Earnings Scorecard: BRE Properties

BRE Properties Inc. ( BRE - Analyst Report ) , a real estate investment trust (REIT),reported first quarter 2012 funds from operations (FFO) of $43.6 million or 57 cents per share compared with $34.8 million or 53 cents per share in the year-earlier quarter.

Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. FFO per share in the reported quarter was in line with the Zacks Consensus Estimate.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

Total revenue during the quarter was $96.9 million versus $88.8 million in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $61.4 million for the reported quarter compared with $57.2 million in the year-earlier quarter.

The improved quarterly performance was attributable to higher same-store property-level operating results, incremental NOI from newly acquired and completed communities and a reduction in interest expense, which was offset by higher level of outstanding shares.

Read our full coverage on this earnings report: BRE Reports In Line

Earnings Estimate Revisions - Overview

Fiscal earnings estimates for BRE Properties have remained unchanged since the earnings release, implying that the analysts are cautious about the long-term performance of the company.

Agreement of Estimate Revisions

Over the last 7 days, there have been no earnings estimates revisions for fiscal 2012 and fiscal 2013. This indicates that the analysts hold a cautious outlook regarding the long-term earnings of the company.

Magnitude of Estimate Revisions

Earnings estimate have remained constant at $2.37 per share and $2.59 per share in the last 7 days for fiscal 2012 and fiscal 2013, respectively. BRE Properties expects FFO in the range of 56 cents – 58 cents per share for the second quarter 2012 and maintained its annual FFO guidance in the range of $2.30 -$2.40 per share. This indicates the analysts hold a cautious stance regarding the long-term earnings of the company as market fundamentals are not very encouraging.

Moving Forward

The long-term earnings estimate picture for BRE Properties is neutral. BRE Properties develops, acquires and manages multi-family apartment communities primarily in the Western U.S., where it currently operates in three states: California, Washington and Arizona.

Despite challenging macroeconomic environment, home values in most of the BRE Properties’ markets are still among the highest in the country, and the rent-to-own gap remains high. BRE Properties generally has assets in supply-constrained premium markets of the country that have fared comparatively better than its competitors. Consequently, the company has a strong upside potential.

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.

However, BRE Properties competes with other housing alternatives such as rental apartments, condominiums and single-family homes that are available for rent, and new and existing condominiums and single family homes available for sale. Consequently, the company is under severe stress to maintain profitability.

BRE Properties currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Equity Residential ( EQR - Analyst Report ) also holds a Zacks #3 Rank.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education