BRE Offloads Two Assets - Analyst Blog

BRE Properties, Inc. (BRE) – 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), Essex Property Trust Inc. (ESS) and Camden Property Trust (CPT) –! all of which have a Zacks Rank #2 (Buy).

Energy Transfer Slips to Sell - Analyst Blog

On Jul 13, Zacks Investment Research downgraded natural gas pipeline operator, Energy Transfer Partners LP (ETP), to a Zacks Rank #4 (Sell).

Why the Downgrade?

The operating environment and growth prospects seem weak for Energy Transfer, as reflected by the decreasing earnings estimates for the partnership. Over the last 60 days, the Zacks Consensus Estimate for the second quarter of 2013 fell 7.7% to 48 cents per unit. For 2013, the Zacks Consensus Estimate reduced 4.9% over the same timeframe to $2.11 per units.

Moreover, Energy Transfer delivered negative earnings surprises in 2 of the last 4 quarters with an average miss of 11.9%.

Though Energy Transfer pays a healthy distribution yield of 6.8%, the partnership has not improved its payout since 2008. The lack of distribution increase has been a major impediment to a breakout in Energy Transfer Partners' unit price.

Furthermore, unfavorable regulatory changes by the Federal Energy Regulatory Commission (FERC) would impact the partnership's results. This will also contribute toward increasing Energy Transfer's borrowing costs and depressing the market value of its limited partner units.

Additionally, we believe that the near- to medium-term outlook for the partnership's natural gas gathering and processing business continues to be weak, which remains a major liability in our view.

Stocks to Consider

Not all oil and gas pipeline master limited partnerships are performing as poorly as Energy Transfer. The stocks of Delek Logistics Partners LP (DKL), Enbridge Energy Management LLC (EEQ) and Kinder Morgan Management LLC (KMR) are worth considering. Delek Logistics carries a Zacks Rank #1 (Strong Buy), while Enbridge Energy and Kinder Morgan retain a Zacks Rank #2 (Buy).

Williams Companies And Other MLPs Favored by Credit Suisse

A new report from Credit Suisse not only recommends buying shares, but also increased the firm's price targets on some master limited partnerships in the wake of their recent strong earnings reports.

Below we take a glance at how Magellan Midstream Partners (NYSE: WMB) have fared and what analysts expect from them.

But note that Credit Suisse also raised its price targets on Targa Resource Partners (NYSE: EPD), though a Neutral rating was maintained on the latter.

See also: Citigroup Raises PT On Magellan Midstream Partners On Positive Outlook

Magellan Midstream Partners

This Tulsa, Oklahoma-based company sports a market capitalization of less than $13 billion. Its dividend equivalent yield is about 3.8 percent. Its return on equity is more than 30 percent, and the operating margin is greater than the industry average. The long-term earnings per share (EPS) growth forecast is about 10 percent.

The short interest in this petroleum transportation and storage company was less than one percent of the float as of the July 15 settlement date, though that was highest number of shares sold short so far this year. The days to cover rose to about three for the first time since last September.

The consensus recommendation of the analysts surveyed by Thomson/First Call is to hold shares, and it has been for at least three months. Their mean price target, or where the analysts think the share price will go, is only marginally higher than the current share price. However, the Credit Suisse price target indicates more than 15 percent potential upside.

The share price is up more than 25 percent since the beginning of the year and hit a new multiyear high Thursday. Over the past six months, the stock has outperformed competitors Dynegy (NYSE: DYN) and Kinder Morgan (NYSE: KMI), but it has underperformed the S&P500.

Targa Resources

This provider of midstream natural gas and natural gas liquid services has a market cap near $9 billion and a distribu! tion yield of about 3.1 percent. The long-term EPS growth forecast is about 22 percent, and the return on equity is almost 30 percent. But the price-to-earnings (P/E) ratio is greater than the industry average.

The short interest in this Houston-based company was more than two percent of the total float at mid-July. That was the highest number of shares sold short since March, after rising about eight percent from the previous period. The days to cover rose to more than four, also for the first time since March.

Nine of the 13 analysts surveyed recommend buying shares, and none of them recommends selling. And the analysts think shares have some head room, as their mean price target is almost seven percent higher than the current share price. But the new Credit Suisse price target indicates about 19 percent potential upside.

The share price is up more than 26 percent year-to-date, and it reached a new multiyear high on Thursday. Over the past six months, the stock has outperformed competitors Enterprise Products Partners and ONEOK Partners (NYSE: OKS), as well as the Dow Jones Industrial Average.

See also: Everything in Moderation, Dearie: Avoiding The Pitfalls Of Overdiversification

Williams Companies

This energy infrastructure company is also headquartered in Tulsa, Oklahoma, and it has a market cap of more than $24.5 billion. Its distribution yield is near 4.2 percent. The long-term EPS growth forecast is about 16 percent, and the return on equity is more than 15 percent.

The number of shares sold short as of the most recent settlement date represented less than three percent of the total float, after dropping marginally from the previous period, on the lowest average daily volume in a year. But the days to cover rose from about two to about four.

Of the 15 analysts polled, 12 recommend buying shares, with three of them rating shares at Strong Buy. The mean price target indicates that the analysts see about nine percent upside potential. But the ! new Credi! t Suisse price target is more than 36 percent higher than the current share price.

The share price popped more than six percent this week, and it is up about 14 percent from a year-to-date low in June. Because of this week's rise, Williams Companies has outperformed the likes of Dynegy and Kinder Morgan over the past six months, though it has underperformed the broader markets.

Top Gold Stocks To Invest In 2014

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Fraudulent Tax Returns?

Filing a tax return which the taxpayer knows materially underreports his tax is unwise.    It can cost the taxpayer far more in assessments of tax and penalties ultimately made, as well as attorney fees, than the amount of tax evaded.  It can even result in the taxpayer being prosecuted, convicted, and imprisoned.

The IRS most commonly learns of alleged fraud in a tax return from an insider—a disgruntled former employee, spouse, or romantic interest of the taxpayer.  In one case, the taxpayer's estranged daughter came to the taxpayer and asked him for a job.  The taxpayer hired her, and eventually placed her in charge of a business.  But the daughter mismanaged the business, and the taxpayer closed it.  The prodigal daughter became enraged, and reported her father to the Internal Revenue Service.  IRS Criminal Investigation Division then investigated the taxpayer's tax returns.  A pair of undercover IRS special agents began appearing at the taxpayer's principal business, feigning interest in purchasing business.  The taxpayer fell for the ruse, and "puffed" to the purported prospective purchasers, claiming that he actually had substantially more income than reported on this tax returns.

The situation would have been manageable if the IRS did not have the most damning evidence of all—documentary evidence from a third party.  The taxpayer had two bank accounts.  He used the first account to deposit receipts which he reported to his accountant, and which the accountant reported on his tax return.  Receipts deposited into the second account were not reported to the accountant, or on the taxpayer's tax return.  The IRS learned of the second account from the disgruntled daughter, and subpoenaed bank statements of the account.

5 Best Warren Buffett Stocks For 2014

In divorces, one spouse often attempts to extort a better financial settlement by threatening to report problems in the other spouse's tax returns to the IRS.  But if the tax returns are joint tax returns, the reporting spouse will need a grant of immunity from the IRS.

Here is some advice for a taxpayer who may have filed a tax return materially underreporting his tax:

Retain competent counsel.  I am talking about an attorney experienced in representing taxpayers in criminal tax cases.  Not a criminal generalist attorney, or a tax generalist.  For God sakes not an accountant.  Accountants are profoundly ill-equipped to represent taxpayers in criminal tax investigations.  Moreover, there is no accountant-client privilege in Federal court.  When the IRS investigates a criminal tax case, one of the first things it does is subpoena the taxpayer's accountant and compel him to tell everything he knows about the case, and produce his documents concerning the taxpayer.  Concerned about complicity in the alleged tax fraud, the accountant may be anxious to talk with Federal prosecutors, in return for immunity.

Don't talk with Federal agents, or with anyone who mysteriously appears at the taxpayer's business.  Tax crimes are specific intent offenses—the IRS must prove beyond a reasonable doubt that the taxpayer knew that his tax return materially understated his tax.   One of the best ways for the government to prove  is by the taxpayer's own admissions.  IRS agents make detailed notes of an interview of a taxpayer, and often embellish the taxpayer's statements, or misquote the taxpayer.  The taxpayer is better off leaving communication with Federal agents to his counsel.

Don't panic.  The IRS has a heavy burden.  The more complicated the facts and the law, the tougher it is to prove that the tax returns materially understated tax, or that the taxpayer knew it. This too shall pass.

6 Ways Cities Can Ease Unfunded Health Care Obligations: Pozen

Observers interested in Detroit’s recent filing for bankruptcy may be surprised to find that it still owes $6.4 billion in other post-employment benefits (OPEB) like health care, Bob Pozen wrote for The Brookings Institute on Thursday, more than twice what it owes in pension obligations.

Pozen acknowledged that unfunded health care obligations tend to get less attention than unfunded pension benefits, but said that a gap like the one seen in Detroit is not uncommon. “Detroit is not unique in this respect. The unfunded health care obligations of most cities are much larger than their unfunded pension obligations,” he wrote.

As an example, he pointed to other large cities with pension and health care shortfalls similar to those in Detroit, according to a study released earlier this year by the Pew Charitable Trust. In New York, the pension shortfall is $14,302 per household, while the OPEB shortfall is $22,857. In San Francisco, the pension shortfall was $1,677, but the OPEB shortfall approached $13,500.

“Unfunded retiree health care benefits are generally larger than unfunded pension deficits for regulatory reasons,” Pozen (left) wrote. “Only in 2006 did the government accounting board begin to require that local governments report their unfunded retiree health care obligations in their public financial statements. Until then, these unfunded obligations were below the radar screen and allowed to increase rapidly.”

As a result, even cities with the worst-funded pension plans can boast funding levels of 50% or 60%, while the average city only has a 5% funding level for health care obligations, according to Pozen.

Unlike pension obligations, cities can usually modify their health care obligations, Pozen said. He offered six strategies that cities have used to ease the burden of healthcare obligations they couldn’t meet.

Ultimately, reducing the health care obligations cities owe their public retirees is critical, Pozen wrote. “Although such reductions will be politically controversial, they are necessary for most cities—in the short term to avoid a spike in the interest rates paid on their municipal bonds, and in the long term to avoid a fiscal crisis like the current one in Detroit.”

Top Value Stocks For 2017

Top Value Stocks For 2017