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BRE Properties, Inc. – an apartment real estate investment trust (REIT) – announced the divestiture of 2 communities – Summerwind Townhomes and Arcadia Cove – in Los Angeles and Phoenix, respectively. The properties that were sold last month reflect the company’s strategy of offloading non-core assets and using the proceeds to fund its core development pipeline.

Financial Aspects

The vending of these unencumbered properties helped the company generate a net profit of about $22 million. Specifically, the sale of Summerwind Townhomes- which was fully owned by BRE Properties – generated total proceeds of $46.8 million. On the other hand, the Arcadia Cove communities – where BRE properties had 15% interest – lead to total proceed of $6.0 million. Notably, the sales price of Summerwind Townhomes depicts 5.9% seller’s capitalization rate based on trailing 3-month NOI of the asset.

Fund Usage

BRE properties will utilize the proceeds to pay-off outstanding amount under the $750 million unsecured revolving credit facility. In addition, the company will use the amount to finance its proposed development projects over the coming months and for other corporate needs. 

Conclusion

Including the aforementioned as well as first-quarter divestitures, BRE Properties generated sales proceeds of about $100 million in 2013.  Moreover, the company is aiming to sell additional communities in the $75–$125 million range in the second half of 2013.

We believe the divestiture is a strategic fit as the fund generated would help reduce the company’s debt as well as finance its growth plans in supply-constrained premium markets. This, in turn, would help the company outperform competitive pressure.

BRE Properties currently carries a Zacks Rank #3 (Hold). Some better performing REITs include Sun Communities Inc. (SUI - Snapshot Report), Essex Property Trust Inc. (ESS - Snapshot Report) and Camden Property Trust (CPT - Snapshot Report) – all of which have a Zacks Rank #2 (Buy).

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