San Francisco’s BRE Properties Subject of Purchase Offer

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The company recorded revenue growth of 11 percent at The Landing at Jack London Square in West Oakland and Lafayette Highlands in Lafayette, Reinert said. Overall both the East Bay and Silicon Valley saw revenues rise 9.4 percent year over year and the number of renters leaving after purchases of single-family homes fall. Despite lots of new supply in North San Jose, job growth is fueling absorption without depressing rents.

[contextly_sidebar id=”f26aa3c1f9059dd0c7c9ec739946f7d3″]At $3 a foot, rents at the company’s just-completed Lawrence Station in Sunnyvale are 8 percent to 9 percent above underwritten rents, Moore said. Occupancy at Lawrence Station averaged 88 percent in the quarter and reached 97 percent at the end of June. The company expects a stabilized yield of approximately 6 percent.

The company has three Bay Area projects under development involving the investment of nearly $450 million: Solstice, with 280 apartments, in Sunnyvale; Radius in Redwood City with 264 apartments; and MB360 with 360 units in San Francisco’s Mission Bay where it is investing $227 million. The first phase of occupancy at Solstice is slated for later this year, and initial occupancy in Redwood City and San Francisco is set for mid-2014.

Despite Moore’s statement that she would not comment further on the Land and Buildings letter, analysts on the call worked hard to gain additional insight. Moore dismissed suggestions that she was implying that the Land and Buildings offer was not legitimate. But when asked why this and previous offers were found wanting, she declined to say.

Under questioning from Michael Bilerman of Citigroup Inc., Moore said that she considered only about a third of the company’s portfolio to be “core, urban” properties that would trade at today’s lowest capitalization rates of 4 percent or below. Another 20 percent might trade in the high 5 percent range, she said.

Bilerman, a managing director at Citigroup and a well-known REIT analyst, prompted the most heated reaction from Moore, saying, “You have been disappointed with the stock, and the board has been disappointed with where the stock is. Why shouldn’t the board be more aggressive at starting a process to narrow or deal with the disconnect [between asset value and stock price], rather than waiting for someone to knock at the door? Do you need to run a process to ferret out the interest?”

To which Moore replied, “The board is running a process by executing our business plan. We have a clear understanding of the value of the pipeline, strategy and are executing on that strategy. But that is not to say the door is bolted shut.”

Debt and equity financing for the company’s acquisition is available, Land and Buildings told BRE Board Chairman Lyons in its letter. But in a statement released by BRE several hours after the end of the conference call, BRE said it has requested information from Land and Buildings about its capital sources to consummate the transaction but had not yet received a response.

“As we understand it, Land and Buildings operates an investment fund with less than $200 million in total assets under management, which has neither the capital capacity nor demonstrated transaction experience to execute an acquisition of BRE. Accordingly, Land & Building’s proposal received today does not evidence a viable opportunity for the Company to consider,” the statement said.

Other big news coming out of today’s conference call was a decision by BRE executives to bring development in house of 506 apartments in two phases in Pleasanton at an estimated cost of $171 million, after seeking private-equity and joint-venture partner interest.

“How far off were those bids from your expectations?” Dave Bragg, a managing director with Green Street Advisors, asked.

“It’s hard to summarize in one or two bullet points. Some of the economic structures offered were not what we had hoped. There was no doubt about that,” Schissel said. “But in concert, when we looked at how competitive land pricing is in the Bay Area, and the need to find the next generation of development [for BRE] albeit at lower levels, and our desire to increase our exposure to the Bay Area, this is the decision we made.”

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