<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
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 Identification No.)
incorporation or organization)
44 MONTGOMERY STREET, 36TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104-4809
(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.
44 MONTGOMERY STREET, 36TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104-4809
(415) 445-6530
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_________________________________________________
Copy to:
MORGAN P. GUENTHER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
345 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104-2635
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
the Unitholders.
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, as amended (the "Securities Act"), 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
under the Securities Act, please check the following box.[_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================
PROPOSED PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE OFFERING PRICE(1) REGISTRATION
SECURITIES TO BE REGISTERED TO BE PER SHARE(1) FEE
REGISTERED
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Common Stock 3,452,181 shares $22.97 $79,296,598 $23,392.50
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) of the Securities Act, based on the average of the high and
low prices of the Common Stock on the New York Stock Exchange on October
12, 1998.
__________________________________________
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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSAUNT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 16, 1998
PROSPECTUS
3,452,181 SHARES
BRE PROPERTIES, INC.
COMMON STOCK
The selling shareholders of BRE Properties, Inc. identified in this
prospectus may offer and sell up to 3,452,181 shares of BRE common stock. BRE
will not receive any of the proceeds of any sales of the shares offered by the
selling shareholders.
The selling shareholders currently own 2,672,087 units of limited liability
company interest in BRE Property Investors LLC or Blue Ravine Investors, LLC.
(BRE Property Investors LLC is referred to in this prospectus as the "Operating
Company.") These units were issued to the selling shareholders in a transaction
in which they contributed certain properties and assets to BRE or its
subsidiaries. Pursuant to the terms of the transaction, up to 780,094 additional
units may be issued in the future to the selling shareholders named in this
prospectus, or to additional selling shareholders to be named in supplements to
this prospectus, upon the achievement of certain performance, employment or
other conditions to issuance.
Beginning November 18, 1998, each selling shareholder has the right to
require BRE to acquire some or all of the units which such selling shareholder
owns in exchange for cash or, at the election of BRE, shares of BRE common
stock. The 3,452,181 shares of BRE common stock referred to in this prospectus
represent shares which may be issued by BRE to the selling shareholders in
exchange for their units. BRE is registering the offer and sale of these shares
pursuant to its obligations under a registration rights agreement. However, the
registration of the shares does not necessarily mean that all of the shares will
be issued by BRE in satisfaction of the selling shareholders' exchange rights or
that any of the shares will be offered or sold by the selling shareholders.
The selling shareholders may offer their BRE common stock 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 transaction on the New York
Stock Exchange or on any national securities exchange where BRE common stock is
listed or traded, in the over-the-counter market, in negotiated transactions or
otherwise. The price at which any of the shares of BRE common stock may be sold,
and the commissions, if any, paid in connection with any such sale, are unknown
and may vary from transaction to transaction. BRE 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
"Plan of Distribution."
BRE common stock is traded on the New York Stock Exchange under the ticker
symbol "BRE." On October 15, 1998 the closing price of one share of BRE common
stock as reported on the New York Stock Exchange was $23.1875.
-----------------------
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 5 of this prospectus.
-----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
-----------------------
The date of this prospectus is October ____, 1998
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
BRE Properties, Inc. ("BRE", "we" or "us") files annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission ("SEC"). You may read and copy any materials that we have
filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. We file information
electronically with the SEC. The SEC maintains an Internet site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The address of the SEC's Internet
site is http://www.sec.gov. Our Internet address is
http://www.breproperties.com.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
a. Report on Form 10-K for the fiscal year ended December 31, 1997, filed on
March 26, 1998.
b. Reports on Form 10-Q for the fiscal quarters ended March 31 and June 30,
filed on May 14, 1998 and August 14, 1998, respectively.
c. Current Report on Form 8-K filed on February 24, 1998.
d. Current Report on Form 8-K filed on July 15, 1998.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations
BRE Properties, Inc.
44 Montgomery Street, 36th Floor
San Francisco, California 94104-4809
(415) 445-6530
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have not authorized anyone else to provide you with different
information. The selling shareholders will not make an offer of the shares in
any state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
2
<PAGE>
FORWARD-LOOKING STATEMENTS
In addition to historical information, we have made forward-looking
statements in this prospectus and in the documents incorporated by reference in
this prospectus, such as those pertaining to our capital resources, portfolio
performance and result of operations. "Forward-looking statements" are
projections, plans, objectives or assumptions about BRE. Forward-looking
statements involve numerous risks and uncertainties and you should not place
undue reliance on such statements since there can be no assurance that the
events or circumstances reflected in these statements will actually occur.
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, costs 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. Our success 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. We assume no obligation to update forward-
looking statements.
BRE PROPERTIES, INC.
We are a self-administered, self-managed and fully integrated real estate
investment trust focusing on the development, acquisition, ownership and
management of multifamily properties in the western United States. As of June
30, 1998, our portfolio included 78 completed apartment communities aggregating
19,641 units, and four commercial and retail properties. Of these properties,
35 were located in California, 21 in Arizona, nine in Washington, four in
Nevada, three in Utah, three in Oregon, two in New Mexico and one in Colorado.
As of that date, our portfolio also included nine apartment communities under
development which, when completed, will include an aggregate of approximately
2,705 units in Arizona, Colorado, New Mexico, Nevada and Utah. As of June 30,
1998, our properties (excluding properties under development) contained, in the
aggregate, approximately 17.1 million net rentable square feet of improvements
owned by us. In addition, at June 30, 1998, we held limited partnership
interests in two shopping centers located in Arizona.
Our principal executive offices are located at 44 Montgomery Street, 36th
Floor, San Francisco, California 94104-4809, and our telephone number is (415)
445-6530.
3
<PAGE>
RECENT DEVELOPMENTS
On October 8, 1998, we announced the following unaudited financial
information for the quarter and nine months ended September 30, 1998.
BALANCE SHEETS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
--------------------- ---------------------
<S> <C> <C>
ASSETS
Investments in rental properties:
Multifamily............................................. $1,502,112 $1,248,012
Commercial and retail................................... 2,700 11,929
Construction in progress................................ 93,346 84,202
Less: accumulated depreciation and amortization......... (68,890) (49,721)
--------------------- ---------------------
1,529,268 1,294,422
Investments in limited partnerships..................... 959 2,780
--------------------- ---------------------
Real estate portfolio................................... 1,530,227 1,297,202
Mortgage loans, net..................................... 3,990 4,871
Cash and short-term investments......................... 3,218 4,216
Funds held in escrow.................................... -- 15,833
Other................................................... 25,960 19,776
--------------------- ---------------------
Total assets............................................ $1,563,395 $1,341,898
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage loans.......................................... $ 235,844 $ 232,367
Unsecured senior notes.................................. 253,000 123,000
Unsecured lines of credit............................... 214,000 186,000
Accounts payable and accrued expenses................... 21,334 16,970
--------------------- ---------------------
Total liabilities....................................... 724,178 558,337
Minority interest....................................... 76,066 76,066
Shareholders' equity:
Common stock, $.01 par value 44,148,816 shares
outstanding at September 30, 1998; 41,738,704 shares
outstanding at December 31, 1997....................... 442 417
Additional paid-in capital.............................. 762,709 707,078
--------------------- ---------------------
Total shareholders' equity.............................. 763,151 707,495
--------------------- ---------------------
Total liabilities and shareholders' equity.............. $1,563,395 $1,341,898
===================== =====================
</TABLE>
4
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Rental income:
Multifamily.............................. $49,160 $30,577 $138,693 $86,174
Commercial and retail.................... 263 1,115 925 5,370
Other income............................... 3,327 2,186 9,776 6,267
------------ ------------ ----------- -----------
Total revenue.............................. 52,750 33,878 149,394 97,811
EXPENSES
Real estate expenses::
Multifamily.............................. 17,663 11,016 47,585 30,723
Commercial and retail.................... 8 60 58 392
Depreciation and amortization.............. 7,024 4,339 20,177 12,635
Interest expense........................... 8,604 4,605 25,966 15,344
General and administrative................. 1,715 872 5,085 3,114
Provision for litigation loss (1).......... 2,400 - 2,400 -
------------ ------------ ----------- -----------
Total expenses............................. 37,414 20,892 101,271 62,208
Income before gains (losses) on sales
of real estate investments and
minority interest.......................... 15,336 12,986 48,123 35,603
Gains (losses) on sales of real estate investments (202) 2,557 (1,073) 28,160
------------ ------------ ----------- -----------
Income before minority interest............ 15,134 15,543 47,050 63,763
Minority interest.......................... 1,018 -- 3,051 --
------------ ------------ ----------- -----------
NET INCOME................................ $14,116 $15,543 $ 43,999 $63,763
Net income per outstanding share:
Net income before gains (losses) on sales of
real estate investments less minority
interest.................................. $ 0.33 $ 0.35 $ 1.06 $ 1.02
Gains (losses) on sales of real estate
investments.............................. (0.01) 0.07 (0.03) 0.81
------------ ------------ ----------- -----------
Net income per share - basic $ 0.32 $ 0.42 $ 1.03 $ 1.83
============ ============ =========== ===========
Net income before gains (losses) on sales of
real estate investments and minority
interest............................. $ 0.32 $ 0.34 $ 1.05 $ 1.00
Gains (losses) on sales of real estate
investments.............................. - 0.07 (0.02) 0.80
------------ ------------ ----------- -----------
Net income per share - assuming dilution... $ 0.32 $ 0.41 $ 1.03 $ 1.80
============ ============ =========== ===========
Weighted average shares outstanding - basic 43,480 37,020 42,560 34,790
Weighted average shares outstanding -
assuming dilution..................... 46,570 37,720 45,760 35,450
</TABLE>
_____________________
(1) Represents a one-time provision for litigation loss.
5
<PAGE>
RISK FACTORS
You should carefully consider, among other factors, the matters described
below before purchasing any BRE common stock. This list of factors is not
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, our results of operations and ability to make
distributions to you and to pay amounts due on our debt 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.
These factors consequently can have 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.
Other factors may further adversely affect revenues from properties. These
factors include 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, our ability to provide adequate
facilities maintenance, services and amenities, and insurance premiums and real
estate taxes. Our revenues would also be adversely affected if residents were
unable to pay rent or we were unable to rent apartments on favorable terms. If
we were unable to promptly relet or renew the leases for a significant number of
apartment units, or if the rental rates upon such renewal or reletting were
significantly lower than expected rates, then our funds from operations would,
and our ability to make expected distributions to you and to pay amounts due on
our debt 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 us. 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. We could sustain a loss as a result of foreclosure on the property,
if a property is mortgaged to secure payment of indebtedness and we were unable
to meet our mortgage payments. In addition, applicable laws, including tax
laws, interest rate levels and the availability of financing also affect
revenues from properties and real estate values.
In the normal course of business, we typically evaluate potential
acquisitions, enter 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 we will have the financial resources to make
suitable acquisitions or that properties that satisfy our 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 construction costs exceeding original estimates, possibly making a
project uneconomical. Other risks may include financing not being 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 we undertake 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. This could significantly increase our total
acquisition costs, which could have a material adverse effect on us and our
ability to make distributions to you and pay amounts due on our debt.
6
<PAGE>
Illiquidity of Real Estate and Reinvestment Risk
Real estate investments are relatively illiquid and, therefore, tend to
limit our ability to adjust our portfolio in response to changes in economic or
other conditions. Additionally, the Code places certain limits on the number of
properties a real estate investment trust ("REIT") may sell without adverse tax
consequences. To effect our current operating strategy, we have in the past
raised, and will seek to continue to raise additional acquisition funds, both
through outside financing and through the orderly disposition of assets which no
longer meet our investment criteria. Depending upon interest rates, current
acquisition opportunities and other factors, generally we will reinvest the
proceeds in multifamily properties. In this respect, in the markets we have
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 us. 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 our 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 we
will be able to acquire properties meeting our investment criteria. To the
extent that we are 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 us. In addition, a delay in reinvestment of
such proceeds may have a material adverse effect on us.
We may seek to structure future dispositions as tax-free exchanges, where
appropriate, utilizing the nonrecognition provisions of Section 1031 of the Code
to defer income taxation on the disposition of the exchanged property. For an
exchange of such properties to qualify for tax-free treatment under Section 1031
of the Code, certain technical requirements must be met. For example, both the
property exchanged and the property acquired must be held for use in a trade or
business or for investment, and the property acquired must be identified within
45 days, and must be acquired within 180 days, after the transfer of the
exchanged property. If the technical requirements of Section 1031 of the Code
are not met, then the exchanged property will be treated as sold in a taxable
transaction for a sales price equal to the fair market value of the property
received, in which event a distribution of cash to the shareholders may be
required to avoid a corporate-level income tax on the resulting capital gain.
Given the competition for properties meeting our investment criteria, it may be
difficult for us to identify suitable properties within the foregoing time
frames in order to meet the requirements of Section 1031. Even if we can
structure a suitable tax-deferred exchange, as noted above, we cannot assure
that we will reinvest the proceeds of any of these dispositions 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 us 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 we have, within the
market area of each of the properties which will compete with us 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 (1) our ability to rent the apartments and the rents charged and (2)
development and acquisition opportunities. The activities of these competitors
could cause us to pay a higher price for a new property than we otherwise would
have paid or may prevent us from purchasing a desired property at all, which
could have a material adverse effect on us and our ability to make distributions
to you and to pay amounts due on our debt.
7
<PAGE>
Geographic Concentration; Dependence on Western United States Regions
Our portfolio is principally located in the San Francisco Bay Area, San
Diego, Phoenix, Los Angeles/Orange County, Seattle, Sacramento, Las Vegas,
Tucson, Portland, Albuquerque, Salt Lake City and the Denver area. Our
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 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,
our results of operations and our ability to make distributions to you and to
pay amounts due on our debt could be materially adversely affected.
Risks of Development, Construction and Growth Activities
In November 1997, we completed the acquisition of certain assets and
operations of Trammell Crow Residential located in the western United States
("TCRW"). Pursuant to the TCRW transaction, we acquired eight apartment
properties in various stages of development. Prior to the acquisition, we were
not engaged in significant development and construction projects.
We intend to actively pursue development and construction of multifamily
apartment communities, including those acquired in the TCRW transaction. There
can be no assurance that we will complete development of these properties or any
other development project which we may undertake. 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 our development and construction activities may include
the following:
. development opportunities may be abandoned
. construction costs of 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
. expenses of operating a completed community may be higher than
anticipated
In addition, development and construction activities, regardless of whether or
not they are ultimately successful, typically require a substantial portion of
management's time and attention. Development and construction 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.
We also intend to continue 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. In that regard, we acquired the
8
<PAGE>
TCRW properties on an "as is" basis. "As is" means the sellers did not warrant
the properties. Likewise, due to the competitive nature of the bidding process
for the TCRW properties, we performed a more limited investigation of the TCRW
properties prior to acquiring them. Both these factors increased the risks
associated with acquiring the TCRW properties.
We anticipate 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 us. We expect periodically to review our 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. Similarly, there are
certain risks involved with financing future developments and acquisitions with
debt, including those described below under "-- Real Estate Financing Risks."
In addition, if new developments are financed through construction loans, there
is a risk that, upon completion of construction, permanent financing for such
properties may not be available or may be available only on disadvantageous
terms or that the cash flow from new properties will be insufficient to cover
debt service. If a newly developed or acquired property is unsuccessful, our
losses may exceed our investment in the property. Any of the foregoing could
have a material adverse effect on us and our ability to make distributions to
you and to pay amounts due on our debt.
Risks Relating to Growth Strategy
Pursuant to the TCRW transaction, we 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 our
operations after the acquisitions has substantially increased the demands placed
upon our management, including demands resulting from the need to integrate the
accounting systems, management information systems and other operations of TCRW
with ours. Likewise, we added approximately 600 persons previously employed by
TCRW and its affiliates, which has also significantly increased demands upon our
management. Failure to effectively integrate the acquired properties' operations
and employees with ours could have an adverse effect on us and our ability to
make distributions to you and to pay amounts due on our debt.
A substantial portion of our growth over the last several years has been
attributable to acquisitions. Further, a principal component of our strategy is
to continue to grow in a controlled manner in both existing and new markets by
acquiring and developing new properties. Our future growth will be dependent
upon a number of factors, including our ability to identify acceptable
properties for acquisition and development, complete acquisitions and
developments on favorable terms, successfully integrate acquired and newly
developed properties, and obtain financing to support expansion. There can be
no assurance that we will be successful in implementing our growth strategy,
that growth will continue at historical levels or at all, or that any expansion
will improve operating results. The failure to identify, acquire and integrate
new properties effectively could have a material adverse affect on us and our
ability to make distributions to you and to pay amounts due on our debt.
Restrictions in the Operations of the Operating Company
A substantial portion of the properties acquired in the TCRW transaction
are held by the Operating Company. We are the sole managing member of the
Operating Company and, as of June 30, 1997, held approximately a 70% equity
interest in the Operating Company. The remaining equity interests in the
Operating Company are held by the selling shareholders 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
is required to maintain certain debt service coverage, debt-to-asset and other
financial ratios intended to protect the members' rights to receive
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distributions. In addition, with respect to certain tax-exempt financing for
certain completed properties, the Operating Company is restricted from repaying
its debt or taking certain other specified action which could have adverse tax
consequences for the members. Further, we, as the managing member, are
restricted from taking certain other specified actions -- either absolutely or
without the consent of a majority in interest of the non-managing members (or of
the non-managing members affected thereby) -- including, but not limited to, any
actions:
. that would make it impossible to carry out the business of the Operating
Company
. that would subject a non-managing member to liability as a managing
member
. that would cause the Operating Company to institute bankruptcy
proceedings or confess a judgment
. that would prohibit or restrict a member from exercising its rights to
exchange units in the Operating Company for BRE common stock
Any such requirement to maintain financial ratios and any such restrictions on
the actions of the Operating Company and its managing member could have a
material adverse affect on us and our ability to make distributions to you and
to pay amounts due on our debt.
Further, under the terms of 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 the properties held by the Operating Company in a taxable
sale or exchange prior to respective 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 our assets, or any merger, consolidation or other
combination by us with or into another person, or reclassification,
recapitalization or change of our outstanding equity interests. These
restrictions on our ability to dispose of a significant portion of our
properties and to dissolve the Operating Company, even when such a disposition
or dissolution of the Operating Company would be in our best interest, could
have a material adverse effect on us and our ability to make distributions to
you and to pay amounts due on our debt.
The Operating Company also must distribute all Available Cash (as defined
in the LLC Agreement) on a quarterly basis: first, to members (other than us)
until each member has received, cumulatively on a per Operating Company unit
basis, distributions equal to the cumulative dividends declared with respect to
one share of BRE common stock over the corresponding period (subject to
adjustment from time to time as applicable to account for stock dividends, stock
splits and similar transactions affecting BRE common stock) (the "Priority
Distribution"); and second, the balance to us.
If the Operating Company's Available Cash in any quarterly period is
insufficient to permit distribution of the full amount of the Priority
Distribution for that quarter, we are required to make a capital contribution to
the Operating Company in an amount equal to the lesser of (i) the amount
necessary to permit the full Priority Distribution or (ii) an amount equal to
the sum of any capital expenditures made by the Operating Company plus the sum
of any payments made by the Operating Company on account of any loans to or
investments in, or any guarantees of the obligations of, BRE or our affiliates
for that quarterly period.
In addition, we may not be removed as the managing member of the Operating
Company by the non-managing members, with or without cause, other than with our
consent. We may not voluntarily withdraw from the Operating Company or transfer
all or any portion of our interest in the Operating Company without the consent
of all of the non-managing members, except in certain limited circumstances,
such as a sale of all or substantially all of our assets, or any merger,
consolidation or other combination by us with or into another
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person, or any reclassification, recapitalization or change of our outstanding
equity interests. Such restrictions on our withdrawal as the managing member of
the Operating Company, and on our ability to transfer our interest in the
Operating Company, could have a material adverse effect on us and our ability to
make distributions to you and to pay amounts due on our debt.
Uninsured Loss; Limited Coverage
We carry comprehensive liability, fire, extended coverage and rental loss
insurance with respect to our properties with certain policy specifications,
limits and deductibles. While we currently carry flood and earthquake insurance
for our 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, we could be required to use our own funds for
restoration or lose all or part of our 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 us and our ability to make distributions to you and pay amounts due on our
debt.
Risks Associated with Survey Exceptions to Certain Title Insurance Polices
We did not obtain updated surveys when we acquired the TCRW properties
because we believe that prior owners of the TCRW properties in the past obtained
surveys of these properties. Because updated surveys of the properties acquired
in the TCRW transaction were not obtained, the title insurance policies obtained
by us for those properties contain exceptions for matters which an updated
survey might have disclosed. Such matters might include such things as boundary
encroachments, unrecorded easements or similar matters which would have been
reflected on a survey. Moreover, 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 we believe they cover, any of which could have a material
adverse effect on us.
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 our cash available for distribution and our
ability to make distributions to you and to pay amounts due on our debt.
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 us and our ability
to make distributions to you and pay amounts due on our debt. 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 and may require other structural features
which add to the cost of buildings under construction. Legislation or
regulations adopted in the future may impose further burdens or restrictions on
us 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 construction or completion of certain
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renovations may limit implementation of our investment strategy in certain
instances or reduce overall returns on our investments, which could have a
material adverse effect on us and our ability to make distributions to you and
to pay amounts due on our debt. We review our properties periodically to
determine the level of compliance and, if necessary, take appropriate action to
bring such properties into compliance. We believe, based on property reviews to
date, that the costs of such compliance should not have a material adverse
effect on us. Such conclusions are based upon currently available information
and data, and no assurance can be given that further review and analysis of our
properties, or future legal interpretations or legislative changes, will not
significantly increase the costs of compliance.
Risks of Assumed Liabilities
In the TCRW transaction, we (1) acquired the TCRW 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 TCRW properties, by acquiring all of the ownership interests in the
partnerships or limited liability companies which held such properties, and (2)
assumed certain specified loans secured by the TCRW properties. Under the terms
of the transaction, we have not expressly agreed to assume any liabilities other
than the assumed loans and the contractual obligations, warranties and
guarantees referenced above. However, as a matter of law, we automatically
assumed all of the liabilities (known, unknown or contingent) of the
partnerships and limited liability companies whose ownership interests were
acquired by us, 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 us, the legal doctrine of successor liability may give creditors of
and claimants against the prior owners the right to hold us responsible for
liabilities which arose with respect to such properties prior to their
acquisition by us, whether or not such liabilities were expressly assumed by us
under the terms of the transaction.
As a result of the foregoing, there can be no assurance that we will not be
subject to liabilities and claims relating to the TCRW properties arising from
events which occurred or circumstances which existed prior to our acquisition of
those properties, which could have a material adverse effect on us and our
ability to make distributions to you and pay amounts due on our debt. In that
regard, the terms of the TCRW transaction do not provide for us to be
indemnified against such liabilities and claims. See "--Limited Indemnification"
below.
Limited Indemnification
We acquired the TCRW properties on an "as is" basis, meaning that the
properties were acquired without warranty from the sellers. As a result, we
have 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 TCRW transaction provide us 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 related parties
(the "TCRW Parties") have agreed to indemnify us and our affiliates only against
claims arising out of:
. any inaccuracy in the investment representations of any TCRW Party or
certain representations about employment matters, or any failure of a
TCRW Party to comply with any agreement with respect thereto
. any breach by a TCR Party of its fiduciary duties (including duties of
disclosure) to any other person in connection with the transaction
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. any document filed by or on behalf of a TCRW 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 by the TCRW Parties for the TCRW transaction)
(provided, however, that the foregoing does not apply to the information
supplied by us or the Operating Company in writing specifically for
inclusion or incorporation by reference in any such document or to any
document prepared or filed by us or the Operating Company)
We have no recourse against the TCRW Parties with respect to any claims which
are not within the specific coverage of the indemnity provisions.
In addition, in the event we are entitled to indemnification, the terms of
the TCRW transaction significantly limit the amount which we would be entitled
to recover. Specifically, our sole recourse under a claim for indemnity is the
right to reduce the number of Development OC Units (as defined below) which we
might otherwise be required to deliver in connection with the TCRW transaction.
A maximum of up to 627,594 Development OC Units are issuable. For purposes of
determining the reduction in the number of Development OC Units in the event of
a claim for indemnity, the Development OC Units will be deemed to have a value
equal to the average of the closing prices of a share of BRE common stock on the
New York Stock Exchange for the fifteen consecutive trading days concluding on
the fifth trading day preceding the day of the reduction. The TCRW Parties'
indemnification obligations (and such obligations of us and the Operating
Company, as described below) are limited, in the aggregate, to an amount which,
as of any date, if obtained by multiplying the number of Development OC Units
which have not been distributed by the lower of (i) $26.93 or (ii) the average
of the closing prices of a share of BRE common stock on the New York Stock
Exchange for the fifteen consecutive trading days concluding on the fifth
trading day preceding such date.
The "Development OC Units" are equity interests in the Operating Company
which will be issued to the TCRW Parties if certain completion schedule and
budget objectives are met for the Development Properties. We currently
anticipate 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.
The Development OC Units, if issued, are exchangeable into shares of BRE common
stock in the same manner as the units of the Operating Company discussed in this
prospectus.
There can be no assurance that we will not be confronted in the future with
claims by third parties relating to the TCRW transaction or to the activities of
the TCRW Parties or the operations of the TCRW properties and matters related
thereto prior to the closing of the transaction. Likewise, there can be no
assurance that the properties acquired in the TCRW transaction will meet our
expectations. Accordingly, the limited scope of the indemnification could have
a material adverse effect on us and our ability to make distributions to you and
to pay amounts due on our debt. See "-- Risks of Assumed Liabilities," above.
We and the Operating Company have also provided a limited indemnity to the
TCRW Parties. We and the Operating Company have agreed to indemnify the TCRW
Parties and their affiliates against claims arising out of (i) any inaccuracy in
certain representations made by us about the registration rights we have agreed
to provide to TCRW Parties who become BRE shareholders or unitholders of the
Operating Company, or any failure by us to fulfill our obligations under terms
of the transaction, and (ii) any material misstatement or omission in the
information statement provided to the TCRW Parties with respect to us. Our
indemnification obligations are limited to an amount equal to the value of the
remaining Development OC Units outstanding from time to time, calculated in the
same manner as the limit upon our indemnification obligations. Notwithstanding
the limit upon our indemnification obligations, if claims within the coverage of
the indemnity provisions were brought against us, we could be required to incur
costs in defending against or
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satisfying the claims, which could have a material adverse effect on us and our
ability to make distributions to you and to pay amounts due on our debt.
Potential Litigation Related to the TCRW 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 given rise to investor lawsuits. If any lawsuits were filed in connection
with the TCRW transaction, whether by any of the TCRW Parties or other persons,
such lawsuits could require us to incur costs of defending such lawsuits or
result in claims or liabilities against us, any of which could have a material
adverse effect on us and our ability to make distributions to you and to pay
amounts due on our debt.
REAL ESTATE FINANCING RISKS
Debt Financing and Maturities
We are subject to the normal risks associated with debt financing,
including the risk that our cash flow will be insufficient to meet required
payments of principal and interest, the risk that indebtedness on our
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 we were unable to refinance
our indebtedness on acceptable terms, or at all, we might be forced to dispose
of one or more of the properties on disadvantageous terms, which might result in
losses to us. Such losses could have a material adverse effect on us and our
ability to make distributions to you and pay amounts due on our debt.
Furthermore, if a property is mortgaged to secure payment of indebtedness and we
are 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 our revenues and asset
value. Foreclosures could also create taxable income without accompanying cash
proceeds, thereby hindering our ability to meet the REIT distribution
requirements of the Code.
Risk of Rising Interest Rates
We have incurred and expect in the future to incur indebtedness which bears
interest at a variable rate. Accordingly, increases in interest rates would
increase our 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 us and our ability to make distributions to you or cause us to
be in default under certain debt instruments (including our debt). In addition,
an increase in market interest rates may lead holders of our common shares to
demand a higher yield on their shares from distributions by us, which could
adversely affect the market price for BRE common stock.
Additional Debt
We currently fund acquisition opportunities partially through borrowings
(including our lines of credit) as well as from other sources such as sales of
non-core properties. Our organizational documents do not contain any limitation
on the amount of indebtedness that we may incur. Accordingly, subject to
limitations on indebtedness set forth in various loan agreements, we could
become more highly leveraged, resulting in an increase in debt service, which
could have a material adverse effect on us and our ability to make distributions
to you and to pay amounts due on our debt and in an increased risk of default on
our obligations.
Terms of Certain Indebtedness
At June 30, 1998, we had outstanding borrowings of $73 million under two
loan agreements with one lender which, among other things, (1) contain a
covenant which requires us to maintain our investment grade
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rating for our long-term unsecured debt and (2) define "events of default" to
include the acquisition by any person of either (x) 20% or more of our
outstanding shares or securities (or other securities convertible into such
securities) or (y) 10% or more of our outstanding shares or securities (or other
securities convertible into such securities) if such acquisition results in any
change of our board of directors or any change in our management or any of our
assets. In the event that we fail to maintain an investment grade rating for our
long-term unsecured debt or if such an event of default occurs, the lender may
declare all borrowings under such loan agreements to be due and payable
immediately, which could have a material adverse effect on us and our ability to
make distributions to you and to pay amounts due on our debt.
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, we 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.
Our current policy is to obtain a Phase I environmental study on each
property we seek 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 our 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 us, 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 us and our ability to make
distributions to you and to pay amounts due on our debt. We currently carry 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, we may have liability with respect to properties previously
sold by us or our predecessors.
RISKS OF THIRD PARTY MANAGEMENT BUSINESS
Possible Termination of Management Contracts.
As part of the TCRW transaction, we also acquired TCRW's third-party
management contracts. This business is conducted by two of our subsidiaries
(collectively, the "Management Company").
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
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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 market factors affecting
specific properties, resulting in decreased management fee income. As a result,
there can be no assurance that the Management Company will perform in accordance
with our expectations.
Possible Adverse Consequences of REIT Status on the Business of the Management
Company.
Certain requirements for REIT qualifications may in the future limit our
ability to increase third party management operations conducted and related
services offered by the Management Company without jeopardizing our
qualification as a REIT. See "Federal Income Tax Considerations--Third Party
Management Income."
RANKING OF SECURITIES
A significant portion of our operations is conducted through our
subsidiaries, including the Operating Company. Our cash flow and the consequent
ability to make distributions and other payments on our equity securities and to
service our debt, will be partially dependent upon the earnings of such
subsidiaries and the distribution of those earnings to us, or upon loans or
other payments of funds made by such subsidiaries to us. In addition, debt or
other arrangements of our subsidiaries may impose restrictions that affect,
among other things, our subsidiaries' ability to pay dividends or make other
distributions or loans to us.
Likewise, a substantial portion of our consolidated assets are owned by our
subsidiaries, effectively subordinating certain unsecured indebtedness of BRE to
all existing and future liabilities, including indebtedness, trade payables,
lease obligations and guarantees of our subsidiaries. The Operating Company has
guaranteed amounts due under our $265 million unsecured bank credit facility
(the "Credit Facility") with Bank of America National Trust and Savings
Association and our $35 million unsecured line of credit with Sanwa Bank of
California (the "Sanwa Line of Credit"). Likewise, any other of our
subsidiaries with assets or net income which, when multiplied by our effective
percentage ownership interest in such subsidiary exceeds $30 million or 5% of
our consolidated net income, respectively, is required to guarantee the
repayment of borrowings under the Credit Facility and the Sanwa Line of Credit.
The Operating Company and other of our subsidiaries may also, from time to time,
guarantee other of our indebtedness. Therefore, our rights and rights of our
creditors, including the holders of other unsecured indebtedness, to participate
in the assets of any subsidiary upon the latter's liquidation or reorganization
will be subject to the prior claims of such subsidiary's creditors, except to
the extent that we may ourselves be a creditor with recognized claims against
the subsidiary, in which case our claims would still be effectively subordinate
to any security interests in or mortgages or other liens on the assets of such
subsidiary and would be subordinate to any indebtedness of such subsidiary
senior to that held by us.
PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
In order to maintain our qualification as a REIT, not more than 50% in
value of our outstanding capital stock may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities). In order to protect us against risk of losing our status as a REIT
due to a concentration of ownership among our shareholders, our articles of
incorporation provide, among other things, that if the Board of Directors
determines, in good faith, that direct or indirect ownership of BRE common stock
has or may become concentrated to an extent that would prevent us from
qualifying as a REIT, the Board of Directors may prevent the transfer of BRE
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 BRE common stock sufficient in the opinion of the Board of
Directors to maintain or bring the direct or indirect ownership of BRE common
stock into conformity with the requirements for maintaining REIT status. These
limitations may
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have the effect of precluding acquisition of control of us by a third party
without consent of the Board of Directors.
In addition, certain other provisions contained in our articles of
incorporation and bylaws, as well as our shareholder rights plan, may have the
effect of discouraging a third party from making an acquisition proposal for us
and may thereby inhibit a change in control. For example, such provisions may
(i) deter tender offers for BRE common stock which offers may be attractive to
the shareholders, or (ii) deter purchases of large blocks of BRE common stock,
thereby limiting the opportunity for shareholders to receive a premium for their
shares of BRE 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 we are organized and are operating so as
to qualify as a REIT under the Code, no assurance can be given that we have 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 our control. For example,
in order to qualify as a REIT, at least 95% of our taxable gross income in any
year must be derived from qualifying sources and we must make distributions to
shareholders aggregating annually at least 95% of our REIT taxable income
(excluding net capital gains). Thus, to the extent Third Party Management Income
represents more than 5% of our gross income in any taxable year, we 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 us and our ability to make distributions to you and to pay
amounts due on our debt. Additionally, to the extent the Operating Company or
certain other subsidiaries are determined to be taxable as a corporation, we
would not qualify as a REIT, which could have a material adverse effect on us
and our ability to make distributions to you and to pay amounts due on our debt.
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 we fail to qualify as a REIT, we will be subject to federal income tax
(including any applicable alternative minimum tax) on our taxable income at
corporate rates, which would likely have a material adverse effect on us and our
ability to make distributions to you and to pay amounts due on our debt. In
addition, unless entitled to relief under certain statutory provisions, we 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 you because of the
additional tax liability to us for the year or years involved. In addition, we
would no longer be required to make distributions to you. To the extent that
distributions to you would have been made in anticipation of qualifying as a
REIT, we might be required to borrow funds or to liquidate certain investments
to pay the applicable tax.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of BRE common stock
by the selling shareholders.
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DESCRIPTION OF EXCHANGE OF UNITS
The selling shareholders currently own 2,672,087 units of limited liability
company interest in the Operating Company or Blue Ravine Investors, LLC ("Blue
Ravine"). These units were issued to the selling shareholders in the TCRW
transaction. Pursuant to the terms of the transaction, up to 780,094 additional
units may be issued in the future to the selling shareholders named in this
prospectus, or to additional selling shareholders to be named in supplements to
the prospectus, upon the achievement of certain performance, employment or other
conditions to issuance. It is anticipated that, on or after November 18, 1998,
Blue Ravine will be merged into the Operating Company, whereupon all outstanding
units of Blue Ravine will become units of the Operating Company.
We are the sole managing member of the Operating Company and Blue Ravine
Investors, LLC and we currently own approximately 70% and 88% of the outstanding
units of limited liability company interest in these entities respectively. All
other outstanding units are owned by the selling shareholders. Beginning
November 18, 1998, each selling shareholder may require us to exchange some or
all of the units which it owns for cash or, at our election, shares of BRE
common stock at the rate of one share of common stock for each unit exchanged.
(This rate of exchange may be adjusted in the future to take into account stock
splits, stock dividends or other similar events.) If we elect to exchange units
for cash, the amount of cash we will pay for each unit will be equal to the
market value at the time of the exchange of the shares of common stock that we
could otherwise deliver in satisfaction of the exchange rights.
All of the terms and conditions governing the exchange of units are set
forth in the LLC Agreement, with respect to units of the Operating Company, and
a substantially similar agreement with respect to units of Blue Ravine. These
include, for example, that in order to exchange units, the unitholder must
deliver a written notice to us. The unitholder must also provide certain
affidavits and representations. In particular, the unitholder must certify as to
its aggregate ownership of BRE common stock because of the limitations on
aggregate share ownership in a REIT, and shares received by the unitholder may
be restricted due to limitations on ownership by REIT shareholders, or because
of other restrictions under our Articles of Incorporation and Bylaws or under
state and federal securities laws. Each unitholder has also agreed to provide
any other documentation that we may reasonably require to effect the exchange.
REGISTRATION RIGHTS
The registration of the shares of BRE common stock pursuant to the
registration statement of which this prospectus is a part will satisfy our
obligations under the terms of the Registration Rights Agreement dated November
18, 1997, which we entered into in connection with the TCRW transaction. Under
this agreement, we are obligated to cause to be filed a registration statement
under Rule 415 of the Securities Act covering the sale by the selling
shareholders of all shares of common stock which the selling shareholders may
acquire in exchange for their units. We are also obligated to use our best
efforts to cause the registration statement to be declared effective by the SEC
as soon as practicable after filing and to use our reasonable efforts to keep
the registration statement continuously effective until the earlier of (1) such
time as Form S-3 is not available for registration of the shares (2) the last to
occur of (a) the tenth anniversary of effectiveness of the registration
statement or (b) the first date upon which at least ten percent of the units are
no longer outstanding. However, we are not required to keep the registration
statement in effect with respect to shares of common stock acquired by the
selling shareholders in exchange for their units which have become eligible for
sale in accordance with certain specified provisions of Rule 144 under the
Securities Act and in certain other circumstances where events have occurred
which may cause the registration statement to fail to comply with applicable
disclosure requirements.
18
<PAGE>
Pursuant to the Registration Rights Agreement, we have also agreed, among other
things:
. to provide copies of this prospectus to the selling shareholders
. to register or qualify the shares in each jurisdiction as any selling
shareholder may reasonably request
. to cause the shares to be listed on the New York Stock Exchange
. to pay all expenses incurred in connection with this prospectus and the
registration of the shares
. to indemnify the selling shareholders and their affiliates and control
persons from all losses, damages, costs and expenses arising under the
securities laws in connection with the registration statement or this
prospectus, subject to certain limitations
Each selling shareholder has agreed,
. to provide information to us in a timely manner in connection with the
preparation of this prospectus and the registration statement of which this
prospectus is a part
. to pay expenses incurred by them in connection with the exchange of their
units and sale of their shares
. to indemnify BRE and its affiliates and control persons from all losses,
damages, costs and expenses arising under the securities laws insofar as they
relate to written information furnished to BRE by the selling shareholders
for use in the registration statement or this prospectus
19
<PAGE>
SELLING SHAREHOLDERS
The following table lists the selling shareholders who may sell BRE common
stock with this prospectus. For the purposes of this prospectus, we have
assumed that each selling shareholder will exchange all of its units for the
equivalent number of shares of BRE common stock, and that all of those shares
will be sold. The information in the table is as of September 15, 1998. As of
that date, no selling shareholder owns more than 1% of the total number of
shares of BRE common stock outstanding. If necessary we will include other
required information about any of the selling shareholders in a prospectus
supplement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
UNITS OWNED THAT MAY
SHARES OF COMMON BE EXCHANGED FOR NUMBER OF SHARES OF
STOCK OWNED COMMON STOCK COMMON STOCK OWNED
BENEFICIALLY AS OF AFTER NOVEMBER 18, BENEFICIALLY AFTER
SELLING SHAREHOLDERS SEPTEMBER 15, 1998 1998 THE OFFERING
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kevin A. Baldridge 3,000(1) 50,565 3,000
- -------------------------------------------------------------------------------------------------------------------------------
Blue Ravine Realty Partners 0 121,175(2) 0
- -------------------------------------------------------------------------------------------------------------------------------
Clifford A. Breining 1 37,290 1
- -------------------------------------------------------------------------------------------------------------------------------
CFP Residential, L.P. 0 266,953(3) 0
- -------------------------------------------------------------------------------------------------------------------------------
Harlan R. Crow 0 88(4) 0
- -------------------------------------------------------------------------------------------------------------------------------
Trammell S. Crow 0 739 0
- -------------------------------------------------------------------------------------------------------------------------------
Crow Residential Realty Investors, L.P. 0 371(5) 0
- -------------------------------------------------------------------------------------------------------------------------------
Crow-Western N.C. Highlands Limited 0 23,849(6) 0
Partnership
- -------------------------------------------------------------------------------------------------------------------------------
Crow-Western #402-Vallejo II Limited 0 1,560(7) 0
Partnership
- -------------------------------------------------------------------------------------------------------------------------------
Jeffrey A. Duke 3,001(8) 51,613 3,001
- -------------------------------------------------------------------------------------------------------------------------------
Patrick W. Dukes 0 100,335(9) 0
- -------------------------------------------------------------------------------------------------------------------------------
David J. Elwell 0 7,675 0
- -------------------------------------------------------------------------------------------------------------------------------
E. Garth Erdossy 3,001(10) 68,836 3,001
- -------------------------------------------------------------------------------------------------------------------------------
V. Jay Hiemenz 3,000(11) 51,322 3,000
- -------------------------------------------------------------------------------------------------------------------------------
Robert M. Hutt 3,001(12) 54,999 3,001
- -------------------------------------------------------------------------------------------------------------------------------
The Northwestern Mutual Life Insurance 175,000 445,262 175,000
Company
- -------------------------------------------------------------------------------------------------------------------------------
Randy J. Pace 0 61,703 0
- -------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Real Estate 0 22,280 0
Development Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Robert C. Speicher 0 30,436 0
- -------------------------------------------------------------------------------------------------------------------------------
Robert C. Talbott 3,000(13) 48,916 3,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
UNITS OWNED THAT MAY
SHARES OF COMMON BE EXCHANGED FOR NUMBER OF SHARES OF
STOCK OWNED COMMON STOCK COMMON STOCK OWNED
BENEFICIALLY AS OF AFTER NOVEMBER 18, BENEFICIALLY AFTER
SELLING SHAREHOLDERS SEPTEMBER 15, 1998 1998 THE OFFERING
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TCF Residential Partnership Ltd. 0 144,188(14) 0
- -------------------------------------------------------------------------------------------------------------------------------
J. Ronald Terwilliger(15) 8,000 412,798(16) 8,000
- -------------------------------------------------------------------------------------------------------------------------------
J. Ronald Terwilliger Grantor Trust 0 371(17) 0
- -------------------------------------------------------------------------------------------------------------------------------
William W. Thompson 0 35,668 0
- -------------------------------------------------------------------------------------------------------------------------------
Bruce C. Ward 5,000(18) 480,901 5,000
- -------------------------------------------------------------------------------------------------------------------------------
Leonard W. Wood 0 152,194 0
Family Limited Partnership
- -------------------------------------------------------------------------------------------------------------------------------
Other Selling Shareholders(19) 0 780,094 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes options to purchase 3,000 shares of BRE common stock. Mr.
Baldridge is a Vice President of BRE Properties, Inc. and the President of
Alliance Property Management Company, an affiliate of BRE Properties, Inc.
(2) Units are beneficially owned by the general partner of the partnership.
TCR #411 Blue Ravine Limited Partnership is the General Partner of Blue
Ravine Realty Partners. TCR North Bay Area 1990, Inc. is the General
Partner of TCR #411 Blue Ravine Limited Partnership. Harlan R. Crow and J.
Ronald Terwilliger are each a director and officer of TCR North Bay Area
1990, Inc.
(3) Units are beneficially owned by the general partner of the partnership.
Crow Family, Inc. is the general partner of this unitholder. The Chief
Executive Officer of Crow Family, Inc. is Harlan R. Crow.
(4) Does not include: (i) 121,175 units owned by Blue Ravine Realty Partners;
(ii) 266,953 units owned by CFP Residential, L.P.; (iii) 371 units owned by
Crow Residential Realty Investors, L.P.; (iv) 23,849 units owned by Crow-
Western N.C. Highlands Limited Partnership; (v) 1,560 units owned by Crow-
Western #402-Vallejo II Limited Partnership; and (vi) 144,188 units owned
by TCF Residential Partnership Ltd.
(5) Units are beneficially owned by the general partner of the partnership.
Crow Family, Inc. is the general partner of this unitholder. The Chief
Executive Officer of Crow Family, Inc. is Harlan R. Crow.
(6) Units are beneficially owned by the general partner of the partnership.
TCF Residential Partnership, Ltd. is the general partner of this
unitholder. Mill Spring Holdings, Inc. is the general partner of TCF
Residential Partnership, Ltd. The Chief Executive Officer of Mill Spring
Holdings, Inc. is Harlan R. Crow.
(7) Units are beneficially owned by the general partner of the partnership.
TCF Residential Partnership, Ltd. is the general partner of this
unitholder. Mill Spring Holdings, Inc. is the general partner of TCF
Residential Partnership, Ltd. The Chief Executive Officer of Mill Spring
Holdings, Inc. is Harlan R. Crow.
(8) Includes options to purchase 3,000 shares of BRE common stock. Mr. Duke is
a Vice President of BRE Properties, Inc., and a Vice President of BRE
Builders, Inc., an affiliate of BRE Properties, Inc.
(9) Mr. Dukes is a Senior Vice President of BRE Properties, Inc.
(10) Includes options to purchase 3,000 shares of BRE common stock. Mr. Erdossy
is a Vice President of BRE Properties, Inc. and a Vice President of BRE
Builders, Inc., an affiliate of BRE Properties, Inc.
(11) Includes options to purchase 3,000 shares of BRE common stock. Mr. Hiemenz
is a Vice President of BRE Properties, Inc.
(12) Includes options to purchase 3,000 shares of BRE common stock. Mr. Hutt is
a Vice President of BRE Properties, Inc. and a Vice President of BRE
Builders, Inc., an affiliate of BRE Properties, Inc.
(13) Includes options to purchase 3,000 shares of BRE common stock. Mr. Talbott
is a Vice President of BRE Properties, Inc.
(14) Units are benefically owned by the general partner of the partnership.
Mill Spring Holdings, Inc. is the general partner of this unitholder. The
Chief Executive Officer of Mill Spring Holdings, Inc. is Harlan R. Crow.
(15) Mr. Terwilliger is a consultant to the Board of Directors of BRE
Properties, Inc.
(16) Does not include (i) 371 units owned by the J. Ronald Terwilliger Grantor
Trust, of which Mr. Terwilliger is the sole trustee, or (ii) 121,175 units
owned by Blue Ravine Realty Partners.
(17) Does not include (i) 412,798 units owned by J. Ronald Terwilliger, who is
the sole trustee of the J. Ronald Terwilliger Grantor Trust, or (ii)
121,175 units owned by Blue Ravine Realty Partners.
21
<PAGE>
(18) Includes options to purchase 5,000 shares of BRE common stock. Mr. Ward is
an Executive Vice President of BRE Properties, Inc. and the President of
BRE Builders, Inc., an affiliate of BRE Properties, Inc.
(19) Represents selling shareholders who may be named in supplements to this
prospectus. These selling shareholders may receive units exchangeable for
BRE common stock upon the achievement of certain performances, employment
or other conditions to issuance.
DESCRIPTION OF COMMON STOCK
COMMON STOCK
The following statements are brief summaries of certain provisions of our
Articles of Incorporation and Bylaws. For more detail you should refer to the
Articles of Incorporation and Bylaws which have been filed as exhibits either to
the registration statement or to other reports incorporated by reference to this
prospectus.
NUMBER OF SHARES. The Articles of Incorporation authorize the issuance of
up to 100,000,000 shares of common stock, par value $0.01 per share. As of June
30, 1998, there were 42,374,439 shares of common stock issued and outstanding.
In addition, as of June 30, 1998, there were 3,223,957 shares of common stock
reserved for issuance upon the exercise of options under BRE's stock option
plans and 1,364,933 shares of common stock reserved for issuance under BRE's
direct stock purchase and dividend reinvestment plan.
EXCHANGE LISTING. BRE common stock is listed on the New York Stock
Exchange under the symbol "BRE."
TRANSFER AGENT AND REGISTRAR. ChaseMellon Shareholder Services L.L.C. is
the transfer agent and registrar of BRE common stock.
DIVIDEND AND OTHER RIGHTS. Subject to the preferences of any preferred
stock that may be issued in the future, the holders of common stock are entitled
to receive such dividends as may be declared by the Board of Directors. BRE
common stock does not have preemptive or conversion rights.
VOTING RIGHTS. Each shareholder is entitled to one vote for each share
held. There are no cumulative voting rights. Shareholders are entitled to vote
on all matters requiring shareholder approval under Maryland law and under our
Articles and Bylaws.
PREFERRED STOCK
The Board of Directors may, without the approval of BRE shareholders,
authorize the issuance of one or more series of preferred stock up to an
aggregate of ten million shares 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 adversely affect the voting powers and other
rights and interests of holders of BRE common stock. In addition, the issuance
of preferred stock could make it more difficult for a third party to gain
control of BRE and could have the effect of delaying or preventing an attempted
takeover of BRE. As of June 30, 1998, 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 BRE. These provisions include:
22
<PAGE>
(1) 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,
(2) a requirement that BRE directors 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,
(3) the requirement that 70% of the outstanding shares of voting stock
approve amendments to certain provisions of the Articles,
(4) the classification of the Board of Directors into three classes serving
staggered three-year terms,
(5) a prohibition on certain stock repurchases by BRE from a holder of 5%
or more of the outstanding voting shares for a price exceeding fair market value
unless certain conditions are met, and
(6) 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 10% shareholder unless a company's charter states that it has
elected not to be governed by such provisions. We have made such an election in
the Articles and therefore we are 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. We have made such an election in the
Articles and therefore we are not subject to such provisions.
SHAREHOLDER RIGHTS PLAN
On August 14, 1989, BRE'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 BRE common stock.
Each Right entitled the holder to purchase from BRE one share of BRE common
stock at a cash purchase price of $90.00 per share, subject to adjustment.
Following BRE's stock dividend of one share of BRE 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 dated as of August 14, 1989. The Rights are not exercisable
until the Distribution Date referred to below and will expire at the close of
business on September 7, 1999 (the "Final Expiration Date"), unless earlier
redeemed by BRE.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be issued with newly issued shares of BRE common
stock and (ii) the Rights will be evidenced by the BRE common stock certificates
and the transfer of BRE 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 BRE common stock as of the close of business on the
Distribution Date.
The Rights will separate from BRE common stock and a Distribution Date will
occur, in general, upon the earlier of (1) 10 days following a public
announcement that a person (an "Acquiring Person") has acquired 32% or more of
the outstanding BRE common stock (the "Stock Acquisition Date"), (2) 10 business
days following the commencement of a tender or exchange offer for 40% or more of
the outstanding BRE common
23
<PAGE>
stock or (3) 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, (1) BRE 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,
(2) any person becomes the owner of 40% or more of the then outstanding BRE
common stock, (3) an Acquiring Person or an Adverse Person engages in one of a
number of self-dealing transactions set forth in the Rights Agreement, or (4)
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, BRE
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,
(1) BRE is acquired in a merger or other business combination, (2) BRE survives
a merger or business combination in which Common Stock is exchanged for other
securities, cash or property or (3) 50% or more of BRE'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, BRE 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 attempts to acquire BRE 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
BRE's Articles of Incorporation provide that any shareholder must, upon
demand, disclose to the Board of Directors in writing such information with
respect to its direct and indirect ownership of BRE common stock as the Board of
Directors deems necessary to permit us 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 BRE common stock has or may become concentrated to an
extent that would prevent us from qualifying as a REIT (See the next section
"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
our stock into conformity with the requirements for maintaining REIT status. If
common stock is called for redemption, the redemption price shall be:
(1) 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,
(2) 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,
(3) 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
(4) if not determined by the foregoing methods, as determined in good faith
by the Board of
24
<PAGE>
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.
BRE's Bylaws provide that, whenever it is determined by the Board of
Directors to be reasonably necessary to protect our REIT tax status, 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 our status 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 BRE unless the Board of Directors determines that maintenance of REIT status
is no longer in BRE's best interests.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to BRE and its shareholders relating to BRE common stock and the
treatment of BRE as a REIT. It is not intended to represent a detailed
description of the federal income tax consequences applicable to a particular
shareholder of BRE in view of a shareholder's particular circumstances, or to
certain types of shareholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws. The discussion in this
section is based on current provisions of the Code, current and proposed
Treasury Regulations, court decisions and other administrative rulings and
interpretations, all of which are subject to change either prospectively or
retroactively. There can be no assurance that any such change, future Code
provision or other legal authority will not alter significantly the tax
considerations described herein.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT 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, BRE has elected to be taxed
as a real estate investment trust under Code Sections 856 through 860. BRE
believes that it is organized and is operating in such a manner as to qualify
for taxation as a REIT under the Code. BRE 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 Paul, Hastings, Janofsky & Walker LLP, based on certain
assumptions and representations, BRE was reorganized in Delaware in 1987 in
conformity with the requirements for qualification as a "real estate investment
trust" under the Code, BRE has qualified as a REIT for its fiscal year ended
July 31, 1995, its short taxable year ended December 31, 1995, its taxable year
ended December 31, 1996 and its taxable year ended December 31, 1997 (the years,
to the best knowledge of counsel, that are still subject to audit by the
Internal Revenue Service ("IRS")), and BRE is organized and operates in a manner
that will enable it to
25
<PAGE>
qualify to be taxed as a REIT under the Code for its taxable year ending
December 31, 1998 and thereafter provided BRE continues to meet the asset
composition, source of income, shareholder diversification, distributions,
record keeping, and other requirements of the Code necessary for BRE 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 BRE as to
factual matters including, but not limited to, those set forth below in this
discussion of "Federal Income Tax Considerations" and those concerning BRE's
business and properties as set forth and incorporated by reference in this
prospectus. Moreover, such qualification and taxation as a REIT depends upon
BRE'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
Paul, Hastings, Janofsky & Walker LLP. Accordingly, no assurance can be given
that the actual results of BRE's operations for any particular taxable year will
satisfy such requirements. See "Failure to Qualify."
TAXATION OF BRE
A REIT, such as BRE, 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, BRE will be subject to federal income tax in several
ways, including the following: First, BRE will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, BRE may be subject to the
"alternative minimum tax." Third, if BRE 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 BRE 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 BRE 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 BRE fails the 75% or 95%
test, multiplied by a fraction intended to reflect BRE's profitability. Sixth,
if BRE 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 BRE
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
BRE's hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and BRE recognizes gain on the
disposition of such asset during the ten-year period beginning on the date the
asset was acquired by BRE, then the excess of (i) the fair market value of such
asset as of the beginning of such period over (ii) BRE'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
26
<PAGE>
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, BRE must also maintain certain
records and request certain information from its shareholders designed to
disclose the actual ownership of its stock. BRE 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, BRE'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 BRE owns a direct or indirect interest
(collectively, the "Subsidiary Entities"), will be treated as assets,
liabilities and items of income of BRE 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, BRE annually must satisfy
three gross income requirements. First, at least 75% of BRE'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 BRE'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 BRE'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 involuntary conversions and sales of foreclosure property) must
represent less than 30% of BRE's gross income (including gross income from
prohibited transactions) for each taxable year.
Rents received by BRE 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
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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 BRE's taxable years beginning on or after
January 1, 1998, the provision of Prohibited Services by BRE 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 BRE with respect to such property. BRE 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 BRE 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). BRE 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 BRE would
cause amounts received from its tenants to be excluded from "rents from real
property," BRE intends to hire independent contractors from whom BRE 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 BRE'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. BRE 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
BRE, the Operating Company or the Subsidiary Entities.
If BRE 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 BRE's failure to meet such tests was
attributable to reasonable cause and not to willful neglect, BRE 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,
BRE 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
In connection with the TCRW transaction, BRE 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, BRE is obligated to provide management services related to
properties that are not owned directly or indirectly by BRE ("Third-Party
Management Income"). The Third-Party Management Income will not qualify under
either the 75% or 95% gross income tests described above. However, BRE does not
believe that the receipt of this income will cause BRE 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 BRE's gross income in any taxable year.
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Inadvertent failure to satisfy the 75% and 95% gross income tests may not
disqualify BRE 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, BRE must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of BRE'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, U.S. government securities and certain securities attributable
to temporary investment of new capital. Second, not more than 25% of BRE'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 BRE may not exceed 5% of the value of BRE's total
assets and BRE 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, BRE owns
stock in certain subsidiaries that are, in the opinion of Paul, Hastings,
Janofsky & Walker LLP (based on certain representations by BRE), "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, BRE's ownership of stock of a "qualified REIT subsidiary" will
not cause BRE to fail the asset tests.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, BRE 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 BRE's "REIT taxable income"
(computed without regard to the dividends paid deduction and BRE'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 BRE 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 BRE 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, BRE 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). BRE intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that BRE, 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 BRE. In the event that such timing
differences occur, in order to meet the 95% distribution requirement BRE may
find it necessary to arrange for short-term, or possibly long-term, borrowings
or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, BRE 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 BRE's deduction for
dividends paid for the earlier year. Thus, BRE may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, BRE will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
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FAILURE TO QUALIFY
If BRE fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, BRE 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 BRE fails to
qualify will not be deductible by BRE nor will they be required to be made by
BRE. 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, BRE will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
Whether BRE would be entitled to such statutory relief cannot be foreseen.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as BRE 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 BRE'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 BRE 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 BRE 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 BRE and received by the shareholder on or before
December 31 of such year, provided that the dividend is actually paid by BRE by
January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
BRE 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 BRE are required to be
treated by such shareholder as long-term capital gain.
If BRE elects to retain, rather than distribute as a capital gain dividend,
its net long-term capital gains, BRE would pay tax on such retained net long-
term capital gains. In addition, for taxable years of BRE beginning on or after
January 1, 1998, to the extent designated by BRE, a taxable domestic shareholder
generally would (i) include its proportionate share of such undistributed long-
term capital gains in computing its long-term capital gains in its return for
its taxable year in which the last day of BRE's taxable year falls (subject to
certain limitations as to the amount so includible), (ii) be deemed to have paid
the capital gains tax imposed on BRE on the designated amounts included in such
taxable domestic shareholder's long-term capital gains, (iii) receive a credit
or refund for such amount of tax deemed paid by it, (iv) increase the adjusted
basis of its shares by the difference between the amount of such includible
gains and the tax deemed to have been paid by it, and (v) in the case of a
taxable corporate shareholder, appropriately adjust its earnings and profits for
the retained capital gains in accordance with Treasury Regulations to be
prescribed by the IRS.
BACKUP WITHHOLDING
BRE 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
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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 BRE 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, BRE may be required to withhold
a portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to BRE. See "Taxation of Foreign Shareholders."
TAXATION OF PENSION TRUSTS
For purposes of the "five or fewer" test described above, beneficiaries of
a domestic pension trust that owns shares in BRE generally will be treated as
owning such shares in proportion to their actuarial interests in the trust.
Generally, a tax-exempt investor that holds BRE common stock as an investment
and is exempt from tax on its investment income will not be subject to tax on
distributions paid by BRE. However, if such tax-exempt investor is treated as
having purchased BRE common shares with borrowed funds, some or all of its
distributions from the BRE common stock will be subject to tax. Amounts
distributed by BRE 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 BRE's common stock, in which case a portion of such
amounts distributed may be treated as UBTI.
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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. In
addition, this discussion is based on current law, which is subject to change,
and assumes that BRE qualifies for taxation as a REIT. 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 BRE
common stock, including any reporting requirements.
It is currently anticipated that BRE 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 BRE 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. As
BRE common stock is publicly traded, there can be no assurance that BRE will
always qualify as a "domestically controlled REIT."
If BRE ceases to be a "domestically controlled REIT," gain arising from the
sale or exchange by a Non-U.S. Shareholder of BRE common shares would be
subject to United States taxation under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA") as a sale of a "United States real property interest"
unless the common stock is "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and the selling Non-U.S. Shareholder held no more than 5% (after
applying certain constructive ownership rules) of the common stock during the
shorter of (i) the period during which the taxpayer held such shares or (ii) the
5-year period ending on the date of the disposition of such shares. If gain on
the sale or exchange of BRE common shares were subject to taxation under FIRPTA,
the Non-U.S. Shareholder would be subject to regular United States income tax
with respect to such gain in the same manner as a domestic shareholder (subject
to any applicable alternative minimum tax, a special alternative minimum tax in
the case of nonresident alien individuals and the possible application of the
30% branch profits tax in the case of foreign corporation), and the purchaser of
the stock would be required to withhold and remit to the IRS 10% of the purchase
price. The 10% withholding tax will not apply if the common stock is "regularly
traded" in an established securities market.
Notwithstanding the foregoing, gain from the sale or exchange of BRE common
shares not otherwise subject to United States taxation will be taxable to a Non-
U.S. Shareholder if (i) investment in BRE common stock is effectively connected
with the Non-U.S. Shareholder's United States trade or business (or, if an
income tax treaty applies, is attributable to a United States permanent
establishment of the Non-U.S. Shareholder), in which case the Non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax, as discussed below), or (ii)
the Non-U.S. Shareholder is a resident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Distributions that are not attributable to gain from the sale or exchange
by BRE 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 BRE. 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). BRE will
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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 BRE claiming that the distribution is
"effectively connected" income. Distributions which exceed current and
accumulated earnings and profits of BRE 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 BRE, as described above. Because BRE will withhold
30% (or lower treaty rate) of all Non-Capital Distributions, to the extent BRE
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 BRE to a Non-U.S. Shareholder that are attributable to
gain from sales or exchanges by BRE of a United States real property interest
are subject to income and withholding tax under the provisions of 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. BRE will
withhold 35% of any distribution to a Non-U.S. Shareholder that could be
designated by BRE 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. Shareholder's federal tax liability.
Distribution that are designated by BRE at the time of distribution as
capital gains dividends (other than those arising from the disposition of a
United States real property interest) generally will not be subject to United
States federal income taxation, unless (i) investment in BRE common stock is
effectively connected with the Non-U.S. Shareholder's United States trade or
business (or, if an income tax treaty applies, is attributable to a United
States permanent establishment of the Non-U.S. Shareholder), in which case the
Non-U.S. Shareholder will be subject to the same treatment as domestic
shareholders with respect to such gain (except that a shareholder that is a
foreign corporation may also be subject to the 30% branch profits tax, as
discussed above), or (ii) the Non-U.S. Shareholder is a resident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains.
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, 1999. 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 TCRW transaction, a portion of BRE'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, BRE
believes that the Operating Company and
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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 BRE's shareholders. In addition, if the
Operating Company or any of the Subsidiary Entities were to be taxable as a
corporation, BRE would not qualify as a REIT, which could have a material
adverse effect on BRE 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 TCRW. Consequently, allocations with respect to such contributed
property must be made in a manner consistent with Code Section 704(c).
In general, BRE 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 BRE 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 BRE 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 BRE to recognize taxable income in excess
of cash proceeds, which might adversely affect BRE'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 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 BRE 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
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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.
BRE 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 BRE 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 BRE to qualify as a REIT.
OTHER TAX CONSEQUENCES
BRE 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 BRE 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 BRE.
PLAN OF DISTRIBUTION
The selling shareholders may offer their BRE common stock from time to time, in
one or more transactions, on the New York Stock Exchange, on any other exchange
on which BRE common stock is listed or traded, in the over-the-counter market or
otherwise.
The selling shareholders may sell their BRE common stock at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. 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 of the shares of BRE common
stock that qualify for sale pursuant to Rule 144 of the Securities Act of 1933,
as amended, might be sold pursuant to Rule 144 rather than pursuant to this
prospectus. The selling shareholders will act independently of BRE in making
decisions with respect to the timing, manner and size of each sale.
The selling shareholders may use brokers, dealers or agents to sell their
shares. Brokers, dealers or agents may receive commissions, discounts or
concessions from the selling shareholders 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 of
1933, as amended, 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 of 1933, as amended. The selling
shareholders may indemnify any
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broker-dealer that participates in transactions involving the sale of the shares
of BRE common stock against certain liabilities, including liabilities arising
under the Securities Act of 1933, as amended.
In order to comply with the securities laws of certain states, if
applicable, BRE common stock will be sold only through registered or licensed
brokers or dealers. In addition, in certain states BRE common stock may not be
sold unless such shares 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 anti-manipulation rules of Registration M under the Securities Exchange
Act of 1934 may apply to sales of BRE common stock in the market and to the
activities of the selling shareholders.
We will pay all expenses incurred in connection with this prospectus and
the registration of the selling shareholders' BRE common stock. The selling
shareholders will pay any commissions and discounts of underwriters, dealers or
agents and any transfer taxes.
We have agreed to indemnify the selling shareholders against certain
liabilities, including liabilities under the Securities Act of 1933. The
selling shareholders have agreed to indemnify us against certain liabilities,
including liabilities under the Securities Act of 1933.
36
<PAGE>
EXPERTS
The consolidated financial statements and the related financial schedule of
BRE Properties, Inc. appearing in BRE Properties, Inc.'s Annual Report (Form 10-
K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
the related financial schedule are incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
LEGAL OPINIONS
The validity of the shares of BRE common stock offered by the selling
shareholders, as well as certain legal matters described under "Federal Income
Tax Considerations," will be passed upon for BRE by Paul, Hastings, Janofsky &
Walker LLP, San Francisco, California.
_______________________
_______________________
37
<PAGE>
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 incurred 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:
SEC Registration Fee.......... $23,392.50
Printing and Engraving Costs.. $20,000.00
Legal Fees and Expenses....... $20,000.00
Blue Sky Fees and Expenses.... $ 2,000.00
Accounting Fees and Expenses.. $10,000.00
Miscellaneous................. $ 5,000.00
----------
Total..................... $80,392.50
==========
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.
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.
II-1
<PAGE>
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.
The Company has entered into indemnification agreements with its
directors and officers.
ITEM 16. EXHIBITS
Exhibit
Number DESCRIPTION
------ ----------------------------------------------
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Articles of Amendment (2)
3.3 Amended and Restated Bylaws (3)
4.1 Form of Certificate for Common Shares (4)
5 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding the
legality of the securities being registered
8 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding tax matters
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (included as part of
Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (See page II-4)
________________
(1) Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report
on Form 8-K dated March 15, 1996.
(2) Incorporated by reference to Exhibit 4.2 of the Registrant's Registration
Statement on Form S-3 filed on December 3, 1997 (No. 333-24915).
(3) Incorporated by reference to Exhibit 3(ii) of the Registrant's Report on
Form 10-Q for the fiscal quarter ended June 30, 1998, filed on August 14,
1998.
(4) Incorporated by reference to Exhibit 4.12 of the Registrant's Amendment No.
1 to Registration Statement on Form S-3 dated March 27, 1998 (No. 333-
47469).
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(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 total 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;
II-2
<PAGE>
(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 by the Registrant 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
Registrant's Annual Report pursuant to Section 13(a) or 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 Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant 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.
II-3
<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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California on the 16th day of
October 1998.
BRE Properties, Inc.
By: /s/ LeRoy E. Carlson
---------------------------------
LEROY E. CARLSON
Executive Vice President,
Chief Financial Officer and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frank C. McDowell and LeRoy E. Carlson, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any related registration
statements which may be filed under Rule 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following persons in
the capacities indicated on the 16th day of October 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John McMahan Director, Chairman of the Board
- ------------------------------------------------
John McMahan
/s/ Frank C. McDowell President, Chief Executive Officer and Director
- ------------------------------------------------ (Principal Executive Officer)
Frank C. McDowell
/s/ LeRoy E. Carlson Executive Vice President, Chief Financial Officer and
- ------------------------------------------------ Secretary (Principal Financial Officer and Principal
LeRoy E. Carlson Accounting Officer)
/s/ William E. Borsari Director
- ------------------------------------------------
William E. Borsari
/s/ Robert A. Fiddaman Director
- ------------------------------------------------
Robert A. Fiddaman
/s/ L. Michael Foley Director
- ------------------------------------------------
L. Michael Foley
</TABLE>
II-4
<PAGE>
/s/ Roger P. Kuppinger Director
- -------------------------------------------
Roger P. Kuppinger
/s/ Edward E. Mace Director
- -------------------------------------------
Edward E. Mace
/s/ Gregory M. Simon Director
- -------------------------------------------
Gregory M. Simon
/s/ Arthur G. von Thaden Director
- -------------------------------------------
Arthur G. von Thaden
II-5
<PAGE>
BRE PROPERTIES, INC.
EXHIBIT INDEX
TO REGISTRATION STATEMENT ON FORM-S-3
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT LOCATION
- ------- --------------------------------------------------------------------- --------------------
<C> <S> <C>
5 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding the legality Contained herein
of the securities being registered
8 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding tax matters Contained herein
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (included as part of Contained herein
Exhibits 5 and 8)
23.2 Consent of Ernst & Young Contained herein
24 Power of Attorney (See page II-4) Contained herein
</TABLE>
<PAGE>
EXHIBIT 5
[LETTERHEAD OF PAUL, HASTINGS, JANOFSKY & WALKER LLP APPEARS HERE]
October 16, 1998
BRE Properties, Inc.
44 Montgomery Street
36th Floor
San Francisco, CA 94104-4602
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for BRE Properties, Inc., a Maryland
corporation (the "COMPANY"), in connection with the Company's Registration
Statement on Form S-3 (the "REGISTRATION STATEMENT") being filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), on or about the date hereof, with respect to the
offering from time to time by certain selling shareholders named in the
Registration Statement of an aggregate of up to 3,452,181 shares of the
Company's common stock, par value $0.01 per share (the "SHARES"). All
capitalized terms not defined herein shall have the meanings ascribed to them in
the Registration Statement.
We have examined the Articles of Incorporation of the Company, as
amended and restated to the date hereof and on file with the Maryland State
Department of Assessments and Taxation; the Amended and Restated Bylaws of the
Company; such records of corporate proceedings of the Company as we deem
appropriate for the purposes of this opinion; and the Registration Statement and
the exhibits thereto. We have assumed the genuineness and authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as copies thereof and the due execution and delivery
of all documents where due execution and delivery are a prerequisite to the
effectiveness thereof.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America and Maryland General Corporation
Law.
<PAGE>
PAUL, HASTINGS, JANOFSKY & WALKER LLP
BRE Properties, Inc.
October 16, 1998
Page 2
Based on the foregoing, we are of the opinion that the Shares to be
offered and sold by the selling shareholders are duly authorized and, when
issued as described in the Registration Statement, will be validly issued,
fully paid and non-assessable.
The foregoing assumes that all requisite steps will be taken to comply
with the requirements of the Securities Act and applicable requirements of
state laws regulating the offer and sale of securities.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the
caption "Legal Matters" and to the inclusion of this opinion as an exhibit
to the Registration Statement. This opinion is rendered to you in
connection with the Registration Statement and is solely for your benefit.
This opinion may not be relied upon by you for any other purpose, or relied
upon by any other person, firm or other entity for any purpose, without our
prior written consent.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT 8
[LETTERHEAD OF PAUL, HASTINGS, JANOFSKY & WALKER LLP APPEARS HERE]
October 16, 1998
BRE Properties, Inc.
44 Montgomery Street
36th Floor
San Francisco, California 94104-4602
Re: Registration Statement on Form S-3
BRE Properties, Inc.
Ladies and Gentlemen:
In connection with the registration statement on Form S-3 (the
"Registration Statement") being filed by you on October 16, 1998, with the
Securities and Exchange Commission, you have requested our opinion regarding
whether the Company has been organized in conformity with the requirements for
qualification as a real estate investment trust ("REIT"), and whether its method
of operation has enabled the Company to meet, and will enable it to continue to
meet, the requirements for qualification and taxation as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). This opinion is based
on various assumptions and is conditioned upon certain representations made by
the Company as to factual matters as set forth in the Registration Statement.
In addition, the Company has provided a representation letter certifying, among
other items, that its has elected to be taxed as a REIT since its formation on
May 22, 1970, and that the Company has operated and will continue to operate in
accordance with the method of operation described in the Registration Statement.
Based on such assumptions and representations, it is our opinion that
the Company has qualified as a REIT for its fiscal year ending July 31, 1995,
its short taxable year ended December 31, 1995 and its fiscal years ending
December 31, 1996 and December 31, 1997 (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,
1998 and thereafter provided the Company continues to meet the asset
composition, source of income, shareholder diversification, distributions,
recordkeeping, and other requirements of the Code necessary for
<PAGE>
PAUL, HASTINGS, JANOFSKY & WALKER LLP
BRE Properties, Inc.
October 16, 1998
Page 2
the Company to qualify as a REIT. No opinion is expressed as to any matter
not discussed herein.
This opinion is based on various statutory provisions and
regulations promulgated thereunder, in effect on the dates thereof, and the
interpretations of such provisions and regulations by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which
are subject to change either prospectively or retroactively. Also, any
variation from the factual statements set forth in the Registration
Statement or the written representations made by the Company in connection
with this opinion may affect the conclusions stated herein. Moreover, the
Company's 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, the results of which will not be reviewed by Paul,
Hastings, Janofsky & Walker LLP. Accordingly, no assurance can be given
that the actual results of the Company's operation for any open taxable
year will satisfy such requirements. We wish to point out that our opinion
is not binding on the Internal Revenue Service and, without limiting our
opinion, we note that there can be no assurance that all of the
requirements for qualification as a REIT for any particular taxable year
have in fact been met until the return for such taxable year has been
reviewed by the Internal Revenue Service or the period for such review has
expired.
This opinion is furnished to you solely for use in connection
with the Registration Statement. We hereby consent to the filing of this
opinion as an Exhibit to the Registration Statement, and to the reference
therein to our firm under the caption "Legal Matters."
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of BRE Properties,
Inc. for the registration of 3,452,181 shares of its common stock, and to the
incorporation by reference therein of our report dated January 14, 1998, with
respect to the consolidated financial statements and the related schedule of
BRE Properties, Inc. included in its Annual Report on Form 10-K for the year
ended December 31, 1997, as filed with Securities and Exchange Commission.
/s/ Ernst & Young LLP
October 14, 1998
San Francisco, California
