<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-5305
BRE PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-1722214
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104-5525
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(Address of principal office) (Zip Code)
Registrant's telephone number,
including area code (415) 445-6530
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Inapplicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Class A common stock
outstanding as of October 31, 1994 10,925,483
-------------------
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BRE PROPERTIES, INC.
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BALANCE SHEETS (Dollar amounts in thousands)
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<TABLE>
<CAPTION>
October 31, 1994 July 31, 1994
(unaudited)
------------------------------------
<S> <C> <C>
ASSETS
Equity investments in real estate $ 359,163 $ 325,519
Less: Accumulated depreciation and amortization (43,049) (41,264)
--------- ---------
316,114 284,255
Investments in limited partnerships 1,074 1,109
--------- ---------
Real estate portfolio 317,188 285,364
Mortgage loans 5,972 4,516
Allowance for possible losses (1,000) (1,000)
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322,160 288,880
Cash and short-term investments 10,110 28,938
Other assets 5,088 5,077
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Total assets $ 337,358 $ 322,895
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities $ 4,113 $ 3,466
Mortgage loans payable 88,579 73,944
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Total liabilities 92,692 77,410
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Shareholders' equity
Class A common stock, $0.01 par value, issued and
outstanding 10,925,483 at October 31, 1994 and
10,916,483 at July 31, 1994 109 109
Additional paid-in capital 211,619 211,340
Undistributed net realized gain on sales of properties 32,938 34,036
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Total shareholders' equity 244,666 245,485
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Total liabilities and shareholders' equity $ 337,358 $ 322,895
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
2
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BRE PROPERTIES, INC.
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STATEMENTS OF INCOME (unaudited)
(Amounts in thousands, except in per share data)
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<TABLE>
<CAPTION>
For the Three Months Ended
October 31
--------------------------
REVENUE 1994 1993
---- ----
<S> <C> <C>
Rental income $14,110 $12,132
Interest on short-term investments 242 275
Interest income on mortgage loans 138 130
Income from limited partnerships 82 105
Other income 117 98
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Total revenue 14,689 12,740
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EXPENSES
Operating expenses of equity investments 4,423 4,250
Provision for depreciation and amortization 1,785 1,574
Interest expense 1,451 1,007
General and administrative 1,573 916
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Total expenses 9,232 7,747
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Income before gain on sales of investments 5,457 4,993
Gain on sales of investments
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NET INCOME $ 5,457 $ 4,993
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------- -------
Income per share
Primary
Income before gain on sales of investments $ .50 $ .46
Gain on sales of investments
------- -------
Net income $ .50 $ .46
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------- -------
Dividends declared $ .60 $ .60
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------- -------
Weighted average shares outstanding 10,932 10,938
</TABLE>
See notes to financial statements.
3
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BRE PROPERTIES, INC.
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STATEMENT OF CASH FLOWS (unaudited)
(Dollar amounts in thousands)
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<TABLE>
<CAPTION>
For the Three Months Ended
October 31
--------------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,457 $ 4,993
Non-cash revenues and expenses included in income:
Provision for depreciation and amortization 1,785 1,574
Increase (decrease) in accounts payable and other liabilities 647 (296)
Other (increase) decrease 711 (242)
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CASH FLOWS GENERATED BY OPERATING ACTIVITIES 8,600 6,029
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Cash flows from investing activities:
Equity investments:
Apartments purchased (16,231) (24,371)
Apartment expansion (1,252) (857)
Refurbishment of newly acquired apartments (76)
Improvements to existing apartments (10) (8)
Tenant improvements and lease commissions:
Shopping centers (1,172) (711)
Light industrial and warehouse (318) (298)
Reconditioning of light industrial and warehouse buildings (80) (1)
Advances on mortgage loans receivable (1,500)
Repayments on mortgage loans receivable 44 112
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NET CASH FLOWS USED IN INVESTING ACTIVITIES (20,595) (26,134)
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Cash flows from financing activities:
Mortgage loans payable:
Prepayments (1,017)
Other principal payments (278) (153)
Dividends paid (6,555) (6,550)
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NET CASH FLOWS USED IN FINANCING ACTIVITIES (6,833) (7,720)
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Decrease in cash and short-term investments (18,828) (27,825)
Balance at beginning of year 28,938 45,109
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Balance at end of period $10,110 $17,284
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------- -------
</TABLE>
4
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BRE PROPERTIES, INC.
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NOTES TO FINANCIAL STATEMENTS (unaudited)
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October 31, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the company's Annual Report on Form 10-K for the fiscal year ended July 31,
1994, together with the portions of the company's 1994 Annual Report to
shareholders incorporated therein by reference. In the opinion of management,
all adjustments (consisting of normal recurring adjustments only) have been made
which are necessary for a fair statement of the results for the interim period
presented herein.
NOTE B - NET INCOME PER SHARE
Primary net income per share is based upon the average number of shares
outstanding during the periods, increased for the assumed exercise of vested,
in-the-money stock options.
NOTE C - LITIGATION
The company, because of the nature of its business, is sometimes subject to
various threatened or filed legal claims, including certain environmental
actions. While it is not feasible to predict or determine the ultimate outcome
of these matters, in the opinion of management, none of these actions,
individually or in the aggregate, will have a material effect on the company's
results of operations, cash flows, liquidity or financial position.
NOTE D - SUBSEQUENT EVENTS
On November 22, 1994, the Directors declared a dividend of $.60 per share,
payable December 22, 1994 to shareholders of record December 5, 1994.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a discussion of the purchase of seven garden apartment
communities, aggregating 1,301 units, in Tucson, Arizona from The Schomac Group.
Subsequent to October 31, 1994, BRE acquired two more of the seven Schomac
apartment communities. To date, six of the seven have been purchased.
5
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BRE PROPERTIES, INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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October 31, 1994
LIQUIDITY AND CAPITAL RESOURCES
The company's cash and short-term investments totaled $10,110,000 at October 31,
1994, down from $28,938,000 at July 31, 1994.
In August 1994, BRE entered into an agreement to acquire seven garden apartment
communities, aggregating 1,301 units, in Tucson, Arizona from the Schomac Group,
a privately held apartment and self-storage developer headquartered in Tucson
and not affiliated with BRE. The four properties purchased during the quarter
ended October 31, 1994 were as follows:
<TABLE>
<CAPTION>
Principal
Amount of
Number Mortgages Interest
Name of Units Cost Cash Assumed Rate
- ---- -------- ---- ---- --------- --------
<S> <C> <C> <C> <C> <C>
Casas Lindas 144 $ 7,564,000 $ 7,564,000 -- --
Colonia del Rio 176 8,868,000 3,554,000 $ 5,314,000 8.00%
Oracle Village 144 6,046,000 1,826,000 4,220,000 7.88%
SpringHill 224 8,666,000 3,287,000 5,379,000 8.00%
--- ----------- ----------- -----------
TOTAL 688 $31,144,000 $16,231,000 $14,913,000
--- ----------- ----------- -----------
--- ----------- ----------- -----------
</TABLE>
The mortgages assumed mature in 2000, with aggregate balloon payments of
$13,939,000 due at that time. Depending on market conditions at maturity, the
company may choose, among other things, to renegotiate the terms with the
existing lenders, refinance the property with other lenders or sell assets to
repay the balloon amounts.
Concurrent with the purchase of these apartment communities, BRE also funded a
$1,500,000, one-year second mortgage loan, bearing interest at 10%, secured by
the Mission Heights Apartments in Tucson, Arizona, to entities affiliated with
the seller. Provided that no event of default has occurred, the borrower may
request a one-year extension, during which the interest rate rises to 11%, and a
second one-year extension, during which the interest rate rises to 12%.
Construction was also completed of a 116-unit expansion of the Scottsdale Cove
Apartments in Scottsdale, Arizona. The total cost of the expansion was
$5,884,000, $1,252,000 of which was invested during the quarter ended October
31, 1994. Final retentions aggregating approximately $440,000 (and included in
the $5,884,000) will be disbursed in November and December as punch-list items
are completed.
An additional $1,490,000 was invested during the quarter in tenant improvements
and leasing commissions at shopping centers, warehouse and light industrial
buildings.
6
<PAGE>
Cash commitments at October 31, 1994 include the December 22, 1994 dividend
payment of approximately $6,555,000. Following the close of the quarter, BRE
completed the purchase of two additional Schomac apartment communities, Fountain
Plaza and Hacienda del Rio. The seventh property, Camino Seco Village, is
expected to be acquired by the close of the quarter ending January 31, 1995.
Subject to satisfaction of certain conditions, BRE will also make an additional
$1,500,000 mortgage loan to entities affiliated with the seller.
Subject to satisfaction of certain conditions, the company has committed to
purchase Arcadia Cove, a 432 unit apartment community to be developed in
Phoenix, Arizona. Construction is expected to begin in January 1995, with
completion to follow in 14 months. The projected development cost is
$24,300,000.
In addition to cash and short-term investments, the company has available bank
lines of credit totaling $30,000,000. There were no borrowings under those
lines of credit at October 31, 1994. The company expects to use a portion of
the lines of credit to fund the cash portion of the purchase price for the
Arizona acquisitions described above.
RESULTS OF OPERATIONS
Net income for the quarter ended October 31, 1994 was $5,457,000 ($.50 per
share), compared to $4,993,000 ($.46 per share) for the same quarter last year.
Funds from operations totaled $7,241,000 for the quarter ended October 31, 1994,
up 10% from the same period last year. Funds from operations is defined as net
income (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization.
Leasing has improved at The Hub Shopping Center, with the opening of 11 new
stores in the past several months. Both leasing and occupancy at The Hub are
now 95%, up from 88% at July 31, 1994.
At El Camino Shopping Center, occupancy is 89%, the same as at July 31, 1994.
Soil stabilization and repairs of structurally damaged buildings are underway
following the January 17, 1994 Northridge earthquake. The repairs are estimated
to take 8 - 10 months, with most of the related costs covered by earthquake
insurance. In the industrial segment of the portfolio, two properties are
currently vacant and being marketed to prospective tenants: the 358,000 square
foot warehouse in Pomona, California and the 50,000 square foot Irvine Spectrum
building in Irvine, California.
At October 31, 1994, overall occupancy levels by class of property were as
follows:
PROPERTY TYPE OVERALL OCCUPANCY
----------------------------------------------
Apartment Communities 95%
Shopping Centers 95
Other 57
--
WEIGHTED AVERAGE 90%
--
--
7
<PAGE>
The weighted average occupancy is calculated by multiplying the occupancy for
each property by its square footage and dividing by the total square footage in
the portfolio.
REVENUE
Rental income rose 16% for the October 31, 1994 quarter from the comparable
period last year. Apartments acquired since August 1, 1993 generated gross
rents of $2,300,000 for the quarter while apartments owned for two or more years
contributed $210,000 in higher revenue (up 3%).
As part of a financial settlement received in July 1994 from the former tenant
at Pomona Warehouse, BRE recorded $258,000 of rent during the quarter ended
October 31, 1994. No additional revenue will be recorded until the property is
leased. In addition, the tenant at Oak Creek I, who also occupies a portion of
Oak Creek II, was recapitalized, enabling it to pay BRE $175,000 of back rent
and reimbursement for other charges.
Revenues continue to be constrained by the two vacant commercial properties,
Pomona Warehouse and Irvine Spectrum. There can be no assurance that additional
vacancies will not occur.
Interest income on short-term investments increased $34,000 from the comparable
quarter last year as a result of rising interest rates, despite lower average
invested balances as cash was used to purchase apartments.
EXPENSES
Operating expenses of equity investments increased 4% from the year earlier
period, primarily due to expenses on the new apartment acquisitions. The two
vacant commercial properties, Pomona Warehouse and Irvine Spectrum, had no
expense for real estate taxes during either the quarter ended October 31, 1993
or October 31, 1994, because the former tenants had reimbursed the company for
the real estate taxes through December 31, 1994. Starting January 1, 1995, the
annual cost for real estate taxes is estimated to be $164,000 (Pomona Warehouse)
and $33,000 (Irvine Spectrum). In addition, BRE is paying for maintenance
costs, such as security and landscaping, and insurance.
Interest expense was up $444,000 from the comparable quarter last year,
reflecting the new mortgage loans on Selby Ranch, Mira Mesa (Cimmaron, Hacienda
and Westpark), Colonia del Rio, Oracle Village and SpringHill Apartments.
General and administrative expenses include $437,000 of legal costs paid to
reach an out-of-court settlement with Big V Supermarkets, Inc. and Somers
Development Corporation regarding alleged chemical contamination of the soil and
ground water underlying the Baldwin Place Shopping Center in Somers, New York.
In addition to the legal costs which have been expensed, BRE paid $207,000 as
its share of the settlement. The $207,000 is being carried in accounts
receivable. BRE is seeking to recover the settlement amount and the legal costs
from the approximately 30 insurance companies which provided coverage to BRE at
various times throughout BRE's 1974-1983 ownership of the land underlying
Baldwin Place.
8
<PAGE>
GAIN ON SALES
No gain on sales of investments was recorded during the quarter ended October
31, 1994. The company has recorded in its financial statements gains totaling
$59,784,000 which have been deferred for tax purposes since the company's 1970
inception through October 31, 1994.
DIVIDENDS
The $.60 per share dividend for the quarter ended October 31, 1994, was
approximately 91% of funds from operations. The dividend exceeded reportable
net income.
9
<PAGE>
BRE PROPERTIES, INC.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are submitted herewith:
11. Computation of Earnings Per Share
(b) Reports on Form 8-K. The company did not file any reports on
Form 8-K during the quarter for which this report is filed. The
company filed a Current Report on Form 8-K on November 23, 1994
regarding the acquisition of 1,301 units in seven apartment
communities in Tucson, Arizona from affiliates of The Schomac
Group.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRE PROPERTIES, INC.
(Registrant)
Date December 9th, 1994 /s/ Howard E. Mason, Jr.
------------------ ------------------------------
Howard E. Mason, Jr.
Senior Vice President, Finance
Date December 9th, 1994 /s/ Ellen G. Breslauer
------------------ ------------------------------
Ellen G. Breslauer
Secretary and Treasurer
11
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EXHIBIT INDEX
Number Description Page
------ ----------- ----
11 Computation of Earnings per Share 13
12
<PAGE>
BRE PROPERTIES, INC.
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EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
STATEMENT OF EARNINGS PER SHARE
Average shares outstanding are computed by adding the shares outstanding at each
month end and dividing that result by the number of months elapsed in the year-
to-date period.
<TABLE>
<CAPTION>
For the Three Months Ended
October 31
--------------------------
Computation: 1994 1993
---- ----
<S> <C> <C>
Shares outstanding at beginning of year 10,916,483 10,912,399
Averaged for dates of grants or exercises:
Exercisable, in-the-money, stock options 8,736 22,845
Restricted shares granted, less forfeitures 6,750 2,138
Exercise of stock options 633
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Average shares outstanding 10,931,969 10,938,015
----------- -----------
----------- -----------
Net income before gain on sales of investments $ 5,457,158 $ 4,992,556
----------- -----------
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Computation $.50 $.46
----------- -----------
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Net gain on sales of investments -- --
----------- -----------
----------- -----------
Computation -- --
----------- -----------
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PRIMARY EARNINGS PER SHARE $.50 $.46
----------- -----------
----------- -----------
</TABLE>
13
<PAGE>
BRE PROPERTIES, INC.
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EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
October 31
--------------------------
FULLY DILUTED EARNINGS PER SHARE 1994 1993
---- ----
<S> <C> <C>
Shares outstanding at end of period 10,925,493 10,916,583
Exercisable, in-the-money stock options 8,736 22,845
----------- -----------
Total Shares 10,934,229 10,939,428
----------- -----------
----------- -----------
Income before gain on sales of investments $ 5,457,158 $ 4,992,556
Net gain on investments -- --
----------- -----------
----------- -----------
Total Income $ 5,457,158 $ 4,992,556
----------- -----------
----------- -----------
As computed $ .50 $ .46
----------- -----------
----------- -----------
Net gain on sales of investments -- --
----------- -----------
----------- -----------
As computed -- --
----------- -----------
----------- -----------
Fully diluted earnings per share $ .50 $ .46
----------- -----------
----------- -----------
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-START> AUG-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 10,110
<SECURITIES> 0
<RECEIVABLES> 11,060
<ALLOWANCES> (1,000)
<INVENTORY> 0
<CURRENT-ASSETS> 20,170
<PP&E> 360,237
<DEPRECIATION> (43,049)
<TOTAL-ASSETS> 337,358
<CURRENT-LIABILITIES> 4,113
<BONDS> 88,579
<COMMON> 109
0
0
<OTHER-SE> 244,557
<TOTAL-LIABILITY-AND-EQUITY> 337,358
<SALES> 14,689<F1>
<TOTAL-REVENUES> 14,689
<CGS> 4,423<F2>
<TOTAL-COSTS> 4,423
<OTHER-EXPENSES> 3,358<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,451
<INCOME-PRETAX> 5,457
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,457
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<FN>
<F1>Rental and other revenue
<F2>Operating expenses of equity investments
<F3>Includes 1,785 of depreciation expense
</FN>
</TABLE>
