<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 1997
BRE PROPERTIES, INC.
________________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland 0-5305 94-1722214
________________________________ ______________________ ___________________
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or organization) Identification Number)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, California 94104-5525
______________________________________ _________
(Address of principal executive offices) (Zip Code)
(415) 445-6530
________________________________________________________________________
(Registrant's telephone number, including area code)
1
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Item 2. Acquisition and Disposition of Assets
On September 29, 1997, BRE Properties, Inc. ("BRE") signed a definitive
agreement in which BRE would acquire certain assets and operations of Trammell
Crow Residential located in the Western U.S. ("TCRW") (the "Transaction"). The
Transaction was completed November 18, 1997. The Transaction combines 7,231 of
TCRW's apartment units (including approximately 2,445 units under development
and construction) with BRE's 13,543 units. The acquisition was structured using
two newly organized operating companies, BRE Property Investors LLC and Blue
Ravine Investors LLC, (collectively referred to as the "Operating Company"), of
which BRE is the sole managing member in each. In addition to purchasing
existing properties and development projects, BRE also acquired TCRW's
development, construction and third-party property management operations.
The acquisition consideration payable at the close of the Transaction was
approximately $462 million (including closing costs), consisting of 3,713,331
shares of BRE common stock valued at $100 million, 2,672,087 units and 152,500
performance units of the Operating Company (the "OC Units") valued at $76
million, assumed debt of $126 million and cash of $160 million. Under the terms
of the Transaction, additional OC Units up to a maximum of 627,594 OC Units
valued at approximately $17 million, subject to possible adjustment, may be
issued in the future upon achievement of certain specified conditions to
issuance. The OC Units are convertible into shares of BRE common stock on a 1:1
basis, or into an equivalent amount of cash at BRE's election, beginning one
year after the closing. Pursuant to the Transaction, all shares and OC Units
have been valued at $26.93 per share.
The acquisition consideration was determined pursuant to arm's length
negotiations with TCRW; TCRW is not affiliated with BRE. The cash portion of
the acquisition consideration was financed with proceeds from BRE's unsecured
$265 million line of credit with Bank of America National Trust and Savings
Association. Over the next two years, BRE expects to incur an estimated $113
million to complete development and construction of the eight apartment
properties acquired in the Transaction.
2
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Item 7. Financial Statements, Pro Forma Information and Exhibits
(a) Financial statements
Financial statements under Rule 3-14 of Regulation S-X
for TCRW with Report of Independent Auditors are
attached hereto on pages 17 to 22
(b) Pro forma financial information is attached hereto on pages 5 to 16
(c) Exhibits:
2.1 Contribution Agreement dated as of September 29, 1997
between BRE Properties, Inc., BRE Property Investors LLC
and the TCR Signatories*
2.2 Amendment No. 1 to Contribution Agreement dated
November 18, 1997.
23.1 Consent of Ernst and Young, LLP
99.1 Press Release dated November 18, 1997
- -------------------
*Incorporated by reference to Exhibit 10.45 to Form 10-Q,
filed with the Securities and Exchange Commission on
November 14, 1997.
3
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Signatures:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRE Properties, Inc.
Date: November 21, 1997 By: /s/ LeRoy E. Carlson
______________________________________
LeRoy E. Carlson
Executive Vice President and
Chief Financial and Accounting Officer
4
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BRE Properties, Inc.
Introduction to Unaudited Pro Forma Financial
Statements
On September 29, 1997, BRE Properties, Inc., a Maryland corporation ("BRE"),
entered into a definitive agreement (the "Contribution Agreement") to acquire
certain real estate assets and operations of certain entities (described below)
of Trammell Crow Residential - Western Region ("TCRW") (the "Transaction"). On
November 18, 1997, the Transaction was completed and BRE paid to certain
entities in TCRW a total of approximately $159 million in cash and $100 million
in stock based on a stock price of $26.93 per share as provided for in the
Contribution Agreement. Further, certain entities in TCRW received Operating
Company Units ("OC Units") in BRE Property Investors LLC and Blue Ravine
Investors LLC (collectively, the "Operating Company"), limited liability
companies and subsidiaries of BRE, convertible into approximately $76 million
(also based on a stock price of $26.93 per share) worth of BRE common stock on a
1:1 basis. The Operating Company will assume approximately $126 million in
debt. The Operating Company is a newly formed subsidiary of BRE and BRE is the
sole managing member.
The Contribution Agreement also provides for an additional issuance of between
$6 and $17 million in OC Units; the actual amount of units to be issued is
dependent upon the extent to which the development properties included in the
Transaction attain certain future performance levels.
TCRW contributed real estate assets consisting of seventeen completed properties
and eight properties in varying stages of development and construction. BRE
anticipates incurring approximately $113 million to complete these properties
during the two years subsequent to the close of the Transaction. In addition,
BRE acquired TCRW's development, construction and third party management
operations by the assignment of third party contracts and by BRE hiring certain
key employees.
The seventeen operating properties are subject to the Contribution Agreement,
are commonly referred to as follows:
Deer Valley, The Highlands, Somerset Park, Overlook at Blue Ravine,
Parkside Village, Riverview, Pinnacle at South Mountain I, Pinnacle at
South Mountain II, Pinnacle at Union Hills, Pinnacle Heights, Pinnacle
Canyon, Pinnacle at Fort Union, Pinnacle Reserve, Pinnacle Lakeside,
Pinnacle at High Desert, Cimarron Village and Villa Verde.
The eight development properties subject to the Contribution Agreement are
commonly referred to as follows:
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Pinnacle at Sand Hill, Pinnacle at Towne Center, Pinnacle Terrace,
Pinnacle at West Flamingo, Pinnacle at Hunters Glen, Pinnacle Estates,
Pinnacle at High Resort and Pinnacle at Clearfield.
TCRW entities participating in the Transaction are as follows:
TCR South Mountain Limited Partnership, TCR Squaw Peak Limited
Partnership, TCR Union Hills Limited Partnership, TCR Kolb Limited
Partnership, TCR Snyder Limited Partnership, Pinnacle Terrace
Apartments, L.P., TCR #812 Deer Valley Limited Partnership, Vallejo
Highlands Associates Limited Partnership, Blue Ravine Realty Partners,
TCR Riverside I, Ltd., TCR Riverview Limited Partnership, Vallejo
Somerset Limited Partnership, ITCR Thornton Limited Partnership, ITCR
Flamingo Limited Partnership, TCR Cimarron Limited Partnership, TCR
High Desert Limited Partnership, TC Residential Phoenix II, Inc., ITCR
Estates Limited Partnership, ITCR Clearfield Limited Partnership, TCR
Fort Union Limited Partnership, MSK TCR Orem Partners, Woodlake
Holdings L.L.C., TCR Draper Limited Partnership, ITCR Villa Verde
Limited Partnership, Southwest RS, Inc., TCR Builders, Inc., West RS,
Inc., TC Residential Phoenix, Inc., TC Residential Phoenix II, Inc.,
and TC Residential Phoenix III, Inc.
6
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BRE Properties, Inc.
Preface to Unaudited Pro Forma Condensed Statements of Operations
For the Nine months ended September 30, 1997
and the Year ended December 31, 1996
The following unaudited pro forma statements of operations for BRE are presented
as if the Transaction had been consummated on January 1, 1996 and include the
historical operating results of the seventeen operating properties acquired in
the Transaction. The purchase price for the portfolio was allocated between
development and operating properties based on their estimated relative fair
market values. Each asset acquired by TCRW during the periods covered by these
unaudited pro forma statements of operations was assumed to have been acquired
by BRE at the same time as TCRW acquired the asset. It is assumed that the
consideration for the purchase price of each asset was comprised of cash, stock
and OC Units in the same relative composition as that in the final acquisition
price for all seventeen properties.
This data further assumes that BRE distributed at least 95% of its taxable
income and met all other requirements to qualify as a REIT and, therefore,
incurred no federal or state income tax expense during the period from January
1, 1996 - September 30, 1997. The Transaction will be accounted for as an
acquisition by BRE under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16. In the opinion of BRE's management,
all material adjustments necessary to reflect the effects of the Transaction
have been made.
The unaudited pro forma statements of operations are presented for information
purposes only and are not necessarily indicative of what the actual results of
operations of BRE would have been for the periods presented had the Transaction
occurred on January 1, 1996, nor do they purport to represent the results for
future periods. The unaudited pro forma condensed statements of operations
should be read in conjunction with, and are qualified in their entirety by, the
respective historical financial statements and notes thereto of BRE. Except for
the historical information contained herein, these unaudited pro forma
statements of operations contain forward-looking statements regarding BRE and
property performance, and are based on BRE's current expectations and judgment.
Actual results could vary materially depending on risks and uncertainties
inherent to general and local real estate conditions, competitive factors
specific to markets in which BRE operates, legislative or other regulatory
decisions, future interest rate levels or capital markets conditions. BRE
assumes no liability to update this information. For more details, please refer
to BRE's SEC filings, including its most recent Annual Report on Form 10-K, as
amended, and quarterly reports on Form 10-Q.
7
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BRE Properties, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the nine months ended September 30, 1997
<TABLE>
<CAPTION>
BRE TCRW Pro Forma
Historical Historical Transaction BRE as
(A) (B) Adjustments Adjusted
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(Amounts in thousands, except per share data)
Revenues:
Rental $ 91,544 $ 23,313 $ 114,857
Other 6,267 1,599 1,237 (D) 9,103
---------- ---------- ----------- -----------
Total Revenues 97,811 24,912 1,237 123,960
---------- ---------- ----------- -----------
Expenses:
Real estate expenses 31,115 9,709 (511)(E) 40,313
Depreciation and amortization 12,635 5,518 (F) 18,153
Interest 15,344 7,849 (G) 23,193
General and administrative 3,114 702 (H) 3,816
---------- ---------- ----------- ----------
Total expenses 62,208 9,709 13,558 85,475
---------- ----------- ----------- ----------
Income before gains on sales of
investments in rental properties
and minority interest in
consolidated subsidiary 35,603 15,203 (12,321) 38,485
Net gain on sales of investments in
rental properties 28,160 -- -- 28,160
---------- ---------- ----------- ----------
Income before minority interest
in consolidated subsidiary 63,763 15,203 (12,321) 66,645
Minority interest in consolidated
subsidiary -- -- 700 (I) 700
---------- ---------- ----------- ----------
Net income $ 63,763 $ 15,203 (13,021) 65,945
========== ========== =========== ==========
Earnings per share and share equivalent:
Income before gains on sales of
investments in rental properties
and minority interest in
consolidated subsidiary $ 1.02 $ 0.96
Net gain on sales of investments
in rental properties $ 0.81 $ 0.70
---------- ----------
Earnings per share and share
equivalent $ 1.83 $ 1.66
========== ==========
Weighted average shares and share
equivalents outstanding (J) 34,790 5,198 39,988
========== =========== ==========
FUNDS FROM OPERATIONS:
Net income 63,763 15,203 (13,021) 65,945
Less: net gain on sale of investments (28,160) -- -- (28,160)
Plus: depreciation and amortization 12,635 -- 5,518 18,153
Plus: minority interest -- -- 700 700
---------- ---------- ----------- ----------
Funds from operations (K) $ 48,238 $ 15,203 $ (6,803) $ 56,638
========== ========== =========== ==========
</TABLE>
[Footnotes appear on following pages]
8
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BRE Properties, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BRE TCRW Pro Forma
Historical Historical Transaction BRE as
(Amounts in thousands, except per share data) (A) (C) Adjustments Adjusted
---------- ---------- ----------- ----------
Revenues:
Rental $ 93,135 $ 18,420 $ 111,555
Other 8,516 1,223 $ 1,649 (D) 11,388
--------- --------- ---------- ---------
Total Revenues 101,651 19,643 1,649 122,943
--------- --------- ---------- ---------
Expenses:
Real estate expenses 31,030 8,179 (472) (E) 38,737
Depreciation and amortization 13,283 4,368 (F) 17,651
Interest 16,325 6,334 (G) 22,659
General and administrative 3,999 885 (H) 4,884
--------- --------- ---------- ---------
Total Expenses 64,637 8,179 11,115 83,931
--------- --------- ---------- ---------
Income before gains on sales of investments
in rental property and minority interest in
consolidated subsidiary 37,014 11,464 (9,466) 39,012
Net gain on sales of investments in rental
property 52,825 -- -- 52,825
--------- --------- ---------- ---------
Income before minority interest in
consolidated subsidiary 89,839 11,464 (9,466) 91,837
Minority interest in consolidated subsidiary -- -- 447 447
--------- --------- ---------- ---------
Net Income $ 89,839 $ 11,464 $ ($9,913) $ 91,390
========= ========= ========== =========
Earnings per share and share equivalents:
Income before gains on sales of investments
in rental properties and minority interest
in consolidated subsidiary $1.21 $1.16
Net gain on sales of investments in rental
properties $1.73 $1.57
--------- --------- ---------- ---------
Earnings per share and share equivalents $2.94 $2.73
========= ========= ========== =========
Weighted average shares and share equivalents
outstanding (J) 30,520 3,078 33,598
========= ========= ========== =========
FUNDS FROM OPERATIONS:
Net income $ 89,839 $ 11,464 ($ 9,913) $ 91,390
Less: net gain on sales of investments (52,825) -- -- (52,825)
Plus: depreciation and amortization 13,283 -- 4,368 17,651
Plus: minority interest -- -- 447 447
--------- --------- --------- ---------
Funds from operations (K) $ 50,297 $ 11,464 ($ 5,098) $ 56,663
========= ========= ========= =========
</TABLE>
[Footnotes appear on following pages]
9
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BRE Properties, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Pro Forma Transaction Adjustments
(A) Historical operating results of BRE for the periods indicated.
(B) Historical operating results of TCRW for the nine months ended September
30, 1997.
(C) Historical operating results of TCRW for the year ended December 31, 1996.
(D) Represents management fees, net of expense, for third party property
management activities, assuming all clients consented to continue the
contracts under BRE.
(E) Net decrease in real estate expenses as a result of the Transaction are
assumed as follows:
<TABLE>
<CAPTION>
Nine months
Ended Year Ended
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Operating cost decrease due to
internalization of TCRW property
management ($309) ($296)
Net additional cost of insurance for TCRW
properties, including earthquake risk 74 72
Construction related expenditures expensed
by TCRW which would have been capitalized
under BRE's accounting policy (458) (471)
Property Tax increase due to California
Proposition 13 reassessments of TCRW
properties acquired by BRE 182 223
----- -----
Pro forma adjustment ($511) ($472)
===== =====
</TABLE>
The foregoing data constitutes forward-looking information as to the cost and
availability of earthquake and other insurance, the increases in property taxes
and the decreases in property management charges. Actual results could vary
materially depending on market and regulatory conditions.
10
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BRE Properties, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Pro Forma Transaction Adjustments (continued)
(F) Increase in depreciation expense provided on the cost basis of the
properties acquired from TCRW at BRE's purchase price. Expense is provided
for the actual period during which TCRW owned the asset and the asset was
in operation. The related depreciation was calculated utilizing an
estimated useful life of 40 years and a cost basis of approximately $460
million (allocated 80% to buildings and improvements in accordance with
BRE's accounting policies) as follows:
<TABLE>
<CAPTION>
Nine months
Ended Year Ended
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Pro forma depreciation expense on cost of
depreciable assets acquired $5,518 $4,368
------ ------
Pro forma adjustment $5,518 $4,368
====== ======
</TABLE>
(G) Increase in interest expense as follows:
<TABLE>
<CAPTION>
Nine months
Ended Year Ended
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Interest expense on TCRW loans assumed $ 4,912 $ 4,126
Capitalized interest on qualified
construction expenditures for the period
during which properties were
under development (3,754) (2,537)
Additional interest on borrowings on lines
of credit at 6.60% 6,691 4,745
------- -------
Pro forma adjustment $ 7,849 $ 6,334
======= =======
</TABLE>
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BRE Properties, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Pro Forma Transaction Adjustments (continued)
(H) Increases in general and administrative costs are assumed as follows:
<TABLE>
<CAPTION>
Nine months
Ended Year Ended
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Additional costs to manage larger
portfolio and administrate the
Operating Company $702 $885
---- ----
Pro forma adjustment $702 $885
==== ====
</TABLE>
The foregoing data constitutes forward looking information as to the costs
associated with administrating a larger portfolio and the Operating Company
itself. Actual results could vary materially depending on market and regulatory
conditions.
(I) Represents the allocable earnings on OC Units and Performance OC Units
(described below) held by the minority members. For properties assumed to
be acquired during the period covered in these unaudited pro forma
statements of operations, the funding of the acquisition costs (including
cash, debt, BRE Common Stock, OC Units and Performance OC Units) is
assumed to be in the same relative composition as that expected in the
final actual purchase price for the seventeen properties. Includes
earnings associated with Performance OC Units because cash distributions
will be paid on such units as if they were issued and because the
performance criteria for their issuance will, in the opinion of management,
likely be met. Such performance units are assumed issued by BRE at January
1, 1996.
(J) Net income per share is based upon the average weighted number of shares
and share equivalents associated with property operations assumed
outstanding during the period. OC Units and Performance OC Units are
assumed to be common stock equivalents.
(K) BRE considers funds from operations ("FFO") to be an appropriate
supplemental measure of the performance of an equity REIT because it is
predicated on cash flow analyses which facilitate an understanding of the
operating performances of BRE's properties without giving effect to non-
cash items such as depreciation. FFO is defined by the National
Association of Real Estate Investment Trusts as net income (loss) (computed
in accordance with generally accepted accounting principles) excluding
gains or losses from debt restructuring and sales of property, plus
12
<PAGE>
depreciation and amortization of real estate assets. FFO does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles, and therefore should not be
considered as a substitute for net income as a measure of results of
operations or for cash flow from operations as a measure of liquidity.
Additionally, the application and calculation of FFO by other REITs may
vary materially from that of the BRE, and therefore BRE's FFO and the FFO
of other REITs may not be directly comparable.
13
<PAGE>
BRE Properties, Inc.
Preface to Unaudited Pro Forma Condensed Balance Sheet
September 30, 1997
The following unaudited pro forma condensed balance sheet is presented as if the
Transaction had been consummated on September 30, 1997. The pro forma balance
sheet assumes that in consideration for the seventeen operating properties and
eight properties under construction and development, $100 million of stock was
issued, $160 million of cash was paid, $126 million in debt was assumed and OC
Units of $76 million were issued to the non-BRE OC Unit holders presented herein
as minority interests.
The consideration does not include OC Units up to a maximum of 627,594 OC Units
representing approximately $17 million of current value (at $26.93 per unit)
which units are issuable only if certain performance criteria related to the
development properties are met in the future. Such consideration will be
recorded when, and if, it becomes probable that the performance criteria will be
met using the share price into which the units are convertible at the time such
units become issuable.
The Transaction will be accounted for as an acquisition by BRE under the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16. In the opinion of BRE's management, all material adjustments
necessary to reflect the effects of this transaction have been made as explained
in the notes to the unaudited pro forma condensed balance sheet.
The unaudited pro forma condensed balance sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual financial
position of BRE would have been at September 30, 1997, nor does it purport to
represent the future financial position of BRE. The unaudited pro forma
condensed balance sheet should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements and notes thereto of BRE.
14
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BRE Properties, Inc.
Unaudited Pro Forma Condensed Balance Sheet
September 30, 1997
<TABLE>
<CAPTION>
Pro Forma
BRE Transaction
Historical Adjustments BRE as
(A) (B) Adjusted
------------ ------------ -----------
<S> <C> <C> <C>
(Dollars amounts in thousands)
Assets
Equity investments in real estate, net $823,991 $384,607 (C) $1,208,598
Construction in Progress -- 74,389 (C) 74,389
Cash 875 (875) (B) --
Other assets 41,217 7,187 (C) 48,404
-------- -------- ----------
Total assets 866,083 465,308 1,331,391
======== ======== ==========
Liabilities
Accounts payable and other liabilities 10,671 4,071 (C) 14,742
Mortgages 112,710 125,819 (B) 238,529
Unsecured notes payable 157,000 159,352 (B) 316,352
-------- -------- ----------
Total liabilities 280,381 289,242 569,623
======== ======== ==========
Minority interest -- 76,066 (B) 76,066
Shareholder's equity
Common shares 370 37 (B) 407
Additional paid-in capital 585,332 99,963 (B) 685,295
-------- -------- ----------
Total shareholder's equity 585,702 100,000 685,702
-------- -------- ----------
Total liabilities and shareholders' equity $866,083 $465,308 $1,331,391
======== ======== ==========
</TABLE>
[Footnotes appear on following pages]
15
<PAGE>
BRE Properties, Inc.
Unaudited Pro Forma Condensed Balance Sheet
Pro Forma Transaction Adjustments
(A) Historical Balance Sheet of BRE as of September 30, 1997
(B) Adjustments to record the consideration in the Transaction in accordance
with the purchase method of accounting, based upon a purchase price of
approximately $462 million, which uses a value of $26.93 per share of BRE
common stock, among other consideration, as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Issuance of shares of BRE Common Stock.................. $100,000
Assumption of mortgage and other notes payable.......... 125,819
Cash paid to fund purchase from draws on unsecured
BRE lines of credit................................... 156,640
Cash paid to fund purchase.............................. 875
Cash paid to fund direct property acquisition costs,
including title, legal and environmental due
diligence from draws on unsecured BRE lines of
credit................................................ 2,712
Minority interest representing the contribution of
minority members in the Operating Company............. 76,066
--------
Basis in acquired assets................................ $462,112
========
</TABLE>
The above excludes up to a maximum of $17 million of Development OC Units
(assuming a share price of $26.93 per unit) issuable to TCRW upon
achieving certain asset performance goals which are not measurable at
this time. Included in the minority interest component above, using a
share price of $26.93 per unit, is $72 million in issued OC Units and $4
million in Performance OC Units which performance units are issuable to
TCRW upon development properties achieving certain performance criteria.
In the opinion of management, the performance criteria will likely be
attained and therefore the related Performance OC Units are accounted for
as if issued. (Distributions are payable currently on the Performance OC
Units as if such units were outstanding.)
BRE expects to incur an additional $113 million in the two years
subsequent to the close of the Transaction to complete the construction
in progress on eight properties.
(C) The purchase price is allocated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Equity investments in real estate, net ................ $384,607
Construction in progress .............................. 74,389
Other assets .......................................... 7,187
Accounts payable and other liabilities ................ (4,071)
--------
Total purchase price allocation ....................... $462,112
========
</TABLE>
16
<PAGE>
Report of Independent Auditors
Board of Directors
BRE Properties, Inc.
We have audited the accompanying combined statement of gross income and direct
operating expenses of certain Trammell Crow Residential multifamily properties
(the "Multifamily Portfolio") described in Note 3 for the year ended December
31, 1996. The combined statement of gross income and direct operating expenses
is the responsibility of the management of the Multifamily Portfolio. Our
responsibility is to express an opinion on the combined statement of gross
income and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined statement of gross income and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined statement of gross income and direct operating expenses. An audit
also includes assessing the basis of accounting principles used and the
significant estimates made by management, as well as evaluating the overall
presentation of the combined statement of gross income and direct operating
expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined statement of gross income and direct operating
expenses, described in Note 2, was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission for
inclusion in the Current Report on Form 8-K filed by BRE Properties, Inc. and is
not intended to be a complete presentation of the Multifamily Portfolio's
revenues and expenses.
In our opinion, the combined statement of gross income and direct operating
expenses referred to above presents fairly, in all material respects, the
combined gross income and direct operating expenses of the Multifamily
Portfolio, as described in Note 2, for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
September 11, 1997
17
<PAGE>
Multifamily Portfolio
Combined Statements of Gross Income
and Direct Operating Expenses
(Amounts in Thousands)
<TABLE>
<CAPTION>
For the nine months
For the year ended ended September 30,
December 31, 1996 1997 (Unaudited)
------------------ ---------------------
<S> <C> <C>
Gross Income
Rental income $ 18,420 $ 23,313
Other income 1,223 1,599
-------- --------
19,643 24,912
Direct operating expenses
Property taxes 1,523 1,772
Salaries and wages 1,884 2,688
Utilities 1,201 1,314
Management fees to related party 882 1,056
Insurance 306 232
Repairs and maintenance 1,414 1,326
General and administrative 969 1,321
-------- --------
8,179 9,709
-------- --------
Excess of gross income over direct
operating expenses $ 11,464 $ 15,203
======== ========
</TABLE>
See report of independent auditors and accompanying notes to the combined
statements of gross income and direct operating expenses.
18
<PAGE>
Multifamily Portfolio
Notes to Combined Statements of Gross Income
and Direct Operating Expenses
For the year ended December 31, 1996, and
for the nine months ended September 30, 1997 (Unaudited)
1. Organization and Contribution Agreement
BRE Properties, Inc. (the "Company") is a self-administered real estate
investment trust which owns and operates multifamily communities and other
income-producing properties in the Western United States.
In September, 1997, the Company entered into a Contribution Agreement with the
owners of certain Trammell Crow Residential multifamily partnerships and limited
liability companies (the "Contributors") to acquire their interests in seventeen
completed and operating multifamily properties (the "Multifamily Portfolio").
Each property is owned by a separate partnership or limited liability company.
The Company will acquire ownership through either acquisition of the assets or
the acquisition of partnership or member interests in assets. The Company has
combined certain financial information of all seventeen properties because of
the common control and ownership represented by Trammell Crow Residential or one
of its partners or controlled affiliates.
2. Basis of Presentation and Significant Accounting Policies
The accompanying combined statements of gross income and direct operating
expenses for the year ended December 31, 1996, and for the nine months ended
September 30, 1997 (unaudited), were prepared for purposes of complying with the
rules and regulations of the Securities and Exchange Commission. The
accompanying combined financial statements are not representative of the actual
future operations of the Multifamily Portfolio for the periods presented as
certain of the communities are in lease-up, under rehabilitation, or were in
operation for less than twelve months. In addition, certain non-operating
expenses, which may not be comparable to the expenses to be incurred by the
Company in the proposed future operations of the properties, have been excluded.
Expenses excluded consist of interest, depreciation and amortization,
professional fees and other costs not directly related to the future operations
of the Multifamily Portfolio.
In preparation of the combined statements of gross income and direct operating
expenses in conformity with generally accepted accounting principles, management
makes estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
19
<PAGE>
2. Basis of Presentation and Significant Accounting Policies (continued)
Rental income attributable to residential leases is recorded when due from
tenants, which generally approximates the straight-line basis. Substantially
all tenant leases are short-term in nature.
Property taxes have not been adjusted to reflect the estimated reassessed value
of the Multifamily Portfolio after acquisition by the Company.
Expenditures for repairs, maintenance and minor renewals are charged to expense
as incurred, while those expenditures that improve or extend the estimated
useful life of the Multifamily Portfolio are capitalized.
The Multifamily Portfolio has management agreements with affiliates of Trammell
Crow Residential ("TCR") to maintain and manage the operations of the apartment
complexes. Management fees are based on a range of 3% to 5% of gross receipts.
All of the management fees incurred in the periods presented were paid to
affiliates to TCR.
20
<PAGE>
Multifamily Portfolio
NOTES TO COMBINED STATEMENTS OF GROSS INCOME
AND DIRECT OPERATING EXPENSES (CONTINUED)
3. DESCRIPTION OF PORTFOLIO
The following properties are included in the combined statements of gross income
and direct operating expenses:
<TABLE>
<CAPTION>
Approximate
Month
Acquired or Months in
Operations Operation
Commenced During 1996
Property Name Location Total Units (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pinnacle at South Mountain I Phoenix, AZ 360 1/96 12
Pinnacle at South Mountain II Phoenix, AZ 192 12/96 1
Pinnacle at Union Hills Phoenix, AZ 264 10/96 1
Pinnacle Canyon Tucson, AZ 225 2/96 10(2)
Pinnacle Heights Tucson, AZ 310 3/95 12
Deer Valley San Rafael, CA 171 9/96(1) 3
The Highlands Vallejo, CA 280 7/86 12
Overlook at Blue Ravine Folsom, CA 400 6/91 12
Parkside Village Riverside, CA 304 5/96(1) 8
Riverview Santa Ana, CA 240 2/97(1) -
Somerset Park Vallejo, CA 280 2/88 12
Cimarron Village Albuquerque, NM 216 6/97(1) -
Pinnacle at High Desert Albuquerque, NM 430 6/95 11(3)
Pinnacle at Fort Union Salt Lake City, UT 160 1/97(1) -
Pinnacle Lakeside Salt Lake City, UT 252 10/96(1) 2.5
Pinnacle Reserve Salt Lake City, UT 492 10/96(1) 3
Villa Verde Santa Ana, CA 210 8/97(1) -
-------
Total Multifamily Portfolio 4,786
</TABLE>
<TABLE>
<CAPTION>
1996 Excess
(Deficit) of
Gross Income
Total 1996 over Direct
Total 1996 Operating Operating
Property Name Revenue Expenses Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pinnacle at South Mountain I $ 3,388,105 $ 1,017,289 $ 2,370,816
Pinnacle at South Mountain II 23,236 16,289 6,949
Pinnacle at Union Hills - 23,174 (23,174)
Pinnacle Canyon 709,633 540,296 169,337
Pinnacle Heights 2,149,396 883,866 1,265,530
Deer Valley 595,788 178,939 416,849
The Highlands 2,126,965 957,520 1,169,445
Overlook at Blue Ravine 3,883,039 1,474,820 2,408,219
Parkside Village 819,369 673,329 146,040
Riverview - - -
Somerset Park 2,080,936 956,657 1,124,279
Cimarron Village - - -
Pinnacle at High Desert 3,406,852 1,152,538 2,254,314
Pinnacle at Fort Union - - -
Pinnacle Lakeside 376,796 175,063 201,733
Pinnacle Reserve 83,094 129,338 (46,244)
Villa Verde - - -
------------ ----------- ----------
Total Multifamily Portfolio $ 19,643,209 $ 8,179,116 $11,464,093
</TABLE>
- ----------------
(1) Asset acquired by seller.
(2) The first two buildings were completed in February 1996, while the remaining
six buildings were completed in June 1996.
(3) Construction was completed in January 1996.
21
<PAGE>
3. Description of Portfolio (continued)
At December 31, 1996, there were thirteen properties in the Multifamily
Portfolio, of which four apartment properties, representing 1,119 units in
total, were in lease-up. An additional two properties consisting of 556 units
were undergoing rehabilitation while the remaining seven properties with 1996
operations, consisting of 2,285 units, had achieved stabilized occupancy. In
addition, of the thirteen multifamily properties that had operating results
during the year ended December 31, 1996, seven properties were acquired by TCR
or commenced operations during 1996 and were operating for less than twelve
months.
During the unaudited nine-month period ended September 30, 1997, four of the
seventeen total multifamily properties to be acquired by BRE, representing 826
units, were purchased or began operations. These four properties were in lease-
up, under rehabilitation, and stabilized, respectively. The remaining thirteen
projects representing 3,960 units had reached stabilized occupancy levels.
22
<PAGE>
Exhibit 2.2
AMENDMENT NO. 1 TO
CONTRIBUTION AGREEMENT
This Amendment No. 1 to the Contribution Agreement ("Amendment No. 1") dated
November 18, 1997, is made and entered into by and between the TCR Signatories,
on the one hand, and BRE Properties, Inc., a Maryland corporation (the
"Company"), and BRE Property Investors LLC, a Delaware limited liability company
(the "Operating Company" and, together with the Company, the "Transferee"), on
the other hand, and amends the Contribution Agreement, dated as of September 29,
1997, by and between the TCR Signatories and the Transferee (the "Contribution
Agreement"). All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Contribution Agreement.
WHEREAS, the TCR Parties and the Transferee have entered into the
Contribution Agreement, which provides, among other things, for the transfer
from the TCR Parties to the Transferee of certain properties and related
assets in accordance with the terms and subject to the conditions of the
Contribution Agreement; and
WHEREAS, the TCR Parties and the Transferee desire to amend the
Contribution Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Transfer of Overlook at Blue Ravine to Blue Ravine LLC. The
parties hereto agree that Blue Ravine Realty Partners, as a Contributor under
the Contribution Agreement, shall convey to Blue Ravine Investors, LLC, a
Delaware limited liability company ("Blue Ravine LLC"), rather than to the
Operating Company, all of its Real Estate Property as set forth in Section 1.1
of the Contribution Agreement. At the Closing, Blue Ravine LLC shall issue and
deliver to the TCR Representatives the number of units of limited liability
company membership interest in Blue Ravine (the "Blue Ravine Units") set forth
in Exhibit A of the Amended and Restated Limited Liability Company Agreement
of Blue Ravine Investors, LLC (the "Blue Ravine LLC Agreement") which the
Company and Blue Ravine Realty Partners shall enter into, in a form mutually
satisfactory to each, concurrently with the Closing. By its signature hereto,
Blue Ravine LLC is hereby added as a party to the Contribution Agreement and
is included within the definition of "Transferee."
2. Merger of Blue Ravine LLC. The Operating Company agrees to
effectuate a state law merger between Blue Ravine LLC and the Operating
Company, wherein Blue Ravine LLC will be merged with and into the Operating
Company, with the Operating Company as the surviving entity (the "Blue Ravine
Merger"), upon the exercise by the managing member or the non-managing member
of Blue Ravine LLC, as applicable, of their rights pursuant to the Blue Ravine
LLC Agreement to demand the Blue Ravine Merger. Upon consummation of the Blue
Ravine Merger, each Blue Ravine Unit will be exchanged for one Unit of the
Operating Company and the holders of such Units shall have the same rights as
the other non-managing member unit holders of the Operating Company.
3. Withdrawn Property. Pinnacle Grove shall be a Withdrawn Property
as to which the Contribution Agreement is terminated, ITCR Elliot Grove
Limited Partnership shall not be
23
<PAGE>
included within the definition of "Contributor" and the Assumed Loan related
thereto shall be deleted from Schedule 2.1(b).
4. Approval of Additional Conveyances of Partnership Interests. The
parties hereto agree that each of the Contributors listed below, in lieu of
the direct transfer of such Contributor's Real Estate Property to the
Operating Company, shall cause each of the Partners listed adjacent to such
Contributor's name below to transfer to the Operating Company 100% of its
Partnership Interest (which collectively represent 100% of the Partnership
Interests in such Contributor).
Contributor Partners
Riverview LLC TCR Riverview Limited Partnership
TCR Riverside, Inc.
ITCR Villa Verde Limited TCR V.V. Limited Partnership
Partnership
TCR Villa Verde Holdings Limited
Partnership
Woodlake Holdings L.L.C. TCR Woodlake Limited Partnership
TC Residential Phoenix II, Inc.
5. Waiver of Time Requirements. Each party to the Contribution
Agreement waives the failure of any other party to the Contribution Agreement
to take an action required to be taken, or deliver a document required to be
delivered, within the time period specified in the Contribution Agreement so
long as such action is taken or such document is delivered at or prior to the
Closing.
6. Waiver of Third Party Consents. The Transferee (a) acknowledges
that no Contributor will obtain the consent from any third party to any
Management Contract, Office Lease, sublease or Service Contract necessary for
the Contributor or the Contributing Partner, as the case may be, to consummate
the transactions contemplated by the Contribution Agreement and (b) waives any
breach of the Contribution Agreement relating thereto.
7. Waivers of Deliveries at Closing. The Transferee waives the
requirements of Sections 9.2(h) and (j) of the Contribution Agreement relating
to the pre-Closing delivery of a list of Security Deposits and Rent Rolls for
each Real Property.
8. Registration of Shares. The first sentence of Section 7.10 of the
Contribution Agreement is amended to read in its entirety as follows:
24
<PAGE>
"Within six (6) months following the Closing Date or at such
later date as may be appropriate under applicable rules or guidelines
of the SEC but in all events within eleven (11) months following the
Closing Date, the Company shall cause to be filed with the SEC a shelf
registration statement and related prospectus that comply in all
material respects with applicable SEC rules providing for registration
under the Securities Act of the offer and sale by the Investors (as
defined in the Registration Rights Agreement) of the total number of
Shares that the Investors would own if they were to convert all Units
owned by them into Common Stock of the Company, and within ten (10)
Business Days following the Closing Date, the Company shall cause to
be filed with the SEC a shelf registration statement and related
prospectus that comply in all material respects with applicable SEC
rules providing for registration under the Securities Act of the offer
and sale by the Investors of all Shares received hereunder."
9. Updated Schedules. The Schedules attached hereto shall amend and
restate in their entirety the Schedules attached to the Contribution
Agreement.
10. Post Closing Adjustments. The parties hereto agree that the post-
closing adjustments required pursuant to Section 10.1 of the Contribution
Agreement shall also include (i) any unassessed or unrecorded property taxes
attributable to any period prior to the Closing; and (ii) as to non-
construction projects only, any unpaid construction or repair labor performed
or materials used prior to the Closing; provided, however, that TCR shall have
the right to contest the payment for such labor or materials if it, in good
faith, disputes the amounts charged for such labor or materials and diligently
pursues the contest of same.
11. Waivers Related to Assumed Loans. The Transferee (a)
acknowledges that no Contributor will obtain the consent of the lender under
the Assumed Loans listed on Exhibit A hereto (the "Excluded Loans") and (b)
waives any breach of the Contribution Agreement relating thereto. With respect
to each Excluded Loan, the TCR Parties waive the requirements of Section 2.2
of the Contribution Agreement requiring the Transferee to execute and deliver
the Loan Assumption Documents so long as the Transferee executes and delivers
such Loan Assumption Documents within 30 days of the date hereof. In the event
that the Transferee is unable for any reason to consummate any such
assumption, the Operating Company shall cause the Excluded Loan to be paid in
full at the expiration of such 30-day time period and such payment, in lieu of
assumption, shall not affect the determination of Net Value under Section
2.1(b) of the Contribution Agreement or the Cash Consideration designated
under Section 2.6 of the Contribution Agreement. Each Contributor (and each
Contributing Partner) shall be responsible for the payment at the expiration
of such 30-day time period of any prepayment premium or penalty due in
connection with the Operating Company's prepayment of any Excluded Loan of
that Contributor (or, in the case of a Contributing Partner, the Assumed Loan
of the Contributor of which that Contributing Partner is a Partner).
25
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 as of the
date first written above.
BRE PROPERTIES, INC.
/s/ Frank C. McDowell
-----------------------------
By: Frank C. McDowell
Its: Chief Executive Officer
BRE PROPERTY INVESTORS LLC
By: BRE Properties, Inc., its Managing
Member
/s/ Frank C. McDowell
-----------------------------
By: Frank C. McDowell
Its: Chief Executive Officer
BLUE RAVINE INVESTORS, LLC
By: BRE Properties, Inc., its Managing
Member
/s/ Frank C. McDowell
-----------------------------
By: Frank C. McDowell
Its: Chief Executive Officer
26
<PAGE>
Exhibit A
Exluded Loans
Project Name Location Lender
- ------------ -------- ------
1. Somerset Park Vallejo, CA Housing Authority of the City
of Vallejo, California
2. Riverview Santa Ana, CA Merrill Lynch
3. Pinnacle at Lakeside Salt Lake City, UT FNMA
27
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-24915) of BRE Properties, Inc. and in the related Prospectus of our
report dated September 11, 1997, with respect to the combined statement of gross
income and direct operating expenses of certain Trammell Crow Residential
multifamily properties for the year ended December 31, 1996, included in this
Current Report on Form 8-K.
/s/ Ernst Young LLP
November 20, 1997
28
<PAGE>
NEWS RELEASE [LOGO OF BRE]
Exhibit 99.1
FOR IMMEDIATE RELEASE
Contact: Lauren L. Barr
BRE Properties, Inc.
(415) 445-6523
BRE PROPERTIES COMPLETES ACQUISITION OF TRAMMELL CROW RESIDENTIAL'S
WESTERN U.S. ASSETS AND OPERATIONS
--BRE Becomes Nation's 6th Largest Apartment REIT in
Transaction Valued at $585 Million--
SAN FRANCISCO (November 18, 1997) BRE Properties, Inc. (NYSE: BRE) today
announced the completion of its acquisition of Trammell Crow Residential's
assets and operations in the Western U.S. (TCR-West). BRE's equity market
capitalization now totals approximately $1.2 billion, making it the nation's 6th
largest multifamily real estate investment trust (REIT). The calculation is
based on BRE's most recent closing stock price and the number of common shares
and Operating Company Units ("OP Units") outstanding following the acquisition.
The acquisition comprises 7,231 apartment homes (including
approximately 2,445 units under development) as well as TCR-West's
development, construction, and third-party property management operations. The
combined company will own 81 multifamily communities, totaling 20,774
apartment units in twelve major metropolitan regions in California, Arizona,
Washington, Oregon, Nevada, New Mexico, Utah and Colorado.
In connection with the transaction, BRE issued $100 million of common
stock (3,713,331 shares) to Prudential Real Estate Investors at a share price
of $26.93. In addition, former partners of TCR-West and other investors
received approximately $72 million in OP Units (2,672,088 units). Additional
OP Units, valued at approximately $15.5 million, may be issued at future dates
in connection with performance-based measures. The OP Units will be
convertible into shares of BRE common stock on a 1:1 basis, or into an
equivalent amount of cash at BRE's election, beginning one year from the date
of issue.
The balance of the purchase price was funded with approximately $158
million in cash and $126 million in assumed mortgages. As part of the
transaction, BRE obtained the nationally-recognized development team of TCR-
West, with eight apartment sites under various stages of development. Costs to
complete the development properties are estimated at $113.5 million and are
expected to be funded incrementally over the next 24 months.
- BRE Properties, Inc. - One Montgomery Street, Suite 2500 -
- Telesis Tower, San Francisco, CA 94104-5525 -
- Fax: 415-445-6505 - [email protected] -
<PAGE>
- more -
Frank C. McDowell, president and chief executive officer of BRE
Properties, said, "The acquisition significantly advances BRE's goal of
becoming the preeminent multifamily REIT in the West. Not only do we add more
than 7,200 high-quality apartment homes in our target markets, we benefit from
the combined talents of 1,000 of the best-trained professionals in the
multifamily business as associates of TCR-West's development, construction and
property management divisions join forces with the BRE team.
"We believe that the people, assets, expanded geographic presence and
operating strengths of the 'new' company gives BRE the ability to more
effectively implement its performance and growth goals. Specifically, by
adding the proven development capabilities of TCR-West, we believe BRE can
significantly accelerate the growth rate of its funds from operations (FFO).
Leading that effort will be Bruce C. Ward, former Group Managing Partner of
TCR-West, who will join BRE's senior management team as Executive Vice
President with primary responsibility for acquisition and development.
Certain matters discussed in this press release are forward-looking
statements within the meaning of federal securities laws. Although BRE
believes that the expectations reflected in such forward-looking statements
are based on reasonable assumptions, the company can give no assurance that
such expectations will be achieved. Factors that could cause the actual
results to differ materially from BRE's current expectations include general
economic conditions, local real estate conditions, the timely development and
lease-up of apartment communities, legislative or other regulatory decisions,
future interest rate levels or capital markets conditions, as well as other
risks detailed from time to time in BRE's SEC reports. For more details,
please refer to BRE's most recent Annual Report on Form 10-K, as amended, for
the year ended December 31, 1996.
BRE Properties, Inc., headquartered in San Francisco, is a self-
administered, self-managed and fully integrated real estate investment trust
focusing on the acquisition, development, ownership and management of
multifamily properties in the Western United States. Today, BRE owns and
operates 73 apartment communities totaling 18,329 units in California,
Arizona, Washington, Oregon, Nevada, New Mexico, and Utah. The company
currently has eight other apartment communities under development totaling
2,445 units and will shortly expand into Colorado. Additional information
about BRE can be found on the company's web site (http:\\breproperties.com).
###
- BRE Properties, Inc. - One Montgomery Street, Suite 2500 -
- Telesis Tower, San Francisco, CA 94104-5525 -
- Fax: 415-445-6505 - [email protected] -
