BRE Properties (BRE), a leading real estate investment trust (REIT), has recently announced plans to offer 5 million common shares to raise cash and repay debt. The company will also grant the underwriters a 30-day option to purchase an additional 750,000 shares to cover any over-allotments. BofA Merrill Lynch and Wells Fargo Securities are acting as joint book-running managers for the public offering.
BRE Properties intends to utilize the proceeds from the offering to reduce debt under its unsecured revolving credit facility. At year-end 2009, BRE Properties had total debt of approximately $1.9 billion. The company also expects to use the residual cash to fund its development activity. By the end of fourth quarter 2009, BRE Properties had two communities under construction (566 units) at an estimated total cost of $176.1 million.
With continued job loses across the country and decline in market fundamentals, the long-term sustainability of BRE properties is currently under doubt. About 13,500 jobs were lost in the core markets of the company during fourth quarter 2009. Stagnation in job growth has negatively affected the demand for apartments, and high-end apartment homes such as that of BRE Properties have been hit the hardest as renters move down to less expensive ‘B’ class properties.
BRE Properties also has exposure to some weakening multi-family markets, notably, The Inland Empire, Los Angeles, and Orange County, which together make up over 40% of the company’s portfolio. This has affected the top-line growth of the company, and has undermined its short-term profitability.
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