Anderson with BMO Capital Markets.

Rich Anderson – BMO Capital Markets

Thanks and good morning. How you guys changed or altered your development underwriting if at all in this market?

Constance Moore

Well on transactions that we are looking at today current yields as Ed had just talked to you, we look at both current yields and then trended yields and our returns expectations have gone up 25 basis to 30 basis points.

Rich Anderson – BMO Capital Markets

25 to 30? Okay. And just a follow-up on related follow-ups. On the new CFO, I am just curious, if you how heavily you weighed somebody with actual real-estate experience? Or if you think that parallels can be drawn between real estate and waste companies?

Ed Lange

Yeah, I think that's sort of an interesting kind of way to phrase Rich. I am sure we'll see some good commentary. I think that there is a lot of parallels to be drawn from what we were looking for and the skill set we are hoping to leverage. We and I think we already talked about this last year a little bit. We were willing because we were looking at two general loops. Individuals with real estate experience but with heavy company experience. So, that not just capitalizing or not just on the accounting side so we're looking for just a controller model coming out of the real estate field. We are looking for some one who is going to maybe be able to leverage their skill set in putting in place a shared service model. I think the what Henry offers us and we are very excite about, is that the parallels between what was going on at allied wastes at the time that he was there and what's going on in multifamily is actually fairly comparable. Your talking about the industry that while he was – while he was the CFO of Allied wastes, waste management was a highly decentralized mom and pop type business or industry and what Allied Waste and Waste Management BFI did was basic buy up. With also mom and pop operators that were highly decentralized and began putting in place centralized corporate services for accounting, for forecasting and budgeting, from marketing, for procurement. It's all the activities that are going on in the multi family industry today and what we have with Henry is somebody that basically did that in a very big Company environment over $1 billion year revenue. So very active growing company and a very active company internally and I think his skill set is going to be terrific as we put in place to share. I think its going to be help accelerate all efforts to put in place a true shared service platform but probably we are going to accelerate our plans by a couple of year by having Henry here?

Constance Moore

I think from my perspective when we made the decision, we put a number of the initiatives in place and that really lead us to the decisions to go to the COO, CFO model and it really then sort of allowed us to sort of think about bringing in someone who could accelerate it and so, I think it as we bring in Henry and he ramps up and gets up the speed you will start carrying him up in front of the initiatives that want to be put in place, but it allows us to move forward on this factors so we are pretty excited about it.

Operator

Your next question comes from Alex Goldfarb with the UBS.

Alex Goldfarb – UBS

Good morning.

Constance Moore

Good morning.

Alex Goldfarb – UBS

The first question just goes back again to the assets held for sale. What is the debt associated with those assets, and is does your guidance for the year contemplate the sale of these asset?

Constance Moore

There is no debt associated with any of these assets, and we did in our guidance we talked about raising the capital, but we did not in terms of our FFO and incorporated and again from the sale of these assets.

Ed Lange

But Alex if go back where are the guidance releases first. The sale of the assets was contemplated in the guidance.

Alex Goldfarb – UBS

Okay and then just going to the CapEx. I think to an earlier question you mentioned as that a 1000 a unit, was the run rate looking in the supplemental it seems to be around 770 mark. So, the question is sort of clarifying that comment and then also just getting a better understanding what's driving the increase to CapEx given that, you guys tend to have pretty conservative accounting into a lot of expensing and turnover.

Ed Lange

Well, I think you the run rate is about 770 and jumping up to about a 1,000. I think there is a good benchmark for people to use, if we come in less than that terrific. I think we have got programs going on our presiding and we will finish here and I am going to take that number up a little bit, and we are not going to get, you know not going to split not going basically spread here over the numbers 750 or 850 or a 1,000. I think it's even a $1,000 a unit. I don't think anybody is going to be disappointed.

Operator

Your next question comes from Todd Stender with KBW.

Todd Stender – KBW

Hi. Thanks. I dialed in late so, forgive me if you already covered these. Rent growths in San Francisco increased 9%, while the occupancies fell by 20 basis points. Just looking at the revenue growth number, it increased 4.8%. I wondered is there are any other factors impacting that number?

Ed Lange

No, I think we colored that all earlier in the call. What was going on in terms we had a great year last year, jump up in the market rent growth, revenue growth, in terms of occupancy a 20 basis point move year-over-years is not a material move in occupancy. So, I think just I would suggest go back and look at the commentary that we have made, look at the questions we have already answered on that and if you need any more follow up just give me a call

Todd Stender – KBW

Okay, thank you. One last question, have you given an update on a possible restart date for a Stadium Park II?

Ed Lange

No, we haven't.

Constance Moore

No

Todd Stender – KBW

Okay, thank you.

Operator

Your next question is from Jeffrey Donnelly with Wachovia.

Jeffrey Donnelly – Wachovia

Good morning. Connie could you give us an update on any anecdotal insights you have on migration patterns, you're seeing in the most impacted single-family markets?

Constance Moore

Well it's interesting. We've talked about it internally. We are starting to see a, just, I wondered a bit of movement come from the Inland Empire back into Orange County not a whole lot, but you are starting to see who people moved out there for more affordable housing and to the extent that they are either been for closeout or chosen not to buy and that's what the reason they are moving back to Orange County. I don't know if that's a major wave, but we are not really seeing whole lot of pattern yet evolved. I mean I think you might see some of it, we are certainly seeing a reprising of some of the softest markets in California, the Sacramento, the Inland Empire, in general overall reprising of single-family home. So I think at some point that will make a difference, and it's a little like the office market that we saw in Silicon Valley a number of years ago where was an overall reprising and changed the dynamics and the patterns of start up and so you might see some of that, but we haven't seen material movements yet.

Jeffrey Donnelly – Wachovia

I am just curious to your sense. I mean in past cycle we saw our California lose population to Denver perhaps Phoenix. Do you think the rest of that maybe has reduced this time because it's just broad based issues of housing is going to less than the desire to relocate?

Constance Moore

I do, again I think that – again the parts of California that are being real priced make it very attractive. So, I do think that could be lessened. I doesn't means that we still won't have people moving out just for a variety of reasons. Obviously California is a high cost I think to both to do business and to live. In such to the extent that people just continue to feel squeezed and they may move around the hedges to lower cost homes in housing areas

Operator

(Operator instructions) Your next question comes from Karin Ford with KeyBanc Capital Markets.

Todd Thomas – KeyBanc Capital Markets

Hi, this is Todd Thomas on for Karin Ford. Some recent reports have shown that home prices in San Francisco have been declining gross to 17% or so? And it looks like that that pace has actually been picking up? Do you see that the affordability pictures changing it all? And do you see any other like trends or changes in that market starting to emerge?

Constance Moore

You know it is interesting, because I read that and on the ground, none of us see it and I just wonder sometimes whether or not some of the declines are related to houses that are being sold in the foreclosures as it is with the lower end houses and so it's dragging down the overall medium in price rate right now in terms of what's being sold, but I will tell you on the ground, we are not seeing those kinds of price decline.

Ed Lange

In average new home price in the Bay Areas is still at $690,000 so there is still a very wide gap and there is still a very, very wide gap between the price to own and the price rent...

Todd Thomas – KeyBanc Capital Markets

Okay. I'm sorry.

Ed Lange

Go ahead.

Todd Thomas – KeyBanc Capital Markets

Just a follow-up then. Do you know what would the same-store performance have looked like if the five Sacramento properties held for sale had been included?

Ed Lange

Well, Sacramento would have taken down the same-store performance.

Constance Moore

Right.

Ed Lange

And so I think the…

Constance Moore

They would have looked at the rest of Sacramento…

Ed Lange

Instead of being Sacramento, instead of being 4% of NOI, it would have been some 6% of NOI or 7% of NOI would have been slightly less.

Operator

Your next question comes from Michael Salinsky with RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Good morning. Ed, in terms your comp in terms of expense growth for you I mean obviously the first quarter was a little bit was a little higher than I think some of us were looking for. Do you expect that some moderate in the second quarter or is that more or is the moderation more of a second half of the year event?

Ed Lange

In terms of the same-store expense growth?

Michael Salinsky – RBC Capital Markets

Yes.

Ed Lange

Well, I think that's a great question. I think, we had if you look back last year we had the timing of our somewhat biggest components of the expenses, repair and maintenance as you know 20% to 22% of our property expense, and they were heavily weighted towards the back half of last year. We all wish they could be nice and evenly spread, but, smoothing is no longer permitted, so that and I was sure it was ever really accepted but (inaudible) so, we had a higher level of repair and maintenance expense with second-half of last year. So, what's going to happen is, in the half first year, we are going to see quarterly numbers and we are going to have a five in front of that and then we will get the second-half of the year, you are going to the see it compressed dramatically. We still believe that our guidance range of 3% to 4% is going to be spot on, we are going to be right there, right there in that range, so that we are going to see again the second quarter we are going to see a quarterly, year-over-year number that five in front of it and then it's going to fall off a cliff in the third and fourth quarter.

Michael Salinsky – RBC Capital Markets

Okay that's helpful. Next question, and Connie in terms of the asset sales and I realize you guys are in the process initially right now. Should, we expect anything to close in the second quarter are those really third and fourth quarter event?

Constance Moore

Those are really third and fourth quarter sale.

Michael Salinsky – RBC Capital Markets

Okay. Thank you.

Operator

Your next question comes from Haendel St. Juste with Green Street Advisors.

Haendel St. Juste – Green Street Advisors

All right, thank you. Good morning.

Constance Moore

Good morning.

Haendel St. Juste – Green Street Advisors

Most of mine has been asked and answered but I wanted to follow-up on a comment you guys made early about demand in your portfolio. Outside of the areas we would expect the Phoenix's, Inland Empire's are you seeing can you give me some color on the difference in demand between you A and B products are you seeing a meaningful difference there?

Ed Lange

No, not really.

Haendel St. Juste – Green Street Advisors

Okay. In terms of separate tax have you guys we saw one of your probably papers go to the market and repurchase some of the unsecured bonds. Have you guys looked at that, have you thought about it? Any thoughts you want to share on – on that – of that activity?

Ed Lange

No, I think it's always an option for us. So, I think that you know certainly once we get the property sales behind us once we have got $200 million of property sales scheduled for this year we will be queuing up probably a similar number for next year, so that we're hope we're going to next you know 12 to 18 months we'll actually give $300 million to $400 million of property sales and all of those options are available to us but there is really nothing for us to really discuss or share right now.

Operator

At this time, there are no further questions. Do you have any closing remarks?

Ed Lange

Yeah, we had a question that came across from the Internet. It sounds like – it's like a radio talk show. So, we have got a question that came in through the Internet of what rates would like for ratio of unsecured notes today. We have a small maturity $50 million of unsecured notes coming up in the first quarter '09, so the question is what would happen if we issued notes today. We're seeing a bit of a row – and I think it's a great question, I think which seen a bit of a rally the last two week in the unsecured marked as relates to spreads. I think it's the easiest way to answer is that our rating class which would be BBB. The spreads can move all over the place but what seems if the investor community is focused on a I am going to say a 6% to 6.25% range in the five year paper and a 7% coupon in the 10-year paper, so that regardless of where the treasury is, the spreads are moving to they sit back into a rate that would be 6% to 6.25% for five-year and 7% in the 10-year. Okay that's it, thank you for that question.

Constance Moore

Great, all right. Well, thank you very much for participating in the call. We look forward to our second quarter call and introducing will be Henry and will see many of you at NAREIT, so we look forward to that, thank you.

Operator

Thank you, this concludes the conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: BRE Properties, Inc. Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts