Edgar Filing: BRE PROPERTIES INC /MD/

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-14306

BRE PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		94-1722214
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

525 Market Street 4^thFloor San Francisco, CA		94105-2712
(Address of Principal Executive Offices)		(Zip Code)

(415) 445-6530

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No


Number of shares of common stock outstanding as of October 29, 2012			76,847,698

BRE PROPERTIES, INC.

INDEX TO FORM 10-Q

September 30, 2012


	Page No.
PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements:

Consolidated Balance Sheets – September 30, 2012 (unaudited) and December 31, 2011		3

Consolidated Statements of Income (unaudited) – three months ended September 30, 2012 and 2011		4

Consolidated Statements of Income (unaudited) – nine months ended September 30, 2012 and 2011		5

Consolidated Statements of Cash Flows (unaudited) – nine months ended September 30, 2012 and 2011		6-7

Condensed Notes to Consolidated Financial Statements (unaudited)		8-14

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk		28

ITEM 4: Controls and Procedures		29

PART II OTHER INFORMATION

ITEM 1: Legal Proceedings		30
ITEM 1A: Risk Factors		30
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds		30
ITEM 3: Defaults Upon Senior Securities		30
ITEM 4: (Removed and Reserved)		30
ITEM 5: Other Information		30
ITEM 6: Exhibits		31

SIGNATURES		32
EXHIBIT INDEX		33

PART I FINANCIAL INFORMATION

ITEM 1—Financial Statements.

BRE Properties, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share data)


	September 30, 2012			December 31, 2011
	(unaudited)
Assets
Real estate portfolio:
Direct investments in real estate:
Investments in rental communities	$	3,688,763		$	3,607,045
Construction in progress		299,573			246,347
Less: accumulated depreciation		(800,788	)		(729,151	)

		3,187,548			3,124,241
Equity investment in real estate joint ventures		41,008			63,313
Land under development		109,694			101,023

Total real estate portfolio		3,338,250			3,288,577
Cash		30,046			9,600
Other assets		76,607			54,444

Total assets	$	3,444,903		$	3,352,621

Liabilities and Shareholders’ Equity
Liabilities:
Unsecured senior notes	$	990,018		$	724,957
Unsecured line of credit		—			129,000
Mortgage loans payable		742,233			808,714
Accounts payable and accrued expenses		67,063			63,273

Total liabilities		1,799,314			1,725,944

Redeemable noncontrolling interests		8,107			16,228
Shareholders’ equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized; 2,159,715 shares with $25 liquidation preference issued and outstanding at September 30, 2012 and December 31, 2011, respectively.		22			22
Common stock, $0.01 par value, 100,000,000 shares authorized; 76,831,467 and 75,556,167 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.		768			756
Additional paid-in capital		1,874,360			1,818,064
Cumulative dividends in excess of accumulated net income		(237,668	)		(208,393	)

Total shareholders’ equity		1,637,482			1,610,449

Total liabilities and shareholders’ equity	$	3,444,903		$	3,352,621

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

Consolidated Statements of Income (unaudited)

(Amounts in thousands, except per share data)


	For the Three Months Ended September 30,
	2012		2011
Revenues
Rental income	$	96,431	$	91,035
Ancillary income		3,919		3,532

Total revenues		100,350		94,567

Expenses
Real estate		31,690		30,771
Provision for depreciation		25,097		25,414
Interest		16,998		18,374
General and administrative		5,093		5,678
Other expenses		15,000		149

Total expenses		93,878		80,386

Other income		740		677

Income before noncontrolling interests, income from investments in unconsolidated entities and discontinued operations		7,212		14,858
Income for unconsolidated entities		669		791
Gain on sale of unconsolidated entities		6,025		2,248

Income from continuing operations		13,906		17,897
Income from discontinued operations, net		—		799

Income from discontinued operations		—		799

Net income	$	13,906	$	18,696

Redeemable noncontrolling interest in income		105		332

Net income attributable to controlling interests		13,801		18,364
Redemption related preferred stock issuance cost		—		155
Dividends attributable to preferred stock		911		1,138

Net income available to common shareholders	$	12,890	$	17,071

Per common share data—Basic
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	0.17	$	0.22
Income from discontinued operations	$	0.00	$	0.01

Net income available to common shareholders	$	0.17	$	0.23

Weighted average common shares outstanding – basic		76,813		74,965

Per common share data—Diluted
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	0.17	$	0.22
Income from discontinued operations	$	0.00	$	0.01

Net income available to common shareholders	$	0.17	$	0.23

Weighted average common shares outstanding –diluted		77,130		75,390

Dividends declared and paid per common share	$	0.385	$	0.375

See condensed notes to unaudited consolidated financial statements

BRE Properties, Inc.

Consolidated Statements of Income (unaudited)

(Amounts in thousands, except per share data)


	For the Nine Months Ended September 30,
	2012		2011
Revenues
Rental income	$	283,632	$	264,267
Ancillary income		11,460		10,155

Total revenues		295,092		274,422

Expenses
Real estate		93,415		88,595
Provision for depreciation		74,922		76,724
Interest		50,488		56,861
General and administrative		17,151		16,071
Other expenses		15,000		402

Total expenses		250,976		238,653

Other income		1,966		1,878

Income before noncontrolling interests, income from investments in unconsolidated entities and discontinued operations		46,082		37,647
Income for unconsolidated entities		2,125		2,162
Gain on sale of unconsolidated entities		6,025		2,248

Income from continuing operations		54,232		42,057
Income from discontinued operations, net		231		2,347
Net gain on sales of discontinued operations		8,279		—

Income from discontinued operations		8,510		2,347

Net income		62,742	$	44,404

Redeemable noncontrolling interest in income		315		1,003

Net income attributable to controlling interests	$	62,427	$	43,401
Redemption related preferred stock issuance cost		—		3,771
Dividends attributable to preferred stock		2,733		6,744

Net income available to common shareholders	$	59,694	$	32,886

Per common share data—Basic
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	0.67	$	0.44
Income from discontinued operations	$	0.11	$	0.03

Net income available to common shareholders	$	0.78	$	0.47

Weighted average common shares outstanding – basic		76,471		69,950

Per common share data—Diluted
Income from continuing operations (net of preferred dividends and redeemable noncontrolling interest in income)	$	0.67	$	0.44
Income from discontinued operations	$	0.11	$	0.03

Net income available to common shareholders	$	0.78	$	0.47

Weighted average common shares outstanding –diluted		76,840		70,400

Dividends declared and paid per common share	$	1.155	$	1.125

See condensed notes to unaudited consolidated financial statements

BRE Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)


	For the Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net income	$	62,742		$	44,404
Adjustments to reconcile net income to net cash flows provided by operating activities:
Non cash interest on convertible debt		36			248
Gain on sale of discontinued operations		(8,279	)		—
Gain on sale of unconsolidated entities		(6,025	)		(2,248	)
Non cash asset impairment charge		15,000			—
Income from unconsolidated entities		(2,125	)		(2,162	)
Distributions of earnings from unconsolidated entities		3,484			2,919
Provision for depreciation		74,922			76,724
Provision for depreciation from discontinued operations		76			1,544
Non cash stock based compensation expense		4,281			3,450
Other assets		1,887			3,010
Accounts payable and accrued expenses		1,870			(751	)

Net cash flows provided by operating activities		147,869			127,138

Cash flows from investing activities:
Acquisitions of operating real estate communities		—			(170,127	)
Additions to land under development and predevelopment cost		(41,865	)		(63,624	)
Additions to construction in progress		(103,371	)		(28,292	)
Rehabilitation expenditures and other		(21,856	)		(8,888	)
Capital expenditures		(14,411	)		(15,129	)
Contributions to real estate joint ventures		—			(8,748	)
Proceeds from sale of rental property, net of closing costs		12,309			—
Proceeds from sale of unconsolidated joint venture entities, net of closing costs		26,919			4,547
Additions to furniture, fixtures and equipment		—			(28	)

Net cash flows used in investing activities		(142,275	)		(290,289	)

Cash flows from financing activities:
Principal payments on mortgage loans		(66,481	)		(1,586	)
Repayment of unsecured notes		(35,000	)		(48,545	)
Proceeds from issuance of unsecured notes, net		295,266			—
Lines of credit:
Advances		193,000			398,000
Repayments		(322,000	)		(452,000	)
Cash dividends paid to common shareholders		(88,969	)		(81,042	)
Cash dividends paid to preferred shareholders		(2,733	)		(6,744	)
Distributions to redeemable noncontrolling interests		—			(689	)
Distributions to other noncontrolling interests		(315	)		(314	)
Proceeds from exercises of stock options, net		2,359			3,539
Proceeds from dividend reinvestment plan		738			795
Redeemable noncontrolling interest redemption activity		—			(431	)
Redemption of preferred stock		—			(120,444	)
Proceeds from issuance of common shares, net		38,987			472,871

Net cash flows provided by financing activities		14,852			163,410

Increase in cash		20,446			259
Cash balance at beginning of period		9,600			6,357

Cash balance at end of period	$	30,046		$	6,616

BRE Properties, Inc.

Consolidated Statements of Cash Flows Cont. (unaudited)

(Amounts in thousands)


	For the Nine Months Ended September 30,
	2012			2011
Supplemental disclosure of non cash activities:
Transfer of construction in progress to investment in rental properties	$	50,473		$	—

Transfer of land under development to other assets	$	23,000		$	—

Conversion of redeemable noncontrolling interest units	$	(4,332	)	$	—

Change in accrued improvements to direct investments in real estate	$	(1,380	)	$	972

Change in accrued development costs for construction in progress and land under development	$	487		$	(2,885	)

Change in redemption value of redeemable noncontrolling interests	$	(3,789	)	$	(852	)

Change in redemption related preferred stock issuance cost	$	—		$	3,771

See condensed notes to unaudited consolidated financial statements.

BRE Properties, Inc.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2012

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements have been omitted. The consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2011 of BRE Properties, Inc. (the “Company” or “BRE”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments only) necessary for a fair presentation of the Company’s consolidated financial statements for the interim periods presented.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE B – UPDATE OF SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in Rental Communities

Rental communities are recorded at cost, less accumulated depreciation, less an adjustment, if any, for impairment. Costs associated with the purchase of operating communities are recorded to land, building and intangibles when applicable, based on their fair value in accordance with Financial Accounting Standards Board (FASB) business combination guidance. Land value is assigned based on the purchase price if land is acquired separately, or estimated fair market value based upon market comparables if acquired in a merger or in an operating community acquisition.

Where possible, the Company stages its construction to allow leasing and occupancy during the construction period, which BRE believes minimizes the duration of the lease-up period following completion of construction. The Company’s accounting policy related to communities in the development and leasing phase is to expense all operating cost associated with completed apartment homes, including costs associated with the lease up of the development. Projects under development are carried at cost, including direct and indirect costs incurred to ready the assets for their intended use and which are specifically identifiable, including capitalized interest and property taxes until homes are placed in service. Interest is capitalized on the construction in progress at a rate equal to the Company’s weighted average cost of debt. The Company has a development group which manages the design, development and construction of apartment communities. Project costs related to the development and construction of apartment communities (including interest and related loan fees, property taxes, and other direct costs including municipal fees, permits, architecture, engineering and other professional fees) are capitalized as a cost of the project. Indirect development costs, including salaries and benefits, office rent, and associated costs for those individuals directly responsible for and who spend all of their time on development activities are also capitalized and allocated to the projects to which they relate. Capitalized compensation totaled approximately $1,700,000 and $1,864,000 for the three month periods ended September 30, 2012 and 2011, respectively. Capitalized compensation totaled approximately $6,100,000 and $5,164,000 for the nine month periods ended September 30, 2012 and September 30, 2011, respectively. Indirect costs not related to development and construction activity are expensed as incurred. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and improvements that increase the value of the community or extend its useful life are capitalized.

Direct investment development projects are considered placed in service as certificates of occupancy are issued and the homes become ready for occupancy. Depreciation begins as homes are placed in service. Land acquired for development is capitalized and reported as Land under development until the development plan for the land is formalized. Once the development plan is finalized and construction contracts are signed, the costs are transferred to the balance sheet line item Construction in progress.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which generally range from 35 to 40 years for buildings and three to ten years for other community assets. The determination as to whether expenditures should be capitalized or expensed, and the period over which depreciation is recognized, requires management’s judgment.

In accordance with FASB guidance on accounting for the impairment or disposal of long-lived assets, the Company’s investments in real estate are periodically evaluated for indicators of impairment. The evaluation of impairment and the determination of estimated

fair value is based on several factors, and future events could occur which would cause management to conclude that indicators of impairment exist and a reduction in carrying value to estimated fair value is warranted. Impairment is first triggered when the carrying amount of an asset may not be recoverable. To determine impairment, the test consists of comparing the undiscounted net cash flows expected to be produced by the asset to the carrying value of the asset. If the total future net cash flows thus determined are less than the carrying amount of the real estate, an impairment exists. If an impairment exists and the carrying amount of the real estate exceeds its fair value, an impairment loss is recognized equal to the amount of the excess carrying amount.

In the quarter ended September 30, 2012, the Company recorded a $15,000,000 non-cash asset impairment charge on land held for development located in Anaheim, CA, as a result of changes in the future plans to develop the project. As a result of this decision, the Company concluded that indicators of impairment existed and a reduction in the carrying value to estimated fair value was warranted for the land. This charge was the result of an analysis of the land’s estimated fair value (based on market assumptions and comparable sales data) compared to its current capitalized carrying value. There were no assets for which an adjustment for impairment in value was made in 2011.

The guidance also requires that the results of operations of any communities that have been sold, or otherwise qualify as held for sale, be presented as discontinued operations in the Company’s consolidated financial statements in all periods presented. The community specific real estate classified as held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs. Depreciation ceases once an asset is classified as held for sale.

Reportable Segments

FASB guidance requires certain descriptive information to be provided about an enterprise’s reportable segments. BRE has determined that each of its operating communities, which comprised 99% of BRE’s consolidated assets at September 30, 2012 and December 31, 2011 and approximately 99% of its total consolidated revenues for the three and nine months ending September 30, 2012 and September 30, 2011, represents an operating segment. The Company aggregates its operating segments into five reportable segments based upon geographical region for same-store communities, with non same-store communities aggregated into one reportable segment.

“Same-store” communities are defined as communities that have been completed, stabilized and owned by the Company for at least two twelve-month periods. The Company defines “stabilized” as communities that have reached a physical occupancy of at least 93%.

NOTE C – STOCK-BASED COMPENSATION

The Company measures the value of service-based restricted stock awards and performance-based restricted stock awards without market conditions at fair value on the grant date, based on the number of units granted and the market value of its common stock on that date.

Share-based payment guidance requires compensation expense to be recognized with respect to the restricted stock if it is probable that the service or performance condition will be achieved. As a result, the Company records the fair value, net of estimated forfeitures, as stock-based compensation expense on a straight-line basis over the vesting period. For service-based restricted stock awards, the Company evaluates its forfeiture rate at the end of each reporting period based on the probability of the service condition being met. For performance-based restricted stock awards without market conditions, the Company records the fair value, net of estimated forfeitures, as stock-based compensation expense using the accelerated attribution method with each vesting tranche valued as a separate award. The grant date fair value of performance-based restricted stock awards with market conditions is estimated using a Monte Carlo simulation which incorporates the impact of market conditions. The Company records the fair value of awards with market conditions, net of estimated forfeitures, as stock-based compensation using the accelerated attribution method over the vesting period regardless of whether the market conditions are satisfied in accordance with share-based payment guidance.

The cost related to stock-based compensation included in the determination of consolidated net income for the three and nine months ended September 30, 2012 and 2011 includes all awards outstanding and vested during these periods.

Stock based compensation awards under BRE’s plans vest over periods ranging from one to four years. At September 30, 2012, compensation cost related to unvested awards not yet recognized totaled approximately $12,971,835 and the weighted average period over which it is expected to be recognized is 2.5 years. During the nine months ended September 30, 2012, 146,490 restricted shares were awarded and 165,153 restricted shares vested. During the nine months ended September 30, 2012, 78,446 stock options were awarded and 177,082 options were exercised.

NOTE D – CONSOLIDATION OF VARIABLE INTEREST ENTITIES

Arrangements that are not controlled through voting or similar rights are reviewed under the accounting guidance for variable interest entities; or “VIEs.” A company is required to consolidate the assets, liabilities and operations of a VIE if it is determined to be the primary beneficiary of the VIE.

The consolidation analysis for VIEs requires a qualitative analysis to determine the primary beneficiary of the VIE. The determination of the primary beneficiary of a VIE is based on whether the entity has the power to direct matters which most significantly impact the activities of the VIE and has the obligation to absorb losses, or the right to receive benefits, of the VIE which could potentially be significant to the VIE. Accounting guidance requires an ongoing reconsideration of the primary beneficiary.

Under the guidance, an entity is a VIE and subject to consolidation, if by design a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders or b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company has reviewed the consolidation guidance and concluded that its joint venture LLCs are not VIEs. The Company has also reviewed the management fees paid to it by its joint ventures and determined that they do not create variable interests in the entities. As of September 30, 2012, the Company had no land purchase options outstanding from third party entities.

Under applicable accounting guidance, the managing member of a limited liability company, or LLC, is presumed to control the joint venture LLC and must prove non-managing member(s) have certain rights that preclude the managing member from exercising unilateral control. The Company has reviewed its control as the managing partner of the Company’s joint venture assets and concluded that it does not have unilateral control over any of the LLCs managed by the Company. The Company has applied the equity method of accounting to its investments in joint ventures.

BRE consolidates entities not deemed to be VIEs that it has the ability to control. The accompanying consolidated financial statements include the accounts of the Company, the Operating Company and other controlled subsidiaries. At September 30, 2012, BRE owned 100% of the Operating Company. All significant intercompany balances and transactions have been eliminated in consolidation.

NOTE E – REAL ESTATE PORTFOLIO

FASB guidance on property acquisitions requires the acquiring entity in a business combination to recognize the fair value of assets acquired and liabilities assumed in the transaction and recognize contingent consideration arrangements and pre-acquisition loss and gain contingencies at their acquisition-date fair value. The acquirer of operating communities is required to expense, as incurred, acquisition related transaction costs. BRE expenses costs associated with the pursuit of potential acquisitions to General and Administrative expenses. Once an operating property acquisition is probable, the costs are categorized and expensed in Other expenses. The acquirer of land for development can capitalize costs incurred related to acquisition transaction costs. BRE capitalizes costs associated with the pursuit of potential land acquisitions to Other assets. Once land for development is acquired, the costs are categorized to the basis of the Land under development.

Acquisitions

Costs associated with the purchase of operating communities are recorded to land, building and intangibles when applicable, based on their fair value in accordance with FASB business combination guidance. No operating communities were acquired during the nine months ended September 30, 2012.

On August 7, 2012, the Company acquired a parcel of land for future development in Redwood City, California for a purchase price of $11,400,000.

On June 13, 2012, the Company acquired a parcel of land for future development in Pleasanton, California for a purchase price of $11,100,000.

During 2011, BRE acquired three communities totaling 652 homes: Lafayette Highlands, with 150 homes, located in Lafayette, California; The Landing at Jack London Square, with 282 homes, located in Oakland, California; and The Vistas of West Hills, with 220 homes, located in Valencia, California. The aggregate investment in these three communities was $170,127,000. In addition to the communities, the Company acquired two parcels of land for future development in San Francisco, California’s Mission Bay district for a purchase price of $41,400,000; and the Company purchased a 4.4 acre site contiguous to the Company’s existing Park Viridian operating community and its existing second phase land site in Anaheim, California for a purchase price of $5,100,000.

Discontinued operations and dispositions

The results of operations for communities sold during the period or designated as held for sale at the end of the period are required to be classified as discontinued operations if deemed a component of an entity. The community-specific components of net earnings that are classified as discontinued operations include operating results, depreciation expense recognized prior to the classification as held for sale and the net gain or loss on disposal. The Company allocates interest to discontinued operations to the extent that the community was encumbered.

At September 30, 2012, the Company had no assets classified as held for sale.

On May 17, 2012, BRE sold the community, Countryside Village, with 96 homes located in San Diego, CA. The approximate gross proceeds from the sale were $12,600,000, resulting in a net gain of $8,279,000.

During 2011, the Company sold two communities totaling 634 homes: Galleria at Towngate, with 268 homes located in Moreno Valley, California, and Windrush Village, with 366 homes located in Colton, California. The approximate gross proceeds from sale of the two communities were $65,175,000, resulting in a net gain of $14,489,000.

The following is a breakdown of the combined results of operations for the operating communities included in discontinued operations:


	For the Three Months ended September 30,					For the Nine Months ended September 30,
(amounts in thousands)	2012		2011			2012			2011
Rental and ancillary income	$	—	$	2,080		$	498		$	6,290
Real estate expenses		—		(764	)		(191	)		(2,399	)
Provision for depreciation		—		(517	)		(76	)		(1,544	)

Income from discontinued operations, net	$	—	$	799		$	231		$	2,347

Gain on sales, net		—	$	—		$	8,279		$	—

Income from discontinued operations	$	—	$	799		$	8,510		$	2,347

Sale of unconsolidated entities

On September 12, 2012, the Company sold the joint venture asset Calvera Point, a 276 home community located in Westminister, Colorado. The Company had a 15% equity ownership in the community and received gross proceeds of $5,600,000 and recognized a net gain on sale of approximately $900,000.

On September 25, 2012, the Company sold the joint venture asset Pinnacle at the Creek, a 216 home community located in Centennial, Colorado. The Company had a 15% equity ownership in the community and received gross proceeds of $4,800,000 and recognized a net gain on sale of approximately $1,800,000.

On September 26, 2012, the Company sold the joint venture asset Pinnacle at Galleria, a 236 home community, located in Roseville, California. The Company had a 35% equity ownership in the community and received gross proceeds of approximately $16,600,000 and recognized a net gain on sale of approximately $3,300,000.

NOTE F – EQUITY

On February 24, 2010, the Company entered into Equity Distribution Agreements (EDAs) with each of Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Wells Fargo Securities, LLC (collectively, the “sales agents”) under which the Company may issue and sell from time to time through or to its sales agents shares of its common stock having an aggregate offering price of up to $250,000,000. During the nine months ended September 30, 2012, 815,045 shares were issued under the EDAs, with an average share price of $49.09 for total gross proceeds of approximately $40,000,000 and total commission paid to the sales agents of approximately $800,000. During the nine months ended September 30, 2011, 1,059,800 shares were issued under the EDAs, with an average share price of $45.84 for total gross proceeds of approximately $50,000,000 and total commission paid to the sales agents of approximately $1,000,000. During the year-ended 2011, 1,291,537 shares were issued under the EDAs, with an average share price of $47.55 for total gross proceeds of approximately $61,414,000 and total commission paid to the sales agents of approximately $1,228,280. As of September 30, 2012, the remaining capacity under the EDAs totals $123,600,000. The Company intends to use any net proceeds from the sale of its shares under the EDAs for general corporate purposes, which may include reducing borrowings under the Company’s unsecured line of credit, the repayment of other indebtedness, the redemption or other repurchase of outstanding debt or equity securities, funding for development activities and financing for acquisitions.

On May 11, 2011, the Company completed an equity offering of 9,200,000 shares of common stock, including shares issued to cover over-allotments, at $48.00 (prior to a $1.92 per share underwriters discount) per share. Total gross proceeds from this offering were approximately $441,508,000. The Company used the proceeds of approximately $423,936,0000, net of the discount, for general corporate purposes which included redeeming its 6.75% Series C Cumulative Redeemable Preferred Stock and a portion of its 6.75% Series D Cumulative Redeemable Preferred Stock, and to repay borrowings under its unsecured line of credit.

On June 13, 2011, the Company redeemed all 4,000,000 shares of its 6.75% Series C Cumulative Redeemable Preferred Stock at a redemption price of $25.34688 per share. The redemption price was equal to the original issuance price of $25.00 per share, plus accrued and unpaid dividends to the redemption date. The initial issuance costs totaling approximately $3,616,000 associated with this series of perpetual preferred stock were charged to retained earnings during the second quarter of 2011.

On August 15, 2011, the Company repurchased 840,285 shares of its 6.75% Series D Cumulative Redeemable Preferred Stock at a price of $24.33 per share on the open market, a $0.67 discount to par resulting in a non cash return from preferred shareholders of $563,000. In addition, the initial issuance costs associated with these shares totaling $718,000 were charged to retained earnings during the third quarter of 2011. The net effect of the activity was a $155,000 charge to retained earnings for the three months ending September 30, 2011. As of September 30, 2012, 2,159,715 shares of 6.75% Series D Cumulative Redeemable Preferred Stock remain outstanding.

During the nine months ended September 30, 2012, 284,410 net shares of common stock were issued under the Company’s stock-based compensation plans, 14,963 shares of common stock were issued under the Company’s direct stock purchase and dividend reinvestment plan and 160,882 operating company units were converted to shares of common stock.

Consolidated Statement of Shareholders Equity- For Nine months ended September 30, 2012

(Dollar amounts in thousands, except share and per share data)


Common Stock Shares	September 30, 2012
Balance at beginning of year		75,556,167
Common stock issuance		815,045
Operating company units converted for common stock⁽¹⁾		160,882
Stock options exercised, net of shares tendered		177,082
Vested restricted shares, net of shares tendered		107,328
Shares issued pursuant to dividend reinvestment plan		14,963

Balance at end of period		76,831,467

Preferred stock shares
Balance at beginning of year		2,159,715

Balance at end of period		2,159,715

Common stock
Balance at beginning of year	$	756
Common stock issuance		8
Operating company units converted for common stock		1
Stock options exercised, net of shares tendered		2
Vested restricted shares, net of shares tendered		1

Balance at end of period	$	768

Preferred stock
Balance at beginning of year	$	22

Balance at end of period	$	22

Additional paid-in capital
Balance at beginning of year	$	1,818,064
Common stock issuance, net		38,979
Operating company units converted for common stock		4,332
Change in market value of redeemable noncontrolling interests		3,789
Stock options exercised, net of shares tendered		5,529
Shares retired for tax withholding		(2,982	)
Stock based compensation		6,101
Shares issued pursuant to dividend reinvestment plan		738
Other		(190	)

Balance at end of period	$	1,874,360

Cumulative dividends in excess of accumulated net income
Balance at beginning of year	$	(208,393	)
Net income		62,742
Cash dividends paid to common shareholders		(88,969	)
Cash dividends paid to preferred shareholders		(2,733	)
Other noncontrolling interest in income		(315	)

Balance at end of period	$	(237,668	)

Redeemable noncontrolling interests
Balance at beginning of year	$	16,228
Other noncontrolling interests in income		315
Distributions to other noncontrolling interests		(315	)
Conversion activity ⁽¹⁾		(4,332	)
Change in redemption value of redeemable noncontrolling interests		(3,789	)

Balance at end of period	$	8,107

⁽¹⁾	During the nine months ended September 30, 2012, the remaining 160,882 operating company units were converted to shares of the Company’s common stock.

NOTE G – LEGAL MATTERS

The Company is involved in various legal actions arising in the ordinary course of business for which losses are expected to be covered under the Company’s insurance policies. As of September 30, 2012, the risk of material loss from such legal actions impacting the Company’s financial condition or results from operations has been assessed as remote.

NOTE H – DEBT

On August 13, 2012, the Company completed an offering of $300,000,000, 10.5-year senior unsecured notes. The notes will mature on January 15, 2023 and bear interest at a fixed coupon rate of 3.375%. Net proceeds from the offering, after all discounts, commissions, and issuance costs totaled approximately $295,300,000 and were used for general corporate purposes including reducing the Company’s unsecured line of credit balance.

During the three months ended March 31, 2012, the Company exercised its right to redeem for cash all of the $35,000,000 outstanding convertible senior unsecured notes, at a redemption price equal to 100% of the principal amount of the notes outstanding, plus accrued and unpaid interest up to, but excluding, February 21, 2012.

On February 1, 2012, the Company prepaid a mortgage on a single community for $65,866,000 prior to its scheduled maturity, with no prepayment penalty.

On January 5, 2012, the Company entered into a new $750,000,000 unsecured line of credit (the “Credit Agreement”). The Credit Agreement has an initial term of 39 months, terminates on April 3, 2015 and replaces the previous $750,000,000 unsecured line of credit. Based on the Company’s current debt ratings, the line of credit accrues interest at LIBOR plus 120 basis points. In addition, the Company pays a 0.20% annual facility fee on the capacity of the facility. Borrowings under the unsecured line of credit are used to fund development activities as well as for general corporate purposes. Borrowings under the Company’s unsecured line of credit totaled $0 at September 30, 2012.

Through December 31, 2011 the Company maintained an unsecured line of credit with a total commitment of $750,000,000. Based on its then current debt ratings, the line of credit accrued interest at LIBOR plus 47.5 basis points. In addition, the Company paid a 0.15% annual facility fee on the capacity of the facility. Borrowings under the Company’s unsecured line of credit totaled $129,000,000 at December 31, 2011. Borrowings under the unsecured line of credit were used to fund acquisition and development activities as well as for general corporate purposes. Balances on the unsecured line of credit were typically reduced with available cash balances. This facility was terminated subsequent to December 31, 2011.

The Company’s indebtedness contains financial covenants as to minimum net worth, interest coverage ratios, maximum secured debt, total debt to capital, and cash on hand among others. The Company was in compliance with all such financial covenants during the nine months ended September 30, 2012 and 2011.

The following is a consolidated summary of BRE’s unsecured senior notes and secured debt as of September 30, 2012 (in thousands):


Year of Maturity	Unsecured Senior Note Balance	Mortgage Loans Payable Balance	Interest Rate (Coupon)
Year of Maturity	Unsecured Senior Note Balance	Mortgage Loans Payable Balance	Interest Rate (Coupon)
February 2013	$40,018	$ —	7.13%
August 2013	—	30,312	5.33%
March 2014	50,000	—	4.70%
March 2017	300,000	—	5.50%
May 2019	—	310,000	5.57%
September 2019	—	32,446	5.74%
April 2020	—	59,475	5.20%
September 2020	—	310,000	5.69%
March 2021	300,000	—	5.20%
January 2023	300,000	—	3.38%

	$990,018	$742,233

NOTE I – NEW ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued an amendment with updated guidance on how to present items of net income, items of other comprehensive income (OCI) and total comprehensive income that should be applied retrospectively for public entities beginning with interim and annual periods after December 15, 2011. The amendment requires companies to present a total for comprehensive income in a single continuous statement or two separate consecutive statements. Companies will no longer be allowed to present OCI solely in the statement of stockholders’ equity. Earnings per share would continue to be based on net income. The adoption of this guidance had no impact on the Company’s financial statements during the nine months ended September 30, 2012.

In May 2011, the FASB issued an accounting standards update to amend fair value measurement and disclosure requirements in U.S. generally accepted accounting principles (US GAAP) and International Financial Reporting Standards (IFRS), which aligns the principles for fair value measurements and the related disclosure requirements under US GAAP and IFRS. This standard requires new disclosures, with a particular focus on Level 3 measurements, including; quantitative information about the significant unobservable inputs used for all Level 3 measurements; qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, including the interrelationship between inputs and a description of the company’s valuation processes. This standard also requires disclosure of any transfers between Levels 1 and 2 of the fair value hierarchy; information about when the current use of a non-financial asset measured at fair value differs from its highest and best use and the hierarchy classification for items whose fair value is not recorded on the balance sheet but is disclosed in the notes. This standard is effective for interim and annual periods beginning after December 15, 2011. The Company has concluded that there is no impact on the financial statements as a result of adopting the guidance during the nine months ended September 30, 2012.

NOTE J – FAIR VALUE MEASUREMENT

Under FASB guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. Assets and liabilities recorded at fair value in the consolidated statement of financial condition are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the FASB and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities classified as Level 1 fair value generally are G-7 government and agency securities, equities listed in active markets, investments in publicly traded mutual funds with quoted market prices and listed derivatives.

Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets that are generally included in this category are stock warrants for which there are market-based implied volatilities, unregistered common stock and thinly traded common stock.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Generally, assets carried at fair value and included in this category include stock warrants for which market-based implied volatilities are not available.

The fair values of the Company’s financial instruments (including such items in the financial statement captions as cash, other assets, accounts payable and accrued expenses, and lines of credit) approximate their carrying or contract values based on their nature, terms and interest rates that approximate current market rates. The fair value of the Company’s Level 2 mortgage loans payable and unsecured senior notes is estimated using discounted cash flow analyses with an interest rate similar to that of current market borrowing arrangements. The estimated fair value of the Company’s mortgage loans and unsecured senior notes is approximately $1,409,760,000 at September 30, 2012. The balance sheet carrying value of these Level 2 liabilities was $1,732,251,000 as of September 30, 2012.

Fair Value Measurements

The Company’s redeemable noncontrolling interests that have a conversion feature are required to be marked to redemption value at each reporting period. The maximum redemption amount of the redeemable noncontrolling interests is contingent on the fair value of the Company’s common stock at the redemption date, and therefore the amount reported on the consolidated balance sheet is calculated based on the fair value

of the Company’s common stock as of the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests are classified as Level 2. During the first quarter of fiscal 2012, all outstanding operating company units recorded in redeemable noncontrolling interests were converted to shares of common stock, and a decrease in redeemable noncontrolling interests of $3,789,000 was recorded to adjust the noncontrolling interest to its final redemption value with an offsetting change in additional paid in capital. There was a decrease in redeemable noncontrolling interests of $852,000 for the nine month period ended September 30, 2011, to adjust the noncontrolling interest to its redemption value with an offsetting change in additional paid in capital. As of September 30, 2012, no operating company units remain outstanding. As of September 30, 2012, there is $8,107,000 of other noncontrolling interest stated at redemption value.

The estimated fair values of investment securities classified as deferred compensation plan investments are based on quoted market prices utilizing public information for the same transactions and are therefore classified as Level 1. The Company’s deferred compensation plan investments are recorded in Other assets and totaled $4,035,000 and $3,668,000 at September 30, 2012 and at December 31, 2011.

There were no transfers of assets measured at fair value between Level 1 and Level 2 of the fair value hierarchy for the nine months ended September 30, 2012.

During the quarter ended September 30, 2012 a $15,000,000 non-cash impairment charge was recorded in other expenses in conjunction with the decision to sell land in Anaheim, CA that the Company previously intended to develop. The Company’s real estate asset impairment charge (level 3) was the result of an analysis of the land’s fair value (based on market assumptions and comparable sales data) compared to its current capitalized carrying value. As of September 30, 2012, the capitalized carrying value of the land was approximately $38,000,000. The land was determined to have a fair value of approximately $23,000,000 net of closing costs, resulting in an impairment charge of approximately $15,000,000. The land was transferred from Land under development to Other assets during the quarter ended September 30, 2012.

NOTE K – SEGMENT REPORTING

The Company’s operating and investment activities are primarily focused on the major metropolitan markets within the state of California, and in the metropolitan area of Seattle, Washington. The Company’s segment disclosures present the measures used by the chief operating decision maker for purposes of assessing each segments’ performance. The Company’s chief operating decision maker is comprised of several members of its executive management team who use net operating income (NOI) as a primary financial measure for same-store communities and other communities. “Same-store” communities are defined as communities that have been completed, stabilized and owned by us for at least two twelve month periods. The company defines “stabilized” as communities that have reached a physical occupancy of at least 93%. A comparison of operating results for same-store communities is meaningful as these communities have stabilized occupancy and operating expenses, there is no plan to conduct substantial redevelopment activities and the community is not held for disposition within the current year.

The Company’s business focus is the ownership, development and operation of multifamily communities. The Company evaluates performance and allocates resources primarily based on the NOI of an individual multifamily community. The Company defines “NOI” as the excess of all revenue generated by the community (primarily rental revenue) less direct real estate expenses. Accordingly, NOI does not take into account community-specific costs such as depreciation, capitalized expenditures and interest expense.

To better understand the Company’s overall results, the 75 wholly or majority-owned apartment communities can be characterized as follows:

•

19,878 homes in 70 communities, which were owned, completed and stabilized for all of 2012 and 2011 (“same-store”) communities;

•

270 homes in one development community, which was experiencing lease up and stabilization during 2012 and 2011 and as a result did not have comparable year-over-year operating results (“non same-store”);

•

652 homes in three communities acquired during 2011, which as a result did not have comparable year-over-year operating results (“non same-store”); and

•

440 homes in one community that was moved from same-store into rehabilitation (“non same-store”) during 2011.

Operating results are aggregated into five reportable segments based upon geographical region for same-store communities, with non same-store communities aggregated into one reportable segment. The following table details rental revenue and NOI for the Company’s reportable segments for the three and nine months ended September 30, 2012 and 2011, and reconciles NOI to income from continuing operations per the consolidated statement of operations:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
($ in thousands)	2012		2011		2012		2011
Revenues (1):
Southern California (2)	$	55,059	$	53,120	$	163,021	$	157,070
San Francisco Bay Area		19,792		18,293		57,859		53,283
Seattle		13,770		12,696		40,188		37,126
Non-Core Markets (3)		3,901		3,783		11,634		11,262
Non Same-store communities (4)		7,828		6,675		22,390		15,681

	$	100,350	$	94,567	$	295,092	$	274,422

Net Operating Income:
Southern California (2)	$	37,436	$	35,889	$	111,502	$	106,926
San Francisco Bay Area		14,411		13,211		41,982		38,070
Seattle		9,334		8,093		26,532		23,974
Non-Core Markets (3)		2,400		2,427		7,260		7,174

Same-store net operating income		63,581		59,620		187,276		176,144

Non Same-store communities (4)		5,079		4,176		14,401		9,683

Total community net operating income		68,660		63,796		201,677		185,827

Other income		740		677		1,966		1,878
Income from unconsolidated entities		669		791		2,125		2,162
Gain on sale of unconsolidated entity		6,025		2,248		6,025		2,248
Income from discontinued operations, net		—		799		231		2,347
Net gain on sales of discountinued operations		—		—		8,279		—

Net operating income	$	76,094	$	68,311	$	220,303	$	194,462

Less:
Provision for depreciation		25,097		25,414		74,922		76,724
Interest		16,998		18,374		50,488		56,861
General and administrative		5,093		5,678		17,151		16,071
Other expenses		15,000		149		15,000		402
Dividends attributable to preferred stock		911		1,138		2,733		6,744
Redemption related preferred stock issuance cost		—		155		—		3,771
Redeemable and other noncontrolling interests in income		105		332		315		1,003

Net income available to common shareholders	$	12,890	$	17,071	$	59,694	$	32,886

The following table details the assets of the Company’s reportable segments:


					As of September 30, 2012			As of December 31, 2011
($ in thousands)	Communities		Homes		Asset Value			Asset Value
Assets
Southern California (2)		42		11,625	$	2,063,410		$	2,054,984
San Francisco Bay Area		12		3,495		609,925			602,724
Seattle		13		3,456		519,097			514,882
Non-Core Markets (3)		3		1,302		130,638			129,525

Total Same-store communities		70		19,878		3,323,070			3,302,115
Non Same-store communities (4)		5		1,362		365,693			304,930

Investment in rental communities		75		21,240	$	3,688,763		$	3,607,045

Accumulated depreciation						(800,788	)		(729,151	)
Construction in progress						299,573			246,347
Equity investment in real estate joint ventures						41,008			63,313
Land under development						109,694			101,023
Cash						30,046			9,600
Other assets						76,607			54,444

Total assets					$	3,444,903		$	3,352,621

(1)	All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Company’s total revenue during the three and nine months ended September 30, 2012 and 2011.

(2)	Consists of 13 communities in San Diego, 5 in Inland Empire, 13 in Los Angeles, and 11 in Orange County.

(3)	Consists of one same-store community in Sacramento, California and two same-store communities in Phoenix, Arizona.

(4)	2012 non same-store communities’ totals primarily include: three communities acquired in 2011, one community delivered in 2011, and one community under rehabilitation/redevelopment.

NOTE L – SUBSEQUENT EVENTS

The Company has evaluated and disclosed subsequent events through the date of the issuance of the financial statements.

Subsequent to the quarter ended September 30, 2012, the Company determined that land located in Anaheim, CA that is no longer held for development and as a result had an impairment charge of $15,000,000 during the quarter ended September 30, 2012, met the criteria for held for sale. Sale is expected to close within twelve months.

Subsequent to the quarter ended September 30, 2012, two operating communities in San Diego, California with a combined gross carrying value of approximately $37,800,000, totaling 416 homes, met the criteria for held for sale. Sales are expected to close in the fourth quarter of 2012.

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

In addition to historical information, we have made forward-looking statements in this Quarterly Report on Form 10-Q. These forward-looking statements pertain to, among other things, our capital resources, financial liquidity, portfolio performance and results of operations. Forward-looking statements involve numerous risks and uncertainties. You should not rely on these statements as predictions of future events because there is no assurance that the events or circumstances reflected in the statements can be achieved or will occur. Forward-looking statements are identified by words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or in their negative form or other variations, or by discussions of strategy, plans or intentions. Forward-looking statements are based on assumptions, data or methods that may be incorrect or imprecise or incapable of being realized. The following factors, among others, could affect actual results and future events: defaults or non-renewal of leases, illiquidity of real estate and reinvestment risk, our regional focus in the Western United States, insurance coverage, increased interest rates and operating costs, failure to obtain necessary outside financing, difficulties in identifying communities to acquire and in effecting acquisitions, failure to successfully integrate acquired communities and operations, risks and uncertainties affecting community development and construction (including construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities), failure to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws and increases in real property tax rates. Our success also depends upon economic trends, including interest rates, income tax laws, governmental regulation, legislation, population changes and other factors. Do not rely solely on forward-looking statements, which only reflect management’s analysis. We assume no obligation to update forward-looking statements.

Executive Summary

We are a self-administered equity real estate investment trust, or REIT, focused on the ownership, operation, development, and acquisition of apartment communities. Our operating and investment activities are primarily focused on the major metropolitan markets within the state of California, and in the metropolitan area of Seattle, Washington. Our segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments’ performance.

This table summarizes information about our 2012 operating communities:


	Same-store Communities¹										Total Communities²
Regions	# of Communities		# of Homes		% of Same-store Revenue			% of Same-store NOI			# of Communities		# of Homes		% of Total Revenue			% of Total NOI
San Diego		13		4,056		21	%		21	%		13		4,056		19	%		20	%
Inland Empire		5		1,173		5	%		5	%		5		1,173		5	%		5	%
Orange County		11		3,349		17	%		17	%		12		3,789		17	%		17	%
Los Angeles		13		3,047		17	%		17	%		14		3,267		17	%		17	%
San Francisco		12		3,495		21	%		22	%		15		4,197		24	%		25	%

California		54		15,120		81	%		82	%		59		16,482		82	%		84	%
Seattle		13		3,456		15	%		14	%		13		3,456		14	%		13	%
Phoenix		2		902		3	%		2	%		2		902		3	%		2	%
Sacramento		1		400		1	%		2	%		1		400		1	%		1	%

Non-Core		3		1,302		4	%		4	%		3		1,302		4	%		3	%

		70		19,878		100	%		100	%		75		21,240		100	%		100	%

(1)	We define“same-store” communities as communities that have been completed, stabilized and owned by us for at least two twelve month periods. The term “stabilized” refers to communities that have reached a physical occupancy of at least 93%.

(2)	Includes communities acquired, in lease up phase or being rehabilitated that have been stabilized for less than two twelve month periods.

For the nine months ended September 30, 2012, same-store communities totaled 19,878 homes. For the nine months ended September 30, 2012, our non same-store pool is comprised of 270 homes in lease up, 440 homes moved from same-store into rehabilitation and 652 acquired homes.

At September 30, 2012, our portfolio had real estate assets with a net book value of approximately $3.3 billion that included 75 wholly or majority-owned apartment communities, aggregating 21,240 homes; 8 multifamily communities owned in joint ventures, comprised of 2,864 apartment homes; and eight (six in Northern California, one in Southern California, one in Seattle, Washington) wholly or majority-owned apartment communities in various stages of construction and development, totaling 2,393 homes. We earn revenue and generate cash primarily by collecting monthly rent from our community residents.

Results of Operations

Comparison of the Three Months Ended September 30, 2012 and 2011

Rental and ancillary income

A summary of the components of revenues for the quarters ended September 30, 2012 and 2011 follows (dollar amounts in thousands):


	Three months ended September 30, 2012					Three months ended September 30, 2011
	Revenues		% of Total Revenues			Revenues		% of Total Revenues			$ change from 2011 to 2012		% change from 2011 to 2012
Rental income	$	96,431		96.1	%	$	91,035		96.3	%	$	5,396		5.9	%
Ancillary income		3,919		3.9	%		3,532		3.7	%		387		11.0	%

Total revenues	$	100,350		100	%	$	94,567		100	%	$	5,783		6.1	%

The total increase in revenues for the three months ended September 30, 2012, as compared with the three months ended September 30, 2011, was generated from an increase in same-store and non same-store revenue as follows (dollar amounts in thousands):


	2012 Change		% Change from 2011 to 2012
Same-store communities	$	4,630		5.3	%
Non same-store communities		1,153		17.3	%

Total increase in rental and ancillary revenues (excluding revenues from discontinued operations)	$	5,783		6.1	%

The increase in same-store revenue was primarily due to a 5.5% increase in average monthly revenue earned per home in the same-store portfolio from $1,542 per home in the third quarter of 2011 to $1,626 per home in the third quarter of 2012. Average monthly revenue is comprised of rental and ancillary income earned on occupied homes during the period and concession of $3 on revenues per occupied home during the period. Financial occupancy levels averaged 95.4% during the third quarter of 2012 down from 95.6% during the third quarter of 2011. The 17.3% increase in revenue from non same-store communities is primarily due to recently completed development communities and communities acquired in 2011.

Real estate expenses

A summary of the categories of real estate expenses for the quarters ended September 30, 2012 and 2011 follows (dollar amounts in thousands):


	Three months ended September 30, 2012					Three months ended September 30, 2011
	Expenses		% of Total Expenses			Expenses		% of Total Expenses			$ change from 2011 to 2012		% change from 2011 to 2012
Same-store	$	28,941		91.3	%	$	28,271		91.9	%	$	670		2.4	%
Non same-store		2,749		8.7	%		2,500		8.1	%		249		10.0	%

Total revenues	$	31,690		100	%	$	30,771		100	%	$	919		3.0	%

Same-store expenses increased approximately $670,000, or 2.4% from the quarter ended September 30, 2011, which is due to increases in administrative costs, payroll and lease commissions and property taxes. The increase is due to general operating activity in our same-store communities. Non same-store increased $249,000 or 10.0% from the quarter ended September 30, 2011, which is primarily due to recently completed development communities and communities acquired in 2011.

Provision for depreciation

The provision for depreciation totaled $25,097,000 and $25,414,000 for the three months ended September 30, 2012 and 2011, respectively. The decrease of $317,000 or 1.3% is due to short lived assets that were held during the three months ended September 30, 2011 but were fully depreciated by the three months ended September 30, 2012.

Interest expense

Interest expense was $16,998,000 (net of $5,806,000 of interest capitalized to the cost of apartment communities under development and construction) for the three months ended September 30, 2012, a decrease of $1,376,000 or 7.5% from the same period in 2011. Interest expense was $18,374,000 for the three months ended September 30, 2011 (net of $3,915,000 of interest capitalized to the cost of apartment communities under development and construction). Interest expense decreased year over year due to increased development activity during 2012 resulting in higher amounts of capitalized interest as compared to the prior year and lower average debt levels outstanding.

General and administrative expenses

General and administrative expenses totaled $5,093,000 and $5,678,000 for the three months ended September 30, 2012 and 2011, respectively. The general and administrative expenses decreased $585,000, or 10.3%, primarily as a result of decreased compensation related expenses and legal fees.

Other income

Other income for the three months ended September 30, 2012 and 2011 totaled $740,000 and $677,000, respectively, and is comprised of the following:


	Three Months ended
	September 30,
	2012		2011
Management Fees	$	438,000	$	494,000
Interest Income		94,000		91,000
Other		208,000		92,000

Total	$	740,000	$	677,000

Other expenses

During the quarter ended September 30, 2012 a $15,000,000 non-cash impairment charge was recorded in other expenses in conjunction with the decision to sell land in Anaheim, CA that we previously intended to develop. The charge was a result of a change in our future plans from developing the land to where we now intend to sell the land in the near term. The net fair value of the land of approximately $23,000,000 has been transferred from Land under development to Other assets.

Other expenses for the three months ended September 30, 2011 totaled $149,000 and was comprised of costs related to the acquisitions of operating communities.


	Three Months ended
	September 30,
	2012		2011
Impairment Charge	$	15,000,000		—
Acquisition fees		—	$	149,000

Total	$	15,000,000	$	149,000

Income from unconsolidated entities and gain on sale of unconsolidated entities

Income from unconsolidated entities totaled $669,000 and $791,000 for the three months ended September 30, 2012 and September 30, 2011, respectively. The total represents our share of net income from the joint ventures we own. The decrease is due to the sales of joint ventures during 2011 and three months ended September 30, 2012.

On September 12, 2012, we sold the joint venture asset Calvera Point, a 276 home community located in Westminister, Colorado. We had a 15% equity ownership in the community and received gross proceeds of approximately $5,600,000 and recognized a net gain on sale of approximately $900,000.

On September 25, 2012, we sold the joint venture asset Pinnacle at the Creek, a 216 home community located in Centennial, Colorado. We had a 15% equity ownership in the community and received gross proceeds of approximately $4,800,000 and recognized a net gain on sale of approximately $1,800,000.

On September 26, 2012, we sold the joint venture asset Pinnacle at Galleria, a 236 home community, located in Roseville, California. We had a 35% equity ownership in the community and received gross proceeds of approximately $16,600,000 and recognized a net gain on sale of approximately $3,300,000.

On August 10, 2011, we sold the joint venture asset Landing at Bear Creek, a 224 joint venture community, located in Lakewood, Colorado. We had a 15% equity ownership in the communities and as a result received gross proceeds of $4,500,000 and recognized a net gain of $2,248,000.

On December 22, 2011, we sold the joint venture asset The Pinnacle at Hunters Glen, a 264 unit joint venture community located in Thornton, Colorado. We had a 15% equity ownership in the communities and as a result received gross proceeds of $4,800,000 and recognized a net gain on the sale of $2,022,000.

Discontinued operations

We classify the results of operations for communities sold during the period or designated as held for sale at the end of the period and deemed a component of an entity to be classified as discontinued operations. The community-specific components of net earnings that are classified as discontinued operations include all community-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale and community-specific interest expense to the extent there is secured debt on the community. In addition, the net gain or loss on the eventual disposal of communities held for sale is reported as discontinued operations.

At September 30, 2012, we had no assets classified as held for sale.

In the fourth quarter of 2011, we sold two communities totaling 634 homes: Galleria at Towngate, with 268 homes located in Moreno Valley, California; and Windrush Village, with 366 homes located in Colton, California. The approximate gross proceeds from sale of the two communities were $65,175,000, resulting in a net gain of $14,489,000.

For the quarter ended September 30, 2011, the net income from the three communities sold was included in the discontinued operations line on the consolidated statement of income and totaled approximately $799,000.

Dividends attributable to preferred stock

Dividends attributable to preferred stock for the third quarter of 2012 represent the dividends on our outstanding 6.75% Series D Cumulative Redeemable Preferred Stock. All of our current outstanding shares of Series D Cumulative Redeemable preferred stock have a $25.00 per share liquidation preference. As of September 30, 2012, 2,159,715 shares of 6.75% Series D Cumulative Redeemable Preferred Stock remain outstanding. For the three months ended September 30, 2012, we paid $911,000 in dividends on our 6.75% Series D Cumulative Redeemable Preferred Stock.

Dividends attributable to preferred stock for the third quarter of 2011 represent the dividends on our 6.75% Series C and 6.75% Series D Cumulative Redeemable Preferred Stock. For the three months ended September 30, 2011, we paid $1,138,000 in aggregate on our 6.75% Series C and 6.75% Series D Cumulative Redeemable Preferred Stock.

On August 15, 2011, we repurchased 840,285 shares of our 6.75% Series D Cumulative Redeemable Preferred Stock at a price of $24.33 per share on the open market, a $0.67 discount to par resulting in a non cash return from preferred shareholders of $563,000. In addition, the initial issuance costs associated with these shares totaling $718,000 were charged to retained earnings during the third quarter of 2011. The net effect of the activity was a $155,000 charge to retained earnings for the three months ending September 30, 2011.

On June 13, 2011, we redeemed all 4,000,000 shares of our 6.75% Series C Cumulative Redeemable Preferred Stock at a redemption price of $25.34688 per share. The redemption price was equal to the original issuance price of $25.00 per share, plus accrued and unpaid dividends to the redemption date. The initial issuance costs totaling approximately $3,616,000 associated with this series of perpetual preferred stock were charged to retained earnings during the second quarter of 2011.

Net income available to common shareholders

As a result of the various factors mentioned above, net income available to common shareholders for the quarter ended September 30, 2012, was $12,890,000, or $0.17 per diluted share, as compared with $17,071,000, or $0.23 per diluted share, for the same period in 2011.

Results of Operations

Comparison of the Nine Months Ended September 30, 2012 and 2011

Rental and ancillary income

A summary of the components of revenues for the nine months ended September 30, 2012 and 2011 follows (dollar amounts in thousands):


	Nine months ended September 30, 2012					Nine months ended September 30, 2011
	Revenues		% of Total Revenues			Revenues		% of Total Revenues			$ change from 2011 to 2012		% change from 2011 to 2012
Rental income		283,632		96.1	%	$	264,267		96.3	%	$	19,365		7.3	%
Ancillary income		11,460		3.9	%		10,155		3.7	%	$	1,305		12.9	%

Total revenues	$	295,092		100.00	%	$	274,422		100.0	%	$	20,670		7.5	%

The total increase in revenues for the nine months ended September 30, 2012, as compared with the nine months ended September 30, 2011, was generated from an increase in same-store and non same-store revenue as follows (dollar amounts in thousands):


	2012 Change		% Change from 2011 to 2012
Same-store communities	$	13,961		5.4	%
Non same-store communities		6,709		42.8	%

Total increase in rental and ancillary revenues (excluding revenues from discontinued operations)	$	20,670		7.5	%

The increase in same-store revenue was primarily due to a 5.5% increase in average monthly revenue earned per home in the same-store portfolio from $1,517 per home for the nine months ended September 30, 2011 to $1,600 per home for the nine months ended September 30, 2012. Average monthly revenue is comprised of rental and ancillary income earned on occupied homes during the period and concessions of $4 on revenues per occupied home during the period. Financial occupancy levels averaged 95.3% during the nine months ended September 30, 2012 and 2011, respectively. The 42.8% increase in revenue from non same-store communities is primarily due to recently completed development communities and communities acquired in 2011.

Real estate expenses

A summary of the categories of real estate expenses for the nine months ended September 30, 2012 and 2011 follows (dollar amounts in thousands):


	For the Nine months ended September 30, 2012					For the Nine months ended September 30, 2011
	Expenses		% of Total Expenses			Expenses		% of Total Expenses			$ change from 2011 to 2012		% change from 2011 to 2012
Same-store	$	85,426		91.4	%	$	82,598		93.2	%	$	2,828		3.4	%
Non same-store		7,989		8.6	%		5,997		6.8	%		1,992		33.2	%

Total real estate expenses	$	93,415		100.0	%	$	88,595		100.0	%	$	4,820		5.4	%

Same-store expenses increased approximately $2,828,000, or 3.4% from the nine months ended September 30, 2011, which is due to increases in administrative costs, payroll and lease commissions, and property taxes. Non same-store expenses increased approximately $1,992,000, or 33.2% from the nine months ended September 30, 2011, which is primarily due to recently completed development communities and communities acquired in 2011.

Provision for depreciation

The provision for depreciation totaled $74,922,000 and $76,724,000 for the nine months ended September 30, 2012 and 2011, respectively. The decrease of $1,802,000 or 2.3% is due to short lived assets that were held during the nine months ended September 30, 2011 but were fully depreciated by the nine months ended September 30, 2012.

Interest expense

Interest expense was $50,488,000 (net of $16,023,000 of interest capitalized to the cost of apartment communities under development and construction) for the nine months ended September 30, 2012, a decrease of $6,373,000 from the same period in 2011. Interest expense was $56,861,000 for the nine months ended September 30, 2011 (net of $10,202,000 of interest capitalized to the cost of apartment communities under development and construction). Interest expense decreased year over year due to increased development activity during 2012 resulting in higher amounts of capitalized interest as compared to the prior year and lower average debt levels outstanding.

General and administrative expenses

General and administrative expenses totaled $17,151,000 and $16,071,000 for the nine months ended September 30, 2012 and 2011, respectively. The general and administrative expenses increased $1,080,000, or 6.7%, primarily as a result of increased compensation related costs.

Other income

Other income for the nine months ended September 30, 2012 and 2011 totaled $1,966,000 and $1,878,000, respectively, and is comprised of the following:


	Nine Months ended
	September 30,
	2012		2011
Management fees	$	1,289,000	$	1,397,000
Interest income		274,000		278,000
Other		403,000		203,000

Total	$	1,966,000	$	1,878,000

Other expenses

During the nine months ended September 30, 2012 a $15,000,000 non-cash impairment charge was recorded in other expenses in conjunction with the decision to sell land in Anaheim, CA that we previously intended to develop. The charge was a result of a change in our future plans from developing the land to where we now intend to sell the land in the near term. The net fair value of the land of approximately $23,000,000 has been transferred from Land under development to Other assets.

Other expenses for the nine months ended September 30, 2011 totaled $402,000 and was comprised of costs related to the acquisitions of operating communities.


	Nine Months ended
	September 30,
	2012		2011
Impairment charge	$	15,000,000		—
Acquisition fees		—	$	402,000

Total	$	15,000,000	$	402,000

Income from unconsolidated entities and gain on sale of unconsolidated entites

Income from unconsolidated entities totaled $2,125,000 and $2,162,000 for the nine months ended September 30, 2012 and September 30, 2011, respectively. The total represents our share of net income from the joint ventures we own. The decrease is due to the sales of joint ventures during 2011 and nine months ended September 30, 2012.

Discontinued operations

At September 30, 2012, we had no assets classified as held for sale.

For the nine months ended September 30, 2012, we sold one community, Countryside Village, with 96 homes located in San Diego, CA. The approximate gross proceed from the sale was $12,600,000, resulting in a net gain of $8,279,000.

In the fourth quarter of 2011, we sold two communities totaling 634 homes: Galleria at Towngate, with 268 homes located in Moreno Valley, California and Windrush Village, with 366 homes located in Colton, California. The approximate gross proceeds from sale of the two communities were $65,175,000, resulting in a net gain of $14,489,000.

For the nine months ended September 30, 2012, the net gain on sale and result of the one community sold was included in the discontinued operations line on the consolidated statement of income and totaled approximately $8,510,000. For the nine months ended September 30, 2011, the net income from the three communities sold were included in the discontinued operations line on the consolidated statement of income and totaled approximately $2,347,000.

Dividends attributable to preferred stock

Dividends attributable to preferred stock for the nine months ended September 30, 2012 represent the dividends on our outstanding 6.75% Series D Cumulative Redeemable Preferred Stock. All of our current outstanding shares of 6.75% Series D Cumulative Redeemable preferred stock have a $25.00 per share liquidation preference. As of September 30, 2012, 2,159,715 shares of 6.75% Series D Cumulative Redeemable Preferred Stock remain outstanding. For the nine months ended September 30, 2012, we paid $2,733,000 in dividends on our 6.75% Series D Cumulative Redeemable Preferred Stock.

Dividends attributable to preferred stock during the nine months ended September 30, 2011 represent the dividends on our 6.75% Series C and 6.75% Series D Cumulative Redeemable Preferred Stock. For the nine months ended September 30, 2011, we paid $6,744,000 in aggregate on our 6.75% Series C and 6.75% Series D Cumulative Redeemable Preferred Stock.

Net income available to common shareholders

As a result of the various factors mentioned above, net income available to common shareholders for the nine months ended September 30, 2012, was $59,694,000, or $0.78 per diluted share, as compared with $32,886,000, or $0.47 per diluted share, for the same period in 2011.

Liquidity and Capital Resource

In the event that we do not have sufficient cash available to us from our operations to continue operating our business as usual, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation: (a) divesting ourselves of communities at less than optimal terms; (b) issuing and selling our debt and equity in public or private transactions under less than optimal conditions; (c) entering into leases with new tenants at lower rental rates or less than optimal terms; (d) entering into lease renewals with our existing tenants without an increase in rental rates at turnover; (e) reducing the level of dividends to common shareholders to the minimum level necessary to maintain our corporate REIT status under the Internal Revenue Code; or (f) paying a portion of our dividends in stock rather than cash. Taking such measures to increase liquidity may have a materially adverse effect on us and our ability to make distributions to our shareholders and pay amounts due on our debt.

Our dividend per share amounts for the quarters ending September 30, 2012 and 2011 were $0.385 and $0.375, respectively. The quarterly common dividend payment of $0.385 is equivalent to $1.54 per common share on an annualized basis.

Depending upon the availability and cost of external capital, we anticipate making additional investments in multifamily apartment communities. These investments are expected to be funded through a variety of sources. These sources may include internally generated cash, temporary borrowings under our unsecured line of credit, proceeds from asset sales, public and private offerings of debt and equity securities, and in some cases the assumption of secured borrowings. To the extent that these additional investments are initially financed with temporary borrowings under our unsecured line of credit, we anticipate that permanent financing will be provided through a combination of public and private offerings of debt and equity securities, proceeds from asset sales and secured debt. However, permanent financing may not be available on favorable terms, or at all. We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service and dividend requirements, and finance future investments. For the nine months ended September 30, 2012, cash flows generated from operating activities were in excess of distributions to common shareholders, preferred shareholders and noncontrolling interest members by approximately $56,000,000. Due to the timing associated with operating cash flows, there may be certain periods where cash flows generated by operating activities are less than distributions. We believe our unsecured line of credit provides adequate liquidity to address temporary cash shortfalls. We expect that annual cash flows from operations will exceed annual distributions to equity holders for the year ended December 31, 2012, which is consistent with prior years. Annual cash flows from operating activities exceeded annual distributions to common shareholders, preferred shareholders and noncontrolling interest members by approximately $54,000,000 and $34,000,000 for the years ended December 31, 2011 and 2010, respectively.

During the nine months ended September 30, 2012 and September 30, 2011 we invested $181,503,000 and $116,057,000, respectively, in capital expenditures:


	Nine months ended September 30,				Expected 2012 Annual Range
(amounts in thousands)	2012		2011		Low		High
New development (including land)	$	145,236	$	91,916	$	190,000	$	210,000
Rehab expenditures		21,856		8,888		30,000		40,000
Capital expenditures		14,411		15,253		21,000		23,000

Total capital expenditures	$	181,503	$	116,057	$	241,000	$	273,000

We had a total of $990,018,000 carrying amount in unsecured senior notes at September 30, 2012, consisting of the following (dollar amounts in thousands):


Maturity	Unsecured Senior Note Balance		Interest Rate (Coupon)
February 2013	$	40,018		7.125	%
March 2014		50,000		4.700	%
March 2017		300,000		5.500	%
March 2021		300,000		5.200	%
March 2023		300,000		3.375	%

Total / Weighted Average Interest Rate⁽¹⁾	$	990,018		4.910	%

⁽¹⁾	Represents the weighted average effective interest rate.

On August 13, 2012 we completed an offering of $300,000,000 of 10.5-year senior unsecured notes. The notes will mature on January 15, 2023 and bear interest at a fixed coupon rate of 3.375%. Net proceeds from the offering, after all discounts, commissions, and issuance costs totaled approximately $295,300,000 and were used for general corporate purposes.

During the nine months ended September 30, 2012, we exercised our right to redeem for cash all of the $35,000,000 outstanding convertible senior unsecured notes, at a redemption price equal to 100% of the principal amount of the notes outstanding, plus accrued and unpaid interest up to, but excluding, February 21, 2012.

On February 1, 2012, we prepaid a mortgage on a single community for $65,866,000 prior to its scheduled maturity, with no prepayment penalty.

In addition, at September 30, 2012, we had mortgage indebtedness with a total principal amount outstanding of $742,233,000, at an effective interest rate of 5.61%, and remaining terms ranging from one to nine years. For the periods ending September 30, 2012, and December 31, 2011, respectively, unencumbered real estate net operating income represented, 73.0% and 68.6% of our total real estate net income.

Through December 31, 2011 we maintained an unsecured line of credit with a total commitment of $750,000,000. Based on our then current debt ratings, the line of credit accrued interest at LIBOR plus 47.5 basis points. In addition, we paid a 0.15% annual facility fee on the capacity of the facility. Borrowings under our unsecured line of credit totaled $129,000,000 at December 31, 2011. Borrowings under the unsecured line of credit were used to fund acquisition and development activities as well as for general corporate purposes. Balances on the unsecured line of credit were typically reduced with available cash balances. The facility was terminated subsequent to December 31, 2011.

On January 5, 2012, we entered into a new $750,000,000 unsecured line of credit (the “Credit Agreement”). The Credit Agreement has an initial term of 39 months, terminates on April 3, 2015 and replaces our previous $750,000,000 unsecured line of credit. Based on our current debt ratings, the line of credit accrues interest at LIBOR plus 120 basis points. In addition, we pay a 0.20% annual facility fee on the capacity of the line of credit. Borrowings under our unsecured line of credit totaled $0 at September 30, 2012.

As of September 30, 2012, we had total outstanding debt balances of approximately $1,732,000,000 and total outstanding consolidated shareholders’ equity and redeemable noncontrolling interests of approximately $1,646,000,000, representing a debt to total book capitalization ratio of 52%.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities in open market purchases or privately negotiated transactions. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Our indebtedness contains financial covenants as to minimum net worth, interest coverage ratios, maximum secured debt, total debt to capital, and cash on hand among others. We were in compliance with all such financial covenants during the nine months ended September 30, 2012 and 2011.

We anticipate that we will continue to require outside sources of financing to meet our long-term liquidity needs beyond 2012, such as scheduled debt repayments, construction funding and potential community acquisitions. As of September 30, 2012 scheduled debt principal payments through December 31, 2012 totaled approximately $261,000.

On February 24, 2010, we entered into Equity Distribution Agreements (EDAs) with each of Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Wells Fargo Securities, LLC (collectively, the “sales agents”) under which we may issue and sell from time to time through or to its sales agents shares of its common stock having an aggregate offering price of up to $250,000,000. During the nine months ended September 30, 2012, 815,045 shares were issued under the EDAs, with an average share price of $49.09 for total gross proceeds of approximately $40,000,000 and total commission paid to the sales agents of approximately $800,000. During the nine months ended September 30, 2011, 545,348 shares were issued under the EDAs, with an average share price of $45.84 for total gross proceeds of approximately $25,000,000 and total commission paid to the sales agents of approximately $500,000. During the year-ended 2011, 1,291,537 shares were issued under the EDAs, with an average share price of $47.55 for total gross proceeds of approximately $61,414,000 and total commission paid to the sales agents of approximately $1,228,280. As of September 30, 2012, the remaining capacity under the EDAs totals $123,600,000. We intend to use any net proceeds from the sale of its shares under the EDAs for general corporate purposes, which may include reducing borrowings under our unsecured line of credit, the repayment of other indebtedness, the redemption or other repurchase of outstanding debt or equity securities, funding for development activities and financing for acquisitions.

On May 11, 2011, we completed an equity offering of 9,200,000 shares of common stock, including shares issued to cover over-allotments, at $48.00 (prior to a $1.92 per share underwriters discount) per share. Total gross proceeds from this offering were approximately $441,508,000. We used the proceeds, net of the discount, of approximately $423,936,0000 for general corporate purposes which included redeeming our 6.75% Series C Cumulative Redeemable Preferred Stock and a portion of our 6.75% Series D Cumulative Redeemable Preferred Stock, and to repay borrowings under our unsecured line of credit.

On June13, 2011, we redeemed all 4,000,000 shares of our 6.75% Series C Cumulative Redeemable Preferred Stock at a redemption price of $25.34688 per share. The redemption price was equal to the original issuance price of $25.00 per share, plus accrued and unpaid dividends to the redemption date. The initial issuance costs totaling approximately $3,616,000 associated with this series of perpetual preferred stock were charged to retained earnings during the second quarter of 2011.

We continue to consider other sources of possible funding, including new joint ventures and additional secured construction and term debt. We own unencumbered real estate assets that could be sold, contributed to joint ventures or used as collateral for financing purposes (subject to certain lender restrictions). We also own encumbered assets with significant equity that could be further encumbered should other sources of capital not be available (subject to certain lender restrictions).

Construction in progress and land under development

The following table provides data on our multifamily communities that are currently under various stages of development and construction. Completion of the development communities is subject to a number of risks and uncertainties, including construction delays and cost overruns. We cannot provide assurance that these communities will be completed, or that they will be completed by the estimated dates, or for the estimated amounts, or will contain the number of proposed homes shown in the table below. In addition to the communities below, we have predevelopment costs on land under contract for potential projects totaling approximately $15,200,000 in Other Assets on the Consolidated Balance Sheet.

During the nine months ended September 30, 2012 a $15,000,000 non-cash impairment charge was recorded in other expenses in conjunction with the decision to sell land in Anaheim, CA that we previously intended to develop. The carrying value of the land was adjusted to reflect the fair value of $23,000,000, net of impairment. The land was transferred from Land under development to Other assets during the quarter ended September 30, 2012.


(Dollar amounts in millions) Community Name	Location	Proposed Number of Homes		Costs Incurred to Date – September 30, 2012 ⁽¹⁾		Estimated Total Cost		Estimated Cost to Complete		Estimated Completion Date ⁽²⁾
Construction in Progress
Lawrence Station⁽³⁾	Sunnyvale, CA		336	$	98.1	$	110.0	$	11.9		4Q/2012
Aviara⁽⁴⁾	Mercer Island, WA		166		24.9		44.5		19.6		2Q/2013
Solstice	Sunnyvale, CA		280		63.1		121.9		58.8		1Q/2014
Wilshire La Brea	Los Angeles, CA		478		163.9		277.3		113.4		4Q/2014

Total Construction in Progress				$	1,260	$	350.0	$	553.7	$	203.7

Community Name

Location

Proposed
Number of
Homes

Costs Incurred
to Date –
September 30, 2012

Estimated
Total
Cost ⁽⁵⁾

Land Owned ⁽⁶⁾

Mission Bay⁽⁷⁾

San Francisco, CA

360

58.7

TBR

Redwood City⁽⁸⁾

Redwood City, CA

264

17.2

TBR

Pleasanton

Pleasanton, CA

254

20.2

TBR

Pleasanton II

Pleasanton, CA

255

13.6

TBR

Total Land Owned

1,133

109.7

⁽¹⁾

Reflects all recorded costs as of September 30, 2012, recorded on our balance sheet as direct investments in real estate-construction in progress. The balance also includes recorded costs related to homes delivered and recorded on our balance sheet as Direct investment in real estate – Investment in rental communities.

⁽²⁾	“Completion” is defined as our estimate of when an entire project will have a final certificate of occupancy issued and be ready for occupancy.

⁽³⁾

Reflects all recorded costs incurred as of September 30, 2012, recorded on our Consolidated Balance Sheet as Direct investments in real estate- Construction in progress. Included in this amount is $50.5 million of costs for the completed units as of September 30, 2012 which, is reflected in our Consolidated Balance Sheet as Direct investments in real estate – Investment in rental communities.

⁽⁴⁾	During the fourth quarter of 2010, we entered into a ground lease for the Mercer Island site. The ground lease has an initial term of 60 years, two 15-year extensions followed by a 9-year extension. The annualized GAAP straight line lease expense is approximately $664,000.

⁽⁵⁾	Reflects the aggregate cost estimates; specific community cost estimates to be reported (TBR) once entitlement approvals are received and we are prepared to begin construction.

⁽⁶⁾	Land owned represents projects in various stages of pre-construction development. As these contracts are finalized, projects are transferred to construction in progress on our Consolidated Balance Sheet.

⁽⁷⁾	Represents two parcels of land in the Mission Bay district, acquired in the second quarter 2011 that are entitled for residential use and can be developed in phases.

⁽⁸⁾	During the third quarter of 2012, we closed on a parcel of land located in Redwood City, CA, and the land was transferred to Land under development.

Dividends Paid to Common and Preferred Shareholders and Distributions to Noncontrolling Interest Members

A cash dividend has been paid to common shareholders each quarter since our inception in 1970. Our dividend per share amounts for the quarter ended September 30, 2012 and 2011 were $0.385 and $0.375 per share, respectively. Our dividend per share amounts for the nine months ended September 30, 2012 and 2011 were $1.155 and $1.125, respectively. Total dividends paid to common shareholders for the nine months ended September 30, 2012 and 2011 were $88,969,000 and $81,042,000, respectively.

For the nine months ended September 30, 2012, we paid $2,733,000 in dividends on our 6.75% Series D Cumulative Redeemable Preferred Stock.

For the nine months ended September 30, 2011, we paid $6,744,000 in aggregate on our 6.75% Series C and 6.75% Series D Cumulative Redeemable Preferred Stock.

During the first quarter of 2012, all outstanding operating company units recorded in redeemable noncontrolling interests were converted to shares of common stock. As of September 30, 2012, no operating company units remain outstanding. Total distributions to redeemable noncontrolling interests were $0 and $689,000 for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, $8,107,000 of other noncontrolling interests remained outstanding. The remaining other non-controlling interests are not convertible to common stock. Total distributions to other noncontrolling interests of our consolidated subsidiaries were $315,000 for the nine months ended September 30, 2012 and 2011, respectively.

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk.

Information concerning market risk is incorporated herein by reference to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2011. There has been no material change in the quantitative and qualitative disclosure about market risk since December 31, 2011.

ITEM 4 – Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that there are reasonable assurances that our controls and procedures will achieve the desired control objectives. Also, we have investments in certain unconsolidated entities. As we do not control these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As of September 30, 2012, the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

Legal Proceedings.

ITEM 1A.

Risk Factors.

There have been no material changes to the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None

ITEM 3.

Defaults Upon Senior Securities.

None

ITEM 4.

(Removed and Reserved).

ITEM 5.

Other Information.

None

ITEM 6.

Exhibits.



4.1		Form of 3.375% Senior Note due 2023 (previously filed on August 7, 2012 as Exhibit 4.6 to the Registrant’s Current Report on Form 8-K and incorporated by reference herein).

11		Statement Re: Computation of Per Share Earnings.

12		Statement of Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the BRE Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) notes to the Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				BRE PROPERTIES, INC.
				(Registrant)

Date: November 7, 2012				/S/ JOHN A. SCHISSEL
				John A. Schissel
				Executive Vice President,
				Chief Financial Officer

Exhibit Index


Exhibits.

4.1		Form of 3.375% Senior Note due 2023 (previously filed on August 7, 2012 as Exhibit 4.6 to the Registrant’s Current Report on Form 8-K and incorporated by reference herein).

11		Statement Re: Computation of Per Share Earnings.

12		Statement of Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the BRE Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended September 31, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) notes to the Consolidated Financial Statements

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