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BRE Properties Crafts New High

Zacks Equity Research

Shares of BRE Properties Inc. (BRE) crafted a new 52-week high, touching $61.65 at the end of the trading session on Feb 7. The stock price reflects an appreciation of 1.28% on the day and a solid year-to-date return of 10.0%. The trading volume for the session was 778,048 shares.

BRE Properties is all set to merge with Essex Property Trust Inc. (ESS) during the first-quarter of 2014. We believe that despite the strong price appreciation, this Zacks Rank #2 (Buy) stock has plenty of upside left for its shareholders given the prospects of the combined entity.

Growth Drivers

We are positive on BRE Properties for its cash-and-stock deal with Essex Property, under which BRE Properties will combine with Essex, creating the only publicly traded West Coast pure play multifamily REIT. On a pro-forma basis, the combined company will own around 56,000 multifamily units in 239 properties in 3 major regions of Southern California, Northern California and Seattle.

As per the offer, shareholders of BRE Properties would receive 0.2971 shares of Essex common stock and $12.33 in cash for each BRE share they hold. The deal is expected to close during the first quarter of 2014. The combined company is projected to have a pro forma equity market capitalization of approximately $10.4 billion and a total market capitalization of around $15.4 billion.

Moreover, recently BRE Properties reported better-than-expected fourth-quarter results. Aided by increase in same-store community-level operating results on a year-over-year basis and net operating income from two newly completed communities in the last 12 months, its fourth-quarter 2013 core fund from operations (:FFO) came in at 67 cents per share, exceeding the Zacks Consensus Estimate by 2 cents.

Going forward, we believe that with a solid management team at Essex and a significant geographic overlap, this combined entity can enjoy a solid property base in the region and effectively leverage on the attractive market fundamentals, operating efficiencies and reward shareholders accordingly.

Other Stocks to Consider

Apart from BRE Properties, other stocks worth considering among the REITs include Education Realty Trust, Inc. (EDR) and Equity LifeStyle Properties, Inc. (ELS). Both these stocks carry the same rank as BRE Properties.

Note: FFO, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.

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