<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. NEITHER THIS
PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS TO WHICH IT RELATES SHALL CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-24915
PROSPECTUS SUPPLEMENT (SUBJECT TO COMPLETION, ISSUED JUNE 12, 1997)
(TO PROSPECTUS DATED JUNE 12, 1997)
$50,000,000
BRE PROPERTIES, INC.
% NOTES DUE 2007
-----------------
INTEREST PAYABLE JUNE AND DECEMBER
-------------------
BRE PROPERTIES, INC. ("BRE" OR THE "COMPANY") IS A FULLY INTEGRATED REAL ESTATE
OPERATING COMPANY WHICH OWNS, ACQUIRES, REHABILITATES AND MANAGES APARTMENT
COMMUNITIES IN TARGETED MARKETS IN CALIFORNIA, ARIZONA, WASHINGTON,
OREGON AND NEVADA. AS OF APRIL 15, 1997, BRE'S MULTIFAMILY PORTFOLIO
INCLUDED 55 APARTMENT COMMUNITIES AGGREGATING 13,015 UNITS. THE
COMPANY HAS ELECTED TO OPERATE AS A REAL ESTATE INVESTMENT TRUST
(A "REIT") FOR FEDERAL INCOME TAX PURPOSES.
---------------------
THE NOTES WILL MATURE ON JUNE , 2007 AND WILL NOT BE REDEEMABLE PRIOR TO
MATURITY OR SUBJECT TO ANY SINKING FUND
PROVISION. THE NOTES WILL BE REPRESENTED BY A GLOBAL NOTE REGISTERED IN THE
NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY, AS DEPOSITARY (THE
"DEPOSITARY"). BENEFICIAL INTERESTS IN THE NOTES WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED BY THE PARTICIPANTS OF THE DEPOSITARY. EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS, NOTES IN
CERTIFICATED FORM WILL NOT BE ISSUED IN EXCHANGE
FOR THE GLOBAL NOTE.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELATING
TO AN INVESTMENT IN THE NOTES.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
PRICE % AND ACCRUED INTEREST
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
PER NOTE.................................. % % %
TOTAL..................................... $ $ $
</TABLE>
- ------------
(1) PLUS ACCRUED INTEREST FROM JUNE , 1997.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL UNDERWRITERS AGAINST
CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SEE "UNDERWRITING."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $100,000.
------------------------
THE NOTES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS AND SUBJECT
TO APPROVAL OF CERTAIN LEGAL MATTERS BY BROWN & WOOD LLP, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE ON OR ABOUT
JUNE , 1997, THROUGH THE BOOK-ENTRY FACILITIES OF THE DEPOSITORY TRUST
COMPANY, AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER
BANCAMERICA SECURITIES, INC.
<PAGE>
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
JUNE , 1997
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DO THEY CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE NOTES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR
ANY SALE OR OFFER MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
References in this Prospectus Supplement and the accompanying Prospectus to
the "Company" and "BRE" include BRE Properties, Inc. and its consolidated
subsidiaries, unless otherwise expressly stated or the context otherwise
requires. This Prospectus Supplement and the accompanying Prospectus, as well as
certain of the information incorporated by reference in the accompanying
Prospectus, contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company's actual results could differ materially from those set forth in such
forward-looking statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Forward-Looking Statements."
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company................................................................................................ S-3
Recent Events.............................................................................................. S-4
Use of Proceeds............................................................................................ S-6
Capitalization............................................................................................. S-6
Selected Consolidated Financial and Other Data............................................................. S-7
Business and Properties.................................................................................... S-8
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... S-19
Description of Notes....................................................................................... S-27
Underwriting............................................................................................... S-29
Legal Matters.............................................................................................. S-30
PROSPECTUS
Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 3
The Company................................................................................................ 4
Risk Factors............................................................................................... 4
Ratios of Earnings to Fixed Charges........................................................................ 10
Use of Proceeds............................................................................................ 10
Selling Shareholder........................................................................................ 10
Description of Debt Securities............................................................................. 10
Description of Preferred Shares............................................................................ 29
Description of Depositary Shares........................................................................... 34
Description of Common Stock Warrants....................................................................... 37
Description of Common Shares............................................................................... 38
Restrictions on Transfers of Capital Stock; Redemption..................................................... 41
Federal Income Tax Considerations.......................................................................... 42
Plan of Distribution....................................................................................... 48
Experts.................................................................................................... 49
Legal Matters.............................................................................................. 49
</TABLE>
------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
THE COMPANY
BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires,
rehabilitates and manages apartment communities in nine targeted metropolitan
markets in the western United States. As of April 15, 1997, BRE's multifamily
portfolio included 55 apartment communities aggregating 13,015 units in
California, Arizona, Washington, Oregon and Nevada. Founded in 1970, the Company
has paid 107 consecutive quarterly dividends to its shareholders since
inception.
The Company's business objective is to become the preeminent owner and
operator of apartment communities in key growth markets of the western United
States. It seeks to achieve long-term and sustainable growth in shareholder
value through increasing levels of per share funds from operations and capital
appreciation. The Company believes that its future growth will be supported by
the continued implementation of its long-term strategic plan. Key
characteristics of the plan include:
- A research-driven investment focus that includes:
-- the acquisition of apartment communities in defined western United
States markets
-- the balancing of its multifamily portfolio across western
metropolitan markets with diverse economic and employment
characteristics to reduce individual market risk
-- the selective sale of properties which management believes have
reached maximum cash flow growth, with subsequent reinvestment of
sales proceeds into properties which management believes have
greater long-term cash flow growth prospects
- The achievement of operating improvements through the use of internal
property management; and
- The maintenance of a strong balance sheet for maximum financial
flexibility.
In March 1996, the Company completed its merger with Real Estate Investment
Trust of California (the "Merger"), which significantly advanced the objectives
of the Company's long-term strategic plan. From the Merger until April 15, 1997,
the Company:
- significantly increased the number of multifamily units owned from 5,664
to 13,015 units;
- completed the sale of approximately $191 million of selected assets;
- internalized property management; and
- established a critical mass of at least 1,000 multifamily units in seven
of its nine targeted markets, in order to achieve operating efficiencies.
The following table summarizes certain information relating to the Company's
apartment communities:
<TABLE>
<CAPTION>
PERCENTAGE
OF NET
NUMBER OF NUMBER OF PERCENTAGE OF OPERATING
METROPOLITAN MARKET PROPERTIES(1) UNITS(1) TOTAL UNITS(1) INCOME(2)
- ------------------------------------------------------------ ----------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
San Francisco Bay Area...................................... 5 1,921 15% 27%
Phoenix..................................................... 10 2,326 18 15
San Diego................................................... 9 1,899 14 14
Los Angeles/Orange County................................... 7 1,598 12 11
Seattle..................................................... 5 1,393 11 10
Sacramento.................................................. 6 1,143 9 8
Las Vegas................................................... 4 814 6 6
Tucson...................................................... 7 1,301 10 5
Portland.................................................... 2 620 5 4
--
----------- ----- -----
55 13,015 100% 100%
--
--
----------- ----- -----
----------- ----- -----
</TABLE>
- ------------------------
(1) As of April 15, 1997.
(2) Contribution to multifamily net operating income ("NOI") for the quarter
ended March 31, 1997. Includes pro forma NOI contribution from the
acquisition of Red Hawk Ranch (which was acquired on April 14, 1997), as if
such acquisition had occurred on January 1, 1997. References in this
Prospectus Supplement to the term "pro forma" in connection with the Red
Hawk Ranch acquisition represent anticipated property operating results,
assuming the Company's ownership of the property for the quarter ended March
31, 1997, based on the budgeted property operating results for the quarter
ending June 30, 1997.
S-3
<PAGE>
RECENT EVENTS
COMMON STOCK OFFERING
In May 1997, the Company completed a public offering of 4,600,000 shares of
its Common Stock, 650,000 of which were sold by a non-management shareholder and
the remainder of which were sold by the Company (the "Equity Offering"). Net
proceeds to the Company from the Equity Offering totaled approximately $91.2
million, and were used to repay indebtedness.
ACQUISITIONS
In March 1996, in connection with the Merger, the Company acquired
approximately $274.4 million aggregate book value in equity investments in real
estate, including 22 multifamily properties, totaling approximately 3,581 units.
From the Merger until April 15, 1997, the Company acquired the following
apartment communities:
<TABLE>
<CAPTION>
INVESTMENT
AS OF APRIL 15,
NUMBER OF 1997
PROPERTY METROPOLITAN MARKET DATE ACQUIRED UNITS (IN MILLIONS)
- ---------------------------- ------------------------------- ------------------ ----------- -------------------
<S> <C> <C> <C> <C>
Ballinger Commons Seattle April 1996 485 $ 29.4
Thrasher's Mill Seattle April 1996 214 10.3
Arcadia Cove Phoenix July 1996 432 24.8
Berkshire Court Portland July 1996 266 16.5
Foster's Landing San Francisco Bay Area September 1996 490 59.8
Sycamore Valley Los Angeles/Orange County September 1996 440 23.7
Newport Landing Phoenix November 1996 240 12.9
(Phase II)
Promontory Point San Francisco Bay Area December 1996 400 43.6
Talavera Las Vegas February 1997 350 26.2
Red Hawk Ranch San Francisco Bay Area April 1997 453 58.7
----- ------
Total 3,770 $ 305.9
----- ------
----- ------
</TABLE>
S-4
<PAGE>
DISPOSITIONS
From the Merger until April 15, 1997, the Company disposed of the following
properties:
<TABLE>
<CAPTION>
SALES
PROCEEDS
(IN
PROPERTY LOCATION DATE CLOSED SQUARE FEET MILLIONS)
- -------------------------------------- ------------------------ ------------------ ------------- -----------
<S> <C> <C> <C> <C>
West Lake Village Daly City, CA July 1996 N/A $ 58.0
LSI Logic Fremont, CA August 1996 74,000 29.4(1)
Fremont 3 Fremont, CA August 1996 64,000 (1)
Oakcreek I Milpitas, CA August 1996 30,000 (1)
Oakcreek II Milpitas, CA August 1996 40,000 (1)
Santa Clara County Office Santa Clara, CA August 1996 27,000 (1)
Westridge San Diego, CA August 1996 52,000 (1)
Sorrento Technology San Diego, CA August 1996 93,000 (1)
Mini Cal Storage Bakersfield, CA September 1996 61,230 1.4
Grossman's Warehouse Ventura, CA November 1996 71,000 2.4
Santa Maria Business Park Santa Maria, CA December 1996 77,703 2.7
Psicor Ranch Bernardo, CA December 1996 45,860 4.2
Distribution Facility Santa Fe Springs, CA December 1996 10,000 0.5
525 Almanor Sunnyvale, CA December 1996 86,000 6.9
Peppertree Hayward, CA December 1996 54,000 2.1
Elsinore Valley Center Lake Elsinore, CA April 1997 68,500 1.7
The Hub Fremont, CA April 1997 490,000 69.6(2)
Central Shopping Center Ventura, CA April 1997 62,600 (2)
Santa Fe Springs Plaza Santa Fe Springs, CA April 1997 169,100 (2)
Montalvo Industrial Oxnard, CA April 1997 53,500 1.1
Villa Serra Cupertino, CA April 1997 N/A 10.9
------------- -----------
Total 1,629,493 $ 190.9
------------- -----------
------------- -----------
</TABLE>
- ------------------------
(1) Properties were sold as a single transaction for aggregate sales proceeds of
$29.4 million.
(2) Properties were sold as a single transaction for aggregate sales proceeds of
$69.6 million.
EARTHQUAKE AND FLOOD INSURANCE
Effective April 8, 1997, the Company increased its available coverage for
earthquake and flood insurance from $50 million to $60 million. The increased
coverage was obtained at no increase in policy premiums. The current policies
expire in August 1998. The Company intends to renew these policies; however, no
assurance can be given that similar coverage at similar rates and terms will be
available at the current policies' expiration.
S-5
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
offered hereby are estimated to be approximately $49.6 million. The Company
intends to use such net proceeds to repay approximately $23.5 million of
indebtedness which the Company expects will be outstanding under the Company's
$30 million line of credit on the closing date of this offering, and for other
general corporate purposes. As of June 10, 1997, borrowings of approximately
$23.5 million were outstanding under the Company's lines of credit, which
borrowings were used to finance acquisitions and, to a lesser extent, as part of
its cash management program.
As of June 10, 1997, the Company's unsecured lines of credit had the
following interest rates and maturities:
<TABLE>
<CAPTION>
LINE OF CREDIT INTEREST RATE MATURITY
- -------------------------------------------------------------- ------------------- -----------
<S> <C> <C>
$120 million.................................................. LIBOR + 1.125% April 1998
$30 million................................................... LIBOR + 1% April 1999
</TABLE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company (i) as of March 31, 1997, (ii) as adjusted to give effect to the
Equity Offering and the application of the net proceeds therefrom to repay
indebtedness and (iii) as further adjusted to give effect to the offering made
hereby and the application of the estimated net proceeds therefrom to repay
indebtedness outstanding under the Company's lines of credit. The table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein and the Consolidated
Financial Statements and Notes thereto incorporated into the accompanying
Prospectus by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended (the "1996 Form 10-K"), and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
------------- ----------- ------------------
(UNAUDITED, DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness:
Unsecured lines of credit..................................... $ 147,000 $ 55,800(1) $ 6,250(1)
Notes due 2007................................................ -- -- 50,000
Unsecured notes payable....................................... 73,000 73,000 73,000
Mortgage loans payable........................................ 114,575 114,575 114,575
------------- ----------- --------
Total Indebtedness.............................................. 334,575 243,375 243,825
------------- ----------- --------
Shareholders' Equity:
Preferred Stock, $0.01 par value per share, 10,000,000 shares
authorized, no shares issued or outstanding................. -- -- --
Common Shares, $0.01 par value per share, 100,000,000
authorized, 33,025,457 issued and outstanding, 36,975,457 as
adjusted(2)................................................. 330 370 370
Additional paid-in capital.................................... 390,133 481,293 481,293
Accumulated net income in excess of cumulative dividends...... 75,660 75,660 75,660
------------- ----------- --------
Total Shareholders' Equity...................................... 466,123 557,323 557,323
------------- ----------- --------
Total Capitalization............................................ $ 800,698 $ 800,698 $ 801,148
------------- ----------- --------
------------- ----------- --------
</TABLE>
- ------------------------
(1) As of June 10, 1997, approximately $23.5 million of indebtedness was
outstanding under the Company's unsecured lines of credit. See "Use of
Proceeds."
(2) Excludes 4,478,185 Common Shares issuable under the Company's stock option
and dividend reinvestment plans.
S-6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected financial and other data have been derived from the
financial statements of the Company and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and pro forma data included
in the Company's filings under the Exchange Act incorporated by reference in the
accompanying Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth herein. Data for the quarter
ended March 31, 1997 does not purport to be indicative of results to be expected
for the full fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues.............................. $ 39,829 $ 49,806 $ 56,970 $ 65,387 $ 101,651 $ 18,825 $ 31,727
Real estate expenses.................. 11,191 15,230 17,256 21,540 31,030 5,765 9,615
--------- --------- --------- --------- --------- --------- -----------
Net operating income.................. 28,638 34,576 39,714 43,847 70,621 13,060 22,112
Interest expense...................... 6,074 5,656 5,599 7,973 16,325 2,453 5,889
Depreciation expense.................. 4,787 6,097 7,080 7,864 13,283 2,189 4,168
General and administrative expenses... 3,239 3,292 4,469 4,221 3,999 1,034 1,114
Provision for investment loss......... -- -- -- 2,000 -- -- --
Net gain on sales of investments...... 14,199 506 1,646 221 52,825 -- --
--------- --------- --------- --------- --------- --------- -----------
Net income............................ $ 28,737 $ 20,037 $ 24,212 $ 22,010 $ 89,839 $ 7,384 $ 10,941
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT OTHER INFORMATION) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Investment in rental property, at
cost.................................. $ 252,239 $ 310,003 $ 373,676 $ 371,438 $ 816,389 $ 657,480 $ 843,300
Total assets............................ 231,477 293,628 343,853 354,895 783,714 626,611 809,861
Total indebtedness...................... 80,155 45,416 97,169 112,290 311,985 207,335 334,575
Shareholders' equity.................... 148,164 245,156 243,436 239,248 464,114 410,237 466,123
Common stock outstanding................ 15,842 21,833 21,851 21,942 32,880 32,663 33,025
OTHER DATA
Cash provided by operating activities... $ 23,412 $ 24,121 $ 31,063 $ 27,068 $ 47,887 $ 11,333 $ 14,899
Cash used in investing activities....... (27,072) (57,430) (66,740) (3,820) (132,082) (13,306) (27,499)
Cash (used in) provided by financing
activities............................ (2,239) 42,216 25,821 (11,077) 68,322 (7,750) 13,658
Interest coverage (1)................... 4.2x 5.5x 6.3x 5.0x 4.1x 4.9x 3.6x
Fixed charge coverage (2)............... 3.7x 5.0x 5.2x 4.4x 3.7x 4.4x 3.3x
Ratio of earnings to fixed charges (3).. 3.4x 4.4x 5.0x 4.0x 3.2x 4.0x 2.8x
FUNDS FROM OPERATIONS
Net income.............................. $ 28,737 $ 20,037 $ 24,212 $ 22,010 $ 89,839 $ 7,384 $ 10,941
Plus: depreciation of real estate....... 4,787 6,097 7,080 7,864 13,283 2,189 4,168
Provision for investment losses......... -- -- -- 2,000 -- -- --
Less: Net gain on sales of investments.. (14,199) (506) (1,646) (221) (52,825) -- --
--------- --------- --------- --------- --------- --------- ---------
Funds from operations (4)............... $ 19,325 $ 25,628 $ 29,646 $ 31,653 $ 50,297 $ 9,573 $ 15,109
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER INFORMATION (AT END OF PERIOD)
Total apartment communities............. 8 13 21 23 53 47 54(5)
Total number of apartment units......... 2,334 3,442 5,067 5,475 12,212 9,245 12,562(5)
</TABLE>
- --------------------------
(1) Interest coverage represents net income, less net gain on sales of
investments, plus the provision for investment loss, interest expense, and
depreciation, divided by interest expense.
(2) Fixed charge coverage represents net income, less net gain on sales of
investments, plus the provision for investment loss, interest expense, and
depreciation, divided by the sum of interest expense and scheduled principal
payments on debt.
S-7
<PAGE>
(3) For the purposes of computing these ratios, earnings have been calculated by
adding fixed charges to income before net gains (losses) on sales of
investments. Fixed charges consist of interest costs (including capitalized
interest), amortization of debt expense and one-third of the rental expense,
which is deemed to be the interest component of rental expense. Assuming
that the Equity Offering and the application of the net proceeds therefrom
to repay approximately $91.2 million of indebtedness had occurred on the
first day of the respective periods, the ratio of earnings to fixed charges
on a pro forma basis would have been 3.8x and 5.0x for the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively. Assuming
that the Equity Offering and the application of the net proceeds therefrom
to repay approximately $91.2 million of indebtedness, as well as the
offering of the Notes made hereby and the application of the estimated net
proceeds therefrom to repay approximately $23.5 million of indebtedness as
described above under "Use of Proceeds," had occurred on the first day of
the respective periods, the ratio of earnings to fixed charges on a pro
forma basis would have been 4.1x and 5.9x for the quarter ended March 31,
1997 and year ended December 31, 1996, respectively. The foregoing pro forma
information does not purport to represent the actual ratios of earnings to
fixed charges that would have occurred had the transactions referred to
above in fact occurred on the dates specified, nor does it purport to be
indicative of ratios of earnings to fixed charges that may be achieved in
the future.
(4) Management 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 the Company'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 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 Company, and therefore the Company's FFO and the FFO of other
REITs may not be directly comparable.
(5) Total does not reflect the April 14, 1997 acquisition of Red Hawk Ranch, a
453-unit apartment community located in the San Francisco Bay Area.
BUSINESS AND PROPERTIES
GENERAL
BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires,
rehabilitates and manages apartment communities in nine targeted metropolitan
markets in the western United States. As of April 15, 1997, BRE's multifamily
portfolio included 55 apartment communities aggregating 13,015 units in
California, Arizona, Washington, Oregon and Nevada. On that date, BRE also owned
ten commercial and retail properties and held limited partnership interests in
two shopping centers and one apartment community. Founded in 1970, the Company
has paid 107 consecutive quarterly dividends to its shareholders since
inception.
The Company's business objective is to become the preeminent owner and
operator of apartment communities in key growth markets of the western United
States. It seeks to achieve long-term and sustainable growth in shareholder
value through increasing levels of per share funds from operations and capital
appreciation. The Company believes that its future growth will be supported by
the continued implementation of its long-term strategic plan. Key
characteristics of the plan include:
- A research-driven investment focus that includes:
-- the acquisition of apartment communities in defined western United
States markets
-- the balancing of its multifamily portfolio across western
metropolitan markets with diverse economic and employment
characteristics to reduce individual market risk
-- the selective sale of properties which management believes have
reached maximum cash flow growth, with subsequent reinvestment of
sales proceeds into properties which management believes have greater
long-term cash flow growth prospects
- The achievement of operating improvements through the use of internal
property management; and
- The maintenance of a strong balance sheet for maximum financial
flexibility.
S-8
<PAGE>
In March 1996, the Company completed its merger with Real Estate Investment
Trust of California (the "Merger"), which significantly advanced the objectives
of the Company's long-term strategic plan. From the Merger until April 15, 1997,
the Company:
- significantly increased the number of multifamily units owned from 5,664
to 13,015 units;
- completed the sale of approximately $191 million of selected assets;
- internalized property management; and
- established a critical mass of at least 1,000 multifamily units in seven
of its nine targeted markets, in order to achieve operating efficiencies.
INVESTMENT FOCUS
BRE's research-driven investment focus seeks to identify markets in the
western United States that exhibit strong demographic and economic trends.
Properties are selected based on proximity to major employment and
transportation centers and opportunities to increase cash flow by upgrading
property management, marketing or physical attributes. The Company does not
limit its investment focus to a single multifamily property type; rather it
selects those assets which it believes present opportunities for increasing
levels of cash flow. During 1996, the Company added approximately 6,700
apartment units, which represent approximately $440 million in assets, to its
multifamily portfolio.
METROPOLITAN MARKETS
The Company has focused its investments in the western United States because
it believes that the western markets will outperform the nation as a whole in
employment growth and multifamily household formations, providing the Company
with significant growth potential. The Company believes that it has the
opportunity to emerge as the preeminent owner and operator of apartment
communities in the western United States, due primarily to its existing presence
and growing operating efficiency in nine of the most populous and economically
diverse markets in California, the Pacific Northwest and the Mountain States.
The Company currently owns apartment communities in the San Francisco Bay Area,
San Diego, Los Angeles/Orange County (including Riverside/San Bernardino),
Sacramento, Seattle, Portland, Phoenix, Las Vegas and Tucson. BRE believes that
these markets contain a combination of diverse employment and economic
characteristics that should produce growing cash flows across various market
cycles.
The following chart illustrates the projected employment and multifamily
household formation growth in BRE's current and prospective markets from 1997
through 2000. There can be no assurance that the forecasted employment or
multifamily household formation growth will, in fact, occur or that BRE will be
able to make suitable investments in such markets.
[Bar graph showing projected rates of growth of annual employment and
multifamily household formation for the period 1997-2000 in certain California,
Pacific Northwest and Mountain States Markets, and for the nation as a whole,
including a summary of the Company's first quarter 1997 NOI in such markets.]
S-9
<PAGE>
ACQUISITION STRATEGY
Over the last five years, the Company has increasingly focused its
investments in the multifamily sector. The following table demonstrates this
historical change in its multifamily portfolio composition:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- ----------
MULTIFAMILY PROPERTIES 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------- ---- ---- ---- ---- -- ----------
<S> <C> <C> <C> <C> <C> <C>
Percentage of portfolio at cost, at the end of the period........... 46% 55% 65% 72% 87% 88%
Percentage of total revenue, for the period......................... 53% 51% 71% 76% 77% 84%
</TABLE>
The following table illustrates the increase in apartment communities and
units in the Company's portfolio following the Merger:
[A chart showing bar graph comparing the number of multifamily properties and
units owned by the Company at the end of each year from 1992 to 1996 and as of
April 15, 1997. The chart also includes a comparison of multifamily units owned
by the Company before and after the Merger.]
S-11
<PAGE>
ACHIEVEMENT OF OPERATING EFFICIENCIES
The Company's strategy is to acquire a critical mass of at least 1,000
apartment units in each of its markets in order to achieve operating
efficiencies in purchasing power and human resource allocation. The chart below
compares BRE's ownership of apartment units in each of its markets as of
December 31, 1995 and April 15, 1997. As of December 31, 1995, the Company had
reached critical mass in only two of its markets. As of April 15, 1997, the
Company had achieved this level of operating efficiency in seven of its nine
markets.
[Bar graph showing geographic concentration of multifamily units owned by the
Company as of December 31, 1995 and April 15, 1997, including number of units
owned on each such date in nine defined markets.]
S-12
<PAGE>
NET OPERATING INCOME ("NOI") CONTRIBUTION BY REGION
While the Company believes that achieving critical mass in each of its
markets is important, it views its ability to rebalance individual properties
within its portfolio, as well as its overall exposure to different markets, as a
key element in its efforts to maximize NOI and to achieve higher overall
returns. Often the number of units in a given market, as a percentage of the
total multifamily portfolio, is not proportional to the percentage of the
multifamily portfolio's NOI generated by that market. For example, at April 15,
1997, the San Francisco Bay Area market represented 15% of the multifamily
portfolio by unit count, but 27% of the NOI generated by the Company's
multifamily portfolio. Conversely, the Tucson market represented 10% of the
multifamily portfolio by unit count, but only 5% of the multifamily portfolio's
NOI.
Over the past year, the Company has adjusted its multifamily portfolio in
order to selectively increase its NOI exposure to markets which it believes are
growing more rapidly, and to selectively decrease its NOI exposure to markets
which it believes are growing less rapidly. The following chart compares the NOI
contributed by each market as a percentage of the total NOI for the Company's
multifamily portfolio for each of the quarterly periods ended March 31, 1996 and
March 31, 1997.
[Bar graph comparing the NOI contributed by each of the defined markets of the
Company as a percentage of the NOI for the Company's multifamily portfolio for
each of the quarterly periods ended March 31, 1996 and March 31, 1997.]
RESEARCH DRIVEN
To create long-term shareholder value, the Company believes that investment
decisions should be driven by research and risk management considerations. BRE
employs a full-time Director of Research who evaluates potential markets based
on the following considerations, among others: inventory size, new construction,
supply constraints, and economic and demographic changes affecting resident
demand. The objective of in-house research is to balance the Company's portfolio
across western metropolitan markets with diverse economic and employment
characteristics to minimize individual market risk. The results of this research
are utilized by the Company's Investment Committee and Board of Directors to
assess the risks and rewards of potential investments. The Company believes that
its in-house research capabilities provide it with a competitive advantage in
balancing risk and reward within its targeted markets.
S-13
<PAGE>
PROPERTY EVALUATION PROCESS
Based on the Company's research-driven market selection, management
identifies specific properties which it believes will perform competitively
within their submarket. When a potential acquisition is identified, the Company
uses the following resources to review the property's merits:
Acquisitions. The Company's Acquisition Department evaluates the potential
acquisition for compliance with the Company's investment criteria, including
purchase price, competitive factors, prospects for NOI growth and long-term
contribution to the Company's cash flow.
Regional Property Management. The Company's Regional Property Management
evaluates the potential acquisition's performance prospects based on its
marketing attributes relative to competing properties within the submarket and
to other properties within the Company's portfolio. Such attributes include
community and unit amenities, floor plan design and market appeal.
Construction. The Company's Construction Department evaluates the physical
and environmental integrity of the potential acquisition in order to identify
opportunities and needs for rehabilitation. The Construction Department also
defines the scope, establishes the budget, and implements any rehabilitation.
DISPOSITIONS AND REDEPLOYMENT
The Company believes that dispositions play a critical role in its overall
strategy. From time to time the Company selects properties for sale which it
believes have reached maximum cash flow. Proceeds generated by such sales are
typically reinvested into properties that it believes have greater long-term
cash flow growth prospects.
INTERNAL PROPERTY MANAGEMENT
All of the Company's wholly owned multifamily properties are managed
internally. The Company has a regional management structure with seven local
offices to serve its target markets. By hiring experienced Regional Property
Managers at the local level, BRE believes it can more readily respond to changes
in local market conditions and better serve its local resident populations. The
Company supports its management team with computer systems, which track leasing,
rent collection, expense activity and turnover at each of its communities.
The Regional Property Managers develop and implement an annual business plan
for each asset which:
- Focuses on the growth of rental income and other revenues by keeping
rental rates at or above those of competitive properties;
- Maintains high physical and economic occupancy by integrating local market
knowledge and surveys with market research prepared by the Company's
Director of Research;
- Provides amenities and services designed to optimize revenues from target
resident profiles; and
- Controls expenses and allocates resources in order to increase the
operating margins of each asset.
Depending upon the nature of the particular property, the plan may include
selected renovations and improvements to undermanaged acquisition properties or
to properties which are currently underperforming their submarket. As part of
the plan, each Regional Property Manager is given wide operating authority and
responsibility to improve growth in NOI under the direct review of senior
management.
BRE believes it has a unique ability to accommodate future growth due to the
strength of its property management structure. The Company demonstrated its
ability to integrate new property acquisitions rapidly following its successful
internalization of property management after the Merger and after the Company's
subsequent acquisitions.
S-14
<PAGE>
BALANCE SHEET STRENGTH AND FINANCIAL ACCOUNTING POLICIES
The Company's goal is to manage its capital structure prudently in order to
enhance its financial flexibility. To promote this goal, BRE maintains
conservative debt coverage ratios; for the three months ended March 31, 1997,
the Company had a fixed charge coverage ratio of 3.3:1 and an interest coverage
ratio of 3.6:1 (both calculated as described under "Selected Consolidated
Financial and Other Data"). In addition, the Company follows conservative
accounting policies with respect to the treatment of recurring operating
expenses. For example, the replacement costs for carpet, window coverings and
appliances are charged to current operating periods and are not capitalized.
The Company intends to manage its balance sheet in order to maintain
investment grade senior debt ratings, which enhances the Company's flexibility
in the capital markets. However, the ratings on the Company's indebtedness will
depend upon, among other things, its results of operations and financial
condition, and there can be no assurance that the Company will be able to
maintain investment grade senior debt ratings in the future.
The Company's principal executive offices are located at One Montgomery
Street, Telesis Tower, Suite 2500, San Francisco, California 94104 and its
telephone number is (415) 445-6530.
S-15
<PAGE>
PROPERTIES
(AS OF APRIL 15, 1997)
<TABLE>
<CAPTION>
DATES MORTGAGE
PROPERTIES BY METROPOLITAN NUMBER ACQUIRED/ INVESTMENT INDEBTEDNESS PHYSICAL
MARKET CITY OF UNITS CONSTRUCTED (IN THOUSANDS) (IN THOUSANDS) OCCUPANCY(1)
- -------------------------------- --------------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
APARTMENT COMMUNITIES--WHOLLY OWNED
CALIFORNIA
- --------------------------------
SAN FRANCISCO BAY AREA
Verandas Union City 282 1993/1989 $ 16,230 $ 11,835 97%
Sharon Green Menlo Park 296 1971/1970 7,225 18,846 96
Foster's Landing Foster City 490 1996/1987 59,841 -- 98
Promontory Point San Ramon 400 1996/1992 43,640 -- 86(2)
Red Hawk Ranch Fremont 453 1997/1995-97 58,700 -- 76(2)
------------- --------------- --------------- ------
TOTAL SAN FRANCISCO BAY AREA 1,921 185,636 30,681 97%
------------- --------------- --------------- ------
SAN DIEGO
Canyon Villas Chula Vista 183 1996/1981 15,421 -- 98%
Lakeview Village Spring Valley 300 1996/1985 19,925 -- 96
Countryside Village El Cajon 96 1996/1989 5,045 -- 99
Montanosa San Diego 472 1992/1990 30,242 16,833 94
Cimmaron San Diego 184 1993/1986 9,571 12,912 93
Hacienda San Diego 192 1993/1986 9,967 (3) 94
Westpark San Diego 96 1993/1986 4,983 (3) 98
Terra Nova Villas Chula Vista 232 1994/1985 14,707 9,240 95
Winchester San Diego 144 1994/1987 7,411 -- 98
------------- --------------- --------------- ------
TOTAL SAN DIEGO 1,899 117,272 38,985 95%
------------- --------------- --------------- ------
LOS ANGELES/ORANGE COUNTY
Park Glenn Camarillo 150 1996/1963 8,806 -- 98%
Santa Paula Village Santa Paula 56 1996/1970 2,751 -- 98
Windrush Village Colton 366 1996/1985 18,751 -- 95
The Summit Chino Hills 125 1996/1989 9,215 -- 94
Candlewood North Northridge 189 1996/1964-95 10,600 -- 95
Village Green La Habra 272 1972/1971 3,444 -- 95
Sycamore Valley Fountain Valley 440 1996/1969 23,708 -- 98
------------- --------------- --------------- ------
TOTAL LOS ANGELES/ORANGE
COUNTY 1,598 77,275 -- 96%
------------- --------------- --------------- ------
SACRAMENTO
Hazel Ranch Fair Oaks 208 1996/1985 12,377 -- 97%
Rocklin Gold Rocklin 121 1996/1990 7,801 -- 98
Shaliko Rocklin 151 1996/1990 10,264 -- 96
Quail Chase Folsom 90 1996/1990 6,527 -- 100
Canterbury Downs Roseville 173 1996/1993 11,541 -- 100
Selby Ranch Sacramento 400 1986/1971-74 21,334 12,379 97
------------- --------------- --------------- ------
TOTAL SACRAMENTO 1,143 69,844 12,379 98%
------------- --------------- --------------- ------
ARIZONA
- --------------------------------
PHOENIX
Los Senderos Phoenix 120 1996/1980 6,431 -- 96%
Shadow Bend Scottsdale 108 1996/1982 6,432 -- 96
Brentwood Phoenix 224 1996/1980 8,581 -- 95
Park Scottsdale Scottsdale 128 1996/1979 6,638 -- 98
Monte Vista Phoenix 60 1996/1972 1,580 -- 93
Posada del Este Phoenix 148 1996/1981 8,385 -- 95
Fairway Crossings Phoenix 310 1996/1985 18,321 -- 95
Scottsdale Cove Scottsdale 316 1991/1992-94 17,766 -- 95
Arcadia Cove Phoenix 432 1996/1996 24,813 -- 92
Newport Landing Glendale 480 1995/1987-96 22,655 -- 97
------------- --------------- --------------- ------
TOTAL PHOENIX 2,326 121,602 -- 95%
------------- --------------- --------------- ------
</TABLE>
S-16
<PAGE>
PROPERTIES
(AS OF APRIL 15, 1997)
<TABLE>
<CAPTION>
DATES MORTGAGE
PROPERTIES BY METROPOLITAN NUMBER ACQUIRED/ INVESTMENT INDEBTEDNESS PHYSICAL
MARKET CITY OF UNITS CONSTRUCTED (IN THOUSANDS) (IN THOUSANDS) OCCUPANCY(1)
- -------------------------------- --------------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
TUCSON
Hacienda del Rio Tucson 248 1994/1983 $ 9,377 $ 5,520 89%
Colonia del Rio Tucson 176 1994/1985 8,917 5,183 85
Springhill Tucson 224 1994/1987 8,709 5,244 95
Casas Lindas Tucson 144 1994/1987 7,591 88
Camino Seco Village Tucson 168 1995/1984 6,720 4,161 90
Oracle Village Tucson 144 1994/1983 6,086 4,117 93
Fountain Plaza Tucson 197 1994/1975 4,608 3,097 92
------------- --------------- --------------- ------
TOTAL TUCSON 1,301 52,008 27,322 90%
------------- --------------- --------------- ------
WASHINGTON
- --------------------------------
SEATTLE
Parkwood Mill Creek 240 1989/1989 19,810 -- 90%
Shadowbrook Redmond 352 1987/1986 16,473 -- 99
Citywalk Seattle 102 1988/1988 5,412 -- 93
Thrasher's Mill Bothell 214 1996/1988 10,275 -- 94
Ballinger Commons Seattle 485 1996/1989 29,409 -- 97
------------- --------------- --------------- ------
TOTAL SEATTLE 1,393 81,379 -- 96%
------------- --------------- --------------- ------
OREGON
- --------------------------------
PORTLAND
Brookdale Glen Portland 354 1993/1985 14,095 -- 95%
Berkshire Court Wilsonville 266 1996/1996 16,487 -- 88(2)
------------- --------------- --------------- ------
TOTAL PORTLAND 620 30,582 -- 95%
------------- --------------- --------------- ------
NEVADA
- --------------------------------
LAS VEGAS
Cypress Springs II Las Vegas 144 1996/1993 9,834 -- 95%
Tango Las Vegas 136 1996/1990 8,659 4,135 96
Desert Lakes Las Vegas 184 1996/1991 14,265 -- 93
Talavera Las Vegas 350 1997/1996 26,172 -- 98
------------- --------------- --------------- ------
TOTAL LAS VEGAS 814 58,930 4,135 96%
------------- --------------- --------------- ------
TOTAL APARTMENT
COMMUNITIES--WHOLLY OWNED 13,015 794,528 113,502 95%
------------- --------------- --------------- ------
TOTAL APARTMENT
COMMUNITIES--PARTNERSHIPS
CALIFORNIA
- --------------------------------
Chateau de Ville Anaheim 258 1970 1,539 -- 95%
------------- --------------- --------------- ------
</TABLE>
S-17
<PAGE>
PROPERTIES
(AS OF APRIL 15, 1997)
<TABLE>
<CAPTION>
DATES MORTGAGE
PROPERTIES BY METROPOLITAN ACQUIRED/ INVESTMENT INDEBTEDNESS PHYSICAL
MARKET CITY SQUARE FEET CONSTRUCTED (IN THOUSANDS) (IN THOUSANDS) OCCUPANCY(1)
- -------------------------------- --------------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS--WHOLLY OWNED
CALIFORNIA
- --------------------------------
LOS ANGELES/ORANGE COUNTY
El Camino Woodland Hills 125,000 1971/1970 $ 15,561 $ 1,073 98%
Vista Village Center Valencia 37,405 1996/1989 3,031 -- 96
------------- --------------- --------------- ------
TOTAL LOS ANGELES/ORANGE
COUNTY 162,405 18,592 1,073 97%
------------- --------------- --------------- ------
SHOPPING CENTERS--PARTNERSHIPS
ARIZONA
- --------------------------------
Westbar Phoenix 798,852 1995/1973 636 -- 99%
Metro Village Phoenix 136,120 1980/1975 476 -- 93
------------- --------------- --------------- ------
TOTAL ARIZONA 934,972 1,112 -- 98%
------------- --------------- --------------- ------
TOTAL SHOPPING CENTERS 1,097,377 19,704 1,073 98%
------------- --------------- --------------- ------
COMMERCIAL/INDUSTRIAL
CALIFORNIA
- --------------------------------
LOS ANGELES/ORANGE COUNTY
Santa Ana (Industrial) Santa Ana 35,993 1996/1985 1,117 -- 100%
Coast Auto Center Ventura 20,545 1996/1992 1,338 -- 100
Hawthorne/Del Amo (Retail) Torrance 15,950 1996/1985 1,500 -- 100
Santa Paula (Commercial) Santa Paula 6,692 1996/1963 323 -- 100
Vagabond Motor Hotel Ventura 88,426 1996/1921 600 -- N/A
------------- --------------- --------------- ------
TOTAL COMMERCIAL/INDUSTRIAL 167,606 4,878 -- 100%
------------- --------------- --------------- ------
MEDICAL OFFICE BUILDINGS
CALIFORNIA
- --------------------------------
LOS ANGELES/ORANGE COUNTY
Buenaventura Med. Clinic Ventura 31,000 1996/1960 1,200 -- 100%
Skypark Prof. Building Torrance 40,882 1996/1978 5,947 -- 95
Valencia Medical Center Valencia 36,500 1996/1985 4,939 -- 83
------------- --------------- --------------- ------
TOTAL MEDICAL OFFICE BUILDINGS 108,382 12,086 -- 92%
------------- --------------- --------------- ------
TOTAL PORTFOLIO 1,373,365 $ 832,735 $ 114,575
------------- --------------- ---------------
------------- --------------- ---------------
</TABLE>
- ------------------------------
(1) For multifamily properties, physical occupancy is calculated by dividing the
total occupied units by the total units in the portfolio. For commercial
properties, physical occupancy is calculated by dividing the total occupied
square footage by the total square footage in the portfolio. Totals under
this heading are based on weighted average physical occupancy.
(2) These properties are in lease up and are, therefore, excluded from the
physical occupancy totals.
(3) These properties are also security for the loan shown on the Cimmarron
property.
S-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, the information included and
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act, such as those
pertaining to the Company's capital resources, profitability and portfolio
performance. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others, could cause actual results
and future events to differ materially from those set forth or contemplated in
the forward-looking statements: defaults or non-renewal of leases, increased
interest rates and operating costs, failure to obtain necessary outside
financing, difficulties in identifying properties to aquire and in effecting
acquisitions, failure to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"), environmental
uncertainties, risks related to natural disasters, financial market
fluctuations, changes in real estate and zoning laws and increases in real
property tax rates. The success of the Company also depends upon economic trends
generally, including interest rates, income tax laws, governmental regulation,
legislation, population changes and those risk factors discussed in the
accompanying Prospectus under the heading "Risk Factors." Readers are cautioned
not to place undue reliance on forward-looking statements, which reflect
management's analysis only. The Company assumes no obligation to update
forward-looking statements. See also the Company's reports filed from time to
time with the Securities and Exchange Commission pursuant to the Exchange Act.
OVERVIEW
The Company is a fully integrated real estate operating company which owns,
acquires, rehabilitates and manages apartment communities in nine targeted
metropolitan markets in the western United States. As of March 31, 1997, the
Company also owned 19 commercial and retail properties, including three
partnership interests and one land lease. The Company's revenues consist
primarily of rental income (94% of total revenues for the quarter ended March
31, 1997 and 87% for the quarter ended March 31, 1996) derived from its
portfolio of income-producing properties. Other income includes interest from
secured notes receivable and, to a lesser extent, income from partnership
investments. The policy of the Company is to emphasize cash flows from
operations rather than the realization of capital gains through property
dispositions. As dispositions of real estate assets are made, the Company
typically seeks to reinvest net proceeds from sales in income-producing real
estate.
Although the Company has embarked upon a strategic initiative to redeploy
its real estate investments into multifamily assets, no time frame has been
established for completion of this activity and ultimate dispositions of
commercial and retail assets are dependent upon offers with acceptable prices
and terms including satisfactory completion of potential buyer due diligence
procedures. For example, it is reasonably possible that the holding period for
remaining commercial and retail assets could extend well beyond one year.
Accordingly, the Company is unable to predict how long it will take to dispose
of its commercial and retail assets. Furthermore, changes to the plan are not
unlikely (which would result in extended holding periods for the existing
properties) as market conditions could result in a lack of acceptable offers and
it is possible some properties could be held indefinitely. Real estate is not
classified as "held for sale" until it is likely, in the opinion of management,
that a property will be disposed of in the near term, even if sales negotiations
for such property are currently under way; no properties were considered "held
for sale" for this purpose as of March 31, 1997 or December 31, 1996 and
therefore depreciation continues to be provided on these assets.
The Company's strategic plan emphasizes equity investments in apartment
communities, located across western markets, and the orderly redeployment of
retail and commercial property investments into
S-19
<PAGE>
apartment investments. Pursuant to this strategy, the Company merged with Real
Estate Investment Trust of California on March 15, 1996. As a result of the
Merger, the Company added 22 wholly owned apartment communities (totaling
approximately 3,600 units) and 18 commercial and retail properties to the
portfolio. The Merger also provided increased depth in management and other
resources which allowed the Company to internalize property management during
1996.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in the 1996 Form 10-K, and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
QUARTERS ENDED MARCH 31, 1997 AND 1996
REVENUES
Total revenues (excluding net gain on sales of investments in rental
properties) were $31,727,000 for the three months ended March 31, 1997 compared
to $18,825,000 for the same period in 1996. This increase was primarily due to
an increase in multifamily rental revenues resulting from property acquisitions,
including the 22 apartment communities acquired in the Merger with Real Estate
Investment Trust of California on March 15, 1996 and nine other direct apartment
investments, which contributed approximately $5,778,000 and $8,236,000,
respectively, to rental revenue for the three months ended March 31, 1997.
Multifamily rental revenue for the first quarter of 1997 also benefited from an
increase in average occupancy (calculated as described below), and an average
increase in rental rates of approximately 5%, when compared to the first quarter
of 1996 for properties held during both periods.
Revenues from commercial and retail properties decreased 17% for the quarter
ended March 31, 1997 when compared to the same period in 1996 due primarily to
the sale of 14 properties in these categories (which properties contributed
approximately $1,287,000 in revenues during the quarter ended March 31, 1996),
offset in part by the commercial and retail properties acquired in the Merger
which were held for the entire first quarter of 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------------ ------------------------
% OF % OF % CHANGE FROM
REVENUES REVENUES REVENUES REVENUES 1996 TO 1997
--------- ------------- --------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Multifamily............................................. $ 26,800 84% $ 12,662 67% 111%
Commercial and retail................................... 3,061 10% 3,685 20% (17%)
Other income............................................ 1,866 6% 2,478 13% (25%)
--------- --- --------- --- ---
Total revenue......................................... $ 31,727 100% $ 18,825 100% 68%
--------- --- --------- --- ---
--------- --- --------- --- ---
</TABLE>
Portfolio physical occupancy rates as of March 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Multifamily.................................................................... 96% 93%
Commercial and retail.......................................................... 93% 96%
</TABLE>
For multifamily properties, portfolio occupancy is calculated by dividing
the total occupied units by the total units in the portfolio. For commercial and
retail properties, portfolio occupancy is calculated by dividing the total
occupied square footage by the total square footage in the portfolio.
EXPENSES
REAL ESTATE EXPENSES
Real estate expenses for multifamily properties (which include maintenance
and repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the quarter
S-20
<PAGE>
ended March 31, 1997 increased 99% to $9,399,000 from the comparable period in
1996 primarily due to expenses of the 22 properties acquired in the Merger and
nine new multifamily property acquisitions. Real estate expenses for commercial
and retail properties decreased from $1,044,000 in the quarter ended March 31,
1996 to $216,000 in the same period in 1997 due to the sale of 14 such
properties during 1996. Real estate expenses in total as a percentage of rental
revenues decreased from 35% for the first quarter of 1996 to 32% for the first
quarter of 1997. Although not measurable with precision, management believes
that this decrease resulted in part from the internalization of property
management and economies of scale derived from increased concentration of assets
in the Company's markets.
PROVISION FOR DEPRECIATION AND AMORTIZATION
The provision for depreciation and amortization increased by $1,979,000 to
$4,168,000 for the quarter ended March 31, 1997 from the comparable period of
1996. The increase in 1997 resulted from properties acquired in the Merger and
additional multifamily property acquisitions, offset in part by dispositions of
commercial and retail properties.
INTEREST EXPENSE
Interest expense was $5,889,000 for the quarter ended March 31, 1997, up
from $2,453,000 in 1996. This increase was due primarily to interest on
indebtedness assumed in the Merger totaling $95,400,000 and interest on
subsequent borrowings on the Company's lines of credit to fund multifamily
property acquisitions. At March 31, 1997, the Company's total indebtedness
(including indebtedness assumed in the Merger) was $334,575,000.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $1,114,000 or 3.5% of total revenues
for the first quarter in 1997 and $1,034,000 or 5.5% of total revenues for the
first quarter in 1996. The decrease in the percent of revenue is primarily from
reductions in costs of administering the Company's day to day operations due to,
among other things, the reorganization of the Company's asset management staff
to handle direct property management duties which were previously handled by
outside property management firms and, to a lesser extent, improved efficiencies
in operating systems, computer systems and software upgrades.
IMPACT OF INFLATION
Over 80% of the Company's total revenues for the quarter ended March 31,
1997 were derived from apartment properties. Due to the short-term nature of
most apartment leases (typically one year or less), the Company may seek to
adjust rents to help counter the impact of inflation upon renewal of existing
leases or commencement of new leases, although there can be no assurance that
the Company will be able to adjust rents in response to inflation. In addition,
occupancy rates may fluctuate due to short-term leases which permit apartment
residents to leave at the end of the lease term at minimal cost to the resident.
DIVIDENDS
A cash dividend has been paid to shareholders each quarter since the
Company's inception in 1970. On February 24, 1997, the Company increased its
dividend from $1.32 per year to $1.38 per year. Total dividends paid to
shareholders for the quarters ended March 31, 1997 and 1996 were $11,392,000 and
$7,450,000, respectively.
S-21
<PAGE>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
REVENUES
Total revenues (excluding net gain on sales of investments in rental
properties) were $101,651,000 in 1996 compared to $65,387,000 in 1995 and
$56,970,000 in 1994. Revenues in 1996 increased primarily as a result of the
Merger and new multifamily property acquisitions which were offset in part by
the disposition of certain retail and commercial properties. A summary of
revenues for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 % OF 1996 1995 % OF 1995 1994 % OF 1994
REVENUES REVENUES REVENUES REVENUES REVENUES REVENUES
---------- ------------- --------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Multifamily rental............................. $ 77,834 77% $ 49,918 76% $ 40,504 71%
Commercial and retail rental................... 15,301 15 12,947 20 14,232 25
Other income................................... 8,516 8 2,522 4 2,234 4
---------- --- --------- --- --------- ---
Total revenue................................ $ 101,651 100% $ 65,387 100% $ 56,970 100%
---------- --- --------- --- --------- ---
---------- --- --------- --- --------- ---
</TABLE>
<TABLE>
<CAPTION>
% CHANGE FROM PRIOR YEAR
-------------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Multifamily rental.............................................. 56% 23% 59%
Commercial and retail rental.................................... 18% (9%) (36%)
Other income.................................................... 238% 13% (1%)
Total revenue................................................... 55% 15% 14%
</TABLE>
Multifamily rental revenues increased in each of 1996 and 1995 primarily due
to property acquisitions, including for 1996 the 22 apartment communities
acquired in the Merger and nine other direct apartment investments, which
contributed approximately $21,200,000 and $10,400,000, respectively, to 1996
revenue and were offset in part by the sale of the Westlake Village property in
1996. Multifamily rental revenue in 1996 also benefited from an increase in
average occupancy (calculated as described below) and an average increase in
rental rates in 1996 of approximately 4% when compared to 1995 for properties
held during both years. Multifamily rental revenue increased in 1995 as compared
to 1994 primarily due to investments in a portfolio of Tucson, Arizona apartment
properties (the "Tucson Portfolio") during 1994, which were held for the entire
year in 1995. The Tucson Portfolio included seven properties and was acquired
for approximately $51,000,000; six apartment communities were purchased in 1994
and one in 1995.
Revenues from commercial and retail properties increased 18% in 1996 when
compared to 1995, primarily due to the 18 properties in these categories
acquired by the Company in the Merger (which properties contributed
approximately $5,500,000 in revenues during 1996), offset in part by property
sales. Revenues from commercial and retail properties decreased $1,285,000 in
1995 compared to 1994 due primarily to property sales in 1994. Commercial and
retail revenues as a percentage of total revenues declined in each of 1996 and
1995 as a result of the Company's strategy emphasizing redeployment of these
investments into apartment communities. In addition, commercial and retail
properties in California markets experienced rental rate and occupancy weakness
for each of 1996, 1995 and 1994.
Portfolio occupancy rates as of December 31, 1996, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Multifamily.............................................................. 96% 93% 95%
Commercial and retail.................................................... 93% 96% 69%
</TABLE>
S-22
<PAGE>
For multifamily properties, portfolio occupancy is calculated by dividing
the total occupied units by the total units in the portfolio. For commercial and
retail properties, portfolio occupancy is calculated by dividing the total
occupied square footage by the total square footage in the portfolio.
The following table summarizes, by property classification, portfolio
acquisitions and dispositions for the years ended December 31, 1996, 1995 and
1994 (dollar amounts are gross acquisition costs in the case of acquisitions and
gross sales prices in the case of property sales):
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
ACQUISITION ACQUISITION ACQUISITION
ACQUISITION/ NUMBER OF COST/ NUMBER OF COST/ NUMBER OF COST/
DISPOSITION SUMMARY PROPERTIES SALES PRICE PROPERTIES SALES PRICE PROPERTIES SALES PRICE
- --------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Multifamily
Property acquisitions(1)................... 31 $446,412 2 $ 16,023 8 $ 72,240
Property dispositions(2)................... 1 58,000 -- -- -- --
Commercial and retail
Property acquisitions(3)................... 18 56,443 -- -- -- --
Property dispositions...................... 14 49,600 2 15,406 2 11,911
</TABLE>
- ------------------------
(1) Includes, for 1996, 22 properties acquired in the Merger with an aggregate
cost of $216,612,000 as determined under the purchase method of accounting.
(2) Represents sale of the Company's ground lease interest at Westlake Village
Apartments, Daly City, California.
(3) Represents, for 1996, 18 properties acquired in the Merger with an aggregate
cost of $56,443,000, as determined under the purchase method of accounting.
EXPENSES
REAL ESTATE EXPENSES
Real estate expenses for rental properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the year ended December 31,
1996 increased 44% to $31,030,000 from 1995 primarily due to expenses of the 40
properties acquired in the Merger and nine new multifamily property
acquisitions. Real estate expenses as a percentage of rental revenues decreased
from 34% in 1995 to 33% in 1996. Although not measurable with precision,
management believes that this decrease resulted in part from the internalization
of property management and economies of scale derived from increased
concentration of assets in the Company's markets. Real estate expenses increased
by 25% to $21,540,000 in the year ended December 31, 1995 from $17,256,000 for
the prior year due largely to the addition of the Tucson Portfolio, which was
held for the entire year in 1995.
PROVISION FOR DEPRECIATION AND AMORTIZATION
The provision for depreciation and amortization increased by $5,419,000 for
the year ended December 31, 1996 from that of 1995. The increase in 1996
resulted from properties acquired in the Merger and additional multifamily
property acquisitions, offset in part by dispositions of commercial and retail
properties. The provision for depreciation and amortization for the year ended
December 31, 1995 increased $784,000 compared to 1994 due largely to the
acquisition of the Tucson Portfolio in 1994, which resulted in expense for the
entire year of 1995 and only for a portion of the year in 1994.
INTEREST EXPENSE
Interest expense was $16,325,000 for the year ended December 31, 1996, up
from $7,973,000 in 1995. This increase was due primarily to interest on
indebtedness assumed in the Merger totaling $95,400,000
S-23
<PAGE>
and interest on subsequent borrowings on the Company's lines of credit to fund
multifamily property acquisitions. At December 31, 1996, the Company's total
indebtedness (including indebtedness assumed in the Merger) was $311,985,000.
The $2,374,000 increase in 1995 interest expense over 1994 was due primarily to
interest on borrowings in connection with the acquisition of the Tucson
Portfolio of approximately $27,939,000 for 12 months during 1995 and the
addition in 1995 of a new $12,000,000 secured loan.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $3,999,000 (3.9% of total revenues),
$4,221,000 (6.5% of total revenues) and $4,469,000 (7.8% of total revenues) for
the years ended December 31, 1996, 1995 and 1994, respectively. The decrease in
1996 compared to 1995 is primarily from reductions in costs of administering the
Company's day to day operations due to, among other things, the reorganization
of the Company's asset management staff to handle direct property management
duties which were previously handled by outside property management firms and,
to a lesser extent, improved efficiencies in operating systems, computer systems
and software upgrades. The decrease in 1995 compared to 1994 is due largely to
approximately $600,000 of legal expenses incurred in 1994 in connection with
litigation regarding the Baldwin Place property which the Company owned from
1974 to 1983, of which $570,000 was recovered in 1995 from the Company's
insurance carriers, offset in part by certain non-recurring financial advisory
costs incurred in 1995 of approximately $300,000 in connection with strategic
planning issues.
PROVISION FOR POSSIBLE INVESTMENT LOSSES
During the quarter ended June 30, 1995, the Company recorded a $2,000,000
provision for possible investment losses; $1,750,000 was charged against the
investment in the Pomona Warehouse property (which was sold in the quarter ended
December 31, 1995) to reflect management's estimate of permanent impairment in
value (which impairment was based on the expected sales value). The remaining
amount was used to provide for possible losses on mortgage loans.
NET GAIN (LOSS) ON SALES OF INVESTMENTS IN RENTAL PROPERTIES
The net gain on sales in 1996 of approximately $52,825,000 was primarily due
to the sale of the Westlake Village leased land property (total sale price of
approximately $58,000,000) and the 525 Almanor industrial warehouse property
(total sale price of approximately $6,300,000). The net loss on sales (including
provision for possible investment losses) in 1995 of approximately $1,779,000
was due to the sale of the then-vacant Pomona Warehouse property and Irvine
Spectrum property. The net gain of approximately $1,646,000 in 1994 was due to
the sale of the Marymoor and 515 Ellis properties. All of these sales were
structured as tax-deferred exchanges, with the proceeds thereof applied toward
new investments in apartment communities. As of December 31, 1996, the Company
had gains on sales totaling approximately $121,000,000 which have been deferred
for federal and state income tax purposes since the Company's organization in
1970.
IMPACT OF INFLATION
Over 75% of the Company's total revenues for 1996 were derived from
apartment properties. Due to the short-term nature of most apartment leases
(typically one year or less), the Company may seek to adjust rents to help
counter the impact of inflation upon renewal of existing leases or commencement
of new leases, although there can be no assurance that the Company will be able
to adjust rents in response to inflation. In addition, occupancy rates may also
fluctuate due to short-term leases which permit apartment residents to leave at
the end of the lease term at minimal cost to the resident.
S-24
<PAGE>
DIVIDENDS
A cash dividend has been paid to shareholders each quarter since the
Company's inception in 1970. Dividends per share were $1.33 in 1996, $1.26 in
1995 and $1.20 in 1994. Total dividends paid to shareholders for the three years
ended December 31, 1996, 1995 and 1994 were $39,849,000, $27,596,000 and
$26,210,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's cash and cash equivalents totaled
$1,242,000, up from $184,000 at December 31, 1996. Borrowings under the
Company's lines of credit totaled $147,000,000 at March 31, 1997, compared to
$124,000,000 at December 31, 1996. Lines of credit are available to pay
dividends to shareholders, fund capital improvements and operating expenses and
fund new acquisitions. The Company typically reduces lines of credit with cash
balances as available.
At December 31, 1996, the Company's cash and cash equivalents totaled
$184,000, down from $16,057,000 at the end of 1995. Borrowings under the
Company's lines of credit totaled $124,000,000 at December 31, 1996, compared to
no such borrowings at December 31 of the previous year.
At March 31, 1997, the Company's lines of credit totaled $200,000,000,
$53,000,000 of which remained available for future borrowings at that date.
However, subsequent to March 31, 1997, a $50 million line of credit expired
pursuant to its terms upon the closing of the Equity Offering. As a result, the
Company's lines of credit at June 10, 1997 totaled $150,000,000, $126,500,000 of
which remained available for future borrowings at that date. The lines of credit
expire in April 1998 as to $120,000,000 and April 1999 as to $30,000,000. The
lines of credit bear interest at prime or LIBOR plus 1.0% as to $30,000,000 and
LIBOR plus 1.125% as to $120,000,000. Costs of the lines of credit are 0.125%
per annum on the total commitment amount and a nonuse fee of 0.125% per annum as
to amounts not outstanding on the $120,000,000 line.
Pursuant to the Merger, the Company assumed $73,000,000 of unsecured
indebtedness which bears interest at 7.44% per annum as to $55,000,000 and 7.88%
per annum as to $18,000,000. This indebtedness is to be repaid through scheduled
principal payments in the years from 2000 through 2005. At March 31, 1997, the
Company also had outstanding mortgage indebtedness of $114,575,000 at interest
rates ranging from 6.5% to 8.4%, with remaining terms of from less than one to
31 years.
For additional information regarding the Company's lines of credit,
unsecured notes payable and mortgage loans payable, including scheduled
principal payments over the next five years, see Notes 5 and 6 to Notes to
Financial Statements contained in the Company's 1996 Form 10-K. Certain of the
Company's indebtedness contains financial covenants as to minimum net worth,
interest coverage ratios, maximum secured debt and total debt to capital, among
others. The Company was in compliance with all such covenants during the quarter
ended March 31, 1997.
During year ended December 31, 1996, the Company entered into an unsecured
treasury lock swap agreement in the notional amount of $50,000,000. This
transaction, which expires June 30, 1997, is intended to reduce the Company's
overall exposure to interest rate changes. See Note 2 to Notes to Financial
Statements contained in the 1996 Form 10-K.
At March 31, 1997, the Company was committed to purchase one apartment
community totaling 453 units for approximately $58,700,000; this property was
acquired after the close of the quarter using proceeds from prior sales of
certain commercial and retail properties and a land lease.
The Company purchased nine apartment investments for a total purchase price
of approximately $230,000,000 in 1996. These acquisitions were funded with
proceeds of property sales (totaling approximately $104,000,000 after sales
expenses during 1996) and additional borrowings under the Company's lines of
credit.
S-25
<PAGE>
The Company believes that its cash flow and cash available from lines of
credit will be sufficient to meet its short-term liquidity needs during 1997,
which include normal recurring expenses, debt service requirements, budgeted
expenditures for improvements to certain properties and distributions required
to maintain the Company's REIT qualification under the Code. However, the
Company anticipates that it will continue to require outside sources of
financing to meet its long-term liquidity needs, such as scheduled debt
repayments and property acquisitions.
S-26
<PAGE>
DESCRIPTION OF NOTES
The following description of certain terms of the Company's % Notes due
2007 (the "Notes") offered hereby supplements and, to the extent inconsistent
therewith, replaces the description of the general terms and provisions of the
Debt Securities set forth in the accompanying Prospectus. The following
statements relating to the Notes and the Indenture (as defined below) are
summaries of certain provisions contained therein and do not purport to be
complete. Such statements are qualified by reference to the provisions of the
Notes and the Indenture, including the definitions therein of certain terms.
Unless otherwise expressly stated or the context otherwise requires, all
references to the "Company" appearing under this caption "Description of Notes"
and under the caption "Description of Debt Securities" in the accompanying
Prospectus shall mean BRE Properties, Inc., excluding its consolidated
subsidiaries. Other capitalized terms used herein but not otherwise defined
shall have the meanings given to them in the accompanying Prospectus or, if not
defined in the Prospectus, in the Indenture referred to below.
The Notes constitute Debt Securities (which are more fully described in the
accompanying Prospectus), to be issued pursuant to an indenture (the
"Indenture") between the Company and Chase Trust Company of California, as
trustee (the "Trustee"). The terms of the Notes include those provisions
contained in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "TIA"). The Notes are subject
to all such terms, and investors are referred to the Indenture and the TIA for a
statement thereof.
GENERAL
The Notes will be a separate series of Debt Securities under the Indenture,
limited in aggregate principal amount to $50 million. Such series may not be
reopened for the issuance of additional Debt Securities of such series. The
Notes will be unsecured unsubordinated obligations of the Company and will rank
on a parity in right of payment with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding.
The Notes will be obligations exclusively of the Company. Although the
Company conducts most of its operations itself, rather than through
subsidiaries, a portion of its assets (amounting to less than 6% of its total
consolidated assets at March 31, 1997) are held by its subsidiaries.
Accordingly, the cash flow of the Company and the consequent ability to service
its debt, including the Notes, are partially dependent on the earnings of such
subsidiaries and the Notes will be effectively subordinated to all existing and
future indebtedness and other liabilities of such subsidiaries. The Notes will
also be effectively subordinated to any secured indebtedness of the Company to
the extent of any collateral pledged as security therefor. As of June 10, 1997,
such subsidiary indebtedness aggregated approximately $27.3 million and the
Company (excluding its subsidiaries) had unsecured senior indebtedness
aggregating approximately $96.5 million, approximately $73 million (excluding
the Notes) on a pro forma basis after giving effect to this offering and the
application of the net proceeds therefrom, and senior secured indebtedness
aggregating approximately $87.1 million. See "Use of Proceeds" and
"Capitalization". Although the covenants described in the accompanying
Prospectus under "Description of Debt Securities--Certain Covenants" will impose
certain limitations on the incurrence of additional indebtedness, both the
Company and its subsidiaries will retain the ability to incur substantial
additional secured and unsecured indebtedness in the future.
The Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The Notes will be
evidenced by a global Note (the "Global Note") in book-entry form, except under
the limited circumstances described in the accompanying Prospectus under
"Description of Debt Securities--Global Securities." Notices or demands to or
upon the Company in respect of the Notes and the Indenture may be served and, in
the event that Notes are issued in definitive certificated form, Notes may be
surrendered for payment, registration of transfer or exchange, at the office or
agency of the Company maintained for such purpose in the Borough of Manhattan,
The City of New
S-27
<PAGE>
York, which shall initially be the office of the Trustee, which on the date of
this Prospectus Supplement is located at The Chase Manhattan Bank, Corporate
Trust Securities Window, 55 Water Street, Room 234, North Building, New York,
New York, 10041.
INTEREST AND MATURITY
The Notes will mature on June , 2007 (the "Maturity Date"). The Notes are
not subject to redemption prior to maturity and are not subject to any sinking
fund provisions.
The Notes will bear interest at the rate per annum set forth on the cover
page of this Prospectus Supplement from June , 1997 or from the most recent
date to which interest has been paid or duly provided for, payable semi-annually
in arrears on each June and December (the "Interest Payment Dates"),
commencing December , 1997, to the persons in whose names the Notes are
registered at the close of business on the or (the "Regular
Record Dates"), as the case may be, immediately prior to such Interest Payment
Dates, regardless of whether such Regular Record Date is a Business Day.
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months.
If any Interest Payment Date, the Maturity Date, or any other day on which
the principal of or interest on a Note becomes due and payable falls on a day
that is not a Business Day, the required payment shall be made on the next
Business Day as if it were made on the date such payment was due and no interest
shall accrue on the amount so payable for the period from and after such
Interest Payment Date, Maturity Date or other date, as the case may be.
COVENANTS; DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Reference is made to the section titled "Description of Debt
Securities--Certain Covenants" in the accompanying Prospectus for a description
of certain covenants applicable to the Notes. In addition, the discharge,
defeasance and covenant defeasance provisions of the Indenture described under
"Description of Debt Securities--Discharge, Defeasance and Covenant Defeasance"
in the accompanying Prospectus will apply to the Notes; such covenant defeasance
will be applicable with respect to the covenants described in the accompanying
Prospectus under "Description of Debt Securities--Certain Covenants" (except the
covenant requiring the Company to preserve and keep in full force and effect its
corporate existence).
Except as described under "Description of Debt Securities--Certain
Covenants" and "Description of Debt Securities--Merger, Consolidation or Sale"
in the accompanying Prospectus, the Indenture does not contain any provisions
that would afford holders of the Notes protection in the event of (i) a highly
leveraged or similar transaction involving the Company, (ii) a change of control
or in the management of the Company, or (iii) a reorganization, restructuring,
merger or similar transaction involving the Company that may adversely affect
the holders of the Notes. In addition, subject to the limitations set forth
under "Description of Debt Securities--Merger, Consolidation or Sale" in the
accompanying Prospectus, the Company may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Company with another entity that could increase
the amount of the Company's indebtedness or otherwise adversely affect its
financial condition or results of operations, which may have an adverse affect
on the Company's ability to service its indebtedness, including the Notes.
The Company has no present intention of engaging in a highly leveraged or
similar transaction involving the Company. In addition, certain restrictions on
ownership and transfers of the Company's capital stock designed to preserve its
status as a REIT may act to prevent or hinder any such transaction or change of
control. In addition, a highly leveraged or similar transaction may violate the
terms of the Company's outstanding debt instruments and permit the lenders to
declare all borrowings thereunder to be due and payable immediately, which would
likely have a material adverse effect on the Company. In particular, the Company
currently has outstanding borrowings of $73 million under two loan agreements
S-28
<PAGE>
which, among other things, (i) contain a covenant which requires the Company to
maintain an investment grade rating for its long-term unsecured debt and (ii)
define "events of default" to include the acquisition by any person of 10% or
more of the Company's outstanding shares (although the Company is currently in
discussions with the lender to raise this percentage to 20%). In the event that
the Company fails to maintain an investment grade rating for its long-term
unsecured debt or if such an event of default occurs, whether as a result of a
highly leveraged transaction or otherwise, the lender may declare all borrowings
under such loan agreements to be due and payable immediately.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below have severally agreed to purchase and the Company has agreed to sell
to them, severally, the respective principal amount of Notes set forth opposite
their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................................... $
BancAmerica Securities, Inc.................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................................
Salomon Brothers Inc........................................................
----------------
$ 50,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the Notes
offered hereby if any are taken.
The Underwriters propose to offer part of the Notes directly to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and part to certain dealers at a price that represents a concession
not in excess of % of the principal amount of the Notes. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of % of the
principal amount of the Notes to certain other dealers. After the initial
offering of the Notes, the offering price and other selling terms may from time
to time be varied by the Underwriters.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at any time at the
sole discretion of any Underwriter. Accordingly, no assurance can be given as to
the liquidity of, or trading market for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the Underwriters may overallot in connection with the
offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the Underwriters may reclaim selling concessions allowed to an Underwriter or a
dealer for distributing the Notes in the offering, if the Underwriters
repurchase previously distributed Notes in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above
S-29
<PAGE>
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon by Piper &
Marbury, L.L.P., Baltimore, Maryland on behalf of the Company. Certain tax
matters will be passed upon by Farella Braun & Martel LLP, San Francisco,
California. Brown & Wood LLP, San Francisco, California, will act as counsel for
the Underwriters.
S-30
<PAGE>
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<PAGE>
PROSPECTUS
BRE PROPERTIES, INC.
$300,000,000
DEBT SECURITIES, PREFERRED SHARES, DEPOSITARY SHARES,
COMMON STOCK WARRANTS AND COMMON STOCK
BRE Properties, Inc. (the "Company") may from time to time offer in one or
more series (i) its unsecured debt securities (the "Debt Securities"), which may
be senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) shares of its Preferred Stock,
$0.01 par value ("Preferred Shares"), (iii) depositary shares ("Depositary
Shares") representing fractional interests in Preferred Shares, (iv) warrants
("Common Stock Warrants") to purchase shares of its Common Stock, $0.01 par
value ("Common Shares"), or (v) Common Shares, on terms to be determined at the
time or times of offering. The Debt Securities, Preferred Shares, Depositary
Shares, Common Stock Warrants and Common Shares which may be offered by the
Company (collectively, the "Company Offered Securities"), may be offered,
separately or together, in separate classes or series, in amounts, at prices and
on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). A selling shareholder also may offer from time to time Common
Shares (the "Resale Shares") on terms to be determined at the time or times of
such offering or offerings. The prices, the amounts and other terms of such
offering or offerings will be set forth in the applicable Prospectus Supplement.
The aggregate public offering price of the Resale Shares and the Company Offered
Securities (together, the "Offered Securities") will not exceed $300,000,000,
and the number of Resale Shares will not exceed 650,000.
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, when applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder thereof, terms for sinking fund payments,
terms for conversion into Preferred Shares or Common Shares, and the public
offering price; (ii) in the case of Preferred Shares, the specific series, title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and the public offering price; (iii) in the case of Depositary
Shares, the whole or fractional Preferred Shares represented by each such
Depositary Share and the public offering price; (iv) in the case of Common Stock
Warrants, the duration, public offering price, exercise price and detachability
features, if applicable; and (v) in the case of Common Shares, the public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information, when
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by that Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names and any applicable purchase price, fee, commission or
discount arrangement will be set forth in or will be calculable from the
information set forth in the applicable Prospectus Supplement. No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of those Offered Securities. The
Company will not receive any of the proceeds from the sale of the Resale Shares.
SEE "Plan of Distribution" for possible indemnification arrangements with
underwriters, dealers and agents.
------------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is June 12, 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER
(AS DEFINED BELOW) OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND ANY
APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY OR THEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act can be inspected and copied at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a home page on
the Internet that contains such information with respect to registrants that
file electronically such as the Company at http://www.sec.gov. The Company's
Common Shares are listed on the New York Stock Exchange and similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (as the
same may be amended from time to time, the "Registration Statement") (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document do not purport to be complete, and in
each instance reference is made to the copy of such contract or other document
filed or incorporated by reference as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Offered Securities, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be obtained from the
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
a. Report on Form 10-K for the fiscal year ended December 31, 1996, as amended
by the Report on Form 10-K/A filed on April 25, 1997.
b. Report on Form 10-Q for the fiscal year ended March 31, 1997, filed on April
25, 1997.
c. Current Report on Form 8-K filed on January 14, 1997, as amended by the
Current Report on Form 8-K/A, filed on February 13, 1997, and the Current
Report on Form 8-K/A, filed on April 23, 1997.
d. Current Report on Form 8-K/A filed on April 23, 1997, amending the Current
Report on Form 8-K/A, filed on December 10, 1996, and the Current Report on
Form 8-K, filed on October 15, 1996.
e. Current Report on Form 8-K/A filed on April 23, 1997, amending the Current
Report on Form 8-K/A, filed on May 21, 1996, and the Current Report on Form
8-K, filed on April 1, 1996.
f. Current Report on Form 8-K filed on April 25, 1997.
g. Current Report on Form 8-K filed on June 12, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any and all documents incorporated by reference in this
Prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to BRE Properties, Inc., One Montgomery Street,
Telesis Tower, Suite 2500, San Francisco, California 94104-5525, Attn: Charles
Wingard, Director of Financial Reporting, telephone number (415) 445-6530.
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THE COMPANY
BRE Properties, Inc., a Maryland corporation (the "Company" or "BRE"), is a
self-administered and self-managed real estate investment trust which owns and
operates apartment communities and other income producing properties in the
western United States. At April 15, 1997, BRE's portfolio consisted of 65
properties, including 55 apartment communities (aggregating 13,015 Company-owned
units), two shopping centers and eight medical office, light industrial and
warehouse/distribution properties. Of these properties, 37 are located in
California, 17 in Arizona, five in Washington, four in Nevada and two in Oregon.
As of April 15, 1997, the 65 properties contained, in the aggregate,
approximately 11.4 million net rentable square feet of improvements owned by the
Company on approximately 700 acres of land. In addition, at April 15, 1997, the
Company held limited partnership interests in two shopping centers located in
Arizona and one apartment community located in California. BRE's principal
executive offices are located at One Montgomery Street, Telesis Tower, Suite
2500, San Francisco, California 94104-5525, and its telephone number is (415)
445-6530.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Offered Securities. The
Company cautions the reader that this list of factors does not purport to be
exhaustive.
REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. The yields
available from equity investments in real estate depend upon the amount of
revenues generated and expenses incurred. If properties do not generate revenues
sufficient to meet operating expenses, including debt service and capital
expenditures, the Company's results of operations and ability to make
distributions to its shareholders and to pay amounts due on its Debt Securities
will be adversely affected. The performance of the economy in each of the areas
in which the properties are located affects occupancy, market rental rates and
expenses and, consequently, has an impact on the revenues from the properties
and their underlying values. The financial results of major local employers also
may have an impact on the revenues and value of certain properties.
Revenues from properties may be further adversely affected by a variety of
factors, including the general economic climate, local conditions in the areas
in which properties are located, such as oversupply of space or a reduction in
the demand for rental space, the attractiveness of the properties to residents
or users, competition from other available space, the ability of the Company to
provide adequate facilities maintenance, services and amenities, and insurance
premiums and real estate taxes. The Company's revenues would also be adversely
affected if residents or users were unable to pay rent or the Company was unable
to rent apartments or commercial properties on favorable terms. If the Company
were unable to promptly relet or renew the leases for a significant number of
apartment units or commercial properties, or if the rental rates upon such
renewal or reletting were significantly lower than expected rates, then the
Company's funds from operations would, and ability to make expected
distributions to shareholders and to pay amounts due on its Debt Securities may,
be adversely affected. There is also a risk that as leases on the properties
expire, residents or users will vacate or enter into new leases on terms that
are less favorable to the Company. Operating costs, including real estate taxes,
insurance and maintenance costs, and mortgage payments, if any, do not, in
general, decline when circumstances cause a reduction in income from a property.
If a property is mortgaged to secure payment of indebtedness, and the Company is
unable to meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property. In addition, revenues from properties and real
estate values are also affected by such factors as applicable laws, including
tax laws, interest rate levels and the availability of financing.
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In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties. However,
no assurance can be given that the Company will have the financial resources to
make suitable acquisitions or that properties that satisfy the Company's
investment policies will be available for acquisition. Acquisitions of
properties entail risks that investments will fail to perform in accordance with
expectations. Such risks may include that construction costs may exceed original
estimates, possibly making a project uneconomical, financing may not be
available on favorable terms or at all and construction and lease-up may not be
completed on schedule. Estimates of the costs of improvements to bring an
acquired property up to standards established for the market position intended
for that property may prove inaccurate. In addition, there are general real
estate investment risks associated with any new real estate investment. Although
the Company undertakes an evaluation of the physical condition of each new
investment before it is acquired, certain defects or necessary repairs may not
be detected until after the investment is acquired, which could significantly
increase the Company's total acquisition costs and which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities.
ILLIQUIDITY OF REAL ESTATE AND REINVESTMENT RISK
Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to changes
in economic or other conditions. Additionally, the Internal Revenue Code of
1986, as amended (the "Code") places certain limits on the number of properties
a REIT may sell without adverse tax consequences. To effect its current
operating strategy, the Company has in the past raised, and will seek to
continue to raise additional acquisition funds, both through outside financing
and through the orderly disposition of commercial and retail properties, and,
depending upon interest rates, current acquisition opportunities and other
factors, generally to reinvest the proceeds in multifamily properties. In this
respect, in the markets the Company has targeted for future acquisition of
multifamily properties, there is considerable buying competition from other real
estate companies, many of whom may have greater resources, experience or
expertise than the Company. In many cases, this competition for acquisition
properties has resulted in an increase in property prices and a decrease in
property yields. Due to the relatively low capitalization rates currently
prevailing in the pricing of potential acquisitions of multifamily properties
which meet the Company's investment criteria, no assurance can be given that the
proceeds realized from the disposition of commercial and retail properties can
be reinvested to produce economic returns comparable to those being realized
from the properties disposed of, or that the Company will be able to acquire
properties meeting its investment criteria. To the extent that the Company is
unable to reinvest proceeds from the disposition of commercial and retail
properties, or if properties acquired with such proceeds produce a lower rate of
return than the properties disposed of, such results may have a material adverse
effect on the Company and its ability to make distributions to shareholders and
to pay amounts due on its Debt Securities. In addition, a delay in reinvestment
of such proceeds may have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities.
The Company may seek to structure future dispositions as tax-free exchanges,
where appropriate, utilizing the nonrecognition provisions of Section 1031 of
the Code to defer income taxation on the disposition of the exchanged property.
For an exchange of such properties to qualify for tax-free treatment under
Section 1031 of the Code, certain technical requirements must be met. For
example, both the property exchanged and the property acquired must be held for
use in a trade or business or for investment, and the property acquired must be
identified within 45 days, and must be acquired within 180 days, after the
transfer of the exchanged property. If the technical requirements of Section
1031 of the Code are not met, then the exchanged property will be treated as
sold in a taxable transaction for a sales price equal to the fair market value
of the property received, in which event a distribution of cash to the
shareholders may be required to avoid a corporate-level income tax on the
resulting capital gain. Given the competition for properties meeting the
Company's investment criteria, it may be difficult for the Company
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to identify suitable properties within the foregoing time frames in order to
meet the requirements of Section 1031. Even if a suitable tax-deferred exchange
can be structured, as noted above, no assurance can be given that the proceeds
of any of these dispositions will be reinvested to produce economic returns
comparable to those currently being realized from the properties which were
disposed of.
COMPETITION
All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real estate
companies, many of which have greater financial and other resources than the
Company, within the market area of each of the properties which will compete
with the Company for tenants and development and acquisition opportunities. The
number of competitive multifamily properties and real estate companies in such
areas could have a material effect on (i) the Company's ability to rent the
apartments and the rents charged and (ii) development and acquisition
opportunities. The activities of these competitors could cause the Company to
pay a higher price for a new property than it otherwise would have paid or may
prevent the Company from purchasing a desired property at all, which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its Debt Securities.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON WESTERN UNITED STATES REGIONS
The Company's portfolio is principally located in the San Francisco Bay
Area, San Diego, Tucson, Phoenix, Seattle, Portland, Los Angeles/Orange County,
Sacramento and Las Vegas. The Company's performance could be adversely affected
by economic conditions in, and other factors relating to, these geographic
areas, including supply and demand for apartments in these areas, zoning and
other regulatory conditions and competition from other properties and
alternative forms of housing. In that regard, certain of these areas
(particularly the Los Angeles/Orange County and San Diego metropolitan areas)
have in the recent past experienced economic recessions and depressed conditions
in the local real estate markets. To the extent general economic or social
conditions in any of these areas deteriorate or any of these areas experiences
natural disasters, the value of the portfolio, the Company's results of
operations and its ability to make distributions to shareholders could be
adversely affected.
RISKS OF REAL ESTATE DEVELOPMENT AND ACQUISITION
Although the Company currently has no properties under development, the
Company may in the future seek to develop properties when market and economic
conditions warrant.
Real estate development involves significant risks in addition to those
involved in the ownership and operation of real estate. While the Company's
policies with respect to development activities are intended to limit some of
the risks otherwise associated with such activities, the Company nevertheless is
subject to certain risks, including lack of financing, construction delays,
budget overruns and lease-up. The occurrence of any of these risks could have a
material adverse effect on the Company and its ability to make distributions to
shareholders.
It is expected that, in the future, the Company's evaluation of real
property acquisition opportunities will be based, in part, upon the cost to
finance the acquisition and the yield expected to be derived from the ongoing
ownership of such real property. If the Company is unable to obtain sufficient
capital on acceptable terms, its ability to acquire new real estate or implement
other aspects of its objectives and strategies will be impaired. In addition,
even if sufficient capital is available on reasonable terms, no assurance can be
given that the costs to maintain the property so acquired or the yields actually
derived from the property will not deviate materially from expectations.
UNINSURED LOSS; LIMITED COVERAGE
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductibles. While the Company
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currently carries flood and earthquake insurance for its properties with an
aggregate annual limit of $60 million, subject to substantial deductibles, no
assurance can be given that such coverage will be available on acceptable terms
or at an acceptable cost, or at all, in the future, or if obtained, that the
limits of those policies will cover the full cost of repair or replacement of
covered properties. In addition, there may be certain extraordinary losses (such
as those resulting from civil unrest) that are not generally insured (or fully
insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a property, the
Company could be required to use its own funds for restoration or lose all or
part of its investment in, and anticipated revenues from, the property and would
continue to be obligated on any mortgage indebtedness on the property. Any such
loss could have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
CHANGE IN LAWS
Increases in real estate taxes and income, service and transfer taxes cannot
always be passed through to residents or users in the form of higher rents, and
may adversely affect the Company's cash available for distribution and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions, as well as changes in laws affecting
development, construction and safety requirements, may result in significant
unanticipated expenditures, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay amounts
due on its Debt Securities. In addition, future enactment of rent control or
rent stabilization laws or other laws regulating multifamily housing may reduce
rental revenues or increase operating costs.
LAWS BENEFITING DISABLED PERSONS
A number of federal, state and local laws (including the Americans with
Disabilities Act) and regulations exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved access
to such buildings by disabled persons. Legislation or regulations adopted in the
future may impose further burdens or restrictions on the Company with respect to
improved access by disabled persons. The costs of compliance with these laws and
regulations may be substantial, and limits or restrictions on completion of
certain renovations may limit implementation of the Company's investment
strategy in certain instances or reduce overall returns on its investments,
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities. The Company reviews its properties periodically to determine the
level of compliance and, if necessary, takes appropriate action to bring such
properties into compliance. The Company's management believes, based on property
reviews to date, that the costs of such compliance should not have a material
adverse effect on the Company. Such conclusions are based upon currently
available information and data, and no assurance can be given that further
review and analysis of the Company's properties, or future legal interpretations
or legislative changes, will not significantly increase the costs of compliance.
REAL ESTATE FINANCING RISKS
DEBT FINANCING AND MATURITIES
The Company is subject to the normal risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, the risk that indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid or
refinanced when due or that the terms of any renewal or refinancing will not be
as favorable as the terms of such indebtedness. If the Company were unable to
refinance its indebtedness on acceptable terms, or at all, the Company might be
forced to dispose of one or more of the properties on disadvantageous terms,
which
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might result in losses to the Company, which losses could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. Furthermore, if a
property is mortgaged to secure payment of indebtedness and the Company is
unable to meet mortgage payments, the mortgagee could foreclose upon the
property, appoint a receiver and receive an assignment of rents and leases or
pursue other remedies, all with a consequent loss of revenues and asset value to
the Company. Foreclosures could also create taxable income without accompanying
cash proceeds, thereby hindering the Company's ability to meet the REIT
distribution requirements of the Code.
RISK OF RISING INTEREST RATES
The Company has incurred and expects in the future to incur indebtedness
which bears interest at a variable rate. Accordingly, increases in interest
rates would increase the Company's interest costs (to the extent that the
related indebtedness was not protected by interest rate protection
arrangements), which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities or cause the Company to be in default under certain debt instruments
(including its Debt Securities). In addition, an increase in market interest
rates may lead holders of the Company's Common Shares to demand a higher yield
on their shares from distributions by the Company, which could adversely affect
the market price for the Common Shares.
ADDITIONAL DEBT
The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such as
sales of non-core properties. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness that the Company may incur.
Accordingly, the Company could become more highly leveraged, resulting in an
increase in debt service, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay amounts
due on its Debt Securities and in an increased risk of default on its
obligations.
ENVIRONMENTAL RISKS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances in, on,
around or under such property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. The presence of, or failure to
remediate properly, such substances may adversely affect the owner's or
operator's ability to sell or rent the affected property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may also seek recovery from owners or operators of real
properties for personal injury associated with asbestos-containing materials and
other hazardous or toxic substances. The operation and subsequent removal of
certain underground storage tanks are also regulated by federal and state laws.
In connection with the current or former ownership (direct or indirect),
operation, management, development and/or control of real properties, the
Company may be considered an owner or operator of such properties or as having
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, may be potentially liable for removal or remediation costs, as well
as certain other costs, including governmental fines, and claims for injuries to
persons and property.
The Company's current policy is to obtain a Phase I environmental study on
each property it seeks to acquire and to proceed accordingly. No assurance can
be given, however, that the Phase I environmental
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studies or other environmental studies undertaken with respect to any of the
Company's current or future properties will reveal all or the full extent of
potential environmental liabilities, that any prior owner or operator of a
property did not create any material environmental condition unknown to the
Company, that a material environmental condition does not otherwise exist as to
any one or more of such properties or that environmental matters will not have a
material adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. The Company
currently carries no insurance for environmental liabilities.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities). In order to protect the Company against risk of losing its
status as a REIT due to a concentration of ownership among its shareholders, the
articles of incorporation of the Company provide, among other things, that if
the Board of Directors determines, in good faith, that direct or indirect
ownership of the Company's Common Shares have or may become concentrated to an
extent that would prevent the Company from qualifying as a REIT, the Board of
Directors may prevent the transfer of the Common Shares or call for redemption
(by lot or other means affecting one or more shareholders selected in the sole
discretion of the Board of Directors) of a number of Common Shares sufficient in
the opinion of the Board of Directors to maintain or bring the direct or
indirect ownership of the Common Shares into conformity with the requirements
for maintaining REIT status. These limitations may have the effect of precluding
acquisition of control of the Company by a third party without consent of the
Board of Directors.
In addition, certain other provisions contained in the Company's articles of
incorporation and bylaws, as well as its shareholder rights plan, may have the
effect of discouraging a third party from making an acquisition proposal for the
Company and may thereby inhibit a change in control of the Company. For example,
such provisions may (i) deter tender offers for Common Shares which offers may
be attractive to the shareholders, or (ii) deter purchases of large blocks of
Common Shares, thereby limiting the opportunity for shareholders to receive a
premium for their Common Shares over then-prevailing market prices.
TAX RISKS
TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT
Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within the Company's
control. For example, in order to qualify as a REIT, at least 95% of the
Company's taxable gross income in any year must be derived from qualifying
sources and the Company must make distributions to shareholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, new regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates, which would
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likely have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities. In
addition, unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification is lost. This treatment
would reduce funds available for investment or distributions to shareholders
because of the additional tax liability to the Company for the year or years
involved. In addition, distributions to shareholders would no longer be required
to be made. To the extent that distributions to shareholders would have been
made in anticipation of qualifying as a REIT, the Company might be required to
borrow funds or to liquidate certain of its investments to pay the applicable
tax.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the quarter ended March
31, 1997 and the years ended December 31, 1996, 1995, 1994, 1993, and 1992 was
2.82, 3.20, 3.95, 4.96, 4.39, and 3.36, respectively. For the purposes of
computing these ratios, earnings have been calculated by adding fixed charges to
income before net gains (losses) on sales of investments. Fixed charges consist
of interest costs (including capitalized interest), amortization of debt expense
and one-third of the rental expense, which is deemed to be the interest
component of such rental expense.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement for any
offering of securities, the Company intends to use the net proceeds from the
sale of the Company Offered Securities for general corporate purposes, which may
include the acquisition of properties or interests therein (including using the
net proceeds for possible portfolio or asset acquisitions or in business
combinations) as suitable opportunities arise, the expansion and improvement of
certain properties in the Company's portfolio and the repayment of indebtedness.
The Company will not receive any of the proceeds from the sale of the Resale
Shares by the Selling Shareholder.
SELLING SHAREHOLDER
As of April 8, 1997, State Farm Insurance Companies Employee Retirement
Trust (the "Selling Shareholder") beneficially owned 942,570 Common Shares, of
which up to 650,000 Resale Shares may be offered hereby. The amount of the
Resale Shares which may be offered by the Selling Shareholder from time to time
for its account and the percentage of the class to be owned by the Selling
Shareholder after the completion of such offering or offerings will be set forth
in the applicable Prospectus Supplement. On May 14, 1997, the Selling
Shareholder sold 650,000 Resale Shares in a public offering pursuant to a
Prospectus Supplement. In addition, as of April 8, 1997, State Farm Mutual
Automobile Insurance Company ("State Farm") beneficially owned 3,226,388 Common
Shares. The Selling Shareholder is a retirement plan administered by State Farm
for the benefit of its employees. The trustees of the Selling Shareholder are
vested with the responsibility for investing the assets of the Selling
Shareholder. The Selling Shareholder and State Farm each expressly disclaims
beneficial ownership of the Common Shares owned by the other.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or subordinated
Debt Securities ("Subordinated Debt Securities"). The Debt Securities will be
issued under one or more indentures. Senior Debt Securities and Subordinated
Debt Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same Trustee. The Senior
Indenture and the Subordinated Indenture, as amended or supplemented from time
to time, are sometimes referred to collectively as the "Indentures." The
Indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended (the
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"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of certain anticipated provisions thereof, do
not purport to be complete and are qualified in their entirety by reference to
the forms of Indentures and such Debt Securities, which have been or will be
included or incorporated by reference to exhibits to the Registration Statement
of which this Prospectus is a part and are or will be available as described
above under "Available Information."
The following description of Debt Securities sets forth certain general
terms and provisions of the series of Debt Securities to which any Prospectus
Supplement may relate. Certain other specific terms of any particular series of
Debt Securities will be described in the applicable Prospectus Supplement. The
terms of the Debt Securities offered by any Prospectus Supplement may differ
from the terms set forth below, in which case the terms set forth below shall be
deemed to have been superseded to the extent of any different terms set forth in
such Prospectus Supplement.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable form of Indenture. As used in this
"Description of Debt Securities," all references to the "Company" shall mean BRE
Properties, Inc., excluding, unless otherwise expressly stated or the context
shall otherwise require, its subsidiaries.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
Each Indenture will provide that the Debt Securities issued thereunder may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time in or pursuant to authority granted
by a resolution of the Board of Directors of the Company or as established in
one or more indentures supplemental to the applicable Indenture. The terms of
any Debt Securities within any series may differ from the terms of any other
Debt Securities in such series. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series. (SEE Section
301 of the forms of Indenture.) Any Trustee under either Indenture may resign or
be removed with respect to one or more series of Debt Securities issued under
such Indenture, and a successor Trustee may be appointed to act with respect to
such series.
Reference is made to each Prospectus Supplement for the specific terms of
the series of Debt Securities being offered thereby, including:
(1) The title of such Debt Securities and whether such Debt Securities
will be Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) If other than 100% of the principal amount thereof, the portion of
the principal amount of such Debt Securities payable upon declaration of
acceleration of the maturity thereof or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Shares or other equity securities of the Company, or the method by which any
such portion shall be determined;
(4) If such Debt Securities are convertible, any limitation on the
ownership or transferability of the Common Shares or other equity securities
of the Company into which such Debt Securities are convertible in connection
with the preservation of the Company's status as a REIT;
(5) The date or dates, or the method for determining the date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) The date or dates, or the method for determining the date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the
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Regular Record Dates for such Interest Payment Dates, or the method by which
such Regular Record Dates shall be determined, the Person to whom such
interest shall be payable, and the basis upon which interest, shall be
calculated if other than that of a 360-day year of twelve 30-day months;
(8) The place or places where (i) the principal of (and premium, if any)
or interest, if any, on such Debt Securities will be payable, (ii) such Debt
Securities may be surrendered for conversion (if applicable) or registration
of transfer or exchange, and (iii) notices or demands to or upon the Company
in respect of such Debt Securities and the applicable Indenture may be
served;
(9) The period or periods within which, the price or prices at which,
and the terms and conditions upon which, such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the
Company is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which,
the price or prices at which and the terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign currency
or units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificated or
book-entry form;
(15) Whether such Debt Securities will be in registered or bearer form or
both and, if and to the extent in registered form, the denominations thereof
if other than $1,000 and any integral multiple thereof and, if and to the
extent in bearer form, the denominations thereof and terms and conditions
relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable Indenture;
(17) The terms, if any, upon which such Debt Securities may be
convertible into Common Shares or other equity securities of the Company
(and the class thereof) and the terms and conditions upon which such
conversion will be effected, including, without limitation, the initial
conversion price or rate and the conversion period;
(18) Whether and under what circumstances the Company will pay Additional
Amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment; and
(19) Any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as hereinafter set forth under the captions "Certain
Covenants--Aggregate Debt Test," "--Maintenance of Total Unencumbered Assets,"
"--Debt Service Test" and "--Secured Debt Test," which relate solely to the
Senior Indenture and the Senior Debt Securities issued thereunder, neither
Indenture will contain any provision that would limit the ability of the Company
to incur indebtedness or
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that will afford Holders of Debt Securities protection in a highly leveraged or
similar action involving the Company or in the event of a change of control of
the Company. However, certain restrictions on ownership and transfers of the
Company's Common Shares and the Company's other equity securities designed to
preserve its status as a REIT may act to prevent or hinder a change of control.
SEE "Description of Common Shares."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
registered Debt Securities of any series will be issuable in denominations of
$1,000 and integral multiples of $1,000. (SEE Section 302 of the forms of
Indenture.)
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest, if any, on any series of Debt
Securities will be payable at the office or agency maintained by the Company for
such purpose; provided that, at the option of the Company, payment of interest
may be made by check mailed to the address of the Person entitled thereto as it
appears in the Security Register or by wire transfer of funds to such Person at
an account maintained within the United States. (SEE Sections 301, 305, 306, 307
and 1002 of the forms of Indenture.)
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice of which shall be given to the Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner, all as more completely described in the
applicable Indenture. (SEE Section 307 of the forms of Indenture.)
Subject to certain limitations applicable to Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the office or agency maintained by the Company for such
purpose. In addition, subject to certain limitations applicable to Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion (if applicable) or registration of transfer thereof
at the office or agency maintained by the Company for such purpose. Every Debt
Security surrendered for conversion (if applicable), registration of transfer or
exchange must be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (SEE Section 305 of the forms of Indenture.) If the applicable
Prospectus Supplement refers to any transfer agent initially designated by the
Company with respect to any series of Debt Securities, the Company may at any
time rescind the designation of any such transfer agent or approve a change in
the location at which any such transfer agent acts, except that the Company will
be required to maintain a transfer agent in each Place of Payment for such
series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities. (SEE Section 1002 of the forms of
Indenture.)
Neither the Company nor any Trustee will be required (i) to issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) to register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) to issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid. (SEE Section 305 of
the forms of Indenture.)
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MERGER, CONSOLIDATION OR SALE
Each Indenture will provide that the Company will not, in any transaction or
series of related transactions, consolidate with, or sell, lease, assign,
transfer or otherwise convey all or substantially all of its assets to, or merge
with or into, any other Person unless (i) either the Company shall be the
continuing corporation, or the successor Person (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets is a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall expressly assume, by supplemental indenture
delivered to the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest, if any, on all of the outstanding Debt Securities
issued under such Indenture and the due and punctual performance and observance
of all of the other covenants and conditions contained in such outstanding Debt
Securities and such Indenture; (ii) immediately after giving effect to such
transaction and treating any Debt (including Acquired Debt) which becomes an
obligation of the Company or any of its Subsidiaries as a result thereof as
having been incurred by the Company or such Subsidiary at the time of such
transaction, no Event of Default under the applicable Indenture, and no event
which, after notice or the lapse of time or both, would become such an Event of
Default, shall have occurred and be continuing; and (iii) an officers'
certificate and legal opinion concerning such conditions shall be delivered to
the relevant Trustee. In the event that the Company is not the continuing
corporation, then, for purposes of clause (ii) of the preceding sentence, the
successor corporation shall be deemed to be the "Company" referred to in such
clause (ii). (SEE Sections 801 and 803 of the forms of Indenture).
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Company is not the continuing corporation, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such sale, assignment, transfer, lease or other conveyance is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the relevant Indenture with the same effect as if such
successor corporation had been named as the Company therein and thereafter
(except in the case of a lease) the Company shall be released from its
obligations under such Indenture and the Debt Securities.
CERTAIN COVENANTS
The Senior Indenture will contain the following covenants:
AGGREGATE DEBT TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom on a pro forma basis, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries
(determined on a consolidated basis in accordance with generally accepted
accounting principles) is greater than 60% of the sum of (without duplication)
(i) the Total Assets of the Company and its Subsidiaries as of the last day of
the then most recently ended fiscal quarter and (ii) the aggregate purchase
price of any real estate assets or mortgages receivable acquired, and the
aggregate amount of any securities offering proceeds received (to the extent
such proceeds were not used to acquire real estate assets or mortgages
receivable or used to reduce Debt), by the Company or any of its Subsidiaries
since the end of such fiscal quarter, including the proceeds obtained from the
incurrence of such additional Debt, determined on a consolidated basis in
accordance with generally accepted accounting principles.
DEBT SERVICE TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if the ratio of Consolidated Income Available for Debt Service to the
Annual Debt Service Charge for the period consisting of the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect to the incurrence of such Debt and the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt (including, without limitation, Acquired Debt) incurred by the
Company or any of its Subsidiaries
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since the first day of such four-quarter period had been incurred on the first
day of such period, (ii) the repayment or retirement of any other Debt of the
Company or any of its Subsidiaries since the first day of such four-quarter
period had occurred on the first day of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility, line of
credit or similar facility shall be computed based upon the average daily
balance of such Debt during such period) and (iii) in the case of any
acquisition or disposition by the Company or any of its Subsidiaries of any
asset or group of assets, in any such case with a fair market value (determined
in good faith by the Company's Board of Directors) in excess of $1 million,
since the first day of such four-quarter period, whether by merger, stock
purchase or sale or asset purchase or sale or otherwise, such acquisition or
disposition had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation. If the Debt giving rise to the need to make the
foregoing calculation or any other Debt incurred after the first day of the
relevant four-quarter period bears interest at a floating rate then, for
purposes of calculating the Annual Debt Service Charge, the interest rate on
such Debt shall be computed on a pro forma basis as if the average rate which
would have been in effect during the entire such four-quarter period had been
the applicable rate for the entire such period.
SECURED DEBT TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) secured by any Lien on any property or assets of the Company or any of its
Subsidiaries, whether owned on the date of the Indenture or thereafter acquired,
if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom on a pro forma basis, the aggregate
principal amount (determined on a consolidated basis in accordance with
generally accepted accounting principles) of all outstanding Debt of the Company
and its Subsidiaries which is secured by any Lien on any property or assets of
the Company or any of its Subsidiaries is greater than 40% of the sum of
(without duplication) (i) the Total Assets of the Company and its Subsidiaries
as of the last day of the then most recently ended fiscal quarter and (ii) the
aggregate purchase price of any real estate assets or mortgages receivable
acquired, and the aggregate amount of any securities offering proceeds received
(to the extent such proceeds were not used to acquire real estate assets or
mortgages receivable or used to reduce Debt), by the Company or any of its
Subsidiaries since the end of such fiscal quarter, including the proceeds
obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting principles.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Company will, and will cause
its Subsidiaries to, have at all times Total Unencumbered Assets of not less
than 150% of the aggregate principal amount of all outstanding Unsecured Debt of
the Company and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles.
The Subordinated Indenture will not contain any of the covenants described
above and will not contain any other limitation on the amount of Debt of any
kind which the Company or its Subsidiaries may incur. Neither Indenture will
limit the amount of dividends or other distributions which the Company may pay
to its shareholders.
Each Indenture will contain the following covenants:
EXISTENCE. Except as permitted under the provisions of such Indenture
described in "Merger, Consolidation or Sale" the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company will not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities outstanding under
the relevant Indenture.
MAINTENANCE OF PROPERTIES. The Company will cause all of its properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs,
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renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the Company and its Subsidiaries will not be prevented
from selling or otherwise disposing of for value their respective properties in
the ordinary course of business.
INSURANCE. Each Indenture will require the Company to, and to cause each of
its Subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance with
prevailing market conditions and availability.
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary, provided, however, that the Company will not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, for so long as any Debt Securities
are outstanding, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Section 13 or 15(d) if the Company were so subject, on or prior
to the respective dates (the "Required Filing Dates") by which the Company would
have been so required so to file such documents. The Company will also in any
event (x) within 15 days after each Required Filing Date (i) transmit by mail to
all Holders of Debt Securities, as their names and addresses appear in the
relevant Security Register, without cost to such Holders, copies of the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections and (ii) file with the
applicable Trustee copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject
to such Sections and (y) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder of Debt Securities under the
relevant Indenture.
DEFINITIONS. As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
is merged or consolidated with or into, or becomes a Subsidiary of, the Company
or (ii) assumed by the Company or any of its Subsidiaries in connection with the
acquisition of assets from such Person. Acquired Debt shall be deemed to be
incurred on the date the acquired Person is merged or consolidated with or into,
or becomes a Subsidiary of, the Company or the date of the related acquisition,
as the case may be.
"Annual Debt Service Charge" means, for any period, the interest expense of
the Company and its Subsidiaries for such period (including, without
duplication, (i) all amortization of debt discount, (ii) all accrued interest,
(iii) all capitalized interest, and (iv) the interest component of capitalized
lease obligations), determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Company and its Subsidiaries for such period,
plus amounts which have been deducted and minus amounts which have been added
for (without duplication) (i) interest expense on Debt, (ii) provision for taxes
based on income, (iii) amortization of debt discount and deferred financing
costs, (iv) provisions for gains and losses on properties, (v) property
depreciation and amortization, (vi) the effect of any non-cash
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items resulting from a change in accounting principles in determining
Consolidated Net Income, and (vii) amortization of deferred charges, all
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period, excluding (without
duplication) (i) gains and losses on sales of investments and extraordinary
items and (ii) the portion of net income (but not losses) of the Company and its
Subsidiaries allocable to minority interests in unconsolidated Persons to the
extent that cash dividends or distributions have not actually been received by
the Company or one of its Subsidiaries, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of (i) borrowed money or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any Lien on any property or asset owned by such Person, but only to the extent
of the lesser of (x) the amount of indebtedness so secured and (y) the fair
market value (determined in good faith by the board of directors of such Person
or, in the case of the Company or a Subsidiary, by the Company's Board of
Directors) of the property subject to such Lien, (iii) reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any such balance that constitutes an
accrued expense or trade payable, or (iv) any lease of property by such Person
as lessee which is required to be reflected on such Person's balance sheet as a
capitalized lease in accordance with generally accepted accounting principles,
and also includes, to the extent not otherwise included, any obligation of such
Person to be liable for, or to pay, as obligor, guarantor or otherwise (other
than for purposes of collection in the ordinary course of business), Debt of the
types referred to above of another Person (it being understood that Debt shall
be deemed to be incurred by such Person whenever such person shall create,
assume, guarantee or otherwise become liable in respect thereof).
"Executive Group" means, collectively, those individuals holding the offices
of Chairman, Vice Chairman, President, Chief Executive Officer, Chief Operating
Officer or any Vice President of the Company.
"Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest, security agreement, or other encumbrance of any kind.
"Subsidiary" means (i) a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares, if any, of the
non-voting capital stock or other equivalent ownership interests of which
(except directors' qualifying shares) are at the time directly or indirectly
owned by the Company and/or any other Subsidiary or Subsidiaries, and the
majority of the shares of the voting capital stock or other equivalent ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by the Company, any other Subsidiary or
Subsidiaries, and/or one or more individuals of the Executive Group (or, in the
event of death or disability of any of such individuals, his/her respective
legal representatives(s), or such individuals' successors in office as an
officer of the Company), and (ii) any other Person the accounts of which are
consolidated with the accounts of the Company.
"Total Assets" means the sum of (without duplication) (i) Undepreciated Real
Estate Assets and (ii) all other assets (excluding accounts receivable and
intangibles) of the Company and its Subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Total Unencumbered Assets" means the sum of (without duplication) (i) those
Undepreciated Real Estate Assets which are not subject to a Lien securing Debt
and (ii) all other assets (excluding accounts receivable and intangibles) of the
Company and its Subsidiaries not subject to a Lien securing Debt, all determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Undepreciated Real Estate Assets" means, as of any date, the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, all determined
on a consolidated basis in accordance with generally accepted accounting
principles.
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"Unsecured Debt" means Debt of the Company or any of its Subsidiaries which
is not secured by a Lien on any property or assets of the Company or any of its
Subsidiaries.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any interest on or any Additional Amounts payable in
respect of any Debt Security of such series; (ii) default in the payment of any
principal of (or premium, if any, on) any Debt Security of such series at its
Maturity; (iii) default in making any sinking fund payment as required for any
Debt Security of such series; (iv) default in the performance of any other
covenant or warranty of the Company contained in the applicable Indenture (other
than a covenant or warranty included in such Indenture solely for the benefit of
a series of Debt Securities other than such series), continued for 60 days after
written notice as provided in such Indenture; (v) default under any bond, note,
debenture or other evidence of indebtedness of the Company or any of its
Subsidiaries or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured which results in
the acceleration of indebtedness in an aggregate principal amount exceeding
$20,000,000 or which constitutes a failure to pay at maturity or other scheduled
payment date (after expiration of any applicable grace period) indebtedness in
an aggregate principal amount exceeding $20,000,000, but only if such
indebtedness is not discharged or such acceleration is not rescinded or annulled
within 10 days after notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 10% in aggregate principal amount of the
Outstanding Debt Securities of such series; (vi) certain events of bankruptcy,
insolvency or reorganization with respect to the Company or of any Significant
Subsidiary; and (vii) any other Event of Default provided with respect to that
series of Debt Securities. (SEE Section 501 of the forms of Indenture.) The term
"Significant Subsidiary" means a significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act as in effect on January 1,
1996) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms thereof) of all
of the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given by
the Holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series has been made, the Holders of not less
than a majority in principal amount of Debt Securities of such series may
rescind and annul such declaration and its consequences if (i) the Company shall
have deposited with the applicable Trustee all required payments of the
principal of (and premium, if any) and interest, if any, on the Debt Securities
of such series (other than amounts which have become due and payable as a result
of such acceleration), plus certain fees, expenses, disbursements and advances
of such Trustee and (ii) all Events of Default, other than the nonpayment of
accelerated principal (or specified portion thereof), with respect to Debt
Securities of such series have been cured or waived as provided in such
Indenture. (SEE Section 502 of the forms of Indenture.) The Indentures will also
provide that the Holders of not less than a majority in principal amount of the
Debt Securities of any series may waive any past default with respect to such
series and its consequences, except a default (x) in the payment of the
principal of (or premium, if any) or interest, if any, on any Debt Security of
such series or (y) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the Holder of each Outstanding Debt Security affected thereby. (SEE Section 513
of the forms of Indenture.)
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The Indentures will require each Trustee to give notice to the Holders of
Debt Securities issued thereunder within 90 days of a default under the
applicable Indenture unless such default shall have been cured or waived;
provided, however, that such Trustee may withhold notice to the Holders of any
such series of Debt Securities of any default with respect to such series
(except a default in the payment of the principal of (or premium, if any) or
interest, if any, on any Debt Security of such series or in the payment of any
sinking fund installment in respect of any Debt Security of such series) if a
Responsible Officer of such Trustee determines such withholding to be in the
interest of such Holders. (SEE Section 601 of the forms of Indenture.)
The Indentures will provide that no Holder of Debt Securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
the failure of the applicable Trustee, for 60 days, to act after it has received
a written request to institute proceedings in respect of an Event of Default
from the Holders of not less than 25% in principal amount of the Outstanding
Debt Securities of such series, as well as an offer of reasonable indemnity.
(SEE Section 507 of the forms of Indenture.) This provision will not prevent,
however, any Holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest, if any, on
such Debt Securities held by that Holder at the respective due dates thereof.
(SEE Section 508 of the forms of Indenture.)
The Indentures will provide that, subject to provisions to each Indenture
relating to its duties in case of default, a Trustee thereunder is under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any Holders of any series of Debt Securities then
Outstanding under such Indenture, unless such Holders shall have offered to the
Trustee thereunder reasonable security or indemnity. (SEE Section 602 of the
forms of Indenture.) The Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to such Trustee, or of exercising any trust or power conferred upon such
Trustee. However, a Trustee may refuse to follow any direction which is in
conflict with any law or the applicable Indenture, which may involve such
Trustee in personal liability or which may be unduly prejudicial to the Holders
of Debt Securities of such series not joining therein. (SEE Section 512 of the
forms of Indenture.)
Within 120 days after the close of each fiscal year, the Company must
deliver to each Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the applicable Indenture and, if so, specifying each such
default and the nature and status thereof. (SEE Section 1014 of the form of
Senior Indenture and Section 1011 of the form of Subordinated Indenture.)
MODIFICATION OF THE FORMS OF INDENTURE
Modifications and amendments of an Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities of each series issued thereunder which are affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest, if any, (or premium, if any) on, any such Debt
Security, (ii) reduce the principal amount of, or the rate or amount of interest
on, or any amount of premium payable on any such Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of the Holder of any such
Debt Security to repayment of such Debt Security at such Holder's option, (iii)
change the Place of Payment, or the coin or currency, for payment of principal
of (or premium, if any) or interest, if any, on any such Debt Security, (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security, (v) reduce the percentage in principal amount
of Outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture with respect to such
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Debt Securities, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; or (vi) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security. (SEE
Section 902 of the forms of Indenture.)
Each Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of any series issued thereunder
have the right to waive compliance by the Company with certain covenants in the
Indenture applicable to such series, including those described in the section of
this Prospectus captioned "Description of Debt Securities--Certain Covenants."
(SEE Section 1013 of the form of Senior Indenture and Section 1011 of the form
of Subordinated Indenture.)
Modifications and amendments of an Indenture may be made by the Company and
the applicable Trustee without the consent of any Holder of Debt Securities
issued thereunder for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities issued thereunder or to surrender any right
or power conferred upon the Company in such Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt Securities
issued thereunder; (iv) to add or change any provisions of such Indenture to
facilitate the issuance of Debt Securities issued thereunder in bearer form, or
to permit or facilitate the issuance of such Debt Securities in uncertificated
form, provided that such action shall not adversely affect the interests of the
Holders of such Debt Securities of any series in any material respect; (v) to
change or eliminate any provision of such Indenture, provided that no such
change or elimination shall become effective with respect to the Outstanding
Debt Securities of any series issued thereunder which were first issued prior to
the date of such change or elimination and which are entitled to the benefit of
such provision; (vi) to secure the Debt Securities issued thereunder; (vii) to
establish the form or terms of Debt Securities of any series issued thereunder,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Shares or Preferred Shares of the Company;
(viii) to provide for the acceptance of appointment by a successor Trustee or to
facilitate the administration of the trusts under such Indenture by more than
one Trustee; (ix) to cure any ambiguity, defect or inconsistency in such
Indenture, provided that such action shall not adversely affect the interests of
Holders of Outstanding Debt Securities of any series issued thereunder in any
material respect; or (x) to supplement any of the provisions of such Indenture
to the extent necessary to permit or facilitate defeasance and discharge of any
series of Debt Securities issued thereunder, provided that such action shall not
adversely affect the interests of the Holders of the Debt Securities of any
series issued thereunder in any material respect. (SEE Section 901 of the forms
of Indenture.)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
Holders of such Debt Securities, (i) the principal amount of an Original Issue
Discount Security that shall be deemed to be Outstanding shall be the amount of
the principal thereof that would be due and payable as of the date of such
determination upon declaration of acceleration of the maturity thereof, (ii) the
principal amount of a Debt Security denominated in a Foreign Currency that shall
be deemed outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the U.S. dollar equivalent on the issue
date of such Debt Security of the amount determined as provided in (i) above),
(iii) the principal amount of an Indexed Security that shall be deemed
Outstanding shall be the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to such Indenture, and (iv) Debt Securities owned by the
Company or any other obligor upon the Debt
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Securities or any Affiliate of the Company or of such other obligor shall be
disregarded. (SEE Section 101 of the forms of Indenture.)
The Indentures will contain provisions for convening meetings of the Holders
of Debt Securities of a series issued thereunder. (SEE Section 1501 of the forms
of Indenture.) A meeting may be called at any time by the applicable Trustee and
also, upon request, by the Company or the Holders of at least 10% in principal
amount of the Outstanding Debt Securities of such series, in any such case upon
notice given as provided in the applicable Indenture. (SEE Section 1502 of the
forms of Indenture.) Except for any consent that must be given by the Holder of
each Debt Security affected by certain modifications and amendments of such
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the applicable Indenture will be binding on all Holders
of Debt Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum. (SEE Section 1504 of the forms of Indenture.)
Notwithstanding the provisions described above, the Indentures will provide
that if any action is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the applicable Indenture expressly
provides may be made, given or taken by the Holders of a specified percentage in
principal amount of all Outstanding Debt Securities affected thereby, or by the
Holders of a specified percentage in principal amount of the Outstanding Debt
Securities of such series and one or more additional series: (i) there shall be
no minimum quorum requirement for such meeting and (ii) the principal amount of
the Outstanding Debt Securities of such series that are entitled to vote in
favor of such request, demand, authorization, direction, notice, consent, waiver
or other action shall be taken into account in determining whether such request,
demand, authorization, direction, notice, consent, waiver or other action has
been made, given or taken under such Indenture. (SEE Section 1504 of the forms
of Indenture.)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, upon
request of the Company any Indenture shall cease to be of further effect with
respect to any series of Debt Securities issued thereunder specified in such
Company request (except as to certain limited provisions of such Indenture which
shall survive) when either (i) all Debt Securties of such series have been
delivered to the Trustee for cancellation or (ii) all Debt Securities of such
series have become due and payable or will become due and payable within one
year (or, if redeemable, are scheduled for redemption within one year) and the
Company has irrevocably deposited with the applicable Trustee, in trust, funds
in such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securuties are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
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Each Indenture provides that, unless otherwise provided in the applicable
Prospectus Supplement, the Company may elect with respect to any series of Debt
Securities issued thereunder either (i) to defease and be discharged from any
and all obligations with respect to such Debt Securities (except, among other
things, for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (SEE Section 1402 of the forms of Indenture) or (ii) to be
released from its obligations with respect to such Debt Securities under the
applicable covenants described above under the caption "Certain Covenants"
(except that the Company shall remain subject to the covenant to preserve and
keep in full force and effect its corporate existence, except as permitted under
the provisions described under "Consolidation, Merger or Sale") and, if provided
pursuant to Section 301 of such Indenture, its obligations with respect to any
other covenants applicable to the Debt Securities of such series, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(SEE Section 1403 of the forms of Indenture), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are payable at Stated
Maturity, or Government Obligations (as defined below), or both, applicable to
such Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest, if any,
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company has
delivered to the applicable Trustee an Opinion of Counsel (as specified in the
applicable Indenture) to the effect that the Holders of such Debt Securities
will not recognize income, gain or loss for U.S. federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of such
Indenture. (SEE Section 1404 of the forms of Indenture.)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the Foreign Currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt. (SEE Section 101 of the forms of
Indenture.)
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the Holder of a Debt Security of such series is entitled to, and does,
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elect to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (ii) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest, if any, on such Debt Security
as it becomes due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such Conversion Event. (SEE Section 1405 of the forms of
Indenture.) "Conversion Event" means the cessation of use of (a) a currency,
currency unit or composite currency both by the government of the country which
issued such currency and for the settlement of transactions by a central bank or
other public institution of or within the international banking community, (b)
the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Community or (c)
any currency unit or composite currency other than the ECU for the purposes for
which it was established. Unless otherwise described in the applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest, if any, on any Debt Security that are payable in a Foreign Currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to the
Debt Securities of any series and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default (other than an Event
of Default with respect to any covenant as to which there has been covenant
defeasance), the amount of monies and Government Obligations deposited with the
applicable Trustee to effect such covenant defeasance may not be sufficient to
pay amounts due on such Debt Securities at the time of their Stated Maturity or
at the time of the acceleration resulting from such Event of Default. In any
such event, the Company would remain liable to make payment of such amounts due
at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
RANKING OF DEBT SECURITIES
The Senior Debt Securities will be unsecured unsubordinated obligations of
the Company and will rank on a parity in right of payment with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities will be unsecured obligations of the Company and will be subordinated
in right of payment to all existing and future Senior Indebtedness (as defined
below) of the Company. SEE "Subordination of Subordinated Securities."
The Debt Securities are obligations exclusively of the Company. Although the
Company conducts most of its operations itself, rather than through
subsidiaries, a portion of its assets (amounting to less than 6% of its total
consolidated assets at March 31, 1997) are held by its subsidiaries.
Accordingly, the cash flow of the Company and the consequent ability to service
its debt, including the Debt Securities, are partially dependent on the earnings
of such subsidiaries and the Debt Securities will be effectively subordinated to
all existing and future indebtedness and other liabilities of such subsidiaries.
Although the Senior Indentures will, if any Senior Securities are issued, impose
limitations on the incurrence of additional indebtedness, both the Company and
its subsidiaries will retain the ability to incur substantial additional
indebtedness.
SUBORDINATION OF SUBORDINATED SECURITIES
The payment of the principal of (and premium, if any) and interest, if any,
on the Subordinated Debt Securities will be subordinated as set forth in the
Subordinated Indenture in right of payment to the prior
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payment of all Senior Indebtedness of the Company whether outstanding on the
date of the Subordinated Indenture or thereafter incurred. (SEE Section 1701 of
the Subordinated Indenture.)
"Senior Indebtedness" is defined in the Subordinated Indenture to mean (i)
the principal of (and premium, if any) and unpaid interest, if any, on
indebtedness for money borrowed or evidenced by a bond, note, debenture or
similar instrument, (ii) purchase money and similar obligations, (iii)
obligations under capital leases, (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the Company
is responsible for the payment of, indebtedness and obligations of others of the
types referred to in clauses (i) through (iii) above, (v) renewals, extensions
and refunding of any such indebtedness or obligations, (vi) interest in respect
of any such indebtedness or obligations accruing after the commencement of any
insolvency or bankruptcy proceedings and (vii) obligations associated with
derivative products such as interest rate and currency exchange contracts,
foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or
guaranteed the indebtedness or obligations described in clauses (i) through
(vii) expressly provides that such indebtedness or obligation is subordinate or
junior in right of payment to all other indebtedness of the Company or is not
senior in right of payment to the Subordinated Debt Securities or ranks pari
passu with or subordinate to the Subordinated Debt Securities in right of
payment. At March 31, 1997, the Company had approximately $220,000,000 of Senior
Debt outstanding. There are no restrictions in the Subordinated Indenture upon
the incurrence of additional Senior Indebtedness.
The Subordinated Indenture will provide that, in the event (i) of any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in bankruptcy, insolvency,
reorganization or receivership proceeding or upon an assignment for the benefit
of creditors or any other marshaling of the assets and liabilities of the
Company or otherwise, except a distribution in connection with a merger or
consolidation or a conveyance or transfer of all or substantially all of the
properties of the Company which complies with the requirements of Article Eight
of the Subordinated Indenture (described above under "Merger, Consolidation or
Sale") or (ii) that a default shall have occurred and be continuing with respect
to the payment of principal of (or premium, if any) or interest on any Senior
Indebtedness, or (iii) that the principal of the Subordinated Debt Securities of
any series issued under the Subordinated Indenture (or in the case of Original
Issue Discount Securities, the portion of the principal amount thereof referred
to in Section 502 of the form of Subordinated Indenture) shall have been
declared due and payable pursuant to Section 502 of the form of Subordinated
Indenture, and such declaration shall not have been rescinded and annulled as
provided in said Section 502, then:
(1) in a circumstance described in the foregoing clause (i) or (ii), the
holders of all Senior Indebtedness, and in the circumstance described in the
foregoing clause (iii), the holders of all Senior Indebtedness outstanding
at the time the principal of such Subordinated Debt Securities issued under
the Subordinated Indenture (or in the case of Original Issue Discount
Securities, such portion of the principal amount) shall have been so
declared due and payable, shall first be entitled to receive payment of the
full amount due thereon in respect of principal (premium, if any), interest
and Additional Amounts, or provision shall be made for such payment in money
or money's worth, before the Holders of any of the Subordinated Debt
Securities are entitled to receive any payment on account of the principal
of (or premium, if any) or interest, if any, on or any Additional Amount in
respect of the indebtedness evidenced by the Subordinated Debt Securities;
(2) any payment by, or distribution of assets of, the Company of any
kind or character, whether in cash, property or securities (other than
certain subordinated debt securities of the Company issued in a
reorganization or readjustment), to which the Holder of any of the
Subordinated Debt Securities would be entitled except for the subordination
provisions of Article Seventeen of the Subordinated Indenture shall be paid
or delivered by the person making such payment or distribution directly to
the holders of Senior Indebtedness (as provided in clause (1) above), or on
their behalf, ratably according to the aggregate amount remaining unpaid on
account of such Senior Indebtedness, to the extent necessary to make payment
in full of all Senior Indebtedness (as provided in clause (1) above)
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remaining unpaid after giving effect to any concurrent payment or
distribution (or provisions therefor) to the holders of such Senior
Indebtedness, before any payment or distribution is made to or in respect of
the Holders of the Subordinated Debt Securities; and
(3) in the event that, notwithstanding the foregoing, any payment by, or
distribution of assets of, the Company of any kind or character is received
by the Holders of any of the Subordinated Debt Securities issued under the
Subordinated Indenture before all Senior Indebtedness is paid in full such
payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as aforesaid, for application to
the payment of all such Senior Indebtedness remaining unpaid until all such
Senior Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution (or provisions therefor) to the holders
of such Senior Indebtedness.
By reason of such subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain general creditors of the
Company, including holders of Senior Indebtedness, may recover more, ratably,
than the Holders of the Subordinated Debt Securities.
CONVERTIBLE DEBT SECURITIES
If set forth in the applicable Prospectus Supplement, Debt Securities of any
series may be convertible into Common Shares or other equity securities of the
Company ("Convertible Debt Securities") on the terms and subject to the
conditions set forth in such Prospectus Supplement.
The applicable Prospectus Supplement may set forth limitations on the
ownership or conversion of Convertible Debt Securities intended to protect the
Company's status as a REIT for federal income tax purposes.
Reference is made to the sections captioned "Description of Common Shares,"
"Description of Preferred Shares" and "Description of Depositary Shares" for a
general description of securities which may be issued upon the conversion of
Convertible Debt Securities, including a description of certain restrictions on
the ownership of the Common Shares and the Preferred Shares.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (each, a "Global Security") that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), or such other depository as may be identified in the applicable
Prospectus Supplement. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless otherwise provided
in such Prospectus Supplement, Debt Securities that are represented by a Global
Security will be issued in any authorized denomination and will be issued in
registered or bearer form.
The Company anticipates that any Global Securities will be deposited with,
or on behalf of DTC, and that such Global Securities will be registered in the
name of Cede & Co., DTC's nominee. The Company further anticipates that the
following provisions will apply to the depository arrangements with respect to
any such Global Securities. Any additional or differing terms of the depository
arrangements will be described in the Prospectus Supplement relating to a
particular series of Debt Securities issued in the form of Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Debt Securities represented by such Global Security for all purposes under
the applicable Indenture. Except as described below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities in certificated
form and will not be considered the owners or Holders thereof under the
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applicable Indenture. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests in
a Global Security.
Unless otherwise specified in the applicable Prospectus Supplement, each
Global Security of any series will be exchangeable for certificated Debt
Securities of the same series only if (i) DTC notifies the Company that it is
unwilling or unable to continue as depository or DTC ceases to be a clearing
agency registered under the Exchange Act (if so required by applicable law or
regulation) and, in either case, a successor depository is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, (ii) the Company in its sole discretion determines that
the Global Securities shall be exchangeable for certificated Debt Securities or
(iii) there shall have occurred and be continuing an Event of Default under the
Indenture with respect to the Debt Securities of such series and beneficial
owners representing a majority in aggregate principal amount of such Debt
Securities represented by Global Securities advise DTC to cease acting as
depository. Upon any such exchange, owners of a beneficial interest in the
Global Security or Securities will be entitled to physical delivery of
individual Debt Securities in certificated form of like tenor, terms and rank,
equal in principal amount to such beneficial interest, and to have such Debt
Securities in certificated form registered in the names of the beneficial
owners, which names are expected to be provided by DTC's relevant Participants
(as identified by DTC) to the applicable Trustee. Unless otherwise described in
the applicable Prospectus Supplement, Debt Securities so issued in certificated
form will be issued in denominations of $1,000 or any integral multiple thereof,
and will be issued in registered form only, without coupons.
The following is based on information furnished to the Company:
DTC will act as securities depository for the Debt Securities. The Debt
Securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully registered Debt Security
certificate will be issued with respect to each $200 million (or such other
amount as shall be permitted by DTC from time to time) of principal amount of
the Debt Securities of a series, and an additional certificate will be issued
with respect to any remaining principal amount of such series.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, and banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written confirmation
from DTC of its purchase, but is expected to receive a written confirmation
providing details of the transaction, as well as periodic statements of its
holdings, from the Direct or Indirect Participant through which such Beneficial
Owner entered into the transaction. Transfers of ownership interests in Debt
Securities are accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners.
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Beneficial Owners do not receive certificates representing their ownership
interests in Debt Securities, except under the circumstances described above.
To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's nominee, Cede & Co. The deposit of the Debt Securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Debt Securities; DTC records reflect only the identity of the Direct
Participants to whose accounts Debt Securities are credited, which may or may
not be the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Debt Securities are credited on the record date (identified
on a list attached to the Omnibus Proxy).
Principal payments, premium payments, if any, and interest payments, if any,
on the Debt Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payment date. Payments by Direct and Indirect
Participants to Beneficial Owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
applicable Trustee or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal (and
premium, if any) and interest, if any, to DTC is the responsibility of the
Company or the applicable Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Debt Securities of a series represented by Global Securities are
being redeemed, DTC's practice is to determine by lot the amount of the interest
of each Direct Participant in such issue to be redeemed.
To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the Global Security repaid by the
Company, through its Participant, to the applicable Trustee, and shall effect
delivery of such interest in a Global Security by causing the Direct Participant
to transfer the Participant's interest in the Global Security or Securities
representing such interest, on DTC's records, to such Trustee. The requirement
for physical delivery of Debt Securities in connection with a demand for
repayment will be deemed satisfied when the ownership rights in the Global
Security or Securities representing such Debt Securities are transferred by
Direct Participants on DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the applicable Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Debt Security certificates are
required to be printed and delivered as described above.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debt Security certificates will be printed and delivered as described above.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
None of the Company, the applicable Trustee or any applicable paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in a Global Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interest.
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DESCRIPTION OF PREFERRED SHARES
The following description of Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus Supplement
may relate, does not purport to be complete and is qualified in its entirety by
reference to the Company's Amended and Restated Articles of Incorporation (the
"Articles") and by the provisions of the form of articles supplementary pursuant
to which the terms of the Preferred Shares of any series will be established,
which have been or will be included or incorporated by reference as exhibits to
the Registration Statement of which this Prospectus is a part and are or will be
available as described above under "Available Information." Certain other
specific terms will be described in the applicable Prospectus Supplement. The
terms of the Preferred Shares offered in any Prospectus Supplement may differ
from the terms set forth below, in which case the terms set forth below shall be
deemed to have been superseded to the extent of any different terms set forth in
such Prospectus Supplement.
GENERAL
Under the Articles, the Board of Directors has the authority to issue up to
10,000,000 Preferred Shares, $0.01 par value per share. No Preferred Shares were
outstanding as of the date of this Prospectus. Preferred Shares may be issued
from time to time in one or more series, as authorized by the Board of Directors
of the Company and without any action or approval of shareholders of the
Company. Prior to the issuance of shares of such series, the Board of Directors
is required by the Maryland General Corporation Law and the Articles to fix for
each series, subject to the provisions of the Articles, the terms, rights,
restrictions and qualifications, including any preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. The
Preferred Shares offered in any Prospectus Supplement will, when issued, be
fully paid and nonassessable and will have no preemptive rights.
The issuance of Preferred Shares, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things, adversely affect the voting powers and other rights and
interests of holders of Common Shares and, under certain circumstances, could
make it more difficult for a third party to gain control of the Company and
could have the effect of delaying or preventing an attempted takeover of the
Company.
TERMS
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate or rates, period or periods and payment date or
dates or method of calculation thereof applicable to such Preferred Shares,
and whether dividends will be cumulative or non-cumulative;
(4) The date from which dividends on such Preferred Shares shall accrue,
if applicable;
(5) The procedures for any auction or remarketing of such Preferred
Shares;
(6) The provision for any sinking fund for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
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(9) Any terms and conditions upon which such Preferred Shares will be
convertible into Common Shares of the Company, including the conversion
price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of or on such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares of any series will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all equity securities
ranking junior to such Preferred Shares with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company; (ii) on a
parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Shares with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company which the terms of such Preferred Shares
specifically provide rank senior to the Preferred Shares with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient
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for the payment thereof is set apart for such payment on the Preferred Shares of
such series. When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon Preferred Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
Preferred Shares of such series and any other series of Preferred Shares ranking
on a parity as to dividends with such Preferred Shares shall be declared pro
rata so that the amount of dividends declared per share of Preferred Shares of
such series and such other series of Preferred Shares shall in all cases bear to
each other the same ratio that accrued dividends per share on the Preferred
Shares of such series (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Shares does not
have a cumulative dividend) and such other series of Preferred Shares bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on Preferred Shares of such
series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of capital
stock ranking junior to the Preferred Shares of such series as to dividends and
upon liquidation, dissolution and winding up) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Shares, or any other capital stock of the Company ranking junior to or on
a parity with the Preferred Shares of such series as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common Shares, or any
other shares of capital stock of the Company ranking junior to or on a parity
with the Preferred Shares of such series as to dividends or upon liquidation,
dissolution or winding up be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital stock of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation, dissolution and
winding up).
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Shares do not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Shares may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily
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be converted into the applicable shares of capital stock of the Company pursuant
to conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Shares shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if a series of Preferred Shares does not have a cumulative dividend, full
dividends on all shares of the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Shares shall be redeemed unless all
outstanding shares of Preferred Shares of such series are simultaneously
redeemed; PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase
or acquisition of Preferred Shares of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of Preferred Shares of such series. In
addition, unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
on the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, the Company shall not
purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation, dissolution and winding up); PROVIDED, HOWEVER, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Shares of such series to preserve the REIT status of the Company or pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares), or by any other equitable manner determined by
the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Shares of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or
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any other class or series of capital stock of the Company ranking junior to the
Preferred Shares of any series in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Shares shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders, liquidating
distributions in the amount of the liquidation preference per share, if any, set
forth in the applicable Prospectus Supplement, plus an amount equal to all
dividends accrued and unpaid thereon (which, in the case of Preferred Shares for
which dividends are noncumulative, shall not include any accumulation in respect
of unpaid dividends for prior dividend periods). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Preferred Shares will have no right or claim to any of the remaining assets
of the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Shares of any series and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with such Preferred Shares in the distribution of
assets, then the holders of such Preferred Shares and all other such classes or
series of capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares of any series, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as any
shares of Preferred Shares of such series remain outstanding, the Company will
not, without the affirmative vote or consent of the holders of at least
two-thirds of the shares of such series of Preferred Shares outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Articles or the designating amendment for such series of
Preferred Shares, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Shares or the holders thereof, PROVIDED,
HOWEVER, that (x) any increase in the amount of the authorized Preferred Shares
or the creation or issuance of any other series of Preferred Shares, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to payment of dividends and the
distribution of assets upon liquidation, dissolution and winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares or any other class or series of capital stock
of the Company will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the number of Common Shares or any
other class or series of capital stock of the Company into which the shares of
Preferred Shares are convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be at
the option of the holders of the Preferred Shares or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Preferred Shares.
RESTRICTIONS ON OWNERSHIP
The Preferred Shares are subject to certain restrictions on transfer, and
are subject to redemption (at redemption prices to be specified in the
applicable Prospectus Supplement) at the option of the Company, to the extent
the Board of Directors deems necessary to permit the Company to comply with the
REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code").
SEE "Restrictions on Transfers of Capital Stock; Redemption." In addition, the
applicable Prospectus Supplement may set forth additional restrictions on
transfer and related provisions applicable to the Preferred Shares offered
thereby intended to permit the Company to comply with such provisions.
TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (such depositary or its successor, the
"Preferred Shares Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of the particular series of Preferred Shares represented by
the Depositary Shares evidenced by such Depositary Receipt, to all the rights
and preferences of the Preferred Shares represented by such Depositary Shares
(including dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by the Company to the Preferred Shares
Depositary, the Company will cause the Preferred Shares Depositary to issue, on
behalf of the Company, the Depositary Receipts. The following description of
certain terms of any Deposit Agreement and the related Depositary Shares and
Depositary Receipts does not purport to be complete, and is qualified in its
entirety by reference to the form of Deposit Agreement (including the form of
Depositary Receipt) which has been or will be filed or incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
and is or will be available as described below under "Available Information."
The terms of the Depositary Shares offered in any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms set
forth in such Prospectus Supplement.
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DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received with respect to the Preferred Shares to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Shares
Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Shares Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holder thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of whole
or fractional Preferred Shares and any money or other property represented by
the Depositary Shares evidenced by such Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of
the related Preferred Shares on the basis of the proportion of Preferred Shares
represented by each Depositary Share as specified in the applicable Prospectus
Supplement, but holders of such Preferred Shares will not thereafter be entitled
to receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of Preferred Shares to be withdrawn,
the Preferred Shares Depositary will deliver to such holder at the same time a
new Depositary Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Shares
Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends (or, with
respect to Preferred Shares as to which dividends are non-cumulative, dividends
for the current dividend period only) thereon to the date fixed for redemption.
The redemption price per Depositary Share will be equal to the applicable
fraction of the redemption price and any other amounts per share payable with
respect to the Preferred Shares. If less than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by the
Preferred Shares Depositary by lot or in such other manner as the Preferred
Share Depositary deems equitable.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender thereof to
the Preferred Shares Depositary.
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VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Shares Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Shares
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Shares Depositary will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Shares Depositary in order to enable the Preferred Shares Depositary
to do so. The Preferred Shares Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the applicable fraction of the liquidation preference accorded each
Preferred Share represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
Preferred Shares Depositary with written instructions to the Preferred Shares
Depositary to instruct the Company to cause conversion of the Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipts into
whole Common Shares, other Preferred Shares of the Company or other shares of
capital stock, and the Company has agreed that upon receipt of such instructions
and any amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Shares
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, one or more new Depositary Receipts
will be issued for any Depositary Shares not to be converted. No fractional
Common Shares will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional interest based upon the closing
price of the Common Shares on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Shares
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts will not be effective unless such
amendment has been approved by the existing holders of at least a majority of
the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Shares Depositary if (i) such
termination is to preserve the Company's status as a REIT or (ii) holders of a
majority of the outstanding Depositary Receipts issued thereunder consent to
such termination, whereupon the Preferred Shares Depositary shall deliver or
make available to each
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holder of Depositary Receipts, upon surrender of the Depositary Receipts held by
such holder, such number of whole or fractional Preferred Shares as are
represented by the Depositary Shares evidenced by such Depositary Receipts. In
addition, the Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares shall have been redeemed, (ii) there shall have
been a final distribution in respect of the related Preferred Shares in
connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Shares or
(iii) each related Preferred Share shall have been converted into capital stock
of the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Shares Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Shares Depositary. A successor
Preferred Shares Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Shares.
Neither the Preferred Shares Depositary nor the Company will be liable if,
by law or any circumstances beyond its control, it is prevented from or delayed
in performing its obligations under the Deposit Agreement. The obligations of
the Company and the Preferred Shares Depositary under the Deposit Agreement will
be limited to performing their duties thereunder in good faith and without gross
negligence or willful misconduct, and the Company and the Preferred Shares
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or Preferred Shares
represented thereby unless reasonably satisfactory indemnity is furnished. The
Company and the Preferred Shares Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting Preferred
Shares represented thereby for deposit, holders of Depositary Receipts or other
persons believed to be competent to give such information, and on documents
believed to be genuine and signed by a proper party.
If the Preferred Shares Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Shares Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Shares. Common Stock Warrants may be issued independently or together with any
other Company Offered Securities
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offered by any Prospectus Supplement and may be attached to or separate from
such Company Offered Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The following description of certain terms of any Common Stock Warrants and
the related Warrant Agreement does not purport to be complete and is qualified
in its entirety by reference to the form of Warrant Agreement (including the
form of Common Stock Warrant) which has been or will be filed or incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part and which is or will be available as described under "Available
Information."
The terms of the Common Stock Warrants offered in any Prospectus Supplement
may differ from the terms set forth below, in which case the terms set forth
below shall be deemed to have been superseded to the extent of any different
terms set forth in such Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which such Prospectus Supplement is being
delivered, including, where applicable, the following: (i) the title of such
Common Stock Warrants; (ii) the aggregate number of such Common Stock Warrants;
(iii) the price or prices at which such Common Stock Warrants will be issued;
(iv) the number of Common Shares purchasable upon exercise of such Common Stock
Warrants; (v) the designation and terms of the other Company Offered Securities
with which such Common Stock Warrants are issued and the number of such Common
Stock Warrants issued with each such Company Offered Security; (vi) whether such
Common Stock Warrants will be attached to any other Company Offered Securities
and the date, if any, on and after which such Common Stock Warrants and the
related Company Offered Securities will be separately transferable; (vii) the
price at which each Common Share purchasable upon exercise of such Common Stock
Warrants may be purchased; (viii) the date on which the right to exercise such
Common Stock Warrants shall commence and the date on which such right shall
expire; (ix) if applicable, the minimum or maximum amount of such Common Stock
Warrants which may be exercised at any one time; (x) information with respect to
book-entry procedures, if any; and (xi) any other terms of such Common Stock
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Common Shares"
for a general description of the Common Shares to be acquired upon the exercise
of the Common Stock Warrants, including a description of certain restrictions on
the ownership of Common Shares. Common Shares that may be acquired upon the
exercise of Common Stock Warrants directly or constructively held by an investor
will be deemed by the Company to be outstanding (i) at the time of acquisition
of the Common Stock Warrants, and (ii) prior to the exercise of the Common Stock
Warrants, for purposes of determining the percentage ownership of Common Shares
held by such investor.
DESCRIPTION OF COMMON SHARES
GENERAL
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Debt Securities or Preferred Shares of the Company
or upon the exercise of Common Stock Warrants issued by the Company. The
statements below describing the Common Shares, the Rights (as defined below) and
the Rights Agreement (as
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defined below) do not purport to be complete and are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of the
Articles, the Bylaws and the Rights Agreement dated as of August 14, 1989 (the
"Rights Agreement") between the Company and Chase Mellon Shareholder Services
L.L.C. ("Chase Mellon") (formerly Chemical Trust Company of California), as
successor rights agent, as supplemented, copies of which have been filed or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and are available as described above under "Available
Information."
The Articles authorize the issuance of up to 100,000,000 Common Shares,
$0.01 par value. As of March 31, 1997, there were 33,025,457 Common Shares
issued and outstanding. In addition, as of March 31, 1997, there were 3,015,136
Common Shares reserved for issuance upon the exercise of options under the
Company's stock option plans and 1,463,049 Common Shares were reserved for
issuance under the Company's Dividend Reinvestment Plan. The Common Shares are
listed on the NYSE under the symbol "BRE." Chase Mellon is the transfer agent
and registrar of the Common Shares.
Holders of Common Shares are entitled to receive dividends ratably, when, as
and if declared by the Board of Directors of the Company, out of assets of the
Company legally available for payment, subject to any preferential rights of any
outstanding Preferred Shares. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Shares are entitled to share ratably in any assets of the Company available for
distribution to shareholders after payment of or provision for all liabilities
of the Company and any amounts owing in respect of any outstanding Preferred
Shares. The Common Shares offered in any Prospectus Supplement will not have
preemptive or conversion rights.
Holders of Common Shares are entitled to one vote for each share held on all
matters submitted to a vote of the holders of Common Shares and, except as
otherwise required by law or as provided by the express provisions of any series
of Preferred Shares, the holders of the Common Shares will exclusively possess
all voting power of the shareholders of the Company. Holders of Common Shares do
not have cumulative voting rights in the election of directors.
As described above under "Description of Preferred Shares," the Board of
Directors may, without the approval of the shareholders of the Company, from
time to time authorize the issuance of one or more series of Preferred Shares
with such rights, restrictions and other terms as may be determined by the Board
of Directors. The issuance of Preferred Shares, while providing flexibility in
connection with possible financings, acquisitions and other corporate purposes,
could, among other things, adversely affect the voting powers and other rights
and interests of holders of Common Shares and, under certain circumstances,
could make it more difficult for a third party to gain control of the Company
and could have the effect of delaying or preventing an attempted takeover of the
Company.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Several provisions of the Articles and Bylaws may have the effect of
deterring a takeover of the Company. These provisions include (i) the
requirement that 70% of the outstanding shares of voting stock approve certain
mergers, sales of assets or other business combinations with shareholders owning
10% or more of then outstanding voting shares, unless the transaction is
recommended by a majority of the disinterested directors or meets certain fair
price criteria, (ii) a requirement that directors of the Company may be removed
by the shareholders only for "cause" and that vacancies in the Board of
Directors may be filled only by action of the remaining directors, (iii) the
requirement that 70% of the outstanding shares of voting stock approve
amendments to certain provisions of the Articles, (iv) the classification of the
Company's Board of Directors into three classes serving staggered three-year
terms, (v) a prohibition on certain stock repurchases by the Company from a
holder of 5% or more of the outstanding voting shares for a price exceeding fair
market value unless certain conditions are met, and (vi) a requirement that
shareholder action without a meeting be taken by unanimous written consent.
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Maryland law imposes certain restrictions on business combinations with a
greater than ten percent shareholder unless a company's charter states that it
has elected not to be governed by such provisions. The Company has made such an
election in the Articles and therefore is not subject to such provisions.
Maryland law eliminates the voting rights of any shares of voting stock held
by a person to the extent such shares exceed 20% of the outstanding voting stock
of the company, and permits a company to redeem any such shares at the fair
value of the stock, unless a company's charter states that it has elected not to
be governed by such provisions. The Company has made such an election in the
Articles and therefore is not subject to such provisions.
SHAREHOLDER RIGHTS PLAN
On August 14, 1989, the Company's Board of Directors declared a dividend
distribution to shareholders of record on September 7, 1989 of one common share
purchase right (a "Right") for each outstanding Common Share. Each Right
entitled the holder to purchase from the Company one Common Share at a cash
purchase price of $90.00 per share, subject to adjustment. Following the
Company's stock dividend of one Common Share for each Common Share outstanding
in June 1996, such cash purchase price was adjusted to $45.00 per share, subject
to adjustment. The terms of the Rights are set forth in the Rights Agreement.
The Rights are not exercisable until the Distribution Date referred to below and
will expire at the close of business on September 7, 1999, unless earlier
redeemed by the Company as described below (the "Final Expiration Date").
Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be issued with newly issued Common Shares and (ii)
the Rights will be evidenced by the Common Share certificates and the transfer
of Common Share certificates will also constitute the transfer of the Rights
associated with such Common Shares. As soon as practicable after the
Distribution Date, Rights certificates will be mailed to holders of record of
the Common Shares as of the close of business on the Distribution Date.
The Rights will separate from the Common Shares and a Distribution Date (as
defined in the Rights Agreement) will occur, in general, upon the earlier of (i)
10 days following a public announcement that a person (an "Acquiring Person")
has acquired 32% or more of the outstanding Common Shares (the "Stock
Acquisition Date"), (ii) 10 business days following the commencement of a tender
or exchange offer for 40% or more of the outstanding Common Shares or (iii) 10
business days after the Board of Directors determines that a person has become
an "Adverse Person" (as defined in the Rights Agreement).
In the event that, among other things, (i) the Company survives a merger or
business combination with an Acquiring Person or an Adverse Person without any
exchange of its outstanding Common Shares for other securities, cash or
property, (ii) any person becomes the owner of 40% or more of the then
outstanding Common Shares, (iii) an Acquiring Person or an Adverse Person
engages in one of a number of self-dealing transactions set forth in the Rights
Agreement, or (iv) during such time as there is an Acquiring Person or an
Adverse Person, an event occurs which results in such person's ownership
interest being increased by more than 1%, each Right will entitle the holder to
receive, upon exercise, Common Shares having a value equal to two times the
exercise price of the Right. In the event that, at any time following the Stock
Acquisition Date or the date on which the Board of Directors determines that a
person is an Adverse Person, (i) the Company is acquired in a merger or other
business combination, (ii) the Company survives a merger or business combination
in which Common Shares are exchanged for other securities, cash or property or
(iii) 50% or more of the Company's assets or earning power is sold or
transferred, each Right will entitle the holder to receive, upon exercise,
common shares of the acquiring person having a value equal to two times the
exercise price of the Right.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the earlier of
the Stock Acquisition Date, the date on which a person is determined to be an
Adverse Person or the Final Expiration Date.
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The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights by the Board of
Directors or on the acquisition by such person or group of a substantial number
of Rights.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; REDEMPTION
The Articles provide that any shareholder must, upon demand, disclose to the
Board of Directors of the Company in writing such information with respect to
its direct and indirect ownership of the shares of the Company's stock as the
Board of Directors deems necessary to permit the Company to comply (or to verify
compliance) with the REIT provisions of the Code, and the regulations
promulgated thereunder or the requirements of any other taxing authority. The
Articles further provide that, if the Board of Directors in good faith
determines that direct or indirect ownership of shares of the Company's stock
has or may become concentrated to an extent that would prevent the Company from
qualifying as a REIT (SEE "Federal Income Tax Considerations"), the Board of
Directors is authorized to prevent the transfer of stock or to call for
redemption (by lot or by other means affecting one or more shareholders selected
in the sole discretion of the Board of Directors) of a number of shares of stock
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of the Company's stock into conformity with the
requirements for maintaining REIT status. If Common Shares are called for
redemption, the redemption price shall be (i) the last reported sale price of
the shares on the last business day prior to the redemption date on the
principal national securities exchange on which the shares are listed or
admitted to trading, (ii) if the shares are not so listed or admitted to trading
but are reported in the Nasdaq system, the last sale price on the last business
day prior to the redemption date, or if there is no sale on such day then at the
last bid price on such day as reported in the Nasdaq National Market, (iii) if
the shares are not so reported or listed or admitted to trading, the mean
between the highest bid and lowest asked prices on such last business day as
reported by the National Quotation Bureau Incorporated or a similar organization
selected by the Board of Directors for such purpose, or (iv) if not determined
by the foregoing methods, as determined in good faith by the Board of Directors.
From and after the date fixed for redemption by the Board of Directors, the
holder of any shares of stock so called for redemption will cease to be entitled
to dividends, distributions, voting rights and other benefits with respect to
such shares, excepting only the right to payment of the redemption price without
interest.
The Bylaws provide that, whenever it is determined by the Board of Directors
to be reasonably necessary to protect the REIT tax status of the Company, the
Board of Directors may require a statement or affidavit from each holder or
proposed transferee of shares of stock setting forth the number of shares
already owned by such holder or transferee or any related person. The Bylaws
further provide that if, in the opinion of the Board of Directors, which will be
conclusive upon any proposed transferor or transferee of shares, any proposed
transfer would jeopardize the status of the Company as a REIT under the Code,
the Board of Directors may refuse to permit such transfer; that any attempt to
transfer as to which the Board of Directors has refused its permission will be
void and of no effect to transfer any legal or beneficial interest in the
shares; and that all contracts for the sale or other transfer of shares are
subject to these restrictions.
These provisions may have the effect of preventing acquisition of control of
the Company unless the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to the Company and its security holders relating to the Offered
Securities and the treatment of the Company as a REIT. It is not intended to
represent a detailed description of the federal income tax consequences
applicable to a particular shareholder of the Company in view of a shareholder's
particular circumstances, or to certain types of shareholders (including
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws. The discussion in this section is based on current provisions
of the Code, current and proposed Treasury Regulations, court decisions and
other administrative rulings and interpretations, all of which are subject to
change either prospectively or retroactively. There can be no assurance that any
such change, future Code provision or other legal authority will not alter
significantly the tax considerations described herein.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE SPECIFIC TAX
CONSEQUENCES, IN VIEW OF SUCH PROSPECTIVE PURCHASER'S INDIVIDUAL CIRCUMSTANCES,
OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company has elected to be taxed as a real estate investment trust under
Section 856 through 860 of the Code, commencing with its initial taxable year
ended since its formation on May 22, 1970. The Company believes that it is
organized and is operating in such a manner as to qualify for taxation as a REIT
under the Code. The Company intends to continue to operate in such a manner, but
no assurance can be given that it will operate in a manner so as to qualify or
remain qualified as a REIT.
In the opinion of Farella Braun & Martel LLP, based on certain assumptions
and representations, the Company was reorganized in Delaware in 1987 in
conformity with the requirements for qualification as a "Real Estate Investment
Trust" under the Code, and the Company has qualified as a REIT for its fiscal
years ended July 31, 1993, July 31, 1994 and July 31, 1995, its short taxable
year ended December 31, 1995 and its taxable year ended December 31, 1996 (the
years, to the best knowledge of counsel, that are still subject to audit by the
Internal Revenue Service), and the Company is organized and operates in a manner
that will enable it to qualify to be taxed as a REIT under the Code for its
taxable year ending December 31, 1997 and thereafter provided the Company
continues to meet the asset composition, source of income, shareholder
diversification, distributions, record keeping, and other requirements of the
Code necessary for the Company to qualify as a REIT. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters including, but not
limited to, those set forth below in this discussion of "Federal Income Tax
Considerations" and those concerning the Company's business and properties as
set forth and incorporated by reference in this Prospectus. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below the results of which will not be reviewed by Farella Braun &
Martel LLP. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements. SEE "Failure to Qualify."
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TAXATION OF THE COMPANY
A REIT, such as the Company, generally will not be subject to federal
corporate income tax on its taxable income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation" (at
the corporate and shareholder levels) that generally results from an investment
in a corporation. However, the Company will be subject to federal income tax in
several ways, including the following: First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax." Third, if the Company
has: (i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax on such income at the highest corporate rate. Fourth, if the
Company has net income from "prohibited transactions" (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% corporate level tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(each discussed below) but has nonetheless maintained its qualification as a
REIT by satisfying certain other requirements, it will be subject to a 100% tax
on an amount equal to the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test, multiplied by a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of: (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior periods, it
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if the Company acquires any
asset from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the Company recognizes
gain on the disposition of such asset during the ten-year period beginning on
the date the asset was acquired by the Company, then the excess of (i) the fair
market value of such asset as of the beginning of such period over (ii) the
Company's adjusted basis in such asset as of the beginning of such period will
be subject to tax at the highest regular corporate tax rate.
REQUIREMENTS FOR QUALIFICATION
A REIT is defined in the Code as a corporation, trust or association: (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) which would be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code; (iv) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100 or more
persons; (vi) not more than 50% in value of the outstanding stock of which is
owned during the last half of each taxable year, directly or indirectly, by or
for five or fewer individuals (as defined in the Code to include certain
entities); and (vii) which meets certain income and asset tests described below.
Conditions (i) through (iv) above must be met during the entire taxable year and
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
However, conditions (v) and (vi) do not apply until after the first taxable year
for which an election is made to be taxed as a REIT.
INCOME TESTS
In order to maintain qualification as a REIT, the Company annually must
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest ) or from certain types of
temporary investments. Second, at least 95% of the Company's
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gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, dividends,
interest and gain from sale or disposition of stock or securities (or from any
combination of the foregoing). Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no income;
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. The Company does not and will not charge rent for any property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a percentage of receipts or sales, as described
above), and the Company does not and will not rent any personal property (other
than personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease).
The Company directly performs services under certain of its leases, but such
services are not rendered to the occupant of the property.
Furthermore, these services are usual and customary management services
provided by landlords renting space for occupancy in the geographic areas in
which the Company owns property. To the extent that the performance of any
services provided by the Company would cause amounts received from its tenants
to be excluded from rents from real property, the Company will hire independent
contractors from whom the Company derives no revenue to perform such services.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests was attributable to reasonable cause and not to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not attributable to fraud with intent
to evade tax. It is not possible, however, to determine whether, in all
circumstances, the Company would be entitled to the benefit of those relief
provisions. As discussed above in "General," even if those relief provisions
apply, a tax would be imposed with respect to excess net income.
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ASSET TESTS
At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in real
property, interests in mortgages on real property to the extent the mortgage
balance does not exceed the value of the associated real property, shares in
other REITs, cash, cash items, government securities and certain securities
attributable to temporary investment of new capital. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by a REIT is prohibited by the asset tests. However, the
Company owns stock in certain subsidiaries that are, in the opinion of Farella
Braun & Martel LLP (based on cetain representations by the Company), "qualified
REIT subsidiaries" as defined in the Code, and as "qualified REIT subsidiaries,"
such subsidiaries are not treated as separate corporations for federal income
tax purposes. Thus, the Company's ownership of stock of a "qualified REIT
subsidiary" will not cause the Company to fail the asset tests.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (b) 95% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of non-cash
income. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails to distribute during each calendar year at least the sum of: (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income
for such year and (iii) any undistributed taxable income from prior periods, the
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed (including for this purpose
as amounts distributed, amounts taxed at regular ordinary and capital gains
corporate tax rates). The Company intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement because of
timing differences between (i) the actual receipt of income and the actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company. In
the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the
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Company fails to qualify will not be deductible by the Company nor will they be
required to be made by the Company. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations, a corporate
distributee may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. Whether the Company would be entitled
to such statutory relief cannot be foreseen.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to its
taxable domestic shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will result in ordinary income to
such shareholders. Corporate shareholders will not be entitled to the "dividends
received" deduction. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions by the Company in excess of its
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that such distributions do not exceed the adjusted
basis of the shareholder's shares, but rather, will be a non-taxable reduction
in a shareholder's adjusted basis in such shares to the extent thereof and
thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
will be treated as both paid by the Company and received by the shareholder on
or before December 31 of such year, provided that the dividend is actually paid
by the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its domestic shareholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder: (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to the Company. SEE "Taxation of Foreign
Shareholders."
TAXATION OF PENSION TRUSTS
For purposes of the "five or fewer" test described above, beneficiaries of a
domestic pension trust that owns shares in the Company generally will be treated
as owning such shares in proportion to their actuarial interests in the trust.
In addition, amounts distributed by the Company to a tax-exempt pension trust
generally do not constitute "unrelated business taxable income" ("UBTI") to such
trust unless the trust
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owns more than ten percent of the Company's Common Shares, in which case a
portion of such amounts distributed may be treated as UBTI.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals or foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt is made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares, including any reporting requirements.
It is currently anticipated that the Company will qualify as a "domestically
controlled REIT" (i.e., a REIT in which at all times during a specified testing
period less than 50% of the value of the capital stock of which is owned
directly or indirectly by Non-U.S. Shareholders) and therefore gain from the
sale of Common Shares by a Non-U.S. Shareholder generally will not be subject to
United States taxation unless such gain is treated as "effectively connected"
with the Non-U.S. Shareholder's United States trade or business.
Distributions that are not attributable to gain from the sale or exchange by
the Company of United States real property interests (and are not designated as
capital gain dividends) ("Non-Capital Distributions") will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions generally
will be subject to a United States withholding tax equal to 30% of the gross
amount of the distribution, subject to reduction or elimination under an
applicable tax treaty. However, if dividends from the investment in the shares
are treated as "effectively connected" with the Non-U.S. Shareholder's conduct
of a United States trade or business, such dividends will be subject to regular
U.S. income taxation (foreign corporations may also be subject to the 30% branch
profits tax). The Company will withhold United States income tax at the rate of
30% on the gross amount of any Non-Capital Distributions paid to a Non-U.S.
Shareholder unless: (i) a lower treaty rate applies and the Non-U.S. Shareholder
files certain information evidencing its entitlement to such lower treaty rate,
or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is "effectively connected" income. Distributions
which exceed current and accumulated earnings and profits of the Company will
not be taxable to the extent that they do not exceed the adjusted basis of
shares, but rather will reduce (but not below zero) the adjusted basis of such
shares. To the extent that such distributions exceed the adjusted basis of a
Non-U.S. Shareholder's shares, they generally will give rise to United States
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
gain from the sale or disposition of his shares in the Company, as described
above. Because the Company will withhold 30% (or lower treaty rate) of all
Non-Capital Distributions, to the extent the Company makes distributions in
excess of its earnings and profits, generally the amount withheld will exceed a
Non-U.S. Shareholder's U.S. tax liability on such distributions and such
shareholder can seek a refund from the IRS to the extent the amount withheld on
its distributions exceeds its U.S. tax liability.
Distributions by the Company to a Non-U.S. Shareholder that are attributable
to gain from sales or exchanges by the Company of a United States real property
interest are subject to income and withholding tax under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
those distributions, if any, which are treated as gain recognized from the sale
of a United States real property interest, are taxed as income "effectively
connected" with a United States business. Non-U.S. Shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. shareholders (subject
to the applicable alternative minimum tax and a special alternative minimum tax
for nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. The Company will withhold 35% of
any distribution to a Non-U.S. Shareholder that could be designated by the
Company as a capital gain
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dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability. A refund may be available if the amount withheld exceeds the
Non-U.S. Shareholder's federal tax liability.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its shareholders
may not conform to the federal income tax consequences discussed above.
Prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
The Company or the Selling Shareholder may sell the Offered Securities to
one or more underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents or through dealers or
through a combination of any such methods of sale. Any such underwriter or agent
involved in the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale or at prices related to the prevailing market prices at the
time of sale, or at negotiated prices. The Company or the Selling Shareholder
also may, from time to time, authorize agents to offer and sell the Offered
Securities upon the terms and conditions set forth in an applicable Prospectus
Supplement. In connection with the sale of Offered Securities, underwriters and
agents may be deemed to have received compensation from the Company or the
Selling Shareholder, as applicable, in the form of discounts or commissions and
may also receive commissions from purchasers of Offered Securities for whom they
may act as agents. Underwriters may sell Offered Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions from the underwriters or commissions from the purchasers for whom
they may act as agent.
Any compensation paid by the Company or the Selling Shareholder to
underwriters or agents in connection with the offering of Offered Securities and
any discounts, concessions or commissions allowed by underwriters to
participating dealers will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Offered Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements entered into with the Company or the Selling Shareholder, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on such future date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than, and the aggregate
amount of the Offered Securities sold pursuant to Contracts shall be not less or
more than, the respective amounts stated in the applicable Prospectus
Supplement. Institutions with whom Contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions, but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Offered Securities covered by its Contracts shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject and (ii) if the Offered Securities
are being sold to underwriters,
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the Company shall have sold to such underwriters the total amount of the Offered
Securities less the amount thereof covered by Contracts.
Certain of the underwriters, dealers and agents and their affiliates may
engage in transactions with and perform services for the Company, the Selling
Shareholder and their respective subsidiaries in the ordinary course of
business.
EXPERTS
The financial statements and related financial schedule of BRE Properties,
Inc. appearing in BRE Properties, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The statement of gross income and direct
operating expenses of Promontory Point Apartments for the year ended December
31, 1996, appearing in BRE Properties, Inc.'s Current Report on Form 8-K/A dated
February 13, 1997, as amended, has been audited by Ernst & Young LLP, as set
forth in their report thereon included therein and incorporated herein by
reference. The statement of gross income and direct operating expenses of
Foster's Landing Apartments for the year ended December 31, 1995, appearing in
BRE Properties, Inc.'s Current Report on Form 8-K/A dated December 9, 1996, as
amended, has been audited by Ernst & Young LLP, as set forth in their report
thereon included therein and incorporated herein by reference. The statement of
gross income and direct operating expenses of Red Hawk Ranch for the year ended
December 31, 1996, appearing in BRE Properties, Inc.'s Current Report on Form
8-K dated April 25, 1997, has been audited by Ernst & Young LLP, as set forth in
there report thereon included therein and incorporated herein by reference. Such
financial statements and schedule referred to above are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities as well as certain legal matters
described under "Federal Income Tax Considerations" will be passed upon for the
Company by Farella Braun & Martel LLP, San Francisco, California. Brown & Wood
LLP, San Francisco, California, will act as counsel for any underwriters or
agents.
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