Our long-term recommendation for BRE Properties (BRE) is Underperform as we anticipate it to perform well below the broader market. We expect continued volatility in the multifamily sector with increasing job cuts and decline in the market fundamentals.
BRE Properties also has exposure to some weakening multifamily markets, notably, The Inland Empire, Los Angeles, and Orange County. However, home values in most of BRE Properties markets are still among the highest in the country and the rent-to-own gap remains high.
The company also maintains strong occupancy levels and high operating margins. If the company can weather the current storm, it may expect a reversal of fortunes. However, our target price of $32.00 at 16.4X 2010 FFO/Share factors in the view that BRE will perform well below the broader market.Zacks Investment Research
