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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, Principal Accounting Officer and Executive Vice President

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

Analysts

Robert Stevenson - Macquarie Research

Ross T. Nussbaum - UBS Investment Bank, Research Division

Paul Morgan - Morgan Stanley, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Matthew Rand - Goldman Sachs Group Inc., Research Division

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

David Bragg - Zelman & Associates, LLC

Andrew McCulloch - Green Street Advisors, Inc., Research Division

BRE Properties (BRE) Q3 2012 Earnings Call October 31, 2012 11:00 AM ET

Operator

Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the BRE Properties Third Quarter 2012 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, Melissa. And thank you to our listeners for joining BRE's third quarter 2012 earnings call.

Before we get started today, I want to say that our thoughts and prayers are with all of our friends and colleagues on the East Coast and as far inland as Chicago that are dealing with the impact of Hurricane Sandy. The news reports have been heartbreaking.

So before we begin our conversation today, 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 we know today. But when we use words like expectation, 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 a full description of potential risk factors and our 10-Q for interim update.

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.

Core FFO per share totaled $0.62 for the quarter, which compares favorably to the range we provided in July of $0.58 to $0.61 per share. Our results came in through the high end of the FFO range, as property level NOI came in higher than expected and third quarter G&A expense came in lower than anticipated.

Last night, we've provided fourth quarter guidance in the range of $0.57 to $0.60 per share. We expect a sequential dip in FFO per share due in part as a result of the loss of income from joint venture properties sold in the third quarter as well as NOI from property sales we expect to sell in the fourth quarter. Based on our results year-to-date and our expectations for the balance of the year, we expect our annual core FFO result, excluding the charge we took this quarter, to total $2.35 to $2.38 per share, very much in line with the expectations we set at the beginning of the year and a slight increase at the midpoint.

Turning now to our development program. Our focus, as a long-term owner-operator on the West Coast, is to steadily upgrade our asset base and to improve the internal growth prospects of the enterprise by building out the development pipeline. During the quarter, we exercised the option to purchase our Redwood City site, a site that we put under contract in early 2010 at a price at least 40% of today's market value, moving the property from land under contract to land owned. This site, along with our Mission Bay site, will commence construction in the fourth quarter, bringing the total projects under construction to 6, representing close to 1,900 units in some of the best submarkets in the country.

Consistent with our strategy to reduce the size of our overall pipeline, we intend to sell those at the Anaheim land that we previously planned to develop. In addition, we decided to start the process to place our 2 Pleasanton sites into a joint venture. Once these actions are completed, the 6 active and wholly owned sites represent an investment of approximately $870 million when delivered or 20% of our asset base, with current returns on a weighted average basis in the mid-5, which creates significant value given current cap rates for similar assets at, or below, 4%.

Our active pipeline is both on-time and on-budget and it returns exceeding expectations at the start of construction. We currently have a balance of fund of approximately $445 million. We intend to fund the pipeline by selling older, slower growth assets within our core market.

We sold one wholly owned asset in San Diego during the second quarter, and property sales closed during the third quarter generated proceeds of $26.9 million. The sales consisted of 2 partnership interests in Denver and 1 in Sacramento. Currently, we have 2 wholly owned assets in Chula Vista, a subdivision -- or a submarket of San Diego, under contract and another property in Los Angeles under review.

Fourth quarter proceeds from property sales are expected to range from approximately $75 million to $125 million, bringing the total for the year to $115 million to $165 million.

Including assets we expect to sell in the fourth quarter, we have identified a group of assets with an estimated value of $350 million to $400 million that we intend to use as part of our capital recycling program over the next several years. The properties of some of our older assets or -- are located within slower growth submarkets. And as I noted earlier, selling these older assets will continue the process of upgrading the portfolio and getting us closer to the Coast.

Given the continued strong demand from a multi-family property as well as our stock's underperformance this year, we feel it's prudent to shift to property sales rather than access our ATM program to match-fund our development activity. The timing and size of the disposition activity will be managed to match our development needs, while at the same time managing our REIT tax considerations.

From a liquidity standpoint, we have no material debt maturities until 2017 and nothing outstanding on our $750 million line of credit, providing us with significant financial flexibility as we build out our development pipeline.

On the operations front, we have successfully completed the rollout of the revenue management platform throughout the portfolio, which provides a consistent application of pricing practices across our portfolio. We are very pleased with the seamless rollout of the entire revenue management process over the last 2 quarters and the adoption by our on-site and centralized pricing team. Scott will review the markets in detail, but thematically, we continue to see improvement across the portfolio, though not all markets are created equal. The Bay Area and Seattle are 2 of the strongest job markets in the country and we continue to see pricing power. Southern California is still a mixed bag, with Los Angeles continuing to strengthen and Orange County and San Diego improving, just not at the same pace. In Southern California, the combination of an improved -- an improvement in the employment level, the lack of significant new supply and the fact that rent levels are still below their 2008 peak should allow rents to continue to push upward.

We have one property currently in the lease-up phase. Through the end of the third quarter, we delivered the first 175 units at Lawrence Station in Sunnyvale, California. The initial leasing has gone extremely well. We have achieved greater than 37 leases per month. Current rents are a little over 11%, ahead of what we had anticipated at this time and equates to a current return in the low 6s which is at least 200 basis points above the spot market cap rates for an asset of this quality, representing significant value creation.

In summary, we are pleased with the results for the quarter. The LRO rollout is now complete and is completely embedded into our operation. We have been encouraged by the initial result. We continue to make progress on the buildout of our development pipeline with properties that are in some of the country's premier locations. We are also taking steps to reduce the overall size of the development pipeline. In recognizing our share price's lag, we will continue to be judicious with external capital raising and lean on capital recycling to fund our developments over the next 12 to 36 months, which will also have the benefit of improving the overall growth profile of the company. And finally, our balance sheet is positioned to provide significant flexibility as we fund our growth initiative. And with that, let me turn the call over to Scott.

Scott A. Reinert

Thanks, Connie, and good morning, everyone. During the third quarter, we generated year-over-year same-store revenue growth of 5.3% and sequential quarterly revenue growth of 2%. The sequential revenue growth was ahead of the 1.4% pace from the second quarter of 2012, and the 1.8% pace during the same quarter 1 year ago. Sequentially from the second quarter, we improved revenues earned per unit by 1.7%, and also saw occupancy improvement. As we begin the fourth quarter, occupancy levels today are very strong at just over 96%, roughly 20 basis points ahead of where we were 1 year ago, and availability is solid at 6%. Strong occupancy levels and continued lease growth will likely put year-over-year growth for the fourth quarter in line with the 5.3% we posted this quarter. As Connie mentioned, we finished the rollout of LRO during the third quarter and feel that the integration was seamless. Our associates embraced the new system and worked hard to understand its new [indiscernible] and application.

Before I go into each of our markets, I'll quickly share with you that our strategy for the third quarter was to push rates early and then position for occupancy by quarter-end to set us up well for a strong fourth quarter.

Now I'll review each of our markets, starting with San Diego and working north.

Jobs data has improved in recent months in San Diego and now stands at 2.1% over the past 12 months. We saw the impact of this growth as occupancy built throughout the third quarter, averaging 95.8% for the period, an increase of 90 basis points from second quarter level, and closing the quarter at 96% in September. We continue to feel better about San Diego as we move forward. Renewal growth of 3.3% in Q3 was our best of the year and we expect it to remain stable in Q4, a typically slower season. Military rotations are difficult to predict, but information we have shows a net rotation into San Diego during the coming months which should bode well for the regional economy. As for supply, current levels are at par with historic levels. And while there are too many lease-ups that we are competing with, so far, they're having minimal impact on our properties.

In the third quarter, our North County assets outperformed our South County assets by 400 basis points on a year-over-year basis. As Connie mentioned, we have 2 assets under contract there as we work to reduce our exposure to the southern portion of San Diego below Interstate 8 where we currently own 4 assets representing 25% of our San Diego revenue.

In Orange County, our results were impacted by higher level of turnovers than we normally experienced, 74% versus 68% 1 year ago. This was partially impacted by some forced turnover at a newly started renovation property, where we wanted to take advantage of the prime leasing season. And while we were successful in gaining 4.6% increase on renewals, our best results for the past 2 years, the uptick in turnover prevented new lease growth from catching up.

The pace of job growth slowed in Q3 from 2.4% in Q2, but remains healthy at 1.7% for the year. While new supply is being delivered, primarily in Irvine, current levels of permit activity remain in check with historic levels. We expect the renewals to come in the fourth quarter in 3.5% to 4.5% range and expect annual revenue growth in this market to be about 4.25%. Revenue growth per occupied unit was 5.2% year-over-year for the third quarter. Similar to my earlier comments on San Diego, and as alluded to by Connie, Orange County is another area where we have some older, slower growth assets that we anticipate selling during the next few years.

Los Angeles continues to be our strongest performer in Southern Cal, with healthy year-over-year revenue growth of 6.2% reflecting both year-over-year improvement in rental rates and occupancy levels. Operating fundamentals are being supported by the addition of 60,000 jobs over the last 12 months and very limited supply in our submarkets. In L.A., rents still remain below peak levels, providing [indiscernible] run and government jobs to stabilize. Momentum built in this market throughout the leasing season and current occupancy stands at 96.3%, with 6.9% available.

Our Aqua property, acquired in the September of 2010 in Marina del Rey, has been an outstanding performer this year, having posted 11.8% growth in Q3 and 10.3% on a year-to-date basis. For the fourth quarter, renewal increases in the L.A. region have been sent out in the 4.5% to 6% range.

The Bay Area had another strong quarter, posting year-over-year revenue growth of 8.2% and growth on new leases and renewals of 8.5%. Jobs data is still very strong at 2.6% and 73,000 jobs this past year, although it is moderating a bit from the pace set earlier in the year. During the quarter, our push on rents caused a 300 basis point uptick in turnover from last year's 64%, and our #1 reason for turnover was rent increase, too expensive, at 18.3%. As such, we moderated growth a bit in September, to build occupancy back to 96% for better positioning in a seasonally slower fourth quarter. Given our strong position entering Q4, we've sent out renewals in the 6% to 7.5% range. As Connie mentioned, we're extremely pleased with the lease-up activity at our Lawrence Station site in Sunnyvale, amidst all the new construction activity in the Silicon Valley. We've used little concessions in our lease-up efforts to date, with nearly half the units leased getting no concession at all, and the balance less than 1 month free. We anticipate that supply will have some impact here in the slower seasonal fourth quarter, but longer term, we remain very upbeat about completing this lease-up in the second quarter next year.

So far, we have delivered 175 units and have been leasing them at a pace of 37 per month, with rents above pro forma levels. Seattle had a very good quarter, posting year-over-year revenue growth of 8.2%, and growth on new leases and renewals of 5.6%. Boeing and Amazon are 2 of the large employers that continue to drive job growth, with the tech sector also increasing presence in the region. The Seattle Metro added 55,000 jobs or 3.3% over the last 12 months enabling our strong growth and the recent absorption of new products. The 3,000 units introduced in 2012 are about 70% occupied, and has had little impact on the market thus far. 2013, we'll see another 6,000 units come on-line, including our Mercer Island project. The bulk of these new units will be delivered into the downtown area where we have limited exposure. But given the overall strength of the economies here, we believe there will be sufficient demand to absorb it. During Q3, turnover of 67% was equal to last year's level, with relocate out of the area, 17%, the #1 reason; and home purchases of 14.8%, the #2 reason, was down from second quarter's 18.7%. As we close October, our occupancy stands at 96.6%, with availability at 5.3%. We have sent out Q4 renewals in the 4.5% to 6% range.

In summary, we feel good about how we're positioned at the start of Q4. The fourth quarter typically has slower seasonal traffic and leasing activity. But our third quarter strategy positioned us well for this quarter, closing off September with occupancy of 96% and continuing through to October to 96.3%. The LRO rollout is complete, Lawrence Station is going well, I feel as good as I have since coming here about 2 years ago, and I'm really pleased with the energy, enthusiasm and hard work our associates provided this quarter and throughout the year.

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

John A. Schissel

Thanks, Scott. Just a few additional comments before we open up the line for questions. First, when comparing FFO guidance for the fourth quarter of $0.57 to $0.60 [ph] per share to the third quarter's results, we see the impact from a number of items, including a sequential increase in property level income, which is offset by the loss of income and the sale of 3 joint venture communities in the third quarter; loss of income from additional property sales in the fourth quarter; sequentially higher level of G&A expenses; a lower level of capitalized interest as a result of our intent to sell the Park Viridian land and, therefore, stop capitalizing interest on that land; and higher interest expense in the quarter as a result of the $300 million bond issuance in the quarter, the proceeds of which were used to turn out balances under our revolver.

With respect to the impairment charge, the carrying value of the Anaheim land was reduced from $38.1 million to $23.1 million and is recorded in other assets as of quarter-end. The charge reflects the estimated market value of the 2 parcels based on third party opinions of value, and as if the parcels were sold together.

In terms of the accounting, just a brief refresher. Impairment considerations for land held for development under GAAP that are on intent. The impairment test under a holding build scenario is an undiscounted cash flow analysis, which results in a positive value. In other words, running the test under a build scenario does not result in an impairment charge. Once the intent changes, as it did on the Anaheim land, the impairment consideration shift to marking the land to fair value, as if the land would trade today. Also, as far as our intention to move forward with placing the Pleasanton sites into the JV structure, we are just now commencing the process. Our targeted contribution is in the 20% to 25% level, likely requiring little to no additional capital requirement. However, since we are at the front end of the process, we don't have any additional details to share at this time. We will update everyone as we make the progress.

Assuming completion of these transactions, the net effect of the action is to reduce our overall pipeline by approximately 20% and our future funding requirement by approximately $210 million to $230 million. On the capital front, we are pleased with the execution of our $300 million senior unsecured bond issuance in August. The bonds have a 10.5-year term, and a coupon of 3 3/8%. There were no forward loss or other interest rate derivatives associated with this transaction. Proceeds from both the issuance of the bonds and from the dispositions of 3 joint venture properties were used to repay the entire outstanding balance under our line of credit and fund development requirements of approximately $54 million during the quarter.

We have several communities in various stages of marketing for sale. And while there can be no assurance that we will complete the sale of these communities, we currently expect to realize $75 million to $125 million of proceeds. These funds would be applied against our expected development needs of $50 million and rehab needs of $10 million to $15 million during the fourth quarter. With $750 million of untapped capacity underneath our line of credit, only $120 million of existing term debt maturities over the next 4.5 years and over $350 million of community sale candidates, we are extremely well positioned to fund and deliver the communities in our development pipeline.

With that, I will turn it back to Connie.

Constance B. Moore

Thanks, John. Melissa, we're now ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Rob Stevenson from Macquarie.

Robert Stevenson - Macquarie Research

Connie, given your talk about Viridian and the land parcels in Pleasanton JV and that, what's the sort of future for development for you guys? And what's your confidence in the ability to backfill the land's pipeline for '14 and '15 starts?

Constance B. Moore

Well I think as I mentioned -- I mean, today, we'll have -- in the fourth quarter, we'll have 6 projects under construction. And while we don't have anything planned to -- in terms of adding anything to our pipeline over the next 12 to 15 months, we will certainly begin to focus on it. Development is a key component of how we think we add value in California. And so how much we do on balance sheet, and how much we do in joint venture is as yet up for debate. But we've got Walnut Creek and 1 other site that could potentially be a '14 or '15 start. So we've got the 6 now, we'll continue to execute on those well and we'll look for opportunities.

Robert Stevenson - Macquarie Research

Is any of this being driven by your view of the economy and from a standpoint where you don't want to be having significant '13 and latter part of '13 or early '14 starts at this point?

Constance B. Moore

I'm going to let Steve answer that, but I would on -- on that...

Stephen C. Dominiak

No, I don't think so. It's -- our intent has always been to manage down the size of our pipeline. We made the deliberate decision in the early phase of the cycle to add 3 great sites, which were Redwood City, Solstice and Mission Bay, at very attractive point in values in order to bring down the pipeline. And as Connie said, we identified Anaheim and Pleasanton. So it's not driven by economic considerations.

Constance B. Moore

Just quite frankly, the supply in our markets, and while there might be some pockets of supply in North San Jose and Seattle, for most of our markets, supply remains very constrained. And with the job growth that we're seeing in our markets and the housing subs [ph], pretty terrific household numbers this morning in the third quarter. So as that continues, we just feel the development is a key component of the program, and so it's not really driven. And again, it takes so long here that you've got to be able to build through cycles. Again, what we've talked about is managing the size of the pipeline, and so that we'll have a smaller pipeline going forward, but one that is very well located.

Robert Stevenson - Macquarie Research

All right. And then just lastly on the dispositions, the $350 million to $400 million that you're looking at over the next few years. I assume that, that completes your exit out of Sacramento. But does that also take into consideration any sort of desire to exit Inland Empire and the wholly owned Arizona assets?

Constance B. Moore

Well, we have talked about -- we have 1 remaining asset east of the 15, Interstate 15, in the Inland Empire. So it will certainly be on the list. And yes, our goal is to exit the 2 wholly owned assets in Phoenix as well over time. So yes, it does include exiting Sacramento. So again, over time, we will exit these noncore markets and then slower growth properties within our core market.

Operator

And now we'll take our next question from Ross Nussbaum from UBS.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Connie, what prompted the shift in shrinking the pipeline here? Was it the underperformance of the stock and that shift in how you have to think about funding? Was it complaints from shareholders regarding the overall size? I mean what -- you were on one course and now you're going to another. And I think it's the motivation in that shift, which is perplexing me a bit.

Constance B. Moore

No, I guess I don't really view it that way. I think as Steve said, we have been committed to manage down the size of our pipeline. And we have talked about allowing that to be -- go naturally as we just built it out. But when we identified the last 3 sites, Redwood City, Mission Bay and Solstice, 3 amazing sites here in Northern California, we knew that the pipeline was getting a little bit large. And you couple that with the desire today for a number of builders to acquire entitled sites, it was like, we should take advantage of that market opportunity, so we did. So I don't really view this as a change in strategy. I view this as pipeline that's going to naturally shrink by the fact that we're executing and delivering on the pipeline. But we really do see this as a way to accelerate the reduction and say, "How do we do this?" We can take advantage of this market opportunity because entitled sites today are at a premium. And so we look at both Anaheim and Pleasanton sites as a way of accelerating that reduction in the short-term.

Ross T. Nussbaum - UBS Investment Bank, Research Division

And how do you accomplish that goal on Pleasanton without giving away the upside that you've created in terms of all the planning and entitle work and design you've done in Pleasanton already?

Constance B. Moore

Well, I think some of that will go into the value of the land that we contribute to the joint venture. So I think that -- we don't -- we'll own a significant portion of it. And it's a little too early to tell, but I think that we've created value and I think that should -- that will be recognized in the venture. So I think we're clearly not unaware of investor sentiment about our development pipeline. We have, and our Board has, a great deal of confidence in our ability to execute on this pipeline. I think the early results from Lawrence Station are reflective of that. I think, as Scott mentioned, not only are we leasing up at 37 units a month, but we're doing it with very little concessions in a market that everybody is a little bit spooked at because in North San Jose and sort of that whole Silicon Valley, there's a bit of supply. But I think it just really is reflective of what we're doing and the focus on execution, both at the operating level and at the development level.

Operator

And now we'll go to Paul Morgan from Morgan Stanley.

Paul Morgan - Morgan Stanley, Research Division

Just following up on that last comment. I mean how -- you mentioned a bit about supply maybe having an impact in the slow season in terms of lease-up, and just generally in San Jose, then you mentioned Seattle as well. I mean how resilient do you think the pricing power will be in your ability to lease up Lawrence Station in the fourth quarter and first quarter, given the new supply in North San Jose? And then maybe comment similarly on Seattle.

Scott A. Reinert

Paul, this is Scott Reinert. So yes, fourth quarter, first quarter, we're going to see a seasonal slowing no matter what's going on with the supply. So that won't be unexpected, and we anticipate the pace will slow and that's open to our lease-up plan projections anyway. So far, San Jose, Silicon Valley, IEC's project and other new properties coming online has been absorbing pretty well. I think, IEC's project has delivered 350 or so units, and they absorbed 250 or 280 of those. And so the market seems to be absorbing it off. As I said, we've had great results down at Lawrence Station. We've managed directly to our plan and we've done it at great -- above our initial expectations with minimal concession. I think it's going to shift a little bit as we go in fourth quarter, but it will just be a seasonal slowing. I don't expect that we'll see any major changes in what we're doing. It will just be a slower pace, and then as we come out of the first quarter, we'll pick that pace up again and we'll finish that late in the second quarter.

Paul Morgan - Morgan Stanley, Research Division

Okay. And my other question is that you broke out the reasons for the sequential drop in fourth quarter FFO, but could you go a little bit more granular? Given the expectations for asset sales, how much of the drop is due to just simply the asset sales and versus kind of the other line items you mentioned?

John A. Schissel

Yes, Paul, this is John. I would say around 2/3, depending upon the timing of the asset sales, it relates to the asset sale.

Paul Morgan - Morgan Stanley, Research Division

And what was it -- sorry, can you just remind me what the total volume that gets you to that 2/3 is?

John A. Schissel

$75 million to $125 million.

Operator

And we'll now take a question from Michael Bilerman from Citi.

Michael Bilerman - Citigroup Inc, Research Division

Just thinking about, Connie, your comment about selling assets to fund the development pipeline and not wanting to issue equity given the value and given the underperformance, I guess would you contemplate selling more assets than the $300 million to $400 million and potentially using the excess proceeds to buy back stock? Is there -- there's a big disconnect in your eyes between the market value and the NAV?

Constance B. Moore

Well, I think just given that we're a capital-intensive business and the size of our development pipeline and our commitment to development, I don't think that buying back stock would be necessarily a good use. What we might consider is selling more assets, but then acquiring assets. And so, right now, we're sort of saying we will use the proceeds to fund the development pipeline or match-fund it as we go through. But to the extent that there are unique opportunities, that we might do some exchanges, as you might imagine, we've got some older assets with some significant gains and so we might use that as an opportunity to exchange as well. So I think that there are a number of opportunities and alternatives for us, but I think buying back stock, just given the capital-intensive nature of our business and the size of our development pipeline, I think that's not likely.

Michael Bilerman - Citigroup Inc, Research Division

Okay. And then just I wanted to follow up on the land in Pleasanton. So the press release says $38 million gross carrying value. The supplemental has between the 2 parcels, $34 million. And you wrote it down to $23 million. And I'm just curious, why there's an issue in the $34 million and the $38 million. But if you're selling the land, and I understand there's a noncash impairment, but did you effectively mark up the land for development? Because I assume who's buying it would be undertaking the same development that you would be. So I don't know why there should be such a dramatic reduction in the land value relative to what you had it on the books for.

John A. Schissel

Michael, this is John. I think you're potentially mixing some things here, so I'll try to address some of your questions, but maybe you can follow-up. The -- what we've invested in Pleasanton, which is 2 JV sites that we're potentially looking at, is $34 million. The cost that we have in Anaheim, which is in Southern California, is $38 million. So we took the $38 million, and based on our valuation, took it down to $23 million, which we believe is fair market value. That's -- and we looked at it on a combined basis, there are 2 parcels there. One has a little bit of -- one has a loss, and one has some gain in it. And when you look at it on a combined value, it nets out to this $15 million impairment. But we haven't taken anything on the Pleasanton site and we don't feel we need to at this time based on our valuation.

Michael Bilerman - Citigroup Inc, Research Division

Sorry, I was mixing and matching, I apologize.

Operator

And our next question will come from Matthew Rand from Goldman Sachs.

Matthew Rand - Goldman Sachs Group Inc., Research Division

In the past, you've said that you expect your Prop 13 mark-to-market would be $20 million to $24 million in additional property tax. Do you have an update on that number?

John A. Schissel

Yes, I would still use that number.

Matthew Rand - Goldman Sachs Group Inc., Research Division

Okay, great. And then how much of that is attributable to the assets that you currently expect to sell?

John A. Schissel

A decent amount. When you consider the whole -- the top end of $400 million. I don't have the exact number. I can follow up with...

Constance B. Moore

Yes. And as we sell those assets, we'll report the buyer's cap rate. And then the seller's cap rate being ours, and obviously there'll be a difference just because of the Prop 13 change to the seller. But, yes.

John A. Schissel

And you will see the gain come through to some...

Matthew Rand - Goldman Sachs Group Inc., Research Division

Got you. So I mean maybe more than half of that $20 million or $24 million?

Constance B. Moore

Oh, no, no. No, not.

John A. Schissel

No.

Matthew Rand - Goldman Sachs Group Inc., Research Division

Okay. And then can you say what cap rate or other assumptions you're using to get to the implicit valuations that drives that $20 million to $24 million level?

Constance B. Moore

It's really done on an asset-by-asset basis. Because, I mean, our finance people look at -- obviously, we have newer assets that would not have a big change. And so it's really done on an asset-by-asset basis and then our investment guys will look at where it is in the market, the age of the asset, the quality of the asset. And so it is an asset by asset rollout.

Matthew Rand - Goldman Sachs Group Inc., Research Division

Got you. Because as we sort of play along at home, we have the gross book value of the real estate. But we don't obviously have the other assumptions involved, so it would be great to see those.

Constance B. Moore

Right.

Operator

And our next question will come from Michael Salinsky from RBC Capital Markets.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

I appreciate the color on the impairment there. When you sell Pleasanton into a joint venture, would that trigger an impairment as well?

John A. Schissel

It could, depending on the negotiated terms. As I said, right now we don't believe there is one. And you have to play it right down the middle of the road in terms of your estimates. But if for whatever reason, depending on the negotiations there was a loss, we would have to account for it.

Constance B. Moore

But as John -- at this point, we don't view that. We view that our value is consistent with market.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay, that's helpful. And then can you give us an update in terms of what -- I mean, obviously, you're starting Redwood and Mission Bay here in the fourth quarter. But can you give us an update of kind of expectations for starts, kind of the next couple of years for the remaining projects, now that you've adjusted the pipeline a little bit?

Stephen C. Dominiak

This is Steve. I think Connie addressed it in response to a prior question that after we start Redwood City and Mission Bay, we wouldn't anticipate any new starts until late '14 or 2015 and beyond.

John A. Schissel

That would not include the Pleasanton JV, obviously. That would be ready for 2014.

Constance B. Moore

That would be -- yes.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. So Pleasanton would be '14 and there'd be nothing before that?

Constance B. Moore

Right. So as you think about the current pipeline, Lawrence Station will be completed at the end of the fourth quarter. Aviara will start leasing in the first quarter, and all our projects that will be completed sort of in the third, fourth quarter of 2013, and then we'll start leasing Solstice in the third quarter of 2013. And then I think Wilshire La Brea is -- and I'm looking at the guys -- late '13, we start the first units or is it early '14?

John A. Schissel

Late '13.

Constance B. Moore

Late '13. So you can start to see, that we'll start to rollout these projects. And so, we'll be in lease-up mode, pretty much for 2013 and 2014 on this pipeline.

John A. Schissel

And Pleasanton, Mike, could go just a little bit early. It could go at some point in '13. But it's either late -- back half of '13 or sometime in the '14.

Constance B. Moore

It just depends on how quickly the joint venture is formed and when we're ready to start.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. And then finally, Connie, I think you mentioned development yields. I think you gave the untrended number. Do have that trended number by chance?

Constance B. Moore

Steve, do you have the trend? I gave, 5 and at mid-5.5 for the whole pipeline.

Stephen C. Dominiak

I can go through the pipeline individually. So Lawrence Station, we expect it to stabilize in the mid-6s. Our other Sunnyvale development, which we call Solstice, we expect that to stabilize in the mid 7%. Aviara, on Mercer Island in Seattle, we expect that to stabilize in the high 5%. And Wilshire La Brea, would be in the low 5% range. Now keeping in mind, that does not -- those trended yields do not include a 3.25% management fee. Redwood City that we expect to start this quarter, should stabilize in the high 7% and Mission Bay should stabilize in the low 7%.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

And that assumes full lease-up of the retail components for some of those?

John A. Schissel

That is correct.

Operator

And we'll now take a question from Dave Bragg from Zelman & Associates.

David Bragg - Zelman & Associates, LLC

In recent years, you've seemed to communicate a message of focus on simplifying your business. So is the joint venture of Pleasanton a one-off deal or could we see more joint ventures from BRE on either current development projects or future development?

John A. Schissel

Dave, this is John. I think we have certainly made that statement. And I would say all else being equal, a clean, simple structure is ideal for shareholders. But I think we've also said that for risk management purposes, we would be willing to consider joint ventures. And I think this is an example of that. You've also seen us selling interest in some of our existing JVs. We virtually have no balance sheet exposure at this time. So I think we'll continue to look at it on the development side as a risk management tool and -- but I really don't see it going above 2% to 4% of enterprise value.

David Bragg - Zelman & Associates, LLC

Okay. So next question is on Mission Bay. Since you'll be starting this deal this quarter, can you update us on the expected costs of that project?

John A. Schissel

Yes. We expect the cost as we reported on our investor day earlier this year, that will be in the low to mid $220 million range.

David Bragg - Zelman & Associates, LLC

Got it. And last question, now that -- it sounds like you're trending towards the midpoint of your updated revenue growth guidance from last quarter. And as you can look back at 2012, and knowing that you didn't put an impact of LRO in your original guidance, can you quantify for us what has the impact been on same-store revenue growth for this year?

John A. Schissel

Dave, it's John again. I think it's very hard. We rolled it out sequentially through the first half of the year. And certainly, in Seattle, we definitely saw it on short-term leases. That's where it's most easily identified. But I think -- we haven't even had it under our belt 1 year, so it's too hard to start separating and really being precise about the impact of it other than the general sense that we're seeing improved pricing execution.

Operator

[Operator Instructions] And we'll go to Andrew McCulloch from Green Street Advisors.

Andrew McCulloch - Green Street Advisors, Inc., Research Division

Just a follow-up on the development platform. You're shrinking the development pipeline, but it sounds like your still very much committed to development over the long-term. As a percent of your enterprise, how big will that development pipeline be over time? And I know it will fluctuate, but just generally?

John A. Schissel

Yes. I think it's -- this is John. Andy, I think it's still evolving because there's -- as you've said, there's no static answer, depends on where we are in the cycle and the opportunities set as well as access to capital. We've said in the past, we wanted to work it down to $700 million to $900 million. And I want to make sure that doesn't mean everything's under construction when we say that. That might be the full value of land under option contract. But we continue to evaluate that. We are committed to it. You can see the great opportunities we've identified post cycle. But at times, it could be 10% to 15%, but it could be below that, too. And as we mentioned, we look at -- we will be looking at JVs to risk manage that exposure to the balance sheet.

Constance B. Moore

Yes. And let me just reiterate, Andy, that when we talk about the pipeline, we do talk about the entire pipeline. So it's what's under construction, land that we own and then land and sites that we have under option contracts. So it's the 3 buckets. And so, that's set -- so today, that 3 buckets of -- this cycle, they've got as high as $1.4 billion, that's not going to happen again. So when we talk about the whole pipeline, and as things move, we're thinking about $700 million to $900 million.

Andrew McCulloch - Green Street Advisors, Inc., Research Division

Okay. But -- so whatever is the maximum number or the maximum percentage of the enterprise you felt comfortable before, that number is coming down?

Constance B. Moore

It is.

Andrew McCulloch - Green Street Advisors, Inc., Research Division

Okay. And then just on the stock buyback question. I know you need to use disposition proceeds to fund developments from a risk management standpoint. But why would you sell asset at market and turn on a buy asset at market when your stock is obviously trading well below market? Is that strictly due to 1031 requirements?

Constance B. Moore

No, no. I think it's really combination of we're selling some of our older, slower growth -- we have some very old assets, as you know, Andy. This -- BRE is the combination of 2 mergers, it's 42 years old. So we've got assets in slower growth submarkets in California that we have not focused on selling over the last several years, because obviously we were selling all of our non-core market outside of California. So I think it's really more of a portfolio upgrade. And so, you're right. We'll be selling assets at market, and we'll be buying assets at market. But we think the growth prospects of the assets -- we don't have anything in the pipeline right now. But our intent would be that we would sell assets that have a slower growth prospect or have higher capital requirements than the assets that we would be buying.

Operator

[Operator Instructions]

Constance B. Moore

Great. It sounds like we're coming to the end of our call. So thank you all for participating today. We look forward to seeing many of you in San Diego in a little less than -- a little over a week. And for those of you on the East Coast, just know that we are thinking about you all the time, so take care. Thank you.

Operator

And that does conclude our conference for today. Thank you for your participation.

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