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BRE Properties Inc. , a real estate investment trust (REIT) that operates apartment communities, reported fourth quarter 2011 fund from operations (FFO) of $43.3 million or 57 cents per share compared to $9.8 million or 15 cents in the year-earlier quarter. Fund 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.

The reported FFO for fourth quarter 2011 marginally beat the Zacks Consensus Estimate by a penny. For full year 2011, BRE reported FFO of $154.4 million or $2.14 per share versus $98.9 million or $1.58 per share in the previous year.

Total revenues from continuing operations during the quarter were $96.0 million versus $87.4 million in the year-ago quarter. The total revenues during the reported quarter exceeded the Zacks Consensus Estimate of $95.0 million. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) were $61.9 million for the quarter compared with $57.1 million in the year-earlier quarter.

Total revenues for fiscal 2011 increased to $371.4 million from $335.0 million in 2010. Adjusted EBITDA were $239.6 million for the reported year compared with $222.8 million in the previous year.

Overall same-store revenues and net operating income (NOI) inched up 5.5% and 6.6% respectively, driven by higher rental rates per unit during the quarter (up 5.3%). Average physical occupancy in the same-store portfolio was 95.4%.

Same-store revenues and NOI for the full year 2011 increased 3.4% and 4.3%, respectively. Average physical occupancy in the same-store portfolio during fiscal year 2011 was 95.5%.

During the reported quarter, BRE commenced construction on Wilshire La Brea – a 478-unit community in Los Angeles, California, and Solstice – a 280-unit community in Sunnyvale, California. At year-end 2011, BRE had 4 communities under construction, including Lawrence Station – a 336-unit community in Sunnyvale, California, scheduled to be completed in the first quarter of 2013; and Aviara – a 166-unit community in Mercer Island, Washington, scheduled to be completed in the second quarter of 2013. BRE also owns 3 land parcels (2 in Northern California and 1 in Southern California) representing 1,000 units of future development for an estimated total investment of about $424 million upon completion.

During fourth quarter 2011, BRE sold 2 assets in the Inland Empire for $65.2 million. In addition, the company completed the sale of a joint venture property, resulting in a gain of $2.0 million.

In accordance with its ‘at-the-market’ equity offering, BRE issued 232,000 common shares at an average price of $49.26 each, raising total gross proceeds of $11.4 million. Subsequent to the quarter-end, the company amended its unsecured revolving credit facility by maintaining the borrowing capacity at $750 million and extending the maturity date from September 2012 to April 2015.

With superior quarterly results, BRE increased its quarterly dividend for fiscal 2012 by 2.7% to 38.5 cents per share, equivalent to $1.54 per share on an annualized basis. Since its inception in 1970, BRE has paid quarterly dividends uninterruptedly.

For the first quarter of 2012, BRE expects FFO to be in the range of 54 cents – 56 cents per share. For full year 2012, the company expects FFO in the range of $2.30 – $2.40 per share with a 5.0% to 6.75% increase in same store revenue and a 5.25% to 8.0% increase in same-store NOI.

We maintain our ‘Neutral’ recommendation on BRE, which currently retains a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ rating and a Zacks #3 Rank for Equity Residential (EQR - Analyst Report), one of the competitors of BRE.

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