<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998
REGISTRATION NO. 333-41433
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
BRE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 94-1722214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MONTGOMERY STREET
TELESIS TOWER, SUITE 2500
SAN FRANCISCO, CA 94104-5525
(415) 445-6530
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
LEROY E. CARLSON
CHIEF FINANCIAL OFFICER
BRE PROPERTIES, INC.
ONE MONTGOMERY STREET
TELESIS TOWER, SUITE 2500
SAN FRANCISCO, CA 94104-5525
(415) 445-6530
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________________
COPY TO:
MORGAN P. GUENTHER, ESQ.
SUNGBO SHIM, ESQ.
Farella Braun & Martel LLP
235 Montgomery Street
San Francisco, CA 94104-3159
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
_____________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
(Continued on following page)
<PAGE>
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not 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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY ___, 1998
PROSPECTUS
3,713,331 SHARES
BRE PROPERTIES, INC.
COMMON STOCK
This Prospectus relates to the offer and sale of up to 3,713,331 shares
(the "Shares") of Common Stock, $0.01 par value ("Common Stock"), of BRE
Properties, Inc. ("BRE" or the "Company"), which may be offered from time to
time by a certain shareholder of the Company (the "Selling Shareholder"). The
Company is registering the Shares on behalf of the Selling Shareholder, but the
registration of the Shares does not necessarily mean that any of the Shares will
be offered or sold by the Selling Shareholder. The Company will receive no part
of the proceeds of any sales of the Shares offered hereby.
All of the Shares were originally issued by the Company in connection with
the Company's acquisition on November 18, 1997 of certain real estate assets and
operations of Trammell Crow Residential located in the Western United States
("TCR-West"). See "Recent Developments." The Shares were issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). The Shares are being registered by the Company
pursuant to (i) the Contribution Agreement dated as of September 29, 1997, as
amended (the "Contribution Agreement"), by and among the Company, BRE Property
Investors LLC (the "Operating Company") and the TCR-West signatories thereto and
(ii) the Registration Rights Agreement dated as of November 18, 1997 (the
"Registration Rights Agreement") among the Company, the Operating Company, the
Selling Shareholder and certain other parties.
The Shares may be offered by the Selling Shareholder from time to time
directly or through agents, underwriters or broker-dealers, on terms to be
determined at the time of the sale, in one or more transactions on the New York
Stock Exchange (the "NYSE") or any national securities exchange where the Common
Stock is listed or traded, in the over-the-counter market, in negotiated
transactions or otherwise. See "Plan of Distribution." The price at which any
of the Shares may be sold, and the commissions, if any, paid in connection with
any such sale, are unknown and may vary from transaction to transaction. The
Company will pay all expenses incident to the offering and sale of the Shares to
the public other than any commissions and discounts of underwriters, dealers or
agents and any transfer taxes. See "Selling Shareholder" and "Plan of
Distribution."
The Securities and Exchange Commission (the "Commission") may take the view
that, under certain circumstances, the Selling Shareholder and any broker-
dealers or agents that participate with the Selling Shareholder in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act. Commissions, discounts or concessions received by any
such broker-dealer or agent may be deemed to be underwriting commissions under
the Securities Act. The Company and the Selling Shareholder have agreed to
certain indemnification arrangements. See "Plan of Distribution."
The Common Stock is traded on the NYSE under the symbol "BRE." On January
6, 1998 the closing sale price of the Common Stock as reported on the NYSE was
$28.125 per share.
(Prospectus Cover continued on next page)
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___________
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 8 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 _________ __ , 1998
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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
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 Stock is listed on the NYSE 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, with respect to the Shares
offered hereby. 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 Shares, 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. Reports on Form 10-Q for the fiscal quarters ended March 31, June 30, and
September 30, 1997, filed on April 25, August 12, and November 14, 1997,
respectively.
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.
h. Current Report on Form 8-K filed on June 23, 1997.
i. Current Report on Form 8-K filed on September 3, 1997, as amended by the
Current Report on Form 8-K/A filed on October 30, 1997.
j. Current Report on Form 8-K filed on October 15, 1997.
k. Current Report on Form 8-K filed on November 24, 1997.
l. Current Report on Form 8-K filed on December 18, 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 Shares 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 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,
including any beneficial owner, 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 94104-5524, Attn: Charles Wingard, Director of Financial Reporting,
telephone number (415) 445-6530.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, the information included and
incorporated by reference in this Prospectus contains 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"), such as those pertaining to the Company's capital
resources, portfolio performance and results of operations. In addition, the pro
forma financial statements and other pro forma information incorporated by
reference in this Prospectus also contain certain such forward-looking
statements. Forward-looking statements involve numerous risks and uncertainties
and should not be relied upon as predictions of future events. Certain such
forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "pro forma," "estimates," or "anticipates"
or the negative thereof or other variations thereof or comparable terminology,
or by discussions of strategy, plans or intentions. Such forward-looking
statements are necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise and they may be incapable of being realized. 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 acquire and in effecting acquisitions, failure to
successfully integrate acquired properties and operations, risks and
uncertainties affecting property development and construction (including,
without limitation, construction delays, cost overruns, inability to obtain
necessary permits and public opposition to such activities), 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 this 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 (the "Commission") pursuant to
the Exchange Act.
THE COMPANY
BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires, develops,
rehabilitates and manages apartment communities in 12 targeted metropolitan
markets in the western United States. As of November 30, 1997, BRE's multifamily
portfolio included 73 apartment communities aggregating 18,329 units in
California, Arizona, WashingtoN, Oregon, Nevada, New Mexico and Utah and eight
apartment communities under development aggregating approximately 2,445 units.
See "Recent Developments." On that date, BRE also owned five commercial and
retail properties and held limited partnership interests in two shopping centers
and one apartment community.
The Company's business objective is to become the preeminent owner,
developer and operator of apartment communities in key growth markets of the
western United States. In furtherance of this objective, the Company implemented
a strategic plan in 1996, many goals of which have been achieved, including
increased liquidity of the Company's common stock, the establishment of internal
property management and the disposition of substantially all non-core assets.
In addition, on November 18, 1997, the Company completed the acquisition of
certain assets and operations of Trammell Crow Residential located in the
western United States ("TCR-West"), which significantly advanced the objectives
of the Company's long-term strategic plan. See "Recent Developments." The
Company believes that its future growth will be supported by the continued
implementation of its long-term strategic plan.
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The following table summarizes certain information relating to the
Company's completed apartment communities as of November 30, 1997, after giving
effect to the TCR-West transaction (the "TCR-West Transaction"):
<TABLE>
<CAPTION>
NUMBER OF NUMBER PERCENTAGE OF
METROPOLITAN MARKET(1) PROPERTIES OF UNITS TOTAL UNITS
- ------------------------------ ---------- -------- --------------
<S> <C> <C> <C>
Phoenix 12 3,082 17%
San Francisco Bay Area 9 2,960 16
Los Angeles/Orange County 10 2,352 13
San Diego 9 1,899 10
Tucson 9 1,836 10
Seattle 6 1,673 9
Sacramento 7 1,543 8
Salt Lake City 3 904 5
Las Vegas 4 814 5
Albuquerque 2 646 4
Portland 2 620 3
73 18,329 100%
== ====== ===
</TABLE>
- ---------------
(1) Does not include the Denver metropolitan market where the Company is
currently developing a property.
All of the properties and operations acquired in the TCR-West Transaction
are held through newly-formed or newly-acquired subsidiaries of BRE. These
include BRE Property Investors LLC (the "Operating Company"), a Delaware limited
liability company which acquired properties with a book value of approximately
$429 million, and Blue Ravine Investors LLC ("Blue Ravine"), a Delaware limited
liability company which acquired a single property with a book value of
approximately $30 million. BRE is the sole managing member of the Operating
Company and, as of November 30, 1997, owned approximately a 70% equity interest
therein. The remaining equity interests in the Operating Company (all of which
will be exchangeable at the option of the holders thereof, commencing on
November 18, 1998, into shares of BRE's Common Stock, or, at the option of BRE,
cash in an amount equal to the then market value of such shares of Common Stock
at the time of exchange) are owned by other, non-managing members of the
Operating Company. BRE also holds an approximate 88% equity interest as the
sole managing member in Blue Ravine. The equity interests issued by Blue Ravine
will be exchangeable for shares of Common Stock (or at BRE's option, cash) upon
terms similar to those applicable to the Operating Company. It is expected that
Blue Ravine will be merged with and into the Operating Company, with the
Operating Company as the surviving entity, on or after November 30, 1998. Upon
such merger, the equity interests issued by Blue Ravine will be changed into a
like number of equity interests in the Operating Company. See "Recent
Developments -- TCR-West Transaction."
As used in this Prospectus, unless the context otherwise requires,
references to the "Company" shall include BRE, the Operating Company, Blue
Ravine and their respective affiliated and subsidiary companies. 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.
RECENT DEVELOPMENTS
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TCR-WEST TRANSACTION
On November 18, 1997, the Company acquired certain real estate assets and
operations of TCR-West (the "TCR-West Properties") for a purchase price of
approximately $462 million. The acquisition included 17 completed apartment
properties comprising 4,786 units located in California, Arizona, Utah and New
Mexico. The following table sets forth certain information regarding those
properties:
<TABLE>
<CAPTION>
Number of
Property Location Units
- ------------------------------- -------------- -----------
<S> <C> <C>
Deer Valley San Rafael, CA 171
Blue Rock Village I Vallejo, CA 280
Blue Rock Village II Vallejo, CA 280
Parkside Village Riverside, CA 304
Parkside Terrace Santa Ana, CA 240
Parkside Court Santa Ana, CA 210
Overlook at Blue Ravine Folsom, CA 400
Pinnacle at South Mountain I Phoenix, AZ 360
Pinnacle at South Mountain II Phoenix, AZ 192
Pinnacle at Union Hills Phoenix, AZ 264
Pinnacle Heights Tucson, AZ 310
Pinnacle Canyon Tucson, AZ 225
Pinnacle at Fort Union Salt Lake City, UT 160
Pinnacle Reserve Salt Lake City, UT 492
Pinnacle Lakeside Salt Lake City, UT 252
Pinnacle at High Desert Albuqurque, NM 430
Pinnacle View Albuqurque, NM 216
Total 4,786
=====
</TABLE>
In addition, the Company acquired eight apartment properties in various
stages of development. These development properties are expected to include
approximately 2,445 units and are located in Arizona, Colorado, Utah, New Mexico
and Nevada (the "Development Properties"). The Company expects to incur an
estimated $113 million to complete development and construction of the
Development Properties over the next two years.
The Company also acquired TCR-West's development, construction and third-
party management operations in the transaction, including over 600 new employees
and three regional offices located in Arizona, California and Utah. Prior to the
acquisition, the Company was not engaged in the development and construction of
real estate properties or in the management of properties owned by third
parties.
The total cost of the TCR-West Transaction (including closing costs) was
approximately $462 million. The Company financed the cost of the acquisition
with bank borrowings of approximately $160 million, the 3,713,331 Shares offered
hereby, 2,672,087 units and 152,500 performance units ("Performance OC Units")
of the Operating Company and Blue Ravine and assumed debt of $126 million. Under
the terms of the transaction, up to an
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additional 627,594 development units ("Development OC Units") in the Operating
Company, subject to possible adjustment, may be issued if certain construction
goals related to the Development Properties are met in the future. Pursuant to
the terms of the transaction, the Shares and the OC Units (as defined below)
issued in the transaction were valued at $26.93 per Share and OC Unit. The units
of the Operating Company and Blue Ravine, including the Performance OC Units and
the Development OC Units, are hereinafter sometimes called "OC Units." The OC
Units will be exchangeable, commencing November 18, 1998, at the option of the
holders thereof for shares of Common Stock (at a rate of one share per OC Unit,
subject to adjustment under certain circumstances) or, at BRE's election, into
an equivalent amount of cash based on the value of the Common Stock at the time
of the exchange. Upon the merger of Blue Ravine into the Operating Company,
which is anticipated will occur on or after November 30, 1998, the OC Units
issued by Blue Ravine will be changed into a like number of OC Units of the
Operating Company.
CREDIT FACILITY
In order to facilitate the closing of the TCR-West Transaction, the Company
arranged a new $265 million unsecured line of credit (the "Credit Facility")
with Bank of America National Trust and Savings Association ("BofA"). The
Credit Facility replaced the Company's existing $115 million line of credit with
BofA. At November 30, 1997, borrowings of approximately $152 million were
outstanding under the Credit Facility. The Credit Facility may be used for
acquisitions and development of apartment projects and for general working
capital purposes. The Credit Facility is scheduled to mature on July 10, 2000.
The Credit Facility carries an interest rate based on the Company's credit
rating and is currently fixed at the London InterBank Offer Rate (LIBOR) plus
0.75%.
TREASURY RATE LOCK AGREEMENT
In anticipation of future financing transactions, the Company entered into
a treasury rate lock agreement with a major financial institution in November
1997 on a notional amount of $100 million. The agreement, which expires in
February 1998, is intended to reduce the Company's overall exposure to interest
rate changes. The lock rate of 5.9% is based on the yield on November 21, 1997
of a U.S. Treasury Note due August 15, 2007 with a coupon rate of 6.125%. The
Company will either receive or pay the difference between the value of the U.S.
Treasury Note at the lock rate compared to the value at the effective rate at
settlement, times the notional amount of $100 million.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Shares. 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 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
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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 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.
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.
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 real estate investment trust ("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. 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.
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
9
<PAGE>
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 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.
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, Las Vegas, Albuquerque and Salt Lake City. 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 Development, Construction and Acquisition Activities
Pursuant to the TCR-West Transaction, the Company acquired eight
Development Properties. Prior to the acquisition, the Company was not engaged in
the development
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and construction of real estate properties.
The Company intends to actively pursue development and construction of
multifamily apartment communities, including the Development Properties. There
can be no assurance that the Company will complete development of the
Development Properties or any other development project which may be undertaken
by the Company. As a general matter, property development and construction
projects typically have a higher, and sometimes substantially higher, level of
risk than the acquisition of existing properties. Risks associated with the
Company's development and construction activities may include the following:
development opportunities may be abandoned; construction costs of a multifamily
apartment communities may exceed original estimates, possibly making the
communities uneconomical; occupancy rates and rents at newly completed
communities may not be sufficient to make the communities profitable; financing
for the construction and development of projects may not be available on
favorable terms or at all; construction and lease-up may not be completed on
schedule; and expenses of operating a completed community may be higher than
anticipated. In addition, new development activities, regardless of whether or
not they are ultimately successful, typically require a substantial portion of
management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy, and other required governmental permits
and authorizations.
The Company also intends to continue actively to acquire multifamily
apartment communities. Acquisitions of multifamily apartment communities entail
risks that investments will fail to perform in accordance with expectations.
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 investment risks associated
with any new real estate investment.
The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under various construction loans, lines of
credit, other forms of secured or unsecured financing or through the issuance of
additional equity by the Company. The Company expects periodically to review
its financing options regarding the appropriate mix of debt and equity
financing. Equity, rather than debt, financing of future developments or
acquisitions could have a dilutive effect on the interests of existing
shareholders of the Company. If new developments are financed through
construction loans, there is a risk that, upon completion of construction,
permanent financing for such communities may not be available or may be
available only on disadvantageous terms or that the cash flow from new
communities will be insufficient to cover debt service. If a newly developed or
acquired community is unsuccessful, the Company's losses may exceed its
investment in the community. Any of the foregoing could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
Risks Relating to Acquisition Strategy
Pursuant to the TCR-West Transaction, the Company acquired 17 completed
apartment communities aggregating 4,786 units and eight Development Properties
aggregating approximately 2,445 units. This significant increase in the size of
the Company's operations after the acquisitions will substantially increase the
demands placed upon the Company's management, including demands resulting from
the need to integrate the accounting systems, management information systems and
other operations of TCR-West with those of the Company, and the Company is
unable to predict the effect of acquisitions on its business and results of
operations. Failure to effectively integrate the operations of the acquired
properties with those of the Company could have a material adverse effect on the
Company.
A substantial portion of the Company's growth over the last several years
has been attributable to acquisitions. Further, a principal component of the
Company's strategy is to continue to grow profitably and in a controlled manner
in both existing and new markets by acquiring new properties. The Company's
future growth will be dependent upon a number of factors, including the
Company's ability to identify acceptable acquisition candidates, consummate
acquisitions on favorable terms, successfully integrate acquired businesses,
expand its customer base at existing and acquired locations and obtain financing
to support expansion. There can be no assurance that the Company will be
successful in implementing its acquisition strategy, that growth will continue
at historical levels or at all, or that any
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<PAGE>
expansion will improve operating results. The failure to identify, acquire and
integrate acquired businesses effectively could adversely affect the Company's
operating prospects for future growth. Any statements included or incorporated
by reference in this Prospectus pertaining to anticipated growth of the
Company's funds from operations, its portfolio, its results from operations or
other future growths constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and there can be no assurance the any such
growth will occur.
Restrictions in the Operations of the Operating Company
A substantial portion of the properties acquired in the TCR-West
Transaction are held by the Operating Company, a Delaware limited liability
company. BRE is the sole managing member of the Operating Company and, as of
November 30, 1997, held approximately a 70% equity interest therein. The
remaining equity interest in the Operating Company are held by third parties as
non-managing members.
Under the terms of the limited liability company agreement governing the
operations of the Operating Company (the "LLC Agreement"), the Operating Company
may not, without the consent of a majority in interest of the non-managing
members, (i) dispose of any of its properties in a taxable sale or exchange
prior to dates which are specified in the LLC Agreement for each of the
properties, ranging from one to ten years from November 18, 1997, or (ii)
dissolve the Operating Company other than in certain limited circumstances
specified in the LLC Agreement, such as a sale of all or substantially all of
the Company's assets, or any merger, consolidation or other combination by the
Company with or into another person, or reclassification, recapitalization or
change of the Company's outstanding equity interests. These restrictions of the
Company's ability to dispose a significant portion of its properties and to
dissolve the Operating Company, even when such a disposition or dissolution of
the Operating Company would be in the best interest of the Company based on then
prevailing business, market or other conditions, could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
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 currently carries
flood and earthquake insurance for its properties with an aggregate annual limit
of $100 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.
Risks Associated with Survey Exceptions to Certain Title Insurance Polices
Because updated surveys of the properties acquired in the TCR-West
Transaction were not obtained prior to closing, the title insurance policies
obtained for the properties contain exceptions for matters which a current
survey would disclose. Such matters might include such things as boundary
encroachments, unrecorded easements or similar matters which would have been
reflected on a survey and, because no updated surveys were prepared for these
properties, there can be no assurance that the title insurance policies in fact
cover the entirety of the real property, buildings, fixtures, and improvements
which the Company believes they cover, any of which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders.
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
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<PAGE>
make distributions to shareholders. 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. 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. 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.
Risks of Assumed Liabilities
In the TCR-West Transaction, the Company (i) acquired the TCR-West
Properties either by acquiring title to the properties and related assets (plus
assumption of associated contractual obligations of the contributing parties)
or, as to certain TCR-West Properties, by acquiring all of the ownership
interests in the partnerships or limited liability companies which held such
properties, and (ii) assumed certain specified loans secured by the TCR-West
Properties. Under the terms of the transaction, the Company has not expressly
agreed to assume any liabilities other than the assumed loans and the
contractual obligations referenced above. However, as a matter of law, the
Company automatically assumed all of the liabilities (known, unknown or
contingent) of the partnerships or limited liability companies whose ownership
interests were acquired by the Company, potentially including liabilities
unrelated to the properties conveyed pursuant to such transfer. Moreover, even
in cases where title to the properties and related assets (rather than ownership
interests therein) were acquired by the Company, the legal doctrine of successor
liability may give creditors of and claimants against the prior owners the right
to hold the Company responsible for liabilities which arose with respect to such
properties prior to their acquisition by the Company, whether or not such
liabilities were expressly assumed by the Company under the terms of the
transaction.
As a result of the foregoing, there can be no assurance that the Company
will not be subject to liabilities and claims relating to the TCR-West
Properties, which could have a material adverse effect on the Company and its
ability to make distributions to its shareholders. In that regard, the terms of
the TCR-West Transaction do not provide for the Company to be indemnified
against such liabilities and claims. See "--Limited Indemnification" below.
Limited Indemnification
The Company acquired the TCR-West Properties on an "as is" basis, meaning
that the properties were acquired without warranty from the sellers. As a
result, the Company has no recourse against the sellers for matters relating to
the properties or the transaction, except to the limited extent described below.
The terms of the TCR-West Transaction provide the Company with only limited
indemnification with respect to claims or liabilities that might arise out of
the transaction or actions taken by the sellers before the closing.
Specifically, certain Trammell Crow Residential entities and affiliates (the
"TCR Parties") have agreed to indemnify the Company and its affiliates only
against claims arising out of (i) any inaccuracy in the investment
representations of prior owners who
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<PAGE>
contributed the properties or their ownership interests therein to the Company
(the "Contributing Parties") or certain representations about employment
matters, or any failure of a TCR Party to comply with any agreement with respect
thereto, (ii) any breach by a TCR Party of its fiduciary duties (including
duties of disclosure) to any other person in connection with the transaction,
and (iii) any document filed by a Contributing Party or any affiliate with a
governmental agency or prepared or distributed in connection with the
transaction (including any document distributed in connection with the
solicitation of consents for the transaction). The Company has no recourse
against the TCR Parties or the Contributing Parties with respect to any claims
which are not within the specific coverage of the indemnity provisions. In
addition, in the event that the Company is entitled to indemnification, the
terms of the TCR-West Transaction significantly limit the amount which the
Company would be entitled to recover. Specifically, the Company's sole recourse
under a claim for indemnity is the right to reduce the number of Development OC
Units which the Company might otherwise have been required to deliver.
The Development OC Units are equity interests in the Operating Company
which will be issued to the Contributing Parties to the extent that certain
completion schedule and budget objectives are met for the Development
Properties. The Development OC Units will be exchangeable for a like number of
shares of Common Stock or, at the Company's election, cash, and have a maximum
value of approximately $16.9 million (based upon an assumed value of $26.93 per
share of Common Stock). See 'Recent Developments -- TCR-West Transaction,"
above. The Company currently anticipates that all of the Development OC Units
will either be awarded or will become ineligible for award by the end of 1999.
Accordingly, there can be no assurance that the amount of any claim for
indemnity will be made at a time when a sufficient amount, or any of Development
OC Units remain available for set-off or that, even if the full number of
Development OC Units is available, that the value of those units will be
sufficient to fully cover the claim for indemnity.
There can be no assurance that the Company will not be confronted in the
future with claims by third parties relating to the TCR-West Transaction or the
activities of the TCR Parties or the Contributing Parties before the closing of
the transaction that are outside the coverage of the indemnity provisions.
Likewise, there can be no assurance that the properties acquired in the TCR-West
Transaction will meet the Company's expectations. Accordingly, the limited
scope of the indemnification could have a material adverse effect on the Company
and its ability to make distributions to shareholders. See "-- Risks of Assumed
Liabilities," above.
The Company has also provided a limited indemnity to the Contributing
Parties. Under the terms of the transaction, the Company has agreed to
indemnify the Contributing Parties and their affiliates against claims arising
out of (i) any inaccuracy in certain representations made by the Company about
the registration rights it has agreed to provide to Contributing Parties who
become shareholders of the Company or unitholders of the Operating Company or
another subsidiary of the Company, or any failure by the Company to fulfill its
obligations under terms of the transaction, and (ii) any material inaccuracy in
an information statement provided by the Company to the Contributing Parties.
The Company's indemnification obligations are limited to an amount equal to the
value of the remaining Development OC Units outstanding from time to time.
Notwithstanding the limit upon the Company's indemnification obligations, if
claims within the coverage of the indemnity provisions were brought against the
Company, there is no assurance it would not be required to incur costs in
defending against or satisfying the claims, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
Potential Litigation Related to the TCR-West Transaction
Over the last several years, business reorganizations involving the
conversion of partnerships into REITs, the combination of several partnerships
into a single entity and the combination of multiple REITs into a single REIT
have occasionally given rise to investor lawsuits. If any lawsuits were filed
in connection with the TCR-West Transaction, such lawsuits could require the
Company to incur costs of defending such lawsuits or result in claims or
liabilities against the Company, any of which could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
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
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<PAGE>
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 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.
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 or cause the Company to be in
default under certain debt instruments. In addition, an increase in market
interest rates may lead holders of the Company's Common Stock to demand a
higher yield on their shares from distributions by the Company, which could
adversely affect the market price for the Common Stock.
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 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 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
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<PAGE>
make distributions to shareholders. 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.
RISKS OF FEE MANAGEMENT BUSINESS
Possible Termination of Management Contracts.
As part of the TCR-West Transaction, the Company also acquired TCR-West's
third-party management operation. A wholly-owned subsidiary of the Company (the
"Management Company") was organized to undertake this operation.
Risks associated with the management of properties owned by third parties
include the risk that the management contracts (which are generally cancelable
upon a sale of property or, in many cases, upon 30 days' notice) will be
terminated by the property owner or will be lost in connection with a sale of
such property, that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms and that the rental revenues upon
which management fees are based will decline as a result of general real estate
market conditions or specific market factors affecting properties managed by the
Management Company, resulting in decreased management fee income. As a result,
there can be no assurance that the Management Company will perform in accordance
with the Company's expectations.
Possible Adverse Consequences of REIT Status on the Business of the Management
Company.
Certain requirements for REIT qualifications may in the future limit the
Company's ability to increase third party management operations conducted and
related services offered by the Management Company without jeopardizing the
Company's qualifications as a REIT. See "Federal Income Tax Considerations--
Third-Party Management Income."
SUBSIDIARY STRUCTURE
All of the Shares offered hereby will be obligations exclusively of
the Company. Because a significant portion of the operations of the Company is
conducted through its subsidiaries, including the Operating Company, the cash
flow of the Company and the consequent ability to make distributions and other
payments on its equity securities, including the Shares, will be dependent
upon the earnings of such subsidiaries and the distribution of those earnings to
the Company, or upon loans or other payments of funds made by such subsidiaries
to the Company. In addition, debt or other agreements of the Company's
subsidiaries may impose restrictions that affect, among other things, the
ability of the Company's subsidiaries to pay dividends or make other
distributions or loans to the Company.
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 Stock has 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 Stock 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 shares of Common Stock
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of the Common Stock 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.
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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 Stock which
offers may be attractive to the shareholders, or (ii) deter purchases of large
blocks of Common Stock thereby limiting the opportunity for shareholders to
receive a premium for their shares of Common Stock 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).
Thus, to the extent Third Party Management Income (as defined below) represents
5% or more of the Company's gross income in any taxable year, the Company will
not satisfy the 95% income test and may fail to qualify as a REIT, unless
certain relief provisions apply, and, even if those relief provisions apply, a
tax would be imposed with respect to excess net income, any of which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders. See "Federal Income Tax Considerations--Third Party Management
Income" and "Federal Income Tax Considerations--Income Tests." Additionally, to
the extent the Operating Company or any of the Subsidiary Entities (as defined
in "Federal Income Tax Considerations--Requirements for Qualification") are
determined to be taxable as a corporation, the Company would not qualify as a
REIT, which could have a material adverse effect on the Company and its ability
to make distributions to shareholders. See "Federal Income Tax Considerations--
Federal Income Tax Aspects of the Operating Company and the Subsidiary
Entities." Finally, 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 likely have a material adverse
effect on the Company and its ability to make distributions to shareholders. 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.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholder. All proceeds from the sale of the Shares will
be for the account of the Selling Shareholder.
SELLING SHAREHOLDER
The following table sets forth certain information as of the date of this
Prospectus regarding the ownership of shares of Common Stock by the Selling
Shareholder and as adjusted assuming the sale of all the Shares offered hereby.
All of the Shares being offered by the Selling Shareholder were acquired in
connection with the TCR-West Transaction.
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In addition to its ownership of Common Stock of the Company, (i) the Selling
Shareholder is the lender under the terms of certain loan agreements with the
Company providing for up to $73,000,000 of unsecured indebtedness and (ii) a
wholly-owned subsidiary of the Selling Shareholder has provided financing
services for BRE and has received fees for the rendering of those services.
<TABLE>
<CAPTION>
NUMBER OF SHARES OWNED BENEFICIALLY NUMBER OF SHARES OWNED BENEFICIALLY
BEFORE THE OFFERING NUMBER OF SHARES AFTER THE OFFERING
THE SELLING SHAREHOLDER BEING OFFERED
<S> <C> <C> <C>
The Prudential Insurance Company
of America
- -- Prudential Property Investment 3,713,331 3,713,331 0
Separate Account 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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DESCRIPTION OF COMMON STOCK
GENERAL
The following description of the Common Stock sets forth certain
general terms and provisions of the Common Stock to which this Prospectus
relates. The statements below describing the Common Stock, the Rights (as
defined below) and the Rights Agreement (as 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 of Incorporation (the
"Articles") and the Bylaws (the "Bylaws") of BRE 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 shares of
Common Stock, $0.01 par value. As of December 31, 1997, there were 41,738,704
shares of Common Stock issued and outstanding. In addition, as of December 31,
1997, there were 2,800,900 shares of Common Stock reserved for issuance upon the
exercise of options under the Company's stock option plans and 1,390,925 shares
reserved for issuance under the Company's Dividend Reinvestment Plan. As of
December 31, 1997, there were 3,452,181 shares of Common Stock reserved for
issuance upon exchange of the OC Units which were issued or may be issued in
connection with the TCR-West Transaction. The Common Stock is listed on the NYSE
under the symbol "BRE." Chase Mellon is the transfer agent and registrar of the
Common Stock.
Holders of Common Stock 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 Stock. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Stock 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
Stock. The Common Stock does not have preemptive or conversion rights.
Holders of Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of the holders of Common Stock and, except as
otherwise required by law or as provided by the express provisions of any series
of Preferred Stock, the holders of the Common Stock will exclusively possess all
voting power of the shareholders of the Company. Holders of Common Stock do not
have cumulative voting rights in the election of directors.
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 Stock with such rights, restrictions and other terms as may be
determined by the Board of Directors. The issuance of Preferred Stock, 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 Stock 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. As of December 2, 1997, no Preferred Stock
was issued or outstanding.
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
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certain conditions are met, and (vi) a requirement that shareholder action
without a meeting be taken only by unanimous written consent.
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 share of Common
Stock. Each Right entitled the holder to purchase from the Company one share of
Common Stock at a cash purchase price of $90.00 per share, subject to
adjustment. Following the Company's stock dividend of one share of Common Stock
for each 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 shares of Common
Stock and (ii) the Rights will be evidenced by the Common Stock certificates and
the transfer of Common Stock certificates will also constitute the transfer of
the Rights associated with such Common Stock. As soon as practicable after the
Distribution Date, Rights certificates will be mailed to holders of record of
the Common Stock as of the close of business on the Distribution Date.
The Rights will separate from the Common Stock 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 Stock (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 Stock 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 Stock for other securities, cash
or property, (ii) any person becomes the owner of 40% or more of the then
outstanding Common Stock, (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 Stock 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 Stock is 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.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that
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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 Stock is 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.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to the Company and its shareholders relating to the Shares 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.
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EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT 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
Effective as of its formation on May 22, 1970, the Company has elected to
be taxed as a real estate investment trust under Code Sections 856 through 860.
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, 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."
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
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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 Code Sections 856 through 859; (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.
With respect to its taxable years ending before January 1, 1998, in order
to maintain its election to be taxed as a REIT, the Company must also maintain
certain records and request certain information from its shareholders designed
to disclose the actual ownership of its stock. The Company believes that it has
complied and will comply with these requirements.
In the case of a REIT that is a partner in a partnership or a member in a
limited liability company ("LLC"), the REIT Provisions provide that the REIT is
deemed to own its proportionate share of the assets of the partnership or LLC
based on the REIT's capital interest in the partnership or LLC and is deemed to
be entitled to the income of the partnership or LLC attributable to such
proportionate share (unless specifically stated otherwise or the context
otherwise requires, the discussion under this section "Federal Income Tax
Considerations" relating to partnerships and the partners thereof also applies
to LLCs and the members thereof). In addition, the character of the assets and
gross income of the partnership shall retain the same character in the hands of
the REIT for purposes of satisfying the gross income tests and the asset tests,
described below. Similar treatment applies with respect to lower-tier
partnerships which the REIT indirectly owns through its interests in higher-tier
partnerships. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Company and the other
partnerships and limited liability companies in which the Company owns a direct
or indirect interest (collectively, the "Subsidiary Entities"), will be treated
as assets, liabilities and items of income of the Company for purposes of
applying the gross income tests and the asset tests described below, provided
that the Operating Company and the Subsidiary Entities are treated as
partnerships for federal income tax purposes. See "Federal Income Tax Aspects
of the Operating Company and the Subsidiary Entities" below.
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 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, for the Company's taxable years prior to January 1, 1998,
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
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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, a REIT may provide services to
its tenants and the income will qualify as "rents from real property" only if
the services are of a type that a tax-exempt organization can provide to its
tenants without causing its rental income to be unrelated business taxable
income under the Code. Services that would give rise to unrelated business
taxable income if provided by a tax-exempt organization ("Prohibited Services")
must be provided by an "independent contractor" who is adequately compensated
and from whom the REIT does not derive any income. Payments received by a REIT
for services furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants in properties of a similar class in
the geographic market in which the REIT's property is located will not qualify
as "rents from real property." For the Company's taxable years beginning on or
after January 1, 1998, the provision of Prohibited Services by the Company in
connection with a lease of real property will not cause the rent to fail to
qualify as "rents from real property" unless the amount treated as received for
the Prohibited Services exceeds 1% of all amounts received or accrued during the
taxable year directly or indirectly by the Company with respect to such
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 should not be considered Prohibited Services.
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 intends to hire independent contractors from whom
the Company will derive no revenue in connection with 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.
For the Company's taxable years beginning prior to January 1, 1998, any
gross income derived from a prohibited transaction will be taken into account in
applying the 30% income test necessary to qualify as a REIT. The net income
from a prohibited transaction is subject to a 100% tax. The Company believes
that no asset directly or indirectly owned by it is held for sale to customers
and that the sale of any such property will not be in the ordinary course of
business of the Company, the Operating Company or the Subsidiary Entities.
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.
THIRD-PARTY MANAGEMENT INCOME
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In connection with the TCR-West Transaction, the Company acquired certain
management contracts (which were immediately contributed to the Management
Company, a newly created "qualified REIT subsidiary," as defined in the Code)
whereby, in return for various fees, the Company is obligated to provide
management services related to properties that are not owned directly or
indirectly by the Company ("Third-Party Management Income"). The Third-Party
Management Income will not qualify under either the 75% or 95% gross income
tests described above. However, the Company does not believe that the receipt
of this income will cause the Company to fail to satisfy one or both of the 75%
or 95% gross income tests for the current or any future taxable year as this
income, along with other non-qualifying income, is expected to represent less
than 5% of the Company's gross income in any taxable year.
Inadvertent failure to satisfy the 75% and 95% gross income tests may not
disqualify the Company as a REIT if, as discussed above, certain relief
provisions apply. See "--Income Tests."
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 certain 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.
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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 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."
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<PAGE>
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 owns more than ten percent of the Company's
Common Stock, 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 Stock, 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 shares of Common Stock 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 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.
27
<PAGE>
Shareholder's federal tax liability.
On October 6, 1997, the IRS issued final Treasury Regulations concerning
the withholding of tax and reporting for certain amounts paid to non-resident
individuals and foreign corporations. These new withholding rules significantly
change the current withholding regime. However, in general, these new rules
apply only to payments made after December 31, 1998. Prospective purchasers
should consult their tax advisors concerning the impact, if any, of these new
Treasury Regulations.
FEDERAL INCOME TAX ASPECTS OF THE OPERATING COMPANY AND THE SUBSIDIARY ENTITIES
As a result of the TCR-West Transaction, a portion of the Company's assets are
held indirectly through the Operating Company and the Subsidiary Entities.
The Operating Company and the Subsidiary Entities involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of such partnerships or LLCs as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. Under
recently finalized Treasury Regulations pertaining to entity classification, the
Company believes that the Operating Company and Subsidiary Entities will be
classified as partnerships for federal income tax purposes. Nevertheless, if
any of such partnerships or LLCs were to be treated as a corporation, such
entity would be subject to an entity level tax on its income. Such an entity
level tax is likely to substantially reduce the amount of cash available for
distribution to Company's shareholders. In addition, if the Operating Company
or any of the Subsidiary Entities were to be taxable as a corporation, the
Company would not qualify as a REIT, which could have a material adverse effect
on the Company and its ability to make distributions to shareholders.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax-basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Company was formed by way of contributions of
property by TCR-West. Consequently, allocations with respect to such
contributed property must be made in a manner consistent with Code Section
704(c).
In general, the Company will be allocated higher amounts of depreciation
deductions for tax purposes than such deductions would be if determined on a pro
rata basis. In addition, in the event of the disposition of any of the
contributed assets which have a Book-Tax Difference, all income attributable to
such Book-Tax Difference will generally be allocated to the property-
contributing members and the Company will generally be allocated only its share
of capital gains attributable to appreciation, if any, occurring after the
contribution of such assets to the Operating Company. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Company.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Company will cause the Company
to be allocated lower depreciation and other deductions, and possible amounts of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "Annual Distribution Requirements."
The Treasury Regulations under Code Section 704(c) allow partnerships to
use any reasonable method of
28
<PAGE>
accounting for Book-Tax Differences so that the contributing partner receives
the tax benefits and burdens of any built-in gain or loss associated with the
contributed property. Book-Tax Differences associated with the Operating Company
will be allocated pursuant to the "traditional method" as described in the
applicable Treasury Regulations. Use of the "traditional method" may result in
distributions to Company shareholders being comprised of a greater portion of
taxable income rather than a return of capital.
PARTNERSHIP ANTI-ABUSE RULE
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is
formed or availed of in connection with a transaction a principal purpose of
which is to reduce substantially the present value of the partners, aggregate
federal tax liability in a manner that is inconsistent with the intent of the
Partnership Provisions, the IRS can recast the transaction for federal tax
purposes to achieve tax results that are consistent with the intent of the
Partnership Provisions. This analysis is to be made based on all facts and
circumstances. The Anti-Abuse Rule states that the intent of the Partnership
Provisions incorporates the following requirements: (i) the partnership must be
bona fide and each partnership transaction or series of related transactions
must be entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
The Company believes that its indirect ownership of certain assets through its
interest in the Operating Company and the Subsidiary Entities is not
inconsistent with the intent of the Partnership Provisions and that, therefore,
the IRS should not be able to invoke the Anti-Abuse Rule to recast the structure
of the Company for federal income tax purposes. However, no assurance can be
given that the IRS or a court will concur with such opinion.
The Anti-Abuse Rule also provides that, unless a provision of the Code or the
Treasury Regulations prescribes the treatment of a partnership as an entity, in
whole or in part, and that treatment and the ultimate tax results, taking into
account all the relevant facts and circumstances, are clearly contemplated by
that provision, the IRS can treat a partnership as an aggregate of its partners,
in whole or in part, as appropriate to carry out the purpose of any provision of
the Code or the Treasury Regulations. Treatment of the Operating Company or any
of the Subsidiary Entities, in whole or in part, as an aggregate rather than an
entity is unlikely to materially change the federal tax consequences to any
partner. In addition, the REIT Provisions generally treat a partnership as an
aggregate rather than an entity for purposes of applying the REIT Requirements.
Therefore, the Anti-Abuse Rule should not have a material adverse effect on the
federal income tax consequences to any partner or on the ability of the Company
to qualify as a REIT.
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
Any or all of the Shares offered hereby may be sold from time to time, in
one or more transactions, on the NYSE, on any other exchange on which the Shares
are listed or traded, in the over-the-counter market or otherwise. Such sales
may be made at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. To the extent
required, this Prospectus may be amended or supplemented from time to time to
describe a specific plan of distribution. In addition, any or all of the Shares
that qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather
than pursuant to this Prospectus. The Selling Shareholder will act independently
of the Company in making decisions with respect to the timing, manner and size
of each sale.
29
<PAGE>
In effecting sales, brokers, dealers or agents engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Shareholder in amounts to be negotiated prior to the sale. Such
brokers, dealers and any other participating brokers or dealers may be deemed to
be "underwriters" within the meaning of the Securities Act in connection with
such sales, and any such commissions, discounts or concessions may be deemed to
be underwriting discounts or commissions under the Securities Act. The Company
will pay all expenses incident to the offering and sale of the Shares to the
public other than any commissions and discounts of underwriters, dealers or
agents and any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the Shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Company has advised the Selling Shareholder that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Shares in the
market and to the activities of the Selling Shareholder and its affiliates. In
addition, the Company will make copies of this Prospectus available to the
Selling Shareholder and has informed it of the need for delivery of copies of
this Prospectus to purchasers at or prior to the time of any sale of the Shares
offered hereby. The Selling Shareholder may indemnify any broker-dealer that
participates in transactions involving the sale of the Shares against certain
liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of Shares is made, if required, a Prospectus
Supplement will be distributed that will set forth the number of Shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
The sale of Shares by the Selling Shareholder is subject to compliance by
the Selling Shareholder with certain contractual restrictions with the Company.
There can be no assurance that the Selling Shareholder will sell all or any of
the Shares.
The Company has agreed to indemnify the Selling Shareholder and any person
controlling the Selling Shareholder against certain liabilities, including
liabilities under the Securities Act. The Selling Shareholder has agreed to
indemnify the Company and certain related persons against certain liabilities,
including liabilities under the Securities Act.
The Company has agreed with the Selling Shareholder to keep the
Registration Statement of which this Prospectus constitutes a part effective for
up to two years following November 18, 1997, the closing date of the TCR-West
Transaction (which period may be shortened or extended under certain
circumstances). The Company intends to de-register any of the Shares not sold
by the Selling Shareholder at the end of such two-year period; however, it is
anticipated that at such time any unsold Shares may be freely tradable subject
to compliance with Rule 144 of the Securities Act.
EXPERTS
The financial statements and related financial schedule of the Company
appearing in the Company'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 the Company's Current Report on Form 8-K/A filed on
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
the Company's Current Report on Form 8-K/A filed on 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 the Company's Current Report on Form 8-K filed
on April 25, 1997, 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 Lakeshore Landing
Apartments for the year ended December 31, 1996, appearing in the
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Company's Current Report on Form 8-K/A filed on October 30, 1997, 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 certain TCR-West multifamily properties for the
year ended December 31, 1996, appearing in the Company's Current Report on Form
8-K filed on November 24, 1997, has been audited by Ernst & Young LLP, as set
forth in their 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 Shares offered hereby, 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.
_______________________
_______________________
31
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be paid by BRE
Properties, Inc. (the "Company") in connection with the issuance of the Shares
being registered hereby. All amounts, other than the SEC Registration Fee, are
estimates:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.......................................$ 31,670
NYSE Listing Fee........................................... 13,000
Printing and Engraving Costs............................... 20,000
Legal Fees and Expenses.................................... 15,000
Blue Sky Fees and Expenses................................. 2,000
Accounting Fees and Expenses............................... 10,000
Miscellaneous.............................................. 5,000
-------
Total......................................................$ 96,670
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 2-418 of the General Corporation Law of the State
of Maryland (the "Maryland Corporation Law"), Article VI of the Company's Bylaws
provides that the Company shall indemnify any officer or director who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit, proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the Company (other than an
action brought by or in the right of the Company) by reason of the fact that he
or she is or was an officer or director, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) actually and reasonably
incurred by the officer or director in connection with such action, suit,
proceeding or investigation, or any appeal therein. However, there will be no
such indemnification if it is established by adjudication that (i) the act or
omission of the director was material to the matter giving rise to the
proceeding and (A) was committed in bad faith or (B) was the result of active
and deliberate dishonesty; (ii) the officer or director actually received an
improper personal benefit in money, property or services; or (iii) with respect
to any criminal action or proceeding, the officer or director had no reasonable
cause to believe that his or her conduct was unlawful. Notwithstanding the
foregoing, an officer or director may receive indemnification where a court of
appropriate jurisdiction determines that such person is fairly and reasonably
entitled to indemnity for any expense, liability or loss which the court shall
deem proper; provided, however, that no indemnification for any liability or
loss (other than expenses) shall in any event be made to the extent that such
person has been adjudged to have actually received an improper personal benefit.
Article VI of the Articles provides that, to the fullest extent permitted by
law, no director or officer of the Company shall be personally liable to the
Company, any subsidiary thereof or any of its shareholders for money damages.
In addition, Article VI of the Company's Bylaws also provides that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed judicial action or suit
brought by or in the right of the Company to procure a judgment in its favor by
reason of the fact that such person is or was an officer or director, against
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by such person in connection with the defense, settlement or
appeal of such action or suit, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that a court
of appropriate jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
The Company maintains a directors' and officers' insurance policy which
insures the directors and officers of the Company from claims arising out of an
alleged wrongful act by such persons in their respective capacities as directors
and officers of the Company, subject to certain exceptions.
II-1
<PAGE>
The Company has entered into indemnification agreements with its directors
and officers.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
NUMBER
- ------
<C> <S>
2.1 Contribution Agreement dated as of September 29, 1997, as amended
between the Company, BRE Property Investors LLC and the TCR
Signatories (1)
4.1 Amended and Restated Articles of Incorporation (2)
4.2 Articles of Amendment (3)
4.3 Bylaws (4)
4.4 Rights Agreement between the Company and Bank of America, N.T. & S.A.,
dated as of August 14, 1989 (5)
4.5 Supplement to Rights Agreement between the Company and Chemical Trust
Company of California dated as of July 30, 1992 (6)
4.6 Registration Rights Agreement among the Company, BRE Property
Investors LLC and the other signatories thereto dated November 18,
1997 (7)
4.7 Specimen Certificate for Common Stock of the Company (8)
5 Opinion of Farella Braun & Martel LLP regarding the validity of the
Common Stock being registered (7)
8 Opinion of Farella Braun & Martel LLP regarding tax matters (7)
23.1 Consent of Farella Braun & Martel LLP (included as part of Exhibits 5
and 8)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (7)
</TABLE>
___________
(1) Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's current
report on Form 8-K filed on November 24, 1997.
(2) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on March 15, 1996.
(3) Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(4) Incorporated by reference to Exhibit 4.5 to the Registrant's Registration
Statement on Form S-4 (No. 33-65365), filed with the Securities and
Exchange Commission on December 22, 1995, as amended.
(5) Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated August 14, 1989.
(6) Incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(7) Filed previously.
(8) Incorporated by reference to Exhibit 4.11 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
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<PAGE>
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the Company pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
Annual Report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
into this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the
II-3
<PAGE>
form of prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement (the "Amendment") to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, as of the 7th day of January, 1998.
BRE Properties, Inc.
By:
//Leroy E. Carlson//
---------------------
LeRoy E. Carlson
Executive Vice President, Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated on the 7th
day of January, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
//John McMahan// * Director, Chairman of the Board
------------------
John McMahan
//Frank C. McDowell// * President, Chief Executive Officer and Director
----------------------- (Principal Executive Officer)
Frank C. McDowell
//Leroy E. Carlson// Executive Vice President, Chief Financial Officer
-------------------- and Secretary (Principal Financial
LeRoy E. Carlson Officer and Principal Accounting Officer)
//William E. Borsari// * Director
----------------------
William E. Borsari
//C. Preston Butcher// * Director
----------------------
C. Preston Butcher
//L. Michael Foley// * Director
--------------------
L. Michael Foley
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
//Roger P. Kuppinger// * Director
- ----------------------
Roger P. Kuppinger
//Gregory M. Simon// * Director
- --------------------
Gregory M. Simon
//Arthur G. von Thaden// * Director
- ------------------------
Arthur G. von Thaden
</TABLE>
* By: //Leroy E. Carlson//
- ----------------------------
LeRoy E. Carlson
Attorney-in-fact
II-6
<PAGE>
BRE PROPERTIES, INC.
EXHIBIT INDEX
TO REGISTRATION STATEMENT ON FORM S-3
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT LOCATION
- ------- ------- --------
NUMBER
- ------
<C> <S> <C>
2.1 Contribution Agreement dated as of September 29, 1997, as amended between
the Company, BRE Property Investors LLC and the TCR Signatories (1)
4.1 Amended and Restated Articles of Incorporation (2)
4.2 Articles of Amendment (3)
4.3 Bylaws (4)
4.4 Rights Agreement between the Company and Bank of America, N.T. & S.A., dated
as of August 14, 1989 (5)
4.5 Supplement to Rights Agreement between the Company and Chemical Trust Company
of California dated as of July 30, 1992 (6)
4.6 Registration Rights Agreement among the Company, BRE Property Investors LLC and
the other signatories thereto dated November 18, 1997 (7)
4.7 Specimen Certificate for Common Stock of the Company (8)
5 Opinion of Farella Braun & Martel LLP regarding the validity of
the Common Stock being registered (7)
8 Opinion of Farella Braun & Martel LLP
regarding tax matters (7)
23.1 Consent of Farella Braun & Martel LLP (7)
23.2 Consent of Ernst & Young LLP Contained herein
24 Power of Attorney (7)
</TABLE>
___________
(1) Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's current
report on Form 8-K filed on November 24, 1997.
(2) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on March 15, 1996.
(3) Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(4) Incorporated by reference to Exhibit 4.5 to the Registrant's Registration
Statement on Form S-4 (No. 33-65365), filed with the Securities and
Exchange Commission on December 22, 1995, as amended.
(5) Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated August 14, 1989.
(6) Incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(7) Filed previously.
(8) Incorporated by reference to Exhibit 4.11 to the Company's Registration
Statement on Form S-3 (No. 333-24915),
II-7
<PAGE>
filed with the Securities and Exchange Commission on April 10, 1997, as amended.
II-8
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement on Form S-3 and related Prospectus
of BRE Properties, Inc. for the registration of 3,713,331 Shares of Common
Stock, and to the incorporation by reference therein of our reports dated
January 14, 1997 (except Note 13, as to which the date is February 12, 1997),
with respect to the financial statements and schedule of BRE Properties, Inc.
included in its Annual Report on Form 10-K for the year ended December 31, 1996,
as amended; our report dated April 22, 1997 with respect to the statement of
gross income and direct operating expenses of Red Hawk Ranch Apartments for the
year ended December 31, 1996, included in BRE Properties, Inc.'s Current Report
on Form 8-K filed on April 25, 1997; our report dated February 10, 1997 with
respect to the statement of gross income and direct operating expenses of
Promontory Point Apartments for the year ended December 31, 1996, included in
BRE Properties, Inc.'s Current Report on Form 8-K/A filed on April 23, 1997, as
amended; our report dated December 4, 1996 with respect to the statement of
gross income and direct operating expenses of Foster's Landing Apartments for
the year ended December 31, 1995, included in BRE Properties, Inc.'s Current
Report on Form 8-K/A filed on April 23, 1997, as amended; and our report dated
October 20, 1997 with respect to the statement of gross income and direct
operating expenses of Lakeshore Landing Apartments for the year ended December
31, 1996, included in BRE Properties, Inc.'s Current Report on Form 8-K/A filed
on October 30, 1997, as amended; our report dated November 24, 1997 with respect
to the statement of gross income and direct operating expenses of certain TCR-
West multifamily properties for the year ended December 31, 1996, included in
BRE Properties, Inc.'s Current Report on Form 8-K filed on November 24, 1997,
all filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
January 5, 1998
San Francisco, California
