BRE Properties Raised to Outperform - Analyst Blog

We have recently changed our long-term recommendation for BRE Properties (BRE), a leading multifamily real estate investment trust (REIT), from 'Neutral' to 'Outperform' with an anticipation that it would perform well above the broader market. The stock presently has a Zacks #3 Rank, which translates into a short-term ‘Hold' rating.

In the last 30 days, fiscal 2010 earnings estimates of BRE Properties have been increased by 6 of the 7 analysts covering the stock, while only 1 has lowered the same. For fiscal 2011, earnings estimates were revised upward by 11 of the 17 analysts covering the stock, while 2 had revised it downward. This indicates a clear positive directional movement for the fiscal earnings. The magnitude of the earnings estimates has also increased by 4 cents for fiscal 2010 and 6 cents for fiscal 2011 to $1.93 and $2.06, respectively, in the last 30 days. This indicates that the analysts are bullish about the long-term prospects of the company.

BRE Properties maintains healthy occupancy levels and high operating margins through operating efficiencies and cost controls, and by deploying new and recycled capital to supply-constrained markets of the Western U.S. The company with its assets in premium markets of the country has fared comparatively better than its competitors. Despite the housing slowdown, home values in most of BRE Properties' markets are still among the highest in the country and the rent-to-own gap remains high.

In addition, BRE Properties has established quite a track record of conservative capital management and cash returns to shareholders in the form of steady dividend and share repurchases. Since its inception in 1970, the company has paid uninterrupted quarterly dividends to shareholders. The current dividend yield is also attractive at 3.50%.

However, recent employment trends are not encouraging as the U.S. continues to shed jobs. This has negatively affected the demand for apartments, and high-end apartment homes such as that of BRE Properties have been hit the hardest as renters move down to less expensive ‘B' class properties. Consequently, this might adversely affect the performance of BRE Properties in the long run.

Meanwhile, Equity Residential (EQR), one of the peers of BRE Properties, has a 'Neutral' recommendation and has a Zacks #3 Rank translating into a short-term 'Hold' rating.

 
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