<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-5305
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-1722214
- --------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104-5525
- --------------------------------- ------------------------
(Address of principal office) (Zip Code)
Registrant's telephone number,
including area code (415) 445-6530
------------------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last)
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X. No .
-------- --------
Number of shares of Class A common stock
outstanding as of November 7, 1996 32,818,317
------------------------
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BALANCE SHEETS (Dollar amounts in thousands) (unaudited)
- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Investments in rental properties $773,278 $370,116
Less: Accumulated depreciation and
amortization (48,832) (48,036)
------------- ------------
724,446 322,080
Investments in limited partnerships 2,692 1,322
------------- ------------
Real estate portfolio 727,138 323,402
Mortgage loans, net 8,005 5,727
Cash and short-term investments 1,230 16,057
Other assets 3,915 9,709
------------- ------------
Total assets $740,288 $354,895
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage loans payable $133,383 $112,290
Unsecured notes payable and lines of credit 139,000 --
Accounts payable and accrued expenses 7,263 3,357
------------- ------------
Total liabilities 279,646 115,647
------------- ------------
Shareholders' equity
Class A common stock, $0.01 par value, 50,000,000
shares authorized. Shares issued and outstanding
32,818,317 at September 30, 1996 and 21,941,730
at December 31, 1995 328 219
Additional paid-in capital and undistributed
earnings 460,314 239,029
------------- ------------
Total shareholders' equity 460,642 239,248
------------- ------------
Total liabilities and shareholders' equity $740,288 $354,895
------------- ------------
------------- ------------
See notes to financial statements.
2
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME (unaudited)
(Amounts in thousands, except in per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Three Months For the Nine
Ended Months Ended
September 30 September 30
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUE
<S> <C> <C> <C> <C>
Rental income $24,277 $16,017 $65,036 $46,541
Other income 1,992 525 6,907 1,787
--------- --------- --------- ---------
Total revenue 26,269 16,542 71,943 48,328
--------- --------- --------- ---------
EXPENSES
Real estate expenses 7,501 5,857 21,175 15,812
Provision for depreciation and
amortization 3,654 1,988 9,379 5,899
Interest expense 4,307 1,954 11,219 5,751
General and administrative 1,040 691 3,167 3,321
--------- --------- --------- ---------
Total expenses 16,502 10,490 44,940 30,783
--------- --------- --------- ---------
Income before net gains (losses) on sales of
investments 9,767 6,052 27,003 17,545
Net gains (losses) on sales of
investments 49,352 49,578 (880)
--------- --------- --------- ---------
$59,119 $6,052 $76,581 $16,665
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per share
Primary
Income before gain on
sales of investments $ .30 $.28 $ .91 $.80
Net (loss) gain on sales of investments $1.50 - $1.67 ($.04)
--------- --------- --------- ---------
Net income per share $1.80 $.28 $2.58 $.76
--------- --------- --------- ---------
Dividends paid or declared $.330 $.315 $ .995 $.945
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted Average shares outstanding 32,810 21,940 29,740 21,900
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to financial statements
3
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS (Unaudited) (Dollar amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 76,581 $ 16,665
Non-cash revenues and expenses included in income:
Provision for depreciation and amortization 9,379 5,899
(Gain) loss on sales of investments (49,578) 880
(Increase) decrease in accounts receivable (2,278) (1,458)
(Decrease) increase in accounts payable and other liabilities (4,094) 1,037
Change in other assets 4,244 (3,544)
------------- -------------
CASH FLOWS GENERATED BY OPERATING ACTIVITIES 34,254 19,479
------------- -------------
Cash flows from investing activities:
Rental property activity:
(Additions to) / Sales of land and buildings, net (86,677) (4,623)
Other investing activities (856) (1,882)
------------- -------------
NET CASH FLOWS (USED IN) GENERATED BY INVESTING ACTIVITIES (87,533) (6,505)
------------- -------------
Cash flows from financing activities:
Mortgage loans payable:
Principal payments (1,107) (776)
New loan proceeds - 16,227
Lines of credit:
Advances 86,000 -
Principal repayments (20,200) -
Proceeds from exercises of stock options 2,715 1,399
Dividends paid (28,956) (20,686)
------------- -------------
NET CASH FLOWS GENERATED BY (USED IN) FINANCING ACTIVITIES 38,452 (3,836)
------------- -------------
(Decrease) increase in cash and short-term investments (14,827) 9,138
Balance at beginning of period 16,057 3,886
------------- -------------
Balance at end of period $ 1,230 13,024
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
4
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1995 and
transition report Form 10-K for the five months ended December 31, 1995,
together with the portions of the company's 1995 Annual Report to shareholders
incorporated therein by reference. In the opinion of management, all
adjustments (consisting of normal recurring adjustments only) have been made
which are necessary for a fair statement of the results for the interim period
presented herein.
BRE has elected to recast the full comparative periods pursuant to the change
made in May 1996 in the fiscal year to a calendar year end effective December
31, 1995. Therefore, amounts presented reflect the financial position and
results of operations from January 1, 1996 to September 30, 1996 and the
comparative period for the prior year. Certain reclassifications have been made
to the 1995 financial statements to conform to the presentation of the 1996
financial statements.
NOTE B - STOCK SPLIT
In May 1996, the Directors approved a two-for-one stock split, effected in
the form of a stock dividend to Shareholders of record as of June 7, 1996,
payable on June 27, 1996. All share and per share information in these
financial statements has been retroactively restated for the stock split.
NOTE C - NET INCOME PER SHARE
Net income per share is based upon the average weighted number of shares
outstanding during the periods.
NOTE D - UNSECURED DEBT
In April 1996, BRE entered into two lines of credit totaling $100,000,000 at
LIBOR plus 1.0% as to $30,000,000 and LIBOR plus 1.25% for the remaining
$70,000,000. Borrowings under these agreements totaled $84,000,000 as of
September 30, 1996. On October 22, 1996, BRE amended and increased the
$70,000,000 line of credit to $120,000,000, thus increasing the total available
under the lines of credit to $150,000,000. As part of the original agreement,
the rate on the $70,000,000 line of credit (now $120,000,000) will be reduced to
LIBOR plus 1.125% effective in January, 1997.
5
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
On October 4, 1996, BRE was informed that Duff & Phelps Credit Rating Co. has
assigned a rating of BBB+ to a $55,000,000 unsecured loan and an $18,000,000
secured loan.
NOTE E - LITIGATION
The Company, because of the nature of its business, is subject to various
threatened or filed legal claims, including certain environmental actions.
While it is not feasible to predict or determine the ultimate outcome of
these matters, in the opinion of management, none of these actions which are
presently pending, individually or in the aggregate, will have a material
effect on the Company's results of operations, cash flows, liquidity or
financial position.
NOTE F - COMMITMENTS
BRE has committed to purchase Phase II of Newport Landing Apartments, in
Glendale, Arizona. BRE purchased the adjacent 240-unit Phase I in September
1995, for $9,235,000. Phase II, also planned for 240 units, is currently
being developed, with construction expected to be completed by the end of
1996. Picerne, which developed Phase I, is also developing Phase II for BRE.
The cost for Phase II is projected to be approximately $12,940,000.
6
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
September 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
BRE Properties, Inc.'s ("BRE") cash and short-term investments totaled
$1,230,000 at September 30, 1996, down from $16,057,000 at December 31, 1995.
These funds have been used primarily to fund property acquisitions under the
Company's business plan to become the preeminent multi-family real estate
investment trust in the Western United States. The Company will continue its
planned disposition of non-core assets to generate additional funds to be re-
deployed into multi-family assets.
BRE purchased an aggregate $173.2 million in multi-family assets and added a
total of 2,516 units to the portfolio for the nine month period ended September
30, 1996 as follows:
Name Units Acquired Cost Location
---- ----- -------- ---- --------
Candlewood North 189 2/96 $10,600,000 Northridge, CA
--- -----------
First Quarter 189 $10,600,000
Ballinger Commons 485 4/96 $29,400,000 Seattle, WA
Thrasher's Mill 214 4/96 $10,300,000 Bothell, WA
--- -----------
Second Quarter 699 $39,700,000
Berkshire Court 266 7/96 $16,400,000 Portland, OR
Arcadia Cove 432 7/96 $24,300,000 Phoenix, AZ
Sycamore Valley 440 9/96 $23,400,000 Fountain
Valley, CA
Foster's Landing 490 9/96 $58,800,000 Foster City, CA
--- -----------
Third Quarter 1,628 $122,900,000
------------
Total 2,516 $173,200,000
------------
The purchases were funded by sales of non-core assets, cash flow from operations
and borrowings under the lines of credit. In July, BRE sold the Westlake
Village property for $58,000,000 and in August, BRE sold seven light industrial
properties for a total of $29,200,000. Both of these sales were structured as
tax-deferred exchanges.
In addition, as more fully discussed in Note D of Notes to Financial Statements,
BRE has committed a total of $12,940,000 for the purchase of Phase II of Newport
Landing
7
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
Apartments. This acquisition may be funded through a combination of tax-
deferred exchanges, cash and borrowings under the Company's lines of credit.
Closing is scheduled by year end to allow for matching of tax-deferred
exchanges.
In addition to cash and short-term investments, the Company has available bank
lines of credit totaling $100,000,000 which were increased to $150,000,000 in
October, 1996. There were borrowings of $84,000,000 outstanding under the lines
of credit at September 30, 1996. The company used a portion of the lines of
credit to fund the cash portion of the purchase price for the apartment
acquisitions described above. These credit lines give the company added
flexibility to implement its growth strategy.
As reported earlier in the year, pursuant to the merger with Real Estate
Investment Trust of California ("RCT") (the "Merger") on March 15, 1996, BRE (i)
acquired $274,400,000 in equity investments in real estate, (ii) assumed secured
and unsecured RCT notes payable of $95,400,000, and other liabilities totaling
$8,000,000, and (iii) issued 10,684,436 shares of Class A common stock valued at
$171,000,000 for the conversion of RCT shares of beneficial interest.
RESULTS OF OPERATIONS
Income before net gains (losses) for the quarter and nine months ended September
30, 1996 was $9,767,000 ($.30 per share) and $27,003,000 ($.91 per share),
compared to $6,052,000 ($.28 per share) and $17,545,000 ($.80 per share) for the
same quarter and nine months last year. Net income for the quarter and nine
months ended September 30, 1996 was $59,119,000 ($1.80 per share) and
$76,581,000 ($2.58 per share), compared to $6,052,000 ($.28 per share) and
$16,665,000 ($.76 per share) for the same quarter and nine months last year.
All per share amounts have been retroactively adjusted to reflect the 2 for 1
stock split as of June 27, 1996 and the change in financial reporting year end.
On May 20, 1996, the Company elected to change its year end from July 31 to
December 31, effective December 31, 1995.
Funds from operations totaled $13,421,000 and $36,382,000 for the quarter and
nine months ended September 30, 1996, up 67% and 55% from the same periods last
year on a per share basis. Funds from operations is defined by NAREIT as net
income (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
provisions for depreciation, amortization and possible investment losses.
Because income-producing properties are typically evaluated without taking into
account non-cash charges such as provisions for depreciation, amortization and
possible investment losses, management believes that funds from operations is an
appropriate supplemental measure of the company's operating performance.
8
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
At September 30, 1996, overall occupancy levels by property asset class were as
follows:
PROPERTY TYPE OVERALL OCCUPANCY
--------------------------------------
Apartments 96%
Non-core assets 94%
The overall occupancy for the apartment portfolio is calculated by multiplying
the occupancy for each property by the number of apartment units and dividing by
the total number of apartment units. The overall occupancy for the other real
estate assets is calculated by multiplying the occupancy for each property by
its square footage and dividing by the total square footage of all the non-core
assets.
REVENUE
Rental income rose 52% for the quarter and 40% for the nine months ended
September 30, 1996 from the comparable periods last year. The increases reflect
the properties acquired upon consummation of the Merger, new acquisitions and
improved performance of existing apartment communities. In addition, two vacant
properties were sold in the third and fourth quarters of 1995, for approximately
$13,000,000, and those proceeds were reinvested in multi-family investments.
EXPENSES
Operating expenses of equity investments increased $1,644,000 (28%) and
$5,363,000 (34%) for the quarter and nine months ended September 30, 1996 from
the year earlier periods, primarily due to properties added to the portfolio
through the Merger and expenses on the new apartment acquisitions. Operating
expenses as a percentage of rental income decreased from 36.6% and 34.0% in the
three and nine month periods ended September 30, 1995 to 30.9% and 32.6% for the
comparable periods in 1996.
For the quarter and nine month period ended September 30, 1996, general and
administrative expenses were $1,040,000 and $3,167,000 as compared to $691,000
and $3,321,000 for the prior year. As a percentage of total revenue, general
and administrative expenses decreased from 4.2% and 6.9% for the quarter and
nine months ended September 30, 1995 to 4.0% and 4.4% for the comparable
periods in 1996.
Interest expense was up $2,353,000 and $5,468,000 from the comparable quarter
and nine months last year. This increase reflected the notes assumed as part of
the Merger; utilization of bank credit lines to acquire multi-family assets; and
new mortgage loans on Camino Seco Village in July 1995 and Verandas Apartments
in September, 1995.
9
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
DIVIDENDS
A $.33 per share dividend was paid on September 26, 1996.
On May 20, 1996, the Directors approved a two-for-one stock split, effected
in the form of a stock dividend to shareholders of record June 7, 1996, payable
on June 27, 1996.
10
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
1. Proforma information on results of operations related to Merger
with Real Estate Investment Trust of California as if Merger had
occurred at the beginning of each period reported in this Form 10-Q:
<TABLE>
<CAPTION>
Unaudited (000's, For the Three Months For the Nine
except per share data) Ended September 30 Months Ended September 30
------------------------ -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $26,300 $25,100 $80,400 $73,800
Income before gains
(losses) on sales 9,800 8,800 30,800 25,800
Net income 59,100 8,800 80,400 24,900
Income before gains
(losses) on sales per
share $.30 $.27 $ .94 $ .79
Net income per share $1.80 $.27 $2.46 $ .76
</TABLE>
2. Treasury Lock Swap Transaction. On August 29, 1996 BRE
entered into a Treasury Lock Swap Agreement, in the amount of
$50,000,000. The rate is fixed at 7.05% as compared to the
United States Government 10-Year Treasury Note rate on June 30,
1997. The Treasury Lock Swap Transaction is intended to reduce
the Company's overall exposure to interest rate changes in
anticipation of future fixed rate financing. If the transaction
were settled as of September 30, 1996, the Company would be
required to pay approximately $135,000. Any future gain or loss
on the
11
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
swap transaction will be accounted for as a hedge and included in
the final cost of future debt financing as an adjustment to its
yield.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.15 - Second Modification Agreement Regarding
Unsecured Line of Credit
Exhibit 10.16 - Treasury Lock Swap Transaction
Exhibit 11 - Primary and Fully Diluted Earnings per Share.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Current Report under Item 2 of
Form 8-K on October 15, 1996 concerning the purchase
of Foster's Landing Apartments. No financial statements
were filed; financial statements will be filed by
amendment no later than December 11, 1996.
12
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRE PROPERTIES, INC.
(Registrant)
Date November 13, 1996 /s/LeRoy E. Carlson
- ------------------------ -------------------
LeRoy E. Carlson
Executive Vice President,
Chief Financial Officer and Secretary
13
<PAGE>
SECOND MODIFICATION AGREEMENT
REGARDING UNSECURED LINE OF CREDIT
TO
BRE PROPERTIES, INC.
MADE BY VARIOUS
FINANCIAL INSTITUTIONS
WITH
BANK OF AMERICA NT & SA
AS AGENT
<PAGE>
SECOND MODIFICATION AGREEMENT
This Second Modification Agreement ("Agreement") is made as of October 22,
1996, by and between BRE PROPERTIES, INC., a Maryland corporation ("Borrower");
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association ("Agent"); and the several financial institutions a party to this
Agreement (collectively, the "Banks"; individually a "Bank").
FACTUAL BACKGROUND
A. Bank of America National Trust and Savings Association ("BofA"),
Manufacturers Bank ("Manufacturers"), and The Industrial Bank of Japan, Limited,
Los Angeles Agency ("IBJ") have agreed to make a loan (the "Loan") to the
Borrower in accordance with an Unsecured Line of Credit Loan Agreement dated
April 4, 1996 (as amended, the "Loan Agreement"). The Loan Agreement has
previously been amended by the Modification Agreement to Syndicate Loan, dated
as of April 4, 1996 (the "First Modification"), and BofA has previously assigned
a portion of its interest under the Loan to IBJ pursuant to an Assignment and
Assumption Agreement dated as of June 19, 1996 (the "IBJ Assignment").
Capitalized terms used herein without definition have the meanings given to them
in the Loan Agreement. The Loan is evidenced by a Note dated April 4, 1996 in
the stated principal amount of $70,000,000.
B. Borrower has requested that the Maximum Loan Amount under the
Commitment be increased to $120,000,000. In connection with such increase,
Commerzbank AG, Los Angeles Branch ("Commerzbank"), desires to become a party to
the Loan Agreement and to participate in the Commitment in an amount equal to
$25,000,000, IBJ desires to increase its share of the Commitment from $5,000,000
to $25,000,000 and BofA desires to increase its share of the Commitment from
$50,000,000 to $55,000,000.
C. The Borrower, Agent and the Banks wish to modify the Loan Documents to
increase the Commitment as referred to above, and to make certain related
modifications, all as set forth herein.
AGREEMENT
Therefore, the Borrower, the Banks and Agent agree as follows:
1. MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are hereby amended
as follows, subject to the terms and conditions hereof:
(a) As of the Effective Date (as defined below), Section 1.1(a) of
the Loan Agreement is hereby amended by deleting the reference therein to
"Seventy Million Dollars ($70,000,000)" and inserting in lieu thereof "One
Hundred Twenty Million Dollars ($120,000,000)". All references in the Loan
Documents to the Commitment and the Maximum Loan Amount shall be understood to
mean $120,000,000.
(b) Concurrent with the execution with this Agreement, the Borrower
shall execute and deliver to Agent the Amended and Restated Promissory Note in
the form attached hereto as EXHIBIT A. All references to
-1-
<PAGE>
the "Note" in the Loan Documents shall mean and refer to said Amended and
Restated Promissory Note. Promptly following the Effective Date, Agent shall
mark the Prior Note (as defined in the Amended and Restated Promissory Note)
"superseded" and return same to the Borrower.
(c) Pursuant to Section 2.1(a) of the Loan Agreement, the Borrower
shall pay to Agent, on or before the Effective Date, a fee equal to 0.25% of the
$50,000,000 increase in the Commitment agreed to under this Agreement, prorated
based upon the number of days remaining in the Availability Period, as measured
from and including the Effective Date, to but not including the Maturity Date.
Portions of said additional commitment fee shall be paid by Agent to IBJ and
Commerzbank in accordance with separate letter understandings between Agent and
each such Bank.
(d) Section 6.4(h) of the Loan Agreement is hereby amended by
deleting the reference therein to "One Hundred Million Dollars ($100,000,000)"
and inserting in lieu thereof "One Hundred Fifty Million Dollars
($150,000,000)".
(e) Section 26 of the First Modification is hereby amended to change
the address of BofA as Agent to the following:
Bank of America National Trust and Savings Association
Commercial Real Estate Services/National Accounts 9105
50 California Street, 11th Floor
San Francisco, CA 94111
Attention: Janice L. Sears
Phone: (415) 445-4448
Fax: (415) 445-4154
2. THE CREDIT.
(a) The Borrower and each Bank acknowledge that, as of the Effective
Date, the Loan, the principal amount outstanding thereunder, and each Bank's Pro
Rata Share are:
The Loan: $120,000,000
(i)
Total Current Outstanding $ 49,000,000
(ii) Principal
(as of October 24, 1996):
Each Bank's Pro Rata Share of the
(iii) Loan:
BofA: 45.8333333334%
Manufacturers: 12.5000000000%
IBJ: 20.8333333333%
Commerzbank: 20.8333333333%
--------------
100.0000000000%
(b) Subject to the terms and conditions of the Loan Documents, each
Bank agrees to fund its Pro Rata Share of each Advance of Loan proceeds from
time to time until the Maturity Date of the Loan. Such Loan proceeds shall be
delivered to the Borrower in accordance with provisions of the Loan Documents.
-2-
<PAGE>
(c) BofA and IBJ agree that the IBJ Assignment (which is not a Loan
Document) shall be modified to conform to the terms of this Agreement with
respect to the amended Commitment and Pro Rata Shares.
3. ADDITION OF COMMERZBANK.
(a) As of the Effective Date, Commerzbank shall be a party to the
Loan Documents and the Co-Lender Agreement and, accordingly, shall succeed to
all of the rights and be obligated to perform all of the obligations of a Bank
thereunder, with an interest in the Loan equal to its Pro Rata Share as set
forth above. Without limiting the foregoing, Commerzbank hereby appoints and
authorizes Agent to take such action as Agent on its behalf and to exercise such
powers as are delegated to Agent by the Banks pursuant to the terms of the Loan
Documents and Co-Lender Agreement.
(b) Commerzbank shall furnish to Agent and the Borrower, concurrently
with the execution of this Agreement, an appropriate U.S. Internal Revenue
Service form regarding exemption from or reduced rate of U.S. federal
withholding tax on interest payments and fees under the Loan Documents.
(c) Commerzbank acknowledges that neither Agent nor any Bank (i)
makes any representation or warranty or assumes any responsibility with respect
to any statements, warranties or representations made in connection with the
Loan Documents or Co-Lender Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents, Co-
Lender Agreement or any other instrument or document furnished pursuant thereto,
or (ii) makes any representation or warranty in connection with, or assumes any
responsibility with respect to, the solvency, financial condition or statements
of the Borrower or the performance or observance by the Borrower of any of its
respective obligations under the Loan Documents or any other instrument or
document furnished in connection therewith. Commerzbank acknowledges that it
has received a copy of the Loan Documents, the Co-Lender Agreement and such
other documents and information as it has deemed appropriate and requested in
order to make its own credit and legal analysis and decision to enter into this
Agreement, and will continue to make its own credit and legal decisions in
taking or not taking action under the Loan Documents independently based on such
documents and information as it shall deem appropriate at the time and without
reliance upon Agent or any other Bank.
(d) Commerzbank hereby specifies the following as its Lending Office
and address for purposes of all communications and notices under the Loan
Documents and Co-Lender Agreement:
Commerzbank AG, Los Angeles Branch
660 S. Figueroa, Suite 1450
Los Angeles, CA 90017
Attn: Werner Schmidbauer
Telephone: (213) 623-8223
Facsimile: (213) 623-0039
EXHIBIT B attached sets forth certain additional addresses and payment
instructions of Commerzbank for use by the Agent.
-3-
<PAGE>
4. EFFECTIVE DATE; ALLOCATION OF PAYMENTS.
(a) The effective date ("Effective Date") for this Agreement shall be
the date that the following conditions precedent have been satisfied:
(i) This Agreement and each other document or instrument
referred to herein as being executed in connection herewith shall have been
fully executed and delivered by all parties thereto;
(ii) The Borrower shall have paid to Agent the additional
commitment fee referred to in Section 1(c) above;
(iii) The Borrower shall have provided to Agent an authorizing
resolution of the Board of Directors of Borrower (as certified by the
Secretary of Borrower) approving the execution, delivery and performance of
this Agreement by the Borrower; and
(iv) IBJ and Commerzbank shall have funded to Agent, in the
manner set forth in the Loan Documents, and the Agent shall have allocated
and paid such funds to BofA and Manufacturers, in each case in the amounts
specified to the Banks by the Agent, as necessary in order to balance
outstanding advances under the Loan to the Pro Rata Shares of the Banks as
set in Section 2(a) above.
(b) Upon payment by the Borrower, Agent shall allocate interest and
the unused commitment fee (i) for the period to but not including the Effective
Date, to those Banks (and in accordance with their respective Pro Rata Shares)
in effect under the Loan Documents prior to the effectiveness of this Agreement,
and (ii) from and including the Effective Date, to the Banks in accordance with
their Pro Rata Shares as set forth in this Agreement.
5. MISCELLANEOUS.
(a) The Borrower shall reimburse to Agent all of its costs and
expenses (including legal fees) incurred in connection with the negotiation,
preparation and execution of this Agreement and all related documents.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns, subject however to the
provisions of the Loan Documents and the Co-Lender Agreement.
(c) This Agreement may be executed in counterparts all of which taken
together shall be deemed to constitute one and the same instrument.
(d) This Agreement shall be governed by the laws of the State of
California.
(e) This Agreement (and those documents and instruments expressly
referred to herein) integrates all the terms and conditions hereof, constitutes
the entire agreement and understanding between the parties hereto and supersedes
any and all prior agreements and understandings related to the subject matter
hereof. In the event of any conflict between the terms and conditions of this
Agreement and any other document, this Agreement shall prevail.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement of the date
set forth above.
BORROWER: BRE PROPERTIES, INC.
By:
------------------------------
Name: Frank C. McDowell
Title: President & Chief Executive Officer
By:
------------------------------
Name: LeRoy E. Carlson
Title: Secretary & Chief Financial Officer
BANKS: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
MANUFACTURERS BANK
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
COMMERZBANK AG, LOS ANGELES BRANCH
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
-5-
<PAGE>
AGENT: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
-6-
<PAGE>
EXHIBIT B
A. COMMERZBANK ADMINISTRATIVE CONTACTS - Borrowings, Paydown, Interest, Fees,
etc.:
Christina Humphrey, Commerzbank AG, New York Branch
2 World Financial Center
New York, New York 10281-1050
Telephone: (212) 266-7315
Facsimile: (212) 266-7593
B. COMMERZBANK PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
Commerzbank AG, New York Branch
Routing Transit/ABA number of Bank were funds are to be transferred:
026008044
Name of Account: Commerzbank AG, Los Angeles Branch
Account Number: XXX/XXXXXXXXXXXX
Additional Information: Ref: BRE Properties, Inc.
Acct. No.: XXX/XXXXXXX/XXXXX
<PAGE>
[LETTERHEAD]
TO: BRE Properties, Inc. ("Counterparty")
Attn: Leroy Carlson
Rapidfax: (415) 445-6505
FROM: Bank of America National Trust and Savings Association ("BofA")
185 Berry Street
San Francisco, CA 94107
Derivatives Products Operations
Phone No.: (415) 624-1111
Rapidfax No.: (415) 624-1101
DATE: September 4, 1996
RE: USD 50,000,000.00 Treasury Lock Swap Transaction
Dear Sir/Madam:
This Confirmation supersedes and replaces in its entirety our previous
Confirmation rapifax dated September 3, 1996.
The purpose of this letter agreement ("Confirmation") is to confirm the
terms and conditions of the swap transaction entered into between us on the
Trade Date specified below (the "Transaction"). This Transaction shall be
governed by the Particular Terms and by the General Terms, each of which are set
forth below. Expressions used in the Particular Terms which are not defined
therein which are defined in the General Terms shall have the meaning provided
in the General Terms.
THIS FACSIMILE TRANSMISSION WILL BE THE ONLY WRITTEN COMMUNICATION
REGARDING THIS SWAP TRANSACTION. However, should you have an internal
requirement for confirmations with an original signature, we request that you
sign and return this Confirmation by facsimile, whereupon, we will add an
original signature to the fully executed Confirmation, and forward it to you by
mail.
<PAGE>
A. PARTICULAR TERMS
The Particular Terms of this Transaction are as follows:
Notional Amount: US$ 50 million
Trade Date: August 29, 1996
Determination Date: June 30, 1997,
2:00 p.m. New York time
Payment Date: July 2, 1997
Reference Treasury: The then current United States Government
10-Year Treasury Note
Fixed Yield: 7.050%
If the Floating Yield
is more than Fixed Yield: BofA pays the Payment Amount to
Counterparty
If the Floating Yield
is less than Fixed Yield: Counterparty pays the Payment Amount to BofA
The "PAYMENT AMOUNT" shall mean an amount equal to the product of (a) the
Notional Amount (expressed in units of one million dollars) multiplied by
(b) the Dollar Value of One Basis Point per Million Dollars Face Amount
multiplied by (c) the difference (expressed in units of basis points, a
"basis point" being 1/100th of one percent) between the Floating Yield and
the Fixed Yield.
The "FLOATING YIELD" shall mean the yield to maturity of the Reference
Treasury, as calculated using standard calculation methods published by the
Securities Industry Association for the Reference Treasury, based on the
price which BofA determines on the Determination Date as the price at which
the Reference Treasury could be purchased in the U.S. Government securities
market for settlement in New York on the Payment Date.
Page 2
<PAGE>
The "DOLLAR VALUE OF ONE BASIS POINT PER MILLION DOLLARS FACE AMOUNT" means
the change in price, as determined by BofA according to its standard
methods, which would occur for one million dollars in face amount of the
Reference Treasury, if the yield to maturity were to change by one basis
point (one "basis point" being 1/100th of one percent).
B. GENERAL TERMS
1. PAYMENT. The parties hereto agree that the Payment Amount shall be
paid in accordance with the Particular Terms. The payment to be made
pursuant hereto shall be made not later than 4:00 P.M. (New York City time)
on the Payment Date to the account of the party entitled to receive such
payment, as specified below.
2. TRANSFER. Neither this Confirmation nor the agreement nor Transaction
evidenced hereby nor any interest or obligation herein or hereunder may be
transferred by either party without the prior written consent of the other
party. Any transfer or attempted transfer without such consent shall be
void.
3. EVENTS OF DEFAULT. The occurrence of any of the following events with
respect to a party before final payment of all obligations of that party
hereunder shall be an Event of Default with respect to that party (the
"Defaulting Party"):
(a) the party fails to make any payment hereunder within one New York
Banking Day after written notice of nonpayment from the other party; or
(b) any representation or warranty made by the party herein shall prove to
have been false or misleading in any material respect as at the time it was
made, given or reaffirmed; or
(c) the party commences any case, proceeding or other action (1) which
seeks, under any existing or future law of any jurisdiction (domestic or
foreign), relating to bankruptcy, insolvency, reorganization or other
relief of debtors, to have an order for relief entered with respect to the
party, or seeking to have itself adjudicated as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution or composition or other relief under bankruptcy or insolvency
law with respect to it or its debts or (2) which seeks appointment of a
receiver, trustee, custodian, conservator or other similar official for the
party or for all or any substantial part of its assets; or
Page 3
<PAGE>
(d) there is commenced against the party any case, proceeding or other
action of a nature referred to in clause (c) hereof which (1) results in
the entry of an order for relief or any such adjudication or appointment
with respect to the party or any of its assets or (2) remains undismissed,
unstayed, undischarged or unbonded for a period of 30 days; or
(e) the party makes a general assignment for the benefit of its creditors;
or
(f) there is commenced against the party any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets, which
case, proceeding or other action results in the entry of an order for any
such relief which is vacated, discharged, or stayed or bonded pending
appeal within 30 days from the entry thereof; or
(g) the party takes any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clauses
(c) through (f) hereof; or
(h) the party generally does not, or shall admit in writing its inability
to, pay its debts as they become due; or
(i) any loan indebtedness of the party in an amount not less than
$50,000,000 shall have become payable before the due date thereof as a
result of acceleration of maturity caused by the occurrence of any event of
default thereunder or if any other such loan indebtedness shall not be
repaid at maturity, as extended by any applicable grace period specified in
the contracts or agreements constituting such loan indebtedness.
4. REMEDIES UPON EVENT OF DEFAULT.
(a) If, at any time before the Payment Date, an Event of Default occurs
with respect to the Defaulting Party and is then continuing, the other
party (the "Non-Defaulting Party") shall have the right, by written notice
sent to the Non-Defaulting Party before the Payment Date, to terminate the
Transaction on a date specified in such notice (the "Early Termination
Date"), which shall be no earlier than the date such notice is sent and no
later than the day before the Payment Date. Upon such notice, the
obligations of the parties to make payment of the Payment Amount shall
terminate as of the Early Termination Date (whether or not the Event of
Default is then continuing), and, in lieu thereof, an Early Termination
Amount shall become due and payable as of the Early Termination Date. The
Early Termination Amount shall be determined, in good faith, by the Non-
Defaulting Party as follows:
Page 4
<PAGE>
(i) The Non-Defaulting Party shall determine the amount it would be
required to pay to a creditworthy third party (expressed as a positive
amount), or the amount such a creditworthy third party would be
willing to pay the Non-Defaulting Party (expressed as a negative
amount), in either case, as of the Early Termination Date, in
consideration of an agreement between the third party and the Non-
Defaulting Party which would create payment obligations between the
Non-Defaulting Party and the third party economically equivalent to
the payment obligations hereunder (in the absence of early
termination) between the Non-Defaulting Party and the Defaulting
Party.
(ii) If the Early Termination Amount is a positive number, it shall
become due and payable by the Defaulting Party to the Non-Defaulting
Party as of the Early Termination Date. If the Early Termination Date
is a negative number, the absolute value thereof shall become due and
payable by the Non-Defaulting Party to the Defaulting Party, as of the
Early Termination Date.
(b) In all circumstances where an Early Termination Date has not been
designated pursuant to clause (a) hereinabove, the Payment Amount shall
become due and payable as of the Payment Date, as provided by Section 1
above.
(c) The Payment Amount, from and after the Payment Date, or the Early
Termination Amount, from and after the Early Termination Date, as the case
may be, shall bear interest until paid in full at the rate of one per cent
per annum plus the rate certified by the party entitled to receive the
payment as its cost (without proof of any actual cost) if it were to fund
the relevant amount. In addition, the Defaulting Party shall indemnify and
hold harmless the Non-Defaulting Party upon demand for all reasonable
attorney's fees (including allocated costs of in-house counsel) and out-
of-pocket expenses incurred by the Non-Defaulting Party by reason of the
enforcement and protection of its rights hereunder.
5. REPRESENTATIONS. Each of the parties hereby represent and warrant to
each other as follows:
(a) It is validly organized and existing under the laws of the jurisdiction
of its incorporation.
(b) Its execution, delivery and performance of this Agreement are within
its corporate or organizational powers, have been and remain duly
authorized and do not conflict with any provision of its articles or
certificate of incorporation or by-laws (or equivalent constituent
documents).
Page 5
<PAGE>
(c) This Confirmation has been duly executed and delivered and constitutes
its valid and legally binding obligation enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to provisions of public
order and to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(d) It is an "eligible swap participant" as defined in Part 35 of Title 17
of the U.S. Code of Federal Regulations.
(e) It is entering into this Transaction in conjunction with its line of
business or the financing of its business or as a financial intermediary.
(f) It is not relying on any advice (whether written or oral) of the other
party regarding this Transaction, other than the representations expressly
made herein by the other party.
(g) It has the capacity (either internally or through independent
professional advice) to evaluate this Transaction and has made its own
decision to enter into this Transaction.
(h) It understands the terms, conditions and risks of this Transaction and
is willing to accept those terms and conditions and to assume (financially
and otherwise) those risks.
(i) It is entering into this Transaction as principal (and not as agent or
in any other capacity, fiduciary or otherwise).
6. ENTIRE AGREEMENT. This Confirmation constitutes the entire agreement
and understanding of the parties with respect to the subject matter hereof
and supersedes all oral statements and prior writings with respect thereto.
7. NOTICES. Notices hereunder shall be given as follows:
If to BofA:
Bank of America
Derivatives Products Operations #15239
185 Berry Street
San Francisco, CA 94107
Page 6
<PAGE>
If to Counterparty, at:
BRE Properties, Inc.
Suite 2500, Telesis Tower
One Montgomery Street
San Francisco CA 94104
Telephonic notice shall be effective when transmitted, if transmitted
during normal business hours in the place of the party to whom transmitted,
AND written notice and telecopy notice shall be effective when received.
8. Payments due hereunder shall be made to the following accounts.
Payments to BofA: Debit Bank of America Acct. BRE Properties
ACCT. XX XXXXX-XXXXX
Payments to Counterparty: Credit Bank of America Acct. BRE Properties
ACCT. XX XXXXX-XXXXX
9. GOVERNING LAW. This Confirmation shall be governed by and construed in
accordance with the law of the State of New York without reference to
choice of law doctrines.
Page 7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Confirmation to be
executed by their duly authorized officers as of the date specified on the first
page hereof.
BRE Properties, Inc. ("Counterparty")
By: /s/ L.E. Carlson
-------------------------
Name: L.E. CARLSON
-------------------------
Title: EVP
------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA")
By: /s/ Joseph B. Fuqua
-------------------------
Name: Joseph B. Fuqua
-------------------------
Title: Vice President
------------------------
Page 8
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
STATEMENT OF EARNINGS PER SHARE
Average shares outstanding are computed by adding the shares outstanding at each
month end and dividing that result by the number of months elapsed in the year-
to-date period.
<TABLE>
<CAPTION>
Primary Earnings per Share:
For the three months ended For the nine months ended
September 30 September 30
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding 32,810,000 21,940,000 29,740,000 21,900,000
Net income before (loss) gain
on sales of investments (a) $9,767,000 $6,052,000 $27,003,000 $17,545,000
------------- ------------- ------------- -------------
Computation $.30 $.28 $.91 $.80
------------- ------------- ------------- -------------
Net (loss) gain on sales of
investments (a) $49,352,000 - $49,578,000 ($880,000)
------------- ------------- ------------- -------------
Computation $1.50 - $1.67 ($.04)
------------- ------------- ------------- -------------
EARNINGS PER SHARE (a) $1.80 $.28 $2.58 $.76
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Additional Primary Computation:
For the three months ended For the nine months ended
September 30 September 30
---------------------------- ----------------------------
Net income (a) $59,119,000 $6,052,000 $76,581,000 $16,665,000
------------- ------------- ------------- -------------
Average shares outstanding 32,810,000 21,940,000 29,740,000 21,900,000
------------- ------------- ------------- -------------
Additional adjustment for
dilutive effect of outstanding
options (as determined by the
application of the treasury
stock method): 360,000 30,000 210,000 20,000
------------- ------------- ------------- -------------
Weighted average number of
shares outstanding, as adjusted 33,170,000 21,970,000 29,950,000 21,920,000
------------- ------------- ------------- -------------
Primary earnings per share, as
adjusted - Net income (b) $1.78 $.28 $2.56 $.76
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
14
<PAGE>
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fully Diluted Earnings per Share
For the three months ended For the nine months ended
September 30 September 30
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (a) $59,119,000 $6,052,000 $76,581,000 $16,665,000
------------- ------------- ------------- -------------
Average shares outstanding 32,810,000 21,940,000 29,740,000 21,900,000
Additional dilutive effect of
outstanding options (as
determined by the application
of the treasury stock method) 360,000 60,000 270,000 60,000
------------- ------------- ------------- -------------
Weighted average number of
shares, as adjusted 33,170,000 22,000,000 30,010,000 21,960,000
------------- ------------- ------------- -------------
Fully diluted earnings per
share - Net income (b) $1.78 $.28 $2.55 $.76
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
(a) These amounts agree with the related amounts in the Statements of Income.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,230
<SECURITIES> 0
<RECEIVABLES> 11,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,150
<PP&E> 775,970
<DEPRECIATION> (48,832)
<TOTAL-ASSETS> 740,288
<CURRENT-LIABILITIES> 7,263
<BONDS> 272,383
0
0
<COMMON> 328
<OTHER-SE> 460,314
<TOTAL-LIABILITY-AND-EQUITY> 740,288
<SALES> 71,943<F1>
<TOTAL-REVENUES> 71,943
<CGS> 21,175<F2>
<TOTAL-COSTS> 21,175
<OTHER-EXPENSES> 12,546<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,219
<INCOME-PRETAX> 27,003
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 49,578<F4>
<CHANGES> 0
<NET-INCOME> 76,581
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.58
<FN>
<F1>RENTAL AND OTHER REVENUE
<F2>REAL ESTATE EXPENSES
<F3>INCLUDES $9,379 OF DEPRECIATION EXPENSE, A NON CASH CHARGE
<F4>NET GAIN ON SALES OF INVESTMENTS
</FN>
</TABLE>
