News Column

BRE PROPERTIES INC /MD/ - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 18, 2014

Executive Summary

We are a self-administered equity real estate investment trust, or REIT, focused on the ownership, development, acquisition, and management of multifamily 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. At December 31, 2013 our portfolio had real estate assets with a net book value of approximately $3.5 billion that include 73 wholly or majority owned stabilized multifamily communities, aggregating 20,724 homes primarily located in California and Washington; one multifamily community owned in a joint venture and comprised of 252 homes; one land asset held for sale; and six development communities in various stages of construction and development. We earn revenue and generate operating cash flow primarily by collecting monthly rent from our community residents. Our 2013 results, when compared to 2012 and 2011 annual results reflect the impact of improving fundamentals for the multifamily industry. We experienced same-store revenue growth in 2013 of 4.8% as compared to 5.5% growth in 2012 and 3.4% growth in 2011. Operating fundamentals, driven by low levels of new supply and an increase in propensity to rent, began to improve in 2011 and continued to strengthen throughout 2012 and 2013. Although unemployment levels following the severe recession that started in late 2007 remain elevated at 8.3% in California and 6.6% in Washington, we did experience job growth in our core markets in 2013 with the San Francisco Bay Area and Seattle markets benefiting the most from increased employment levels.



We continue to make progress on building out our development pipeline with properties that are in some of the country's premier locations. As of December 31, 2013, our active development pipeline had a total estimated cost of $724,200,000 of which approximately $181,000,000 remains to be funded. Our active pipeline consists of Solstice, Wilshire La Brea, Radius and MB 360 projects.

We expect that strategic draws on our unsecured revolving credit facility and asset sales will be the primary funding source for our remaining current construction funding commitments. During 2013, we disposed of three communities with 872 homes (located in Southern California) for combined net proceeds of $162,357,000. The dispositions produced net gains on sales totaling $57,324,000. In addition, during 2013 we sold our joint venture interests in seven communities that generated $53,408,000 in net proceeds and net gains totaling $18,633,000. We believe that a combination of a targeted development program focused on our core markets along with the disposition of slower revenue growth communities will over the time result in a higher quality portfolio with a stronger revenue growth profile. We also remain committed to maintaining a strong financial position and balance sheet flexibility. Our leverage measured as debt as a percentage of gross assets was 39% as of December 31, 2013. We believe our communities are well-positioned to take advantage of the favorable demographic factors that are expected to produce continued revenue growth for apartment owners in the coming years. These factors include: (1) increases in overall population levels among the age demographic with the greatest tendency to rent (age 20 to 34 years old); (2) a greater propensity to rent among all age groups as a result of the psychology and financial impact on homeownership rates coming out of this past recession; and (3) low levels of new supply of apartment communities from development activities in the majority

of our core markets. 28



To better understand our overall results, our 73 wholly or majority owned apartment communities can be characterized as follows:

19,952 homes in 70 communities were owned, completed and stabilized for

all of 2012 and 2011 ("same-store") communities; 502 homes in two development communities were experiencing lease up and



stabilization during 2012 and 2013 and as a result did not have comparable

year-over-year operating results ("non same-store"); and



270 homes in one community was acquired during 2013, and as a result did

not have comparable annual year-over-year operating results ("non same-store"). In addition to year-over-year economic operating performance, our results of operations for the three years ended December 31, 2013 were affected by income derived from communities acquired and completions of apartment communities, offset by the cost of capital associated with financing these transactions.



Proposed Merger Transaction with Essex Property Trust, Inc.

On December 19, 2013, we entered into the Merger Agreement with Essex and Merger Sub. The Board of Directors of the Company has unanimously (i) determined and declared that the Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of the Company and its shareholders and (ii) approved the Merger Agreement. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each outstanding share of common stock, par value $0.01 per share, of the Company (the "Company Common Stock"), will be converted into the right to receive (i) 0.2971 shares of common stock, par value $0.0001 per share, of Essex ("Essex Common Stock") and (ii) $12.33 in cash, without interest, each subject to certain adjustments provided for in the Merger Agreement and subject to any applicable withholding tax (collectively, the "Merger Consideration"). Under the Merger Agreement, at the Effective Time each BRE stock option that is outstanding and unexercised immediately prior to the Effective Time, whether or not then vested or exercisable, will be assumed by Essex and converted into a stock option to acquire the number of whole shares of Essex Common Stock equal to the product of (i) the number of shares of Company Common Stock subject to the BRE stock option and (ii) the sum of 0.2971 and the quotient obtained by dividing (x) the per share cash consideration portion of the Merger Consideration by (y) the volume weighted average of Essex Common Stock over a ten-day trading period starting with the opening of trading on the first trading day to the closing of the second to last trading day prior to the closing date of the transactions contemplated by the Merger Agreement (such sum, the "Stock Award Exchange Ratio"). The exercise price per share of Essex Common Stock subject to each such assumed option will be equal to the quotient obtained by dividing (a) the exercise price per share of Company Common Stock of such BRE stock option by (b) the Stock Award Exchange Ratio. Except as described above, each such assumed stock option will continue to have, and will be subject to, the same terms and conditions as applied to the BRE stock option immediately prior to the Effective Time (but taking into account any changes provided for in the applicable Company Equity Plan (as defined in the Merger Agreement), in any award agreement, or in such BRE stock option by reason of the Merger or the Merger Agreement). Additionally, at the Effective Time, each outstanding and unvested share of BRE restricted stock (including any associated right to the issuance of additional shares of Company Common Stock upon the achievement of BRE performance goals) will be assumed by Essex and will be converted into an award of Essex restricted stock for that number of shares of Essex Common Stock equal to product of (i) the number of shares of Company Common Stock underlying the BRE restricted stock award, and (ii) the Stock Award Exchange Ratio. To the extent any such BRE restricted stock is subject to performance vesting and, following the Effective Time, the performance metrics applicable to such BRE restricted stock otherwise cease to be measurable on substantially similar terms as immediately prior to the Effective Time, then the Essex restricted stock will vest based on target performance at the time and, subject to any applicable payment conditions, prescribed by the terms in effect for such BRE restricted stock immediately prior to the Effective Time. Except as described above, each such assumed award of restricted stock will continue to have, and will be subject to, the same terms and conditions as applied to the BRE restricted stock immediately prior to the Effective Time (but taking into account any changes provided for in the applicable Company Equity Plan or in any award agreement by reason of the Merger or the Merger Agreement). 29 The Company and Essex have made certain customary representations and warranties to each other in the Merger Agreement. The Company has agreed, among other things, not to solicit, initiate, knowingly encourage or facilitate any inquiry, discussion, offer or request from third parties regarding other proposals to acquire the Company and not to engage in any discussions or negotiations regarding any such proposal, or furnish to any third party non-public information regarding the Company. The Company has also agreed to certain other restrictions on its ability to respond to any such proposals. The Merger Agreement also includes certain termination rights for both the Company and Essex and provides that, in connection with the termination of the Merger Agreement, under specified circumstances, (i) the Company may be required to pay to Essex a termination fee of $170.0 million and/or reimburse Essex's transaction expenses in an amount equal to $10,000,000 and (ii) Essex may be required to reimburse the Company's transaction expenses in an amount equal

to $10,000,000. The completion of the Merger is subject to various conditions, including, among other things, the approval by the Company's shareholders of the Merger and the other transactions contemplated by the Merger Agreement, the approval by Essex's shareholders of the issuance of Essex Common Stock in connection with the Merger and certain consents having been obtained. Essex and the Company filed preliminary joint proxy materials (Form S-4) with the Securities and Exchange Commission on January 29, 2014. Complete information on the Merger, including the Merger background, reasons for the Merger, who may vote, how to vote and the time and place of the Company shareholder meeting are included in the definitive proxy statement filed on February 14, 2014. As of December 31, 2013, the Company has incurred $3,400,000 for legal, consulting and other expenses related to the Merger. If the Merger process proceeds without delay, we currently expect the transaction to close by the second quarter of 2014. RESULTS OF OPERATIONS



Comparison of the Years ended December 31, 2013, 2012 and 2011

Revenues Total revenues include revenues from discontinued operations in an effort to provide information regarding the amount of total revenues the portfolio generated each year. The increase in rental income in 2013 was primarily derived from a 4.8% increase in same-store property revenue. A summary of revenues

is as follows:



Composite of Change in year over year revenues

% of % of % of Total Total Total 2013 Total Revenues 2012 Total Revenues 2011 Total Revenues Rental income $ 388,300,000 88.8 % $ 361,116,000 92.0 % $ 336,014,000 90.0 % Ancillary income 15,728,000 3.6 % 14,441,000 4.0 % 12,789,000 4.0 % Total revenue from continuing operations 404,028,000 375,557,000 348,803,000 Revenues from discontinued operations 11,851,000 2.7 % 21,880,000 2.0 % 28,817,000 4.0 % Total rental and ancillary income 415,879,000 397,437,000 377,620,000 Income from unconsolidated entities 625,000 0.2 % 2,644,000 1.0 % 2,888,000 1.0 % Other income 20,614,000 4.7 % 2,530,000 1.0 % 2,536,000 1.0 % Total revenues $ 437,118,000 100.0 % $ 402,611,000 100.0 % $ 383,044,000 100.0 % 30 2013 2012 Change Change Same-store communities $ 17,973,000$ 18,834,000 Non same-store communities 10,498,000 8,245,000 Total change in rental and ancillary revenues from continuing operations $ 28,471,000$ 27,079,000 Rental and Ancillary Income

Same-store revenues increased by $17,973,000 or 4.8% and by $18,834,000 or 5.5% for the years ended for the years ended December 31, 2013 and 2012, respectively. The 2013 same-store increase was primarily due to a 5.3% increase in average revenue earned per occupied home. Revenue per home is comprised of rental and ancillary income earned on occupied homes during the period and net of concessions of $1 per month per occupied home during 2013 and concessions of $3 per month per home during 2012. Physical occupancy levels averaged 95%, 94%, and 95% during the years ended 2013, 2012, and 2011, respectively. The $10,498,000 increase in revenue from non same-store communities represents the increase in the year-over-year size of the portfolio from recently completed development communities and communities acquired in 2013. As described above, the increase in non same-store rental and ancillary revenues relates to acquired and developed communities. The following table summarizes our multifamily development, acquisition and disposition activities: Year Ended December 31, 2013 2012 2011



Total cost of development communities completed $ 42,900,000$ 104,400,000 $

- # of homes completed 166 336 - Total cost of communities acquired $ 120,515,000 $ - $ 170,127,000 # of homes acquired 270 - 652 Approximate net sales proceeds of dispositions $ 162,357,000$ 88,236,000$ 63,486,000 # of homes sold 872 512 634 Year Ended December 31, 2013 2012 2011 Number of wholly or majority owned operating communities 73 74 76 Physical occupancy rates for operating communities(1) 95.0 % 94.0 % 95.0 %



(1)Physical occupancy is calculated by dividing the total occupied homes by the total homes in stabilized communities in the portfolio.

Other income



Other income is detailed below and is comprised of the following:

For the years ended December 31, 2013 2012 2011 Legal and insurance settlements $ 19,750,000 (1) $ 133,000$ 40,000 JV management fees (2) 384,000 1,637,000 1,843,000 Interest income 219,000 377,000 369,000 Disposition fees 128,000 243,000 144,000 Other 133,000 140,000 140,000 Total other income $ 20,614,000$ 2,530,000$ 2,536,000 31



(1) Related to $19,750,000 legal settlement for construction defects.

(2) Decrease in management fees due to decrease in the number of joint venture interests from 11 interests at December 31, 2011 to 8 interests at December 31, 2012 to 1 interest at December 31, 2013. Expenses Real estate expenses The summary of real estate expenses, excluding discontinued operations is as follows: Year Ended December 31, 2013 2012 2011 Real estate expenses $ 124,304,000$ 118,143,000$ 112,497,000 Real estate expenses as a percent of rental and ancillary income from continuing operations 30.8 %

31.5 % 32.3 % Same-store expense % change 1.9 % 3.6 % 1.5 % Real estate expenses for multifamily rental communities (which include repairs and maintenance, utilities, on-site staff payroll, property taxes, insurance, advertising and other direct operating expenses) increased $6,161,000, or 5.2% and $5,646,000 or 5.0%, for the years ended December 31, 2013 and 2012, respectively. Also, same-store expenses increased $2,252,000, $3,920,000, and $1,520,000 in 2013, 2012 and 2011, respectively. Property taxes comprised 30% of real estate expenses during the years ended December 31, 2013, 2012 and 2011, respectively. Across the same-store portfolio, property taxes increased $2,236,000 or 6.4% in 2013 from 2012. In our Seattle market on a same-store basis, property taxes increased $876,000 or 17% for the year e ended December 31, 2013. Real estate expenses shown in the table above exclude real estate expense from discontinued operations which totaled $4,077,000, $7,139,000 and $9,177,000 for 2013, 2012 and 2011, respectively. Provision for depreciation The provision for depreciation totaled $105,371,000, $96,736,000 and $97,139,000 for the years ending 2013, 2012 and 2011, respectively. The provision for depreciation increased $8,635,000, or 8.9%, for the year ended December 31, 2013 compared to 2012, and decreased $403,000, or 0.4%, for the year ended December 31, 2012 compared to 2011. The increases in 2013 resulted from higher depreciable bases on newly delivered developments and acquisitions. Interest expense Year ended December 31, 2013 2012 2011



Interest on unsecured senior notes $ 46,048,000$ 42,103,000$ 38,518,000 Interest on convertible debt

- 274,000



1,870,000

Interest on mortgage loans payable 40,513,000 40,953,000 43,898,000 Interest on line of credit 3,777,000 5,101,000 3,396,000 Total interest incurred $ 90,338,000$ 88,431,000$ 87,682,000 Capitalized interest(1) (24,471,000 ) (21,633,000 ) (14,431,000 ) Total interest expense $ 65,867,000$ 66,798,000$ 73,251,000 32

(1) The increase in capitalized interest is related to the increase in our average investment in land and construction in progress. Our monthly average investment balance in land and construction in progress was $468,363,000, $406,619,000 and $280,698,000 for the years ended December 31, 2013, 2012 and 2011, respectively.



Year-end debt balances were as follows:

Year ended December 31, 2013 2012 2011 Unsecured senior notes $ 950,000,000$ 990,018,000$ 690,018,000 Convertible unsecured senior notes(1) - - 34,939,000 Mortgage loans payable 711,428,000 741,942,000 808,714,000 Unsecured line of credit 98,000,000 - 129,000,000 Total debt $ 1,759,428,000 1,731,960,000 1,662,671,000 Weighted average interest rate for all debt at end of period 5.1 % 5.4 % 5.3 %



(1) During 2012, we exercised the right to redeem for cash all of the remaining

4.125% convertible unsecured notes outstanding, 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 (the "Redemption

Date").



General and administrative expenses

General and administrative expenses for the three years ended December 31, were as follows: For the years ended December 31, 2013 2012 2011 General and administrative expenses $ 23,037,000$ 22,848,000$ 21,768,000 Annual change as a percentage 0.8 % 5.0 % 5.8 % As a percentage of rental and ancillary revenues (including revenues from discontinued operations) 5.5 % 5.7 % 5.8 %

General and administrative expenses increased 0.8% in 2013, increased 5.0% in 2012 and increased 5.8% in 2011. The increase during 2013 was primarily due

to legal costs. Other expenses



Other expenses are comprised of the following:

For the years ended December 31, 2013 2012 2011 Merger costs(1) $ 3,401,000 $ - $ - Acquisition fees 585,000 - 402,000

Non cash impairment charge(2) - 15,000,000 -

Total other expenses $ 3,986,000$ 15,000,000$ 402,000 33



(1) Represents merger related legal and professional fees incurred as of December

31, 2013.

(2) Represents a $15,000,000 non cash impairment charge to write down a land site

to its estimated fair value less cost of disposal, as a result of changes in

the future plans to develop the project.



Redeemable noncontrolling interest in income

Redeemable noncontrolling interest in income represent the earnings attributable to the noncontrolling members of our consolidated subsidiaries and totaled $190,000, $413,000 and $1,168,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Discontinued operations

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



During 2013 we sold three communities in Southern California: Summerwind Townhomes, with 200 homes; Mission Grove Park with 432 homes; and Villa Santana, with 240 homes. The net proceeds from the three sales were $162,357,000 resulting in a net gain of $57,324,000.

During 2012, we sold three communities located in San Diego, California: Countryside Village, with 96 homes in El Cajon submarket; Terra Nova Villas, with 233 homes in Chula Vista; and Canyon Villa, with 183 homes in Chula Vista. The approximate net proceeds from the three sales were $88,236,000 resulting in a combined net gain of $62,136,000. The sale of these assets reduced our exposure in the San Diego multi-family market to 18% of total net operating income from 21% at year-end 2011. During 2011, we sold two communities in the eastern half of the Inland Empire totaling 634 homes: Galleria at Towngate, with 268 homes located in Moreno Valley, California; and Windrush Village, a 366 unit property located in Colton, California. The net proceeds from sales of the two communities were $63,486,000, resulting in a combined net gain of $14,489,000. The sale of these assets reduced our concentration of net operating income from the Inland Empire.



The net gain on sale and the combined results of operations for these eight communities for each year presented are included in discontinued operations on the consolidated statements of income. These amounts totaled $61,631,000, $70,326,000 and $25,615,000 for the years ended December 31, 2013, 2012 and 2011, respectively. There were no operating communities held for sale as of December 31, 2013.

As of December 31, 2013, there was land with a net carrying value of $23,481,000 classified as held for sale on the consolidated balance sheet. As of December 31, 2012, there was land with a net carrying value of $23,065,000 classified as held for sale on the consolidated balance sheet.



Income from unconsolidated entities

Income from unconsolidated entities totaled $625,000, $2,644,000 and $2,888,000 for the years ended December 31, 2013, 2012 and 2011, respectively. The totals for each year include our share of net income from the joint ventures we own. During 2013, six joint venture interests were sold to our joint venture partner. The sale consisted of four joint venture communities located in Denver, Colorado and two joint venture communities located in Phoenix, Arizona totaling 2,180 homes. We had a 15% equity ownership in all six joint venture interests sold. The net proceeds from the sale was $47,408,000 and net gain of $15,025,000. We also sold to an unrelated third party one joint venture community located in Phoenix, Arizona with 432 homes. We had a 15% interest in the joint venture and the net proceed from the sale was $6,000,000 with a net gain of $3,608,000.

34



Dividends attributable to preferred stock

Dividends totaled $3,645,000, $3,645,000 and $7,655,000 for the years ended December 31, 2013, 2012, and 2011, respectively. Dividends for the year ended December 31, 2013 and 2012 are attributable to the dividends on our 6.75% Series D Cumulative Redeemable Preferred Stocks. Dividends for the year ended December 31, 2011 are attributable to the dividends on our 6.75% Series C and 6.75% Series D Cumulative Redeemable Preferred Stock. Our Series D Cumulative Redeemable Preferred Stock has a $25.00 per share liquidation preference and became callable at our election in December of 2009.



Net income available to common shareholders

As a result of the various factors mentioned above, net income available to common shareholders for the year ended December 31, 2013 was $179,131,000 or $2.32 per diluted share, for the year ended December 31, 2012 was $133,499,000 or $1.74 per diluted share, and $66,461,000, or $0.93 per diluted share for

the year ended December 31, 2011.



Non-GAAP financial measure reconciliations and definitions

The following is our reconciliation of net income to funds from operations (FFO) and core funds from operations (Core FFO) for each of the five years ended December 31, 2013: 2013 2012 2011 2010 2009 (Amounts in thousands, except per share data) Net income available to common shareholders $ 179,131$ 133,499$ 66,461$ 41,576$ 50,642 Depreciation from continuing operations 105,371 96,736 97,139 84,647 76,033 Depreciation from discontinued operations 2,783 4,882 6,801 9,737 12,386 Depreciation from unconsolidated entities 493 1,903 2,052 1,991 1,841 Net gain on sales of discontinued operations (57,324 ) (62,136 ) (14,489 ) (40,111 ) (21,574 ) Net gain on sale of unconsolidated entities (18,633 ) (6,025 ) (4,270 ) - - Less: Redeemable noncontrolling interest in income - - 748 1,026 1,461 Funds from operations(1) $ 211,821$ 168,859$ 154,442$ 98,866$ 120,789 Non core items in the periods presented Legal settlement proceeds (19,750 ) - - - - Merger costs 3,401 - - - - Acquisition costs 585 - 402 3,998 -

Non cash asset impairment charge - 15,000 - - - Redemption related preferred stock issuance costs, net - - 3,771 - - Severance charge - - - 1,300 600 Net loss/(gain) from extinguishment of debt - - - 23,507 (1,470 ) Abandonment costs - - - 12,900



Core Funds from operations(2) $ 196,057$ 183,859$ 158,615$ 127,671$ 132,819

1FFO is used by industry analysts and investors as a supplemental performance measure of an equity REIT. FFO is defined by the National Association of Real Estate Investment Trusts as net income or loss (computed in accordance with accounting principles generally accepted in the United States) excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated real estate assets, plus depreciation and amortization of real estate assets and adjustments for unconsolidated partnerships and joint ventures. We calculate FFO in accordance with the NAREIT definition. 35 We believe that FFO is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation. Because real estate values have historically risen or fallen with market conditions, management considers FFO an appropriate supplemental performance measure because it excludes historical cost depreciation, as well as gains or losses related to sales of previously depreciated property, from GAAP net income. By excluding depreciation and gains or losses on sales of real estate, management uses FFO to measure returns on its investments in real estate assets. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our communities that result from use or market conditions nor the level of capital expenditures to maintain the operating performance of our communities, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Management also believes that FFO, combined with the required GAAP presentations, is useful to investors in providing more meaningful comparisons of the operating performance of a company's real estate between periods or as compared to other companies. FFO does not represent net income or cash flows from operations as defined by GAAP and is not intended to indicate whether cash flows will be sufficient to fund cash needs. It should not be considered an alternative to net income as an indicator of a REIT's operating performance or to cash flows as a measure of liquidity. Our FFO may not be comparable to the FFO of other REITs due to the fact that not all REITs use the NAREIT. definition or apply/interpret the definition differently.



2We believe that Core Funds from Operations ("Core FFO") is a meaningful supplemental measure of our operating performance for the same reasons as FFO and including adjustments for non-routine items allows for more comparable periods. Core FFO begins with FFO as defined by the NAREIT White Paper and adjusts for the following:

- The impact of any expenses relating to non-operating asset impairment and valuation allowances;

- Property acquisition costs and pursuit cost write-offs (other expenses);



- Gains and losses from early debt extinguishment, including prepayment penalties and preferred share redemptions;

- Executive level severance costs;

- Gains and losses on the sales of non-operating assets, and

- Other non-comparable items.

Liquidity and Capital Resources

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 revolving credit facility, 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 revolving credit facility, 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. 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. Annual cash flows from operating activities exceeded annual distributions to common shareholders, preferred shareholders and noncontrolling members by approximately $106,900,000, $79,200,000 and $54,000,000 for the years ended December 31, 2013, 2012 and 2011, respectively. 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 revolving credit facility provides adequate liquidity to address temporary cash shortfalls.



On February 15, 2013, our 7.130% senior notes came due and the aggregate principal balance of $40,018,000 was paid in full.

On May 10, 2013, we prepaid a mortgage on Mission Grove Park for $29,884,000 ninety days prior to its scheduled maturity, with no prepayment penalty.

On February 1, 2012, we prepaid the single property mortgage on Alessio for $65,866,000 ninety days prior to its scheduled maturity, with no prepayment penalty.

36 On August 13, 2012, we 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 $295,400,000 and were used for general corporate purposes. 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. No shares were issued under the EDAs during the twelve months ended December 31, 2013. As of December 31, 2013 the remaining capacity under the EDAs totals $123,600,000. During the first quarter of 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 commissions paid to the sales agents of approximately $800,000. During 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.



During 2013, 2012, and 2011 we invested $283,026,000, $250,400,000 and $161,280,000, respectively in development, rehab and capital expenditures.

Years ended December 31, (amounts in thousands) 2013 2012 2011 New development (including land) $ 212,937$ 196,021$ 124,249 Rehab expenditures 42,415 34,420 15,869 Capital expenditures 27,674 19,959 21,162 Total capital expenditures $ 283,026$ 250,400$ 161,280 Capitalized soft costs totaling $35,211,000, $31,511,000 and $24,058,000, for the years ending 2013, 2012, and 2011, were included in total capital expenditures in the table above. A detail of capitalized soft costs are shown below: Years ended December 31, (amounts in thousands) 2013 2012 2011 Payroll expense $ 10,740$ 9,878$ 9,627 Interest expense 24,471 21,633 14,431



Total soft cost capital expenditures $ 35,211$ 31,511$ 24,058

Tender Offers and Repurchase Activity

During February 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.

Fixed Rate Unsecured Notes and Unsecured line of credit

On January 4, 2012, we entered into a $750,000,000 unsecured revolving credit facility (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 revolving credit facility. Based on our current debt ratings, the unsecured revolving credit facility accrues interest at LIBOR plus 120 basis points. In addition, we pay a 0.20% annual facility fee on the total commitment of the facility. Borrowings under our unsecured revolving credit facility totaled $98,000,000 at December 31, 2013, compared to zero balance at December 31, 2012. Borrowings under the unsecured line of credit were used to fund acquisition and development activities as well as for general corporate uses. Balances on the unsecured line of credit were typically reduced with available cash balances. 37



On February 15, 2013, our 7.130% senior notes came due and the aggregate principal balance of $40,018,000 was paid in full.

On August 13, 2012, we 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 $295,400,000 and were used for general corporate purposes.



The total principal amount in unsecured senior notes outstanding at December 31, 2013, consisted of the following:

Maturity Unsecured Senior Interest (amounts in thousands) Note Balance Rate (1) 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 $ 950,000 $ 4.692 %



(1) Represents the weighted average coupon interest rate in the year in which

they become due. Secured Debt On December 31, 2013, we had mortgage loans and a secured credit facility with a total principal amount outstanding of $711,428,000, at an effective interest rate of 5.6%, and remaining terms ranging from 1 year to 7 years.



As of December 31, 2013, we had total outstanding debt balances of $1,759,428,000 and total outstanding shareholders' equity and redeemable noncontrolling interests of $1,756,935,000, representing a debt to total book capitalization ratio of approximately 50%.

On May 10, 2013, we prepaid a mortgage on Mission Grove Park for $29,884,000 ninety days prior to its scheduled maturity, with no prepayment penalty.

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

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 and total debt to capital, among others. We were in compliance with all such financial covenants throughout the year ended December 31, 2013. We anticipate that we will continue to require outside sources of financing to meet all our long-term liquidity needs beyond 2013, including scheduled debt repayments, construction funding and property acquisitions. At December 31, 2013, we had an estimated cost of $181,000,000 to complete existing construction in progress, with funding estimated to be incurred through the fourth quarter of 2014.



Scheduled contractual obligations required for the next five years and thereafter are as follows (in thousands):

38 Less than More than

Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years Mortgage notes payable $ 91,428$ 390$ 915$ 30,648$ 59,475 Secured notes 620,000 3,700 16,126 313,046 287,128 Unsecured senior notes 950,000 50,000 - 300,000 600,000 Unsecured line of credit 98,000 - 98,000 - - Interest on indebtedness (1) 1,634 1,305 329 - - Long-term debt obligation $ 1,761,062$ 55,395$ 115,370

$ 643,694$ 946,603 Lease obligations 14,906 1,829 2,653 1,438 8,986 Total $ 1,775,968$ 72,287$ 65,416$ 319,962$ 1,290,989



(1) Interest on indebtedness for variable debt was calculated using interest

rates as of December 31, 2013.

We continue to consider other sources of possible funding, including joint ventures and additional secured 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) and have encumbered assets with significant equity that could be further encumbered should other sources of capital not be available. We have a joint venture co-investment in a community that is unconsolidated and accounted for under the equity method of accounting. Management does not believe the investment has a materially different impact upon our liquidity, cash flows, capital resources, credit or market risk than our property management and ownership activities. The joint venture is discussed in Note 4 of our Consolidated Financial Statements. As of December 31, 2013 we have 73 wholly or majority owned operating communities with a gross book value of approximately $3,918,341,000. Seventeen of the 73 operating communities with gross book values of approximately $936,580,000 are encumbered with secured financing totaling $711,428,000. The remaining 56 operating communities are unencumbered with an approximate gross book value of $2,981,761,000. Under applicable accounting guidance, the managing member of a limited liability company, or LLC, is presumed to control the LLC unless the non-managing member(s) have certain rights that preclude the managing member from exercising unilateral control. We have reviewed our control as the managing member of our joint venture assets held in LLCs and concluded that we do not have control over any of those LLCs we manage. Consequently, we have applied the equity method of accounting to our investments in joint ventures. We consolidate entities not deemed to be variable interest entities that we have the ability to control. The accompanying consolidated financial statements include our accounts and other controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.



Critical Accounting Policies

We define critical accounting policies as those that require management's most difficult, subjective or complex judgments. A summary of our critical accounting policies follows. Additional discussion of accounting policies that we consider significant, including further discussion of the critical accounting policies described below, can be found in the notes to our consolidated financial statements.



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 allocated between land, building, personal property and intangibles when applicable, based on their estimated 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. 39

Where possible, we stage construction to allow leasing and occupancy during the construction period, which we believe minimizes the duration of the lease-up period following completion of construction. Our accounting policy related to communities in the development and leasing phase is to expense all operating expenses 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, including interest and property taxes, until homes are placed in service. Interest is capitalized on the construction in progress at a rate equal to our weighted average cost of debt. We have 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, share based payment and bonuses, benefits, office rent, and associated costs for those individuals directly responsible for development activities are also capitalized and allocated to the projects based on development and construction personnel time allocations. Capitalized indirect development costs totaled approximately $10,023,000, $10,738,000 and $12,178,000, for the years ending 2013, 2012, and 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 expenditures that increase the value of the property 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, our investments in real estate are periodically evaluated for indicators of impairment. The evaluation of impairment and the determination of estimated fair value are 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 estimate 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, impairment exists. If 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. Based on periodic tests of recoverability of long-lived assets, for the years ended December 31, 2013, 2012 and 2011, we did not record any impairment losses for wholly-owned operating real estate assets. We also assess land held for development for impairment if our intent changes with respect to the development of the land. During the year ended December 31 2012, we recorded a $15,000,000 non cash asset impairment charge on land held for development located in Anaheim, CA, as a result of our decision to sell the site and no longer proceed with development. Our change in intent to pursue disposition of the land rather than holding for development triggered the determination that an impairment of the basis for the land existed. As a result of this decision, we 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 was no land held for development for which an adjustment for impairment in value was made in 2013 or 2011. In the normal course of business, we will receive offers for sale of our communities, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. We classify real estate as "held for sale" when all criteria under the FASB guidance has been met. 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 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. As of December 31, 2013, there was $23,481,000 of reported real estate held for sale, net, relating to our Anaheim, California land site we are in the process of

selling. 40 Stock-Based Compensation FASB guidance requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their grant date fair values. Stock-based compensation cost is measured at the grant date fair value and is recognized, net of estimated forfeitures, as expense ratably over the requisite service period, which is generally the vesting period. The cost related to stock-based compensation included in the determination of consolidated net income includes all awards outstanding that vested during these periods. Under the 1992 Stock Option Plan and the 1999 BRE Stock Incentive Plan, as amended, and the Fifth Amended and Restated Non-Employee Director Stock Option and Restricted Stock Plan, we award service based restricted stock, performance based restricted stock without market conditions, performance based restricted stock with market conditions, and stock options. We measure the value of the service based restricted stock and performance based restricted stock without market conditions at fair value on the grant date, based on the number of units granted and the market value of our common stock on that date. 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, we amortize 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. For service based restricted stock awards, we evaluate our 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, we amortize the fair value, net of estimated forfeitures, as stock based compensation expense using the accelerated method with each vesting tranche valued as a separate award. The fair value of performance based restricted stock awards with market conditions is determined using a Monte Carlo simulation to estimate the grant date value. We amortize the fair value of these awards with market conditions, net of estimated forfeitures, as stock-based compensation on a straight-line basis over the vesting period regardless of whether the market conditions are satisfied in accordance with share-based payment guidance. We estimated the fair value of our options using a Black-Scholes valuation model using various assumptions to determine their grant date fair value. We amortize the fair value, net of estimated forfeitures, as stock-based compensation expense on a straight-line basis over the vesting period. Consolidation Arrangements that are not controlled through voting or similar rights are reviewed under the applicable 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. In June 2009, the Financial Accounting Standards Board changed the consolidation analysis for VIEs to require 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. The guidance requires an ongoing reconsideration of the primary beneficiary and also amends the events triggering a reassessment. The new guidance was effective for us beginning January 1, 2010. Additional disclosures for VIEs are required, including a description about a reporting entity's involvement with VIEs, how a reporting entity's involvement with a VIE affects the reporting entity's financial statements, and significant judgments and assumptions made by the reporting entity to determine whether it must consolidate the VIE. 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. We reviewed the consolidation guidance and concluded that joint venture LLCs are not VIEs. We further reviewed the management fees paid to us by our joint ventures and determined that they do not create variable interests in the entities. As of December 31, 2013, we have no land purchase options outstanding requiring evaluation as VIEs and potential consolidation. We have concluded that there is no impact on the financial statements as a result of the adoption

of the guidance. 41 Under applicable accounting guidance, the managing member of a limited liability company, or LLC, is presumed to control the LLC unless the non-managing member(s) have certain rights that preclude the managing member from exercising unilateral control. We have reviewed our control as the managing member of our joint venture asset held in a LLC and concluded that we do not have control over the LLC we manage. Consequently, we have applied the equity method of accounting to our investment in a joint venture. We consolidate entities not deemed to be VIEs that we have the ability to control. The accompanying consolidated financial statements include our accounts and other controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Impact of Inflation Approximately 99% of our total revenues for 2013 were derived from apartment communities. Due to the short-term nature of most apartment unit leases (typically one year or less), we may seek to adjust rents to mitigate the impact of inflation upon renewal of existing leases or commencement of new leases, although we cannot assure that we will be able to adjust rents in response to inflation. In addition, market rates may also fluctuate due to short-term leases and other permitted and non-permitted lease terminations.



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

A cash dividend has been paid to common shareholders each quarter since our inception in 1970. The payment of distributions by BRE is at the discretion of the Board of Directors and depends on numerous factors, including our cash flow, financial condition and capital requirements, REIT provisions of the Internal Revenue Code and other factors.



Dividends paid for the years ended December 31, are summarized below:

2013 2012 2011 Quarterly Dividends $ 0.395$ 0.385$ 0.375 Annual Dividends $ 1.580$ 1.540$ 1.500 Dividends paid to Common Shareholders $ 122,210,000 $



118,665,000 $ 109,482,000 Dividends paid to Preferred Shareholders $ 3,645,000$ 3,645,000$ 7,655,000

Distributions accrued and paid to noncontrolling interests were $190,000, $413,000 and $1,168,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

We intend to make an election on our 2013 tax return to carryback a portion of the dividends we pay in 2014 to satisfy our REIT distribution requirement for 2013. Accordingly, we have not accrued any taxes or related interest for financial reporting purposes with respect to 2013.


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