<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-5305
BRE PROPERTIES, INC.
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(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.)
44 Montgomery Street
36th Floor
San Francisco, CA 94104-4809
- ---------------------------------------- -------------------------------
(Address of principal office) (Zip Code)
(415) 445-6530
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock
outstanding as of May 12, 1998 42,367,410
--------------
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BRE Properties, Inc.
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
--------------------
CONSOLIDATED BALANCE SHEETS (unaudited)
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(Dollar amounts in thousands) March 31, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Investments in rental properties:
Multifamily ................................................. $ 1,298,091 $ 1,248,012
Commercial and retail ....................................... 11,967 11,929
Construction in progress .................................... 112,102 84,202
Less: Accumulated depreciation and amortization ............. (55,812) (49,721)
----------- -----------
1,366,348 1,294,422
Investments in limited partnerships .............................. 1,174 2,780
----------- -----------
Real estate portfolio ............................................ 1,367,522 1,297,202
Mortgage loans, net .............................................. 4,880 4,871
Cash and short-term investments .................................. 1,910 4,216
Funds held in escrow ............................................. -- 15,833
Other ............................................................ 23,901 19,776
=========== ===========
TOTAL ASSETS ................................................ $ 1,398,213 $ 1,341,898
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans ................................................... $ 235,195 $ 232,367
Unsecured senior notes ........................................... 253,000 123,000
Unsecured lines of credit ........................................ 110,000 186,000
Accounts payable and other liabilities ........................... 15,577 16,970
----------- -----------
TOTAL LIABILITIES ........................................... 613,772 558,337
----------- -----------
Minority interest ................................................ 76,066 76,066
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized. No
shares outstanding at March 31, 1998 or December 31, 1997 .... -- --
Common stock, $.01 par value, 100,000,000 shares authorized.
Shares issued and outstanding: 41,911,584 at March 31 1998;
41,738,704 at December 31, 1997 .............................. 419 417
Additional paid-in capital ....................................... 607,651 605,833
Accumulated net income in excess of cumulative dividends ......... 100,305 101,245
----------- -----------
Total shareholders' equity .................................. 708,375 707,495
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................. $ 1,398,213 $ 1,341,898
=========== ===========
</TABLE>
See notes to consolidated financial statements
2
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BRE Properties, Inc.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
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(Amounts in thousands, except per share data) For the Quarter Ended
March 31,
-------------------------
1998 1997
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<S> <C> <C>
REVENUE
Rental income:
Multifamily ....................................................... $ 44,007 $ 26,801
Commercial and retail ............................................. 315 3,060
Other income ........................................................... 3,091 1,865
-------- --------
TOTAL REVENUE ..................................................... 47,413 31,726
-------- --------
EXPENSES
Real estate expenses:
Multifamily ....................................................... 14,730 9,399
Commercial and retail ............................................. 15 214
Depreciation and amortization .......................................... 6,485 4,168
Interest expense ....................................................... 8,535 5,890
General and administrative ............................................. 1,665 1,113
-------- --------
TOTAL EXPENSES .................................................... 31,430 20,784
-------- --------
Income before net loss on sales of investments in rental properties and
minority interest ................................................. 15,983 10,942
Net loss on sales of investments in rental properties .................. (825) --
-------- --------
Income before minority interest ........................................ 15,158 10,942
Minority interest in income ............................................ 1,016 --
-------- --------
NET INCOME ........................................................ $ 14,142 $ 10,942
======== ========
Net income per outstanding share:
Income before net loss on sales of investments in rental properties less
minority interest ................................................. $ 0.36 $ 0.33
Net loss on sales of investments in rental properties .................. ($ 0.02) --
======== ========
Net income per share - basic ........................................... $ 0.34 $ 0.33
======== ========
Income before net loss on sales of investments in rental properties and
minority interest ................................................. $ 0.36 $ 0.32
Net loss on sales of investments in rental properties .................. ($ 0.02) --
======== ========
Net income per share - assuming dilution ............................... $ 0.34 $ 0.32
======== ========
Weighted average shares outstanding - basic ............................ 41,830 32,980
======== ========
Weighted average shares outstanding - assuming dilution ................ 45,150 33,560
======== ========
</TABLE>
See notes to consolidated financial statements
3
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BRE Properties, Inc.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
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(Dollar amounts in thousands)
For the Three Months Ended
March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 14,142 $ 10,942
Adjustments to reconcile net income to net cash generated by operating
activities:
Provision for depreciation and amortization ...................... 6,485 4,168
Net loss on sales of investments in rental properties ............ 825 --
Minority interest ................................................ 1,016 --
(Decrease) increase in accounts payable and other liabilities .... (1,393) 1,548
Decrease (increase) in other assets .............................. 18 (1,758)
--------- ---------
Net cash flows generated by operating activities ...................... 21,093 14,900
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Multifamily properties purchased ...................................... (54,038) (26,173)
Decrease in funds held in escrow ...................................... 15,833 --
Capital expenditures-multifamily ...................................... (889) (440)
Capital expenditures-commercial and retail ............................ (4) (132)
Rehabilitation expenditures ........................................... (1,086) (795)
Additions to construction in progress ................................. (27,900) --
Payments on mortgage loans receivable ................................. 50 40
Proceeds from sales of property, net .................................. 9,293 --
Other ................................................................. (59) --
--------- ---------
Net cash flows used in investing activities ........................... (58,800) (27,500)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans .................................. (534) (410)
Issuance of unsecured senior notes .................................... 130,000 --
Costs of issuance of senior unsecured notes ........................... (3,787) --
Lines of credit:
Advances ......................................................... 71,000 37,500
Repayments ....................................................... (147,000) (14,500)
Proceeds from exercises of stock options .............................. 1,820 2,460
Distributions to minority members ..................................... (1,016) --
Dividends paid ........................................................ (15,082) (11,392)
--------- ---------
Net cash flows generated by financing activities ...................... 35,401 13,658
--------- ---------
(Decrease) increase in cash and short-term investments ................ (2,306) 1,058
Balance at beginning of period ........................................ 4,216 184
========= =========
BALANCE AT END OF PERIOD .............................................. $ 1,910 $ 1,242
========= =========
Interest capitalized .................................................. $ 2,026 --
========= =========
Mortgage loans assumed ................................................ $ 3,362 --
========= =========
</TABLE>
See notes to consolidated financial statements
4
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BRE Properties, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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March 31, 1998
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and should be read in conjunction with the
Annual Report of BRE Properties, Inc., (the "Company" or "BRE"), on Form 10-K
for the year ended December 31, 1997 (the "1997 10-K"). In the opinion of
management, all adjustments (consisting of normal recurring adjustments only)
have been made which are necessary for a fair statement of the results for the
interim periods presented herein.
NOTE B - LITIGATION
- -------------------
BRE is defending various claims and legal actions that arise from its normal
course of business. While it is not feasible to predict or determine the
ultimate outcome of these matters, in the opinion of management, none of these
actions will have a material adverse effect on BRE's results of operations or
financial position.
NOTE C - COMMITMENTS
- --------------------
The Company has commitments to acquire four multifamily communities with a total
estimated cost of approximately $112 million. There can be no assurance that
these communities will be acquired or will be acquired for the number of units
and estimated cost indicated.
5
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BRE Properties, Inc.
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ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
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March 31, 1998
Overview
BRE Properties, Inc. (the "Company" or "BRE") is a regionally focused,
self-administered equity real estate investment trust ("REIT") which primarily
owns and manages a portfolio of 75 apartment communities (aggregating 18,956
units) in 12 major markets of the Western United States. The Company also owns
five commercial and retail properties and two properties held in partnerships in
which BRE is a minority limited partner. The Company's revenues consist
primarily of rental income (93% of total revenues in the quarter ended March 31,
1998 and 94% in the quarter ended March 31, 1997) derived from its portfolio of
income-producing properties. Other income includes various fees and charges to
residents of multifamily communities, and to a lesser extent, interest from
notes receivable, fee management income and income from partnership investments.
The policy of the Company is to emphasize cash flows from operations rather than
the realization of capital gains through property dispositions. As dispositions
of real estate assets are made, the Company typically seeks to reinvest net
proceeds from sales in income-producing real estate.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including statements regarding the
Company's beliefs, expectations or strategies regarding the future, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, such statements are subject to
risks and uncertainties, including those discussed under the heading "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K"), that could cause actual results to differ
materially from those projected.
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED MARCH 31, 1998 AND 1997
REVENUES
Total revenues were $47,413,000 for the three months ended March 31, 1998
compared to $31,726,000 for the same period in 1997. This increase was primarily
due to an increase in multifamily rental revenues resulting from the acquisition
of 23 multifamily communities, which contributed approximately $16,110,000 and
$860,000 to multifamily rental revenues for the three months ended March 31,
1998 and 1997, respectively. Further, multifamily rental revenues from
"Same-Store" communities (multifamily communities owned by the Company and
stabilized as of January 1, 1997 and consisting of 12,002 of BRE's 18,956 total
units) increased $1,956,000 for the three months ended March 31, 1998 compared
to the same period in 1997. This increase was due primarily to an average
increase in rental rates of approximately 8%.
6
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BRE Properties, Inc.
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Rental revenues from commercial and retail properties decreased 90% in the
quarter ended March 31, 1998 when compared to the same period in 1997 due
largely to the sale of ten such properties in these categories (which properties
contributed approximately $24,000 and $2,979,000 in revenues during the quarters
ended March 31, 1998 and 1997, respectively).
Other income increased from $1,865,000 in the quarter ended March 31, 1997 to
$3,091,000 for the quarter ended March 31, 1998 due primarily to the acquisition
of 23 multifamily communities and offset in part by the sale of ten commercial
and retail properties.
A summary of the components of revenue for the quarters ended March 31,
1998 and 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
----------------- ------------------
% CHANGE
% OF TOTAL % OF TOTAL FROM 1997
REVENUES REVENUES REVENUES REVENUES TO 1998
------- ---------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental Revenue:
Multifamily-Same-store $27,897 $25,941
Multifamily-other .... 16,110 860
------- -------
Multifamily-total .... 44,007 93% 26,801 85% 65%
=======
Commercial and retail 315 -- 3,060 9% (90%)
=======
Other income ......... 3,091 7% 1,865 6% 66%
------- ------- ------- ------- =======
Total revenue ........ $47,413 100% $31,726 100% 49%
======= ======= ======= ======= =======
</TABLE>
Portfolio physical occupancy rates as of March 31, 1998 and 1997 were as
follows:
1998 1997
- -------------------------------------------------------------
Multifamily-Same-store 97% 96%
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Multifamily-All 96% 96%
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Commercial and Retail 1 94% 93%
- -------------------------------------------------------------
For multifamily properties, portfolio occupancy is calculated by dividing the
total occupied units by the total units in the portfolio. For commercial and
retail properties, portfolio occupancy is calculated by dividing the total
occupied square footage by the total rentable square footage in the portfolio.
EXPENSES
Real Estate Expenses
Real estate expenses for multifamily properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the quarter ended March 31,
1998 increased 57% to $14,730,000 from the comparable period in 1997 primarily
due to expenses of 23 multifamily property acquisitions. Real estate expenses
- ---------------------
1 For 1998 represents five properties with a gross book value of approximately
$12 million; in 1997, there were 15 properties with a gross book value of
approximately $104 million.
7
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BRE Properties, Inc.
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for commercial and retail properties changed from $214,000 in the quarter ended
March 31, 1997 to $15,000 in the same period in 1997 due primarily to the sale
of ten such properties during 1997 and 1998. Real estate expenses for
multifamily properties as a percentage of multifamily rental revenues decreased
from 35% for the first quarter in 1997 to 34% for the first quarter 1998.
A summary of the categories of real estate expenses for the quarters ended March
31, 1998 and 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------------------------- ------------------------
% OF % OF
MULTIFAMILY MULTIFAMILY % CHANGE
RENTAL RENTAL FROM 1997
EXPENSE REVENUES EXPENSE REVENUES TO 1998
-------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Multifamily-Same-Store .. $ 9,426 $ 9,166
Multifamily-other ....... 5,071 93
Other ................... 233 140
------- -------
Multifamily-total ....... 14,730 34% 9,399 35% 57%
======= =======
Commercial and retail ... 15 214 (93%)
======= ======= ========
Total real estate expense $14,745 $ 9,613 53%
======= ======= =======
</TABLE>
Provision for Depreciation and Amortization
The provision for depreciation and amortization increased by $2,317,000 to
$6,485,000 for the quarter ended March 31, 1998 from the comparable period of
1997. The increase in 1998 resulted primarily from multifamily property
acquisitions and was offset in part by dispositions of commercial and retail
properties.
Interest Expense
Interest expense was $8,535,000 (net of capitalized interest) for the quarter
ended March 31, 1998, up from $5,890,000 for the same period in 1997. This
increase was due largely to interest expense on the Company's $50 million and
$130 million unsecured senior notes and the mortgage indebtedness assumed in the
November 1997 transaction with Trammell Crow Residential-West.
General and Administrative
General and administrative costs were $1,665,000 or 3.5% of total revenues for
the first quarter in 1998 and $1,113,000 or 3.5% of total revenues for the first
quarter in 1997. The increase of the total general and administrative expense
reflect the costs of administering a much larger portfolio in the quarter ended
March 31, 1998, with total revenues approximately 49% greater than in the
quarter ended March 31, 1997.
8
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BRE Properties, Inc.
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Net Loss on Sales of Real Estate Investments
The net loss on sales of real estate investments for the quarter ended March 31,
1998 were primarily due to the sale of Park Glenn Apartments in Camarillo, CA
and the limited partnership interest in the Chateau de Ville partnership in
Anaheim, CA. There were no net gains (or loss) on sales of real estate
investments for the comparable period in 1997.
Net Income
Net income increased from $10,942,000 to $14,142,000 for the quarters ended
March 31, 1997 and 1998 respectively, primarily due to the addition of 23
multifamily apartment communities acquired. The increase was offset in part by
the sale of ten commercial and retail properties.
Acquisition and Disposition Summary
During the quarter ended March 31, 1998, the Company acquired and sold the
following assets:
GROSS PURCHASE
COMMUNITY NAME UNITS OR SALES PRICE
- --------------------------------- ----------------- -----------------
ACQUISITIONS:
Landing at Bear Creek 224 $18,300,000
Wellington/2/ 64 5,800,000
Montebello 248 33,300,000
================= =================
Total Acquisitions 536 $57,400,000
================= =================
DISPOSITION:
Park Glenn 150 $8,200,000
================= =================
Additionally, the Company sold its limited partnership interest in the Chateau
de Ville partnership for $1,250,000 during the quarter ended March 31, 1998.
- ---------------------
2 Operated as part of an existing community, Shadowbrook.
9
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BRE Properties, Inc.
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Construction in Progress
The following table sets forth data with respect to the Company's eight
multifamily properties included in construction in progress at March 31, 1998.
Completion of these properties is subject to a number of risks and
uncertainties, including construction delays and cost overruns. No assurance can
be given that these properties will be completed or, if completed, that they
will be completed by the estimated dates or for the estimated amounts set forth
in the table below or that they will contain the number of proposed units set
forth in the table below.
<TABLE>
<CAPTION>
PROPOSED INVESTMENT ESTIMATED
NUMBER OF TO DATE COST TO ESTIMATED COMPLETION
PROPERTY NAME AND LOCATION UNITS/3/ MARCH 31,1998 COMPLETE TOTAL COST DATE
- ----------------------------- ----------- ---------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
(Dollar amounts in millions)
Pinnacle at Towne Centre,
Phoenix, AZ 350 $21.6 $8.4 $30.0 3Q/1998
Pinnacle Terrace, Chandler, AZ 300 12.1 8.5 20.6 3Q/1998
Pinnacle at Hunters Glen,
Thornton, CO 264 8.3 11.5 19.8 4Q/1998
Pinnacle at West Flamingo,
Las Vegas, NV 324 14.2 12.0 26.2 1Q/1999
Pinnacle Estates,
Albuquerque, NM 294 12.2 10.6 22.8 3Q/1998
Pinnacle at High Resort,
Rio Ranch, NM 301 10.1 12.7 22.8 3Q/1998
Pinnacle at Sand Hill,
Orem, UT 288 15.2 7.6 22.8 2Q/1998
Pinnacle at Clearfield,
Clearfield, UT 324 11.8 11.0 22.8 4Q/1998
=========== ================ ============= ============
2,445 $105.5 $82.3 $187.8
=========== ================ ============= ============
</TABLE>
Impact Of Inflation
For the quarter ended March 31, 1998, over 90% of the Company's total revenues
were derived from apartment properties. Due to the short-term nature of most
apartment leases (typically one year or less), the Company may seek to adjust
rents to help counter the impact of inflation upon renewal of existing leases or
commencement of new leases, although there can be no assurance that the Company
will be able to adjust rents in response to inflation. In addition, occupancy
rates may fluctuate due to short-term leases, which permit apartment residents
to leave at the end of each lease term at minimal cost to the resident.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's cash and cash equivalents totaled $1,910,000,
down from $4,216,000 at December 31, 1997. Borrowings under the Company's lines
of credit were $110,000,000 at March 31, 1998, compared to $186,000,000 at
December 31, 1997. Lines of credit are available to fund new acquisitions, fund
capital improvements and operating expenses and pay dividends to shareholders.
The Company typically reduces lines of credit with cash balances as available.
- --------------------------
3 Proposed number of units. No units had been completed as of March 31, 1998.
10
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BRE Properties, Inc.
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The Company's lines of credit provide for borrowings of up to $300,000,000, with
$190,000,000 available at March 31, 1998. The lines of credit expire in June
2000 as to $265,000,000 and April 2000 as to $35,000,000. The lines of credit
bear interest at LIBOR plus .70%. Costs of the lines of credit are .125% per
annum on the total commitment amount and an unuse fee of .125% per annum as to
unused amounts on the $35,000,000 line.
Additionally, the Company had $73,000,000 of unsecured indebtedness at March 31,
1998, with an interest rate of 7.44% per annum as to $55,000,000 and 7.88% per
annum as to $18,000,000. This indebtedness is to be repaid through scheduled
principal payments in the years from 2000 to 2005. The Company also had a
$50,000,000 issue of unsecured notes due 2007, with an effective rate of 7.8%
and a $130,000,000 issue of unsecured notes due 2013 with an effective rate,
reflecting the settlement of a Treasury Lock Swap Agreement, underwriting fees
and other costs, of approximately 7.3%. At March 31, 1998, the Company also had
outstanding mortgage indebtedness of $235,195,000 at interest rates ranging from
5.8% to 9.3%, with an overall average of approximately 7.6%. The remaining terms
of the mortgage indebtedness range from less than one to 30 years.
For additional information regarding the Company's lines of credit, unsecured
notes payable and mortgage loans payable, including scheduled principal payments
over the next five years, see Notes 5 and 6 to Notes to Financial Statements
contained in the Company's 1997 Form 10-K. Certain of the Company's indebtedness
contains financial covenants as to minimum net worth, interest coverage ratios,
maximum secured debt and total debt to capital, among others. The Company was in
compliance with all such covenants during the quarter ended March 31, 1998.
The Company believes that its cash flow and cash available from lines of credit
will be sufficient to meet its short-term liquidity needs during 1998, which
include normal recurring expenses, debt service requirements, budgeted
expenditures for improvements to certain properties and distributions required
to maintain the Company's REIT qualification under the Internal Revenue Code.
However, the Company anticipates that it will continue to require outside
sources of financing to meet its long-term liquidity needs, such as scheduled
debt repayments and property acquisitions. At March 31, 1998, the Company has
committed to the purchase of approximately $112,000,000 of multifamily
communities and had an estimated cost to complete for construction in progress
of approximately $82,000,000.
DIVIDENDS
A cash dividend has been paid to shareholders each quarter since the Company's
inception in 1970. On February 24, 1997, the Company increased its dividend from
$1.38 per year to $1.44 per year. Total dividends paid to shareholders for the
three months ended March 31, 1998 and 1997 were $15,082,000 and $11,392,000
respectively.
11
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BRE Properties, Inc.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 First Supplemental Indenture dated as of April 23,
1998 between the Company and Chase Manhattan Bank and
Trust Company, National Association, as successor
trustee.
10.1 Amended and Restated Non-Employee Director Stock
Option Plan as amended March 2, 1998
27 Financial Data Schedule
99.1 Other Exhibits -Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K:
On February 24, 1998, the Company filed a report on Form 8-K
concerning the Underwriting Agreement and Form of Note for the
Company's offering of $130,000,000 Unsecured Notes Due 2013.
12
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BRE Properties, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRE PROPERTIES, INC.
(Registrant)
Date: May 14, 1998 /s/LeRoy E. Carlson
- -------------------- ------------------------------
LeRoy E. Carlson
Executive Vice President,
Chief Financial Officer and Secretary
13
<PAGE>
EXHIBIT 4.1
BRE PROPERTIES, INC.
FIRST SUPPLEMENTAL INDENTURE
THE FIRST SUPPLEMENTAL INDENTURE (this "Supplement") is entered into
as of the 23rd day of April, 1998 between BRE Properties, Inc., a Maryland
corporation (the "Company"), and Chase Manhattan Bank and Trust Company,
National Association, a national trust bank organized and existing under the
laws of the United States of America (the "Trustee"), as successor trustee
under that certain Indenture, dated as of June 23, 1997, between the Company
and the Trustee (the "Indenture").
RECITALS
WHEREAS, pursuant to Section 901(9) of the Indenture, the Indenture
may be amended or supplemented in order to cure an ambiguity, defect or
inconsistency;
WHEREAS, pursuant to Section 901 of the Indenture, the Board of
Directors of the Company has authorized this Supplement, and the Secretary of
the Company has certified the resolutions adopted by the Board of Directors
authorizing this Supplement, in each case, in the form attached hereto as
Exhibit A; and
WHEREAS, pursuant to Section 903 of the Indenture, counsel to the
Company has delivered an Opinion of Counsel to the Trustee stating that the
execution of this Supplement is authorized or permitted by the Indenture, in
the form attached hereto as Exhibit B.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, hereby agree
for the equal and proportionate benefit of all Holders of Debt Securities as
follows:
<PAGE>
TERMS OF FIRST SUPPLEMENTAL INDENTURE
1. Definitions. Capitalized terms used but not defined herein shall
-----------
have the meanings ascribed thereto in the Indenture.
2. Amendment. The Indenture is hereby amended, effective as of the
---------
date hereof by amending the definition of the term "Subsidiary" set forth in
Section 101 of the Indenture by deleting, in clause (ii) of such definition,
the word "other".
3. No Other Amendments. Except as set forth in Section 2 hereof,
-------------------
nothing contained herein shall be deemed or construed to relieve any party to
the Indenture of its obligations thereunder as in effect immediately prior to
the effectiveness of this Supplement or to impair any of such obligations in
any way and, except to the extent the Indenture is amended hereby, the
Indenture shall remain in full force and effect and each of the parties hereto
hereby confirms all of the terms and provisions of the Indenture as amended
hereby.
4. Governing Law. This Supplement and the Indenture shall be governed
-------------
by and construed in accordance with the law of the State of New York. This
Supplement and the Indenture are subject to the provisions of the TIA that are
required to be part of this Supplement and the Indenture and shall, to the
extent applicable, be governed by such provisions.
5. Counterparts. This Supplement may be executed in any number of
------------
counterparts, each of which so executed shall be deemed an original, but all
such counterparts shall together constitute but one and the same instrument.
[Signature Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
BRE PROPERTIES, INC.
By: /s/ Frank C. McDowell
---------------------------
Name: Frank C. McDowell
Title: President and Chief Executive Officer
Attest:
- ------
By: /s/ LeRoy E. Carlson
-------------------------
Name: LeRoy E. Carlson
Title: Executive Vice President, Chief Financial
Officer and Secretary
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By: /s/ Cecil D. Bobey
-------------------------
Name: Cecil D. Bobey
Title: Assistant Vice President
Attest:
- ------
By: /s/ Hans H. Helley
------------------------
Name: Hans S. Helley
Title: Assistant Vice President
[SEAL]
<PAGE>
Exhibit 10.1
BRE PROPERTIES, INC.
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AS AMENDED MARCH 2, 1998)
1. PURPOSE OF THE PLAN. The purpose of the Non-Employee Director Stock
Option Plan (the "Plan") is to attract and retain the services of experienced
and knowledgeable non-employee directors, to encourage them to devote their
utmost effort and skill to the advancement and betterment of the Company, and to
permit them to participate in the ownership of the Company through stock
compensation in lieu of cash compensation. This plan amends the Company's
Amended and Restated Non-Employee Director Stock Option Plan, as amended prior
to March 2, 1998.
2. DEFINITIONS. As used in the Plan and the related Option agreements, the
following terms will have the meaning stated below:
(a) "Board" means the Board of Directors of the Company.
(b) A "Change in Control" occurs when any person or group, together
with its affiliates and associates (other than the Company or any of its
subsidiaries or employee benefit plans), acquires direct or indirect
beneficial ownership of 32 percent or more of the then outstanding Shares
or commences a tender or exchange offer for 40 percent or more of the then
outstanding Shares. The terms "group," "affiliates," "associates" and
"beneficial ownership" shall have the meanings ascribed to them in the
rules and regulations under the Exchange Act.
(c) "Company" means BRE Properties, Inc., a Maryland corporation.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Board or its Compensation Committee
appointed by the Board to administer the Plan.
(f) "Exchange Act" means the Securities Exchange Act of 1934.
(g) The "Fair Market Value" of a Share on any date means the closing
price per Share on the New York Stock Exchange for that day (or, if no
Shares were publicly traded on that Exchange on that date, the next
preceding day that Shares were so traded on that Exchange).
(h) "Non-Employee Director" means a member of the Board who is not an
employee of the Company.
(i) "Option" means an option to purchase Shares.
(j) "Optionee" means the holder of an Option.
(k) "Option Price" means the price to be paid for Shares upon exercise
of an Option.
(l) "Shares" means shares of common stock $.01 par value per share of
the Company.
(m) "Subsidiary" means any corporation or other entity in which the
Company owns, directly or indirectly, more than 50 percent of the total
combined voting power.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Subject to the provisions of the Plan, the Committee shall have the
power to interpret the Plan and prescribe, amend and rescind rules and
regulations relating to it.
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
4. PARTICIPATION IN THE PLAN.
(a) Annual Grants in Lieu of Director Fees. Non-Employee Directors shall
receive the following Options in lieu of cash for serving on the Board and
attending meetings of the Board.
(i) Initial Grants Upon Becoming a Non-Employee Director. Any
person who becomes a Non-Employee Director shall automatically receive
an Option for 25,000 Shares effective as of the date of their
appointment or election to the Board.
(ii) Subsequent Annual Grants. In addition to the Option grant
provided for in subparagraph (i) above, each Non-Employee Director
shall automatically receive an additional Option for 25,000 shares on
each anniversary of the date of grant of the Option received pursuant
to subparagraph (i) above.
(b) Additional Annual Grant for Chairman of the Board. The Chairman of the
Board shall receive, in addition to the annual Option granted under subparagraph
(a), an Option for 25,000 Shares upon becoming Chairman and an additional Option
for 25,000 Shares on each subsequent anniversary date.
(c) Additional Annual Grants for Committee Membership. For serving on Board
committees, Non-Employee Directors (other than the Chairman of the Board) shall
receive an additional annual Option for 2,000 Shares for each committee the
director serves on, or for 6,000 Shares for serving as chairman of a committee,
to be granted initially on the date this amended Plan is approved by the
shareholders of the Company and thereafter on the date a director joins a
committee or becomes chairman, and on each subsequent anniversary of the initial
grant date; provided that, no individual shall receive annual Options for more
than 8,000 Shares pursuant to this subparagraph 4(c).
(d) Annual Incentive Grants. In addition to the Options granted pursuant to
subparagraphs (a)-(c) above, each Non-Employee Director shall receive an Option
for the number of Shares set forth in the table below, following any fiscal year
of the Company that the growth in the Company's funds from operations per share
from the prior year, as determined by reference to the Company's annual
consolidated financial statements, exceeds the 50th percentile of the ten
largest publicly-traded multifamily Real Estate Investment Trusts based on total
assets:
PERCENTILE NO. OF SHARES
---------- -------------
80-100 5,000
50-80 5,000 multiplied by X/30, with X equal to the
percentile above 50 (e.g., the 70th percentile = 20/30
x 5,000 = 3,333 Shares)
0-50 zero
The grant date for Options granted pursuant to this paragraph shall be the
date, following publication of the Company's annual consolidated financial
statements, that the reference information for the comparison REITs first
becomes available.
(e) Reload Grants. In the event an Optionee (1) exercises, in whole or in
part, any Option granted under this Plan (including an Option granted under this
Section 4(e)) by delivering (or attesting to ownership of) Shares instead of
paying cash, as permitted by subparagraph 7(c), or (2) pays tax withholding by
delivering Shares, or having Shares withheld, as permitted by subparagraph 7(g),
the Optionee, if then still a Non-Employee Director, shall automatically receive
on the date of such exercise a new Option (a "Reload Option") to purchase
additional Shares equal to the number of Shares so delivered to, or withheld by,
the Company. The Reload Option shall have an exercise price equal to the Fair
Market Value per Share on the date the Reload Option is granted, shall expire
the same date as the expiration date of the original Option so exercised, and
shall vest and become exercisable if the Optionee holds all of the new Shares
purchased (net of Shares withheld to pay taxes) under the original Option until
the first to occur of (i) 18 months after grant of the Reload Option or (ii) 12
months before the expiration of the Reload Option. However, a Reload Option
shall vest sooner upon the occurrence of any
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
of the following: (a) a Change in Control, (b) the Optionee's retirement from
the Board, or (c) the Optionee's death, disability, or personal hardship as
determined by the Committee.
5. SHARES SUBJECT TO PLAN. The maximum number of Shares which may be issued
pursuant to Options under the Plan shall be 1,550,000, subject to adjustment in
accordance with Section 8. In the event that any outstanding Option (other than
a Reload Option) shall expire or terminate for any reason, the Shares allocable
to the unused portion of that Option will again be available for additional
Options under the Plan. If an Option is exercised by delivery of Shares as
permitted by subparagraph 7(c), only the number of Shares issued upon exercise
net of the Shares so delivered shall be deemed utilized for purposes of
determining the maximum number of Shares available for future Options under the
Plan.
6. TRANSFERABILITY. Except as permitted by the Committee in accordance with
the rules and regulations promulgated under the Exchange Act with respect to any
exemption from the short-swing profit provisions of Section 16(b) of that Act,
Options granted under the Plan shall not be transferable by the holder other
than by will or the laws of descent and distribution and shall be exercisable
during the holder's lifetime only by the holder or the holder's guardian or
legal representative.
7. TERMS AND CONDITIONS OF OPTIONS. The Options granted hereunder will not
be "incentive stock options" under Section 422 of the Code. Each Option
Agreement shall state the number of Shares subject to the Option, the Option
Price, the Option period, the method of exercise, the manner of payment, any
restrictions on transfer, and such other terms and conditions as the Committee
shall determine consistent with the Plan and the following:
(a) Option Price. The price to be paid for Shares upon the exercise of
an Option shall be 100% of the Fair Market Value of the Shares on the date
the Option is granted.
(b) Expiration of Option. No Option shall be exercisable after the
expiration of ten years from the date of grant. A Reload Option shall
expire as provided in subparagraph 4(e).
(c) Payment of Option Price. Upon exercise of an Option, the Option
Price for the Shares to which the exercise relates shall be paid in full
(i) in cash or (ii) by delivery to the Company (including delivery by
attestation of ownership) of Shares owned by the Optionee and valued at
Fair Market Value on the date of exercise; provided that, any such
already-owned Shares delivered to pay the exercise price, if originally
acquired by the Optionee from the Company, shall have been held at least
six months.
(d) Vesting of Options. Each Option granted under subparagraphs
4(a)-(c) shall vest and become exercisable as to 1/12 of the shares subject
to the Option on each monthly anniversary date beginning on the grant date
of the Option, subject to the Optionee's continuing service as a director,
chairman or committee member, so that an Option shall have become fully
vested one year after the grant date; provided that upon a Change in
Control, all unvested options shall become fully vested. Incentive grants
under subparagraph 4(d) shall be fully vested upon grant. A Reload Option
shall vest as provided in subparagraph 4(e).
(e) Termination of Director Status. Termination of an Optionee's
status as a director of the Company shall not affect the ability of the
Optionee or the Optionee's estate to exercise, until the expiration date
thereof, any Options which have vested prior to the termination date.
(f) Rights as Shareholder. No Optionee shall have rights as a
shareholder with respect to Shares acquired under the Plan unless and until
the stock certificates for such Shares are delivered to him or her.
(g) Tax Withholding. Option exercises are subject to withholding of
all applicable taxes, which withholding shall be satisfied by the
Optionee's cash remittance or (to the extent permitted by the Committee)
through the delivery or surrender to the Company of Shares, valued at Fair
Market Value, which the Optionee owned prior to exercise or to which the
Optionee is otherwise entitled
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
upon exercise of an Option; provided that, any such already-owned Shares
delivered to pay withholding taxes, if originally acquired by the Optionee
from the Company, shall have been held at least six months.
8. CAPITAL ADJUSTMENTS; REORGANIZATION. The aggregate number of Shares with
respect to which Options may be granted hereunder, the number of Shares thereof
covered by each outstanding Option and the purchase price per Share shall be
proportionately adjusted for changes in the capitalization of the Company
resulting from a recapitalization, reorganization, merger, consolidation,
exchange of shares, stock dividend, stock split, reverse stock split, or
other subdivision or consolidation of shares or the like. No fractional shares
shall be issued, and any fractional shares resulting from the adjustments
contemplated by this subparagraph shall be eliminated from the respective
Option.
If the Company merges or consolidates with another entity and is not the
surviving entity, or if the Company is liquidated or sells or otherwise disposes
of substantially all its assets while unexercised Options remain outstanding
under the Plan, then either (a) after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of any outstanding Option shall be entitled, upon exercise of an Option,
to receive, in lieu of Shares, the number and class or classes of shares of
stock or other securities or property to which the holder would have been
entitled if, immediately prior to the merger, consolidation, liquidation, sale
or other disposition, the holder had been the holder of record of a number of
Shares equal to the number of Shares as to which the Option may be exercised; or
(b) all Options, from and after a date at least 30 days prior to the effective
date of the merger, consolidation, liquidation, sale or other disposition, as
the case may be, shall be exercisable in full and all outstanding Options which
are so exercisable prior to the effective date of such merger consolidation,
liquidation, sale or other disposition may be canceled by the Committee in its
discretion, as of such effective date.
9. EXCHANGE ACT SECTION 16. Transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successor under the
Exchange Act. To the extent any provision of the Plan or action by the Plan
administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
10. DURATION OF THE PLAN. This Amended and Restated Plan, as amended March
2, 1998, shall be deemed effective on March 2, 1998, if no later than March 1,
1999 the Plan has been approved by the affirmative vote of a majority of the
outstanding shares of voting stock of the Company present and voting in person
or by proxy at a duly held shareholder meeting. If not so approved, the Plan as
previously amended shall remain in effect. The Plan shall terminate on October
1, 2005, but may be sooner terminated by the Board at any time. Expiration,
termination or amendment of the Plan will not affect any Options then
outstanding.
11. AMENDMENT OF THE PLAN. The Board may amend or terminate the Plan at any
time; provided, however, that no such amendment shall, without the approval of
the holders of a majority of the outstanding shares of voting stock of the
Company present and voting at a duly held shareholder meeting, (i) increase the
maximum number of Shares which may be purchased pursuant to the Plan, (ii)
change the purchase price, or (iii) change the Option period or increase the
time limitation on the grant of Options under the Plan.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,910
<SECURITIES> 0
<RECEIVABLES> 31,205
<ALLOWANCES> (1,250)
<INVENTORY> 0
<CURRENT-ASSETS> 31,865
<PP&E> 1,422,160
<DEPRECIATION> (55,812)
<TOTAL-ASSETS> 1,398,213
<CURRENT-LIABILITIES> 15,577
<BONDS> 598,195
0
0
<COMMON> 419
<OTHER-SE> 784,022
<TOTAL-LIABILITY-AND-EQUITY> 1,398,213
<SALES> 47,413
<TOTAL-REVENUES> 47,413
<CGS> 14,745
<TOTAL-COSTS> 14,745
<OTHER-EXPENSES> 8,150<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,535
<INCOME-PRETAX> 15,983
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,983
<DISCONTINUED> 0
<EXTRAORDINARY> (1,841)<F2>
<CHANGES> 0
<NET-INCOME> 14,142
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<FN>
<F1>INCLUDES $6,485 OF DEPRECIATION, A NON CASH CHARGE
<F2>INCLUDES $825 LOSS ON SALE AND $1,016 MINORITY INTEREST
</FN>
</TABLE>
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
Exhibit 99.1
<TABLE>
<CAPTION>
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Quarter Ended March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Income before net loss on sales of investments in rental
properties and minority interest ..................................... $15,983 $10,942
======= =======
Fixed charges:
Interest ........................................................... $ 8,535 $ 5,890
Capitalized interest ............................................... 2,026 --
Other .............................................................. 12 111
======= =======
$10,573 $ 6,001
======= =======
Income before net loss on sale of investments in rental properties
and minority interest and fixed charges, excluding capitalized
interest ............................................................. $24,530 $16,943
======= =======
Divided by fixed charges ............................................... $10,573 $ 6,001
======= =======
Ratio of earnings to fixed charges ..................................... 2.3 2.8
======= =======
</TABLE>
