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PAGE 1
TOTAL NUMBER OF PAGES: 31
THE EXHIBIT INDEX IS ON PAGE: 28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-5303
BRE PROPERTIES, INC.
- - --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1722214
- - -------------------------------------- -------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, California 94104
- - -------------------------------------- -------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 445-6530
- - --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- - ------------------- -----------------------------------------
Class A common stock, $.01 par value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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 .
----- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ]
At September 8, 1994, the aggregate market value of the registrant's shares of
Class A common stock, $.01 par value, held by nonaffiliates of the registrant
was approximately $336,396,000. At that date 10,925,483 shares were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the BRE Properties, Inc. Annual Report to Shareholders for the year
ended July 31, 1994 (the "Annual Report") are incorporated by reference into
Parts I and II of this report. With the exception of those portions
incorporated by reference, the 1994 Annual Report is not deemed to be filed as
part of this report.
Portions of the Proxy Statement for the Annual Meeting of Shareholders of BRE
Properties, Inc. to be held on November 22, 1994 (the "Proxy Statement") are
incorporated by reference into Part III of this report.
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<PAGE>
PART I
ITEM 1. BUSINESS
BRE Properties, Inc. ("BRE" or the "company"), a Delaware corporation, has
operated since its July 1970 inception as a real estate investment trust
pursuant to Sections 856-860 of the Internal Revenue Code, as amended. Its
long-range investment policy emphasizes the purchase of fee ownership of both
the land and the improvements primarily in garden apartment communities, and
secondarily in shopping centers, located in the Western United States. Among
other things, this policy is designed to enable management to monitor
developments in local real estate markets and to take an active role in managing
the company's properties and improving their performance. The policy is subject
to ongoing review by the Board of Directors and may be modified in the future to
take into account changes in business or economic conditions, as circumstances
otherwise warrant, if it determines that such changes are in the best interests
of the company and its shareholders.
At July 31, 1994, the company's portfolio of income-producing real estate
(including wholly owned properties, land owned and leased to others and limited
partnership investments in two shopping centers) consisted of 34 properties,
including 17 apartment communities, 4 shopping centers and 13 other
income-producing properties. Of these properties, 26 are located in California,
4 in Washington, 3 in Arizona and one in Oregon. See Items 2 and 7 of this
report for a description of the company's individual investments and of certain
developments during the year with respect to these investments.
The company's current investment profile is different from that of its early
years of operations. Initially, the company was investing in both equities and
mortgage loans on a variety of property types in markets across the country.
Gradually, the company disposed of investments outside of the Western United
States. The company has also shifted its overall investment focus to ownership
of properties, with an emphasis on apartments. The transition in investment
focus has constrained the company's growth in funds from operations and
dividends because initial yields on newly purchased equity investments typically
have been below those of maturing mortgages. It has also had an impact on
investment liquidity, since maturing mortgage loans provide cash which is
immediately available for reinvestment in equity properties. Beyond this
impact, however, management believes there will be significant benefits for
shareholders in the long-term, including improved prospects for growth in funds
from operations and portfolio appreciation.
The following table shows the percentage of the company's total rental and
partnership revenues contributed by certain classes of properties during the
last three fiscal years and the overall occupancy levels for these classes of
properties at July 31, 1994. During these years, The Hub Shopping Center in
Fremont, California, accounted for approximately 12% (1994), 14% (1993), and 17%
(1992) of total rental and partnership revenues, the Westlake Village Apartments
in Daly City, California, accounted for approximately 10% (1994), 12% (1993),
and 13% (1992), and Sharon Green Apartments in Menlo Park, California, accounted
for approximately 10% (1994), 11% (1993), and 12% (1992).
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Percent of Revenues
-------------------
<TABLE>
<CAPTION>
Overall Occupancy
Type of Property 1994 1993 1992 at July 31, 1994
---------------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C>
Apartment Buildings 71 % 63 % 58 % 95 %
Shopping Centers 16 20 23 92
Other 13 17 19 54
--- --- --- ---
100 % 100 % 100 % 88 %
--- --- --- ---
--- --- --- ---
</TABLE>
During the year, the tenant at the 358,000 square foot warehouse/ distribution
facility in Pomona, California discontinued business and vacated the premises.
BRE pursued legal remedies and collected all rents due on the lease through July
1994, plus the costs of correcting deferred maintenance, and an adjusted
allowance for rent due after July 1994. A rehabilitation program has been
completed, including a new roof, exterior painting and interior work, and the
property is now being marketed to prospective tenants.
Two light industrial buildings are currently vacant: Irvine Spectrum (50,000
square feet in Irvine, California) has been vacant since June 1994, and
515 Ellis (29,000 square feet in Mountain View, California) has been vacant
since June 1993. A lease has been signed for the Mountain View building. One
previous vacancy was eliminated during the year with the signing of a six-year
lease for the entire 64,000 square foot Fremont 3 Building in Fremont,
California.
Another tenant leased, for five years, 66% of the 86,000 square foot 525
Almanor Building in Sunnyvale, California. New leases or lease extensions
were also reached with tenants at six other light industrial buildings. Of
the company's nine fully occupied light-industrial, warehouse/distribution and
office properties, three have multiple tenants, each with one tenant occupying
more than 50% of the net rental space, and six have single tenants.
The company's investments in income-producing properties may be made subject
to mortgage financing or to other indebtedness secured by a prior lien against
the property. At present, eight of the company's wholly owned properties are
subject to mortgage financing. In addition, BRE is a limited partner in two
partnerships that are subject to mortgage financing arranged by the general
partner. The company and the general partner may refinance existing
indebtedness if more favorable financing is available, and they may also incur
new indebtedness, or increase the amount of existing indebtedness, secured
through mortgage financing. The extent to which the company and the general
partner may mortgage or otherwise finance investments depends upon such
factors as the nature of the investment, the cost and availability of borrowed
funds and the general economic climate.
The company has obtained funds from a variety of sources, including non-recourse
mortgage loans and the sale of equity. In fiscal 1993, the company raised
approximately $55 million through a public offering of 1,500,000 shares of
common stock and approximately $36,442,000 in new funds through mortgage
financing on equity investments. In fiscal 1994, approximately $19,718,000 in
new funds was raised through such mortgage financing.
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<PAGE>
In addition, since its inception, the company has had unsecured lines of credit
from one or more commercial banks. These credit lines have had a one-year term
and were available for short-term working capital needs, such as financing new
tenant improvements at existing properties. The lines of credit totaled
$10,000,000 at July 31, 1993. During the quarter ended January 31, 1994, the
company negotiated increases in the lines of credit to $30,000,000, lengthened
the term to two years and reached agreement with the banks that the proceeds
could be used to make real estate equity investments. There were no borrowings
outstanding under these lines of credit during the fiscal year ended July 31,
1994. The company pays commitment fees totaling $127,500 annually for the lines
of credit, and borrowing costs are based on BRE's choice of the interbank
offered rate or the prime rate.
The company may continue to borrow from time to time to fund commitments,
although there is no assurance at any given time that borrowed funds will be
available or that the terms and conditions of such borrowings will be
acceptable. For additional information regarding the company's long-term debt,
see Note D in the Financial Statements included in the 1994 Annual Report,
incorporated herein by reference. The growth and profitable operation of the
company depend in large part upon the availability and cost of borrowed funds,
as discussed above. In addition, the success of the company depends, among
other factors, upon general business and economic conditions, construction
costs, income-tax laws, increases or decreases in operating expenses,
governmental regulations, population trends, zoning laws, legislation and the
ability of the company to keep its properties leased at profitable levels. The
company's properties compete for tenants primarily on the basis of location,
rent charged, services provided, and the design and condition of improvements;
and its properties encounter competition from similar properties located in
their market areas. In many of these market areas, there is an oversupply of
available space and competition for tenants has been, and continues to be,
intense. In addition, vacancy and rental rates at certain of the company's
properties have been adversely affected by the downturn in the national economy.
A prolonged economic downturn could have a material adverse effect on the
company's operations and financial condition.
PROPERTY ACQUISITIONS
During fiscal 1994, the company purchased the following garden apartment
communities:
MIRA MESA (Cimmaron, Hacienda and Westpark), September 1993 and WINCHESTER,
March 1994: These properties include 616 units in four adjacent apartment
communities in San Diego, California, as follows:
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<PAGE>
<TABLE>
<CAPTION>
Name Constructed Units Number of buildings Acres of Land
- - ---- ----------- ----- ------------------- ---------------
<S> <C> <C> <C> <C>
MIRA MESA
Cimmaron 1986 184 23-eightplex 5.60
Hacienda 1985 192 24-eightplex 5.75
Westpark 1985 96 12-eightplex 3.00
WINCHESTER 1987 144 18-eightplex 5.23
---
Total 616
---
---
</TABLE>
The Mira Mesa and Winchester communities contain a mix of one- and two-bedroom
units with monthly asking rents of $595-$725. All units have frost-free
refrigerators, gas ranges and water heaters, central thermostat controlled
forced air gas heating, wall unit air-conditioning in the living rooms, patios
or decks with storage and cable television. Recreational facilities include
outdoor heated swimming pools and spas. Central laundry rooms are provided for
residents. The properties have been mapped for condominiums, although there are
no present plans to pursue any condominium conversions.
The purchase price for Mira Mesa was $24,371,000 in cash. In February 1994,
the company obtained a first mortgage loan secured by Mira Mesa in the amount
of $13,600,000. The interest rate is 7%, with an 11-year maturity and
amortization based on 25 years. Winchester was purchased in March 1994 for
$7,400,000 in cash.
TERRA NOVA VILLAS, March 1994 - Located in Chula Vista, California, seven miles
south of downtown San Diego, the Terra Nova Villas apartment community was
purchased for $14,575,000, subject to $9,240,000 of fixed-rate (5.57%) bond
financing. The bond financing matures in March 1995. Depending on market
conditions at that time, BRE may repay the bonds in cash, renegotiate the terms
of the bonds or refinance the property with another lender. Terra Nova Villas
was constructed in 1985 and consists of 18 two-story buildings on 12.8 acres of
land with monthly asking rents of $680-$815. All units have frost-free
refrigerators, self-cleaning ovens, central air conditioning and heating, patios
or decks and cable television hook-ups. Buildings have central gas water
heaters. A separate clubhouse building contains leasing offices, a lounge and
exercise room. The property offers a pool, spa, play area and two laundry
rooms.
In addition to these properties, which are complete and income-producing, in
October 1993, BRE purchased seven acres of undeveloped land adjacent to the
Scottsdale Cove Apartments in Scottsdale, Arizona, on which 116 units are
currently being constructed. This addition will expand the total units in the
Scottsdale Cove to 316. The estimated total cost is $6,165,000, of which
$4,451,000 had been disbursed through July 31, 1994, including $143,000 of
capitalized interest expense. A total of 32 units have been completed, of which
11 were occupied at July 31, 1994. All units are expected to be completed by
October 1994.
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<PAGE>
PROPERTY DISPOSITIONS
Two separate sales were completed in the 1994 fiscal year: The James Center
Office Building in Bellevue, Washington, and Eastside Industrial Park in
Redmond, Washington. A modest gain was recognized on the sale of these
properties. The sales prices aggregated $9,800,000, and the cash proceeds are
now available to be invested in other properties.
EMPLOYEES
As of July 31, 1994, the company had 19 employees. The company also has engaged
8 independent property management firms to manage 17 of its apartment and
multi-tenant commercial properties.
POTENTIAL ENVIRONMENTAL RISKS
Investments in real property create a potential for environmental liability on
the part of the owner of, or any mortgage lender on, such real property. If
hazardous substances are discovered on or emanating from any of the company's
properties, the owner or operator of the property (including the company) may be
held strictly liable for all costs and liabilities relating to such hazardous
substances. The company's current policy is to obtain a Phase I environmental
study on each property it seeks to acquire and to proceed accordingly. The
company currently carries no insurance for environmental liabilities, although
policies in effect in earlier years may in some cases provide coverage for
environmental liabilities which may have occurred during the earlier policy
periods.
515 ELLIS STREET
The company has conducted an investigation of possible hazardous materials
contamination of the soil and groundwater at its light industrial property at
515 Ellis Street, Mountain View, California (the "Ellis Street Property"). This
investigation was conducted in connection with an inquiry by the Environmental
Protection Agency ("EPA") into groundwater contamination found at certain
third-party sites (the "MEW Sites") now listed on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"). Based on data made available to the company, management
believes that the hazardous materials contamination emanating from the MEW Sites
has resulted in contamination of the groundwater underlying its Ellis Street
Property. Although the Ellis Street Property is not a MEW Site, the company,
along with several other entities, has been named as a Potentially Responsible
Party for remedial costs with respect to the MEW Sites in order to permit the
EPA to determine whether the company might have any liability for contributing
to the MEW Sites contamination.
The company's investigation did not reveal significant soil contamination at the
Ellis Street Property due to on-site hazardous materials handling practices.
However, if the Ellis Street Property is found to have contributed to the
contamination emanating from the MEW Sites, the company could be jointly and
severally responsible for remedial costs.
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<PAGE>
At the date of this Annual Report on Form 10-K, certain entities have entered
into a consent decree with the EPA for remediation of the contamination
emanating from the MEW Sites, and certain other entities have been ordered by
the EPA to participate in the remediation. The remediation includes a regional
groundwater extraction and treatment system which is expected to be installed
and maintained by these parties. The company is not included in either the
consent decree or order to participate in the remediation, and neither the EPA
or any other party has requested that the company contribute to the MEW Sites
cleanup.
Although the ultimate outcome of environmental matters is subject to
uncertainties and no assurances can be given, based on its investigation
conducted to date, management does not believe that the contamination arising
from the MEW Sites will have a material adverse effect on the company's
financial condition and results of operations. The cost of the land and
improvements at the Ellis Street property, at July 31, 1994, was $1,049,000,
before deduction of accumulated depreciation.
MARYMOOR WAREHOUSE
The company has also conducted an investigation of possible contamination due to
on-site handling practices at its Marymoor warehouse property located in
Redmond, Washington. The investigation has shown the existence of petroleum
hydrocarbon contamination in the soil at the property. As a result, the tenant
at the property has conducted certain excavation and remediation activities.
Additional testing is presently being conducted to confirm no further
remediation is required. The company estimates the costs of this additional
testing to be in the range of $10,000; however, if further remediation is
required, the costs would be greater, perhaps substantially. The cost of the
Marymoor land and improvements, at July 31, 1994, was $2,358,000, before
deduction of accumulated depreciation.
The company believes that, under the terms of the tenant's lease, the tenant is
responsible for undertaking any remediation or removal of contamination, if any,
caused by the tenant. Although the ultimate outcome of environmental matters is
subject to uncertainties and no assurances can be given, based on its
investigations conducted to date, management believes that the contamination at
the Marymoor property will not have a material adverse effect on the company's
financial condition and results of operations, regardless of whether the tenant
agrees to undertake any necessary remediation.
525 ALMANOR
The former tenant at the company's light industrial property at 525 Almanor,
Sunnyvale, California ("525 Almanor") has been named in an action for
contribution to the costs of groundwater remediation at certain sites now listed
on the National Priorities List under CERCLA. The company has been advised that
the California Regional Water Quality Control Board is considering a prospective
order naming the former tenant as primarily liable with respect to one area of
the contamination and the company, along with certain other property owners in
the area, as secondarily liable for such contamination. As of the date of this
report, the company has not been named in the order, although the company has
notified its former tenant that, under
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<PAGE>
the terms of the tenant's lease, the tenant is responsible for conducting any
remediation or removal of contamination caused by the tenant. However, there
can be no assurance that the company ultimately will not have some liability
with respect to this site. The cost of the 525 Almanor land and improvements,
at July 31, 1994, was $4,245,000, before deduction of accumulated depreciation.
ITEM 2. PROPERTIES
Information concerning the company's property portfolio is contained on pages
14-16 of the 1994 Annual Report, which information is hereby incorporated by
reference. See also the information set forth in Schedules XI and XII under
Item 14 (d).
A majority of the company's commercial properties (i.e., properties other than
apartments) are leased to tenants under long-term operating leases. For
additional information regarding these leases, see Note B to the Financial
Statements included in the 1994 Annual Report, incorporated herein by reference.
At July 31, 1994, the company had approximately 123 separate leases with
approximately 121 tenants in its commercial properties. Substantially all these
leases are net leases, which require the tenant to reimburse the company for,
among other things, property- and casualty-insurance. In addition, BRE carries
earthquake insurance on all its properties. The annual aggregate limits for
Flood and Earthquake are $5,000,000 (in California) and $10,000,000 (outside of
California).
The company's apartment communities generally command rental rates in the mid to
upper range of the rental market. At July 31, 1994, monthly asking rents for
the company's apartment units ranged from $545 at Brookdale Glen in Portland,
Oregon, to $2,050 at Sharon Green in Menlo Park, California.
The company maintains its corporate headquarters at One Montgomery Street, Suite
2500, Telesis Tower, San Francisco, California. A sublease with Wells Fargo
Bank, for an eleven-year term, is for 10,142 rentable square feet at annual per
square foot rents which began at $23 and rise to $34 in the tenth year. The
lease term ends December 17, 1998.
CERTAIN SIGNIFICANT PROPERTIES
General
For the fiscal year ended July 31, 1994, one property had a book value equal to
10% or more of total assets or gross revenue equal to 10% or more of aggregate
gross revenue: The Hub Shopping Center in Fremont, California.
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<PAGE>
THE HUB SHOPPING CENTER
The occupancy rates at the following dates are shown below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
The Hub Shopping Center 89% 93% 91% 89% 90%
</TABLE>
The average effective annual rentals per square foot at the
following dates are shown below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
The Hub Shopping Center * $ 10.70 $ 10.43 $ 10.36 $ 10.49 $ 10.36
<FN>
(* Excludes Safeway ground lease covering 49,000 square feet of
improvements, at a current annual base rent of $85,000,
plus a percentage rent based on gross sales).
</TABLE>
Depreciation expense is calculated on The Hub Shopping Center, using the
straight-line method and a 30 year life for the original buildings for both
financial and tax reporting.
<TABLE>
<CAPTION>
(000 omitted except
in realty tax rate)
REPORTABLE REAL ESTATE
DEPRECIATION LIFE CLAIMED TAXES FOR THE
FEDERAL EXPENSE FOR THE FOR TAX YEAR
TAX BASIS YEAR ENDED DEPRECIATION ENDING REALTY TAX
7/31/94 (1) 7/31/94 PURPOSES 6/30/94 RATE(3)
----------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
The Hub Shopping Center $ 29,164 $ 1,065 30 years $ 424 1.0727 %
for original
building (2)
<FN>
(1) The federal tax basis is after deduction of accumulated depreciation, as
computed for tax purposes.
(2) Leasing commissions on leases with a term of five years or more are
amortized over the lease term.
(3) The realty tax rate is the amount which, when multiplied by the assessed
value of a property, generates the real estate taxes due.
</TABLE>
The Hub Shopping Center has 76 tenants and 490,000 square feet of gross leasable
space on 37.4 acres of land. Including a retail store owned and operated by
Montgomery Ward, the center totals 659,000 square feet of gross leasable area.
The open air regional shopping center is located in Fremont, California, 40
miles southeast of San Francisco and 10 miles northeast of San Jose.
The company purchased The Hub in 1973 for $10,858,000 and has subsequently
expanded and remodeled it significantly. Occupancy, 93% at July 31, 1993,
dropped to 89% at July 31, 1994. The past several years have been characterized
by the leasing of larger spaces to more promotional tenants, including Office
Max, Fashion Bug and Michael's Arts & Crafts. During fiscal 1994, BRE leased an
8,400 square foot store to Trader Joe's, which operates 62 specialty food
markets, and a 9,600 square foot store to Country Harvest Buffet. These and
other new leases are expected to bring occupancy to 95% by October 1994.
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<PAGE>
The Hub competes for retail tenants and customer traffic with numerous other
shopping centers and discount stores (including superstores) in the area.
Because large retail tenants generally draw shoppers to a center, they are
typically able to negotiate lower per square-foot rents than occupants of
smaller spaces.
The following table sets forth certain information regarding the six anchor
tenants. Home Express and Safeway are the only tenants occupying 10% or more of
the rentable square footage at The Hub.
<TABLE>
<CAPTION>
CURRENT
TENANT AND SQUARE LEASE MONTHLY
PRINCIPAL BUSINESS FOOTAGE EXPIRATION RENEWAL OPTIONS BASE RENT
- - ------------------ ------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Home Express
Housewares 50,000 1/31/97 Two 5-year options $25,000
Safeway
Groceries 48,858 10/31/04 Four 5-year options 7,071*
General Cinema
8-Screen Theater 36,437 12/31/07 Two 5-year options 43,269
Ross Dress for Less
Clothing 29,050 1/31/95 Two 5-year options 9,321
Longs Drugs 26,584 2/28/03 Two 10-year options 4,167
Office Max
Office/Business
Products 19,600 12/14/01 Two 5-year options 19,167
<FN>
* Ground lease only. The tenant owns the improvements.
</TABLE>
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<PAGE>
As of July 31, 1994, the lease expirations for the next 10 years are summarized
as follows:
<TABLE>
<CAPTION>
Total Percentage
Number of Square of Gross
Tenants Footage Annual Rent
------- ------- -----------
<S> <C> <C> <C>
1995 11 22,000 6.2 %
1996 9 30,000 9.3
1997 10 76,000 16.9
1998 10 21,000 8.6
1999 4 13,000 4.8
2000 3 38,000 6.1
2001 2 14,000 3.4
2002 4 27,000 7.9
2003 5 38,000 5.7
2004 4 42,000 9.1
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matter was submitted to a vote of the shareholders during the
fourth quarter of the fiscal year covered by this report.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons were executive officers of the company as of
September 1, 1994:
<TABLE>
<CAPTION>
Age at
Name September 1, 1994 Position(s)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Arthur G. von Thaden 62 President, Chief Executive Officer and Director
Byron M. Fox 55 Executive Vice President
Ronald P. Wargo 50 Senior Vice President
Howard E. Mason, Jr. 61 Senior Vice President, Finance
Ellen G. Breslauer 46 Secretary and Treasurer
- - -------------------------------------------------------------------------------------------------
</TABLE>
Mr. Fox and Mr. Wargo were appointed to their current positions in October
of 1992. All of the other executive officers have held their respective
positions since September 30, 1987. Set forth below is information
regarding the business experience of each of the executive officers:
Mr. von Thaden was elected a Director of BankAmerica Realty Investors in
1981. From 1970 to 1987, he was Chief Executive Officer of BankAmerica
Realty Services, Inc. ("BARSI"), the former advisor to the company.
Mr. Fox was employed by BRE and appointed Senior Vice President in December
1987. From 1977 to 1987, he was Vice President and General Manager of
Dillingham Investment Corporation, a Hawaii land-investment firm.
Mr. Wargo was employed by BARSI in 1978, and was appointed Senior Vice
President in charge of Asset Management in 1992. He holds the Certified
Property Manager (CPM) designation awarded by the Institute of Real Estate
Management.
Mr. Mason was Senior Vice President, Finance of BARSI from October 1980,
and was its chief financial and accounting officer from its inception in
1970. He is a Certified Public Accountant and served as Controller for
Henry Doelger Builder, Inc. from 1965 to 1970.
Ms. Breslauer was elected Secretary in September 1987 after serving from
March 1981 as Treasurer of BARSI, where she had been employed since 1971.
She is a Certified Public Accountant.
There is no family relationship among any of the company's executive
officers or Directors.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The shares of the company's Class A common stock are traded on the New
York Stock Exchange under the symbol BRE. Information concerning the
high and low closing prices for the shares and dividends paid is
contained on page 31 of the 1994 Annual Report under the caption
"Market Price Range and Dividends Paid Per Share," which is
incorporated herein by reference. As of July 31, 1994, there were
approximately 3,873 recordholders of the company's shares of Class A
common stock.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to page 27 of the 1994 Annual Report for the
Selected Financial Data required by this Item, which is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to pages 28-30 of the 1994 Annual Report for
Management's Discussion and Analysis of Financial Condition and
Results from Operations, which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 18-25 of the 1994 Annual Report for the
Financial Statements, which are incorporated herein by reference. See
also Item 14 of this report for information concerning financial
statements and schedules filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) EXECUTIVE OFFICERS. See "Executive Officers of the Registrant"
in Part I of this report.
(b) DIRECTORS. The information required by this Item is hereby
incorporated by reference to the company's Proxy Statement under
the heading "Election of Directors" and the caption "Compliance
with Section 16(a) of the Securities and Exchange Act of 1934"
filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated herein by
reference to the Proxy Statement under the captions "Executive
Compensation and Other Information", and "Compensation Committee
Report on Executive Compensation of Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is hereby incorporated herein by
reference to the Proxy Statement under the headings "Election of
Directors" and "Principal Shareholders."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-15-
<PAGE>
PART III
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) The responses to these subsections of Item 14 are
submitted as a separate section of this report.
(a)(3) List of Exhibits
-----------------------
3.1 Restated Certificate of Incorporation
3.2 By-Laws (1)
4.1 Rights Agreement, dated as of August 14, 1989, between the company and
Chemical Trust Company of California, as successor rights agent to
Bank of America N.T. & S.A. (2)
10.1 1984 Stock Option Plan, as amended to date (3)
10.2 1992 Employee Stock Option Plan (3)
10.3 1992 Payroll Investment Plan (3)
10.4 Form of Indemnification Agreement (4)
10.5 Employment agreement with Arthur G. von Thaden (5)
10.6 Supplemental Executive Retirement Benefit agreement with Arthur G. von
Thaden (5)
10.7 Supplemental Executive Retirement Benefit agreement with Howard E.
Mason, Jr. (5)
10.8 BRE Properties, Inc. Retirement Plan (5)
10.9 Sublease with Wells Fargo Bank on 10,142 square feet at Suite 2500,
One Montgomery Street, San Francisco, California (5)
10.10 Form of deferred compensation agreement with Eugene P. Carver
11 Computation of earnings per share
13 BRE Properties, Inc. 1994 Annual Report
21 Subsidiaries of the registrant
24 Consent of Ernst & Young LLP
27 Financial Data Schedule
- - --------------------
(1) Incorporated by reference to S-3 Registration Statement (No. 33-58802)
filed with the Securities and Exchange Commission on February 26, 1993, as
amended.
(2) Incorporated by reference to Exhibit 4.1 to the company's current report on
Form 8-K dated August 14, 1989.
-16-
<PAGE>
(3) Incorporated by reference to the company's 1992 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on October 19, 1992.
(4) Incorporated by reference to S-4 Registration Statement (No. 33-9014) filed
with the Securities and Exchange Commission on September 25, 1986, as
amended.
(5) Incorporated by reference to the company's 1988 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on October 24, 1988.
- - --------------------
(b) The exhibits listed in Item (a)(3) above are submitted as a
separate section of this report
(c) The financial statement schedules listed in response to Item
(a)(1) and (2) are submitted as a separate section of this
report.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, there unto duly authorized.
BRE PROPERTIES, INC.
Dated October 11, 1994 /s/ Arthur G. von Thaden
---------------- -------------------------
Arthur G. von Thaden
President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
- - --------- ----- ----
/s/ Arthur G. von Thaden
- - ------------------------- President and Director October 11, 1994
(Arthur G. von Thaden) (Principal Executive Officer) ----------------
/s/ Howard E. Mason, Jr.
- - ------------------------- Senior Vice President, Finance October 11, 1994
(Howard E. Mason, Jr.) (Principal Financial ----------------
and Accounting Officer)
/s/ C. Preston Butcher Director October 11, 1994
- - ------------------------ ----------------
(C. Preston Butcher)
/s/ Eugene P. Carver Chairman and Director October 11, 1994
- - ------------------------ ----------------
(Eugene P. Carver)
/s/ L. Michael Foley Director October 11, 1994
- - ------------------------ ----------------
(L. Michael Foley)
/s/John McMahan Director October 11, 1994
- - ------------------------ ----------------
(John McMahan)
/s/ Malcolm R. Riley Director October 11, 1994
- - ------------------------ ----------------
(Malcolm R. Riley)
All of the Directors
-18-
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a)(1) AND (2) AND 14 (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
and
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JULY 31, 1994
BRE PROPERTIES, INC.
SAN FRANCISCO, CALIFORNIA
-19-
<PAGE>
Form 10-K - Item 14 (a)(1) and (2)
List of Financial Statements and Financial Statement Schedules
Financial Statements:
The following financial statements of BRE Properties, Inc. (the "company") are
incorporated by reference in Item 8 to the specified portions of the BRE
Properties, Inc. Annual Report to Shareholders for the year ended July 31, 1994.
Balance Sheets July 31, 1994 and July 31, 1993 - page 18
Statements of Income - Years ended July 31, 1994, July 31, 1993 and
July 31, 1992 - page 19
Statements of Cash Flows Years ended July 31, 1994, July 31, 1993 and
July 31, 1992 - page 20
Statements of Shareholders' Equity Years ended July 31, 1994, July 31, 1993
and July 31, 1992 - page 21
Notes to Financial Statements - pages 22-25
Financial Statements Schedules
The following financial statement schedules are included in Item 14(d):
Schedule X Supplementary income statement information
Schedule XI Real estate and accumulated depreciation
Schedule XII Mortgage loans on real estate
All other schedules (I, II, III, IV, V, VI, VII, VIII, IX, XIII and XIV) for
which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and, therefore, have been omitted.
-20-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Directors
BRE Properties, Inc.
We have audited the financial statements and related schedules of BRE
Properties, Inc. listed in Item 14 (a)(1) and (2) of the Annual Report on
Form 10-K of BRE Properties, Inc. for the year ended July 31, 1994. These
financial statements and related schedules are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements and related schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and related schedules.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BRE Properties, Inc., at July
31, 1994 and 1993, and the results of its operations and cash flows for each of
the three years in the period ended July 31, 1994 in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly, in all material respects, the information set
forth therein in compliance with the applicable accounting regulations of the
Securities and Exchange Commission.
Ernst & Young LLP
San Francisco, California
August 29, 1994
-21-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
July 31, 1994
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
COL. A COL. B (1)
- - ---------------------------------------------------------------------------
ITEM Charged to Costs and Expenses
- - ---------------------------------------------------------------------------
<S> <C>
Year ended July 31, 1994:
Maintenance and repairs $4,966,000
Real estate and personal property taxes 3,043,000
Year ended July 31, 1993:
Maintenance and repairs 4,015,000
Real estate and personal property taxes 2,266,000
Year ended July 31, 1992:
Maintenance and repairs 2,771,000
Real estate and personal property taxes 1,762,000
<FN>
(1) Amounts for the other costs and expenses items called for in this Schedule
are not presented because such amounts are less than 1% of total revenues.
</TABLE>
-22-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1994
(000 OMITTED)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------
COST
BUILDINGS CAPITALIZED DEPRECI-
AND SUBSEQUENT ABLE
DATES ACQUIRED/ IMPROVE- TO LIVES-
NAME LOCATION CONSTRUCTED LAND MENTS ACQUISITION YEARS
- - ---- -------- --------------- ---- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Apartments
Montanosa San Diego, California 1992/1989-1990 $ 6,005 $ 24,065 $ 128 40
Mira Mesa San Diego, California 1993 4,869 19,493 130 40
(Cimmaron, Hacienda, Westpark) 1985-1987
Selby Ranch Sacramento, California 1986/1971-1974 2,660 18,340 230 40
Parkwood Mill Creek, Washington 1989/1989 3,947 15,811 33 40
Shadowbrook Redmond, Washington 1987/1986 3,195 12,709 488 40
The Verandas Union City, California 1993/1989 3,233 12,932 62 40
Terra Nova Villas Chula Vista, California 1994/1985 2,925 11,699 28 40
Brookdale Glen Portland, Oregon 1993/1985 2,797 11,188 40
Scottsdale Cove Scottsdale, Arizona 1991/1992 2,385 9,186 15 40
Expansion, under development 1993/1994 858 3,593
Winchester San Diego, California 1994/1987 1,482 5,928 21 40
Westlake Village Daly City, California 1972/1951-1971 7,425
Sharon Green Menlo Park, California 1971/1970 1,250 5,770 201 45
Citywalk Seattle, Washington 1988/1988 1,123 4,276 40
Village Green La Habra, California 1972/1971 372 2,763 45 40
Villa Serra Cupertino, California 1973/1970 900
------- -------- -------
Subtotal-Apartments 45,426 157,753 1,381
------- -------- -------
Shopping Centers
The Hub Fremont, California 1973/1961-1987 5,494 5,822 28,509 30-40
El Camino Woodland Hills, California 1971/1970 1,500 10,037 2,762 40
------- -------- -------
Subtotal-Shopping Centers 6,994 15,859 31,271
------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT JULY 31, 1994
----------------------------------------------
BUILDINGS ACCUMU-
AND LATED
IMPROVE- DEPRECI- ENCUM-
NAME LOCATION LAND MENTS TOTAL ATION BRANCES
- - ---- -------- ---- --------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Apartments
Montanosa San Diego, California $ 6,005 $ 24,193 $ 30,198 $ 955 $17,268
Mira Mesa San Diego, California 4,869 19,623 24,492 407 13,517
(Cimmaron, Hacienda, Westpark)
Selby Ranch Sacramento, California 2,660 18,570 21,230 3,803 12,954
Parkwood Mill Creek, Washington 3,947 15,844 19,791 1,877
Shadowbrook Redmond, Washington 3,605 12,787 16,392 2,271
The Verandas Union City, California 3,233 12,994 16,227 405
Terra Nova Villas Chula Vista, California 2,925 11,727 14,652 97 9,182
Brookdale Glen Portland, Oregon 2,797 11,188 13,985 373
Scottsdale Cove Scottsdale, Arizona 2,385 9,201 11,586 526
Expansion, under development 858 3,593 4,451
Winchester San Diego, California 1,482 5,949 7,431 50
Westlake Village Daly City, California 7,425 7,425 *
Sharon Green Menlo Park, California 1,250 5,971 7,221 2,785 19,649
Citywalk Seattle, Washington 1,123 4,276 5,399 676
Village Green La Habra, California 372 2,808 3,180 1,525
Villa Serra Cupertino, California 900 900 **
------- -------- -------- ------- -------
Subtotal-Apartments 45,836 158,724 204,560 15,750 72,570
------- -------- -------- ------- -------
Shopping Centers
The Hub Fremont, California 5,494 34,331 39,825 10,661
El Camino Woodland Hills, California 1,500 12,799 14,299 1,776 1,374
------- -------- -------- ------- -------
Subtotal-Shopping Centers 6,994 47,130 54,124 12,437 1,374
------- -------- -------- ------- -------
</TABLE>
-23-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
JULY 31, 1994
(000 OMITTED)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------
COST
BUILDINGS CAPITALIZED DEPRECI-
AND SUBSEQUENT ABLE
DATES ACQUIRED/ IMPROVE- TO LIVES-
NAME LOCATION CONSTRUCTED LAND MENTS ACQUISITION YEARS
- - ---- -------- --------------- ---- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Other income-producing property
Pomona Warehouse Pomona, California 1986/1981 $ 4,077 $ 8,354 $ 767 40
Sorrento
Technology San Diego, California 1989/1985 4,046 5,520 470 40
LSI Logic Fremont, California 1982/1982-1984 1,323 2,458 2,105 35
Fremont 3 Fremont, California 1987/1987 1,128 2,096 2,615 40
Westridge San Diego, California 1982/1982-1984 1,072 4,300 106 35
Irvine Spectrum Irvine, California 1985/1984 1,460 3,983 40
Oak Creek II Milpitas, California 1984/1980 552 4,048 312 35
525 Almanor Sunnyvale, California 1971/1967-1992 300 1,475 2,470 45
Peppertree Hayward, California 1981/1981 539 2,000 1,336 35
Oak Creek I Milpitas, California 1984/1980 379 2,780 73 35
Marymoor Redmond, Washington 1984/1980 418 1,808 132 35
Santa Clara County Mountain View, California 1972/1971 233 703 348 45
515 Ellis Mountain View, California 1973/1972 183 517 349 45
------- -------- -------
Subtotal - Other 15,710 40,042 11,083 45
------- -------- -------
Total $68,130 $213,654 $43,735
------- -------- -------
------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT JULY 31, 1994
----------------------------------------------
BUILDINGS ACCUMU-
AND LATED
IMPROVE- DEPRECI- ENCUM-
NAME LOCATION LAND MENTS TOTAL ATION BRANCES
- - ---- -------- ---- --------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Other income-producing property
Pomona Warehouse Pomona, California $ 4,077 $ 9,121 $ 13,198 $ 1,946
Sorrento
Technology San Diego, California 4,046 5,990 10,036 816
LSI Logic Fremont, California 1,323 4,563 5,886 1,481
Fremont 3 Fremont, California 1,128 4,711 5,839 1,410
Westridge San Diego, California 1,072 4,406 5,478 961
Irvine Spectrum Irvine, California 1,460 3,983 5,443 703
Oak Creek II Milpitas, California 552 4,360 4,912 1,170
525 Almanor Sunnyvale, California 300 3,945 4,245 976
Peppertree Hayward, California 539 3,336 3,875 1,259
Oak Creek I Milpitas, California 379 2,853 3,232 803
Marymoor Redmond, Washington 418 1,940 2,358 545
Santa Clara County Mountain View, California 233 1,051 1,284 544
515 Ellis Mountain View, California 183 866 1,049 463
------- -------- -------- -------
Subtotal - Other 15,710 51,125 66,835 13,077
------- -------- -------- -------
Total $68,540 $256,979 $325,519 $41,264 $73,944
------- -------- -------- ------- -------
------- -------- -------- ------- -------
<FN>
* Subordinated land lease
** Nonsubordinated land lease
</TABLE>
See Note A of Notes to Financial Statements for information related to lives on
which depreciation is computed and Note E of Notes to Financial Statements for
additional information concerning encumbrances at July 31, 1994.
-24-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1994
(000 OMITTED)
The activity in equity investments and related accumulated depreciation
for the three years ended July 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
EQUITY INVESTMENTS 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $282,012 $220,577 $212,926
Plus: Cash expenditures 45,712 33,535 4,422
Mortgage loan 17,500
Acquisition through tax-deferred exchanges 11,000 9,774
Assumption of bond debt 9,240
Less: Properties disposed of through tax-deferred exchanges (600) (4,946)
Properties sold (11,445) (1,599)
-------- -------- --------
Balance at end of year $325,519 $282,012 $220,577
-------- -------- --------
-------- -------- --------
ACCUMULATED DEPRECIATION
Balance at beginning of year $ 37,563 $ 32,270 $ 28,728
Plus: Provision during the year through charges to income 6,674 5,453 4,629
Less: Fully amortized leasing commissions on expired leases (112) (160) (116)
Accumulated depreciation on exchanged properties (971)
Accumulated depreciation on properties sold (2,861)
-------- -------- --------
Balance at end of year $41,264 $ 37,563 $ 32,270
----------- -------- --------
-------- -------- --------
Approximate aggregate cost for federal income tax purposes $265,735 $222,229 $171,126
-------- -------- --------
-------- -------- --------
</TABLE>
-25-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
JULY 31, 1994
(000 OMITTED)
<TABLE>
<CAPTION>
CARRYING
FINAL PERIODIC CARRYING AMOUNT SUBJECT TO
INTEREST MATURITY PAYMENT AMOUNT OF DELINQUENT PRINCIPAL
DESCRIPTION RATE DATE TERMS MORTGAGES OR INTEREST
- - ----------- -------- -------- ------- --------- --------------------
<S> <C> <C> <C> <C> <C>
OFFICE BUILDING
Washington 11% 1995 A $3,400
CONDOMINIUM
Tennessee 8-10 2007-2008 B 1,108
OTHER 8
------
$4,516 None
------
------
<FN>
A Interest only is payable monthly. Principal is due at final maturity.
B Principal and interest are payable monthly in level amounts. Loans are
fully amortizing.
</TABLE>
-26-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
July 31, 1994
(000 OMITTED)
The activity in mortgage loans for the three years ended July 31, 1994 is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $4,836 $5,254 $5,500
Less: Repayments (320) (418) (246)
--- --- ---
Balance at end of year $4,516 $4,836 $5,254
----- ----- -----
----- ----- -----
Aggregate carrying amount of mortgage loans extended or renewed $3,400 $3,400 $3,400
----- ----- -----
----- ----- -----
Approximate aggregate cost for federal income tax purposes $4,516 $4,836 $5,254
----- ----- -----
----- ----- -----
</TABLE>
-27-
<PAGE>
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
YEAR ENDED JULY 31, 1994
BRE PROPERTIES, INC.
SAN FRANCISCO, CALIFORNIA
3.1 Restated Certificate of Incorporation
3.2 By-Laws(1)
4.1 Rights Agreement, dated as of August 14, 1989, between the company and
Chemical Trust Company of California, as successor rights agent to Bank
of America N.T. & S.A.(2)
10.1 1984 Stock Option Plan, as amended to date(3)
10.2 1992 Employee Stock Option Plan(3)
10.3 1992 Payroll Investment Plan(3)
10.4 Form of Indemnification Agreement(4)
10.5 Employment agreement with Arthur G. von Thaden(5)
10.6 Supplemental Executive Retirement Benefit agreement with Arthur G. von
Thaden(5)
10.7 Supplemental Executive Retirement Benefit agreement with Howard E. Mason,
Jr.(5)
10.8 BRE Properties, Inc. Retirement Plan(5)
10.9 Sublease with Wells Fargo Bank on 10,142 square feet at Suite 2500, One
Montgomery Street, San Francisco, California(5)
10.10 Form of deferred compensation agreement with Eugene P. Carver
11 Computation of earnings per share
13 BRE Properties, Inc. 1994 Annual Report
21 Subsidiaries of the registrant
24 Consent of Ernst & Young LLP
27 Financial Data Schedule
____________________
(1) Incorporated by reference to S-3 Registration Statement (No. 33-58802)
filed with the Securities and Exchange Commission on February 26, 1993, as
amended.
-28-
<PAGE>
(2) Incorporated by reference to Exhibit 4.1 to the company's current report on
Form 8-K dated August 14, 1989.
(3) Incorporated by reference to the company's 1992 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on October 19, 1992.
(4) Incorporated by reference to S-4 Registration Statement (No. 33-9014) filed
with the Securities and Exchange Commission on September 25, 1986, as
amended
(5) Incorporated by reference to the company's 1988 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on October 24, 1988.
(6) The company is not a party to any instrument with respect to long-term debt
for which securities authorized thereunder exceed 10% of the total assets
of the company. Copies of instruments with respect to long-term debt of
lesser amounts will be provided to the Commission upon request.
____________________
-29-
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
BRE PROPERTIES, INC.
The undersigned, Arthur G. von Thaden and Ellen G. Breslauer, certify that
they are the President and the Secretary, respectively, of BRE Properties, Inc.,
a corporation organized and existing under the laws of the State of Delaware
(the "Corporation"), and do hereby certify as follows:
1. The present name of the Corporation is BRE Properties, Inc. The
corporation was originally incorporated under the name BankAmerica Realty
Investors, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of Delaware on September 23, 1986.
3. This Restated Certificate of Incorporation was duly adopted by the
board of directors of the Corporation in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
4. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended and supplemented and there is
no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
5. The text of the Certificate of Incorporation of the Corporation is
restated to read in its entirety, as follows:
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
BRE PROPERTIES, INC.
I.
The name of the Corporation is BRE Properties, Inc.
II.
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
III.
The nature of the Corporation's business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware and to do
all things and exercise all powers, rights and privileges which a
business corporation may now or hereafter be organized or authorized
to do or to exercise under the laws of the State of Delaware.
IV.
The Corporation shall have the authority to issue common stock in the
following classes:
(a) Fifty Million (50,000,000) shares of Class A Common Stock,
with par value of $0.01 for each share of such stock. In the event of a
liquidation of the Corporation, Class A Common Stock shall be entitled to
all assets allocated to holders of Common Stock. Class A Common Stock
shall be subject to redemption by the Corporation in accordance with
Article IX of this Certificate.
(b) One Hundred Thousand (100,000) shares of Class B Common Stock
with par value of $0.01 for each share of such stock. In the event of the
liquidation of
2.
<PAGE>
the Corporation, the Class B Common Stock shall be entitled to receive
no portion of the Corporation's assets that shall be allocated to the
holders of Common Stock.
Except as set forth herein, the rights, preferences, terms and conditions of
Class A and Class B Common Stock shall be identical in all respects.
V.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors consisting of not less than three
directors nor more than 15 directors, the exact number of directors to be
determined from time to time by resolution adopted by the Board of Directors.
In the election of directors at the 1987 annual meeting of stockholders, the
directors shall be divided into three classes, designated Class I, Class II and
Class III, with each class consisting, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. At the 1987 annual meeting of stockholders, directors of Class I
shall be elected to hold office for a term expiring on the date of the 1988
annual meeting of stockholders, directors of Class II shall be elected to hold
office for a term expiring on the date of the 1989 annual meeting of
stockholders and directors of Class III shall be elected to hold office for a
term expiring on the date of the 1990 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1988, successors to the class of
directors whose term expires at that annual meeting shall be elected for a three
year term. If the number of directors is changed, any increase or decrease
shall be apportioned by the directors then in office among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, however resulting, may only be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy shall hold
office for a term that shall coincide with the term of the class to which such
director shall have been elected.
VI.
Any or all of the directors of the Corporation may be removed from office
at any time, but only for cause and only by the affirmative vote of the holders
of a majority of the outstanding shares of the Corporation then entitled to vote
generally in the election of directors.
3.
<PAGE>
VII.
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the stockholders at
an annual or special meeting duly noticed and called, as provided in the By-laws
of the Corporation, and may not be taken by a written consent of the
stockholders notwithstanding authorization to do so in the General Corporation
Law of the State of Delaware.
VIII.
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by the Chairman of the Board of Directors or
the President (if the President is a member of the Board of Directors), by a
majority of the total number of directors constituting the entire Board of
Directors or by the holders of a majority of the outstanding shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors. Special meetings of the stockholders of the Corporation may not be
called by any other person or persons.
IX.
For purposes of this Article IX of this Restated Certificate of
Incorporation the following terms shall have the meanings set forth below:
1. "REIT Provisions of the Internal Revenue Code" shall mean Part
II Subchapter M of Chapter 1 of the Internal Revenue Code
1986, as now enacted or hereafter amended, or successor
statutes and regulations and rulings promulgated thereunder.
2. "REIT" shall mean a real estate investment trust as described
in the REIT Provisions of the Internal Revenue Code.
Any stockholder shall, upon demand, disclose to the Board of Directors in
writing such information with respect to such stockholder's direct and indirect
ownership of the shares of the Corporation as the Board deems necessary to
enable the Corporation to comply with, or to determine whether it will be in
compliance with, the REIT Provisions of the Internal Revenue Code or the
requirements of any other taxing authority. If the Board shall determine, in
good faith, that direct or indirect ownership of the Corporation's stock has or
may become concentrated to an extent that would prevent the Corporation from
qualifying as a REIT, the Board is authorized to prevent the transfer of stock
or call for redemption (by lot or by other means affecting one or more
stockholders selected in the sole discretion of the Board) of a number of shares
of Class A Common Stock sufficient in the opinion of the Board to maintain or
bring the direct or indirect ownership of the stock of the Corporation into
conformity with the REIT Provisions of the Internal Revenue Code.
4.
<PAGE>
The redemption price for Class A Common Stock 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 in the absence of
a sale on such day, the last bid price on such day as reported in the NASDAQ
National Market System, (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 as aforesaid, 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 Class A Common Stock so called for
redemption shall cease to be entitled to dividends, distributions, voting rights
and other benefits with respect to such shares, excepting only to the right to
payment of the redemption price herein fixed, without interest.
X.
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that this Article X shall not eliminate or limit the
liability of a director (i) for any breach of such director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Title 8, Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which such director derived an
improper personal benefit. Failure of the Corporation to qualify as an REIT
under the REIT Provisions of the Internal Revenue Code shall not render the
directors liable to any stockholder or any other person. Any repeal or
modification of this Article X by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
XI.
1. For purposes of this Article XI and Articles XII and XIV of this
Restated Certificate of Incorporation, the following terms shall have the
meanings set forth below:
(a) The term "Business Combination" shall mean (i) any merger or
consolidation of the Corporation or any Subsidiary with a Related Person
or with any other corporation or entity which after such merger or
consolidation would be an Affiliate or Associate of a Related Person, (ii)
any sale, lease, exchange, mortgage,
5.
<PAGE>
pledge, transfer or other disposition (in one transaction or a series of
transactions) to or with any Related Person of all or any Substantial
Part of the assets of the Corporation or any Subsidiary or of a Related
Person, (iii) any adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of a Related
Person, (iv) any issuance of securities of the Corporation or any
Subsidiary (other than pursuant to an underwritten public offering of
securities approved by the Continuing Directors and registered under the
Securities Act of 1933), or any reclassification of securities (including
any reverse stock split) or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any Subsidiary, or any
other transaction (whether or not with or into or otherwise involving a
Related Person) if any of the foregoing transactions in this clause (iv)
would result, either directly or indirectly, in an increase in the
proportionate amount of shares of outstanding securities of the
Corporation or any Subsidiary which is Beneficially Owned by any Related
Person, and (v) any agreement, contract or other arrangement providing for
any of the transactions described in this definition of Business
Combination.
(b) The terms "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
July 1, 1987.
(c) A Person shall "Beneficially Own," or shall be the "Beneficial
Owner" or shall have "Beneficial Ownership" of, any Voting Stock:
(i) which such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such Person or any of its Affiliates or Associates
has, directly or indirectly, (a) the right to acquire (whether such
right is exerciseable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding.
(d) The term "Person" shall mean any individual, firm, corporation
or other entity and any members of any group comprised of any of the
foregoing which has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or disposing
of Voting Stock of the Corporation.
(e) The term "Related Person" shall mean any Person (other than
the Corporation or any Subsidiary, and other than any profit sharing,
employee stock ownership or other employee benefit plan of the Corporation
or any Subsidiary or any
6.
<PAGE>
trustee of or fiduciary with respect to any such plan when acting in such
capacity) who or which:
(i) Beneficially Owns ten percent (10%) or more of the
outstanding Voting Stock;
(ii) is an Affiliate or Associate of any Person who or which
Beneficially Owns ten percent (10%) or more of the outstanding
Voting Stock;
(iii) is an Affiliate or Associate of the Corporation and at
any time within the two-year period immediately prior to the date in
question was the Beneficial Owner of ten percent (10%) or more of
the then-outstanding Voting Stock; or
(iv) is at any time an assignee of or has otherwise succeeded
to the Beneficial Ownership of any shares of Voting Stock which were
at any time within the two-year period immediately prior to the date
in question Beneficially Owned by any Related Person, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(f) For the purpose of determining whether a Person is a Related
Person pursuant to subparagraph (e) of this Section 1, the number of
shares of Voting Stock outstanding shall be deemed to include any unissued
shares of Voting Stock Beneficially Owned by such Person by virtue of
subparagraph (c) of this Section 1 but shall not include any other
unissued shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(g) The term "Subsidiary" means any corporation of which a
majority of each class of outstanding equity securities is owned, directly
or indirectly, by the Corporation.
(h) The term "Continuing Director" means (i) for purposes of this
Article XI, any member of the Board of Directors who is not an Interested
Director as to the Related Person involved in a proposed Business
Combination and (ii) for purposes of Article XIV, any member of the Board
of Directors who is not an Interested Director as to any Person who is a
Related Person at the time in question. An "Interested Director" is a
member of the Board of Directors who is an Affiliate, Associate or
representative of a Related Person or who became a member of the Board of
Directors after the time that the Related Person became a Related Person
and was not nominated, recommended or elected by a majority of the
Continuing Directors then on the Board of Directors.
7.
<PAGE>
(i) The term "Substantial Part" shall mean more than ten percent
(10%) of the Fair Market Value, as determined by a majority of the
Continuing Directors, of the total consolidated assets of the Corporation
and its Subsidiaries, or of a Related Person, as the case may be, taken as
a whole as of the end of its most recent fiscal year ended prior to the
time the determination is being made.
(j) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the Corporation entitled to vote generally in the
election of directors.
(k) The term "Fair Market Value" shall mean (i) in the case of
stock or other securities, the fair market value of such stock or other
securities on the last business day prior to the date in question as
determined in accordance with the method for determining the redemption
price for Class A Common Stock under Article IX of this Restated
Certificate of Incorporation; and (ii) in the case of property other than
stock or securities, the fair market value of such property on the
date in question as determined in good faith by a majority of the
Continuing Directors.
(l) The term "Supermajority" shall mean seventy percent (70%) of
the then outstanding shares of Voting Stock.
2. The affirmative vote of a Supermajority shall be required for the
approval or authorization of any Business Combination, notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified by
law, in any agreement with any national securities exchange or otherwise;
provided, however, that the affirmative vote of a Supermajority shall not be
applicable and such Business Combination shall require only such affirmative
vote as is required by law, in any agreement with any national securities
exchange or otherwise if:
(a) such Business Combination is expressly approved by both (i)
the Board of Directors and (ii) a majority of all Continuing Directors,
such express approval being given either in advance of or subsequent to
any Related Person becoming a Related Person; or
(b) in the case of a Business Combination that involves cash or
other consideration being received by the stockholders of the Corporation,
solely in their respective capacities as stockholders of the Corporation,
both of the following conditions are met:
(i) the cash plus the Fair Market Value as of the date of
the consummation of the Business Combination of any securities,
property or other consideration to be received per share by holders
of the common stock of the Corporation in the Business Combination
is not less than the highest of: (A) the
8.
<PAGE>
Fair Market Value per share of common stock on the date of the first
public announcement of the proposed Business Combination (the
"Announcement Date"); (B) the price per share equal to the Fair
Market Value per share of common stock on the Announcement Date,
plus the average per share "Premium" paid by the Related Person in
acquiring Beneficial Ownership of all shares of common stock
acquired by the Related Person during the two-year period prior to
the Announcement Date, such "Premium" consisting of the difference
between the price per share paid by the Related Person for such
shares and the Fair Market Value per share of such shares on the
date or dates they were acquired by the Related Person; or (C) the
net book value per share of the Corporation's common stock based on
the estimated current fair value of its properties as reported in
the Corporation's most recent annual report to its stockholders; and
(ii) the consideration to be received by holders of the
Corporation's common stock shall be in cash or in the same form as
previously has been paid by or on behalf of the Related Person in
connection with its direct or indirect acquisition of Beneficial
Ownership of shares of common stock within the one-year period
immediately prior to the Announcement Date. If the consideration
so paid for any such shares is varied as to form, the form of
consideration to be received by holders of common stock shall be
either cash or the same ratio of the varying forms of consideration
used to acquire Beneficial Ownership of all shares of common stock
acquired by the Related Person in the one-year period preceding the
Announcement Date. The price determined in accordance with
paragraph (b)(i) of this Section 2 shall be subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination of shares or similar event.
3. A majority of the Continuing Directors shall have the power to
determine, on the basis of information known to them, (A) whether a Person is a
Related Person, (B) the number of shares of Voting Stock Beneficially Owned by
any Person, (C) whether a Person is an Affiliate or Associate of another, (D)
whether the assets which are the subject of any Business Combination constitute
a Substantial Part of such assets, (E) whether two or more transactions
constitute a "series of transactions," and (F) such other matters with respect
to which a determination is permitted or required under this Article XI. Any
such determination shall be final and binding for all purposes hereunder.
4. Nothing contained in this Article XI shall be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve a proposed Business Combination or recommend its
adoption or approval to the stockholders of the Corporation, nor shall anything
contained in this Article XI limit, prohibit or otherwise restrict in any manner
the Board of Directors, or any member thereof, with respect to evaluations of or
actions and responses taken with respect to such Business
9.
<PAGE>
Combination. Nothing contained in this Article XI shall be construed to relieve
any Related Person from any fiduciary obligation imposed by law.
XII.
In addition to the requirements of this Restated Certificate of
Incorporation and of law, the affirmative vote of the holders of a majority of
the outstanding Voting Stock shall be required for any purchase, redemption or
other acquisition by the Corporation or a Subsidiary of any shares of common
stock or other securities of the Corporation Beneficially Owned by a Person
which, together with its Affiliates and Associates, Beneficially Owns in the
aggregate five percent (5%) or more of the outstanding Voting Stock the
Corporation (a "Selling Stockholder"), unless either: (i) the aggregate amount
of cash and the Fair Market Value of other consideration per share to be paid to
the Selling Stockholder is no greater than the average Fair Market Value of the
common stock or other securities during the 30 trading days preceding the
acquisition; (ii) the Corporation offers to purchase from all stockholders
(including the Selling Stockholder) shares of common stock or the other
securities proposed to be purchased from the Selling Stockholder, in a aggregate
amount at least equal to the number of shares of common stock or other
securities proposed to be purchased from the Selling Stockholder, on the same
terms as those offered to the Selling Stockholder, and in proportion to the
number of shares of common stock or other securities owned by all stockholders
(including the Selling Stockholder); or (iii) the transaction involves a
redemption of Class A Common Stock pursuant to, and on the terms and conditions
of, Article IX of this Restated Certificate of Incorporation.
XIII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, repeal, alter, amend or
rescind the By-laws of the Corporation.
XIV.
The Corporation reserves the right to repeal, alter, amend, or rescind any
provision contained in this Restated Certificate or Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
Any amendment, repeal or other modification of the provisions of Articles
V, VI, VII, VIII, XI, XII and this Article XIV of this Restated Certificate of
Incorporation, shall require, in addition to the other applicable requirements
of this Restated Certificate of Incorporation
10.
<PAGE>
and of law, the approval of a Supermajority; provided, however, that the
foregoing shall not apply to any such amendment, repeal or other modification
that is approved by the Board of Directors and by a majority of all Continuing
Directors."
IN WITNESS WHEREOF, BRE Properties, Inc. has caused this Restated
Certificate of Incorporation to be executed by its officers thereunto duly
authorized as of this 25th day of January, 1994.
BRE Properties, Inc.
By /s/ Arthur G. von Thaden
------------------------
Arthur G. von Thaden
President
Attest: /s/ Ellen G. Breslauer
----------------------
Ellen G. Breslauer
Secretary
11.
<PAGE>
EXHIBIT 10.10
January 1, 1994
Mr. Eugene P. Carver
Chairman
Hoffman Associates Incorporated
225 South Lake Avenue, Suite 1150
Pasadena, California 91101
Dear Gene:
This letter confirms our agreement with respect to the deferral of
compensation payable to you as a Director of BRE.
1. AMOUNT OF DEFERRED COMPENSATION. Commencing January 1, 1994, all
amounts earned by you as a member of our Board of Directors will accrue and be
paid in accordance with paragraph 2 below. These amounts shall include the
annual retainer payable to you as Chairman of the Board and the amount payable
to you for each Board meeting attended in your capacity as a Director. From
the date of accrual to the date of payment in accordance with paragraph 2,
these amounts will bear interest at the 5-year U.S. Treasury
<PAGE>
Mr. Eugene P. Carver
January 1,1994
Page 2
Rate, adjusted and compounded quarterly and subject to annual review by the
Board of Directors.
2. PAYMENT OF DEFERRED COMPENSATION. All accrued but unpaid
compensation under paragraph 1 above shall be paid to you in five equal
installments commencing on January 1 of the first full calendar year following
the time you reach age seventy and one-half years (70 1/2) and continuing on
January 1 of each calendar year thereafter until all five installments have
been paid. All interest accruing on unpaid amounts following an installment
payment shall be paid with the next installment due.
3. DESIGNATION OF BENEFICIARY. You shall have the right to
designate a beneficiary to whom payment of amounts due to you under this
agreement will be made if you should die prior to full payment of such amounts.
Such designation or any change in such designation shall be made in writing to
BRE. If you should die prior to reaching age 70 1/2 years, the deferred
compensation described in paragraph 1 above shall be paid to your designated
beneficiary in five equal installments commencing on January 1 of the first
full calendar year following your death and continuing on January 1 of each
calendar year thereafter until all five installments have been paid. If you
should die after reaching age 70 1/2 years but before full payment, payment(s)
shall be made to your designated beneficiary in accordance with paragraph 2
above.
<PAGE>
Mr. Eugene P. Carver
January 1, 1994
Page 3
4. UNSECURED RIGHT. Your right to receive the deferred compensation
payable under this agreement shall be no greater than the right of any general
unsecured creditor of BRE and the company will not segregate or otherwise set
aside funds or other assets for such payment. Nothing in this agreement shall
confer upon you any continuing right to remain as a Director or Chairman of the
Board of BRE.
5. ASSIGNMENT. This agreement may not be assigned, transferred,
pledged or encumbered, except by law, by will or laws of intestate succession,
or by designation of a beneficiary as provided in paragraph 3 above.
6. GOVERNING LAW. This agreement is entered into and shall be
governed by and construed in accordance with the laws of the State of
California.
7. ENTIRE AGREEMENT. This letter contains the entire understanding
between BRE and you with respect to the payment of deferred compensation by BRE
to you. Such understanding may be modified, altered or amended only by a
writing signed by BRE and you.
<PAGE>
Mr. Eugene P. Carver
January 1, 1994
Page 4
If this letter accurately reflects the agreement between BRE and you,
please so indicate by signing both copies of this letter and returning one
fully executed copy to the undersigned. You should retain the other copy
among your important papers.
Very truly yours,
BRE PROPERTIES, INC.
By: /s/ ARTHUR G. VON THADEN
-------------------------
Arthur G. von Thaden
Its: President and
Chief Executive Officer
Agreed and Acknowledged:
/S/ EUGENE P. CARVER
Eugene P. Carver
:ks
<PAGE>
BRE PROPERTIES, INC.
COMPUTATION OF EARNINGS PER SHARE
PRIMARY EARNINGS PER SHARE
On June 8, 1993, the company called for redemption at par all of the 9 1/2%
Convertible Subordinated Debentures due 2008. At July 31, 1992, $46,883,000 had
been outstanding. Of that amount, $46,180,000 converted into shares of common
stock at a price of $31 per share. The remaining $703,000 were redeemed in cash.
These debentures were not common stock equivalents.
<TABLE>
<CAPTION>
For the Year Ended July 31,
--------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Shares outstanding at beginning of year 10,912,399 7,920,041 7,912,048
Averaged for dates of issuance, grants,
exercises or conversions:
Public offering, 1,500,000 shares,
March 29, 1993 576,923
Exercisable, in-the-money, stock options 16,586 15,163 1,732
Restricted shares granted, less forfeitures 2,562 1,530 2,030
Shares issued on conversion of debentures 259,856 4,275
Exercise of stock options 1,118 695 61
---------- --------- ---------
Average shares outstanding 10,932,665 8,774,208 7,920,146
---------- --------- ---------
---------- --------- ---------
Income before gain on sales of investments $21,756,629 $16,613,020 $14,595,009
---------- ---------- ----------
---------- ---------- ----------
As computed $1.99 $1.89 $1.84
---- ---- ----
---- ---- ----
Net gain on sales of investments $548,334 $9,869,239 $5,696,606
------- --------- ---------
------- --------- ---------
As computed $.05 $1.13 $.72
--- ---- ---
--- ---- ---
Primary earnings per share amount $2.04 $3.02 $2.56
---- ---- ----
---- ---- ----
-30-
<PAGE>
BRE PROPERTIES, INC.
COMPUTATION OF EARNINGS PER SHARE (continued)
<CAPTION>
For the Year Ended July 31,
--------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Shares outstanding at end of year 10,916,483 10,912,399 7,920,041
Exercisable, in-the-money, stock options 16,586 15,163 1,732
Assumed conversion of 9 1/2% Debentures due 2008 1,512,354
---------- ---------- ---------
Total Shares 10,933,069 10,927,562 9,434,127
---------- ---------- ---------
---------- ---------- ---------
Income before gain on sales of investments $21,756,629 $16,613,020 $14,595,009
Add interest on 9 1/2% Debentures due 2008 3,472,991 4,498,237
---------- --------- ---------
$21,756,629 $20,086,011 $19,093,246
---------- ---------- ----------
---------- ---------- ----------
As computed $1.99 $1.84 $2.02
---- ---- ----
---- ---- ----
Net gain on sales of investments $548,334 $9,869,239 $5,696,606
------- --------- ---------
------- --------- ---------
As computed $.05 $.90 $.60
--- --- ---
--- --- ---
Fully diluted earnings per share - as computed $2.04 $2.74 $2.62
---- ---- ----
---- ---- ----
Fully diluted earnings per share - as reported $2.04 $2.74 $2.56
---- ---- ----
---- ---- ----
</TABLE>
-31-
<PAGE>
BRE PROPERTIES, INC. Annual Report
1994
[Logo]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years ended July 31
-------------------------------------
(Dollar amounts in thousands, except per share data) 1994 1993 1992
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues............................................. $ 53,579 $ 44,695 $ 39,639
Funds from operations................................ $ 28,431 $ 22,116 $ 19,224
Net income........................................... $ 22,305 $ 26,482 $ 20,292
Real estate portfolio at cost........................ $ 326,628 $ 284,134 $ 221,965
Per share:
Income before gain on sales of investments...... $ 1.99 $ 1.89 $ 1.84
Net gain on sales of investments................ .05 1.13 .72
------ ------- ------
Net income...................................... $ 2.04 $ 3.02 $ 2.56
------ ------- ------
------ ------- ------
Dividends....................................... $ 2.40 $ 2.40 $ 2.40
Weighted average shares outstanding.................. 10,933 8,774 7,920
</TABLE>
CONTENTS
Message to the Shareholders 2
Investment Portfolio 14
Estimated Current Fair Value 17
Financial Statements 18
Selected Financial Data 27
Management's Discussion 28
General Information 31
Officers 32
Directors 33
Cover: Scottsdale Cove, Scottsdale, Arizona
<PAGE>
WASHINGTON
SEATTLE AREA
694 APARTMENT UNITS
1 OTHER PROPERTY
OREGON
PORTLAND
354 APARTMENT UNITS
CALIFORNIA
SACRAMENTO
400 APARTMENT UNITS
SAN FRANCISCO BAY AREA
3,897 APARTMENT UNITS
1 SHOPPING CENTER
8 OTHER PROPERTIES
LOS ANGELES
1 SHOPPING CENTER
1 OTHER PROPERTY
SAN DIEGO AND ORANGE COUNTY
1,592 APARTMENT UNITS
3 OTHER PROPERTIES
ARIZONA
SCOTTSDALE AND PHOENIX
316 APARTMENT UNITS
2 SHOPPING CENTERS
BRE PROPERTIES, INC. is a self-administered equity real estate investment trust
which owns and operates garden apartments, shopping centers and other
income-producing properties in California, Washington, Oregon and Arizona. At
fiscal year-end, the equity portfolio included 34 properties totaling 8.0
million square feet. The principal objective of the company is to produce
capital appreciation and dividends for its shareholders. BRE selectively
acquires, aggressively manages and frequently improves properties to accomplish
this goal.
Operating under federal tax laws and regulations governing real estate
investment trusts, the company is able to distribute income to shareholders
without a federal tax liability to the company.
BRE has paid quarterly dividends to its shareholders continuously since the
company commenced operations in 1970. Its shares are traded on the New York
Stock Exchange under the symbol BRE.
<PAGE>
MESSAGE TO THE SHAREHOLDERS
Fiscal 1994 was a year of accomplishment, a year which saw the beginning of a
positive turn in the California economy, and a year of building for stronger
growth in the future. Funds from operations, the key measure of operating
performance, rose 29% to a record $28.4 million in fiscal 1994 from $22.1
million a year ago. On a per share basis, funds from operations grew 3% to $2.60
from $2.52 last year.
Five apartment communities were acquired during the year for an investment
of $46 million. The expansion of our Scottsdale, Arizona apartment community,
begun in midyear, is nearing completion. Also we reached agreement for the
purchase of seven apartment properties in Tucson, Arizona for $51.8 million.
With this acquisition, the number of wholly owned apartment units will rise to
5,235 and when combined with land leased apartment units will total 8,554.
The expansion of our apartment portfolio has increased total revenue, which
climbed 20% to $53.6 million in fiscal 1994. Rental income, which
comprises 96% of total revenue, rose 21%. This increase reflects a $13.2
million contribution from newly acquired apartment communities, with rent
collections from core apartments (those owned for two years or longer) growing
by only 2.2%.
Occupancy levels of the apartment portfolio remain high. At fiscal
year-end, the occupancy of all apartment communities averaged 95%. However,
occupancy at commercial properties declined from 89% last year to 72% at fiscal
year-end. With improving market conditions and an aggressive leasing strategy,
we look for better occupancy in our commercial properties during the coming
year.
In keeping with our investment strategy, two properties, James Center
Office Building and Eastside Industrial, were sold in the fourth quarter. The
sale of another,
FROM LEFT, EUGENE P. CARVER, CHAIRMAN AND
ARTHUR G. VON THADEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
SCOTTSDALE COVE, A HIGH AMENITY, 200-UNIT GARDEN
APARTMENT COMMUNITY IN SCOTTSDALE, ARIZONA.
BRE'S ACTIVE ROLE CONTRIBUTES TO THE PROPERTY'S TENANT
APPEAL, HIGH OCCUPANCY AND ECONOMIC SUCCESS.
3
<PAGE>
Marymoor Warehouse, is expected to close during the current quarter.
BRE EXPANDS IN SAN DIEGO MARKET
In fiscal 1994, BRE invested $46 million in the acquisition of garden apartments
totaling 848 units in the San Diego area. In the first quarter, we acquired
three apartment communities with a total of 472 units in Mira Mesa, a
master-planned residential community north of San Diego. Later in the year, we
acquired Winchester, a 144-unit property adjacent to the Mira Mesa properties,
and Terra Nova Villas, a 232-unit apartment community in Chula Vista, south of
San Diego. BRE now owns apartment communities in the San Diego area totaling
1,320 units.
San Diego is among the six largest U.S. cities in terms of land area and,
with approximately 2.6 million residents, ranks 15th in population. It is one
of California's three major port complexes and gateways to the Pacific Rim. The
region's proximity to Mexico also provides potential economic benefits
associated with the North America Free Trade Agreement (NAFTA). Its acclaimed
university research programs serve as a beacon for science and technology
industries, and the area boasts the nation's fourth largest concentration of
biotechnology companies.
ACTIVE OWNERSHIP AND MANAGEMENT
BRE's approach to the ownership of real estate is to take an active role in the
operations of its properties. For each newly acquired property, we formulate a
strategy designed to maximize the long-term economic performance of the asset.
This may include property rehabilitation, replacement of management, revision
and enforcement of tenant regulations, and implementation of new procedures and
controls.
On an ongoing basis, working closely with the property manager, we develop
and supervise capital improvement activities, budgets, marketing strategies, and
accounting and insurance matters. We also review our property management
practices on a regular basis. While the question of internalizing the property
management function is considered periodically, we have
THE DEVELOPMENT OF
116 APARTMENT UNITS ON
LAND ADJACENT TO SCOTTSDALE
COVE REPRESENTS AN ALTERNATIVE
MEANS FOR BRE TO EXPAND ITS
APARTMENT PORTFOLIO. AMID
STRONG LEASING DEMAND,
NEW TENANTS NOW OCCUPY
THE FIRST COMPLETED UNITS.
4
<PAGE>
5
<PAGE>
found that the retention of selected property management firms, versus
internally staffing the function, best serves our needs at this time. This
practice allows us to take advantage of the competitive environment for property
management services to gain cost and quality advantages not generally available
to us due to BRE's limited property holdings in a given geographic area. In the
final analysis, of course, it is the overall performance of our professional
property managers which counts the most. In this regard we have been well
served by a small number of dedicated, effective and thoroughly professional
management firms.
The success of BRE's approach is evidenced by the operating performance of
properties acquired over the last two years and owned for at least one year. In
this category are Scottsdale Cove in Scottsdale, Arizona; Montanosa in San
Diego, California; Brookdale Glen in Portland, Oregon; and Verandas in Union
City, California. From an average debt-free and stabilized yield of 8.6% at
purchase the yield grew to 9.4% for the 12 months ended July 31, 1994.
Scottsdale Cove was a newly constructed, 200-unit apartment community with
65% occupancy when BRE acquired it. Our major challenge was to increase
occupancy and to minimize seasonal vacancies caused by winter visitor tenants.
BRE successfully positioned the property as a year-round residence. Its average
occupancy for the past two fiscal years was 90% in 1993 and 96% in 1994.
Building on the success of Scottsdale Cove, we purchased an adjacent
seven-acre parcel of land in early fiscal 1994 and began development of an
additional 116 units. Their completion is expected in October 1994 with rent
levels exceeding our pro forma projection by 10%.
Montanosa, our largest single wholly owned apartment community, is a
condominium quality complex situated on 26 acres. At the time of its purchase,
the property was not performing to its quality, location and potential. We
introduced a professional staff, increased training and enhanced the general
appeal of the property. Montanosa's occupancy at the close of the fiscal year
was 95%, its average occupancy over the year was 94%, and its net operating
income was up 7% from its annualized fiscal 1993 result.
THE HUB SHOPPING CENTER IN
NORTHERN CALIFORNIA ADDED SEVERAL
LARGER-SPACE TENANTS SUCH AS
TRADER JOE'S, MICHAEL'S ARTS & CRAFTS
AND OLD NAVY DURING THE YEAR.
6
<PAGE>
7
<PAGE>
Brookdale Glen was underperforming at the time of purchase as a result of
deferred maintenance and high management turnover. BRE replaced the management
and leasing staff, initiated new marketing programs, and invested $700,000 to
improve the property's condition. As a result, net operating income rose 10% in
fiscal 1994 from the acquisition budget.
Verandas was purchased out of bankruptcy at a price 25% below its estimated
cost of replacement. BRE revamped the property's operations, replaced
management, and erected an electronic entry and security system. Occupancy,
which was 86% at the time of purchase, was raised to 98% by the end of fiscal
1994, and annualized net operating income has been increased by 6%.
SHOPPING CENTERS
BRE's retail portfolio includes four shopping centers which constituted
15% of the portfolio's estimated value at fiscal year-end.
In Northern California, The Fremont Hub is our largest single investment.
The Hub began fiscal 1994 at 93% occupancy but the failure of several small
tenants dropped occupancy to 88% by mid-year. However, by early spring the
tenant demand for space contributed 45,000 square feet of new tenant leases
which are expected to increase occupancy to 95% early in the year. The new
tenants include Old Navy, a part of The Gap's retail operation; Trader Joe's, a
specialty food chain with 60 stores in Arizona and California; Country Harvest
Buffet, backed by Heller International, with 20 restaurants in the western
United States; and Michael's Arts & Crafts, with over 200 stores throughout the
United States.
In Southern California, BRE's 125,000 square foot El Camino Shopping Center
in Woodland Hills was shaken by the Los Angeles earthquake of January 1994.
Several stores were damaged, but most reopened for business within three days.
Returning El Camino to full operation involves stabilizing portions of the soil
beneath the center and repairing structurally damaged buildings. We are
completing an evaluation of the damage and negotiating with the carrier of BRE's
earth-
8
<PAGE>
TERRA NOVA VILLAS, A 232-UNIT APARTMENT COMMUNITY
SOUTH OF SAN DIEGO IN CHULA VISTA. DURING FISCAL 1994,
BRE ADDED 848 APARTMENT UNITS TO ITS SAN DIEGO HOLDINGS,
INCREASING THE TOTAL TO 1,320 UNITS DISTRIBUTED AMONG
SIX APARTMENT COMMUNITIES.
9
<PAGE>
quake insurance. Work to restore the center will begin in the first quarter of
fiscal 1995.
OTHER INCOME-PRODUCING PROPERTIES
At the beginning of fiscal 1994, seven of BRE's 10 light industrial properties
were fully occupied. The three vacant properties represented 179,000 square feet
of the total 588,000 square foot light industrial portfolio. During the year, we
signed a five-year lease for 66% of the 86,000 square foot 525 Almanor building
and a six-year lease for the 64,000 square foot Fremont 3 building. We also
signed new leases or lease extensions with tenants at six other light industrial
buildings and sold one fully occupied property (Eastside Industrial). However,
one building, the 50,000 square foot Irvine Spectrum (formerly Life Fitness) was
vacated by its tenant prior to lease expiration. Thus as fiscal 1995 begins, we
have nine light industrial properties, two of which are vacant (79,000 square
feet) and one partially vacant (29,000 square feet).
Early in fiscal 1994, the tenant of our large warehouse/distribution
facility in Pomona, California discontinued business and vacated the property. A
financial settlement with the tenant was reached during the year, and a
top-to-bottom rehabilitation of the property has since been completed.
APARTMENT ACQUISITIONS IN TUCSON
Over the last quarter we conducted an intensive evaluation and analysis of a
large portfolio of apartment properties located in Tucson, Arizona. The original
portfolio included 3,795 units in 18 separate apartment communities. We selected
seven properties totaling 1,301 apartment units for purchase. Their total cost
will be $51.8 million. Of the seven, six are secured by long-term fixed-rate
mortgages; one is debt free. Accordingly, BRE's net cash investment when the
properties are acquired during the first quarter of fiscal 1995 will be
approximately $23.5 million. The initial debt-free yield expected from this
portfolio acquisition is projected to be 9%, and with the mortgage debt
included, BRE's projected equity yield should exceed 10%.
DURING FISCAL 1994,
BRE EXPANDED ITS PRESENCE
IN THE SAN DIEGO MARKET.
THE ACQUISITION IN MIRA MESA
OF FOUR ADJACENT GARDEN
APARTMENT COMMUNITIES
PROVIDES BRE WITH ECONOMIES
OF SCALE IN PROPERTY MANAGE-
MENT AND OPERATIONS.
10
<PAGE>
11
<PAGE>
While BRE has invested in Arizona for more than two decades, we have no
properties in Tucson. Prior to underwriting this portfolio, we undertook a
comprehensive analysis of both the Arizona and Tucson markets. Their dynamics
suggest that a period of sustained growth lies ahead.
Between 1980 and 1989, Arizona's population grew 43.4%, more than four
times the 9.6% rate of growth for the nation as a whole. With a 2.2% average
annual gain in population over the past five years, Arizona's population topped
four million residents at the end of 1993. The state's job growth over the next
two years is expected to average 4%.
The outlook for Tucson is very positive. New firms specializing in health
care, optics, environmental technology, software development and aerospace are
among the wide variety of businesses that add depth to Tucson's economy.
Helping the region's economy is the presence of the University of Arizona.
Ranking among the top ten U.S. public institutions in research funding, it is an
acknowledged leader
FROM LEFT: TOP ROW: JEFF J. JELNIKER, EMILY A. SHAVER, JANE E. MAUSHARDT AND
SANDRA K. LIMAS
SECOND ROW: THOMAS R. FALL, LAUREN L. BARR, JANE LEW, ELLEN G. BRESLAUER AND
JAMES BAILEY
THIRD ROW: PATRICIA SMITH, MICHELE R. LYDEN, RONALD P. WARGO AND BRUCE E.
RUEPPEL
FRONT ROW: HOWARD E. MASON, JR., ELEANOR M. DEMARTINI, CAROL A. CARROLL, NANCY
T. TAM AND BYRON M. FOX
12
<PAGE>
in studies of astronomy, optical sciences, scientific instrumentation and
electronics. Its medical center is one of only nine heart transplant centers in
the nation.
FINANCING
With the conversion last year of the 9 1/2% debentures due 2008 and the public
sale of new equity, BRE's balance sheet remains among the strongest in the real
estate investment trust industry. Our only debt is in non-recourse, fixed-rate
mortgages.
To improve our ability to take advantage of attractive investment
opportunities we arranged two-year unsecured credits from our line banks for $30
million. These credit lines are available for acquisitions as well as other
capital needs. They provide the flexibility to make acquisitions with short-term
borrowed funds which later would be replaced with long-term funds at a time of
our choosing.
LOOKING AHEAD
Moving into the new year, we will concentrate on integrating the recent
acquisitions into our operations and improving their performance. In the San
Diego market, the large number of units owned by BRE provides economies of scale
in management and leverage in the purchase of goods and services. The same
should hold true in Tucson.
The search for new investment opportunities continues. Overall, the
economies of the Western states, including California, are evidencing
improvement following a long recession. The UCLA Business Forecasting Project
notes that California is no longer in recession, and by 1995, the recovery will
be visible in employment, personal income and retail spending.
Finally, we want to note that the accomplishments of the past year are the
result of the hard work and dedication of BRE's directors, officers and staff.
An improving economic climate, strong occupancy and minimal new apartment
construction: these are the ingredients which we believe will contribute to new
records ahead.
Sincerely,
/s/ Eugene P. Carver
Eugene P. Carver
Chairman
/s/ Arthur G. von Thaden
Arthur G. von Thaden
President & Chief Executive Officer
August 29, 1994
13
<PAGE>
REAL ESTATE PORTFOLIO
BRE Properties, Inc.
WHOLLY OWNED REAL ESTATE
<TABLE>
<CAPTION>
Apartment Year Mortgages
July 31, 1994 (Dollar amounts in thousands) Units Occupancy Purchased Cost Payable
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APARTMENTS
Montanosa, San Diego, California . . . . . . . . . . . . . . . 472 95% 1992 $ 30,198 $ 17,268
Mira Mesa, San Diego, California (Cimmaron, Hacienda, Westpark) 472 95 1993 24,492 13,517
Selby Ranch, Sacramento, California. . . . . . . . . . . . . . 400 94 1986 21,230 12,954
Parkwood, Mill Creek, Washington . . . . . . . . . . . . . . . 240 90 1989 19,791
Shadowbrook, Redmond, Washington . . . . . . . . . . . . . . . 352 97 1987 16,392
Verandas, Union City, California . . . . . . . . . . . . . . . 282 98 1993 16,227
Terra Nova Villas, Chula Vista, California . . . . . . . . . . 232 97 1994 14,652 9,182
Brookdale Glen, Portland, Oregon . . . . . . . . . . . . . . . 354 94 1993 13,985
Scottsdale Cove, Scottsdale, Arizona . . . . . . . . . . . . . 200 95 1992 11,586
Expansion under development . . . . . . . . . . . . . . . 116 1993 4,451
Sharon Green, Menlo Park, California . . . . . . . . . . . . . 296 94 1971 7,221 19,649
Winchester, San Diego, California. . . . . . . . . . . . . . . 144 96 1994 7,431
Citywalk, Seattle, Washington. . . . . . . . . . . . . . . . . 102 97 1988 5,399
Village Green, La Habra, California. . . . . . . . . . . . . . 272 95 1972 3,180
----- -------- --------
Apartment Total . . . . . . . . . . . . . . . . . . . . . 3,934 $196,235 $ 72,570
----- -------- --------
----- -------- --------
</TABLE>
GROSS RENT FROM EQUITY INVESTMENTS
(Dollars in millions)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Apartments 19.6 20.8 22.1 27.2 36.5
Shopping Centers 8.5 8.8 8.8 8.7 8.6
Other 9.0 8.8 7.5 7.4 6.8
WHOLLY OWNED APARTMENT UNITS 1662 1662 1862 2970 3934
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Square Year Mortgages
July 31, 1994 (Dollar amounts in thousands) Feet Occupancy Purchased Cost Payable
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHOPPING CENTERS
The Hub, Fremont, California . . . . . . . . . . . . . . . . . 490,000 89% 1973 $ 39,825
El Camino, Woodland Hills, California. . . . . . . . . . . . . 125,000 89 1971 14,299 $ 1,374
------- -------- --------
Shopping Center Total . . . . . . . . . . . . . . . . . . 615,000 54,124 1,374
------- -------- --------
------- -------- --------
OTHER
Pomona Warehouse, Pomona, California . . . . . . . . . . . . . 358,000 0 1986 13,198
Sorrento Technology, San Diego, California . . . . . . . . . . 93,000 100 1989 10,036
LSI Logic, Fremont, California . . . . . . . . . . . . . . . . 74,000 100 1982 5,886
Fremont 3, Fremont, California . . . . . . . . . . . . . . . . 64,000 100 1982 5,839
Westridge, San Diego, California . . . . . . . . . . . . . . . 52,000 100 1985 5,478
Irvine Spectrum, Irvine, California. . . . . . . . . . . . . . 50,000 0 1987 5,443
Oak Creek II, Milpitas, California . . . . . . . . . . . . . . 40,000 100 1984 4,912
525 Almanor, Sunnyvale, California . . . . . . . . . . . . . . 86,000 66 1971 4,245
Peppertree Warehouse, Hayward, California. . . . . . . . . . . 54,000 100 1981 3,875
Oak Creek I, Milpitas, California. . . . . . . . . . . . . . . 30,000 100 1984 3,232
Marymoor Warehouse, Redmond, Washington. . . . . . . . . . . . 60,000 100 1984 2,358
Santa Clara County Office, Mountain View, California . . . . . 27,000 100 1972 1,284
515 Ellis, Mountain View, California . . . . . . . . . . . . . 29,000 0 1973 1,049
--------- --------
Other Total . . . . . . . . . . . . . . . . . . . . . . . 1,017,000 66,835
--------- --------
--------- -------- -------
TOTAL WHOLLY OWNED REAL ESTATE . . . . . . . . . . . . . . . . $317,194 $73,944
-------- -------
-------- -------
</TABLE>
GEOGRAPHIC DISTRIBUTION
California . . . . . . . . . . . . . . . 77%
Washington . . . . . . . . . . . . . . . 14
Arizona. . . . . . . . . . . . . . . . . 5
Oregon . . . . . . . . . . . . . . . . . 4
---
100%
---
---
[Graphic]
MORTGAGE LOANS PAYABLE $73.9
SHAREHOLDERS' EQUITY, $337.0
AT MARKET
(based on $30.88 per share stock price)
CAPITALIZATION
At July 31, 1994 (In millions)
15
<PAGE>
LAND OWNED AND LEASED TO OTHERS
<TABLE>
<CAPTION>
Apartment Year
July 31, 1994 (Dollar amounts in thousands) Units Occupancy Purchased Cost
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APARTMENTS
Westlake Village, Daly City, California. . . . . . . . . . . . 2,983 95% 1972 $ 7,425
Villa Serra, Cupertino, California . . . . . . . . . . . . . . 336 98 1973 900
----- -------
TOTAL LAND OWNED AND LEASED TO OTHERS. . . . . . . . . . . . . 3,319 $ 8,325
----- -------
----- -------
</TABLE>
LIMITED PARTNERSHIP INVESTMENTS IN SHOPPING CENTERS
<TABLE>
<CAPTION>
BRE Operations for the
Properties' year ended 12/31/93
Year Limited Investment -------------------------
Size of of Initial Partnership at July 31, Gross Distributions
July 31, 1994 (Dollar amounts in thousands) Property Investment Interest 1994 Revenues to Partners
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Westbar, Phoenix, Arizona.
Land under:
39 ground leases covering 89 acres,
including 2 hotels (546 rooms),
a 121,000 square foot office park
and 745,000 square feet of
retail and other buildings. 89 acres 1973 33.3% $ 685 $ 4,071* $ 5,348*
Metro Village, Phoenix, Arizona 136,000 square feet 1975 37.5 424 1,060 142
-------
TOTAL PARTNERSHIP INVESTMENTS $ 1,109
-------
-------
<FN>
*Westbar - In addition to operating distributions, $3,606 was distributed to
partners from sales of 6.7 acres of land.
</TABLE>
SUMMARY
<TABLE>
<CAPTION>
Yield
--------------
July 31, 1994 (Dollar amounts in thousands) Cost 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Wholly owned real estate . . . . . . . . $ 317,194
Land owned and leased to others. . . . . 8,325
Partnerships . . . . . . . . . . . . . . 1,109
---------
REAL ESTATE PORTFOLIO. . . . . . . . . . $ 326,628 12.0% 12.8%
--------- ----- -----
--------- ----- -----
</TABLE>
REVENUE BY PROPERTY TYPE
<TABLE>
<CAPTION>
For the fiscal year ended July 31 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Apartments . . . . . . . . . . . . . . . . . 70% 63% 58%
Shopping Centers . . . . . . . . . . . . . . 17 20 23
Other. . . . . . . . . . . . . . . . . . . . 13 17 19
---- ---- ----
TOTAL . . . . . . . . . . . . . . . . . 100% 100% 100%
---- ---- ----
---- ---- ----
</TABLE>
16
<PAGE>
ESTIMATED CURRENT FAIR VALUE
BRE Properties, Inc.
At July 31, 1994, the real estate portfolio had an estimated current fair value
of $442,150,000, including an estimated unrealized appreciation of
$152,270,000. If the resulting unrealized appreciation were added to
shareholders' equity, excluding intangibles, at July 31, 1994, the total would
be approximately $396,215,000, or $36.25 per share fully diluted.
THE FULLY DILUTED PER SHARE ESTIMATES FOR THE LAST TEN YEARS ARE AS FOLLOWS:
1985........... $33.75 1990........... $37.75
1986........... $34.50 1991........... $36.25
1987........... $34.75 1992........... $35.50
1988........... $35.50 1993........... $35.00
1989........... $36.75 1994........... $36.25
The annual estimate of the current fair value of real estate investments in the
portfolio is presented in order to provide supplemental information to
shareholders and the investment community. Several important factors should be
considered when reviewing the estimates, including the following:
1. The analysis reflects the estimated aggregate current fair value of the
company's investments when held by it as part of a continuing business
enterprise, with no consideration given to bulk disposition of all of the
company's assets.
2. The analysis does not give effect to taxes which might be payable by either
the company or its shareholders on gains which could be realized in the event of
actual sales of particular assets. In general, the analysis does not include an
allowance for selling or other disposition costs.
3. Although certain apartment projects may have the potential for condominium
conversion, the company's analysis does not reflect wholesale values to
condominium converters.
4. In appraising most income-producing properties, the company employed either
actual or projected stabilized net operating income based upon current and
estimated future annualized operating results. The estimated value of the
property was then derived by dividing net operating income by capitalization
rates ranging from 8.25% to 10% for apartments and 9.5% to 10.5% for other
property types, or by discounting projected future cash flows by a 13% discount
rate. The capitalization rates were based on the location, age, quality of
tenants, length of existing leases and other factors relating to the specific
property.
5. The per share information has been rounded to the nearest $.25.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- - --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartments as a percentage of 72% 66% 59% 54% 52%
estimated current fair value
</TABLE>
FUNDED INVESTMENTS BY PROPERTY TYPE
July 31, 1994
BASED ON COST
[GRAPHIC]
APARTMENT 62%
SHOPPING CENTER 17%
OTHER 21%
BASED ON ESTIMATED CURRENT FAIR VALUE
[GRAPHIC]
APARTMENT 72%
SHOPPING CENTER 15%
OTHER 13%
17
<PAGE>
BALANCE SHEETS
BRE Properties, Inc.
<TABLE>
<CAPTION>
July 31
-------------------------
(Dollar amounts in thousands) 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Equity investments in real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 325,519 $ 282,012
Less: Accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . (41,264) (37,563)
--------- ---------
284,255 244,449
Investments in limited partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,109 2,122
--------- ---------
Real estate portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,364 246,571
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,516 4,836
Allowance for possible losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000) (1,000)
--------- ---------
288,880 250,407
Cash and short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,938 45,109
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,077 4,416
--------- ---------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 322,895 $ 299,932
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,466 $ 3,988
Mortgage loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,944 46,692
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,410 50,680
--------- ---------
Shareholders' equity:
Class A common stock, $.01 par value, 50,000,000 shares authorized.
Shares issued and outstanding in 1994 - 10,916,483 and in 1993 - 10,912,399. . . . . . . . . 109 109
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,340 211,212
Undistributed net realized gain on sales of properties . . . . . . . . . . . . . . . . . . . . 34,036 37,931
--------- ---------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,485 249,252
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . . . $ 322,895 $ 299,932
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENTS OF INCOME
BRE Properties, Inc.
<TABLE>
<CAPTION>
Years ended July 31
--------------------------------------
(Dollar amounts in thousands, except per share data) 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Rental income. . . . . . . . . . . . . . . . . . . . . . . . $ 51,374 $ 42,504 $ 37,736
Interest income on short-term investments. . . . . . . . . . 845 808 565
Income from limited partnerships . . . . . . . . . . . . . . 495 603 503
Interest income on mortgage loans. . . . . . . . . . . . . . 516 548 562
Other income . . . . . . . . . . . . . . . . . . . . . . . . 349 232 273
-------- -------- --------
Total revenue . . . . . . . . . . . . . . . . . . . . . 53,579 44,695 39,639
-------- -------- --------
EXPENSES
Operating expenses of equities . . . . . . . . . . . . . . . 16,970 12,886 11,026
Interest expense . . . . . . . . . . . . . . . . . . . . . . 4,547 6,551 6,130
Provision for depreciation and amortization. . . . . . . . . 6,674 5,453 4,629
General and administrative . . . . . . . . . . . . . . . . . 3,631 3,192 3,259
-------- -------- --------
Total expenses. . . . . . . . . . . . . . . . . . . . . 31,822 28,082 25,044
-------- -------- --------
Income before gain on sales of investments . . . . . . . . . 21,757 16,613 14,595
Gain on sales of investments . . . . . . . . . . . . . . . . 626 10,966 6,330
Less: Related advisory fee. . . . . . . . . . . . . . . (78) (1,097) (633)
-------- -------- --------
Net gain on sales of investments . . . . . . . . . . . . . . 548 9,869 5,697
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,305 $ 26,482 $ 20,292
-------- -------- --------
-------- -------- --------
Net income per share:
Primary:
Income before gain on sales of investments . . . . . . . $ 1.99 $ 1.89 $ 1.84
Net gain on sales of investments . . . . . . . . . . . . .05 1.13 .72
----- ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2.04 $ 3.02 $ 2.56
----- ------ ------
----- ------ ------
Fully diluted net income . . . . . . . . . . . . . . . . . $ 2.04 $ 2.74 $ 2.56
----- ------ ------
----- ------ ------
</TABLE>
See notes to financial statements.
19
<PAGE>
STATEMENTS OF CASH FLOWS
BRE Properties, Inc.
<TABLE>
<CAPTION>
Years ended July 31
---------------------------------------
(Dollar amounts in thousands) 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,305 $ 26,482 $ 20,292
Non-cash revenues and expenses included in income:
Net gain on tax-deferred exchanges . . . . . . . . . . . . . . . . . . . (9,339) (5,411)
Net gain on other sales. . . . . . . . . . . . . . . . . . . . . . . . . (548) (530) (286)
Provision for depreciation and amortization. . . . . . . . . . . . . . . 6,674 5,453 4,629
Increase (decrease) in accounts payable and other liabilities. . . . . . . (522) 375 94
Other (increase) decrease. . . . . . . . . . . . . . . . . . . . . . . . . 311 (1,364) 111
-------- -------- --------
CASH FLOWS GENERATED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 28,220 21,077 19,429
-------- -------- --------
Cash flow from investing activities:
Equity investments:
Property purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,106) (30,149)
Subsequent improvements. . . . . . . . . . . . . . . . . . . . . . . . (229)
Apartment expansion. . . . . . . . . . . . . . . . . . . . . . . . . . (4,451)
Invested in property acquired through tax-deferred exchange:
Mortgage loan proceeds . . . . . . . . . . . . . . . . . . . . . . . . (17,500)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,556) (1,782)
Tenant improvements and lease commissions:
Shopping centers . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,224) (1,329) (1,152)
Light industrial, warehouse and office . . . . . . . . . . . . . . . . (1,642) (396) (478)
Reconditioning of light industrial and warehouse buildings . . . . . . . (838) (34) (924)
Improvements to apartments . . . . . . . . . . . . . . . . . . . . . . . (222) (71) (86)
Proceeds from the sale of property . . . . . . . . . . . . . . . . . . . 9,189
Principal payments and satisfactions on mortgage loans receivable. . . . . 320 418 246
-------- -------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . (36,203) (50,617) (4,176)
-------- -------- --------
Cash flow from financing activities:
Mortgage loans payable:
New mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 19,718 36,442
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,017) (5,147)
Other principal payments. . . . . . . . . . . . . . . . . . . . . . . . (689) (694) (848)
Net proceeds from public stock offering. . . . . . . . . . . . . . . . . 54,971
Redemption of 91/2% debentures . . . . . . . . . . . . . . . . . . . . . (703)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,200) (20,066) (19,004)
-------- -------- --------
NET CASH FLOWS GENERATED BY (USED IN) FINANCING ACTIVITIES . . . . . . . . (8,188) 64,803 (19,852)
-------- -------- --------
Increase (decrease) in cash and short-term investments . . . . . . . . . . (16,171) 35,263 (4,599)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 45,109 9,846 14,445
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,938 $ 45,109 $ 9,846
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to financial statements.
20
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY
BRE Properties, Inc.
<TABLE>
<CAPTION>
Years ended July 31
----------------------------------------
(Dollar amounts in thousands) 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . $ 109 $ 79 $ 79
Sale of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conversion of debentures . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------- --------- ---------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . 109 109 79
--------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 211,212 110,701 110,544
Sale of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,971
Conversion of debentures . . . . . . . . . . . . . . . . . . . . . . . . . 45,476 95
Restricted shares granted and stock options exercised. . . . . . . . . . . 128 64 62
--------- --------- ---------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . 211,340 211,212 110,701
--------- --------- ---------
UNDISTRIBUTED NET REALIZED GAIN ON SALES OF PROPERTIES
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 37,931 31,515 30,227
Net income for year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,305 26,482 20,292
Cash dividends paid - $2.40 per share in each year . . . . . . . . . . . . (26,200) (20,066) (19,004)
--------- --------- ---------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . 34,036 37,931 31,515
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . $ 245,485 $ 249,252 $ 142,295
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
BRE Properties, Inc.
A - ACCOUNTING POLICIES
The significant accounting policies affecting the financial statements of BRE
Properties, Inc. are summarized as follows:
INCOME TAXES - Every year since its founding in 1970, BRE has qualified as a
real estate investment trust as defined in the Internal Revenue Code. BRE
intends to continue operating as a qualified real estate investment trust, and,
as such, will not be taxed on that portion of its taxable income which is
distributed to shareholders, provided that at least 95% of its real estate
investment trust taxable income is distributed. The company intends to
distribute substantially all of its taxable income. Accordingly, no provision
for income taxes has been made in the financial statements. Under current tax
laws, distributions to shareholders are based upon taxable income, which may
differ from financial accounting income. For example, gain on sales of
investments may be reportable at the time of the sale for financial accounting
purposes but may, in certain circumstances, be deferred for tax purposes. In
addition, depreciation expense on property acquired through tax-deferred
exchanges is higher for financial statement purposes than for tax purposes.
Therefore, taxable income is higher than reportable income on such properties.
ALLOWANCE FOR POSSIBLE LOSSES - The company follows the practice of establishing
an allowance for possible losses on investments based upon management's regular
evaluation of the recoverability of each investment in the portfolio.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization on equity
investments, which are carried at cost, is computed by the straight-line method
at rates based upon the expected economic lives of the assets, which range from
35 to 45 years for buildings and 5 to 25 years for other property and lease
commissions.
EXPENSES AND CAPITALIZED COSTS - At apartments, costs of replacements, such as
appliances, carpets and drapes, are expensed. Leasing commissions and tenant
improvement costs for retail and commercial properties are expensed when the
lease term is less than five years and capitalized on leases of five years or
more. For all properties, improvements and betterments that add to the value of
the property are capitalized.
CASH AND CASH EQUIVALENTS - BRE considers cash deposits with financial
institutions and short-term investments with initial maturities of 90 days or
less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts reported in the
balance sheet for financial instruments approximate their fair values.
NET INCOME PER SHARE - Net income per share is based upon the weighted average
shares outstanding during the year. The computation of fully diluted net income
is based on shares outstanding, increased for the assumed conversion of all
dilutive debentures and a corresponding adjustment of interest expense.
B - INVESTMENTS
Fifteen wholly owned apartment communities are rented to a large number of
tenants under various operating lease agreements having expiration dates ranging
from one month to a year. The carrying value of these investments and gross rent
for the two years ended July 31, are as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . $ 37,511 $ 27,378
Improvements . . . . . . . . . . . . . . . . 158,724 117,610
--------- ---------
196,235 144,988
Less: Depreciation and amortization. . . . . (15,750) (12,253)
--------- ---------
$ 180,485 $ 132,735
--------- ---------
--------- ---------
Gross rent . . . . . . . . . . . . . . . . . $ 31,043 $ 21,139
--------- ---------
--------- ---------
</TABLE>
In September 1993, the company purchased Mira Mesa Apartments (Cimmaron,
Hacienda, Westpark), three properties totaling 472 units in San Diego,
California, for a price of $24,371,000. In March 1994, BRE purchased Winchester,
an adjacent 144-unit property for $7,400,000, bringing the total units in Mira
Mesa to 616.
In March 1994, the company also purchased Terra Nova Villas, 232 units in
Chula Vista, California. The purchase price was $14,575,000, subject to
$9,240,000 of fixed-rate (5.57%). bond financing.
In addition to these properties, which are complete and income-producing,
in October 1993, BRE purchased seven acres of undeveloped land adjacent to the
Scottsdale Cove Apartments in Scottsdale, Arizona, on which 116 units are
currently being constructed. This addition will expand the total units in the
Scottsdale Cove to 316. The estimated total cost is $6,165,000, of which
$4,451,000 had been disbursed through July 31, 1994, including $143,000 of
capitalized interest expense. A total of 32 units had been completed of which 11
were occupied at July 31, 1994. All units are expected to be completed by
October 1994.
22
<PAGE>
Subsequent to year-end, the company entered into an agreement to acquire
1,301 units in seven apartment communities in Tucson, Arizona. The purchase
price is $51,750,000, subject to $28,160,000 of first mortgage financing on six
of the properties.
Properties owned, other than wholly owned apartments, are leased to tenants
under long-term operating leases expiring in various years through 2018. The
carrying value of these properties for the two years ended July 31, is as
follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Land leases. . . . . . . . . . . . . . . . . $ 8,325 $ 8,325
Land . . . . . . . . . . . . . . . . . . . . 22,704 24,758
Improvements . . . . . . . . . . . . . . . . 98,255 103,941
--------- ---------
129,284 137,024
Less: Depreciation and amortization. . . . . (25,514) (25,310)
--------- ---------
$ 103,770 $ 111,714
--------- ---------
--------- ---------
</TABLE>
The future minimum lease payments under these operating leases at July 31, 1994
are as follows:
1995 . . . . . . $ 10,809,000
1996 . . . . . . $ 10,704,000
1997 . . . . . . $ 9,531,000
1998 . . . . . . $ 7,472,000
1999 . . . . . . $ 7,067,000
Thereafter . . . . . . $ 31,630,000
The operating leases on apartments which are land lease investments, and certain
leases with tenants at wholly owned shopping centers, provide for percentage
rents based upon the gross revenue of the tenants. These percentage rents are in
excess of stipulated minimums. Percentage rents under these operating leases,
which are included in rental income, amounted to:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Percentage rent
Portion attributable to:
Land leases. . . . . . . . . . . . . . . . $ 4,783 $ 4,682 $ 4,595
Wholly owned real estate . . . . . . . . . 285 374 388
Properties sold. . . . . . . . . . . . . . 279 989
------- ------- -------
Total percentage rent. . . . . . . . . . . . $ 5,068 $ 5,335 $ 5,972
------- ------- -------
------- ------- -------
</TABLE>
Westlake Village Apartments accounted for approximately 10% (1994), 12% (1993)
and 13% (1992) of total rents.
C - LINES OF CREDIT
At July 31, 1994, two banks had extended to the company unsecured lines of
credit aggregating $30,000,000 and maturing November 30, 1995. No borrowings
under these lines of credit were outstanding during the fiscal year. In
connection with these arrangements, a fee is charged on the committed amount.
D - LONG-TERM DEBT
The company has acquired certain equity investments which are subject to
existing mortgage loans payable and has obtained mortgage loans on other equity
investments. The following data pertain to mortgage loans payable at July 31:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans payable . . . . . . . . . . . $ 73,944 $ 46,692
Cost of equity investments securing
mortgage loans payable . . . . . . . . . . $ 119,523 $ 76,577
Annual principal and interest payments . . . $ 6,574 $ 4,326
Remaining terms of mortgage
loans payable. . . . . . . . . . . . . . . 1-11 YEARS 4-23 years
Effective interest rates . . . . . . . . . . 5.6-8.4% 7-8.4%
</TABLE>
Scheduled principal repayments required on mortgage loans payable for the next
five years are as follows:
1995. . . . . $ 10,133,000
1996. . . . . $ 1,021,000
1997. . . . . $ 1,110,000
1998. . . . . $ 2,075,000
1999. . . . . $ 1,151,000
Interest expense on mortgage loans payable aggregated $4,429,000 in 1994,
$2,930,000 in 1993 and $1,532,000 in 1992.
For fiscal 1992, the company had outstanding 9 1/2% Convertible
Subordinated Debentures due 2008. In April 1993, the company called the
Debentures. Holders of $46,180,000 face value chose to convert their debentures
into 1,489,000 shares of stock at a price of $31 per share. The remaining
$703,000 was redeemed in cash in June 1993.
Total interest paid on long-term debt did not differ materially from
interest expense.
23
<PAGE>
E - STOCK OPTION PLAN
The 1984 and 1992 Stock Option Plans ("Plans") provide for the issuance of
Non-Qualified Stock Options, Incentive Stock Options and Restricted Shares. The
maximum number of shares that may be issued under the Plans is 675,000. The
option price may not be less than the fair market value of a share on the date
that the Option is granted. Changes in options outstanding during the years
ended July 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . 187,020 157,850 123,500
Granted. . . . . . . . . . . . . . . . . . . 56,500 56,000 49,500
Exercised. . . . . . . . . . . . . . . . . . (1,920) (19,830) (15,150)
Canceled . . . . . . . . . . . . . . . . . . (2,000) (7,000)
------- ------- -------
Balance at end of year . . . . . . . . . . . 239,600 187,020 157,850
------- ------- -------
------- ------- -------
Exercisable. . . . . . . . . . . . . . . . . 156,100 110,020 90,250
------- ------- -------
------- ------- -------
Restricted Shares granted. . . . . . . . . . 2,850 2,000 2,200
------- ------- -------
------- ------- -------
Shares available for
granting future options. . . . . . . . . . 373,050 430,400 106,400
------- ------- -------
------- ------- -------
</TABLE>
At July 31, 1994, the price of shares under option ranged from $25.94 to
$35.19, with an average price of $31.13. Expiration dates ranged from April
22,1995 through August 30, 2003.
In addition, at July 31, 1994, 10,150 Restricted Shares were outstanding at
grant prices ranging from $25.94 to $35.19 per share.
F - SHAREHOLDER RIGHTS
On August 14, 1989, the company's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend distribution of one Right for each share of
the company's common stock outstanding on September 7, 1989.
The Rights entitle the holders to purchase, under certain conditions,
shares of common stock at a cash purchase price of $90.00 per share, subject to
adjustment. The Rights may also, under certain conditions, entitle the holders
to receive common stock, or other consideration, having a value equal to two
times the exercise price of each Right.
The Rights are redeemable by the company at a price of $.01 per Right. If not
so redeemed, the Rights expire on September 7, 1999.
G - PENSION PLAN
The company has a defined contribution profit sharing plan covering all
employees with more than one year of continuous full-time employment. In
addition to employee elective deferrals, the company currently contributes
quarterly an amount equal to 10% of the compensation expense of participating
employees. The amounts contributed were $145,000 in 1994, $113,000 in 1993 and
$120,000 in 1992.
H - LITIGATION
The company is defending various claims and legal actions that arise from its
normal course of business, 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.
I - DIVIDEND DECLARATION
On August 29, 1994, a dividend was declared of $.60 per share payable September
29, 1994 to shareholders of record September 9, 1994.
24
<PAGE>
J - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The unaudited quarterly results of operations for the years ended July 31, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
Year ended July 31, 1994
-----------------------------------------------------
Quarter ended
-----------------------------------------------------
July 31, Apr. 30, Jan. 31, Oct. 31,
(Dollars in thousands, except per share data) 1994 1994 1994 1993
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . . . . . . $ 14,370 $ 13,184 $ 13,285 $ 12,740
Income before gain on sales of investments . . . . . . 5,873 5,412 5,479 4,993
Net gain on sales of investments . . . . . . . . . . . 395 153
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 6,268 $ 5,412 $ 5,632 $ 4,993
-------- -------- -------- --------
-------- -------- -------- --------
PER SHARE
Income before gain on sales of investments . . . . . . $ .53 $ .50 $ .50 $ .46
Net gain on sales of investments . . . . . . . . . . . .04 .01
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . $ .57 $ .50 $ .51 $ .46
-------- -------- -------- --------
-------- -------- -------- --------
Year ended July 31, 1993
-----------------------------------------------------
Quarter ended
-----------------------------------------------------
July 31, Apr. 30, Jan. 31, Oct. 31,
(Dollars in thousands, except per share data) 1993 1993 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . . . . . . $ 12,702 $ 11,471 $ 10,593 $ 9,929
Income before gain on sales of investments . . . . . . 4,968 4,288 4,070 3,287
Net gain on sales of investments . . . . . . . . . . . 354 9,338 177
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 5,322 $ 4,288 $ 13,408 $ 3,464
-------- -------- -------- --------
-------- -------- -------- --------
PER SHARE
Income before gain on sales of investments . . . . . . $ .48 $ .49 $ .51 $ .42
Net gain on sales of investments . . . . . . . . . . . .04 1.18 .02
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . $ .52 $ .49 $ 1.69 .44
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
25
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
To the Shareholders of BRE Properties, Inc.:
The management of BRE Properties, Inc., is responsible for the integrity and
objectivity of the financial statements. The financial statements were prepared
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods and are free of material misstatements.
Management is also responsible for preparing the other financial information
included in this annual report and is responsible for its accuracy and
consistency with the financial statements. Both the financial statements and the
other financial information include amounts that are based on management's best
estimates and judgments.
Management maintains a system of internal accounting control designed to
provide reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization and the
financial records are reliable for preparing the financial statements and
maintaining accountability for assets. The system of internal control includes
written policies and procedures, segregation of duties, and trained and
qualified staff.
The Audit Committee of the Board is composed entirely of independent
directors and meets periodically with Ernst & Young LLP, the independent
auditors, to discuss financial reporting and internal control issues. The
independent auditors are elected each year at the annual shareholders' meeting
based on the recommendation of the Audit Committee and the Board. Ernst & Young
has full and free access to the Audit Committee.
/s/ Arthur G. von Thaden
- - -------------------------------------
Arthur G. von Thaden
President and Chief Executive Officer
/s/ Howard E. Mason, Jr.
- - -------------------------------------
Howard E. Mason, Jr.
Senior Vice President, Finance
Chief Financial and Accounting Officer
August 29, 1994
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Directors of BRE Properties, Inc.:
We have audited the accompanying balance sheets of BRE Properties, Inc., as of
July 31, 1994 and 1993, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended July 31,
1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BRE Properties, Inc. at July
31, 1994 and 1993, and the results of its operations and its cash flows for each
of the three years in the period ended July 31, 1994 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
- - -------------------------------------
Ernst & Young LLP
San Francisco, California
August 29, 1994
26
<PAGE>
SELECTED FINANCIAL DATA
BRE Properties, Inc.
<TABLE>
<CAPTION>
Years ended July 31
---------------------------------------------------------------------
(Dollar amounts in thousands, except per share data) 1994 1993 1992 1991 1990
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 53,579 $ 44,695 $ 39,639 $ 40,340 $ 43,311
Net income . . . . . . . . . . . . . . . . . . . . . . 22,305 26,482 20,292 15,342 29,509
Less: Net gain on sales of investments and
loss on extinguishment of debt . . . . . . . . (548) (9,819) (5,697) (10,434)
Nonrecurring income received . . . . . . . . . . (150) (3,424)
Plus: Provision for depreciation and amortization. . . 6,674 5,453 4,629 4,666 4,375
--------- --------- --------- --------- ---------
Funds from operations. . . . . . . . . . . . . . . . . 28,431 22,116 19,224 19,858 20,026
Dividends paid . . . . . . . . . . . . . . . . . . . . 26,200 20,066 19,004 18,989 18,931
PER SHARE DATA
Net income . . . . . . . . . . . . . . . . . . . . . . $ 2.04 $ 3.02 $ 2.56 $ 1.94 $ 3.74
Net gain on sales of investments . . . . . . . . . . . .05 1.13 .72 1.32
Dividends paid . . . . . . . . . . . . . . . . . . . . 2.40 2.40 2.40 2.40 2.40
Book value (shareholders' equity). . . . . . . . . . . 22.49 22.84 17.97 17.80 18.26
Estimated current fair value - fully diluted . . . . . 36.25 35.00 35.50 36.25 37.75
Average shares outstanding . . . . . . . . . . . . . . 10,933 8,774 7,920 7,912 7,889
FINANCIAL POSITION
Total assets . . . . . . . . . . . . . . . . . . . . . $ 322,895 $ 299,932 $ 208,882 $ 210,005 $ 214,585
Real estate portfolio. . . . . . . . . . . . . . . . . 326,628 284,134 221,965 213,871 211,168
Cash and short-term investments. . . . . . . . . . . . 28,938 45,109 9,846 14,445 9,579
Long-term debt . . . . . . . . . . . . . . . . . . . . 73,944 46,692 62,974 65,636 67,332
Shareholders' equity . . . . . . . . . . . . . . . . . 245,485 249,262 142,295 140,850 144,449
FUNDS FROM OPERATIONS AS A RETURN
ON AVERAGE SHAREHOLDERS' EQUITY. . . . . . . . . . . 11.6% 12.8% 13.5% 14.1% 13.9%
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reflecting BRE's continuing focus on apartments, the company acquired 1,956
units in eight separate apartment communities during the last two years. BRE is
also nearing completion on the development of a 116-unit addition to a property
acquired in 1992. The combined investment for these new assets totals $111
million, growing the real estate portfolio by 47%. This growth has been financed
through a combination of equity capital and long-term, fixed-rate mortgage debt.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity and capital resources include its cash and short-term
investments, long-term first mortgage debt, common stock, and funds available
through bank borrowings. At July 31, 1994, cash and short-term investments
totaled $28,938,000, compared to $45,109,000 in 1993 and $9,846,000 in 1992. The
significant sources and uses of funds during the year are discussed below, as
are cash commitments as of the date of this report.
BRE acquired the following apartment communities in the fiscal year ended
July 31, 1994:
<TABLE>
<CAPTION>
Name and Location Purchase Price
- - ----------------------------------------------------------------------
<S> <C>
Mira Mesa (Cimmaron, Hacienda, Westpark),
San Diego, California. . . . . . . . . . . . . . . . $ 24,371,000
Winchester, Adjacent to Mira Mesa. . . . . . . . . . . 7,400,000
Terra Nova Villas, Chula Vista, California . . . . . . 14,575,000
------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . $ 46,346,000
------------
------------
</TABLE>
Except for Terra Nova Villas, these properties were acquired on an all cash
basis and, since their acquisition, an additional $229,000 has been invested in
them. Terra Nova Villas was acquired subject to $9,240,000 of fixed-rate (5.57%)
bond financing, which matures in March 1995. Depending on market conditions at
that time, BRE may repay the bonds in cash, renegotiate their terms or refinance
the property with another lender.
In addition to these properties, which are complete and income-producing,
in October 1993 BRE purchased seven acres adjacent to the Scottsdale Cove
Apartments in Scottsdale, Arizona on which 116 units are currently being
constructed. This addition will expand the total units in Scottsdale Cove to
316. The estimated total cost is $6,165,000, of which $4,451,000 had been
disbursed through July 31, 1994. Final completion is expected in October 1994.
An additional $2,866,000 was invested in tenant improvements and leasing
commissions at shopping centers and other commercial properties. Properties
which were out of service and were being prepared for potential new tenants had
$838,000 invested for reconditioning costs. Also, $627,000 was expensed at nine
properties for costs which occur infrequently, such as roof replacements
($520,000). In accordance with industry practices, commencing August 1, 1994,
future roof replacements for all properties will be capitalized and depreciated
over the expected useful life. Roof repairs will continue to be expensed.
In February 1994, BRE received a $13,600,000 first mortgage loan secured by
three of the newly acquired Mira Mesa apartments. The interest rate is 7%, with
an 11-year maturity and amortization based on 25 years. In April 1994, BRE
refinanced Selby Ranch Apartments in Sacramento, California for $13,000,000,
generating $6,200,000 in new funds available for investment. The interest rate
is 7.36%, with a maturity of 11 years and three months, and amortization based
on 25 years. Depending on market conditions at the maturity dates, the
then-outstanding principal balances of $10,294,000 (Mira Mesa) and $9,827,000
(Selby Ranch) may be satisfied through, among other things, renegotiation of
terms with the existing lenders, refinancing the property with other lenders or
through a sale of assets. In August 1993, the company prepaid without penalty
two mortgage loans aggregating $1,017,000, both of which had interest rates of
9.5%. Long-term debt at July 31, 1994 consisted of $73,944,000 of amortizing
first mortgage loans with interest rates ranging from 5.57% to 8.38% and terms
ranging from 1 to 11 years.
The company maintains unsecured lines of credit of $30,000,000, which are
available to make real estate equity investments and to finance tenant
improvements at existing properties. The annual fee for the lines of credit is
$127,500. There were no borrowings outstanding under these lines of credit
during the fiscal year ended July 31, 1994.
The company has entered into an agreement to acquire 1,301 units in seven
apartment communities in Tucson, Arizona. The purchase price is $51,750,000,
subject to $28,160,000 of long-term mortgage financing on six of the properties.
Following lender approval, BRE will assume these existing mortgage loans. The
cash investment will be funded through a combination of cash, short-term
investments and unsecured borrowings under the existing lines of credit. In
connection with the purchase, the company has agreed, subject to satisfaction of
certain conditions, to provide $3,000,000 in loans to entities affiliated with
the seller.
28
<PAGE>
Cash commitments as of the date of this report also include approximately
$6,550,000 for the payment of the September 29, 1994 dividend to shareholders.
Management believes that its liquidity and financial resources are sufficient to
meet anticipated cash requirements.
RESULTS OF OPERATIONS
Funds from operations totaled $28,431,000 in fiscal 1994, compared to
$22,116,000 in 1993 and $19,224,000 in 1992. The increase in 1994 from 1993 was
primarily due to the contribution from the newly acquired apartment communities.
Dividends paid to shareholders totaled $26,200,000 in 1994, $20,066,000 in 1993
and $19,004,000 in 1992.
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. Because
income-producing properties are typically evaluated without taking into account
non-cash depreciation and amortization charges, management believes that funds
from operations is an appropriate supplemental measure of the company's
operating performance.
REVENUE
Total revenue was $53,579,000 in fiscal 1994, compared to $44,695,000 in 1993
and $39,639,000 in 1992. Rental income, 96% of the total revenue in fiscal 1994,
was $51,374,000, compared to $42,504,000 in 1993 and $37,736,000 in 1992.
Rental income from the 17 apartment communities owned at July 31, 1994 (70%
of total rental and partnership income for the year) was $36,876,000, up from
$26,885,000 in 1993 and $21,454,000 in 1992. Rental income from apartments in
the portfolio for all of fiscal 1994 and 1993 increased $499,000 (2%) in 1994
from the prior year. In addition, the new acquisitions produced rents of
$13,180,000. Apartments now comprise approximately 72% of the equity portfolio
based on estimated current fair value, up from 66% in 1993 and 59% in 1992.
Occupancy levels at apartment properties are currently 95%.
Rental and partnership income from shopping centers (17% of total rental
and partnership income) was $8,569,000 in 1994, compared to $8,749,000 in 1993
and $8,812,000 in 1992. Contributing to these results were The Hub Shopping
Center in Fremont, California (responsible for approximately 76%, 74% and 74% of
revenue from shopping centers for these years) and the El Camino Shopping Center
in Woodland Hills, California. The Hub's occupancy dropped from 93% to 88%
during the year as a result of tenant failures. Late in the year, new leases
were signed or underway with Trader Joe's, which operates 62 specialty food
markets, Old Navy (part of The Gap), Taco Bell and Styles for Less. These new
leases are expected to bring occupancy to 95% by November. At El Camino Shopping
Center, severely disrupted by the January 17, 1994 Northridge earthquake, work
will soon be underway to stabilize the soil and repair structurally damaged
buildings. Earthquake insurance is expected to cover most of the related costs.
Occupancy, which dropped from 96% to 89% during fiscal 1994, is expected to
increase gradually to 95% as improvements are completed over the coming year.
Income from other commercial properties (13% of total rental and
partnership income) was $5,539,000 for the year, compared to $7,398,000 in 1993
and $6,923,000 in 1992. Progress continues towards full occupancy of the light
industrial sector of the portfolio. During the year, our previously vacant
64,000 square foot building in Fremont, California was leased and occupied. A
new tenant occupies 56,000 square feet (66%) of the formerly vacant 525 Almanor
Building in Sunnyvale, California, and a 30,000 square foot building was
occupied in San Diego under a six-year lease. Also, three-year lease extensions
were reached with tenants in 54,000 and 74,000 square foot buildings in Hayward
and Fremont, California, respectively. Leasing activity in the light industrial
sector during the past six months has been greater than we have experienced in
the previous three years. Reflecting BRE's strategy to reduce this segment of
the portfolio, two separate sales were completed in the 1994 fiscal year: The
James Center Office Building in Bellevue, Washington, and Eastside Industrial
Park in Redmond, Washington. A modest gain was recognized on the sale of these
properties. The sales prices aggregated $9,800,000, and the cash proceeds are
now available to be invested in other properties.
During the year, the tenant at the 358,000 square foot warehouse in Pomona,
California discontinued business and vacated the premises. A financial
settlement was reached under which BRE received rents due on the lease through
July 1994, plus the costs of correcting deferred maintenance, and an adjusted
allowance for rent due after July 31, 1994. A physical rehabilitation has been
completed, including a new roof, exterior painting and interior improvements.
The property is now being marketed to prospective tenants.
29
<PAGE>
Two other properties were vacant at July 31, 1994: 515 Ellis (29,000 square
feet in Mountain View, California) and Irvine Spectrum (50,000 square feet in
Irvine, California). A lease has been signed on the Mountain View property, with
rent payments expected to commence in January 1995, following the completion of
tenant improvements. The tenant at the Irvine property vacated prior to the
October 16, 1994 lease expiration and has not paid rent since June 1994. The
property is being shown to prospective tenants.
At July 31, 1994, overall occupancy levels by types of property were as
follows:
<TABLE>
<CAPTION>
Overall occupancy as of July 31, 1994 1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
PROPERTY TYPE
Apartment Communities. . . . . . . 95% 95% 94%
Shopping Centers . . . . . . . . . 92 95 93
Other. . . . . . . . . . . . . . . 54 84 90
--- --- ---
Weighted average . . . . . . . . . 88% 93% 93%
--- --- ---
--- --- ---
<FN>
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.
</TABLE>
Interest income on short-term investments was $845,000 in 1994, compared to
$808,000 in 1993 and $565,000 in 1992. The 1994 income reflects a slightly
higher average yield this year than the last. Average investment totals were
approximately 7% lower as cash was used to purchase apartments. The yield on
short-term investments was 3.5% in 1994, compared to 3.1% in 1993 and 4.7% in
1992.
EXPENSES
Total expenses were $31,822,000 in 1994, compared to $28,082,000 in 1993 and
$25,044,000 in 1992. The largest expense category, 53% of total expenses, is
operating expenses of equity investments, which includes the direct operating
costs of properties. Operating expense of equity investments totaled $16,970,000
in 1994, compared to $12,886,000 in 1993 and $11,026,000 in 1992. Expenses rose
3% on properties owned during both 1994 and 1993. In addition, the new apartment
communities had expenses of $5,066,000 in 1994, compared to $1,384,000 in 1993.
Interest expense was down $4,547,000 (31%) in 1994 due to the June 1993
conversion of the 9 1/2% debentures into common stock. This reduction was
partially offset by interest expense on the new mortgages secured by Selby Ranch
and Mira Mesa apartments.
The non-cash depreciation charge, which rises with additions to the
company's ownership of equity investments, increased 22% in 1994 and 18% in
1993.
General and administrative expenses, which include the compensation costs
of all BRE employees, including those engaged in the management of properties,
have been relatively constant for several years, totaling $3,631,000 in 1994,
$3,192,000 in 1993 and $3,259,000 in 1992.
GAIN ON SALES
During 1994, BRE recorded gross gains on sales of $611,000 from Eastside
Industrial Park and $169,000 from the Westbar partnership sale of the Metro
Power Center, Phase IV, and a $154,000 loss on the sale of the James Center
Office Building. The net gain on all three of these transactions was $548,000,
since 10% of the gross gain was credited to the prepaid advisory fee to
BankAmerica Corporation for termination of its advisory agreement with the
company in September 1987. Originally, $4,508,000, the prepaid advisory fee had
been reduced to $1,541,000 at July 31, 1994.
The three sales during 1994 were taxable transactions, and the gain will be
distributed to the shareholders as part of the regular dividend. In addition,
the company has recorded in its financial statements gains totaling $59,784,000
which have been deferred for tax purposes during the period from BRE's 1970
inception through July 31, 1994.
NET INCOME
The company's net income for fiscal 1994 was $22,305,000 ($2.04 per share),
compared to $26,482,000 ($3.02 per share) in 1993 and $20,292,000 ($2.56 per
share) in 1992. During these years, net income included net gain on sales of
investments as follows: 1994-$548,000 ($.05 per share), 1993- $9,869,000 ($1.13
per share) and 1992-$5,697,000 ($.72 per share).
DIVIDENDS
Dividends paid to shareholders totaled $26,200,000 in 1994, representing 92% of
funds from operations. Dividends per share amount to $2.40 in fiscal year 1994,
matching the dividend levels of 1993 and 1992.
To the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will be applied in reducing the basis for the
shareholder's shares, or if in excess of such basis, will be taxed in the same
manner as gain from the sale of those shares. The table on page 31 shows the
taxability of the dividends per share.
30
<PAGE>
GENERAL INFORMATION
MARKET PRICE RANGE AND DIVIDENDS PAID PER SHARE
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1993
- - ------------------------------------------------------------ ------------------------------------------------------------
Fiscal Quarter Ended Fourth Third Second First Fiscal Quarter Ended Fourth Third Second First
July 31 Apr. 30 Jan. 31 Oct. 31 July 31 Apr. 30 Jan. 31 Oct. 31
- - ------------------------------------------------------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High $ 31.50 $ 34.25 $ 35.63 $ 35.50 High $ 36.38 $ 39.75 $ 37.25 $ 32.25
Low 30.25 30.50 33.13 33.25 Low 34.13 35.63 31.13 30.88
Dividends .60 .60 .60 .60 Dividends .60 .60 .60 .60
<FN>
- - -------------------------------------------------------------
As of July 31, 1994, there were 3,873 shareholders of record.
- - -------------------------------------------------------------
</TABLE>
TAXABILITY OF DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------- --------------- --------------- --------------- ---------------
For the fiscal year ended July 31 Dollars Percent Dollars Percent Dollars Percent Dollars Percent Dollars Percent
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ordinary Income. . . . . . . . . . . $2.08 86.7% $2.14 89.2% $1.98 82.5% $2.05 85.4% $1.99 82.9%
Capital Gain . . . . . . . . . . . . 0.09 3.7 0.06 2.5
Return of Capital. . . . . . . . . . 0.23 9.6 0.20 8.3 0.42 17.5 0.35 14.6 0.41 17.1
----- ------ ----- ------ ----- ------ ----- ------ ----- ------
TOTAL . . . . . . . . . . . . . . . $2.40 100.0% $2.40 100.0% $2.40 100.0% $2.40 100.0% $2.40 100.0%
----- ------ ----- ------ ----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------ ----- ------ ----- ------
</TABLE>
INCOME TAX INFORMATION
Following is the company's determination of the income tax status of dividends
paid during the fiscal year ended July 31, 1994. Since most shareholders pay
taxes on a calendar year basis, notice will also be sent in January 1995
identifying the characterization of dividends paid by the company during
calendar 1994.
<TABLE>
<CAPTION>
Cash
Dividends
Record Payment Paid Ordinary Capital Return
Date Date Per Share Income Gain of Capital
- - ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/10/93 9/30/93 $ .60 $ .60 $ -- $ --
12/6/93 12/23/93 .60 .60 -- --
3/11/94 3/24/94 .60 .60 -- --
6/3/94 6/23/94 .60 .28 .09 .23
----- ----- ----- -----
Total. . . . . . . . . . . . $2.40 $2.08 $ .09 $ .23
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Shareholders may wish to consult their individual tax advisors regarding the
appropriate reporting of these payments.
MARKET PRICE, BOOK VALUE AND CURRENT FAIR VALUE
[Graphic]
31
<PAGE>
SHAREHOLDER INFORMATION
The 24th annual meeting of the shareholders will be held on Tuesday,
November 22, 1994 at 2:00 P.M. in the A.P. Giannini Auditorium, Bank of America
Center, 555 California Street, San Francisco, California.
Shareholders owning shares of BRE Properties, Inc. in "street name" can be
placed on the mailing list to receive annual reports and quarterly reports
directly from the company. Please provide the shareholder's name and address,
the name of the stock brokerage firm holding the shares and the number of shares
owned. In addition, copies of the Annual Report on Form 10-K to the Securities
and Exchange Commission will be available upon shareholder request after
November 1, 1994. Either request should be sent to:
Treasurer
BRE Properties, Inc.
One Montgomery Street
Suite 2500, Telesis Tower
San Francisco, California 94104-5525
Telephone (415) 445-6530
- - -------------------------------------------------------------------------------
The shares of BRE Properties, Inc. are traded on the New York Stock Exchange
under the symbol BRE.
- - -------------------------------------------------------------------------------
TRANSFER AGENT AND REGISTRAR
Chemical Trust Company of California
Securityholder Relations Department
50 California Street, 10th floor
San Francisco, California 94111-4624
Toll-free Telephone Number 1 (800) 368-8392
Chemical maintains shareholder records and can answer questions regarding
shareholders' accounts. Shareholders wishing to transfer shares or to change the
name on a certificate should contact Chemical for instructions.
Share certificates are valuable and should be safeguarded, since replacement
takes time and requires payment by the shareholder of a surety bond premium. If
a certificate is lost, stolen or destroyed, Chemical should be notified.
Registered mail should be used whenever a certificate is mailed.
- - -------------------------------------------------------------------------------
INDEPENDENT AUDITORS
Ernst & Young LLP
- - -------------------------------------------------------------------------------
LEGAL COUNSEL
Farella, Braun & Martel
- - -------------------------------------------------------------------------------
OFFICERS
EUGENE P. CARVER, Chairman
ARTHUR G. VON THADEN, President and Chief Executive Officer
PRODUCTION AND PORTFOLIO STRATEGY
BYRON M. FOX, Executive Vice President
JANE E. MAUSHARDT, Vice President
ASSET MANAGEMENT
RONALD P. WARGO, Senior Vice President
LAUREN L. BARR, Vice President
THOMAS R. FALL, Vice President
BRUCE E. RUEPPEL, Vice President
PATRICIA SMITH, Vice President
JEFF J. JELNIKER, Assistant Vice President
ELANOR M. DEMARTINI, Property Analyst
NANCY T. TAM, Property Analyst
FINANCE AND ADMINISTRATION
HOWARD E. MASON, JR., Senior Vice President, Finance
ELLEN G. BRESLAUER, Secretary and Treasurer
JAMES BAILEY, Operations Officer
32
<PAGE>
DIRECTORS
C. PRESTON BUTCHER, President and Chief Executive Officer
Lincoln Property Company N.C., Inc., Foster City, California
(Principal Business: Real Estate Development)
EUGENE P. CARVER, Chairman
Hoffman Associates Inc., Pasadena, California
(Principal Business: Real Estate Counseling and Investment)
JOHN MCMAHAN, President
McMahan Real Estate Securities, Inc., San Francisco, California
(Principal Business: Investment Management)
MALCOLM R. RILEY, Partner
Riley/Pearlman/Mitchell Company, Los Angeles, California
(Principal Business: Shopping Center Development and Management)
ARTHUR G. VON THADEN, President and Chief Executive Officer
BRE Properties, Inc., San Francisco, California
(Principal Business: Real Estate Investment)
From left: Malcolm R. Riley, Arthur G. von Thaden, Eugene P. Carver,
and C. Preston Butcher. Not pictured: John McMahan
<PAGE>
[Logo]
BRE Properties, Inc.
One Montgomery Street, Suite 2500
Telesis Tower, San Francisco
California 94104-5525
(415) 445-6530 telephone
(415) 445-6505 fax
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME OF CORPORATION STATE OF INCORPORATION
BRE Camino Seco, Inc. Delaware
BRE Colonia Del Rio, Inc. Delaware
BRE Fountain Plaza, Inc. Delaware
BRE Hacienda Del Rio, Inc. Delaware
BRE Oracle Village, Inc. Delaware
BRE Springhill, Inc. Delaware
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in Post-Effective Amendment
Number 1 to Registration Statement Number 33-5389 on Form S-8 dated May 2,
1986, of our report with respect to the financial statements and schedules
of BRE Properties, Inc. dated August 29, 1994, included in the Annual Report
on Form 10-K for the year ended July 31,1994.
Ernst & Young LLP
San Francisco, California
October 11, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-START> AUG-01-1993
<PERIOD-END> JUL-31-1994
<CASH> 28,938
<SECURITIES> 0
<RECEIVABLES> 9,593
<ALLOWANCES> (1,000)
<INVENTORY> 0
<CURRENT-ASSETS> 37,531
<PP&E> 326,628
<DEPRECIATION> (41,264)
<TOTAL-ASSETS> 322,895
<CURRENT-LIABILITIES> 3,466
<BONDS> 73,944
<COMMON> 109
0
0
<OTHER-SE> 245,376
<TOTAL-LIABILITY-AND-EQUITY> 322,895
<SALES> 53,579<F1>
<TOTAL-REVENUES> 53,579
<CGS> 16,970<F2>
<TOTAL-COSTS> 16,970
<OTHER-EXPENSES> 10,305<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,547
<INCOME-PRETAX> 21,757
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,757
<DISCONTINUED> 548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,305
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
<FN>
<F1>Rental and other revenue.
<F2>Operating expenses of equities.
<F3>Other includes 6,674 of depreciation expense.
</FN>
</TABLE>
