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BRE Properties, Inc , a real estate investment trust (REIT), is scheduled to report its third quarter 2012 earnings on October 30. The current Zacks Consensus Estimate for the third quarter is pegged at 60 cents per share, representing a year-over-year growth of about 8.95%.

Second Quarter Recap

BRE reported second quarter 2012 fund from operations (FFO) of $45.8 million or 59 cents per share, compared with $34.9 million or 49 cents in the year-earlier quarter. FFO in the reported quarter marginally beat the Zacks Consensus Estimate by a penny.

The improved quarterly performance was primarily due to increases in same-store property-level operating results, incremental net operating income (NOI) from newly acquired and completed communities  and a reduction in interest expense, which was partially offset by a higher level of outstanding shares.

Total revenue during the quarter was $98.1 million versus $91.4 million in the year-ago quarter.

Agreement of Analysts

In the last 7 days, none of the analysts have revised their earnings estimate for 2012 and  2013. This signifies that the analysts are cautious about both the short- and long-term earnings prospects of the company.

Magnitude of Estimate Revisions

For full-year 2012, the company expects FFO in the range of $2.32 to $2.38 per share. The Zacks Consensus Estimates for 2012 have remained constant over the last 7 days at $2.36 per share, which is at the higher-end of the company's guidance. For 2013, the Zacks Consensus Estimates have also remained steady over the last 7 days at $2.55 per share.  

Our Recommendation

BRE 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  markets are still among the highest in the country, and the rent-to-own gap remains high. BRE  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.

However, BRE  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 #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Equity Residential (EQR - Analyst Report) holds a Zacks #2 Rank, which implies a short term Buy rating.

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