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BRE Sheds Interests in 6 JVs

Zacks Equity Research

BRE Properties, Inc. (BRE) – a real estate investment trust (:REIT) – recently sold 6 joint venture (:JV) interests for a total price of $47.5 million. The transaction is in line with the company’s strategy of divesting non-core assets and utilizing the proceeds for its current development pipeline to expand its reach in high-barrier-to-entry coastal markets.

BRE Properties had 15% ownership interests in each of these JV communities, which it sold entirely. The company generated net profit of around $15 million from the transaction.

The 6 communities include The Bluffs at Highland Ranch, The Fairways at Raccoon Creek, Pinnacle at DTC and Pinnacle at Mountain Gate (all in Denver), and Pinnacle Terrace and Pinnacle at Union Hills (both in Phoenix). All of these assets were mortgage free.

Particularly, with the selling of interests in these assets, BRE properties left the Denver market. Currently, it has 2 remaining JV communities, which represents below 0.5% of the company’s expected 2013 annual NOI (net operating income).

We expect the divesture to improve BRE Properties’ portfolio in supply-constrained premium markets of the country and enable it to outperform competitive pressure. Notably, the company experiences strong occupancy levels and high operating margins through operating efficiencies and by deploying new and recycled capital to supply-constrained markets of Western U.S. This provides compelling growth potential to the company.

Last month, BRE Properties reported fourth quarter 2012 results with core fund from operations (:FFO) of 61 cents per share, beating the Zacks Consensus Estimate by a penny and the year-ago figure by 4 cents.

BRE Properties currently retains a Zacks Rank #4 (Sell). REITs that are performing much better than the company includes Taubman Centers Inc. (TCO), Federal Realty Investment Trust (FRT) and Agree Realty Corp. (ADC). All these stocks carry a Zacks Rank #2 (Buy).

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

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