UPDATE: Morgan Stanley Downgrades BRE Properties on Less Attractive Risk/Reward

In a report published Tuesday, Morgan Stanley analyst Haendel E. St. Juste downgraded BRE Properties BRE from Overweight to Equal-Weight, and lowered the price target from $58.00 to $55.00.

In the report, Morgan Stanley noted, “BRE's West Coast portfolio should drive well above-average SS-rev growth given strong job and wage growth, especially in Seattle and the Bay Area, but we believe this is now priced in by the market. We see limited upside to estimates from here. ESS has outperformed BRE on the West Coast in the past year with lower overhead and more effective capital allocation, in our view. We view strategic action as a low probability. BRE expressed that its recent rejection of a $60/sh buyout offer from a consortium led by Land & Buildings is predicated on its commitment to executing its current business plan. BRE was also concerned about the ‘legitimacy' of the offer. Lastly, we view BRE's dismissal of an approach from ESS in late 2012 as further proof of management's preference for the status quo. BRE's plans to deliver $800M (~15% of GAV) of development projects in its core West Coast markets in 2013 and 2014. We estimate that BRE's development pipeline comprise ~$6 of its NAV.”

BRE Properties closed on Monday at $51.20.