<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-47469
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 16, 1998
$250,000,000
[LOGO]
7.45% Notes Due 2011
---------
The notes will mature on January 15, 2011. We will pay interest on the notes
on January 15 and July 15 of each year. The first interest payment on the notes
will be made on July 15, 2001. We may redeem the notes, in whole or in part, at
any time, at the make-whole redemption price described in this prospectus
supplement. The notes are senior unsecured securities and rank equally with all
of our other senior unsecured indebtedness.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Note............................................. 99.582% .65% 98.932%
Total................................................ $248,955,000 $1,625,000 $247,330,000
</TABLE>
(1) Plus accrued interest, if any, from January 12, 2001.
Delivery of the notes in book-entry form will be made on or about
January 12, 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
Lead and Bookrunning Manager
Credit Suisse First Boston
UBS Warburg LLC
A.G. Edwards & Sons, Inc.
First Union Securities, Inc.
The date of this prospectus supplement is January 5, 2001.
<PAGE>
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS SUPPLEMENT --------
<S> <C>
FORWARD-LOOKING STATEMENTS............ S-3
PROSPECTUS SUPPLEMENT SUMMARY......... S-4
THE COMPANY........................... S-6
DEVELOPMENT PROPERTIES................ S-10
PROPERTIES............................ S-11
RECENT DEVELOPMENTS................... S-14
USE OF PROCEEDS....................... S-14
PRICE RANGE OF COMMON STOCK AND
DISTRIBUTION HISTORY................ S-15
CAPITALIZATION........................ S-16
SELECTED CONSOLIDATED FINANCIAL AND
OTHER INFORMATION................... S-17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... S-19
MANAGEMENT............................ S-25
DESCRIPTION OF THE NOTES.............. S-26
SUPPLEMENTAL FEDERAL INCOME TAX
CONSIDERATIONS...................... S-30
UNDERWRITING.......................... S-31
NOTICE TO CANADIAN RESIDENTS.......... S-32
EXPERTS............................... S-33
LEGAL MATTERS......................... S-33
<CAPTION>
PAGE
PROSPECTUS --------
AVAILABLE INFORMATION. 2
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 3
THE COMPANY........................... 4
RISK FACTORS.......................... 4
RATIO OF EARNINGS TO FIXED CHARGES.... 17
USE OF PROCEEDS....................... 17
DESCRIPTION OF DEBT SECURITIES........ 17
DESCRIPTION OF PREFERRED SHARES....... 35
DESCRIPTION OF DEPOSITARY SHARES...... 41
DESCRIPTION OF COMMON STOCK
WARRANTS............................ 44
DESCRIPTION OF COMMON SHARES.......... 45
RESTRICTIONS ON TRANSFERS OF CAPITAL
STOCK; REDEMPTION................... 47
FEDERAL INCOME TAX CONSIDERATIONS..... 48
PLAN OF DISTRIBUTION.................. 58
LEGAL MATTERS......................... 59
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
S-2
<PAGE>
FORWARD-LOOKING STATEMENTS
In addition to historical information, we have made forward-looking
statements in this prospectus supplement and the accompanying prospectus and the
documents incorporated by reference in the accompanying prospectus within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including those
pertaining to anticipated closings of transactions and uses of proceeds and our
capital resources, portfolio performance and results of operations.
Forward-looking statements involve numerous risks and uncertainties and should
not be relied upon as predictions of future events and there can be no assurance
that the events or circumstances reflected in these statements will be achieved
or will occur. You can identify forward-looking statements by the use of
forward-looking terminology including "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "pro forma,"
"estimates," or "anticipates" or the negative of these words and phrases or
other variations of these words and phrases or comparable terminology, or by
discussions of strategy, plans or intentions. Forward-looking statements are
necessarily dependent on assumptions, data or methods that may be incorrect or
imprecise and may be incapable of being realized.
The factors that could cause actual results and future events to differ
materially from those set forth or contemplated in the forward-looking
statements include those set forth in the risk factors incorporated by reference
in the accompanying prospectus from our Annual Report on Form 10-K for the year
ended December 31, 1999, as amended. You 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.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THIS PROSPECTUS SUPPLEMENT SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IT MAY NOT CONTAIN ALL OF
THE INFORMATION THAT IS IMPORTANT TO YOU. IN ADDITION, IMPORTANT INFORMATION IS
INCORPORATED BY REFERENCE INTO THE ACCOMPANYING PROSPECTUS. TO UNDERSTAND THIS
OFFERING FULLY, YOU SHOULD READ CAREFULLY THE ENTIRE PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, INCLUDING THE INFORMATION INCORPORATED BY REFERENCE
THEREIN. REFERENCES IN THIS PROSPECTUS SUPPLEMENT SUMMARY TO THE "COMPANY" MEAN
BRE PROPERTIES, INC. AND EXCLUDE ITS CONSOLIDATED SUBSIDIARIES UNLESS OTHERWISE
EXPRESSLY STATED OR THE CONTEXT OTHERWISE REQUIRES.
BRE PROPERTIES, INC.
BRE Properties, Inc. is a self-administered equity real estate investment
trust or "REIT" focused on the development, acquisition and management of
multifamily apartment communities in 10 metropolitan markets of the Western
United States. At September 30, 2000, our portfolio had real estate assets with
a book value of approximately $1.5 billion which included 67 wholly or
majority-owned apartment communities, aggregating 18,594 units; 20 multifamily
communities in which we have a minority interest, comprised of 4,548 apartment
units; and 15 apartment communities in various stages of construction and
development totaling 3,567 units.
We have been a publicly-traded company since our founding in 1970 and have
paid uninterrupted quarterly dividends to our shareholders from inception. Our
principal executive offices are located at 44 Montgomery Street, 36th floor, San
Francisco, California, 94104; our telephone number is (415) 445-6530; and our
Internet website is www.breproperties.com.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED..................... $250,000,000 aggregate principal amount of 7.45% notes due
2011.
MATURITY............................... January 15, 2011.
INTEREST PAYMENT DATES................. Semi-annually on January 15 and July 15 commencing
July 15, 2001.
RANKING................................ The notes will be senior unsecured obligations of the
Company and will rank equally with all other existing and
future unsecured and senior indebtedness of the Company.
The notes are not obligations of any of our subsidiaries.
The notes will be effectively subordinated to any
mortgages and other secured indebtedness we incur and to
all indebtedness and other liabilities of our
subsidiaries.
RATINGS................................ The notes are rated "Baa2" by Moody's Investors Service,
"BBB" by Standard & Poor's Ratings Services and "BBB+" by
Fitch, Inc.
USE OF PROCEEDS........................ The net proceeds from the sale of the notes will be used
to invest in additional multifamily apartment communities.
Pending that use, the proceeds will be used primarily to
repay borrowings under our current credit facility.
Borrowings under our current credit facility totaled
$361,000,000 at January 4, 2001.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION.................... The notes are redeemable at any time at the option of the
Company, in whole or in part, at a redemption price equal
to the greater of (i) the principal amount of the notes
(or portion thereof) being redeemed plus accrued interest
thereon to the redemption date and (ii) the make-whole
amount, if any, with respect to the notes (or portion
thereof).
CERTAIN COVENANTS...................... The notes contain various covenants including covenants
that:
- We will not incur and will not cause or permit any of
our subsidiaries to incur any Debt (as defined in the
accompanying prospectus) secured by a Lien (as defined
in the accompanying prospectus) on any property or
assets of the Company or its subsidiaries if the
aggregate principal amount of all outstanding Debt of
the Company and its subsidiaries secured by a Lien, at
the time of such incurrence and after giving effect
thereto and to any concurrent transactions, is greater
than 40% of the sum of (i) Total Assets (as defined in
the accompanying prospectus) of the Company and its
subsidiaries and (ii) the aggregate purchase price of
any real estate assets or mortgage receivables acquired,
and the aggregate amount of any offering proceeds
received by the Company or any of its subsidiaries.
- We will not incur and will not cause or permit any of
our subsidiaries to incur any Debt if the aggregate
outstanding principal amount of all outstanding Debt of
the Company and its subsidiaries, at the time of such
incurrence and after giving effect thereto and to any
concurrent transactions, is greater than 60% of the sum
of (i) Total Assets of the Company and its subsidiaries
and (ii) the aggregate purchase price of any real estate
assets or mortgage receivables acquired, and the
aggregate amount of any offering proceeds received by
the Company or any of its subsidiaries.
- We will not incur and will not cause or permit any of
our subsidiaries to incur any Debt unless we maintain, on
a consolidated basis, interest coverage of not less than
150% for the period consisting of the four prior
consecutive fiscal quarters most recently ended.
- We will maintain, on a consolidated basis, Total
Unencumbered Assets (as defined in the accompanying
prospectus) of not less than 150% of the aggregate
principal amount of all outstanding Unsecured Debt (as
defined in the accompanying prospectus).
SINKING FUND........................... The notes are not entitled to any sinking fund payments.
</TABLE>
S-5
<PAGE>
THE COMPANY
We are a self-administered equity real estate investment trust or "REIT"
focused on the development, acquisition and management of multifamily apartment
communities in 10 metropolitan markets of the Western United States. At
September 30, 2000, our portfolio had real estate assets with a book value of
approximately $1.5 billion which included 67 wholly or majority-owned apartment
communities, aggregating 18,594 units; 20 multifamily communities in which we
have a minority interest, comprised of 4,548 apartment units; and 15 apartment
communities in various stages of construction and development totaling 3,567
units. We have been a publicly-traded company since our founding in 1970 and
have paid uninterrupted quarterly dividends to our shareholders from inception.
Our principal operating objective is to maximize the economic returns of our
apartment communities so as to provide our shareholders with the greatest
possible total return and value. To achieve this objective, we pursue the
following primary strategies and goals:
- ACCELERATE GROWTH FROM THE OPERATION OF EXISTING ASSETS by achieving and
maintaining high occupancy levels, dynamic pricing, and operating margin
expansion through operating efficiencies and cost controls;
- DEPLOY NEW AND RECYCLED CAPITAL TO SUPPLY-CONSTRAINED MARKETS OF THE WEST
through a selective development and acquisition program that is supported
by a research-driven investment model;
- CREATE A VALUABLE CUSTOMER EXPERIENCE that focuses on services that
generate increased profitability from resident retention and referrals;
and
- SEEK TO MAINTAIN BALANCE SHEET STRENGTH AND FINANCIAL FLEXIBILITY to
provide continued access to attractively priced capital for intelligent
growth opportunities.
We believe we can best achieve our objectives by developing and acquiring
apartment communities in high-demand, supply-constrained locations near the
business, transportation, employment and recreation centers essential to
customers who value the convenience, service and flexibility of rental living.
We have concentrated our investment and business focus in the Western United
States because of certain characteristics of these markets, including propensity
to rent, population growth and employment growth. According to propensity to
rent data for the year 2000 provided by Claritas, Inc., approximately 41% of the
population of the Western United States rented, as compared to approximately 36%
of the population of the nation as a whole. In addition, population growth and
employment growth in the Western United States are expected to outpace these
characteristics for the nation as a whole.
PROJECTED PERCENTAGE CHANGE FROM 2000 TO 2005
<TABLE>
<CAPTION>
WEST(1) U.S.
-------- --------
<S> <C> <C>
Population Growth........................................... 8 % 5 %
Employment Growth........................................... 10 % 7 %
</TABLE>
------------------------
Sources: Computed from population and employment growth data provided by
Economy.com, formerly Regional Financial Associates.
(1) "West" is defined by the U.S. Census Bureau as the combined states of
Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada,
New Mexico, Oregon, Utah, Washington and Wyoming.
We pursue a property investment strategy that benefits from California's
economic base as the world's sixth largest economic power. As of September 30,
2000, net operating income generated by our wholly-owned portfolio was allocated
66% to California, 13% to Arizona, 11% to Washington, 6% to Utah, and 2% each to
Oregon and Colorado.
S-6
<PAGE>
The following table depicts our net operating income, or NOI, and occupancy
by each indicated metropolitan market for the quarter ended September 30, 2000,
and our "same-store" revenue growth by each market for the years ended
December 31, 1998 and 1999 and the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
SAME-STORE REVENUE
AT SEPTEMBER 30, 2000 GROWTH(1)
--------------------- -------------------------------
METROPOLITAN MARKET % OF NOI OCCUPANCY 1998 1999 2000
------------------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
San Francisco Bay Area.................................. 30% 98% 11% 5% 11%
Los Angeles/Orange County............................... 13% 98% 7% 8% 6%
San Diego............................................... 14% 97% 9% 7% 7%
Sacramento.............................................. 9% 98% 5% 4% 5%
Seattle................................................. 11% 98% 9% 2% 3%
Portland................................................ 2% 99% 2% -7% 8%
Denver.................................................. 2% 100% -- -- 3%
Phoenix................................................. 12% 95% 5% 1% 2%
Tucson.................................................. 1% 93% 3% 5% 2%
Salt Lake City.......................................... 6% 97% -- -- 2%
--- --- -- --------- --
Total/Portfolio weighted average........................ 100% 97% 7% 4% 6%
=== === == ========= ==
</TABLE>
------------------------
(1) We define "same-store" properties as stabilized apartment communities owned
by us for at least five full quarters. Same-store revenue growth reflects
data for markets where we had property investments as of September 30, 2000.
BUSINESS AND GROWTH STRATEGIES
INVESTMENT STRATEGY
Our research-driven investment focus seeks to identify markets in the
Western United States that combine strong demographic and economic trends with
significant constraints to the development of new product, including limited
availability of land, difficulty of entitlement and environmental regulations.
Using the allocations derived from our proprietary model portfolio analysis, our
local market development and acquisition teams target development sites and
acquisition opportunities using strict underwriting and risk-management
criteria.
In determining the suitability of markets for investment, we combine our
analysis of the restrictions on the supply of housing with quantitative and
qualitative factors. The quantitative factors we evaluate include, among others,
employment, wage and population growth, net migration and housing affordability.
The qualitative factors we assess are customer-focused attributes including cost
of living, employment opportunities, educational opportunities, transportation
amenities, community safety, health care amenities, recreational and cultural
amenities and climate.
We believe that property dispositions play a critical role in our overall
strategy. From time to time and based on extensive research, we select
properties for sale that we believe have reached maximum cash flow potential.
Since January 1, 1998, we have sold 23 apartment communities totaling 4,838
units, deriving gross sales proceeds of $287,200,000. Certain properties that we
have sold comprised a portion of the portfolios we acquired in transactions with
REIT of California and Trammell Crow Residential West. Sales proceeds are
typically reinvested in new acquisitions and developments that we believe have
greater long-term cash flow growth prospects.
S-7
<PAGE>
INTERNAL PROPERTY MANAGEMENT
All of our apartment communities are managed internally. We use a divisional
and regional management structure with eight local offices to serve our target
markets. By hiring experienced divisional and regional managers at the local
level, we believe we can more readily respond to changes in local market
conditions and better serve local resident populations. We support our local
market personnel with central management information systems that track leasing,
rent collection, expense activity, turnover and customer satisfaction data at
each of our communities. The regional managers develop and implement an annual
business plan for each asset that:
- Focuses on the growth of rental income and other revenues with the
objective of keeping rental rates at or above those of competitive
properties;
- Focuses on maintaining high physical and economic occupancy by integrating
local market knowledge and surveys with market research prepared by our
research department;
- Provides customer-defined amenities and services designed to enhance
revenues from various customer segments; and
- Controls expenses and allocates resources to increase the operating
margins of each asset.
Each community business plan may include selected renovations and
improvements to acquisition properties or to existing properties to enhance
their income potential.
In addition, we focus on customer satisfaction. Our goal is to find resident
solutions for our customers that deepen and extend our relationship, while
creating additional value. For example, we strive to retain residents by
providing high levels of service to minimize the cost of preparing an apartment
for a new resident and to reduce marketing and other related expenses.
We intend to continue using technology in innovative ways to enhance
customer service and maximize productivity. For example, we are implementing a
suite of Internet-based applications and services that allow residents to pay
rent online, place and track maintenance requests and communicate with
management. At December 31, 2000, approximately 40 of our apartment communities
were connected to our Internet-based applications or prepared for our services.
We expect the balance of our apartment communities to have access to these
applications by the end of 2001.
We believe the innovative use of technology and information systems is an
important element in managing our operations and future growth. We believe the
timely and accurate collection of operational, financial and resident data will
enable us to maximize revenue through leasing decisions and financial
management. To assist in the development of greater resident services and
benefits, we use a community and regional level customer satisfaction survey and
database. These tools assess the rental experience and provide us with the data
to prioritize factors customers consider valuable and essential, influencing
their decision to renew leases and refer new customers.
EXTERNAL GROWTH
We believe we are well positioned to generate growth through the development
and acquisition of apartment communities in our target markets. Our
research-driven investment focus enhances our ability to alter our mix of
acquisition, development and rehabilitation activities within our target market,
optimizing the economic performance of the portfolio.
S-8
<PAGE>
ACQUISITION ACTIVITIES
We believe that due to our asset size, property management strengths and
reputation, we are well positioned to acquire individual properties and
portfolios of assets. Since December 31, 1995, we have acquired $1.29 billion in
real estate, representing 63 apartment communities, with 15,512 units,
including:
- $626,600,000 of individual property acquisitions, comprising 24 apartment
communities with 7,145 units;
- $386,000,000 acquisition of assets from Trammell Crow Residential West,
comprising 17 stabilized apartment communities with 4,786 units and eight
apartment communities, compromising 2,445 units then under development,
which have been completed and stabilized; and
- $274,400,000 acquisition of REIT of California, comprising 22 apartment
communities of 3,581 units (and $108,000,000 of non-residential properties
which were subsequently sold, with the sales proceeds used to acquire
individual apartment properties).
DEVELOPMENT ACTIVITIES
We carefully select land for development and follow established procedures
that we believe minimize both the cost and the risks of development. We identify
development opportunities through local market presence and access local market
information through our regional development offices. We maintain regional
development teams in or near the following cities:
<TABLE>
<S> <C>
- San Francisco, California - Sacramento, California
- Newport Beach, California - Seattle, Washington
- San Diego, California - Denver, Colorado
</TABLE>
After selecting a target site, we negotiate for the right to acquire the
site either through an option or a long-term conditional purchase contract.
After we acquire land, we generally shift our focus to pre-development
activities and construction. Typically, we act as our own general contractor. We
believe this enables us to achieve higher quality, and greater control over
schedules and costs. Our development and property management teams monitor
construction progress to ensure high quality workmanship and a smooth and timely
transition to the leasing and operational phase.
REHABILITATION ACTIVITIES
We select existing under-managed apartment communities in fully-developed
neighborhoods and create value by substantially refurbishing these communities.
When we undertake the rehabilitation of a community, our goal is to reposition
the community so that our total investment is below replacement cost and the
community is the highest quality apartment community or best rental value for an
apartment community in its local area. We have established procedures to
minimize both the cost and risks of rehabilitation. Our rehabilitation team
includes development, construction and asset management personnel to collaborate
on the market-appropriate project plan and to assure quality workmanship and a
smooth and timely transition to lease-up and restabilization at completion.
S-9
<PAGE>
DEVELOPMENT PROPERTIES
The following table provides data on our 15 multifamily properties that are
currently under various stages of development and construction. Completion of
the development properties is subject to a number of risks and uncertainties,
including construction delays and cost overruns. No assurance can be given that
these properties will be completed or, that they will be completed by the
estimated dates, or for the estimated amount, or will contain the number of
proposed units shown in the table below.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-----------------------------------------------------------------------------
BUDGETED BALANCE TO
NO. OF COST COST INCURRED COMPLETE ESTIMATED
COMMUNITIES UNITS (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) COMPLETION BY(1)
----------- -------- ------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
DIRECTLY OWNED DEVELOPMENT
Pinnacle at Bellecentre
BELLEVUE, WA............................. 248 $ 39.6 $ 37.3 $ 2.3 March 31, 2001
Pinnacle at Carmel Creek
SAN DIEGO, CA............................ 348 49.4 46.3 3.1 December 31, 2000(6)
Pinnacle at Overlook II
FOLSOM, CA............................... 112 10.4 8.0 2.4 December 31, 2000(6)
----- ------ ------ ------
Subtotal............................. 708 $ 99.4 $ 91.6(4) $ 7.8
----- ------ ------ ------
JOINT VENTURE DEVELOPMENT(2)
Pinnacle Sonata
BOTHELL, WA.............................. 268 $ 47.7 $ 46.3 $ 1.4 December 31, 2000(6)
Pinnacle at Queen Creek
CHANDLER, AZ............................. 252 18.7 13.9 4.8 March 31, 2001
Pinnacle at Stone Creek
PARADISE VALLEY, AZ...................... 226 23.0 13.5 9.5 September 30, 2001
Pinnacle at MacArthur Place
SANTA ANA, CA............................ 253 55.3 26.5 28.8 December 31, 2001
Pinnacle Galleria
ROSEVILLE, CA............................ 236 23.5 8.4 15.1 December 31, 2001
----- ------ ------ ------
Subtotal............................. 1,235 $168.2 $108.6(5) $ 59.6
----- ------ ------ ------
LAND UNDER DEVELOPMENT(3)
Pinnacle at the Bluffs
RENTON, WA............................... 180 $ 26.1 $ 9.6 $ 16.5 December 31, 2001
Pinnacle at the Creek
AURORA, CO............................... 216 18.7 3.1 15.6 March 31, 2002
Pinnacle at Otay Ranch I
CHULA VISTA, CA.......................... 204 26.6 5.4 21.2 March 31, 2002
Pinnacle at Otay Ranch II
CHULA VISTA, CA.......................... 160 21.6 7.2 14.4 June 30, 2002
Pinnacle at Denver Tech. Center
GREENWOOD VILLAGE, CO.................... 420 42.1 8.5 33.6 December 31, 2002
Pinnacle at Fullerton
FULLERTON, CA............................ 192 36.3 7.8 28.5 December 31, 2002
Pinnacle at Talega
NEWPORT BEACH, CA........................ 252 41.4 13.0 28.4 December 31, 2002
----- ------ ------ ------
Subtotal............................. 1,624 $212.8 $ 54.6 $158.2
----- ------ ------ ------
Total.............................. 3,567 $480.4 $254.8 $225.6
===== ====== ====== ======
</TABLE>
------------------------------
(1) "Completion" is defined as our estimate of when an entire project will have
a certificate of occupancy issued and be ready for occupancy. Completion
dates have been updated to reflect our current estimates of receipt of final
certificates of occupancy, which are dependent on several factors including
construction delays and the inability to obtain necessary public approvals.
(2) With respect to our aggregated joint ventures, we currently expect to
maintain approximately 35% - 40% leverage and contribute approximately 30%
of the remaining equity.
(3) Land under development represents projects in various stages of
pre-development, development and initial construction for which
construction or supply contracts have not yet been finalized. As these
contracts are finalized, projects are moved to Directly Owned Development.
(4) Reflects all recorded and allocated costs incurred at September 30, 2000,
consisting of $48 million recorded on our balance sheet as "direct
investments--construction in progress" and $43.6 million of costs for
completed buildings located on the listed properties reflected on our
balance sheet as "direct investments--investments in rental properties."
(5) Consists of $50.3 million recorded on our balance sheet as "equity interest
in and advances to real estate joint ventures--construction in progress,"
net of $58.3 million in construction loan balances.
(6) Project has been completed.
S-10
<PAGE>
PROPERTIES
The following table provides certain information regarding the multifamily
communities that comprise our operating real estate investments as of
September 30, 2000. Except as noted below, occupancy information is as of
December 31, 2000.
<TABLE>
<CAPTION>
RENTABLE SQ. NET BOOK VALUE YEAR BUILT/
PROPERTY NAME CITY UNITS FT. (IN THOUSANDS) REHABILITATION OCCUPANCY(1)
------------- -------------- -------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA
SAN FRANCISCO BAY AREA
Verandas.................... Union City 282 199,152 $ 16,967 1989 96%
Sharon Green................ Menlo Park 296 321,944 10,715 1970/99 96
Foster's Landing............ Foster City 490 414,918 64,044 1987/97 97
Promontory Point............ San Ramon 400 337,064 43,965 1992 93
Red Hawk Ranch.............. Fremont 453 404,034 59,158 1995 96
Lakeshore Landing........... San Mateo 308 223,772 44,823 1988/98 97
Pinnacle at City Centre..... Hayward 192 174,672 27,896 2000 93
Deer Valley................. San Rafael 171 167,492 30,355 1996 99
Blue Rock Village I & II.... Vallejo 560 447,872 35,419 1986-88/98 98
------ ---------- ---------- ---
TOTAL SAN FRANCISCO BAY
AREA...................... 3,152 2,690,920 $ 333,342 96%
SAN DIEGO
Canyon Villas............... Chula Vista 183 179,043 $ 15,988 1981 98%
Lakeview Village............ Spring Valley 300 246,932 20,513 1985 96
Countryside Village......... El Cajon 96 70,980 5,117 1989 99
Montanosa................... San Diego 472 352,248 31,131 1990 95
Cimmaron.................... San Diego 184 146,472 9,904 1986 98
Hacienda.................... San Diego 192 148,624 10,363 1986 98
Westpark.................... San Diego 96 71,760 5,153 1986 98
Terra Nova Villas........... Chula Vista 232 185,440 14,999 1985 96
Winchester.................. San Diego 144 112,744 7,531 1987 98
Cambridge Park.............. San Diego 320 320,200 38,205 1998 97
Reflections Apartments...... San Diego 356 283,426 34,940 1989 98
------ ---------- ---------- ---
TOTAL SAN DIEGO............. 2,575 2,117,869 $ 193,844 97%
LOS ANGELES/ORANGE COUNTY
Windrush Village............ Colton 366 308,000 $ 19,079 1985 96%
The Summit.................. Chino Hills 125 98,420 9,439 1989 95
Candlewood North............ Northridge 189 165,890 10,717 1964/95 98
Village Green............... La Habra 272 175,508 3,635 1971 95
Sycamore Valley............. Fountain Vly 440 413,616 24,807 1969/96 96
Parkside Village............ Riverside 304 266,816 17,302 1987 95
Parkside Court.............. Santa Ana 210 169,050 10,929 1986 98
Parkside Terrace............ Santa Ana 240 194,040 15,485 1987 97
The Arbors at Warner
Center.................... Woodland Hills 250 181,743 24,395 1978/98 97
Villa Siena................. Costa Mesa 272 262,842 28,771 1974/00 94
------ ---------- ---------- ---
TOTAL LOS ANGELES/ORANGE
COUNTY.................... 2,668 2,235,925 $ 164,559 96%
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. NET BOOK VALUE YEAR BUILT/
PROPERTY NAME CITY UNITS FT. (IN THOUSANDS) REHABILITATION OCCUPANCY(1)
------------- -------------- -------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SACRAMENTO
Hazel Ranch................. Fair Oaks 208 156,464 $ 12,667 1985 99%
Rocklin Gold................ Rocklin 121 117,238 7,941 1990 94
Shaliko..................... Rocklin 151 153,974 10,772 1990 98
Quail Chase................. Folsom 90 83,100 6,704 1990 98
Canterbury Downs............ Roseville 173 155,000 11,646 1993 98
Selby Ranch................. Sacramento 400 396,442 24,576 1971/74/99 96
Overlook at Blue Ravine I... Folsom 400 386,256 30,817 1991 97
Arbor Pointe................ Sacramento 240 199,968 10,853 1988/98 99
------ ---------- ---------- ---
TOTAL SACRAMENTO............ 1,783 1,648,442 $ 115,976 97%
ARIZONA
PHOENIX
Scottsdale Cove............. Scottsdale 316 303,013 $ 18,260 1992 96%
Arcadia Cove................ Phoenix 432 366,780 25,117 1996 95
Newport Landing............. Glendale 480 383,160 23,250 1987/96 94
Pinnacle at South Mtn. I &
II........................ Phoenix 552 564,432 55,574 1996 96
Pinnacle at Union Hills..... Phoenix 264 265,648 23,225 1997 99
Pinnacle Towne Center....... Phoenix 350 357,590 34,233 1998 92
Pinnacle Terrace............ Chandler 300 277,368 23,398 1998 97
------ ---------- ---------- ---
TOTAL PHOENIX............... 2,694 2,517,991 $ 203,057 95%
TUCSON
Hacienda del Rio(2)......... Tucson 248 152,504 $ 9,591 1983 96%
Colonia del Rio(2).......... Tucson 176 177,760 8,999 1985 93
Fountain Plaza(2)........... Tucson 197 107,294 4,774 1975 93
------ ---------- ---------- ---
TOTAL TUCSON................ 621 437,558 $ 23,364 94%
WASHINGTON
SEATTLE
Parkwood.................... Mill Creek 240 256,256 $ 20,056 1989 96%
Shadowbrook................. Redmond 416 334,990 22,865 1986 97
Citywalk.................... Seattle 102 90,672 5,552 1988 100
Thrasher's Mill............. Bothell 214 165,386 10,600 1988/96 99
Ballinger Commons........... Seattle 485 407,253 30,024 1989 98
Park At Dashpoint........... Federal Way 280 264,552 15,795 1989 95
Montebello.................. Kirkland 248 271,026 34,089 1998 99
Park Highlands.............. Bellevue 250 226,670 28,181 1993 95
Brentwood Townhomes......... Kent 81 111,429 7,121 1991 98
------ ---------- ---------- ---
TOTAL SEATTLE............... 2,316 2,128,234 $ 174,283 97%
OREGON
PORTLAND
Brookdale Glen.............. Portland 354 271,040 $ 14,934 1985 96%
Berkshire Court............. Wilsonville 266 231,968 17,396 1996 96
Carriage House.............. Vancouver 160 162,520 9,455 1991 97
------ ---------- ---------- ---
TOTAL PORTLAND.............. 780 665,528 $ 41,785 96%
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
RENTABLE SQ. NET BOOK VALUE YEAR BUILT/
PROPERTY NAME CITY UNITS FT. (IN THOUSANDS) REHABILITATION OCCUPANCY(1)
------------- -------------- -------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
UTAH
SALT LAKE CITY
Pinnacle at Fort Union...... Salt Lake City 160 161,536 $ 15,143 1997 97%
Pinnacle Reserve............ Draper 492 490,440 44,477 1997 97
Pinnacle Lakeside........... Salt Lake City 253 249,000 17,250 1985 95
Pinnacle Canyon View........ Orem 288 275,168 25,834 1998 96
Pinnacle Mountain View...... Clearfield 324 287,712 26,138 1998 96
------ ---------- ---------- ---
TOTAL SALT LAKE CITY........ 1,517 1,463,856 $ 128,842 96%
COLORADO
DENVER
Landing at Bear Creek....... Lakewood 224 206,528 $ 18,603 1996 98%
Pinnacle at Hunters Glen.... Thornton 264 220,200 23,235 1998 98
------ ---------- ---------- ---
TOTAL DENVER................ 488 426,728 $ 41,838 98%
TOTAL ALL PROPERTIES........ 18,594 16,333,051 $1,420,890 96%
</TABLE>
------------------------
(1) Occupancy is calculated by dividing the total occupied units by the total
units in stabilized communities in the portfolio at the end of the period.
Total occupancy percentages reflect the weighted average occupancy.
(2) As of September 30, 2000, we had a commitment to sell these properties
pursuant to an agreement with G&I III Residential One, LLC. Although there
can be no assurance, we anticipate that these three properties will be sold
and contributed to a joint venture in which we will have a minority interest
during the first quarter of 2001. This closing is subject to closing
conditions and loan assumptions.
S-13
<PAGE>
RECENT DEVELOPMENTS
Subsequent to September 30, 2000, we acquired three multifamily apartment
communities: (i) Sun Pointe Village, a 336-unit multifamily apartment community
in Fremont, California, for approximately $64 million; (ii) Pinnacle Mountain
Gate, a newly-developed 496-unit multifamily apartment community located in
Littleton, Colorado, for approximately $42 million; and (iii) Pinnacle at
Cortesia, a 308-unit multifamily apartment community located in Rancho Santa
Margherita, California, for approximately $38 million.
On December 15, 2000, we confirmed our previously disclosed capital
commitments to VelocityHSI, Inc., a provider of high-speed Internet service to
the apartment industry. Our confirmation of the capital commitment followed the
announcement on December 15, 2000 by VelocityHSI of a modification of its
business plan in light of adverse changes in the capital markets for Internet
and telecommunication-related businesses and its failure to obtain anticipated
financing. VelocityHSI was formed as a division of BRE in April 2000 and spun
off as a separately traded public company in August 2000. We retained an
ownership interest of approximately 9.9% in VelocityHSI, that is recorded on our
financial statements under the equity method of accounting. Until VelocityHSI
has secured an outside source of funding, we will record 100% of VelocityHSI's
losses under our Internet business segment.
As of the date of this prospectus supplement, we have advanced approximately
$5.2 million pursuant to our agreement to provide VelocityHSI with up to
$10 million in funding for general corporate expenses and the costs of
installing equipment at properties not owned by us. In addition, we have
advanced approximately $1.1 million to finance the installation of equipment in
properties owned by us. Installation of equipment at our apartment communities
has been suspended pending VelocityHSI's development of a new operating and
capital plan.
On December 19, 2000, we entered into a $450 million unsecured credit
facility (the "Credit Facility"), which we anticipate using to repay outstanding
borrowings under our current credit facility on January 16, 2001. The Credit
Facility matures on December 19, 2003. Borrowings under the Credit Facility bear
interest at the lender's prime rate or LIBOR plus 0.70%.
USE OF PROCEEDS
The net proceeds from the sale of the notes are estimated to be
$246.7 million. The proceeds will be used to invest in additional multifamily
apartment communities. Pending such use, the proceeds will be used primarily to
repay a portion of the borrowings under our current credit facility. At
January 4, 2001, outstanding borrowings under our current credit facility
totaled $361 million, bear interest at the lender's prime rate or LIBOR plus
0.70%, and were incurred for the purposes of financing development and
acquisition activities and for working capital.
S-14
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
Shares of our common stock, $0.01 par value per share, are traded on the New
York Stock Exchange (the "NYSE") under the symbol "BRE." As of December 31,
2000, there were 6,241 holders of record of our shares of common stock. The
following table sets forth, for the periods shown, the high and low sale prices
for our shares of common stock as reported on the NYSE composite tape and the
distributions paid by us. On January 4, 2001, the last reported sale price of
our common stock as reported by the NYSE was $31.88 per share.
<TABLE>
<CAPTION>
PRICE OF SHARES
------------------- DISTRIBUTIONS
HIGH LOW PER SHARE
-------- -------- -------------
<S> <C> <C> <C>
1998
First Quarter............................... $27.992 $25.608 $0.360
Second Quarter.............................. 28.053 24.085 0.360
Third Quarter............................... 27.992 21.025 0.360
Fourth Quarter.............................. 24.692 21.819 0.360
1999
First Quarter............................... $24.753 $21.514 $0.390
Second Quarter.............................. 25.792 21.636 0.390
Third Quarter............................... 25.608 22.491 0.390
Fourth Quarter.............................. 23.836 20.047 0.390
2000
First Quarter............................... $26.831 $21.269 $0.425
Second Quarter.............................. 29.826 24.692 0.425
Third Quarter............................... 33.000 28.114 0.425
Fourth Quarter.............................. 33.625 29.750 0.425*
2001
First Quarter (through January 4, 2001)..... $32.188 $30.625
</TABLE>
------------------------
* This quarterly dividend represents the 121st consecutive quarterly dividend
paid by us.
S-15
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of September 30, 2000, and as adjusted to give effect to the sale of the notes
and the application of the estimated net proceeds as described under "Use of
Proceeds" to repay outstanding borrowings under our credit facility until the
proceeds are invested in additional multifamily apartment communities. The table
should be read in conjunction with the consolidated financial statements and
notes thereto incorporated into the accompanying prospectus by reference to our
Annual Report on Form 10-K for the year ended December 31, 1999, as amended, and
our Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and
September 30, 2000.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Indebtedness:
Unsecured lines of credit(1)................................ $ 208,500 $ --
Unsecured senior notes due 2007............................. 50,000 50,000
Unsecured senior notes due 2013............................. 130,000 130,000
Unsecured senior notes due 2004 and 2005.................... 63,000 63,000
Notes offered hereby........................................ -- 250,000
Mortgage loans payable...................................... 214,987 214,987
---------- ----------
Total Indebtedness(2)....................................... $ 666,487 $ 707,987
Minority interest........................................... 70,608 70,608
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, 2,150,000 shares of Series A preferred stock
issued and outstanding with a liquidation preference of
$25.00 per share.......................................... 53,750 53,750
Common stock, $0.01 par value, 100,000,000 shares
authorized, 45,681,540 shares issued and outstanding...... 457 457
Additional paid-in capital.................................. 694,081 694,081
Accumulated net income in excess of cumulative dividends.... 56,946 56,946
Stock purchase loans to executives.......................... (2,903) (2,903)
---------- ----------
Total shareholders' equity.................................. 802,331 802,331
---------- ----------
Total capitalization........................................ $1,539,426 $1,580,926
========== ==========
</TABLE>
(1) As of September 30, 2000, we had an unsecured credit facility expiring
August 2001 in the amount of $400,000,000 bearing interest at the lender's
prime rate or LIBOR plus 0.70%. At September 30, 2000, the outstanding
borrowings totaled $208,500,000, providing additional funding availability
of $191,500,000. On December 19, 2000, we entered into the Credit Facility
to replace our existing credit facility. At January 4, 2001, outstanding
borrowings under our current credit facility totaled $361,000,000, of which
approximately $246,730,000 will be repaid with the net proceeds from this
offering. See "Recent Developments."
In addition, at September 30, 2000, we had an unsecured credit facility
expiring December 2000, in the amount of $100,000,000, bearing interest at
the lender's prime rate or LIBOR plus 0.95%. At September 30, 2000, there
were no outstanding borrowings under this credit facility. Subsequent to
September 30, 2000, this credit facility expired and was not replaced.
(2) Includes current maturities totaling $12,857,000 which are due in 2001.
S-16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following selected consolidated financial and other information for the
five years ended December 31, 1999 are derived from the audited consolidated
financial statements of BRE Properties, Inc. and should be read in conjunction
with its consolidated financial statements, related notes and other financial
information incorporated by reference in the accompanying prospectus. The data
for the nine months ended September 30, 2000 and 1999 does not purport to be
indicative of future results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ------------ ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues....................... $ 191,652 $ 173,588 $ 234,253 $ 203,245 $ 137,761 $ 101,651 $ 65,387
Real estate expenses........... 55,155 52,986 70,469 64,624 44,571 31,030 21,540
----------- ----------- ------------ ----------- ----------- ----------- -----------
Net operating income........... 136,497 120,602 163,784 138,621 93,190 70,621 43,847
Expenses
Interest expense............. 34,882 30,535 41,695 35,598 21,606 16,325 7,973
Provision for depreciation... 28,541 26,287 35,524 27,763 17,938 13,283 7,864
General and administrative
and other expenses(1)...... 9,075 6,373 7,956 8,533 4,301 3,999 6,221
Net loss (gain) on sales of
investments................ 32,711 (54) (54) 1,859 (27,824) (52,825) (221)
----------- ----------- ------------ ----------- ----------- ----------- -----------
Total expenses................. 105,209 63,141 85,121 73,753 16,021 (19,218) 21,837
Preferred stock dividends and
minority interest............ 7,428 7,144 9,629 4,224 972 -- --
----------- ----------- ------------ ----------- ----------- ----------- -----------
Net income available to common
shareholders................. $ 23,860 $ 50,317 $ 69,034 $ 60,644 $ 76,197 $ 89,839 $ 22,010
=========== =========== ============ =========== =========== =========== ===========
PER SHARE DATA
Net income available to common
shareholders(2):
Basic........................ $ 0.53 $ 1.13 $ 1.55 $ 1.41 $ 2.13 $ 2.94 $ 1.01
Diluted...................... $ 0.53 $ 1.13 $ 1.55 $ 1.41 $ 2.11 $ 2.92 $ 1.00
Cash distributions per common
share........................ $ 1.28 $ 1.17 $ 1.56 $ 1.44 $ 1.38 $ 1.33 $ 1.26
BALANCE SHEET DATA
Investments in real estate,
net.......................... $ 1,509,499 $ 1,620,605 $ 1,670,335 $ 1,601,781 $ 1,294,422 $ 764,078 $ 322,080
Total assets................... $ 1,563,436 $ 1,649,554 $ 1,709,453 $ 1,630,916 $ 1,341,898 $ 783,714 $ 354,895
Total indebtedness............. $ 666,487 $ 719,399 $ 779,403 $ 752,146 $ 541,367 $ 311,985 $ 112,290
Total liabilities.............. $ 690,497 $ 736,761 $ 796,615 $ 778,479 $ 558,337 $ 319,600 $ 115,647
Total shareholders' equity..... $ 802,331 $ 823,929 $ 825,198 $ 765,005 $ 707,495 $ 464,114 $ 239,248
OTHER INFORMATION
Average number of common shares
outstanding(2):
Basic........................ 44,990,000 44,500,000 44,540,000 42,940,000 35,750,000 30,520,000 21,905,000
Diluted...................... 48,160,000 47,740,000 44,760,000 46,110,000 36,610,000 30,790,000 21,940,000
Funds from operations(3)....... $91,819,000 $80,208,000 $110,601,000 $96,792,000 $67,283,000 $50,297,000 $31,653,000
Ratio of total indebtedness to
total assets................. 42.6% 43.6% 45.6% 46.1% 40.3% 39.8% 31.6%
Interest coverage(4)........... 3.7x 3.8x 3.8x 3.7x 4.1x 4.1x 5.0x
Consolidated ratio of earnings
to fixed charges(5).......... 3.4x 3.4x 3.4x 3.5x 3.7x 3.7x 4.4x
Total wholly or majority-owned
apartment communities........ 67 85 86 85 74 51 22
Total completed apartment
units........................ 18,594 22,334 22,690 21,858 18,569 12,212 5,235
</TABLE>
------------------------------
(1) General and administrative and other expenses include our provision for
losses, expenses related to our Internet business segment and other
operating expenses.
(2) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE. For further discussion of earnings per share and the
impact of Statement No. 128, see the notes to the consolidated financial
statements incorporated by reference in the accompanying prospectus.
S-17
<PAGE>
(3) Management considers funds from operations ("FFO") to be an appropriate
supplemental measure of the performance of an equity REIT because it is
predicated on cash flow analyses that facilitate an understanding of the
operating performances of our properties without giving effect to noncash
items such as depreciation. FFO is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income or loss (computed in
accordance with generally accepted accounting principles) excluding gains or
losses from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets. FFO does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles, and therefore should not be considered a substitute for net
income as a measure of results of operations or for cash flow from
operations as a measure of liquidity. Additionally, the application and
calculation of FFO by other REITs may vary materially from our calculations,
and therefore our FFO and the FFO of other REITs may not be directly
comparable. On October 27, 1999, NAREIT revised its definition for periods
after January 1, 2000. Consequently, FFO calculations for periods ending
subsequent to January 1, 2000 may not be comparable to calculations for
periods ended prior to that date.
(4) Interest coverage is the quotient determined by dividing EBITDA by Interest
Expense. EBITDA is defined for any period, with respect to the company on a
consolidated basis, determined in accordance with generally accepted
accounting principles, the sum of net income (or net loss) for such period
plus, the sum of all amounts treated as expenses for (a) interest,
(b) minority interest, (c) depreciation, (d) amortization and (e) all
accrued taxes on or measured by income to the extent included in the
determination of such net income (or net loss); provided that the net income
(or net loss) is computed without giving effect to non-recurring losses or
gains on the sale of the assets.
(5) For purposes of calculating our unaudited consolidated ratio of earnings to
fixed charges for the periods indicated, earnings include net income,
excluding the equity earnings in a less than 50% owned subsidiary, plus
fixed charges and capitalized interest. Fixed charges consists of interest
on all indebtedness and the amortization of loan expenses.
S-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
Total revenues were $191,652,000 for the nine months ended September 30,
2000 compared to $173,588,000 for the same period in 1999. This increase was
primarily due to increases in rental rates, decreased use of concessions, and an
increase in multifamily rental revenues resulting from the acquisition of two
multifamily communities and the completion of five multifamily properties
previously under lease up. These changes in the portfolio contributed, on a net
basis, approximately $16,054,000 to multifamily rental revenues for the nine
months ended September 30, 2000 as compared to the same period in 1999. Physical
occupancy was 97% at September 30, 2000 and 1999. Further, multifamily rental
revenues from "same-store" communities (multifamily communities owned by BRE and
stabilized as of January 1, 1999 and consisting of 16,886 of our 18,594 total
units) increased $8,430,000 for the nine months ended September 30, 2000,
compared to the same period in 1999. This increase in revenue from same-store
communities was due primarily to an average increase in rental rates of
approximately 6%.
Other income increased from $11,809,000 in the nine months ended
September 30, 1999 to $13,624,000 for the nine months ended September 30, 2000,
due primarily to the portfolio changes discussed above and development and
management fees.
A summary of the components of revenue for the nine months ended
September 30, 2000 and 1999 follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 % CHANGE
--------------------- --------------------- FROM
% OF TOTAL % OF TOTAL 1999 TO
REVENUES REVENUES REVENUES REVENUES 2000
-------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Rental Revenue:
Multifamily:
Same-store............................... $139,597 $131,167
Non same-store........................... 13,392 5,265
Sold communities......................... 24,871 25,160
-------- --------
Total Multifamily.......................... 177,860 93% 161,592 93% 10%
Commercial and retail...................... 168 -- 187 -- -10%
-------- --- -------- ---
Rental revenue............................. 178,028 93% 161,779 93% 10%
Other income............................... 13,624 7% 11,809 7% 15%
-------- --- -------- ---
Total revenue.............................. $191,652 100% $173,588 100% 10%
======== === ======== ===
</TABLE>
EXPENSES
REAL ESTATE EXPENSES
Real estate expenses for multifamily properties (including maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the nine months ended
September 30, 2000 increased 4% to $55,155,000 from the comparable period in
1999 primarily due to expenses of two multifamily property acquisitions and the
completion of five multifamily properties previously under lease up. Real estate
expenses as a percentage of total revenues were 28.8% and 30.5% for the nine
months ended September 30, 2000 and 1999, respectively, primarily due to
increased economies from operating a larger portfolio.
S-19
<PAGE>
A summary of the categories of real estate expenses for the nine months
ended September 30, 2000 and 1999 follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 % CHANGE
--------------------- --------------------- FROM
% OF TOTAL % OF TOTAL 1999 TO
EXPENSE REVENUE EXPENSE REVENUE 2000
-------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Multifamily:
Same-store................................... $41,487 $40,992 1%
Non same-store............................... 3,869 1,512 156%
Sold communities............................. 9,464 10,425 -9%
Other........................................ 335 57 488%
------- -------
Total real estate expense.................... $55,155 28.8% $52,986 30.5% 4%
======= =======
</TABLE>
PROVISION FOR DEPRECIATION
The provision for depreciation increased by $2,254,000 to $28,541,000 for
the nine months ended September 30, 2000 from the comparable period of 1999. The
increase resulted primarily from the acquisition of two multifamily properties.
INTEREST EXPENSE
Interest expense was $34,882,000 (net of interest capitalized to the cost of
apartment communities under development of $11,885,000) for the nine months
ended September 30, 2000, an increase of $4,347,000 or 14% from the comparable
period in 1999. Interest expense was $30,535,000 for the same period in 1999 and
was net of $7,226,000 of interest capitalized to the cost of apartment
communities under construction. This increase was due largely to higher rates on
variable rate debt and higher average outstanding balances on our credit lines.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $5,999,000 or approximately 3.1% of
total revenues for the first nine months in 2000 and $5,123,000 or approximately
3.0% of total revenues, for the first nine months in 1999.
NET GAIN (LOSS) ON SALES OF INVESTMENTS IN RENTAL PROPERTIES
The net loss on sales of investments in rental properties for the nine
months ended September 30, 2000 relates to the 19 communities (4,288 units) in
Tucson, Albuquerque, Las Vegas, and Phoenix we sold for $261,000,000. The net
gain on sale of investments in rental properties for the nine months ended
September 30, 1999 was due to the sale of the Los Senderos community in Phoenix,
Arizona and was offset by a loss on sale of property previously under
construction.
INTERNET BUSINESS SEGMENT
During the nine months ended September 30, 2000, we recognized a net loss
from operations of $3,076,000, primarily due to operating, general and
administrative, and marketing expenses of VelocityHSI prior to the spin off and
distribution on August 15, 2000.
MINORITY INTEREST IN INCOME
Minority interest in income was $4,002,000 and $4,104,000 for the nine
months ended September 30, 2000 and 1999, respectively.
S-20
<PAGE>
DIVIDENDS ATTRIBUTABLE TO PREFERRED STOCK
Dividends attributable to preferred stock represents the dividends on our
8 1/2% Series A Cumulative Redeemable Preferred Stock.
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
Net income available to common shareholders was $23,860,000 and $50,317,000
for the nine months ended September 30, 2000 and 1999, respectively, a decrease
of $26,457,000. This decrease is primarily due to the $32,711,000 loss on the
disposal of assets and is partially offset by increased revenues from the
acquisition of two multifamily communities and the completion of five
multifamily properties previously under lease up.
CONSTRUCTION IN PROGRESS AND LAND UNDER DEVELOPMENT
Land acquired for development is capitalized and reported as "land under
development" until the development plan for the land is formalized. Once the
development plan is determined, the costs are transferred to the balance sheet
line items "construction in progress." Land acquisition, development and
carrying costs of properties under construction are capitalized and reported as
"direct investments in real estate" or "equity interests in and advances to real
estate joint ventures," as appropriate, in "construction in progress." We
transfer the capitalized costs for each building in a community under
construction to the balance sheet line items "investments in rental properties,"
once the building receives a final certificate of occupancy and is ready to
lease.
The following table presents data with respect to properties included in
"construction in progress" and "land under development" at September 30, 2000,
for both direct investment and equity interest properties. Completion of these
properties is subject to a number of risks and uncertainties, including
construction delays and cost overruns. No assurance can be given that these
properties will be completed or, if completed, that they will be completed by
the estimated dates or for the estimated amounts or that they will contain the
number of units proposed in the table below.
<TABLE>
<CAPTION>
TOTAL
PROPOSED COST TO DATE--
UNITS(1) SEPTEMBER 30, 2000 ESTIMATED TOTAL COST
-------- ------------------ --------------------
<S> <C> <C> <C>
Direct investment--
Construction in progress(2)..................... 708 $ 47,985,000(1) $ 99,400,000
Equity interests in joint ventures--
Construction in progress(3)..................... 1,235 50,315,000 168,200,000
----- ------------ ------------
Subtotal...................................... 1,943 98,300,000 $267,600,000
Land under development(4)......................... 1,624 54,613,000
----- ------------
Total......................................... 3,567 $152,913,000
===== ============
</TABLE>
------------------------
(1) As of September 30, 2000, 320 of these units had been delivered and
$41,553,000 has been transferred out of construction in progress into
investments in rental properties.
(2) Consists of Pinnacle Bellecentre in Bellevue, Washington; Pinnacle Carmel
Creek in San Diego, California; and Pinnacle at Overlook II in Folsom,
California with 248, 348 and 112 units planned, respectively.
(3) Consists of the gross costs of five communities, Pinnacle at Stone Creek in
Paradise Valley, Arizona; Pinnacle Sonata in Bothell, Washington; Pinnacle
at MacArthur Place in Santa Ana, California; Pinnacle Galleria in Roseville,
California; and Pinnacle at Queen Creek in Chandler, Arizona with 226, 268,
253, 236 and 252 units planned, respectively. These five communities are
under joint venture
S-21
<PAGE>
agreements and are presented on the financial statements net of $63,000,000
of draws on construction loans and one joint venture partner's capital
contribution. Our net equity contribution upon completion is estimated to be
$34,000,000.
(4) Consists of Pinnacle at the Bluffs in Renton, Washington; Pinnacle at the
Creek in Aurora, Colorado; Pinnacle at Otay Ranch I and II in Chula Vista,
California; Pinnacle at Denver Tech Center, in Greenwood Village, Colorado;
Pinnacle at Fullerton, in Fullerton, California; and Pinnacle at Talega, in
Newport Beach, California, with 180, 216, 204, 160, 420, 192, and 252 units
planned, respectively. The development plans for these communities are under
review and finalization, including obtaining final bids for construction
costs, and the total proposed units may change.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, cash totaled $882,000, down from $13,812,000 at
December 31, 1999 due to cash flows used by financing activities over the excess
of cash flows generated by operating and investing activities, a follows:
- Net cash flows generated by operating activities increased from
$83,781,000 in the first nine months of 1999 to $92,368,000 in the first
nine months of 2000, due to higher earnings from the addition of two real
estate properties and the completion of five properties previously under
lease up.
- Net cash flows of $67,622,000 were generated by investing activities for
the nine months ended September 30, 2000, due primarily to the sale of 19
communities for net proceeds of $255,730,000. Proceeds from the sale are
offset primarily by increased funding of construction in progress,
purchases of land under development and purchases of multifamily operating
properties. Net cash flows used in investing activities were $45,584,000
for the nine months ended September 30, 1999.
- Net cash flows used in financing activities increased from $37,010,000 for
the nine months ended September 30, 1999 to $172,920,000 for the first
nine months of 2000. The increase in cash used was primarily related to
the net repayments in excess of borrowings on the lines of credit,
mortgage loans, and unsecured senior notes.
Balances on our lines of credit totaled $208,500,000 at September 30, 2000,
compared to $315,000,000 at December 31, 1999. Drawings on the lines of credit
are available to pay dividends to shareholders and distributions to minority
members, to fund capital improvements and operating expenses, and to fund
property acquisitions and development. We typically reduce our outstanding
balance on the lines of credit with available cash balances. Borrowings of up to
$500,000,000 are available under our lines of credit, with $291,500,000
available at September 30, 2000. The lines of credit mature in August 2001 as to
$400,000,000 and in December 2000 as to $100,000,000 and bear interest at the
lower of LIBOR plus 0.70% as to $400,000,000 and LIBOR plus 0.95% as to
$100,000,000, or a rate based on bids of the participating banks. Costs of the
lines of credit are 0.15% and 0.30%, respectively, per annum on the total
commitment amounts.
We had a total of $243,000,000 in unsecured indebtedness other than the
lines of credit at September 30, 2000, consisting of the following:
- $63,000,000 of unsecured senior notes with an interest rate of 7.44% per
annum on $45,000,000 and 7.88% per annum on $18,000,000. This indebtedness
is to be repaid through scheduled principal payments annually from 2001 to
2005;
- $50,000,000 principal amount of unsecured senior notes due 2007, with an
effective interest rate of approximately 7.8%; and
- $130,000,000 principal amount of unsecured notes due 2013, with an
effective interest rate of approximately 7.3%.
S-22
<PAGE>
In addition, at September 30, 2000, we had mortgage indebtedness totaling
$214,987,000 at interest rates ranging from 5.3% to 9.3%, with remaining terms
ranging from less than one to 28 years.
For additional information regarding our lines of credit, unsecured senior
notes payable and mortgage loans payable, including scheduled principal payments
over the next five years, see Notes 5 and 6 to Notes to Consolidated Financial
Statements contained in our Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 1999. Certain of our indebtedness contain
financial covenants as to minimum net worth, interest coverage ratios, maximum
secured debt and total debt to capital, among others. We were in compliance with
all such financial covenants during the quarter and nine months ended
September 30, 2000.
During the nine months ended September 30, 2000, we purchased six land sites
for development for a gross purchase price of approximately $48,271,000,
including costs to prepare the land for development of $13,496,000. Further, we
funded approximately $43,000,000 for direct investment construction in progress
and advanced a net $25,000,000 for joint venture construction in progress during
the nine months ended September 30, 2000. These acquisition and construction
costs were funded by borrowings on the lines of credit and construction loans on
communities under joint venture agreements. We continually evaluate our
portfolio to determine whether acquisitions or dispositions may be appropriate
to maximize the portfolio's performance.
Depending upon the availability and cost of external capital, we anticipate
making additional investments in multi-family communities. New investments are
funded from temporary borrowings under our lines of credit, internally generated
cash and the proceeds derived from asset sales. Permanent financing for future
investments, which replaces funds drawn under the lines of credit, is expected
to be provided through a combination of private and public offerings of debt and
equity securities, the assumption of secured debt, and proceeds derived from
joint venture arrangements. We believe our liquidity and various sources of
available capital are sufficient to fund operations, meet debt service and
dividend requirements, and finance future investments.
As of September 30, 2000, we have an effective shelf registration on file
with the Securities and Exchange Commission under which we may issue up to
approximately $637 million of securities including debt, convertible debt,
common and preferred stock. Depending upon market conditions, we may issue
securities under such shelf registration to invest in additional multifamily
communities and to repay borrowings under our lines of credit.
OTHER INFORMATION
SPIN-OFF AND DISTRIBUTION OF VELOCITYHSI, INC.
On August 15, 2000, we completed the VelocityHSI spin-off. BRE shareholders
of record as of August 7, 2000 received one share of VelocityHSI for every 5
shares of BRE owned. Immediately after the spin-off, we continued to hold 13%
ownership in VelocityHSI which we subsequently reduced to approximately 9.9%.
At the time of the spin-off, our investment in VelocityHSI was approximately
$10,029,000. We recorded 86.9% of this investment as an in-kind dividend
distribution, representing the spin-off to shareholders, and the remainder
remained on our balance sheet as our initial investment in VelocityHSI. After
the spin-off, VelocityHSI will be obligated to reimburse BRE by September 30,
2001 for advances made to VelocityHSI, including interest at 9%. Such advances
are limited to $10,000,000 for general corporate purposes plus an amount
necessary (expected to be $4 million) to install VelocityHSI services at all BRE
communities.
S-23
<PAGE>
DIVIDENDS AND DISTRIBUTIONS TO MINORITY MEMBERS
A cash dividend has been paid to common shareholders each quarter since our
inception in 1970. On February 24, 2000, we increased our annual dividend on our
common shares from $1.56 per year to $1.70 per year. Total dividends paid to
common shareholders for the nine months ended September 30, 2000 and 1999 were
$57,261,000 and $52,118,000, respectively. In addition, we paid $3,426,000 and
$3,040,000 in dividends on our 8 1/2% Series A Cumulative Redeemable Preferred
Stock in the nine months ended September 30, 2000 and 1999, respectively.
Total distributions to minority members of our consolidated subsidiaries
were $3,989,000 and $4,202,000 for the nine months ended September 30, 2000 and
1999, respectively.
IMPACT OF INFLATION
Over 97% of BRE's total revenues for 1999 were derived from apartment
properties. Due to the short-term nature of most apartment leases (typically one
year or less), we may seek to adjust rents to mitigate the impact of inflation
upon renewal of existing leases or commencement of new leases, although there
can be no assurance that we will be able to adjust rents in response to
inflation. In addition, occupancy rates may also fluctuate due to short-term
leases that permit apartment residents to leave at the end of each lease term at
minimal cost to the resident.
S-24
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information regarding our Executive
Officers and Directors:
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- -------- --------------------------------------------------------
<S> <C> <C>
Frank C. McDowell........... 52 President, Chief Executive Officer and Director
LeRoy E. Carlson............ 55 Executive Vice President, Chief Operating Officer and
Director
Edward F. Lange, Jr......... 41 Executive Vice President, Chief Financial Officer
Bradley P. Griggs........... 43 Executive Vice President, Chief Investment Officer
John H. Nunn................ 42 Executive Vice President, Asset Management
Lauren L. Barr.............. 39 Senior Vice President, Strategic Planning &
Communications
Stephen Lefkovits........... 34 Senior Vice President, Technology Initiatives
</TABLE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME AGE OCCUPATION
---- -------- --------------------------------------------------------
<S> <C> <C>
John McMahan................ 63 Chairman of the Board of the Company; Managing
Principal, The McMahan Group, real estate strategic
management consultants; Executive Director, The Center
for Real Estate Enterprise Management.
William E. Borsari.......... 61 Self employed, private investor; Former Chairman and
President, The Walters Management Company, a real estate
asset management company.
LeRoy E. Carlson............ 55 Executive Vice President and Chief Operating Officer of
the company.
Robert A. Fiddaman.......... 63 Self employed, private investor; former Chairman of SSR
Realty Advisors, a real estate investment and management
firm.
L. Michael Foley............ 62 Principal, L. Michael Foley and Associates, real estate
and corporate consulting; Director and Executive
Committee Member, Western Property Trust.
Roger P. Kuppinger.......... 60 President, The Kuppinger Company, a private financial
advisor to public and private companies; Director,
Realty Income Corporation.
Frank C. McDowell........... 52 President and Chief Executive Officer of the company.
Edward E. Mace.............. 49 President and Chief Executive Officer of Fairmont Hotels
& Resorts--U.S./Mexico.
Gregory M. Simon............ 59 Self employed, private investor; Officer and Director,
Golden Orange Broadcasting, a privately held
corporation.
Arthur G. von Thaden........ 68 Self employed, private investor; former President and
Chief Executive Officer of the company from 1987 to June
1995.
</TABLE>
S-25
<PAGE>
DESCRIPTION OF THE NOTES
The following description of certain terms of the notes hereby supplements,
and to the extent inconsistent therewith, replaces the description of the
general terms and provisions of the Debt Securities set forth in the
accompanying prospectus. The following statements relating to the notes and the
Indenture (as defined below) are summaries of provisions contained therein and
do not purport to be complete. These statements are qualified by reference to
the provisions of the notes and the Indenture, including the definitions therein
of certain terms. Unless otherwise expressly stated or the context otherwise
requires, all references to the "Company" appearing under this caption
"Description of the Notes" and under the caption "Description of Debt
Securities" in the accompanying prospectus shall mean BRE Properties, Inc.,
excluding BRE Property Investors LLC (the "Operating Company") and its other
consolidated subsidiaries. Other capitalized items used under this caption
"Description of the Notes" and under the caption "Prospectus Supplement
Summary," but not otherwise defined shall have the meanings given to them in the
accompanying prospectus or, if not defined in the prospectus, in the Indenture
referred to below.
The notes constitute Debt Securities (which are more fully described in the
accompanying prospectus) to be issued pursuant to an indenture dated as of
June 23, 1997, as amended by a first supplemental indenture dated as of
April 23, 1998 (collectively, the "Indenture") each between the Company and
Chase Manhattan Bank and Trust Company, National Association, as successor
trustee (the "Trustee"). The terms of the notes include those provisions
contained in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "TIA"). The notes are subject
to all such terms, and investors are referred to the Indenture and the TIA for a
statement thereof.
GENERAL
The notes will be a separate series of Debt Securities under the Indenture,
limited in aggregate principal amount to $250,000,000. Such series may not be
reopened for the issuance of additional Debt Securities of such series. The
notes will be unsecured and unsubordinated obligations of the Company and will
rank on a parity in right of payment with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding.
The notes will be obligations exclusively of the Company. Although the
Company owns a substantial portion of its consolidated assets itself, rather
than through subsidiaries, a portion of its consolidated assets (amounting to
approximately 32% of its total consolidated assets at September 30, 2000) are
held by the Operating Company, Cambridge Park LLC and other subsidiaries.
Accordingly, the cash flow of the Company and the consequent ability to service
its debt, including the notes, are partially dependent on the earnings of such
subsidiaries and the notes will be effectively subordinated to all existing and
future indebtedness, guarantees and other liabilities of those subsidiaries.
Subject to the terms of the Amended and Restated Limited Liability Company
Agreement dated as of November 18, 1997 (the "LLC Agreement") and the Delaware
Limited Liability Company Act (the "Act"), BRE, as the sole managing member of
the Operating Company, has the exclusive right and power to manage the Operating
Company and the non-managing members have no authority to transact business for,
or participate in the management activities or decisions of, the Operating
Company. As of September 30, 2000, the Company's subsidiaries had total
long-term liabilities of $101 million (consisting entirely of mortgage
indebtedness). In addition, the Operating Company and Cambridge Park LLC have
guaranteed amounts due under the Credit Facility. Likewise, any other subsidiary
of the Company with assets or net income which, when multiplied by the Company's
effective percentage ownership interest in such subsidiary, exceeds $30 million
or 5% of the Company's consolidated net income, respectively, is required to
guarantee the repayment of borrowings under the Credit Facility. The Operating
Company and Cambridge Park LLC and other subsidiaries of the Company may also
from time to time guarantee other indebtedness of the Company. The notes are not
guaranteed by any subsidiary of the Company.
S-26
<PAGE>
The notes will also be effectively subordinated to any secured indebtedness
of the Company with respect to any collateral pledged as security therefor.
Although the covenants described in the accompanying prospectus under
"Description of Debt Securities--Certain Covenants" and the financial covenants
in the LLC Agreement will impose certain limitations on the incurrence of
additional indebtedness, both the Company and its subsidiaries will retain the
ability to incur substantial additional secured and unsecured indebtedness in
the future.
The notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The notes will be
evidenced by a global note (the "Global Note") in book-entry form, except under
the limited circumstances described in the accompanying prospectus under
"Description of Debt Securities--Global Securities." The Global Note will be
registered in the name of a nominee of The Depository Trust Company, as
depositary for the notes. Notices or demands to or upon the Company in respect
to the notes and the Indenture may be served and, in the event that notes are
issued in definitive certificated form, notes may be surrendered for payment,
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York,
which shall initially be the office of the Trustee, which on the date of this
prospectus supplement is located at Chase Manhattan Bank and Trust Company,
National Association, Corporate Trust Securities Window, 55 Water Street, Room
234, North Building, New York, New York 10041.
RATINGS
The notes are rated "Baa2" by Moody's Investors Service, "BBB" by Standard &
Poor's Ratings Services and "BBB+" by Fitch, Inc. The rating of the notes should
be evaluated independently from similar ratings on other types of securities. A
rating is not a recommendation to buy, sell or hold the notes, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The ratings assigned to the notes address the likelihood of payment of
principal and interest on the notes pursuant to their terms. A rating may be
subject to revision or withdrawal at any time by the assigning rating agency.
INTEREST AND MATURITY
The notes will mature on January 15, 2011 (the "Maturity Date"). The notes
are not subject to any sinking fund provisions.
The notes will bear interest at the rate per annum set forth on the cover
page of this prospectus supplement from January 12, 2001 or from the most recent
date to which interest has been paid or duly provided for, payable semi-annually
in arrears on each January 15 and July 15 (the "Interest Payment Dates"),
commencing July 15, 2001 to the persons in whose names the notes are registered
at the close of business on January 1 or July 1 (the "Regular Record Dates"), as
the case may be, immediately prior to such Interest Payment Dates, regardless of
whether any such Regular Record Date is a Business Day. Interest on the notes
will be computed on the basis of a 360-day year consisting of twelve 30-day
months.
If any Interest Payment Date, any Redemption Date (as defined below), the
Maturity Date, or any other day on which the principal of or premium, if any, or
interest on a note becomes due and payable falls on a day that is not a Business
Day, the required payment shall be made on the next Business Day as if it were
made on the date such payment was due and no interest shall accrue on the amount
so payable for the period from and after such Interest Payment Date, Redemption
Date, Maturity Date or other date, as the case may be.
REDEMPTION AT THE OPTION OF THE COMPANY
The notes will be redeemable, in whole or from time to time in part, at the
option of the Company on any date (a "Redemption Date"), at a redemption price
equal to the greater of (i) 100% of the principal amount of the notes to be
redeemed and (ii) the sum of the present values of the remaining scheduled
S-27
<PAGE>
payments of principal and interest thereon (exclusive of interest accrued to
such Redemption Date) discounted to such Redemption Date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 25 basis points, plus, in either case, accrued and unpaid interest on
the principal amount being redeemed to such Redemption Date; provided that
installments of interest on notes which are due and payable on an Interest
Payment Date falling on or prior to the relevant Redemption Date shall be
payable to the holders of such notes, or one or more Predecessor Debt
Securities, registered as such at the close of business on the relevant Regular
Record Date according to their terms and the provisions of the Indenture.
"Treasury Rate" means, with respect to any Redemption Date for the notes,
(i) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published statistical
release published by the Board of Governors of the Federal Reserve System
designated as "Statistical Release H.15 (519)" or any successor publication
which is published weekly by the Board of Governors of the Federal Reserve
System and which establishes yields on actively traded United States Treasury
securities adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Comparable Treasury Issue (if
no maturity is within three months before or after the Maturity Date, yields for
the two published maturities most closely corresponding to the Comparable
Treasury Issue shall be determined and the Treasury Rate shall be interpolated
or extrapolated from such yields on a straight line basis, rounding to the
nearest month), or (ii) if such release (or successor release) is not published
during the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be
calculated on the third Business Day preceding the Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the remaining term of the notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes.
"Independent Investment Banker" means Credit Suisse First Boston Corporation
or its successor, or if such firm is unwilling or unable to select the
Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means with respect to any Redemption Date for
the notes (i) the average of four Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (ii) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, UBS Warburg LLC, A.G. Edwards & Sons, Inc., and First Union
Securities, Inc. and their respective successors; provided, however, that if any
of the foregoing shall cease to be a primary U.S. Government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company will substitute
therefore another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid, and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such Redemption Date.
Notice of any redemption by the Company will be mailed at least 30 days but
not more than 60 days before any Redemption Date to each holder of notes to be
redeemed. If less than all the notes are to be
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<PAGE>
redeemed at the option of the Company, the Trustee shall select, in such manner
as it shall deem fair and appropriate, the notes to be redeemed in whole or in
part.
Unless the Company defaults in payment of the redemption price, on and after
any Redemption Date interest will cease to accrue on the notes or portions
thereof called for redemption.
COVENANTS, DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Reference is made to the section titled "Description of Debt
Securities--Certain Covenants" in the accompanying prospectus for a description
of certain covenants applicable to the notes. In addition, the discharge,
defeasance and covenant defeasance provisions of the Indenture described under
"Description of Debt Securities--Discharge, Defeasance and Covenant Defeasance"
in the accompanying prospectus will apply to the notes; such covenant defeasance
will be applicable with respect to the covenants described in the accompanying
prospectus under "Description of Debt Securities--Certain Covenants" (except
that the Company shall remain subject to the covenant to preserve and keep in
full force and effect its corporate existence, except as permitted as described
under "Description of Debt Securities--Merger, Consolidation or Sale" in the
accompanying prospectus).
Except as described under "Description of Debt Securities--Certain
Covenants" and "Description of Debt Securities--Merger, Consolidation or Sale"
in the accompanying prospectus, the Indenture does not contain any provisions
that would afford holders of the notes protection in the event of (i) a highly
leveraged or similar transaction involving the Company, (ii) a change of control
or in the management of the Company or (iii) a reorganization, restructuring,
merger or similar transaction involving the Company that may adversely affect
the holders of the notes. In addition, subject to the limitations set forth
under "Description of Debt Securities--Merger, Consolidation or Sale" in the
accompanying prospectus, the Company may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Company with another entity that could increase
the amount of the Company's indebtedness or otherwise adversely affect its
financial condition or results of operations, which may have an adverse affect
on the Company's ability to service its indebtedness, including the notes.
The Company has no present intention of engaging in a highly leveraged or
similar transaction involving the Company. In addition, certain restrictions on
ownership and transfers of the Company's capital stock designed to preserve its
status as a REIT may act to prevent or hinder any such transaction or change of
control. In addition, a highly leveraged or similar transaction may violate the
terms of the Company's outstanding debt instruments and permit the lenders to
declare all borrowings thereunder to be due and payable immediately, which would
likely have a material adverse effect on the Company. See "Risk Factors--Risks
Due to Real Estate Financing" incorporated by reference in the accompanying
prospectus.
S-29
<PAGE>
SUPPLEMENTAL FEDERAL INCOME TAX CONSIDERATIONS
As discussed in the accompanying prospectus under the heading "Federal
Income Tax Considerations--Asset Tests," prior to 2001, a REIT could not own
more than 10% of the outstanding voting securities of any one issuer. Recently,
legislation was enacted that includes a provision limiting a REIT's ability to
own more than 10% by vote or value of the securities (both debt and equity) of
any one issuer. The legislation allows a REIT to own any percentage of the
voting stock and value of a taxable REIT subsidiary, provided the REIT's taxable
investment in all of its REIT subsidiaries does not represent more than 20% of
the REIT's total assets and at least 75% of the REIT's total assets are real
estate assets or other qualifying assets. Because BRE owns more than 10% of the
value of the outstanding securities (taking into account both debt and equity
securities) of BRE Alliance Services, Inc. and VelocityHSI, Inc., BRE intends to
restructure its investments in these corporations to satisfy the new 10% asset
test. Additionally, the legislation includes a provision that prevents a taxable
REIT subsidiary from deducting interest on debt funded directly or indirectly by
a REIT if certain tests regarding the taxable REIT subsidiary's debt to equity
ratio and interest expense are satisfied. The legislation also includes a
provision that reduces the REIT distribution requirement from 95% to 90% of a
REIT's taxable income. See the discussion in the accompanying prospectus under
the heading "Federal Income Tax Considerations--Income Tests." The provisions
discussed above are generally effective for taxable years ending after
December 31, 2000.
The Treasury Department recently published temporary regulations that
include rules that are similar to the rules set forth in Internal Revenue
Service Notice 88-19. See the discussion regarding the acquisition of assets
from a C corporation in the accompanying prospectus under the heading "Federal
Income Tax Considerations--Taxation of the Company." The temporary regulations
provide that a REIT must file an election to be subject to the rules of
Section 1374 of the Internal Revenue Code and regulations thereunder with
respect to the net built-in-gain of C corporation assets that become assets of a
REIT by the qualification of the C corporation as a REIT or by the transfer of
the assets of a C corporation to a REIT in a transaction in which the assets
have a carryover basis in the hands of the REIT, if the C corporation is to
avoid the recognition of any gain arising from such qualification or
transaction. The election must be filed with a REIT's first Federal income tax
return filed after March 8, 2000 in cases where the assets of the C corporation
became assets of a REIT after June 10, 1987 but before March 8, 2000. We intend
to timely file such election and to timely file all other similar elections with
respect to any assets we acquire from a C corporation after March 8, 2000 that
have a carryover basis in our hands.
Neither this prospectus supplement nor the accompanying prospectus discusses
the tax consequences of a purchase of the notes by a non-U.S. holder. Non-U.S.
holders should consult their own tax advisors regarding these tax consequences.
S-30
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated January 5, 2001, we have agreed to sell to the underwriters
named below the following respective principal amounts of the notes:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation.................... $175,000,000
UBS Warburg LLC........................................... 50,000,000
A.G. Edwards & Sons, Inc.................................. 12,500,000
First Union Securities, Inc............................... 12,500,000
------------
Total............................................... $250,000,000
============
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes if any are purchased. The underwriting agreement also
provides that if an underwriter defaults the purchase commitments of
non-defaulting underwriters may be increased or the offering of notes may be
terminated.
The underwriters propose to offer the notes initially at the public offering
price on the cover page of this prospectus supplement and to selling group
members at that price less a selling concession of 0.40% of the principal amount
per note. After the initial public offering the underwriters may change the
public offering price and concession and discount to broker/dealers.
We estimate that our out of pocket expenses for this offering will be
approximately $600,000.
The notes are a new issue of securities with no established trading market.
One or more of the underwriters intend to make a secondary market for the notes.
However, they are not obligated to do so and may discontinue making a secondary
market for the notes at any time without notice. No assurance can be given as to
how liquid the trading market for the notes will be.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of notes in excess of
the principal amount of the notes the underwriters are obligated to
purchase, which creates a syndicate short position.
- Syndicate covering transactions involve purchases of notes in the open
market after the distribution has been completed in order to cover
syndicate short positions. The underwriters' short position can only be
closed out by buying notes in the open market. A short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the notes in the open market after
pricing that could adversely affect investors who purchase in the
offering.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the notes originally sold by such syndicate member
are purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the notes or
preventing or retarding a decline in the market
S-31
<PAGE>
price of the notes. As a result the price of the notes may be higher than the
price that might otherwise exist in the open market. These transactions, if
commenced, may be discontinued at any time.
We expect that delivery of the notes will be made against payment therefor
on or about the closing date specified on the cover page of this prospectus
supplement, which is the fifth business day following the date hereof (this
settlement cycle being referred to as "T+5"). Under Rule 15c6-1 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
trades in the secondary market generally are required to settle in three
business days, unless the parties to that trade expressly agree otherwise at the
time of the trade. Accordingly, purchasers who wish to trade the notes on the
date hereof or the next succeeding business day will be required, by virtue of
the fact that the notes initially will settle in T+5, to specify an alternate
settlement cycle at the time of any such trade to prevent a failed settlement
and should consult their own advisor.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the notes in Canada is being made only on a private
placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of notes are made. Any resale of the notes in Canada must be made under
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made under available statutory
exemptions or under a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the notes.
REPRESENTATIONS OF PURCHASERS
By purchasing notes in Canada and accepting a purchase confirmation, a
purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the notes without the benefit of a prospectus qualified under
those securities laws,
- where required by law, that the purchaser is purchasing as principal and
not as agent, and
- the purchaser has reviewed the text above under Resale Restrictions.
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
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NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of notes to whom the SECURITIES ACT (British Columbia) applies
is advised that the purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any notes acquired
by the purchaser in this offering. The report must be in the form attached to
British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which
may be obtained from us. Only one report must be filed for notes acquired on the
same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of notes should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the notes in their
particular circumstances and about the eligibility of the notes for investment
by the purchaser under relevant Canadian legislation.
EXPERTS
The consolidated financial statements of BRE Properties, Inc. appearing in
BRE Properties, Inc.'s Annual Report (Form 10-K/A) for the year ended
December 31, 1999, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated by
reference into the accompanying prospectus. Such consolidated financial
statements are incorporated by reference in reliance upon such report given on
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Latham & Watkins, San Francisco, California will pass upon certain legal
matters relating to our issuance and sale of the notes, including certain of the
legal matters described in the accompanying prospectus under "Federal Income Tax
Considerations" as supplemented by the information set forth in this prospectus
supplement under "Supplemental Federal Income Tax Considerations." Certain other
legal matters relating to Maryland law will be passed upon by
Piper Marbury Rudnick & Wolfe LLP, Baltimore, Maryland, our special Maryland
counsel. Milbank, Tweed, Hadley & McCloy LLP, New York, New York will pass upon
certain legal matters for the underwriters.
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PROSPECTUS
$750,000,000
BRE PROPERTIES, INC.
DEBT SECURITIES, PREFERRED SHARES, DEPOSITARY SHARES,
COMMON STOCK WARRANTS AND COMMON STOCK
------------------------
BRE Properties, Inc. (the "Company") may from time to time offer in one or
more series (i) its unsecured debt securities (the "Debt Securities"), which may
be senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) shares of its Preferred Stock,
$0.01 par value per share ("Preferred Shares"), (iii) depositary shares
("Depositary Shares") representing fractional interests in Preferred Shares,
(iv) warrants ("Common Stock Warrants") to purchase shares of its Common Stock,
$0.01 par value per share ("Common Shares"), or (v) Common Shares, with an
aggregate public offering price of up to $750,000,000, on terms to be determined
at the time or times of offering. The Debt Securities, Preferred Shares,
Depositary Shares, Common Stock Warrants and Common Shares (collectively, the
"Offered Securities") may be offered, separately or together, in separate
classes or series, in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, when applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder thereof, terms for sinking fund payments,
terms for conversion into Preferred Shares or Common Shares, and the public
offering price; (ii) in the case of Preferred Shares, the specific series, title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and the public offering price; (iii) in the case of Depositary
Shares, the whole or fractional Preferred Shares represented by each such
Depositary Share and the public offering price; (iv) in the case of Common Stock
Warrants, the duration, public offering price, exercise price and detachability
features, if applicable; and (v) in the case of Common Shares, the public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information, when
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by that Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names and any applicable purchase price, fee, commission or
discount arrangement will be set forth in or will be calculable from the
information set forth in the applicable Prospectus Supplement. No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of those Offered Securities. See
"Plan of Distribution" for possible indemnification arrangements with
underwriters, dealers and agents.
------------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is April 16, 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY OR THEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act can be inspected and copied at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a home page on
the Internet that contains such information with respect to registrants that
file electronically such as the Company at http://www.sec.gov. The Company's
Common Shares are listed on the New York Stock Exchange and similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (as the
same may be amended from time to time, the "Registration Statement") (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document do not purport to be complete, and in
each instance reference is made to the copy of such contract or other document
filed or incorporated by reference as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Offered Securities, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be obtained from the
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
a. Report on Form 10-K for the fiscal year ended December 31, 1997.
b. Current Report on Form 8-K filed on February 24, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any and all documents incorporated by reference in this
Prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to BRE Properties, Inc., 44 Montgomery Street, 36th
Floor, California 94104-4809, Attn: Charles Wingard, Director of Financial
Reporting, telephone number (415) 445-6530.
3
<PAGE>
THE COMPANY
BRE Properties, Inc., a Maryland corporation (the "Company" or "BRE"), is a
self-administered and self-managed real estate investment trust which owns,
acquires, develops, rehabilitates and manages apartment communities and other
income producing properties in the western United States. At December 31, 1997,
BRE's portfolio included 74 completed apartment communities aggregating 18,569
units, and five commercial and retail properties. Of these properties, 41 were
located in California, 21 in Arizona, six in Washington, four in Nevada, three
in Utah, two in Oregon and two in New Mexico. As of that date, BRE's portfolio
also included eight apartment communities under development aggregating
approximately 2,445 units in Arizona, Colorado, New Mexico, Nevada and Utah. As
of December 31, 1997, these properties (excluding properties under development)
contained, in the aggregate, approximately 16.3 million net rentable square feet
of improvements owned by the Company. In addition, at December 31, 1997, the
Company held limited partnership interests in two shopping centers located in
Arizona and one apartment community located in California. In November 1997, the
Company completed the acquisition (the "TCR-West Transaction") of certain
properties (the "TCR-West Properties") and operations of Trammell Crow
Residential located in the western United States ("TCR-West"). A substantial
portion of the properties acquired in the TCR-West Transaction are held by BRE
Property Investors LLC (the "Operating Company"), a Delaware limited liability
company, of which the Company is the sole managing member. BRE's principal
executive offices are located at 44 Montgomery Street, 36th Floor, San
Francisco, California 94104-4809, and its telephone number is (415) 445-6530.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Offered Securities. The
Company cautions the reader that this list of factors does not purport to be
exhaustive.
All references in this Prospectus to shareholders of the Company include
holders of Common Shares and holders of any Preferred Shares and Depositary
Shares which may be issued by the Company, and all references to distributions
to shareholders include dividends and other distributions payable to holders of
Common Shares and any such Preferred Shares and Depositary Shares.
REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. The yields
available from equity investments in real estate depend upon the amount of
revenues generated and expenses incurred. If properties do not generate revenues
sufficient to meet operating expenses, including debt service and capital
expenditures, the Company's results of operations and ability to make
distributions to its shareholders and to pay amounts due on its Debt Securities
will be adversely affected. The performance of the economy in each of the areas
in which the properties are located affects occupancy, market rental rates and
expenses and, consequently, has an impact on the revenues from the properties
and their underlying values. The financial results of major local employers also
may have an impact on the revenues and value of certain properties.
Revenues from properties may be further adversely affected by a variety of
factors, including the general economic climate, local conditions in the areas
in which properties are located, such as oversupply of space or a reduction in
the demand for rental space, the attractiveness of the properties to residents
or users, competition from other available space, the ability of the Company to
provide adequate facilities maintenance, services and amenities, and insurance
premiums and real estate taxes. The Company's revenues would also be adversely
affected if residents or users were unable to pay rent or the Company was unable
to rent apartments or commercial properties on favorable terms. If the Company
were unable to promptly relet or renew the leases for a significant number of
apartment units or commercial properties, or
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if the rental rates upon such renewal or reletting were significantly lower than
expected rates, then the Company's funds from operations would, and ability to
make expected distributions to shareholders and to pay amounts due on its Debt
Securities may, be adversely affected. There is also a risk that as leases on
the properties expire, residents or users will vacate or enter into new leases
on terms that are less favorable to the Company. Operating costs, including real
estate taxes, insurance and maintenance costs, and mortgage payments, if any, do
not, in general, decline when circumstances cause a reduction in income from a
property. If a property is mortgaged to secure payment of indebtedness, and the
Company is unable to meet its mortgage payments, a loss could be sustained as a
result of foreclosure on the property. In addition, revenues from properties and
real estate values are also affected by such factors as applicable laws,
including tax laws, interest rate levels and the availability of financing.
In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties. However,
no assurance can be given that the Company will have the financial resources to
make suitable acquisitions or that properties that satisfy the Company's
investment policies will be available for acquisition. Acquisitions of
properties entail risks that investments will fail to perform in accordance with
expectations. Such risks may include that construction costs may exceed original
estimates, possibly making a project uneconomical, financing may not be
available on favorable terms or at all and construction and lease-up may not be
completed on schedule. Estimates of the costs of improvements to bring an
acquired property up to standards established for the market position intended
for that property may prove inaccurate. In addition, there are general real
estate investment risks associated with any new real estate investment. Although
the Company undertakes an evaluation of the physical condition of each new
investment before it is acquired, certain defects or necessary repairs may not
be detected until after the investment is acquired, which could significantly
increase the Company's total acquisition costs and which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. Any statements
included in or incorporated by reference in this Prospectus or any Prospectus
Supplement pertaining to anticipated growth rates in target markets, anticipated
growth in the Company's funds from operations and anticipated market conditions,
demographics or results of operations constitute forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act and there can be no assurance that such anticipated events or
circumstances will be achieved or will occur due to, among other things, the
factors described under "Risk Factors."
ILLIQUIDITY OF REAL ESTATE AND REINVESTMENT RISK
Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to changes
in economic or other conditions. Additionally, the Internal Revenue Code of
1986, as amended (the "Code") places certain limits on the number of properties
a REIT may sell without adverse tax consequences. To effect its current
operating strategy, the Company has in the past raised, and will seek to
continue to raise additional acquisition funds, both through outside financing
and through the orderly disposition of commercial and retail properties, and,
depending upon interest rates, current acquisition opportunities and other
factors, generally to reinvest the proceeds in multifamily properties. In this
respect, in the markets the Company has targeted for future acquisition of
multifamily properties, there is considerable buying competition from other real
estate companies, many of whom may have greater resources, experience or
expertise than the Company. In many cases, this competition for acquisition
properties has resulted in an increase in property prices and a decrease in
property yields. Due to the relatively low capitalization rates currently
prevailing in the pricing of potential acquisitions of multifamily properties
which meet the Company's investment criteria, no assurance can be given that the
proceeds realized from the disposition of commercial and retail properties can
be reinvested to produce economic returns comparable to those being realized
from the properties disposed of, or that the Company will be able to acquire
properties meeting its investment criteria. To the extent that the Company is
unable to reinvest proceeds from the disposition of commercial and retail
properties, or if
5
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properties acquired with such proceeds produce a lower rate of return than the
properties disposed of, such results may have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay amounts
due on its Debt Securities. In addition, a delay in reinvestment of such
proceeds may have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities.
The Company may seek to structure future dispositions as tax-free exchanges,
where appropriate, utilizing the nonrecognition provisions of Section 1031 of
the Code to defer income taxation on the disposition of the exchanged property.
For an exchange of such properties to qualify for tax-free treatment under
Section 1031 of the Code, certain technical requirements must be met. For
example, both the property exchanged and the property acquired must be held for
use in a trade or business or for investment, and the property acquired must be
identified within 45 days, and must be acquired within 180 days, after the
transfer of the exchanged property. If the technical requirements of
Section 1031 of the Code are not met, then the exchanged property will be
treated as sold in a taxable transaction for a sales price equal to the fair
market value of the property received, in which event a distribution of cash to
the shareholders may be required to avoid a corporate-level income tax on the
resulting capital gain. Given the competition for properties meeting the
Company's investment criteria, it may be difficult for the Company to identify
suitable properties within the foregoing time frames in order to meet the
requirements of Section 1031. Even if a suitable tax-deferred exchange can be
structured, as noted above, no assurance can be given that the proceeds of any
of these dispositions will be reinvested to produce economic returns comparable
to those currently being realized from the properties which were disposed of.
COMPETITION
All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real estate
companies, many of which have greater financial and other resources than the
Company, within the market area of each of the properties which will compete
with the Company for tenants and development and acquisition opportunities. The
number of competitive multifamily properties and real estate companies in such
areas could have a material effect on (i) the Company's ability to rent the
apartments and the rents charged and (ii) development and acquisition
opportunities. The activities of these competitors could cause the Company to
pay a higher price for a new property than it otherwise would have paid or may
prevent the Company from purchasing a desired property at all, which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its Debt Securities.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON WESTERN UNITED STATES REGIONS
The Company's portfolio is principally located in the San Francisco Bay
Area, the Denver area, San Diego, Tucson, Phoenix, Seattle, Portland, Los
Angeles/Orange County, Sacramento, Las Vegas, Albuquerque and Salt Lake City.
The Company's performance could be adversely affected by economic conditions in,
and other factors relating to, these geographic areas, including supply and
demand for apartments in these areas, zoning and other regulatory conditions and
competition from other properties and alternative forms of housing. In that
regard, certain of these areas (particularly the Los Angeles/ Orange County and
San Diego metropolitan areas) have in the recent past experienced economic
recessions and depressed conditions in the local real estate markets. To the
extent general economic or social conditions in any of these areas deteriorate
or any of these areas experiences natural disasters, the value of the portfolio,
the Company's results of operations and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities could be materially
adversely affected.
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RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
Pursuant to the TCR-West Transaction, the Company acquired eight apartment
properties in various stages of development (the "Development Properties").
Prior to the acquisition, the Company was not engaged in the development and
construction of real estate properties.
The Company intends to actively pursue development and construction of
multifamily apartment communities, including the Development Properties. There
can be no assurance that the Company will complete development of the
Development Properties or any other development project which may be undertaken
by the Company. As a general matter, property development and construction
projects typically have a higher, and sometimes substantially higher, level of
risk than the acquisition of existing properties. Risks associated with the
Company's development and construction activities may include the following:
development opportunities may be abandoned; construction costs of multifamily
apartment communities may exceed original estimates, possibly making the
communities uneconomical; occupancy rates and rents at newly completed
communities may not be sufficient to make the communities profitable; financing
for the construction and development of projects may not be available on
favorable terms or at all; construction and lease-up may not be completed on
schedule; and expenses of operating a completed community may be higher than
anticipated. In addition, 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.
The Company also intends to continue actively to acquire multifamily
apartment communities. Acquisitions of multifamily apartment communities entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment. In that regard, the properties acquired in
the TCR-West Transaction were acquired on an "as is" basis, meaning that the
properties were acquired without warranty by the sellers. Likewise, due to the
competitive nature of the bidding process for the TCR-West Properties, the
Company was able to perform only a limited investigation with respect to the
TCR-West Properties prior to acquiring them. Both of these factors increased the
risks associated with acquiring the TCR-West Properties.
The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under various construction loans, lines of
credit, other forms of secured or unsecured financing or through the issuance of
additional equity by the Company. The Company expects periodically to review its
financing options regarding the appropriate mix of debt and equity financing.
Equity, rather than debt, financing of future developments or acquisitions could
have a dilutive effect on the interests of existing shareholders of the Company.
Similarly, financing future developments and acquisitions with debt entails
certain risks, including those described below under "--Real Estate Financing
Risks." In addition, if new development properties 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, the Company's losses may exceed its investment in the property.
Any of the foregoing could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities.
RISKS RELATING TO GROWTH STRATEGY
Pursuant to the TCR-West Transaction, the Company acquired 17 completed
apartment communities aggregating 4,786 units and eight Development Properties
aggregating approximately 2,445 units. This significant increase in the size of
the Company's operations after the acquisition has substantially increased
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the demands placed upon the Company's management, including demands resulting
from the need to integrate the accounting systems, management information
systems and other operations acquired from TCR with those of the Company.
Likewise, the Company added approximately 600 persons previously employed by TCR
and its affiliates, which has also significantly increased the demands upon the
Company's management. Failure to effectively integrate the operations of the
acquired properties, operations and employees with those of the Company could
have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
A substantial portion of the Company's growth over the last several years
has been attributable to acquisitions. Further, a principal component of the
Company's strategy is to continue to grow in a controlled manner in both
existing and new markets by acquiring and developing new properties. The
Company's future growth will be dependent upon a number of factors, including
the Company's 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 the Company will
be successful in implementing its 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, develop, and integrate new properties
effectively could have a material adverse effect on the Company and its ability
to make distributions to shareholders and to pay amounts due on its Debt
Securities.
RESTRICTIONS IN THE OPERATIONS OF THE OPERATING COMPANY
A substantial portion of the properties acquired in the TCR-West Transaction
are held by the Operating Company, a limited liability company. BRE is the sole
managing member of the Operating Company and, as of December 31, 1997, held
approximately a 70% equity interest therein. The remaining equity interests in
the Operating Company are held by third parties as non-managing members.
Under the terms of the limited liability company agreement governing the
operations of the Operating Company (the "LLC Agreement"), the Operating Company
is required to maintain certain debt service coverage, debt-to-asset and other
financial ratios intended to protect the members' rights to receive
distributions. In addition, with respect to certain tax-exempt financing for
certain completed properties, the Operating Company is restricted from prepaying
its debt or taking certain other specified actions which could have adverse tax
consequences for the members. Further, the Company, as the managing member, is
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, or that would subject a non-managing member to liability as a managing
member, or that would cause the Operating Company to institute bankruptcy
proceedings or confess a judgment, or that would prohibit or restrict a member
from exercising its rights to exchange units in the Operating Company for Common
Shares. 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 effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
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 the Company's assets, or any merger, consolidation or other
combination by the Company with or into another person, or reclassification,
recapitalization or change of the Company's outstanding equity interests. These
restrictions on the Company's ability to
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dispose of a significant portion of its properties and to dissolve the Operating
Company, even when such a disposition or dissolution of the Operating Company
would be in the best interest of the Company, could have a material adverse
effect on the Company and its ability to make distributions to shareholders and
to pay amounts due on its Debt Securities.
The Operating Company also must distribute all Available Cash (as defined in
the LLC Agreement) on a quarterly basis: first, to members (other than BRE)
until each member has received, cumulatively on a per Operating Company unit
basis, distributions equal to the cumulative dividends declared with respect to
one Common Share over the corresponding period (subject to adjustment from time
to time as applicable to account for stock dividends, stock splits and similar
transactions affecting the Common Shares) (the "Priority Distribution"); and
second, the balance to BRE.
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, BRE is 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 its affiliates
for that quarterly period. The Operating Company's obligation to make Priority
Distributions and BRE's obligation to make additional capital contributions to
the Operating Company under such circumstances could have a material adverse
effect on the Company and its ability to make distributions to shareholders and
to pay amounts due on its Debt Securities.
In addition, BRE may not be removed as the managing member of the Operating
Company by the non-managing members, with or without cause, other than with its
consent. BRE may not voluntarily withdraw from the Operating Company or transfer
all or any portion of its 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 BRE's assets, or any merger,
consolidation or other combination by BRE with or into another person, or any
reclassification, recapitalization or change of BRE's outstanding equity
interests. Such restrictions on the withdrawal of BRE as the managing member of
the Operating Company, and on BRE's ability to transfer its interest in the
Operating Company, could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities.
UNINSURED LOSS; LIMITED COVERAGE
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductibles. While the Company currently carries
flood and earthquake insurance for its properties with an aggregate annual limit
of $100 million, subject to substantial deductibles, no assurance can be given
that such coverage will continue to be available on acceptable terms or at an
acceptable cost, or at all, in the future, or if obtained, that the limits of
those policies will cover the full cost of repair or replacement of covered
properties. In addition, there may be certain extraordinary losses (such as
those resulting from civil unrest) that are not generally insured (or fully
insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a property, the
Company could be required to use its own funds for restoration or lose all or
part of its investment in, and anticipated revenues from, the property and would
continue to be obligated on any mortgage indebtedness on the property. Any such
loss could have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
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RISKS ASSOCIATED WITH SURVEY EXCEPTIONS TO CERTAIN TITLE INSURANCE POLICIES
Although the Company believes that prior owners of the TCR-West Properties
in the past obtained surveys of those properties, the Company did not obtain
updated surveys when it acquired the TCR-West Properties. Because updated
surveys of the TCR-West Properties were not obtained, the title insurance
policies obtained by the Company 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 those properties, there can be no assurance that the
title insurance policies in fact cover the entirety of the real property,
buildings, fixtures, and improvements which the Company believes they cover, any
of which could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities.
CHANGE IN LAWS
Increases in real estate taxes and income, service and transfer taxes cannot
always be passed through to residents or users in the form of higher rents, and
may adversely affect the Company's cash available for distribution and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions, as well as changes in laws affecting
development, construction and safety requirements, may result in significant
unanticipated expenditures, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay amounts
due on its Debt Securities. In addition, future enactment of rent control or
rent stabilization laws or other laws regulating multifamily housing may reduce
rental revenues or increase operating costs.
LAWS BENEFITING DISABLED PERSONS
A number of federal, state and local laws (including the Americans with
Disabilities Act) and regulations exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved access
to such buildings by disabled persons 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
the Company with respect to improved access by disabled persons. The costs of
compliance with these laws and regulations may be substantial, and limits or
restrictions on construction or completion of certain renovations may limit
implementation of the Company's investment strategy in certain instances or
reduce overall returns on its investments, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders and
to pay amounts due on its Debt Securities. The Company reviews its properties
periodically to determine the level of compliance and, if necessary, takes
appropriate action to bring such properties into compliance. The Company's
management believes, based on property reviews to date, that the costs of such
compliance should not have a material adverse effect on the Company. Such
conclusions are based upon currently available information and data, and no
assurance can be given that further review and analysis of the Company's
properties, or future legal interpretations or legislative changes, will not
significantly increase the costs of compliance.
RISKS OF ASSUMED LIABILITIES
In the TCR-West Transaction, pursuant to a contribution agreement (the
"Contribution Agreement") the Company (i) acquired the TCR-West Properties
either by acquiring title to the properties and related assets (plus assumption
of certain associated contractual obligations, warranties and guarantees) or, as
to certain TCR-West Properties, by acquiring all of the ownership interests in
the partnerships or limited liability companies which held such properties, and
(ii) assumed certain loans secured by the TCR-West Properties. Under the terms
of the transaction, the Company has not expressly agreed to assume any
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liabilities other than the assumed loans and the contractual obligations,
warranties and guarantees referenced above. However, as a matter of law, the
Company automatically assumed all of the liabilities (known, unknown or
contingent) of the partnerships and limited liability companies whose ownership
interests were acquired by the Company, potentially including liabilities
unrelated to the properties conveyed pursuant to such transfer. Moreover, even
in cases where title to the properties and related assets (rather than ownership
interests therein) was acquired by the Company, the legal doctrine of successor
liability may give creditors of and claimants against the prior owners the right
to hold the Company responsible for liabilities which arose with respect to such
properties prior to their acquisition by the Company, whether or not such
liabilities were expressly assumed by the Company under the terms of the
transaction.
As a result of the foregoing, there can be no assurance that the Company
will not be subject to liabilities and claims relating to the TCR-West
Properties arising from events which occurred or circumstances which existed
prior to the acquisition of those properties by the Company, which could have a
material adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. In that regard, the
terms of the TCR-West Transaction do not provide for the Company to be
indemnified against any such liabilities and claims. See "--Limited
Indemnification" below.
LIMITED INDEMNIFICATION
The Company acquired the TCR-West Properties on an "as is" basis, meaning
that the properties were acquired without warranty from the sellers. As a
result, the Company has no recourse against the sellers for matters relating to
the properties or the transaction, except to the limited extent described below.
The terms of the TCR-West Transaction provide the Company with only limited
indemnification with respect to claims or liabilities that might arise out of
the transaction or actions taken by the sellers before the closing.
Specifically, certain Trammell Crow Residential entities and related parties who
are signatories to the Contribution Agreement (the "TCR Parties") have agreed to
indemnify the Company and its affiliates only against claims arising out of
(i) any inaccuracy in the investment representations of any TCR Party or certain
representations about employment matters, or any failure of a TCR Party to
comply with any agreement with respect thereto, (ii) any breach by a TCR Party
of its fiduciary duties (including duties of disclosure) to any other person in
connection with the transaction, or (iii) any document filed by or on behalf of
a TCR 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 TCR Parties
for the TCR-West Transaction) (provided, however, that the foregoing does not
apply to the information supplied by the Company 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 the Company or the Operating
Company). The Company has no recourse against the TCR Parties with respect to
any claims which are not within the specific coverage of the indemnity
provisions.
In addition, in the event that the Company is entitled to indemnification,
the terms of the TCR-West Transaction significantly limit the amount which the
Company would be entitled to recover. Specifically, the Company's sole recourse
under a claim for indemnity is the right to reduce the number of Development OC
Units (as defined below) which the Company might otherwise be required to
deliver in connection with the TCR-West Transaction. A maximum of up to 627,594
Development OC Units are issuable, each of which will be exchangeable,
commencing November 18, 1998, at the option of the holders thereof for Common
Shares (at the rate of one Common Share per Development OC Unit, subject to
adjustment under certain circumstances) or, at the Company's election, into an
equivalent amount of cash based on the value of the Common Shares at the time of
exchange. 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 Common
Share on
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the New York Stock Exchange for the fifteen consecutive trading days concluding
on the fifth trading day preceding the day of the reduction. The TCR Parties'
indemnification obligations (and such obligations of the Company and the
Operating Company, as described below) are limited, in the aggregate, to an
amount which, as of any date, is 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 Common Share 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 TCR Parties if certain completion schedule and
budget objectives are met for the Development Properties. The Company currently
anticipates that all of the Development OC Units will either be awarded or will
become ineligible for award by the end of 1999. Accordingly, there can be no
assurance that the amount of any claim for indemnity will be made at a time when
a sufficient amount or any of the Development OC Units remain available for
set-off or that, even if the full number of Development OC Units is available,
that the value of those units will be sufficient to fully cover the claim for
indemnity.
There can be no assurance that the Company will not be confronted in the
future with claims by third parties relating to the TCR-West Transaction or to
the activities of the TCR Parties or the operations of the TCR-West Properties
and matters related thereto prior to the closing of the transaction. Likewise,
there can be no assurance that the properties acquired in the TCR-West
Transaction will meet the Company's expectations. Accordingly, the limited scope
of the indemnification could have a material adverse effect on the Company and
its ability to make distributions to shareholders and to pay amounts due on its
Debt Securities. See "--Risks of Assumed Liabilities," above. The Development OC
Units, if issued, are exchangeable into Common Shares in the same manner as the
units of the Operating Company discussed in this prospectus.
The Company and the Operating Company have also provided a limited indemnity
to the TCR Parties. Under the terms of the Contribution Agreement, the Company
and the Operating Company have agreed to indemnify the TCR Parties and their
affiliates against claims arising out of (i) any inaccuracy in certain
representations made by the Company about the registration rights it agreed to
provide to the TCR Parties who become shareholders of the Company or unitholders
of the Operating Company, or any failure by the Company to fulfill its
obligations under terms of the transaction, or (ii) any material misstatement or
omission in the information statement provided to the TCR Parties with respect
to the Company, the Operating Company, the Common Shares or units of the
Operating Company. The Company's indemnification obligations are limited to an
amount equal to the value of the remaining Development OC Units outstanding from
time to time, calculated in the same manner as the limit on the indemnification
obligations of the TCR Parties, as described above. Notwithstanding the limit
upon the Company's indemnification obligations, if claims within the coverage of
the indemnity provisions were brought against the Company, it could be required
to incur costs in defending against or satisfying the claims, which could have a
material adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities.
POTENTIAL LITIGATION RELATED TO THE TCR-WEST TRANSACTION
Over the last several years, business reorganizations involving the
conversion of partnerships into REITs, the combination of several partnerships
into a single entity and the combination of multiple REITs into a single REIT
have given rise to investor lawsuits. If any lawsuits were filed in connection
with the TCR-West Transaction, whether by any of the TCR Parties or other
persons, such lawsuits could require the Company to incur costs in defending
such lawsuits or to pay any judgment awards or make settlement payments, any of
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities.
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REAL ESTATE FINANCING RISKS
DEBT FINANCING AND MATURITIES
The Company is subject to the normal risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, the risk that indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid or
refinanced when due or that the terms of any renewal or refinancing will not be
as favorable as the terms of such indebtedness. If the Company were unable to
refinance its indebtedness on acceptable terms, or at all, the Company might be
forced to dispose of one or more of the properties on disadvantageous terms,
which might result in losses to the Company, which losses could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. Furthermore, if a
property is mortgaged to secure payment of indebtedness and the Company is
unable to meet mortgage payments, the mortgagee could foreclose upon the
property, appoint a receiver and receive an assignment of rents and leases or
pursue other remedies, all with a consequent loss of revenues and asset value to
the Company. Foreclosures could also create taxable income without accompanying
cash proceeds, thereby hindering the Company's ability to meet the REIT
distribution requirements of the Code.
RISK OF RISING INTEREST RATES
The Company has incurred and expects in the future to incur indebtedness
which bears interest at a variable rate. Accordingly, increases in interest
rates would increase the Company's interest costs (to the extent that the
related indebtedness was not protected by interest rate protection
arrangements), which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its Debt
Securities or cause the Company to be in default under certain debt instruments
(including its Debt Securities). In addition, an increase in market interest
rates may lead holders of the Company's Common Shares to demand a higher yield
on their shares from distributions by the Company, which could adversely affect
the market price for the Common Shares.
ADDITIONAL DEBT
The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such as
sales of non-core properties. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness that the Company may incur.
Accordingly, the Company could become more highly leveraged, resulting in an
increase in debt service, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay amounts
due on its Debt Securities and in an increased risk of default on its
obligations.
TERMS OF CERTAIN INDEBTEDNESS
At December 31, 1997, the Company had outstanding borrowings of $73 million
under two loan agreements which, among other things, (i) contain a covenant
which requires the Company to maintain an investment grade rating for its
long-term unsecured debt and (ii) define "events of default" to include the
acquisition by any person of either (x) 20% or more of the Company's outstanding
shares or securities (or other securities convertible into such securities) or
(y) 10% or more of the Company's outstanding shares or securities (or other
securities convertible into such securities) if such acquisition results in any
change of the board of directors of the Company or any change in the management
of the Company or any of its assets. In the event that the Company fails to
maintain an investment grade rating for its long-term unsecured debt or if such
an event of default occurs, the lender may declare all borrowings under such
loan agreements to be due and payable immediately, which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities.
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ENVIRONMENTAL RISKS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances in, on,
around or under such property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. The presence of, or failure to
remediate properly, such substances may adversely affect the owner's or
operator's ability to sell or rent the affected property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may also seek recovery from owners or operators of real
properties for personal injury associated with asbestos-containing materials and
other hazardous or toxic substances. The operation and subsequent removal of
certain underground storage tanks are also regulated by federal and state laws.
In connection with the current or former ownership (direct or indirect),
operation, management, development and/or control of real properties, the
Company may be considered an owner or operator of such properties or as having
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, may be potentially liable for removal or remediation costs, as well
as certain other costs, including governmental fines, and claims for injuries to
persons and property.
The Company's current policy is to obtain a Phase I environmental study on
each property it seeks to acquire and to proceed accordingly. No assurance can
be given, however, that the Phase I environmental studies or other environmental
studies undertaken with respect to any of the Company's current or future
properties will reveal all or the full extent of potential environmental
liabilities, that any prior owner or operator of a property did not create any
material environmental condition unknown to the Company, that a material
environmental condition does not otherwise exist as to any one or more of such
properties or that environmental matters will not have a material adverse effect
on the Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities. The Company currently carries no insurance
for environmental liabilities.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
RISKS OF THIRD PARTY MANAGEMENT BUSINESS
POSSIBLE TERMINATION OF MANAGEMENT CONTRACTS
As part of the TCR-West Transaction, the Company also acquired TCR-West's
third party management contracts. This business is conducted by two subsidiaries
of the Company (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 the property or, in many cases, upon 30 days' notice) will be
terminated by the property owner or will be lost in connection with a sale of
such property, that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms, and that the rental revenues
upon which management fees are based will decline as a result of general real
estate market conditions or 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 the
Company's expectations.
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POSSIBLE ADVERSE CONSEQUENCES OF REIT STATUS ON THE BUSINESS OF THE
MANAGEMENT COMPANY
Certain requirements for REIT qualifications may in the future limit the
Company's ability to increase third party management operations conducted and
related services offered by the Management Company without jeopardizing the
Company's qualifications as a REIT. See "Federal Income Tax Considerations--
Third Party Management Income."
RANKING OF SECURITIES
All of the Common Shares, Preferred Shares and Debt Securities offered
hereby will be equity interests in or obligations of, as the case may be, the
Company exclusively. Because a significant portion of the operations of the
Company is conducted through its subsidiaries, including the Operating Company,
the cash flow of the Company and the consequent ability to make distributions
and other payments on its equity securities, including Common Shares and any
Preferred Shares, and to service its debt, including the Debt Securities, will
be partially dependent upon the earnings of such subsidiaries and the
distribution of those earnings to the Company, or upon loans or other payments
of funds made by such subsidiaries to the Company. In addition, debt or other
agreements of the Company's subsidiaries may impose restrictions that affect,
among other things, the ability of the Company's subsidiaries to pay dividends
or make other distributions or loans to the Company.
Likewise, a substantial portion of the Company's consolidated assets are
owned by its subsidiaries, effectively subordinating the Debt Securities to all
existing and future liabilities, including indebtedness, trade payables, lease
obligations and guarantees, of the Company's subsidiaries. The Operating Company
has guaranteed amounts due under the Company's $265 million unsecured bank
credit facility (the "Credit Facility") with Bank of America National Trust and
Savings Association and the Company's $35 million unsecured line of credit with
Sanwa Bank California (the "Sanwa Line of Credit"), and it is anticipated that
Blue Ravine Investors LLC ("Blue Ravine"), a Delaware limited liability company
which is a subsidiary of the Company, also will guarantee amounts due under the
Credit Facility. Likewise, any other subsidiary of the Company with assets or
net income which, when multiplied by the Company's effective percentage
ownership interest in such subsidiary, exceeds $30 million or 5% of the
Company's 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, Blue Ravine and other subsidiaries of the Company may
also from time to time guarantee other indebtedness of the Company. Therefore,
the Company's rights and the rights of its creditors, including the holders of
Debt Securities, 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 the Company may itself be
a creditor with recognized claims against the subsidiary, in which case the
claims of the Company 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 the Company.
PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities). In order to protect the Company against risk of losing its
status as a REIT due to a concentration of ownership among its shareholders, the
articles of incorporation of the Company provide, among other things, that if
the Board of Directors determines, in good faith, that direct or indirect
ownership of the Company's Common Shares have or may become concentrated to an
extent that would prevent the Company from qualifying as a REIT, the Board of
Directors may prevent the transfer of the Common Shares or call for redemption
(by lot or other means affecting one or more shareholders selected in the sole
discretion of the Board of Directors) of a number of Common Shares sufficient in
the opinion of the Board of Directors to maintain or bring the direct or
indirect ownership of the Common Shares into conformity with the requirements
for maintaining REIT status. These limitations
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may have the effect of precluding acquisition of control of the Company by a
third party without consent of the Board of Directors.
In addition, certain other provisions contained in the Company's articles of
incorporation and bylaws, as well as its shareholder rights plan, may have the
effect of discouraging a third party from making an acquisition proposal for the
Company and may thereby inhibit a change in control of the Company. For example,
such provisions may (i) deter tender offers for Common Shares which offers may
be attractive to the shareholders, or (ii) deter purchases of large blocks of
Common Shares, thereby limiting the opportunity for shareholders to receive a
premium for their Common Shares over then-prevailing market prices.
TAX RISKS
TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT
Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within the Company's
control. For example, in order to qualify as a REIT, at least 95% of the
Company's taxable gross income in any year must be derived from qualifying
sources and the Company must make distributions to shareholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
Thus, to the extent Third Party Management Income (as defined in "Federal Income
Tax Considerations--Third Party Management Income") represents 5% or more of the
Company's gross income in any taxable year, the Company will not satisfy the 95%
income test and may fail to qualify as a REIT, unless certain relief provisions
apply, and, even if those relief provisions apply, a tax would be imposed with
respect to excess net income, any of which could have a material adverse effect
on the Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities. See "Federal Income Tax
Considerations--Third Party Management Income" and "Federal Income Tax
Considerations--Income Tests." Additionally, to the extent the Operating Company
or any of the Subsidiary Entities (as defined in "Federal Income Tax
Considerations--Requirements for Qualification") are determined to be taxable as
a corporation, the Company would not qualify as a REIT, which could have a
material adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. See "Federal Income
Tax Considerations--Federal Income Tax Aspects of the Operating Company and the
Subsidiary Entities." Finally, no assurance can be given that new legislation,
new regulations, administrative interpretations or court decisions will not
change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification.
If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates, which would likely have a material adverse
effect on the Company and its ability to make distributions to shareholders and
to pay amounts due on its Debt Securities. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. This treatment would reduce funds
available for investment or distributions to security holders because of the
additional tax liability to the Company for the year or years involved. In
addition, distributions to shareholders would no longer be required to be made.
To the extent that distributions to shareholders would have been made in
anticipation of qualifying as a REIT, the Company might be required to borrow
funds or to liquidate certain of its investments to pay the applicable tax.
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RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 1997, 1996, 1995, 1994, and 1993 was 3.0x, 3.2x, 4.0x, 5.0x, and
4.4x, respectively. For the purposes of computing these ratios, earnings have
been calculated by adding fixed charges to income before net gains (losses) on
sales of investments. Fixed charges consist of interest costs (including
capitalized interest), amortization of debt expense and one-third of the rental
expense, which is deemed to be the interest component of such rental expense.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement for any
offering of securities, the Company intends to use the net proceeds from the
sale of the Offered Securities for general corporate purposes, which may include
the acquisition and development of properties or interests therein (including
using the net proceeds for possible portfolio or asset acquisitions or in
business combinations) as suitable opportunities arise, the expansion and
improvement of certain properties in the Company's portfolio and the repayment
of indebtedness.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or subordinated
Debt Securities ("Subordinated Debt Securities"). The Debt Securities will be
issued under one or more indentures. Senior Debt Securities and Subordinated
Debt Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same trustee. The Senior
Indentures and the Subordinated Indentures, as amended or supplemented from time
to time, are sometimes referred to collectively as the "Indentures." The
Indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made under this heading relating to the
Debt Securities and the Indentures are summaries of certain anticipated
provisions thereof, do not purport to be complete and are qualified in their
entirety by reference to the forms of Indentures and such Debt Securities, which
have been or will be included or incorporated by reference to exhibits to the
Registration Statement of which this Prospectus is a part and are or will be
available as described above under "Available Information."
The following description of Debt Securities sets forth certain general
terms and provisions of the series of Debt Securities to which any Prospectus
Supplement may relate. Certain other specific terms of any particular series of
Debt Securities will be described in the applicable Prospectus Supplement. The
terms of the Debt Securities offered by any Prospectus Supplement may differ
from the terms set forth below, in which case the terms set forth below shall be
deemed to have been superseded to the extent of any different terms set forth in
such Prospectus Supplement.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable form of Indenture. As used in this
"Description of Debt Securities," all references to the "Company" shall mean BRE
Properties, Inc., excluding, unless otherwise expressly stated or the context
shall otherwise require, its subsidiaries.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
Each Indenture will provide that the Debt Securities issued thereunder may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time in or pursuant to authority granted
by a resolution of the Board of Directors of the Company or as established in
one or more indentures supplemental to the applicable Indenture. The terms of
any Debt Securities within any series may differ from the terms of any other
Debt Securities in such series. All Debt Securities of one series need not be
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issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series. (See
Section 301 of the forms of Indenture.) Any Trustee under either Indenture may
resign or be removed with respect to one or more series of Debt Securities
issued under such Indenture, and a successor Trustee may be appointed to act
with respect to such series.
Reference is made to each Prospectus Supplement for the specific terms of
the series of Debt Securities being offered thereby, including:
(1) The title of such Debt Securities and whether such Debt Securities
will be Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) If other than 100% of the principal amount thereof, the portion of
the principal amount of such Debt Securities payable upon declaration of
acceleration of the maturity thereof or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Shares or other equity securities of the Company, or the method by which any
such portion shall be determined;
(4) If such Debt Securities are convertible, any limitation on the
ownership or transferability of the Common Shares or other equity securities
of the Company into which such Debt Securities are convertible in connection
with the preservation of the Company's status as a REIT;
(5) The date or dates, or the method for determining the date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) The date or dates, or the method for determining the date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for such
Interest Payment Dates, or the method by which such Regular Record Dates
shall be determined, the Person to whom such interest shall be payable, and
the basis upon which interest, shall be calculated if other than that of a
360-day year of twelve 30-day months;
(8) The place or places where (i) the principal of (and premium, if any)
or interest, if any, on such Debt Securities will be payable, (ii) such Debt
Securities may be surrendered for conversion (if applicable) or registration
of transfer or exchange, and (iii) notices or demands to or upon the Company
in respect of such Debt Securities and the applicable Indenture may be
served;
(9) The period or periods within which, the price or prices at which,
and the terms and conditions upon which, such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the
Company is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which,
or the date or dates on which, the price or prices at which and the terms
and conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
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(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificated or
book-entry form;
(15) Whether such Debt Securities will be in registered or bearer form
or both and, if and to the extent in registered form, the denominations
thereof if other than $1,000 and any integral multiple thereof and, if and
to the extent in bearer form, the denominations thereof if other than $5,000
and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant
defeasance provisions of the applicable Indenture;
(17) The terms, if any, upon which such Debt Securities may be
convertible into Common Shares or other equity securities of the Company
(and the class thereof) and the terms and conditions upon which such
conversion will be effected, including, without limitation, the initial
conversion price or rate and the conversion period;
(18) The circumstances, if any, under which the Company will pay
Additional Amounts on such Debt Securities in respect of any tax, assessment
or governmental charge and, if so, whether the Company will have the option
to redeem such Debt Securities in lieu of making such payment; and
(19) Any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as hereinafter set forth under the captions "Certain
Covenants--Aggregate Debt Test," "--Maintenance of Total Unencumbered Assets,"
"--Debt Service Test" and "--Secured Debt Test," which relate solely to the
Senior Indenture and the Senior Debt Securities issued thereunder, neither
Indenture will contain any provision that would limit the ability of the Company
to incur indebtedness or that will afford Holders of Debt Securities protection
in a highly leveraged or similar action involving the Company or in the event of
a change of control of the Company. However, certain restrictions on ownership
and transfers of the Company's Common Shares and the Company's other equity
securities designed to preserve its status as a REIT may act to prevent or
hinder a change of control. See "Description of Common Shares."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
registered Debt Securities of any series will be issuable in denominations of
$1,000 and integral multiples of $1,000. (See Section 302 of the forms of
Indenture.)
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest, if any, on any series of Debt
Securities will be payable at the office or agency maintained by the Company for
such purpose; provided that, at the option of the Company, payment of interest
may be made by check mailed to the address of the Person entitled thereto as it
appears in the Security Register or by transfer of funds to such Person at an
account maintained within the United States. (See Sections 301, 305, 306, 307
and 1002 of the forms of Indenture.)
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Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice of which shall be given to the Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner, all as more completely described in the
applicable Indenture. (See Section 307 of the forms of Indenture.)
Subject to certain limitations applicable to Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the office or agency maintained by the Company for such
purpose. In addition, subject to certain limitations applicable to Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion (if applicable) or registration of transfer thereof
at the office or agency maintained by the Company for such purpose. Every Debt
Security surrendered for conversion (if applicable), registration of transfer or
exchange must be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (See Section 305 of the forms of Indenture.) If the applicable
Prospectus Supplement refers to any transfer agent initially designated by the
Company with respect to any series of Debt Securities, the Company may at any
time rescind the designation of any such transfer agent or approve a change in
the location at which any such transfer agent acts, except that the Company will
be required to maintain a transfer agent in each Place of Payment for such
series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities. (See Section 1002 of the forms of
Indenture.)
Neither the Company nor any Trustee will be required (i) to issue, register
the transfer of or exchange Debt Securities of any series if such Debt
Securities may be among those selected for redemption during a period beginning
at the opening of business 15 days before selection of Debt Securities of that
series to be redeemed and ending at the close of business on (A) if such Debt
Securities are issuable only in registered form, the day of the mailing of the
relevant notice of redemption or (B) if such Debt Securities are issuable in
bearer form, the day of the first publication of the relevant notice of
redemption or, if such Debt Securities are also issuable in registered form and
there is no publication, the day of the mailing of the relevant notice of
redemption; (ii) to register the transfer of or exchange any Debt Security in
registered form, or portion thereof, called for redemption, except the
unredeemed portion of any Debt Security being redeemed in part; (iii) to
exchange any Debt Security in bearer form so selected for redemption except in
exchange for a Debt Security in registered form which is simultaneously
surrendered for redemption; or (iv) to issue, register the transfer of or
exchange any Debt Security which has been surrendered for repayment at the
option of the Holder, except the portion, if any, of such Debt Security not to
be so repaid. (See Section 305 of the forms of Indenture.)
MERGER, CONSOLIDATION OR SALE
Each Indenture will provide that the Company will not, in any transaction or
series of related transactions, consolidate with, or sell, lease, assign,
transfer or otherwise convey all or substantially all of its assets to, or merge
with or into, any other Person unless (i) either the Company shall be the
continuing corporation, or the successor Person (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets is a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall expressly assume, by supplemental indenture
delivered to the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest, if any, on all of the outstanding Debt
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Securities issued under such Indenture and the due and punctual performance and
observance of all of the other covenants and conditions contained in such
outstanding Debt Securities and such Indenture; (ii) immediately after giving
effect to such transaction and treating any Debt (including Acquired Debt) which
becomes an obligation of the Company or any of its Subsidiaries as a result
thereof as having been incurred by the Company or such Subsidiary at the time of
such transaction, no Event of Default under the applicable Indenture, and no
event which, after notice or the lapse of time or both, would become such an
Event of Default, shall have occurred and be continuing; and (iii) an officers'
certificate and legal opinion concerning such conditions shall be delivered to
the relevant Trustee. In the event that the Company is not the continuing
corporation, then, for purposes of clause (ii) of the preceding sentence, the
successor corporation shall be deemed to be the "Company" referred to in such
clause (ii). (See Sections 801 and 803 of the forms of Indenture).
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Company is not the continuing corporation, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such sale, assignment, transfer, lease or other conveyance is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the relevant Indenture with the same effect as if such
successor corporation had been named as the Company therein and thereafter
(except in the case of a lease) the Company shall be released from its
obligations under such Indenture and the Debt Securities.
CERTAIN COVENANTS
The Senior Indenture will contain the following covenants:
AGGREGATE DEBT TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom on a pro forma basis, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries
(determined on a consolidated basis in accordance with generally accepted
accounting principles) is greater than 60% of the sum of (without duplication)
(i) the Total Assets of the Company and its Subsidiaries as of the last day of
the then most recently ended fiscal quarter and (ii) the aggregate purchase
price of any real estate assets or mortgages receivable acquired, and the
aggregate amount of any securities offering proceeds received (to the extent
such proceeds were not used to acquire real estate assets or mortgages
receivable or used to reduce Debt), by the Company or any of its Subsidiaries
since the end of such fiscal quarter, including the proceeds obtained from the
incurrence of such additional Debt, determined on a consolidated basis in
accordance with generally accepted accounting principles.
DEBT SERVICE TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if the ratio of Consolidated Income Available for Debt Service to the
Annual Debt Service Charge for the period consisting of the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect to the incurrence of such Debt and the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt (including, without limitation, Acquired Debt) incurred by the
Company or any of its Subsidiaries since the first day of such four-quarter
period had been incurred, and the application of the proceeds therefrom
(including to repay or retire other Debt) had occurred, on the first day of such
period, (ii) the repayment or retirement of any other Debt of the Company or any
of its Subsidiaries since the first day of such four-quarter period had occurred
on the first day of such period (except that, in making such computation, the
amount of Debt under any revolving credit facility, line of credit or similar
facility shall be computed based upon the average daily balance of such Debt
during such period) and (iii) in the case of any acquisition or disposition by
the Company or any of its Subsidiaries of any asset or group of assets, in any
such case with a fair market value (determined in good faith by the Company's
Board of Directors) in excess of $1 million, since the first day of such
four-quarter period, whether by merger, stock purchase or
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sale or asset purchase or sale or otherwise, such acquisition or disposition had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in such pro forma
calculation. If the Debt giving rise to the need to make the foregoing
calculation or any other Debt incurred after the first day of the relevant
four-quarter period bears interest at a floating rate then, for purposes of
calculating the Annual Debt Service Charge, the interest rate on such Debt shall
be computed on a pro forma basis as if the average rate which would have been in
effect during the entire such four-quarter period had been the applicable rate
for the entire such period.
SECURED DEBT TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) secured by any Lien on any property or assets of the Company or any of its
Subsidiaries, whether owned on the date of the Indenture or thereafter acquired,
if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom on a pro forma basis, the aggregate
principal amount (determined on a consolidated basis in accordance with
generally accepted accounting principles) of all outstanding Debt of the Company
and its Subsidiaries which is secured by any Lien on any property or assets of
the Company or any of its Subsidiaries is greater than 40% of the sum of
(without duplication) (i) the Total Assets of the Company and its Subsidiaries
as of the last day of the then most recently ended fiscal quarter and (ii) the
aggregate purchase price of any real estate assets or mortgages receivable
acquired, and the aggregate amount of any securities offering proceeds received
(to the extent such proceeds were not used to acquire real estate assets or
mortgages receivable or used to reduce Debt), by the Company or any of its
Subsidiaries since the end of such fiscal quarter, including the proceeds
obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting principles.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Company will, and will cause
its Subsidiaries to, have at all times Total Unencumbered Assets of not less
than 150% of the aggregate principal amount of all outstanding Unsecured Debt of
the Company and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles.
The Subordinated Indenture will not contain any of the covenants described
above and will not contain any other limitation on the amount of Debt of any
kind which the Company or its Subsidiaries may incur. Neither Indenture will
limit the amount of dividends or other distributions which the Company may pay
to its shareholders.
Each Indenture will contain the following covenants:
EXISTENCE. Except as permitted under the provisions of such Indenture
described in "Merger, Consolidation or Sale" the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company will not be required to preserve any right or
franchise if its Board of Directors determines that the preservation thereof is
no longer desirable in the conduct of its business and that the loss thereof is
not disadvantageous in any material respect to the Holders of the Debt
Securities outstanding under the relevant Indenture.
MAINTENANCE OF PROPERTIES. The Company will cause all of its properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the Company and its Subsidiaries will not be prevented
from selling or otherwise disposing of for value their respective properties in
the ordinary course of business.
INSURANCE. Each Indenture will require the Company to, and to cause each of
its Subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible
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companies in such amounts and covering all such risks as shall be customary in
the industry in accordance with prevailing market conditions and availability.
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary, provided, however, that the Company will not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, for so long as any Debt Securities
are outstanding, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Section 13 or 15(d) if the Company were so subject, on or prior
to the respective dates (the "Required Filing Dates") by which the Company would
have been so required so to file such documents. The Company will also in any
event (x) within 15 days after each Required Filing Date (i) transmit by mail to
all Holders of Debt Securities, as their names and addresses appear in the
relevant Security Register, without cost to such Holders, copies of the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections and (ii) file with the
applicable Trustee copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject
to such Sections and (y) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder of Debt Securities under the
relevant Indenture.
DEFINITIONS. As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
is merged or consolidated with or into, or becomes a Subsidiary of, the Company
or (ii) assumed by the Company or any of its Subsidiaries in connection with the
acquisition of assets from such Person. Acquired Debt shall be deemed to be
incurred on the date the acquired Person is merged or consolidated with or into,
or becomes a Subsidiary of, the Company or the date of the related acquisition,
as the case may be.
"Annual Debt Service Charge" means, for any period, the interest expense of
the Company and its Subsidiaries for such period (including, without
duplication, (i) all amortization of debt discount, (ii) all accrued interest,
(iii) all capitalized interest, and (iv) the interest component of capitalized
lease obligations), determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Company and its Subsidiaries for such period,
plus amounts which have been deducted and minus amounts which have been added
for (without duplication) (i) interest expense on Debt, (ii) provision for taxes
based on income, (iii) amortization of debt discount and deferred financing
costs, (iv) provisions for gains and losses on sales or other dispositions of
properties and other investments, (v) property depreciation and amortization,
(vi) the effect of any non-cash items resulting from a change in accounting
principles in determining Consolidated Net Income, and (vii) amortization of
deferred charges, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period, excluding (without
duplication) (i) extraordinary items and (ii) the portion of net income (but not
losses) of the Company and its Subsidiaries allocable to minority interests
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in unconsolidated Persons to the extent that cash dividends or distributions
have not actually been received by the Company or one of its Subsidiaries, all
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of (i) borrowed money or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any Lien on any property or asset owned by such Person, but only to the extent
of the lesser of (x) the amount of indebtedness so secured and (y) the fair
market value (determined in good faith by the board of directors of such Person
or, in the case of the Company or a Subsidiary, by the Company's Board of
Directors) of the property subject to such Lien, (iii) reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any such balance that constitutes an
accrued expense or trade payable, or (iv) any lease of property by such Person
as lessee which is required to be reflected on such Person's balance sheet as a
capitalized lease in accordance with generally accepted accounting principles,
and also includes, to the extent not otherwise included, any obligation of such
Person to be liable for, or to pay, as obligor, guarantor or otherwise (other
than for purposes of collection in the ordinary course of business), Debt of the
types referred to above of another Person (it being understood that Debt shall
be deemed to be incurred by such Person whenever such person shall create,
assume, guarantee or otherwise become liable in respect thereof).
"Executive Group" means, collectively, those individuals holding the offices
of Chairman, Vice Chairman, President, Chief Executive Officer, Chief Operating
Officer or any Vice President of the Company.
"Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest, security agreement, or other encumbrance of any kind.
"Subsidiary" means (i) a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares, if any, of the
non-voting capital stock or other equivalent ownership interests of which
(except directors' qualifying shares) are at the time directly or indirectly
owned by the Company and/or any other Subsidiary or Subsidiaries, and the
majority of the shares of the voting capital stock or other equivalent ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by the Company, any other Subsidiary or
Subsidiaries, and/or one or more individuals of the Executive Group (or, in the
event of death or disability of any of such individuals, his/her respective
legal representatives(s), or such individuals' successors in office as an
officer of the Company), and (ii) any Person the accounts of which are
consolidated with the accounts of the Company.
"Total Assets" means the sum of (without duplication) (i) Undepreciated Real
Estate Assets and (ii) all other assets (excluding accounts receivable and
intangibles) of the Company and its Subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Total Unencumbered Assets" means the sum of (without duplication)
(i) those Undepreciated Real Estate Assets which are not subject to a Lien
securing Debt and (ii) all other assets (excluding accounts receivable and
intangibles) of the Company and its Subsidiaries not subject to a Lien securing
Debt, all determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Undepreciated Real Estate Assets" means, as of any date, the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, all determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Unsecured Debt" means Debt of the Company or any of its Subsidiaries which
is not secured by a Lien on any property or assets of the Company or any of its
Subsidiaries.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for
30 days in the payment of any interest on or any Additional Amounts payable in
respect of any Debt Security of such series; (ii) default in the payment of any
principal of (or premium, if any, on) any Debt Security of such series at its
Maturity; (iii) default in making any sinking fund payment as required for any
Debt Security of such series; (iv) default in the performance of any other
covenant or warranty of the Company contained in the applicable Indenture (other
than a covenant or warranty included in such Indenture solely for the benefit of
a series of Debt Securities other than such series), continued for 60 days after
written notice as provided in such Indenture; (v) default under any bond, note,
debenture or other evidence of indebtedness of the Company or any of its
Subsidiaries or under any mortgage, indenture or other instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness of the Company or any of its Subsidiaries which results in the
acceleration of such indebtedness in an aggregate principal amount exceeding
$20,000,000 or which constitutes a failure to pay at maturity or other scheduled
payment date (after expiration of any applicable grace period) such indebtedness
in an aggregate principal amount exceeding $20,000,000, but only if such
indebtedness is not discharged or such acceleration is not rescinded or annulled
within 10 days after notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 10% in aggregate principal amount of the
Outstanding Debt Securities of such series; (vi) certain events of bankruptcy,
insolvency or reorganization with respect to the Company or of any Significant
Subsidiary; and (vii) any other Event of Default provided with respect to that
series of Debt Securities. (See Section 501 of the forms of Indenture.) The term
"Significant Subsidiary" means any Subsidiary which is a significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act as in effect
on January 1, 1996) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms thereof) of all
of the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given by
the Holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series has been made, the Holders of not less
than a majority in principal amount of outstanding Debt Securities of such
series may rescind and annul such declaration and its consequences if (i) the
Company shall have deposited with the applicable Trustee all required payments
of the principal of (and premium, if any) and interest, if any, on the Debt
Securities of such series (other than amounts which have become due and payable
as a result of such acceleration), plus certain fees, expenses, disbursements
and advances of such Trustee and (ii) all Events of Default (other than the
nonpayment of accelerated principal (or specified portion thereof), premium, if
any, and interest) with respect to Debt Securities of such series have been
cured or waived as provided in such Indenture. (See Section 502 of the forms of
Indenture.) The Indentures will also provide that the Holders of not less than a
majority in principal amount of the outstanding Debt Securities of any series
may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium, if any) or
interest, if any, on any Debt Security of such series or (y) in respect of a
covenant or provision contained in the applicable Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security of such series affected thereby. (See Section 513 of the forms of
Indenture.)
The Indentures will require each Trustee to give notice to the Holders of
Debt Securities issued thereunder within 90 days of a default under the
applicable Indenture known to such Trustee, unless such default shall have been
cured or waived; provided, however, that such Trustee may withhold notice to the
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Holders of any such series of Debt Securities of any default with respect to
such series (except a default in the payment of the principal of (or premium, if
any) or interest, if any, on any Debt Security of such series or in the payment
of any sinking fund installment in respect of any Debt Security of such series)
if a Responsible Officer of such Trustee determines such withholding to be in
the interest of such Holders. (See Section 601 of the forms of Indenture.)
The Indentures will provide that no Holder of Debt Securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
the failure of the applicable Trustee, for 60 days, to act after it has received
a written request to institute proceedings in respect of an Event of Default
from the Holders of not less than 25% in principal amount of the Outstanding
Debt Securities of such series, as well as an offer of reasonable indemnity.
(See Section 507 of the forms of Indenture.) This provision will not prevent,
however, any Holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest, if any, on
such Debt Securities held by that Holder at the respective due dates thereof.
(See Section 508 of the forms of Indenture.)
The Indentures will provide that, subject to provisions to each Indenture
relating to its duties in case of default, a Trustee thereunder is under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any Holders of any series of Debt Securities then
Outstanding under such Indenture, unless such Holders shall have offered to the
Trustee thereunder reasonable security or indemnity. (See Section 602 of the
forms of Indenture.) The Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to such Trustee, or of exercising any trust or power conferred upon such
Trustee. However, a Trustee may refuse to follow any direction which is in
conflict with any law or the applicable Indenture, which may involve such
Trustee in personal liability or which may be unduly prejudicial to the Holders
of Debt Securities of such series not joining therein. (See Section 512 of the
forms of Indenture.)
Within 120 days after the close of each fiscal year, the Company must
deliver to the relevant Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any noncompliance under the applicable Indenture and, if so,
specifying such noncompliance and the nature and status thereof. (See
Section 1014 of the form of Senior Indenture and Section 1011 of the form of
Subordinated Indenture.)
MODIFICATION OF THE FORMS OF INDENTURE
Modifications and amendments of an Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities of each series issued thereunder which are affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest, if any, (or premium, if any) on, any such Debt
Security, (ii) reduce the principal amount of, or the rate or amount of interest
on, or any amount of premium payable on any such Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of the Holder of any such
Debt Security to repayment of such Debt Security at such Holder's option,
(iii) change the Place of Payment, or the coin or currency, for payment of
principal of (or premium, if any) or interest, if any, on any such Debt
Security, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security, (v) reduce the percentage
in principal amount of Outstanding Debt Securities of any series necessary to
modify or amend the applicable Indenture with respect to such Debt Securities,
to waive compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the applicable Indenture, (vi) modify any of the foregoing provisions or any
of the provisions relating to the waiver of certain past
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defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security, or
(vii) make any change that adversely affects the right, if any, to convert or
exchange any Debt Security for equity securities of the Company or other
securities or property in accordance with the terms of any such Debt Security.
(See Section 902 of the forms of Indenture.)
Each Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of any series issued thereunder
have the right to waive compliance by the Company with certain covenants in the
Indenture applicable to such series, including those described in the section of
this Prospectus captioned "Description of Debt Securities--Certain Covenants."
(See Section 1013 of the form of Senior Indenture and Section 1011 of the form
of Subordinated Indenture.)
Modifications and amendments of an Indenture may be made by the Company and
the applicable Trustee without the consent of any Holder of Debt Securities
issued thereunder for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities issued thereunder or to surrender any right
or power conferred upon the Company in such Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt Securities
issued thereunder; (iv) to add or change any provisions of such Indenture to
facilitate the issuance of Debt Securities issued thereunder in bearer form, or
to permit or facilitate the issuance of such Debt Securities in uncertificated
form, provided that such action shall not adversely affect the interests of the
Holders of such Debt Securities of any series in any material respect; (v) to
change or eliminate any provision of such Indenture, provided that no such
change or elimination shall become effective with respect to the Outstanding
Debt Securities of any series issued thereunder which were first issued prior to
the date of such change or elimination and which are entitled to the benefit of
such provision; (vi) to secure the Debt Securities issued thereunder; (vii) to
establish the form or terms of Debt Securities of any series issued thereunder,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Shares or Preferred Shares of the Company;
(viii) to provide for the acceptance of appointment by a successor Trustee or to
facilitate the administration of the trusts under such Indenture by more than
one Trustee; (ix) to cure any ambiguity, defect or inconsistency in such
Indenture or to make any other provisions with respect to matters or questions
arising thereunder, provided that such action shall not adversely affect the
interests of Holders of Outstanding Debt Securities of any series issued
thereunder in any material respect; or (x) to supplement any of the provisions
of such Indenture to the extent necessary to permit or facilitate defeasance,
covenant defeasance and discharge of any series of Debt Securities issued
thereunder, provided that such action shall not adversely affect the interests
of the Holders of the Debt Securities of any series issued thereunder in any
material respect. (See Section 901 of the forms of Indenture.)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
Holders of such Debt Securities, (i) the principal amount of an Original Issue
Discount Security that shall be deemed to be Outstanding shall be the amount of
the principal thereof that would be due and payable as of the date of such
determination upon declaration of acceleration of the maturity thereof,
(ii) the principal amount of a Debt Security denominated in a Foreign Currency
that shall be deemed outstanding shall be the U.S. dollar equivalent, determined
on the issue date for such Debt Security, of the principal amount (or, in the
case of an Original Issue Discount Security, the U.S. dollar equivalent on the
issue date of such Debt Security of the amount determined as provided in
(i) above), (iii) the principal amount of an Indexed Security that shall be
deemed Outstanding shall be the principal face amount of such Indexed Security
at original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to such Indenture, and (iv) Debt Securities owned by the
Company or any other obligor upon the Debt
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Securities or any Affiliate of the Company or of such other obligor shall be
disregarded. (See Section 101 of the forms of Indenture.)
The Indentures will contain provisions for convening meetings of the Holders
of Debt Securities of a series issued thereunder. (See Section 1501 of the forms
of Indenture.) A meeting may be called at any time by the applicable Trustee and
also, upon request, by the Company or the Holders of at least 10% in principal
amount of the Outstanding Debt Securities of such series, in any such case upon
notice given as provided in the applicable Indenture. (See Section 1502 of the
forms of Indenture.) Except for any consent that must be given by the Holder of
each Debt Security affected by certain modifications and amendments of such
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less or more than a majority, in
principal amount of the Outstanding Debt Securities of a series may be adopted
at a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the Holders of such specified percentage in principal
amount of the Outstanding Debt Securities of that series. Any resolution passed
or decision taken at any meeting of Holders of Debt Securities of any series
duly held in accordance with the applicable Indenture will be binding on all
Holders of Debt Securities of that series. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage, which is less or more than a majority, in
principal amount of the Outstanding Debt Securities of a series, the Persons
holding or representing such specified percentage in principal amount of the
Outstanding Debt Securities of such series will constitute a quorum. (See
Section 1504 of the forms of Indenture.)
Notwithstanding the provisions described above, the Indentures will provide
that if any action is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the applicable Indenture expressly
provides may be made, given or taken by the Holders of a specified percentage in
principal amount of all Outstanding Debt Securities affected thereby, or by the
Holders of a specified percentage in principal amount of the Outstanding Debt
Securities of such series and one or more additional series: (i) there shall be
no minimum quorum requirement for such meeting and (ii) the principal amount of
the Outstanding Debt Securities of such series that are entitled to vote in
favor of such request, demand, authorization, direction, notice, consent, waiver
or other action shall be taken into account in determining whether such request,
demand, authorization, direction, notice, consent, waiver or other action has
been made, given or taken under such Indenture. (See Section 1504 of the forms
of Indenture.)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, upon
request of the Company any Indenture shall cease to be of further effect with
respect to any series of Debt Securities issued thereunder specified in such
Company request (except as to certain limited provisions of such Indenture which
shall survive) when either (i) all Debt Securities of such series have been
delivered to the Trustee for cancellation (subject to certain exceptions) or
(ii) all Debt Securities of such series have become due and payable or will
become due and payable within one year (or, if redeemable, are scheduled for
redemption within one year) and the Company has irrevocably deposited with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest to the
date of such deposit (if such Debt Securities have become due and payable) or to
the stated maturity or redemption date, as the case may be.
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Each Indenture provides that, unless otherwise provided in the applicable
Prospectus Supplement, the Company may elect with respect to any series of Debt
Securities issued thereunder either (i) to defease and be discharged from any
and all obligations with respect to such Debt Securities (except, among other
things, for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (see Section 1402 of the forms of Indenture) or (ii) to be
released from its obligations with respect to such Debt Securities under the
applicable covenants described above under the caption "Certain Covenants"
(except that the Company shall remain subject to the covenant to preserve and
keep in full force and effect its corporate existence, except as permitted under
the provisions described under "Merger, Consolidation or Sale") and, if provided
pursuant to Section 301 of such Indenture, its obligations with respect to any
other covenants applicable to the Debt Securities of such series, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(see Section 1403 of the forms of Indenture), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are payable at Stated
Maturity or, if applicable, upon redemption, or Government Obligations (as
defined below), or both, applicable to such Debt Securities which through the
scheduled payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay the principal of (and premium, if
any) and interest, if any, on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor or the
applicable redemption date, as the case may be.
Such a trust may only be established if, among other things, (i) the Company
has delivered to the applicable Trustee an Opinion of Counsel (as specified in
the applicable Indenture) to the effect that the Holders of such Debt Securities
will not recognize income, gain or loss for U.S. federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of such
Indenture; (ii) if the cash and Government Obligations deposited are sufficient
to pay the outstanding Debt Securities of such series provided such Debt
Securities are redeemed on a particular redemption date, the Company shall have
given the applicable Trustee irrevocable instructions to redeem such Debt
Securities on such date; and (iii) no Event of Default or event which with
notice or lapse of time or both would become an Event of Default with respect to
Debt Securities of such series shall have occurred and shall be continuing on
the date of, or, solely in the case of Events of Default described in
clause (vi) of the first paragraph under "--Events of Default, Notice and
Waiver" above, during the period ending on the 91st day after the date of, such
deposit into trust. (See Section 1404 of the forms of Indenture.)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the Foreign Currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
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deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt. (See Section 101 of the forms of
Indenture.)
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the Holder of a Debt Security of such series is entitled to, and does, elect
to receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest, if any, on such Debt Security as it becomes
due out of the proceeds yielded by converting the amount so deposited in respect
of such Debt Security into the currency, currency unit or composite currency in
which such Debt Security becomes payable as a result of such election or such
Conversion Event. (See Section 1405 of the forms of Indenture.) "Conversion
Event" means the cessation of use of (a) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public institution
of or within the international banking community, (b) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Community or (c) any currency unit or
composite currency other than the ECU for the purposes for which it was
established. Unless otherwise described in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest, if any, on any
Debt Security that are payable in a Foreign Currency that ceases to be used by
its government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to the
Debt Securities of any series and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default (other than an Event
of Default with respect to any covenant as to which there has been covenant
defeasance), the amount of monies and Government Obligations deposited with the
applicable Trustee to effect such covenant defeasance may not be sufficient to
pay amounts due on such Debt Securities at the time of their Stated Maturity or
at the time of the acceleration resulting from such Event of Default. In any
such event, the Company would remain liable to make payment of such amounts due
at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
RANKING OF DEBT SECURITIES
The Senior Debt Securities will be unsecured unsubordinated obligations of
the Company and will rank on a parity in right of payment with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities will be unsecured obligations of the Company and will be subordinated
in right of payment to all existing and future Senior Indebtedness (as defined
below) of the Company. See "Subordination of Subordinated Securities."
The Debt Securities are obligations exclusively of the Company. Because a
significant portion of the operations of the Company is conducted through its
subsidiaries, including the Operating Company, the cash flow of the Company and
the consequent ability to service its debt, including the Debt Securities, are
partially dependent on the earnings of such subsidiaries and the Debt Securities
will be effectively subordinated to all existing and future indebtedness,
guarantees and other liabilities of such subsidiaries. See "Risk
Factors--Ranking of Securities." Although the Senior Indentures will, if any
Senior Securities
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are issued, impose limitations on the incurrence of additional indebtedness,
both the Company and its subsidiaries will retain the ability to incur
substantial additional indebtedness.
SUBORDINATION OF SUBORDINATED SECURITIES
The payment of the principal of (and premium, if any) and interest, if any,
on the Subordinated Debt Securities will be subordinated as set forth in the
Subordinated Indenture in right of payment to the prior payment of all Senior
Indebtedness of the Company whether outstanding on the date of the Subordinated
Indenture or thereafter incurred. (See Section 1701 of the Subordinated
Indenture.)
"Senior Indebtedness" is defined in the Subordinated Indenture to mean
(i) the principal of (and premium, if any) and unpaid interest, if any, on
indebtedness for money borrowed or evidenced by a bond, note, debenture or
similar instrument, (ii) purchase money and similar obligations,
(iii) obligations under capital leases, (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the Company
is responsible for the payment of, indebtedness and obligations of others of the
types referred to in clauses (i) through (iii) above, (v) renewals, extensions
and refunding of any such indebtedness or obligations, (vi) interest in respect
of any such indebtedness or obligations accruing after the commencement of any
insolvency or bankruptcy proceedings and (vii) obligations associated with
derivative products such as interest rate and currency exchange contracts,
foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or
guaranteed the indebtedness or obligations described in clauses (i) through
(vii) expressly provides that such indebtedness or obligation is subordinate or
junior in right of payment to all other indebtedness of the Company or is not
senior in right of payment to the Subordinated Debt Securities or ranks PARI
PASSU with or subordinate to the Subordinated Debt Securities in right of
payment. At December 31, 1997, the Company had approximately $309,000,000 of
Senior Debt outstanding. There are no restrictions in the Subordinated Indenture
upon the incurrence of additional Senior Indebtedness.
The Subordinated Indenture will provide that, in the event (i) of any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in bankruptcy, insolvency,
reorganization or receivership proceeding or upon an assignment for the benefit
of creditors or any other marshaling of the assets and liabilities of the
Company or otherwise, except a distribution in connection with a merger or
consolidation or a conveyance or transfer of all or substantially all of the
properties of the Company which complies with the requirements of Article Eight
of the Subordinated Indenture (described above under "Merger, Consolidation or
Sale") or (ii) that a default shall have occurred and be continuing with respect
to the payment of principal of (or premium, if any) or interest on any Senior
Indebtedness, or (iii) that the principal of the Subordinated Debt Securities of
any series issued under the Subordinated Indenture (or in the case of Original
Issue Discount Securities, the portion of the principal amount thereof referred
to in Section 502 of the form of Subordinated Indenture) shall have been
declared due and payable pursuant to Section 502 of the form of Subordinated
Indenture, and such declaration shall not have been rescinded and annulled as
provided in said Section 502, then:
(1) in a circumstance described in the foregoing clause (i) or (ii), the
holders of all Senior Indebtedness, and in the circumstance described in the
foregoing clause (iii), the holders of all Senior Indebtedness outstanding
at the time the principal of such Subordinated Debt Securities issued under
the Subordinated Indenture (or in the case of Original Issue Discount
Securities, such portion of the principal amount) shall have been so
declared due and payable, shall first be entitled to receive payment of the
full amount due thereon in respect of principal (premium, if any), interest
and Additional Amounts, or provision shall be made for such payment in money
or money's worth, before the Holders of any of the Subordinated Debt
Securities are entitled to receive any payment on account of the principal
of (or premium, if any) or interest, if any, on or any Additional Amount in
respect of the indebtedness evidenced by the Subordinated Debt Securities;
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(2) any payment by, or distribution of assets of, the Company of any
kind or character, whether in cash, property or securities (other than
certain subordinated debt securities of the Company issued in a
reorganization or readjustment), to which the Holder of any of the
Subordinated Debt Securities would be entitled except for the subordination
provisions of Article Seventeen of the Subordinated Indenture shall be paid
or delivered by the person making such payment or distribution directly to
the holders of Senior Indebtedness (as provided in clause (1) above), or on
their behalf, ratably according to the aggregate amount remaining unpaid on
account of such Senior Indebtedness, to the extent necessary to make payment
in full of all Senior Indebtedness (as provided in clause (1) above)
remaining unpaid after giving effect to any concurrent payment or
distribution (or provisions therefor) to the holders of such Senior
Indebtedness, before any payment or distribution is made to or in respect of
the Holders of the Subordinated Debt Securities; and
(3) in the event that, notwithstanding the foregoing, any payment by, or
distribution of assets of, the Company of any kind or character is received
by the Holders of any of the Subordinated Debt Securities issued under the
Subordinated Indenture before all Senior Indebtedness is paid in full such
payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as aforesaid, for application to
the payment of all such Senior Indebtedness remaining unpaid until all such
Senior Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution (or provisions therefor) to the holders
of such Senior Indebtedness.
By reason of such subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain general creditors of the
Company, including holders of Senior Indebtedness, may recover more, ratably,
than the Holders of the Subordinated Debt Securities.
CONVERTIBLE DEBT SECURITIES
If set forth in the applicable Prospectus Supplement, Debt Securities of any
series may be convertible into Common Shares or other securities of the Company
("Convertible Debt Securities") on the terms and subject to the conditions set
forth in such Prospectus Supplement.
The applicable Prospectus Supplement may set forth limitations on the
ownership or conversion of Convertible Debt Securities intended to protect the
Company's status as a REIT for federal income tax purposes.
Reference is made to the sections captioned "Description of Common Shares,"
"Description of Preferred Shares" and "Description of Depositary Shares" for a
general description of securities which may be issued upon the conversion of
Convertible Debt Securities, including a description of certain restrictions on
the ownership of the Common Shares and the Preferred Shares.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (each, a "Global Security") that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), or such other depository as may be identified in the applicable
Prospectus Supplement. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless otherwise provided
in such Prospectus Supplement, Debt Securities that are represented by a Global
Security will be issued in any authorized denomination and will be issued in
registered or bearer form.
The Company anticipates that any Global Securities will be deposited with,
or on behalf of DTC, and that such Global Securities will be registered in the
name of Cede & Co., DTC's nominee. The Company further anticipates that the
following provisions will apply to the depository arrangements with respect to
any such Global Securities. Any additional or differing terms of the depository
arrangements will be
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described in the Prospectus Supplement relating to a particular series of Debt
Securities issued in the form of Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Debt Securities represented by such Global Security for all purposes under
the applicable Indenture. Except as described below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities in certificated
form and will not be considered the owners or Holders thereof under the
applicable Indenture. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests in
a Global Security.
Unless otherwise specified in the applicable Prospectus Supplement, each
Global Security of any series will be exchangeable for certificated Debt
Securities of the same series only if (i) DTC notifies the Company that it is
unwilling or unable to continue as depository or DTC ceases to be a clearing
agency registered under the Exchange Act (if so required by applicable law or
regulation) and, in either case, a successor depository is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, (ii) the Company in its sole discretion determines that
the Global Securities shall be exchangeable for certificated Debt Securities or
(iii) there shall have occurred and be continuing an Event of Default under the
Indenture with respect to the Debt Securities of such series and beneficial
owners representing a majority in aggregate principal amount of such Debt
Securities represented by Global Securities advise DTC to cease acting as
depository. Upon any such exchange, owners of a beneficial interest in the
Global Security or Securities will be entitled to physical delivery of
individual Debt Securities in certificated form of like tenor, terms and rank,
equal in principal amount to such beneficial interest, and to have such Debt
Securities in certificated form registered in the names of the beneficial
owners, which names are expected to be provided by DTC's relevant Participants
(as identified by DTC) to the applicable Trustee. Unless otherwise described in
the applicable Prospectus Supplement, Debt Securities so issued in certificated
form will be issued in denominations of $1,000 or any integral multiple thereof,
and will be issued in registered form only, without coupons.
The following is based on information furnished to the Company:
DTC will act as securities depository for the Debt Securities. The Debt
Securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully registered Debt Security
certificate will be issued with respect to each $200 million (or such other
amount as shall be permitted by DTC from time to time) of principal amount of
the Debt Securities of a series, and an additional certificate will be issued
with respect to any remaining principal amount of such series.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others, such as securities brokers and dealers, and banks and trust companies
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
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Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written confirmation
from DTC of its purchase, but is expected to receive a written confirmation
providing details of the transaction, as well as periodic statements of its
holdings, from the Direct or Indirect Participant through which such Beneficial
Owner entered into the transaction. Transfers of ownership interests in Debt
Securities are accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners do not
receive certificates representing their ownership interests in Debt Securities,
except under the circumstances described above.
To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's nominee, Cede & Co. The deposit of the Debt Securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Debt Securities; DTC records reflect only the identity of the Direct
Participants to whose accounts Debt Securities are credited, which may or may
not be the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Debt Securities are credited on the record date (identified
on a list attached to the Omnibus Proxy).
Principal payments, premium payments, if any, and interest payments, if any,
on the Debt Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payment date. Payments by Direct and Indirect
Participants to Beneficial Owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
applicable Trustee or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal (and
premium, if any) and interest, if any, to DTC is the responsibility of the
Company or the applicable Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Debt Securities of a series represented by Global Securities are
being redeemed, DTC's practice is to determine by lot the amount of the interest
of each Direct Participant in such issue to be redeemed.
To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the Global Security repaid by the
Company, through its Participant, to the applicable Trustee, and shall effect
delivery of such interest in a Global Security by causing the Direct Participant
to transfer the Participant's interest in the Global Security or Securities
representing such interest, on DTC's records, to such Trustee. The requirement
for physical delivery of Debt Securities in connection with a demand for
repayment will be deemed satisfied when the ownership rights in the Global
Security or Securities representing such Debt Securities are transferred by
Direct Participants on DTC's records.
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DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the applicable Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Debt Security certificates are
required to be printed and delivered as described above.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debt Security certificates will be printed and delivered as described above.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
None of the Company, the applicable Trustee or any applicable paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in a Global Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interest.
DESCRIPTION OF PREFERRED SHARES
The following description of Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus Supplement
may relate, does not purport to be complete and is qualified in its entirety by
reference to the Company's Amended and Restated Articles of Incorporation (the
"Articles") and by the provisions of the form of articles supplementary pursuant
to which the terms of the Preferred Shares of any series will be established,
which have been or will be included or incorporated by reference as exhibits to
the Registration Statement of which this Prospectus is a part and are or will be
available as described above under "Available Information." Certain other
specific terms will be described in the applicable Prospectus Supplement. The
terms of the Preferred Shares offered in any Prospectus Supplement may differ
from the terms set forth below, in which case the terms set forth below shall be
deemed to have been superseded to the extent of any different terms set forth in
such Prospectus Supplement.
GENERAL
Under the Articles, the Board of Directors has the authority to issue up to
10,000,000 Preferred Shares, $0.01 par value per share. No Preferred Shares were
outstanding as of the date of this Prospectus. Preferred Shares may be issued
from time to time in one or more series, as authorized by the Board of Directors
of the Company and without any action or approval of shareholders of the
Company. Prior to the issuance of shares of such series, the Board of Directors
is required by the Maryland General Corporation Law and the Articles to fix for
each series, subject to the provisions of the Articles, the terms, rights,
restrictions and qualifications, including any preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. The
Preferred Shares offered in any Prospectus Supplement will, when issued, be
fully paid and nonassessable and will have no preemptive rights.
The issuance of Preferred Shares, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things, adversely affect the voting powers and other rights and
interests of holders of Common Shares and, under certain circumstances, could
make it more difficult for a third party to gain control of the Company and
could have the effect of delaying or preventing an attempted takeover of the
Company.
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TERMS
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate or rates, period or periods and payment date or
dates or method of calculation thereof applicable to such Preferred Shares,
and whether dividends will be cumulative or non-cumulative;
(4) The date from which dividends on such Preferred Shares shall accrue,
if applicable;
(5) The procedures for any auction or remarketing of such Preferred
Shares;
(6) The provision for any sinking fund for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) Any terms and conditions upon which such Preferred Shares will be
convertible into Common Shares of the Company, including the conversion
price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of or on such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to
such Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares of any series will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all equity securities
ranking junior to such Preferred Shares with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company; (ii) on a
parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Shares with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company which the terms of such Preferred Shares
specifically provide rank senior to the Preferred Shares with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement.
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Each such dividend shall be payable to holders of record as they appear on the
share transfer books of the Company on such record dates as shall be fixed by
the Board of Directors of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Shares of any series and the shares
of any other series of Preferred Shares ranking on a parity as to dividends with
the Preferred Shares of such series, all dividends declared upon Preferred
Shares of such series and any other series of Preferred Shares ranking on a
parity as to dividends with such Preferred Shares shall be declared pro rata so
that the amount of dividends declared per share of Preferred Shares of such
series and such other series of Preferred Shares shall in all cases bear to each
other the same ratio that accrued dividends per share on the Preferred Shares of
such series (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares does not have a
cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of capital
stock ranking junior to the Preferred Shares of such series as to dividends and
upon liquidation, dissolution and winding up) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Shares, or any other capital stock of the Company ranking junior to or on
a parity with the Preferred Shares of such series as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common Shares, or any
other shares of capital stock of the Company ranking junior to or on a parity
with the Preferred Shares of such series as to dividends or upon liquidation,
dissolution or winding up be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital stock of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation, dissolution and
winding up and except for the redemption of capital stock
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of the Company pursuant to the provision of its Articles allowing it to redeem
shares of its capital stock to preserve its status as a REIT for federal income
tax purposes).
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Shares do not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Shares may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Shares shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if a series of Preferred Shares does not have a cumulative dividend, full
dividends on all shares of the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Shares shall be redeemed unless all
outstanding shares of Preferred Shares of such series are simultaneously
redeemed; PROVIDED, HOWEVER, that the foregoing shall not prevent the redemption
of Preferred Shares of such series pursuant to the provisions of the Articles of
the Company allowing it to redeem shares of its capital stock to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Shares of such
series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of such
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation, dissolution and winding up); PROVIDED, HOWEVER, that the
foregoing shall not prevent the redemption of shares of Preferred Shares of such
series pursuant to the provisions of the Articles of the Company allowing it to
redeem shares of its capital stock to preserve the REIT status of the Company or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of Preferred Shares of such series.
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If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares), or by any other equitable manner determined by
the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Shares of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of capital
stock of the Company ranking junior to the Preferred Shares of any series in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of such series of Preferred Shares shall be entitled to
receive, out of assets of the Company legally available for distribution to
shareholders, liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus Supplement,
plus an amount equal to all dividends accrued and unpaid thereon (which, in the
case of Preferred Shares for which dividends are noncumulative, shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Shares of any
series and the corresponding amounts payable on all shares of other classes or
series of capital stock of the Company ranking on a parity with such Preferred
Shares in the distribution of assets, then the holders of such Preferred Shares
and all other such classes or series of capital stock shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares of any series, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
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VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as any
shares of Preferred Shares of such series remain outstanding, the Company will
not, without the affirmative vote or consent of the holders of at least
two-thirds of the shares of such series of Preferred Shares outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Articles or the designating amendment for such series of
Preferred Shares, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Shares or the holders thereof, PROVIDED,
HOWEVER, that (x) any increase in the amount of the authorized Preferred Shares
or the creation or issuance of any other series of Preferred Shares, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to payment of dividends and the
distribution of assets upon liquidation, dissolution and winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares or any other class or series of capital stock
of the Company will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the number of Common Shares or any
other class or series of capital stock of the Company into which the shares of
Preferred Shares are convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be at
the option of the holders of the Preferred Shares or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Preferred Shares.
RESTRICTIONS ON OWNERSHIP
The Preferred Shares are subject to certain restrictions on transfer, and
are subject to redemption (at redemption prices to be specified in the
applicable Prospectus Supplement) at the option of the Company, to the extent
the Board of Directors deems necessary to permit the Company to comply with the
REIT provisions of the Code. See "Restrictions on Transfers of Capital Stock;
Redemption." In addition, the applicable Prospectus Supplement may set forth
additional restrictions on transfer and related provisions applicable to the
Preferred Shares offered thereby intended to permit the Company to comply with
such provisions.
TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (such depositary or its successor, the
"Preferred Shares Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of the particular series of Preferred Shares represented by
the Depositary Shares evidenced by such Depositary Receipt, to all the rights
and preferences of the Preferred Shares represented by such Depositary Shares
(including dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by the Company to the Preferred Shares
Depositary, the Company will cause the Preferred Shares Depositary to issue, on
behalf of the Company, the Depositary Receipts. The following description of
certain terms of any Deposit Agreement and the related Depositary Shares and
Depositary Receipts does not purport to be complete, and is qualified in its
entirety by reference to the form of Deposit Agreement (including the form of
Depositary Receipt) which has been or will be filed or incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
and is or will be available as described below under "Available Information."
The terms of the Depositary Shares offered in any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms set
forth in such Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received with respect to the Preferred Shares to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Shares
Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Shares Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holder thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of whole
or fractional Preferred Shares and any money or other property represented by
the Depositary Shares evidenced by such Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of
the related Preferred Shares on the basis of the proportion of Preferred Shares
represented by each Depositary Share as specified in the applicable Prospectus
Supplement, but holders of
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such Preferred Shares will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of Preferred Shares to be withdrawn, the Preferred
Shares Depositary will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Shares
Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends (or, with
respect to Preferred Shares as to which dividends are non-cumulative, dividends
for the current dividend period only) thereon to the date fixed for redemption.
The redemption price per Depositary Share will be equal to the applicable
fraction of the redemption price and any other amounts per share payable with
respect to the Preferred Shares. If less than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by the
Preferred Shares Depositary by lot or in such other manner as the Preferred
Share Depositary deems equitable.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender thereof to
the Preferred Shares Depositary.
VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Shares Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Shares
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Shares Depositary will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Shares Depositary in order to enable the Preferred Shares Depositary
to do so. The Preferred Shares Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the applicable fraction of the liquidation preference accorded each
Preferred Share represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to
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an offering of Depositary Shares, the Depositary Receipts may be surrendered by
holders thereof to the Preferred Shares Depositary with written instructions to
the Preferred Shares Depositary to instruct the Company to cause conversion of
the Preferred Shares represented by the Depositary Shares evidenced by such
Depositary Receipts into whole Common Shares, other Preferred Shares of the
Company or other shares of capital stock, and the Company has agreed that upon
receipt of such instructions and any amounts payable in respect thereof, it will
cause the conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Shares to effect such conversion. If the Depositary Shares
evidenced by a Depositary Receipt are to be converted in part only, one or more
new Depositary Receipts will be issued for any Depositary Shares not to be
converted. No fractional Common Shares will be issued upon conversion, and if
such conversion will result in a fractional share being issued, an amount will
be paid in cash by the Company equal to the value of the fractional interest
based upon the closing price of the Common Shares on the last business day prior
to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Shares
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts will not be effective unless such
amendment has been approved by the existing holders of at least a majority of
the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Shares Depositary if (i) such
termination is to preserve the Company's status as a REIT or (ii) holders of a
majority of the outstanding Depositary Receipts issued thereunder consent to
such termination, whereupon the Preferred Shares Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
Preferred Shares as are represented by the Depositary Shares evidenced by such
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares shall have been redeemed,
(ii) there shall have been a final distribution in respect of the related
Preferred Shares in connection with any liquidation, dissolution or winding up
of the Company and such distribution shall have been distributed to the holders
of Depositary Receipts evidencing the Depositary Shares representing such
Preferred Shares or (iii) each related Preferred Share shall have been converted
into capital stock of the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Shares Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Shares Depositary. A successor
Preferred Shares Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
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MISCELLANEOUS
The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Shares.
Neither the Preferred Shares Depositary nor the Company will be liable if,
by law or any circumstances beyond its control, it is prevented from or delayed
in performing its obligations under the Deposit Agreement. The obligations of
the Company and the Preferred Shares Depositary under the Deposit Agreement will
be limited to performing their duties thereunder in good faith and without gross
negligence or willful misconduct, and the Company and the Preferred Shares
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or Preferred Shares
represented thereby unless reasonably satisfactory indemnity is furnished. The
Company and the Preferred Shares Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting Preferred
Shares represented thereby for deposit, holders of Depositary Receipts or other
persons believed to be competent to give such information, and on documents
believed to be genuine and signed by a proper party.
If the Preferred Shares Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Shares Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Shares. Common Stock Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Stock Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Common Stock Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Common Stock Warrants. The following sets forth certain general terms and
provisions of the Common Stock Warrants offered hereby. Further terms of the
Common Stock Warrants and the applicable Warrant Agreements will be set forth in
the applicable Prospectus Supplement.
The following description of certain terms of any Common Stock Warrants and
the related Warrant Agreement does not purport to be complete and is qualified
in its entirety by reference to the form of Warrant Agreement (including the
form of Common Stock Warrant) which has been or will be filed or incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part and which is or will be available as described under "Available
Information."
The terms of the Common Stock Warrants offered in any Prospectus Supplement
may differ from the terms set forth below, in which case the terms set forth
below shall be deemed to have been superseded to the extent of any different
terms set forth in such Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which such Prospectus Supplement is being
delivered, including, where applicable, the following: (i) the title of such
Common Stock Warrants; (ii) the aggregate number of such Common Stock Warrants;
(iii) the price or prices at which such Common Stock Warrants will be issued;
(iv) the number of Common Shares purchasable upon exercise of such Common Stock
Warrants; (v) the designation and terms of the other Offered Securities with
which such Common Stock Warrants are issued and the number of such Common Stock
Warrants issued with each such Company Offered Security; (vi) whether such
Common
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Stock Warrants will be attached to any other Offered Securities and the date, if
any, on and after which such Common Stock Warrants and the related Offered
Securities will be separately transferable; (vii) the price at which each Common
Share purchasable upon exercise of such Common Stock Warrants may be purchased;
(viii) the date on which the right to exercise such Common Stock Warrants shall
commence and the date on which such right shall expire; (ix) if applicable, the
minimum or maximum amount of such Common Stock Warrants which may be exercised
at any one time; (x) information with respect to book-entry procedures, if any;
and (xi) any other terms of such Common Stock Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such Common
Stock Warrants.
Reference is made to the section captioned "Description of Common Shares"
for a general description of the Common Shares to be acquired upon the exercise
of the Common Stock Warrants, including a description of certain restrictions on
the ownership of Common Shares. Common Shares that may be acquired upon the
exercise of Common Stock Warrants directly or constructively held by an investor
will be deemed by the Company to be outstanding (i) at the time of acquisition
of the Common Stock Warrants, and (ii) prior to the exercise of the Common Stock
Warrants, for purposes of determining the percentage ownership of Common Shares
held by such investor.
DESCRIPTION OF COMMON SHARES
GENERAL
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Debt Securities or Preferred Shares of the Company
or upon the exercise of Common Stock Warrants issued by the Company. The
statements below describing the Common Shares, the Rights (as defined below) and
the Rights Agreement (as defined below) do not purport to be complete and are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Articles, the Bylaws and the Rights Agreement dated
as of August 14, 1989 (the "Rights Agreement") between the Company and Chase
Mellon Shareholder Services L.L.C. ("Chase Mellon") (formerly Chemical Trust
Company of California), as successor rights agent, as supplemented, copies of
which have been filed or incorporated by reference as exhibits to the
Registration Statement of which this Prospectus is a part and are available as
described above under "Available Information."
The Articles authorize the issuance of up to 100,000,000 Common Shares,
$0.01 par value. As of December 31, 1997, there were 41,738,704 Common Shares
issued and outstanding. In addition, as of December 31, 1997, there were
2,800,900 Common Shares reserved for issuance upon the exercise of options under
the Company's stock option plans and 1,383,801 Common Shares were reserved for
issuance under the Company's Dividend Reinvestment Plan. As of December 31,
1997, there were 3,452,181 shares of Common Shares reserved for issuance upon
exchange of the units in the Operating Company and the units of a certain other
subsidiary of the Company which were issued or may be issued in connection with
the TCR-West Transaction. The Common Shares are listed on the New York Stock
Exchange under the symbol "BRE." Chase Mellon is the transfer agent and
registrar of the Common Shares.
Holders of Common Shares are entitled to receive dividends ratably, when, as
and if declared by the Board of Directors of the Company, out of assets of the
Company legally available for payment, subject to any preferential rights of any
outstanding Preferred Shares. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Shares are entitled to share ratably in any assets of the Company available for
distribution to shareholders after payment of or provision for all liabilities
of the Company and any amounts owing in respect of any outstanding Preferred
Shares. The Common Shares offered in any Prospectus Supplement will not have
preemptive or conversion rights.
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Holders of Common Shares are entitled to one vote for each share held on all
matters submitted to a vote of the holders of Common Shares and, except as
otherwise required by law or as provided by the express provisions of any series
of Preferred Shares, the holders of the Common Shares will exclusively possess
all voting power of the shareholders of the Company. Holders of Common Shares do
not have cumulative voting rights in the election of directors.
As described above under "Description of Preferred Shares," the Board of
Directors may, without the approval of the shareholders of the Company, from
time to time authorize the issuance of one or more series of Preferred Shares
with such rights, restrictions and other terms as may be determined by the Board
of Directors. The issuance of Preferred Shares, while providing flexibility in
connection with possible financings, acquisitions and other corporate purposes,
could, among other things, adversely affect the voting powers and other rights
and interests of holders of Common Shares and, under certain circumstances,
could make it more difficult for a third party to gain control of the Company
and could have the effect of delaying or preventing an attempted takeover of the
Company.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Several provisions of the Articles and Bylaws may have the effect of
deterring a takeover of the Company. These provisions include (i) the
requirement that 70% of the outstanding shares of voting stock approve certain
mergers, sales of assets or other business combinations with shareholders owning
10% or more of then outstanding voting shares, unless the transaction is
recommended by a majority of the disinterested directors or meets certain fair
price criteria, (ii) a requirement that directors of the Company may be removed
by the shareholders only for "cause" and that vacancies in the Board of
Directors may be filled only by action of the remaining directors, (iii) the
requirement that 70% of the outstanding shares of voting stock approve
amendments to certain provisions of the Articles, (iv) the classification of the
Company's Board of Directors into three classes serving staggered three-year
terms, (v) a prohibition on certain stock repurchases by the Company from a
holder of 5% or more of the outstanding voting shares for a price exceeding fair
market value unless certain conditions are met, and (vi) a requirement that
shareholder action without a meeting be taken by unanimous written consent.
Maryland law imposes certain restrictions on business combinations with a
greater than ten percent shareholder unless a company's charter states that it
has elected not to be governed by such provisions. The Company has made such an
election in the Articles and therefore is not subject to such provisions.
Maryland law eliminates the voting rights of any shares of voting stock held
by a person to the extent such shares exceed 20% of the outstanding voting stock
of the company, and permits a company to redeem any such shares at the fair
value of the stock, unless a company's charter states that it has elected not to
be governed by such provisions. The Company has made such an election in the
Articles and therefore is not subject to such provisions.
SHAREHOLDER RIGHTS PLAN
On August 14, 1989, the Company's Board of Directors declared a dividend
distribution to shareholders of record on September 7, 1989 of one common share
purchase right (a "Right") for each outstanding Common Share. Each Right
entitled the holder to purchase from the Company one Common Share at a cash
purchase price of $90.00 per share, subject to adjustment. Following the
Company's stock dividend of one Common Share for each Common Share outstanding
in June 1996, such cash purchase price was adjusted to $45.00 per share, subject
to adjustment. The terms of the Rights are set forth in the Rights Agreement.
The Rights are not exercisable until the Distribution Date referred to below and
will expire at the close of business on September 7, 1999, unless earlier
redeemed by the Company as described below (the "Final Expiration Date").
Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be issued with newly issued Common Shares and
(ii) the Rights will be evidenced by the Common Share
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certificates and the transfer of Common Share certificates will also constitute
the transfer of the Rights associated with such Common Shares. As soon as
practicable after the Distribution Date, Rights certificates will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date.
The Rights will separate from the Common Shares and a Distribution Date (as
defined in the Rights Agreement) will occur, in general, upon the earlier of
(i) 10 days following a public announcement that a person (an "Acquiring
Person") has acquired 32% or more of the outstanding Common Shares (the "Stock
Acquisition Date"), (ii) 10 business days following the commencement of a tender
or exchange offer for 40% or more of the outstanding Common Shares or (iii) 10
business days after the Board of Directors determines that a person has become
an "Adverse Person" (as defined in the Rights Agreement).
In the event that, among other things, (i) the Company survives a merger or
business combination with an Acquiring Person or an Adverse Person without any
exchange of its outstanding Common Shares for other securities, cash or
property, (ii) any person becomes the owner of 40% or more of the then
outstanding Common Shares, (iii) an Acquiring Person or an Adverse Person
engages in one of a number of self-dealing transactions set forth in the Rights
Agreement, or (iv) during such time as there is an Acquiring Person or an
Adverse Person, an event occurs which results in such person's ownership
interest being increased by more than 1%, each Right will entitle the holder to
receive, upon exercise, Common Shares having a value equal to two times the
exercise price of the Right. In the event that, at any time following the Stock
Acquisition Date or the date on which the Board of Directors determines that a
person is an Adverse Person, (i) the Company is acquired in a merger or other
business combination, (ii) the Company survives a merger or business combination
in which Common Shares are exchanged for other securities, cash or property or
(iii) 50% or more of the Company's assets or earning power is sold or
transferred, each Right will entitle the holder to receive, upon exercise,
common shares of the acquiring person having a value equal to two times the
exercise price of the Right.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the earlier of
the Stock Acquisition Date, the date on which a person is determined to be an
Adverse Person or the Final Expiration Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights by the Board of
Directors or on the acquisition by such person or group of a substantial number
of Rights.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; REDEMPTION
The Articles provide that any shareholder must, upon demand, disclose to the
Board of Directors of the Company in writing such information with respect to
its direct and indirect ownership of the shares of the Company's stock as the
Board of Directors deems necessary to permit the Company to comply (or to verify
compliance) with the REIT provisions of the Code, and the regulations
promulgated thereunder or the requirements of any other taxing authority. The
Articles further provide that, if the Board of Directors in good faith
determines that direct or indirect ownership of shares of the Company's stock
has or may become concentrated to an extent that would prevent the Company from
qualifying as a REIT (See "Federal Income Tax Considerations"), the Board of
Directors is authorized to prevent the transfer of stock or to call for
redemption (by lot or by other means affecting one or more shareholders selected
in the sole discretion of the Board of Directors) of a number of shares of stock
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of the Company's stock into conformity with the
requirements for maintaining REIT status. If Common Shares are called for
redemption, the redemption price shall be (i) the last reported sale price of
the shares on the last business day prior to the redemption date on the
principal national securities exchange on which the shares are listed or
admitted to trading, (ii) if the shares are not so listed or admitted to trading
but are reported in the Nasdaq system, the last sale price on the last business
day prior to the redemption date, or if there is no sale on
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such day then at the last bid price on such day as reported in the Nasdaq
National Market, (iii) if the shares are not so reported or listed or admitted
to trading, the mean between the highest bid and lowest asked prices on such
last business day as reported by the National Quotation Bureau Incorporated or a
similar organization selected by the Board of Directors for such purpose, or
(iv) if not determined by the foregoing methods, as determined in good faith by
the Board of Directors. From and after the date fixed for redemption by the
Board of Directors, the holder of any shares of stock so called for redemption
will cease to be entitled to dividends, distributions, voting rights and other
benefits with respect to such shares, excepting only the right to payment of the
redemption price without interest.
The Bylaws provide that, whenever it is determined by the Board of Directors
to be reasonably necessary to protect the REIT tax status of the Company, the
Board of Directors may require a statement or affidavit from each holder or
proposed transferee of shares of stock setting forth the number of shares
already owned by such holder or transferee or any related person. The Bylaws
further provide that if, in the opinion of the Board of Directors, which will be
conclusive upon any proposed transferor or transferee of shares, any proposed
transfer would jeopardize the status of the Company as a REIT under the Code,
the Board of Directors may refuse to permit such transfer; that any attempt to
transfer as to which the Board of Directors has refused its permission will be
void and of no effect to transfer any legal or beneficial interest in the
shares; and that all contracts for the sale or other transfer of shares are
subject to these restrictions.
These provisions may have the effect of preventing acquisition of control of
the Company unless the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to the Company and its security holders relating to the Offered
Securities and the treatment of the Company as a REIT. It is not intended to
represent a detailed description of the federal income tax consequences
applicable to a particular security holder of the Company in view of a security
holder's particular circumstances, or to certain types of security holders
(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, the Company elected to be
taxed as a real estate investment trust under Code Sections 856 through 860. The
Company believes that it is organized and is operating in such a manner as to
qualify for taxation as a REIT under the Code. The Company intends to continue
to operate in such a manner, but no assurance can be given that it will operate
in a manner so as to qualify or remain qualified as a REIT.
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In the opinion of Paul, Hastings, Janofsky & Walker LLP, based on certain
assumptions and representations, the Company was reorganized in Delaware in 1987
in conformity with the requirements for qualification as a "real estate
investment trust" under the Code, the Company has qualified as a REIT for its
fiscal year ended July 31, 1995, its short taxable year ended December 31, 1995
and its taxable year ended December 31, 1996 (the years, to the best knowledge
of counsel, that are still subject to audit by the Internal Revenue Service), it
is anticipated that the Company will qualify as a REIT for its taxable year
ended December 31, 1997, 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, record keeping, and other requirements of the
Code necessary for the Company to qualify as a REIT. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters including, but not
limited to, those set forth below in this discussion of "Federal Income Tax
Considerations" and those concerning the Company's business and properties as
set forth and incorporated by reference in this Prospectus. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, and 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 the Company's operations for any particular taxable year will satisfy
such requirements. See "Failure to Qualify."
TAXATION OF THE COMPANY
A REIT, such as the Company, generally will not be subject to federal
corporate income tax on its taxable income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation" (at
the corporate and shareholder levels) that generally results from an investment
in a corporation. However, the Company will be subject to federal income tax in
several ways, including the following: First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax." Third, if the Company
has: (i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax on such income at the highest corporate rate. Fourth, if the
Company has net income from "prohibited transactions" (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% corporate level tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(each discussed below) but has nonetheless maintained its qualification as a
REIT by satisfying certain other requirements, it will be subject to a 100% tax
on an amount equal to the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test, multiplied by a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of: (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior periods, it
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if the Company acquires any
asset from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the Company recognizes
gain on the disposition of such asset during the ten-year period beginning on
the date the asset was acquired by the Company, then the excess of (i) the fair
market value of such asset as of the beginning of such period over (ii) the
Company's adjusted basis in such asset as of the beginning of such period will
be subject to tax at the highest regular corporate tax rate.
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REQUIREMENTS FOR QUALIFICATION
A REIT is defined in the Code as a corporation, trust or association:
(i) which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) which would be taxable as a domestic
corporation, but for Code Sections 856 through 859; (iv) which is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding stock of which is owned
during the last half of each taxable year, directly or indirectly, by or for
five or fewer individuals (as defined in the Code to include certain entities);
and (vii) which meets certain income and asset tests described below. Conditions
(i) through (iv) above must be met during the entire taxable year and condition
(v) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. However,
conditions (v) and (vi) do not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
With respect to its taxable years ending before January 1, 1998, in order to
maintain its election to be taxed as a REIT, the Company must also maintain
certain records and request certain information from its shareholders designed
to disclose the actual ownership of its stock. The Company believes that it has
complied and will comply with these requirements.
In the case of a REIT that is a partner in a partnership or a member in a
limited liability company ("LLC"), the REIT Provisions provide that the REIT is
deemed to own its proportionate share of the assets of the partnership or LLC
based on the REIT's capital interest in the partnership or LLC and is deemed to
be entitled to the income of the partnership or LLC attributable to such
proportionate share (unless specifically stated otherwise or the context
otherwise requires, the discussion under this section "Federal Income Tax
Considerations" relating to partnerships and the partners thereof also applies
to LLCs and the members thereof). In addition, the character of the assets and
gross income of the partnership shall retain the same character in the hands of
the REIT for purposes of satisfying the gross income tests and the asset tests,
described below. Similar treatment applies with respect to lower-tier
partnerships which the REIT indirectly owns through its interests in higher-tier
partnerships. Thus, the Company's proportionate share of the assets, liabilities
and items of income of the Operating Company and the other partnerships and
limited liability companies in which the Company owns a direct or indirect
interest (collectively, the "Subsidiary Entities"), will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
gross income tests and the asset tests described below, provided that the
Operating Company and the Subsidiary Entities are treated as partnerships for
federal income tax purposes. See "Federal Income Tax Aspects of the Operating
Company and the Subsidiary Entities" below.
INCOME TESTS
In order to maintain qualification as a REIT, the Company annually must
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from sale or disposition of stock or securities (or from any combination of the
foregoing). Third, for the Company's taxable years beginning 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 the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
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Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, a REIT may provide services to
its tenants and the income will qualify as "rents from real property" only if
the services are of a type that a tax-exempt organization can provide to its
tenants without causing its rental income to be unrelated business taxable
income under the Code. Services that would give rise to unrelated business
taxable income if provided by a tax-exempt organization ("Prohibited Services")
must be provided by an "independent contractor" who is adequately compensated
and from whom the REIT does not derive any income. Payments received by a REIT
for services furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants in properties of a similar class in
the geographic market in which the REIT's property is located will not qualify
as "rents from real property." For the Company's taxable years beginning on or
after January 1, 1998, the provision of Prohibited Services by the Company in
connection with a lease of real property will not cause the rent to fail to
qualify as "rents from real property" unless the amount treated as received for
the Prohibited Services exceeds 1% of all amounts received or accrued during the
taxable year directly or indirectly by the Company with respect to such
property. The Company does not and will not charge rent for any property that is
based in whole or in part on the income or profits of any person (except by
reason of being based on a percentage of receipts or sales, as described above),
and the Company does not and will not rent any personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease).
The Company directly performs services under certain of its leases, but such
services should not be considered Prohibited Services.
To the extent that the performance of any services provided by the Company
would cause amounts received from its tenants to be excluded from "rents from
real property," the Company intends to hire independent contractors from whom
the Company will derive no revenue in connection with such services.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
For the Company's taxable years beginning prior to January 1, 1998, any
gross income derived from a prohibited transaction will be taken into account in
applying the 30% income test necessary to qualify as a REIT. The net income from
a prohibited transaction is subject to a 100% tax. The Company believes that no
asset directly or indirectly owned by it is held for sale to customers and that
the sale of any such property will not be in the ordinary course of business of
the Company, the Operating Company or the Subsidiary Entities.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests was attributable to reasonable cause and not to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not attributable to fraud with intent
to evade tax. It is not possible, however, to determine whether, in all
circumstances, the Company
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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 TCR-West Transaction, the Company acquired certain
management contracts (which were immediately contributed to the Management
Company, a newly created "qualified REIT subsidiary," as defined in the Code)
whereby, in return for various fees, the Company is obligated to provide
management services related to properties that are not owned directly or
indirectly by the Company ("Third Party Management Income"). The Third Party
Management Income will not qualify under either 75% or 95% gross income test
described above. However, the Company does not believe that the receipt of this
income will cause the Company to fail to satisfy one or both of the 75% or 95%
gross income tests for the current or any future taxable year as this income,
along with other non-qualifying income, is expected to represent less than 5% of
the Company's gross income in any taxable year.
Inadvertent failure to satisfy the 75% and 95% gross income tests may not
disqualify the Company as a REIT if, as discussed above, certain relief
provisions apply. See "--Income Tests."
ASSET TESTS
At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in real
property, interests in mortgages on real property to the extent the mortgage
balance does not exceed the value of the associated real property, shares in
other REITs, cash, cash items, government securities and certain securities
attributable to temporary investment of new capital. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by a REIT is prohibited by the asset tests. However, the
Company owns stock in certain subsidiaries that are, in the opinion of Paul,
Hastings, Janofsky & Walker LLP (based on certain representations by the
Company), "qualified REIT subsidiaries" as defined in the Code, and as
"qualified REIT subsidiaries," such subsidiaries are not treated as separate
corporations for federal income tax purposes. Thus, the Company's ownership of
stock of a "qualified REIT subsidiary" will not cause the Company to fail the
asset tests.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (b) 95% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of non-cash
income. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails to distribute during each calendar year at least the sum of: (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income
for such year and (iii) any undistributed taxable income from prior periods, the
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed (including for this purpose
as amounts distributed, amounts taxed at regular ordinary and capital gains
corporate tax rates). The Company intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
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It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement because of
timing differences between (i) the actual receipt of income and the actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company. In
the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made by the Company. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and, subject to certain limitations, a
corporate distributee may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. Whether the Company
would be entitled to such statutory relief cannot be foreseen.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to its
taxable domestic shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will result in ordinary income to
such shareholders. Corporate shareholders will not be entitled to the "dividends
received" deduction. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions by the Company in excess of its
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that such distributions do not exceed the adjusted
basis of the shareholder's shares, but rather, will be a non-taxable reduction
in a shareholder's adjusted basis in such shares to the extent thereof and
thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
will be treated as both paid by the Company and received by the shareholder on
or before December 31 of such year, provided that the dividend is actually paid
by the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain.
If the Company elects to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains, the Company would pay tax on such
retained net long-term capital gains. In addition, for
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taxable years of the Company beginning on or after January 1, 1998, to the
extent designated by the Company, 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 the Company'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 the Company 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
The Company will report to its domestic shareholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder: (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to the Company. See "Taxation of Foreign
Shareholders."
TAXATION OF PENSION TRUSTS
For purposes of the "five or fewer" test described above, beneficiaries of a
domestic pension trust that owns shares in the Company generally will be treated
as owning such shares in proportion to their actuarial interests in the trust.
Generally, a tax-exempt investor that holds Common Shares as an investment and
is exempt from tax on its investment income will not be subject to tax on
distributions paid by the Company. However, if such tax-exempt investor is
treated as having purchased Common Shares with borrowed funds, some or all of
its distributions from the Common Shares will be subject to tax. Amounts
distributed by the Company to a tax-exempt pension trust generally do not
constitute "unrelated business taxable income" ("UBTI") to such trust unless the
trust owns more than ten percent by value of interests in the Company, in which
case a portion of such amounts distributed may be treated as UBTI.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals or foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt is made herein to provide more than a summary of such rules. In
addition, this discussion is based on current law, which is subject to change,
and assumes that the Company 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 the Common Shares, including any reporting requirements.
It is currently anticipated that the Company will qualify as a "domestically
controlled REIT" (i.e., a REIT in which at all times during a specified testing
period less than 50% of the value of the capital stock of which is owned
directly or indirectly by Non-U.S. Shareholders) and therefore gain from the
sale of Common Shares by a Non-U.S. Shareholder generally will not be subject to
United States taxation unless such gain is treated as "effectively connected"
with the Non-U.S. Shareholder's United States trade or
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business. As the Common Shares are publicly traded, there can be no assurance
that the Company will always qualify as a "domestically controlled REIT."
If the Company ceases to be a "domestically controlled REIT," gain arising
from the sale or exchange by a Non-U.S. Shareholder of 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 Shares are "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 Shares 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 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 Shares are "regularly traded" in an established securities
market.
Notwithstanding the foregoing, gain from the sale or exchange of Common
Shares not otherwise subject to United States taxation will be taxable to a
Non-U.S. Shareholder if (i) investment in the Common Shares 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
the Company of United States real property interests (and are not designated as
capital gain dividends) ("Non-Capital Distributions") will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions generally
will be subject to a United States withholding tax equal to 30% of the gross
amount of the distribution, subject to reduction or elimination under an
applicable income tax treaty. However, if dividends from the investment in the
Common Shares are treated as "effectively connected" with the Non-U.S.
Shareholder's conduct of a United States trade or business, such dividends will
be subject to regular U.S. income taxation (foreign corporations may also be
subject to the 30% branch profits tax). The Company will withhold United States
income tax at the rate of 30% on the gross amount of any Non-Capital
Distributions paid to a Non-U.S. Shareholder unless: (i) a lower treaty rate
applies and the Non-U.S. Shareholder files certain information evidencing its
entitlement to such lower treaty rate, or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is "effectively
connected" income. Distributions which exceed current and accumulated earnings
and profits of the Company will not be taxable to the extent that they do not
exceed the adjusted basis of shares, but rather will reduce (but not below zero)
the adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's Common Shares, they generally
will give rise to United States tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on gain from the sale or disposition of his shares
in the Company, as described above. Because the Company will withhold 30% (or
lower treaty rate) of all Non-Capital Distributions, to the extent the Company
makes distributions in excess of its earnings and profits, generally the amount
withheld will exceed a Non-U.S. Shareholder's U.S. tax liability on such
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distributions and such shareholder can seek a refund from the IRS to the extent
the amount withheld on its distributions exceeds its U.S. tax liability.
Distributions by the Company to a Non-U.S. Shareholder that are attributable
to gain from sales or exchanges by the Company of a United States real property
interest are subject to income and withholding tax under the provisions of
FIRPTA. Under FIRPTA, those distributions, if any, which are treated as gain
recognized from the sale of a United States real property interest, are taxed as
income "effectively connected" with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to the applicable alternative minimum tax and a
special alternative minimum tax for nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
The Company will withhold 35% of any distribution to a Non-U.S. Shareholder that
could be designated by the Company as a capital gain dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability. A refund may
be available if the amount withheld exceeds the Non-U.S. Shareholder's federal
tax liability.
Distributions that are designated by the Company 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 the Common Shares 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 information reporting for certain amounts paid to
non-resident individuals and foreign corporations. These new withholding rules
significantly change the current withholding regime. However, in general, these
new rules apply only to payments made after December 31, 1998. Prospective
purchasers should consult their tax advisors concerning the impact, if any, of
these new Treasury Regulations.
FEDERAL INCOME TAX ASPECTS OF THE OPERATING COMPANY AND THE SUBSIDIARY ENTITIES
As a result of the TCR-West Transaction, a portion of the Company's assets
are held indirectly through the Operating Company and the Subsidiary Entities.
The Operating Company and the Subsidiary Entities involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of such partnerships or LLCs as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. Under
recently finalized Treasury Regulations pertaining to entity classification, the
Company believes that the Operating Company and Subsidiary Entities will be
classified as partnerships for federal income tax purposes. Nevertheless, if any
of such partnerships or LLCs were to be treated as a corporation, such entity
would be subject to an entity level tax on its income. Such an entity level tax
is likely to substantially reduce the amount of cash available for distribution
to the Company's shareholders and to holders of Debt Securities. In addition, if
the Operating Company or any of the Subsidiary Entities were to be taxable as a
corporation, the Company would not qualify as a REIT, which could have a
material adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities.
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TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax-basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Company was formed by way of contributions of
property by TCR-West. Consequently, allocations with respect to such contributed
property must be made in a manner consistent with Code Section 704(c).
In general, the Company will be allocated higher amounts of depreciation
deductions for tax purposes than such deductions would be if determined on a pro
rata basis. In addition, in the event of the disposition of any of the
contributed assets which have a Book-Tax Difference, all income attributable to
such Book-Tax Difference will generally be allocated to the
property-contributing members and the Company will generally be allocated only
its share of capital gains attributable to appreciation, if any, occurring after
the contribution of such assets to the Operating Company. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Company.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Company will cause the Company
to be allocated lower depreciation and other deductions, and possible amounts of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "Annual Distribution Requirements."
The Treasury Regulations under Code Section 704(c) allow partnerships to use
any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the contributed property. Book-Tax Differences
associated with the Operating Company will be allocated pursuant to the
"traditional method" as described in the applicable Treasury Regulations. Use of
the "traditional method" may result in distributions to Company shareholders
being comprised of a greater portion of taxable income rather than a return of
capital.
PARTNERSHIP ANTI-ABUSE RULE
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is formed
or availed of in connection with a transaction a principal purpose of which is
to reduce substantially the present value of the partners, aggregate federal tax
liability in a manner that is inconsistent with the intent of the Partnership
Provisions, the IRS can recast the transaction for federal tax purposes to
achieve tax results that are consistent with the intent of the Partnership
Provisions. This analysis is to be made based on all facts and circumstances.
The Anti-Abuse Rule states that the intent of the Partnership Provisions
incorporates the following requirements: (i) the partnership must be bona fide
and each partnership transaction or series of related transactions must be
entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
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The Company believes that its indirect ownership of certain assets through
its interest in the Operating Company and the Subsidiary Entities is not
inconsistent with the intent of the Partnership Provisions and that, therefore,
the IRS should not be able to invoke the Anti-Abuse Rule to recast the structure
of the Company for federal income tax purposes. However, no assurance can be
given that the IRS or a court will concur with such opinion.
The Anti-Abuse Rule also provides that, unless a provision of the Code or
the Treasury Regulations prescribes the treatment of a partnership as an entity,
in whole or in part, and that treatment and the ultimate tax results, taking
into account all the relevant facts and circumstances, are clearly contemplated
by that provision, the IRS can treat a partnership as an aggregate of its
partners, in whole or in part, as appropriate to carry out the purpose of any
provision of the Code or the Treasury Regulations. Treatment of the Operating
Company or any of the Subsidiary Entities, in whole or in part, as an aggregate
rather than an entity is unlikely to materially change the federal tax
consequences to any partner. In addition, the REIT Provisions generally treat a
partnership as an aggregate rather than an entity for purposes of applying the
REIT Requirements. Therefore, the Anti-Abuse Rule should not have a material
adverse effect on the federal income tax consequences to any partner or on the
ability of the Company to qualify as a REIT.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its shareholders
may not conform to the federal income tax consequences discussed above.
Prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents or through dealers or through a combination of any
such methods of sale. Any such underwriter or agent involved in the offer and
sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale or at prices related to the prevailing market prices at the
time of sale, or at negotiated prices. The Company also may, from time to time,
authorize agents to offer and sell the Offered Securities upon the terms and
conditions set forth in an applicable Prospectus Supplement. In connection with
the sale of Offered Securities, underwriters and agents may be deemed to have
received compensation from the Company in the form of discounts or commissions
and may also receive commissions from purchasers of Offered Securities for whom
they may act as agents. Underwriters may sell Offered Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions from the underwriters or commissions from the purchasers for whom
they may act as agent.
Any compensation paid by the Company to underwriters or agents in connection
with the offering of Offered Securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers will be set forth
in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Offered Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Offered Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
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If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on such future date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than, and the aggregate
amount of the Offered Securities sold pursuant to Contracts shall be not less or
more than, the respective amounts stated in the applicable Prospectus
Supplement. Institutions with whom Contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions, but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Offered Securities covered by its Contracts shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject and (ii) if the Offered Securities
are being sold to underwriters, the Company shall have sold to such underwriters
the total amount of the Offered Securities less the amount thereof covered by
Contracts.
Certain of the underwriters, dealers and agents and their affiliates may
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
LEGAL MATTERS
The validity of the Offered Securities as well as certain legal matters
described under "Federal Income Tax Considerations" will be passed upon for the
Company by Paul, Hastings, Janofsky & Walker LLP, San Francisco, California.
Brown & Wood LLP, San Francisco, California, will act as counsel for any
underwriters or agents.
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