<PAGE>
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, 1995
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
INCORPORATION OR ORGANIZATION) NUMBER)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, California 94104-5525
- ---------------------------------------- -----------------------------
(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 5, 1995, 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 $346,976,000. At that date 10,970,865 shares were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Excerpts of the BRE Properties, Inc. Annual Report to Shareholders for the year
ended July 31, 1995 (the "Annual Report")(Exhibit 13.1 hereto) are incorporated
by reference into Parts I and II of this report.
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders of BRE Properties, Inc. to be filed within 120 days after the end
of registrant's fiscal year ended July 31, 1995 (the "Proxy Statement) are
incorporated by reference into Part III of this report.
-2-
<PAGE>
- -------------------------------------------------------------------------------
PART I
- -------------------------------------------------------------------------------
ITEM 1. BUSINESS
- ------------------
CORPORATE PROFILE
BRE Properties, Inc. ("BRE" or the "company"), a Delaware corporation, is a
self-administered equity real estate investment trust which primarily owns and
operates apartment communities in the western United States. At July 31, 1995,
BRE had ownership interests in 8,554 garden apartment units (5,235 wholly owned
and 3,319 on land leased to others) in California, Arizona, Washington and
Oregon. On that date, BRE also held ownership interests in four shopping
centers (including two held in partnerships in which the company is a limited
partner) and 11 other properties. Founded in 1970, the company has paid 100
consecutive quarterly dividends to shareholders since it commenced operations.
STRATEGIC FOCUS
The key aspects of the company's strategy include a focus on the acquisition of
multifamily properties; an accelerated, but orderly, disposition of industrial
properties; increased access to the capital markets for financing; and
the proposed internalization of property management. See "Property
Acquisitions and Dispositions", "Capital Resources" and "Employees".
STRUCTURE AND INVESTMENT POLICY
BRE 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
land and improvements, primarily in garden apartment communities 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.
-3-
<PAGE>
REVENUES AND OCCUPANCY
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, 1995.
<TABLE>
<CAPTION>
PERCENT OF REVENUES
-------------------
Overall Occupancy
Type of Property 1995 1994 1993 at July 31, 1995
- ---------------- ---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Apartments 77% 71% 63% 95%
Shopping centers 15 16 20 96
Other 8 13 17 54
--- --- --- --
100% 100% 100% 90%
--- --- --- --
--- --- --- --
</TABLE>
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.
The following properties contributed 10% or more to the company's total rental
and partnership revenues during the last three fiscal years:
<TABLE>
<CAPTION>
PERCENT OF REVENUES
-------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
The Hub Shopping Center 11% 12% 14%
Westlake Village Apartments 9 10 12
Sharon Green Apartments 8 10 11
-- -- --
28% 32% 37%
-- -- --
-- -- --
</TABLE>
PORTFOLIO AT JULY 31, 1995
At July 31, 1995, the company's portfolio of income-producing real estate
included, as a percent of cost, the following investments:
<TABLE>
<CAPTION>
PERCENT PERCENT
------- -------
NUMBER OF NUMBER OF
PROPERTIES COST PROPERTIES COST
--------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Apartments 24 68% California 25 65%
Shopping centers 4 15 Arizona 10 19
Other 11 17 Washington 3 12
Oregon 1 4
--- --- --- ---
TOTAL: 39 100% TOTAL: 39 100%
--- --- --- ---
--- --- --- ---
</TABLE>
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.
-4-
<PAGE>
PROPERTY ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
- ------------
During fiscal 1995, the company purchased the following garden apartment
communities, all located in Tucson, Arizona:
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NUMBER OF MORTGAGES INTEREST
NAME OF UNITS COST CASH ASSUMED RATE
- ----------------------- --------- ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Camino Seco Village 168 $6,695 $ - (1) $4,238 8.00%
Casas Lindas 144 7,564 7,564 - -
Colonia del Rio 176 8,868 3,558 5,310 8.00
Fountain Plaza 197 4,535 1,384 3,151 7.50
Hacienda del Rio 248 9,296 248 (1) 5,645 6.45
Oracle Village 144 6,046 1,826 4,220 7.80
SpringHill 224 8,666 3,291 5,375 8.00
------ -------- ------- -------
TOTAL 1,301 $51,670 $17,871 $27,939
------ -------- ------- -------
------ -------- ------- -------
</TABLE>
(1) The cash investments in Camino Seco Village and Hacienda del Rio do
not include $2,457 and $3,403 respectively, in proceeds from tax-
deferred exchanges for 515 Ellis, in Mountain View, California, and
Marymoor Warehouse, in Redmond, Washington.
Since their acquisition, an additional $131,000 has been invested in these
properties.
The mortgages on Fountain Plaza and Hacienda del Rio are fully amortizing, with
final maturities in 2028. The four other mortgages assumed mature in the fiscal
years 2000 and 2001, with aggregate balloon payments of $17,932,000 due at those
times. Depending on market conditions at maturity, the company may choose, among
other things, to renegotiate the terms with the existing lenders, refinance the
properties with other lenders, sell assets or repay the balloon amounts through
a public offering or private placement of debt or equity securities.
Concurrent with the purchase of these apartment communities, BRE also funded two
mortgage loans (one in November 1994 and the other in July 1995), each for
$1,500,000, aggregating $3,000,000, to entities affiliated with the seller. Each
loan bears interest at 10% for one year. One loan is secured by a second
mortgage on a 254-unit apartment project in Tucson. The second loan is secured
by a first mortgage on two parcels of undeveloped land in Tucson, plus a
personal guarantee from the principals of the borrower. Providing that no event
of default has occurred, the borrowers on each loan may request a one-year
extension, during which time the interest rate rises to 11%, and a second one-
year extension, during which time the interest rate rises to 12%.
-5-
<PAGE>
During the year ended July 31, 1995, construction was completed of a 116-unit
expansion of the 200-unit Scottsdale Cove Apartments in Scottsdale, Arizona,
bringing the total number of units to 316. The total cost of the expansion was
$6,139,000, $1,688,000 of which was invested during the year ended July 31,
1995.
DISPOSITIONS
- ------------
As the company has increased its ownership of apartment communities during
the past several years, it has gradually reduced its portfolio of light
industrial and office properties. BRE sold two such properties during fiscal
1995, Marymoor Warehouse, located in Redmond, Washington, and 515 Ellis,
located in Mountain View, California, recording gross gains on sales of
$1,389,000 and $1,244,000, respectively. Both of these transactions were
structured as tax-deferred exchanges, with the sales proceeds of $5,860,000
reinvested in the Hacienda del Rio and Camino Seco Village Apartments,
respectively.
One light industrial property, Irvine Spectrum (50,000 square feet in Irvine,
California), has been vacant since June 1994. Negotiations are underway to sell
this property during fiscal 1996, although no assurance can be given that the
sale will be consummated. In September 1995, the company completed the sale of
Pomona Warehouse (358,000 square feet in Pomona, California) which had been
vacant since December 1993. The proceeds were used for a tax-deferred exchange
into the 240-unit apartment community Newport Landing Phase I, purchased for
$9,235,000, in Phoenix, Arizona.
There are nine other light industrial and office properties, totaling 520,000
square feet, in the portfolio. Going forward, BRE intends to continue the
orderly disposition process of these properties and redeploy the proceeds to
acquire additional multifamily properties.
CAPITAL RESOURCES
The company's investments in income-producing properties may be made subject to
mortgage financing. At July 31, 1995, fourteen of the company's wholly owned
properties were subject to mortgage financing, compared to eight such properties
at July 31, 1994 and six at July 31, 1993. 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. In fiscal 1995, BRE
-6-
<PAGE>
assumed $27,939,000 of mortgage debt on six newly acquired apartment properties
in Tucson, Arizona. To further increase its access to capital markets, the
company plans to seek shareholder authorization of a new class of preferred
stock.
In addition, since its inception, the company has had unsecured lines of credit
from one or more commercial banks. Currently, there are two such unsecured lines
of credit, each with a two-year term. The two credit lines total $30,000,000 and
are available to make real estate investments and to provide working capital.
There were no borrowings outstanding under these lines of credit during the
fiscal year ended July 31, 1995. The company pays annual commitment fees for
these lines of credit. Borrowing costs are based on BRE's choice of a spread
over the interbank offered rate or the prime rate. The company is currently
negotiating an increase in the size of its lines of credit and an extension of
their two-year maturities.
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 of Notes to the Financial Statements included in the 1995 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. A prolonged economic downturn could have a material adverse
effect on the company's operations and financial condition.
-7-
<PAGE>
EMPLOYEES
As of July 31, 1995, the company had 21 employees. The company also has engaged
9 independent property management firms to manage 26 of its apartment and multi-
tenant commercial properties.
On June 5, 1995 , Arthur G. von Thaden, formerly president and chief executive
officer, became Chairman. Frank C. McDowell was named president and chief
executive officer. See "Executive Officers of the Registrant" of this report for
information regarding Mr. McDowell's experience.
To achieve the company's goal of becoming a fully integrated real estate
operating company, it intends to take steps to internalize the property
management function during fiscal 1996. These steps may include the creation
of an internal property management organization staffed by existing and newly
hired employees, on the acquisition of a multifamily portfolio accompanied by
existing property management capabilities. Currently, BRE's asset management
staff directs the operations of the properties, employing third parties to
carry out day-to-day property management activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following persons were executive officers of the company as of
September 1, 1995:
<TABLE>
<CAPTION>
Age at
Name September 1, 1995 Position(s)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Frank C. McDowell 47 President, Chief Executive Officer and Director
Arthur G. von Thaden 63 Chairman and Director
Byron M. Fox 56 Executive Vice President
Ronald P. Wargo 51 Senior Vice President
Howard E. Mason, Jr. 62 Senior Vice President, Finance
Ellen G. Breslauer 47 Secretary and Treasurer
- ---------------------------------------------------------------------------------------------
</TABLE>
Mr. McDowell was appointed to his current position on June 5, 1995, at which
time Mr. von Thaden, who had been President and Chief Executive Officer,
became chairman. Mr. Fox and Mr. Wargo were appointed to their 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:
From 1992 to 1995, Mr. McDowell was Chief Executive Officer and Chairman of
Cardinal Realty Services, Inc. ("Cardinal"), a Columbus, Ohio-based
apartment management company and owner of multifamily housing. At December
31, 1994, Cardinal ranked as the nation's 19th largest owner of apartments
and as the 15th largest apartment management company. From 1988 to 1992,
Mr. McDowell was Senior Vice President,
-8-
<PAGE>
Head of Real Estate of First Interstate Bank of Texas. Mr. McDowell holds
a Bachelor of Science Degree and a Masters of Business Administration
Degree, both from the University of Texas, Austin.
Mr. von Thaden served as Chief Executive Officer of the company and its
former advisor from inception in 1970. Mr. von Thaden became a Director in
1981. Mr. von Thaden holds a Bachelor of Arts Degree from Trinity College.
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.
Fox holds a Bachelor of Arts Degree from Colgate University and a Master
of Business Administration Degree from Harvard Business School.
Mr. Wargo, employed in 1978, 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. Wargo
holds a Bachelor of Science Degree from LaSalle College and a Master of
Business Administration Degree from Columbia University.
Mr. Mason was Senior Vice President, Finance from October 1980, and has
been chief financial and accounting officer from inception in 1970. He is
a Certified Public Accountant and served as Controller for Henry Doelger
Builder, Inc. from 1965 to 1970. Mr. Mason holds a Bachelor of Arts Degree
from Menlo College and a Master of Business Administration Degree from
San Francisco State University.
Ms. Breslauer was appointed Secretary in September 1987 after becoming
Treasurer in 1981. She was employed by the company in 1971 and is a
Certified Public Accountant. A Phi Beta Kappa graduate, Ms. Breslauer
holds a Bachelor of Arts Degree and a Master of Business Administration
from the University of California, Berkeley.
There is no family relationship among any of the company's executive
officers or Directors.
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.
-9-
<PAGE>
RECENT DEVELOPMENT
On October 11, 1995, BRE entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among BRE, Real Estate Investment Trust of
California ("REIT-Cal") and a newly-formed Maryland subsidiary of REIT-Cal
("REIT-Cal Sub"). The Merger Agreement, which has been approved by the Board
of Directors and Boards of Trustees of each of the parties, would result in
the acquisition of REIT-Cal by BRE through (i) a merger of REIT-Cal with and
into REIT-Cal Sub followed by (ii) a merger of REIT-Cal Sub with and into BRE
(the "Merger"). Following consummation of the Merger, it is contemplated
that BRE would change its state of corporate domicile from Delaware to
Maryland.
Under the terms of the Merger Agreement, each issued and outstanding share of
beneficial interest, without par value, of REIT-Cal would be converted into
the right to receive 0.57 (the "Exchange Ratio") of a share of BRE common
stock in a tax-free transaction. In the event that either (i) (a) the
average closing price per share of the BRE common stock as reported by the
New York Stock Exchange (the "NYSE") for the ten consecutive trading days
ending on (and including) the trading day immediately preceding the date of
REIT-Cal's stockholders meeting to consider the Merger (the "BRE Average
Price") is less than $28.575, and (b) the difference between the BRE Average
Price and the closing price of the BRE common stock on the NYSE on September
11, 1995, expressed as a percent of the closing price of the BRE common
stock on the NYSE on September 11, 1995, is at least 10% greater than the
percentage decline in the value of the NAREIT Equity REIT Index over the
period from September 11, 1995 to the trading day immediately preceding the
date of the REIT-Cal stockholders meeting to consider the Merger, or (ii) the
BRE Average Price is less than $28.07, the agreement may be terminated by
REIT-Cal unless BRE increases the Exchange Ratio so that the Exchange Ratio
as adjusted would equal a fraction the numerator of which is the product of
0.57 times (x) $28.575 in the case of a proposed termination under clause (i)
above, or (y) $28.07 in the case of a proposed termination under clause (ii)
above, and the denominator of which is the BRE Average Price.
Closing of the Merger is contingent upon, among other things, approval of the
stockholders of BRE and REIT-Cal. The Merger will be treated as a purchase
for accounting purposes. Upon the closing, Frank C. McDowell would continue
to serve as President and Chief Executive Officer of BRE. Three executives
of REIT-Cal would also be added to BRE management: Jay W. Pauly as Senior
Executive Vice President and Chief Operating Officer; LeRoy Carlson as
Executive Vice President and Chief Financial Officer; and John H. Nunn as
Senior Vice President, Property Management. In addition, three directors of
REIT-Cal would be appointed to the BRE Board of Directors, increasing BRE's
Board from six to nine members.
10
<PAGE>
ITEM 2. PROPERTIES
- ------ ----------
GENERAL
In addition to the information set forth in this Item 2, information on the
company's portfolio is set forth in Schedules III and IV under Item 14(d) of
this report. The company carries earthquake insurance on all of its properties.
The annual aggregate limits (after payment of deductibles) for flood and
earthquake coverage are $5,000,000 (in California) and $10,000,000 (outside of
California).
Apartments
As reflected in the following chart, during the five fiscal years ended July
31, 1995,apartments have increased as a percentage of the company's portfolio
of income producing properties and revenues:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Percentage of portfolio at cost 68% 62% 53% 41% 38%
Revenues generated 77% 70% 63% 58% 54%
</TABLE>
In addition, revenue from apartments in the portfolio for all of fiscal 1995 and
1994 increased $943,000 (3%) in 1995 from the prior year. Since their real
estate expenses also declined, their net operating income rose more than 6%.
The following table shows certain operating information for the company's
apartment investments owned at July 31, 1995.
-11-
<PAGE>
BRE PROPERTIES, INC.
Wholly owned apartments owned at July 31, 1995
Operating Information
<TABLE>
<CAPTION>
1995 Average Monthly
Rental Rates
Average --------------------
Approximate Unit Size Per Average
Number Rentable Area (Square Per Square Economic
Property of units (Square Feet) Feet) Unit Foot Occupancy (1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAN FRANCISCO BAY AREA,
CALIFORNIA
Sharon Green 296 321,944 1,088 $1,496 $1.38 96.2%
Verandas 282 199,152 706 815 1.15 95.6
- -------------------------------------------------------------------------------------------
SUBTOTAL 578 521,096 902 $1,164 $1.27 95.9%
- -------------------------------------------------------------------------------------------
SAN DIEGO, CALIFORNIA
Cimmaron 184 146,472 796 $672 $0.84 93.8%
Hacienda 192 148,624 774 649 0.84 95.0
Montanosa 472 352,248 746 764 1.02 94.1
Terra Nova Villas 232 185,440 799 674 0.84 91.4
Westpark 96 71,760 748 655 0.88 94.7
Winchester 144 112,744 783 672 0.86 96.2
- -------------------------------------------------------------------------------------------
SUBTOTAL 1,320 1,017,288 771 $665 $0.87 95.6%
- -------------------------------------------------------------------------------------------
TUCSON, ARIZONA
Camino Seco Village (2) 168 150,892 898 -- -- --
Casas Lindas 144 150,080 1,042 $838 $0.63 93.2%
Colonia del Rio 176 177,760 1,010 696 0.52 88.2
Fountain Plaza 197 107,294 545 377 0.52 92.5
Hacienda del Rio 248 152,504 615 417 0.51 97.9
Oracle Village 144 129,336 898 600 0.50 96.5
SpringHill 224 175,520 784 559 0.54 95.3
- -------------------------------------------------------------------------------------------
SUBTOTAL 1,301 1,043,386 802 $575 $0.52 95.8%
- -------------------------------------------------------------------------------------------
SEATTLE AREA, WASHINGTON
Citywalk 102 90,672 889 $719 $0.81 96.7%
Parkwood 240 256,256 1,068 776 0.73 93.0
Shadowbrook 352 274,504 780 659 0.84 92.1
- -------------------------------------------------------------------------------------------
SUBTOTAL 694 621,432 895 $706 $0.80 92.5%
- -------------------------------------------------------------------------------------------
SACRAMENTO, CALIFORNIA
Selby Ranch 400 396,442 991 $821 $0.83 89.7%
- -------------------------------------------------------------------------------------------
PORTLAND, OREGON
Brookdale Glen 354 271,040 766 $610 $0.80 93.5%
- -------------------------------------------------------------------------------------------
SCOTTSDALE, ARIZONA
Scottsdale Cove (3) 316 300,009 949 $755 $0.80 85.1%
- -------------------------------------------------------------------------------------------
ORANGE COUNTY, CALIFORNIA
Village Green 272 175,508 645 $633 $0.98 92.7%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL PORTFOLIO 5,235 4,346,201 830 $724 $0.81 93.9%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Average economic occupancy is defined as gross potential rent less vacancy
losses, divided by gross potential rent for the period, expressed as a
percentage.
(2) Camino Seco Village- Acquired July 28, 1995
(3) Scottsdale Cove- Expanded by 116 units during fiscal 1995, with
stabilization of occupancy achieved in February 1995.
-12-
<PAGE>
OTHER PROPERTIES
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 of Notes to the
Financial Statements included in the 1995 Annual Report, incorporated herein by
reference. At July 31, 1995, the company had approximately 119 separate leases
with approximately 116 tenants in its commercial properties. See "Certain
Significant Properties" for a discussion of The Hub Shopping Center, which has
the majority of the company's total number of tenants.
Of the company's eight fully occupied light-industrial, warehouse/distribution
and office properties, two have multiple tenants, each with one tenant occupying
more than 50% of the net rental space, and six have single tenants. During the
year, one tenant came to the end of its lease term in 31% of Westridge (52,000
square feet in San Diego, California). A different tenant occupies the remaining
69% of the property.
As discussed in "Dispositions", one light industrial property, Irvine Spectrum
(50,000 square feet in Irvine, California) has been vacant since June 1994.
Negotiations are underway to sell this property during fiscal 1996, although no
assurance can be given that the sale will be consummated.
In September 1995, the company completed the sale of Pomona Warehouse (358,000
square feet in Pomona, California) which had been vacant since December 1993.
The proceeds were used for a tax-deferred exchange into the 240-unit apartment
community Newport Landing Phase I, in Phoenix, Arizona.
HEADQUARTERS
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
For the fiscal year ended July 31, 1995, 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.
THE HUB SHOPPING CENTER
The occupancy rates at the following dates are shown below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
95% 89% 93% 91% 89%
</TABLE>
-13-
<PAGE>
The average effective annual rentals per square foot at the following dates are
shown below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1995 1994 1993 1992 1991
------ ------ ------ ----- ------
<S> <C> <C> <C> <C>
$11.15 $10.70 $10.43 $10.36 $10.49
</TABLE>
(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)
Depreciation expense is calculated using the straight-line method and a 30 year
life for the original buildings for both financial and tax reporting.
<TABLE>
<CAPTION>
REPORTABLE REAL ESTATE
(000 omitted except in realty tax rate) DEPRECIATION LIFE CLAIMED TAXES FOR THE
FEDERAL EXPENSE FOR THE FOR TAX YEAR
TAX BASIS YEAR ENDED DEPRECIATION ENDING REALTY TAX
7/31/95 (1) 7/31/95 PURPOSES 6/30/95(3) RATE (4)
-------- ------- -------- ------- --------
<C> <C> <S> <C> <C>
$30,145 $ 1,093 30 years 409 1.067%
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) BRE receives reimbursement from tenants for approximately 80% of the real
estate taxes.
(4) 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 75 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. The past several years have been
characterized by the leasing of larger spaces to more promotional credit
tenants, including Office Max, Fashion Bug, Michael's Arts & Crafts, Trader
Joe's, Country Harvest Buffet, Old Navy Clothing Co., Taco Bell and McDonalds.
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.
-14-
<PAGE>
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 50,000 1/31/97 Two 5-year options $25,000
Housewares
Safeway 48,858 10/31/04 Four 5-year options 8,001*
Groceries
General Cinema 36,437 12/31/07 Two 5-year options 43,269
8-Screen Theater
Ross Dress for Less 29,050 1/31/05 One 5-year option 10,626
Clothing
Longs Drug Store 26,584 2/28/03 Two 10-year options 4,167
Office Max 19,600 12/14/01 Two 5-year options 19,167
Office/Business Products
<FN>
* Ground lease only. The tenant owns the improvements.
</TABLE>
As of July 31, 1995, The Hub's 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>
1996 11 34,000 4%
1997 12 80,000 18
1998 7 15,000 5
1999 5 17,000 6
2000 6 60,000 13
2001 4 18,000 6
2002 6 31,000 9
2003 5 38,000 6
2004 4 42,000 9
2005 4 54,000 4
</TABLE>
-15-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
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.
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.
-16-
<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 1995 Annual Report under the caption
"Market Price Range and Dividends Paid Per Share," which information is
incorporated herein by reference to excerpts of the Annual Report. As
of July 31, 1995, there were approximately 3,608 recordholders of the
company's shares of Class A common stock.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information contained on page 26 of the 1995
Annual Report for the Selected Financial Data required by this Item,
which information is incorporated herein by reference to excerpts of
the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the information contained on pages 27-30 of the
1995 Annual Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results from Operations", which
information is incorporated herein by reference to excerpts of the
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements contained on pages 16-24
of the 1995 Annual Report, which financial statements are incorporated
herein by reference to excerpts of the Annual Report. 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.
-17-
<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
Reference is made to the information contained in Note H of Notes to
Financial Statements, on page 23 of the 1995 Annual Report under the
caption "Transactions with Related Parties", which information is
incorporated herein by reference to excerpts of the Annual Report.
-18-
<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
2.1 Agreement and Plan of Merger (1)
3.1 Restated Certificate of Incorporation(2)
3.2 By-Laws (3)
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. (4)
10.1 1984 Stock Option Plan, as amended to date (5)
10.2 1992 Employee Stock Option Plan, as amended and restated to date
10.3 1994 Non-Employee Director Stock Plan
10.4 1992 Payroll Investment Plan (5)
10.5 Form of Indemnification Agreement (6)
10.6 Employment agreement with Arthur G. von Thaden (7)
10.7 Agreement for Continuing Services with Arthur G. von Thaden
10.8 Employment agreement with Frank C. McDowell
10.9 Supplemental Executive Retirement Benefit agreement with Arthur G. von
Thaden (7)
10.10 Supplemental Executive Retirement Benefit agreement with Howard E. Mason,
Jr. (7)
10.11 BRE Properties, Inc. Retirement Plan (7)
10.12 BRE Properties, Inc. Supplemental ERISA Retirement Plan
10.13 Sublease with Wells Fargo Bank on 10,142 square feet at Suite 2500, One
Montgomery Street, San Francisco, California (7)
10.14 Form of deferred compensation agreement with Eugene P. Carver (2)
11 Computation of earnings per share
13.1 BRE Properties, Inc. excerpts of the 1995 Annual Report
21 Subsidiaries of the registrant (2)
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedules
- -------------------------
-19-
<PAGE>
(1) Incorporated by reference to the company's current report on Form 8-K
dated October 11, 1995.
(2) Incorporated by reference to the company's 1994 Annual Report on Form 10-
K filed with the Securities and Exchange Commission on October 13, 1994.
(3) Incorporated by reference to S-3 Registration Statement (No. 33-58802)
filed with the Securities and Exchange Commission on February 26, 1993,
as amended.
(4) Incorporated by reference to Exhibit 4.1 to the company's current report
on Form 8-K dated August 14, 1989.
(5) 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.
(6) Incorporated by reference to S-4 Registration Statement (No. 33-9014)
filed with the Securities and Exchange Commission on September 25, 1986,
as amended.
(7) 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.
-20-
<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, thereunto duly authorized.
BRE PROPERTIES, INC.
Dated October 24, 1995 /s/ Frank C. McDowell
---------------------
Frank C. McDowell
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/ Frank C. McDowell President and Director October 24, 1995
- ------------------------ (Principal Executive Officer)
(Frank C. McDowell)
/s/ Howard E. Mason, Jr. Senior Vice President, Finance October 24, 1995
- ------------------------ (Principal Financial and Accounting
(Howard E. Mason, Jr.) Officer)
/s/ C. Preston Butcher Director October 24, 1995
- ------------------------
(C. Preston Butcher)
/s/ L. Michael Foley Director October 24, 1995
- ------------------------
(L. Michael Foley)
/s/John McMahan Director October 24, 1995
- ------------------------
(John McMahan)
/s/ Malcolm R. Riley Director October 24, 1995
- ------------------------
(Malcolm R. Riley)
/s/ Arthur G. von Thaden Chairman and Director October 24, 1995
- ------------------------
(Arthur G. von Thaden)
All of the Directors
-21-
<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, 1995
BRE PROPERTIES, INC.
SAN FRANCISCO, CALIFORNIA
-22-
<PAGE>
Form 10-K - Item 14 (a)(1) and (2) and 14(d)
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 excerpts of the BRE
Properties, Inc. Annual Report to Shareholders for the year ended July 31, 1995.
Balance Sheets - July 31, 1995 and 1994 - page 16
Statements of Income - Years ended July 31, 1995, 1994 and 1993 - page 17
Statements of Cash Flows - Years ended July 31, 1995, 1994 and 1993 - page
18
Statements of Shareholders' Equity - Years ended July 31, 1995, 1994 and
1993 - page 19
Notes to Financial Statements - pages 20-24
Financial Statements Schedules
The following financial statement schedules are included in Item 14(d):
Schedule II Valuation and qualifying accounts
Schedule III Real estate and accumulated depreciation
Schedule IV Mortgage loans on real estate
All other schedules (I and V) 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.
-23-
<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, 1995. 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, 1995 and 1994, and the results of its operations and cash flows for
each of the three years in the period ended July 31, 1995 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 28, 1995
-24-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
July 31, 1995
(000) OMITTED
The activity in the allowance for possible investment losses for the three years
ended July 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $1,000 $1,000 $1,000
Plus: Charges to income 2,000
Less: Reductions in carrying value of investments
(1,750)
-------- -------- --------
Balance at end of year $1,250 $1,000 $1,000
-------- -------- --------
-------- -------- --------
</TABLE>
-25-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1995
(000) OMITTED
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost
Capitalized
Dates Acquired/ Buildings and Subsequent to
Name Location Constructed Land Improvements Acquisitions
- ---- -------- --------------- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Montanosa San Diego, California 1992/1989-90 $6,005 $24,065 $169
Mira Mesa San Diego, California 1993/ 4,869 19,493 133
(Cimmaron, Hacienda, Westpark) 1985-1987
Selby Ranch Sacramento, California 1986/1971-74 2,660 18,340 231
Parkwood Mill Creek, Washington 1989/1989 3,947 15,811 34
Scottsdale Cove Scottsdale, Arizona 1991-94/ 3,243 14,468 19
1992-94
Shadowbrook Redmond, Washington 1987/1986 3,605 12,709 131
The Verandas Union City, California 1993/1989 3,233 12,932 63
Terra Nova Villas Chula Vista, California 1994/1985 2,925 11,699 52
Brookdale Glen Portland, Oregon 1993/1985 2,797 11,188 58
Hacienda del Rio Tucson, Arizona 1994/1983 1,859 7,437 28
Colonia del Rio Tucson, Arizona 1994/1985 1,774 7,094 20
Spring Hill Tucson, Arizona 1994/1987 1,733 6,933 26
Casas Lindas Tucson, Arizona 1994/1987 1,513 6,051 17
Westlake Village Daly City, California 1972/1951-71 7,425
Winchester San Diego, California 1994/1987 1,482 5,928
Sharon Green Menlo Park, California 1971/1970 1,250 5,770 205
Camino Seco Village Tucson, Arizona 1995/1984 1,335 5,360
Oracle Village Tucson, Arizona 1994/1983 1,209 4,837 17
Citywalk Seattle, Washington 1988/1988 1,123 4,276 10
Fountain Plaza Tucson, Arizona 1994/1975 907 3,628 23
Village Green La Habra, California 1972/1971 372 2,763 115
Villa Serra Cupertino, California 1973/1970 900
---------- ---------- ----------
SUBTOTAL-APARTMENTS 56,166 200,782 1,351
---------- ---------- ----------
The Hub Fremont, California 1973/1961-87 5,494 5,822 30,509
El Camino Woodland Hills, California 1971/1970 1,500 10,037 3,697
---------- ---------- ----------
SUBTOTAL-SHOPPING CENTERS 6,994 15,859 34,206
---------- ---------- ----------
<CAPTION>
Gross Amount at Which Carried at July 31, 1995
----------------------------------------------
Buildings
Depreciable and Accumulated
Name Lives- Year Land Improvement Total Depreciation Encumbrances
- ---- ----------- ---- ----------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Montanosa 40 $6,005 $24,234 $30,239 $1,561 $17,105
Mira Mesa 40 4,869 19,626 24,495 897 13,303
(Cimmaron, Hacienda, Westpark)
Selby Ranch 40 2,660 18,571 21,231 4,265 12,763
Parkwood 40 3,947 15,845 19,792 2,272
Scottsdale Cove 40 3,243 14,487 17,730 859
Shadowbrook 40 3,605 12,840 16,445 2,594
The Verandas 40 3,233 12,995 16,228 730
Terra Nova Villas 40 2,925 11,751 14,676 391 9,240
Brookdale Glen 40 2,797 11,246 14,043 654
Hacienda del Rio 40 1,859 7,465 9,324 139 5,608
Colonia del Rio 40 1,774 7,114 8,888 147 5,273
Spring Hill 40 1,733 6,959 8,692 144 5,337
Casas Lindas 40 1,513 6,068 7,581 152
Westlake Village 7,425 7,425 *
Winchester 40 1,482 5,928 7,410 198
Sharon Green 45 1,250 5,975 7,225 2,935 19,372
Camino Seco 40 1,335 5,360 6,695 4,234
Oracle Village 40 1,209 4,854 6,063 101 4,188
Citywalk 40 1,123 4,286 5,409 783
Fountain Plaza 40 907 3,651 4,558 68 3,136
Village Green 45 372 2,878 3,250 1,595
Villa Serra 900 900 **
--------- --------- ---------- ---------- ----------
SUBTOTAL-APARTMENTS 56,166 202,133 258,299 20,485 99,559
--------- --------- ---------- ---------- ----------
The Hub 30-40 5,494 36,331 41,825 11,680
El Camino 40 1,500 13,734 15,234 2,130 1,269
--------- --------- ---------- ---------- ----------
SUBTOTAL-SHOPPING CENTERS 6,994 50,065 57,059 13,810 1,269
--------- --------- ---------- ---------- ----------
</TABLE>
* Subordinated land lease
** Nonsubordinated land lease
-26-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1995
(000) OMITTED
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost
Capitalized
Dates Acquired/ Buildings and Subsequent to
Name Location Constructed Land Improvements Acquisitions
---- -------- ----------- ---- ------------ ------------
Other income-producing property
<S> <C> <C> <C> <C> <C>
Pomona Warehouse Pomona, California 1986/1981 $4,077 $7,429
Sorrento Technology San Diego, California 1989/1985 4,046 5,520 $700
LSI Logic Fremont, California 1982/1982-84 1,323 2,458 2,105
Fremont 3 Fremont, California 1982/1982-84 1,128 2,096 2,529
Westridge San Diego, California 1985/1984 1,072 4,300 108
Irvine Spectrum Irvine, California 1985/1984 1,459 3,983 63
Oak Creek II Milipitas, California 1984/1980 552 4,048 238
525 Almanor Sunnyvale, California 1971/1967-92 300 1,475 2,417
Peppertree Hayward, California 1981/1981 539 2,000 1,336
Oak Creek I Milipitas, California 1984/1980 379 2,780 73
Santa Clara Office Mountain View, California 1972/1971 233 703 348
-------- --------- --------
SUBTOTAL- OTHER 15,108 36,792 9,917
-------- --------- --------
TOTAL $78,268 $253,433 $45,474
------- -------- -------
------- -------- -------
<CAPTION>
Gross Amount at Which Carried at July 31, 1995
----------------------------------------------
Buildings
Depreciable and Accumulated
Name Lives- Years Land Improvements Total Depreciation Encumbrances
---- ------------ ---- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Other income-producing property
Pomona Warehouse 40 $4,077 $7,429 $11,506 $2,204
Sorrento Technology 40 4,046 6,220 10,266 1,011
LSI Logic 35 1,323 4,563 5,886 1,614
Fremont 3 35 1,128 4,625 5,753 1,540
Westridge 35 1,072 4,408 5,480 1,071
Irvine Spectrum 40 1,459 4,046 5,505 804
Oak Creek II 35 552 4,286 4,838 1,283
525 Almanor 45 300 3,892 4,192 1,160
Peppertree 35 539 3,336 3,875 1,350
Oak Creek I 35 379 2,853 3,232 884
Santa Clara Office 45 233 1,051 1,284 595
-------- -------- -------- --------
SUBTOTAL- OTHER 15,108 46,709 61,817 13,516
-------- -------- -------- -------- --------
TOTAL $78,268 $298,907 $377,175 $47,811 $100,828
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</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
concerning encumbrances at July 31, 1995.
-27-
<PAGE>
BRE PROPERTIES INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1995
(000 OMITTED)
The activity in equity investments and related depreciation for the three years
ended July 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
EQUITY INVESTMENTS
Balance at beginning of year $325,519 $282,012 $220,577
Plus: Cash expenditures 23,515 45,712 31,979
Acquisition through tax-deferred exchanges:
Mortgage loan 17,500
Value of property exchanged 5,860 11,000
Cash 248 1,556
Assumption of bond and mortgage debt 27,939 9,240
Less: Cost of properties disposed of through tax-deferred exchanges (4,156) (600)
Properties sold (11,445)
Reduction in carrying value (1,750)
-------- -------- --------
Balance at end of year $377,175 $325,519 $282,012
-------- -------- --------
-------- -------- --------
ACCUMULATED DEPRECIATION
Balance at beginning of year $41,264 $37,563 $32,270
Plus: Provision during the year through charges to income 7,658 6,674 5,453
Less: Fully amortized leasing commissions on expired leases (74) (112) (160)
Accumulated depreciation on exchanged properties (1,037)
Accumulated depreciation on properties sold (2,861)
------- ------- -------
Balance at end of year $47,811 $41,264 $37,563
------- ------- -------
------- ------- -------
Approximate aggregate cost for federal income tax purposes $314,868 $265,735 $222,229
-------- -------- --------
-------- -------- --------
</TABLE>
-28-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
July 31, 1995
(000) OMITTED
<TABLE>
<CAPTION>
Carrying
Periodic Carrying Amount Subject to
Final Payment Amount of Delinquent Principal
Description Interest Rate Maturity Date Terms Mortgages or Interest
----------- ------------- ------------- -------- --------- --------------------
Office Building
---------------
<S> <C> <C> <C> <C> <C>
Washington 12% 1996 A $3,400
Apartments
----------
Arizona 10 1995 B 1,500
Land
----
Arizona 10 1996 B 1,500
Condominium
-----------
Tennessee 8-10 2007-2008 C 904
Other 105
----- ------
$7,409 None
------
------
</TABLE>
A Interest only is payable monthly. Principal is due at final maturity.
B Interest only is payable monthly. Principal is due at final maturity.
Provided that no event of default has occurred, the borrowers on each loan
may request a one-year extension, during which time the interest rate rises
to 11%, and a second one-year extension, during which time the interest rate
rises to 12%.
C Principal and interest are payable monthly in level amounts
-29-
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
July 31, 1995
(000) OMITTED
The activity in mortgage loans for the three years ended July 31, 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year
$4,516 $4,386 $5,254
Plus: Fundings 3,100
Less: Repayments (207) (320) (418)
-------- -------- --------
Balance at end of year $7,409 $4,516 $4,836
-------- -------- --------
-------- -------- --------
Aggregate carrying amount of mortgage loans extended or renewed $3,400 $3,400 $3,400
-------- -------- --------
-------- -------- --------
Approximate aggregate cost for federal income tax purposes $7,409 $4,516 $4,836
-------- -------- --------
-------- -------- --------
</TABLE>
-30-
<PAGE>
BRE PROPERTIES, INC.
AMENDED AND RESTATED
1992 EMPLOYEE STOCK PLAN
September 26, 1994
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN. The purpose of the 1992 Employee Stock Plan
(the "Plan") is to provide officers and other key employees of the company with
incentives to continue their employment with the company and to afford them the
opportunity to acquire a continuing stock ownership interest in the company,
thereby providing them a proprietary interest in the success of the company.
1.2 DEFINITIONS. As used in the Plan and the related Award
Agreements, the following terms will have the meanings stated below:
(a) "Award" means any Option, SAR, Shares or Restricted Shares
granted pursuant to the Plan.
(b) "Award Agreement" means the written agreement between the
company and an employee pursuant to which an Award may be granted. The
Committee shall determine the terms of each Award Agreement, subject to
the terms and conditions of the Plan.
(c) "Board" means the Board of Directors of the company.
(d) "company" means BRE Properties, Inc., a Delaware corporation.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the Compensation Committee appointed by the
Board to administer the Plan. The Committee shall consist of not less than
two members of the Board, who are not employees of the company and who are
"disinterested persons" during their period of service on the Committee,
as that term is defined in the rules and regulations promulgated by the
Securities and Exchange Commission pursuant to Section 16 of the Exchange
Act, and who are "outside
<PAGE>
directors" as that term is defined in the rules and regulations
promulgated by the Internal Revenue Service under Section
162(m) of the Code. The Board shall have the power from time to time to
add or remove members of the Committee and to fill vacancies arising for
any reason.
(g) "Exchange Act" means the Securities Exchange Act of 1934.
(h) The "Fair Market Value" of a Share on any date means the
closing price per Share on the New York Stock Exchange for that day (or,
if no Shares were publicly traded on that Exchange on that date, the next
preceding day that Shares were so traded on that Exchange).
(i) "Incentive Stock Option" or "ISO" means an Option that meets
the requirements of Section 422 of the Code.
(j) "Non-qualified Stock Option" or "NQSO" means an Option that is
not intended to qualify as an ISO.
(k) "Option" means an option to purchase Shares and shall be
either an ISO or a NQSO.
(l) "Optionee" means the holder of an Option.
(m) "Option Price" means the price to be paid for Shares upon
exercise of an Option as determined in accordance with Section 2.2.
(n) "Restricted Shareholder" shall have the meaning set forth in
Section 4.1.
(o) "Restricted Shares" means Shares issued pursuant to Article
IV.
(p) "Share Appreciation Right" or "SAR" means rights granted
pursuant to Article III.
(q) "Shares" means shares of Class A common stock, $.01 par value,
of the company.
(r) "Subsidiary" means any corporation in which the company owns,
directly or indirectly, stock possessing more than 50 percent of the total
combined voting power of all classes of stock.
2.
<PAGE>
1.3 ADMINISTRATION OF PLAN.
(a) The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall have the sole authority to
determine:
(i) The employees to whom Awards shall be granted;
(ii) The number of Shares or Restricted Shares to be covered
by an Award;
(iii) Whether and to what extent an Optionee may use
already-owned Shares in payment of the Option Price upon exercise of
Options;
(iv) Which Options granted shall be ISOs and which shall be
NQSOs;
(v) The Option Price;
(vi) The period and conditions, if any, under which each
Award shall vest or be exercisable; and
(vii) The terms and conditions of each Award Agreement between
the company and each employee.
(b) The Committee's decision construing, interpreting and
administering the Plan shall be conclusive and binding on all parties. No
member of the Committee or the Board shall be liable for any action taken
or determination made in good faith with respect to the Plan or to any
Award granted pursuant to the Plan.
1.4 ELIGIBILITY. The individuals who shall be eligible to participate
in the Plan shall be those key salaried employees, including officers and
directors if they are employees, of the company, or of any Subsidiary, as the
Committee shall determine during the period of the Plan. Awards under the Plan
may be made to the same eligible employee on more than one occasion.
1.5 TYPES OF GRANTS AND AWARDS UNDER PLAN. Awards under the Plan may
be in the form of Options, SARs, Shares and Restricted Shares. Options may be
granted with or without related SARs. SARs may be granted only with respect to a
related Option. The date of grant of an Award hereunder shall be deemed to be
the date of action by the Committee, notwithstanding that issuance may be
conditioned on the execution of an Award Agreement.
1.6 TRANSFERABILITY. Except as permitted by the Committee in
accordance with the rules and regulations promulgated under the Exchange Act
with respect to any exemption from the short swing profit provisions of Section
16(b) of that Act, Awards under the Plan
3.
<PAGE>
shall not be transferable by the holder other than by will or the laws of
descent and distribution and shall be exercisable during the holder's lifetime
only by the holder or the holder's guardian or legal representative. This
restriction shall apply to all employees receiving grants under the Plan,
whether or not the employee is subject to Section 16(b).
1.7 SHARES SUBJECT TO PLAN. The maximum number of Shares which may be
issued under the Plan shall be 375,000, subject to adjustment in accordance with
Section 6.4. In the event that any outstanding Award shall expire or terminate
for any reason, the Shares or Restricted Shares allocable to the unused or
forfeited portion of that Award may again be available for additional Awards
under the Plan. However, in the event of a surrender of an Option, or a portion
of it, for SARs, the Shares represented by the Option or that part of it which
is so surrendered shall not be available for reissuance under the Plan.
1.8 EFFECTIVE DATE AND TERM OF PLAN.
(a) The Plan, as amended hereby, shall be effective and shall be
deemed to have been amended on September 26, 1994, if within twelve months after
that date the Plan has been approved by the affirmative vote of the holders of a
majority of those outstanding shares of voting stock of the company voting in
person or by proxy at a duly held shareholder meeting.
(b) The Board may terminate the Plan at any time. If not sooner
terminated by the Board, the Plan will expire on September 27, 2002. Expiration
or termination of the Plan will not affect the validity of any Awards then
outstanding.
ARTICLE II
STOCK OPTIONS
2.1 OPTION AGREEMENTS. The grant of an Option shall be evidenced by a
written Option Agreement. Each Option Agreement shall state the number of Shares
subject to the Option, the Option Price, the option period, the method of
exercise, the manner of payment, the restrictions on transfer, and such other
terms and conditions as the Committee shall determine consistent with the Plan.
The maximum number of Shares for which Options may be granted under the Plan to
any employee in any calendar year is 100,000 Shares.
2.2 OPTION PRICE. The price to be paid for Shares upon the exercise
of an Option shall be fixed by the Committee at the time the Option is granted,
but shall in no event be less than 100% of the Fair Market Value of the Shares
on the date the Option is granted.
2.3 DURATION OF OPTION. No Option shall be exercisable after the
expiration of ten years from the date of grant.
4.
<PAGE>
2.4 DATE OF EXERCISE. Any Option may be exercised at any time
following the date of grant, in whole or in part, unless the Committee shall
otherwise provide for vesting or other restrictions under which an Option may be
exercised by the Optionee, in whole or in part. In the discretion of the
Committee, an Option may become immediately and fully exercisable upon the
occurrence of certain times or events, including, without limitation, (i) in the
event of death or permanent disability of the Optionee or (ii) upon the
occurrence of a change of control of the company. For purposes of the Plan, a
change of control shall be deemed to occur if any person or group together with
its affiliates and associates (other than the company or any of its subsidiaries
or employee benefit plans), after the effective date of the Plan, acquires
direct or indirect beneficial ownership of 32 percent or more of the then
outstanding Shares or commences a tender or exchange offer for 40 percent or
more of the then outstanding Shares. The terms "group," "affiliates,"
"associates" and "beneficial ownership" shall have the meanings ascribed to them
in the rules and regulations promulgated under the Exchange Act.
2.5 METHOD OF EXERCISE. The Committee shall establish procedures
governing the exercise of an Option consistent with the purposes of the Plan.
Such procedures may include, without limitation, delivery to the company of
written notice of exercise accompanied by payment in full of the Option Price
for the Shares to which the exercise relates and payment of any amount necessary
to satisfy any withholding tax liability that may result from exercise of the
Option.
2.6 PAYMENT OF OPTION PRICE. Upon exercise of an Option, the Option
Price for the Shares to which the exercise relates shall be paid in full in cash
or, as specified in the Option Agreement or as otherwise permitted by the
Committee at the time of exercise, (i) by delivering to the company
already-owned Shares having a Fair Market Value equal to the Option Price on the
date of exercise, (ii) by cashless exercise methods which are permitted by law,
including, without limitation, methods whereby a broker sells the Shares to
which the exercise relates or holds them as collateral for a margin loan,
delivers the Option Price to the company, and delivers the remaining proceeds to
the Optionee (and in connection therewith the company may establish a cashless
exercise program including a program where the commissions on the sale of Shares
to which the exercise relates are paid by the company), or (iii) by any
combination of cash, already-owned Shares or such cashless exercise methods
having a combined value equal to the Option Price. In the discretion of the
Committee, already-owned Shares must have been owned by the Optionee at the time
of exercise for at least the period of time specified by the Committee (which
generally shall be not less than six months). Whenever payment of the Option
Price would require delivery of a fractional Share, the Optionee shall deliver
the next lower whole number of Shares and a cash payment shall be made by the
Optionee for the balance of the Option Price.
2.7 OPTION EXERCISE LOANS. An Option Agreement may provide for the
extension of a loan from the company to the Optionee to finance exercise of the
Option. Any such loan shall have a term that does not exceed ten years, shall be
secured by a pledge of the Shares
5.
<PAGE>
acquired pursuant to exercise of the Option, shall be with full recourse against
the Optionee, shall bear interest at rates determined by the Committee, and
shall contain such other terms and conditions as the Committee shall determine
consistent with the Plan.
2.8 TERMINATION OF EMPLOYMENT. Options shall normally terminate
immediately upon termination of an Optionee's employment with the company for
any reason, or not more than three months following the date of termination if
permitted by the Committee, acting in its discretion. However, (i) if an
Optionee dies or becomes permanently disabled while in the continuous employ of
the company, the Committee may in its discretion allow the Optionee or the
Optionee's estate, personal or legal representative or beneficiary, to exercise
the Option (to the same extent the Optionee could have exercised it on the date
of death or permanent disability) for a period of up to twelve months from the
date of death or disability and (ii) if an Optionee retires at or after normal
retirement age the Committee may in its discretion allow the Optionee to
exercise the Option (to the same extent the Optionee could have exercised it on
the date of retirement) for a period of up to three years from the date of
retirement, but, in either (i) or (ii), not beyond the original option term.
ARTICLE III
SHARE APPRECIATION RIGHTS
3.1 GRANT OF SARS. Share appreciation rights may be granted in
connection with all or any part of any Option granted under the Plan. The
number of SARs granted to an Optionee shall not exceed the number of Shares
which the optionee may purchase upon exercise of the related Option. SARs
granted under the Plan shall be included in the related Option Agreement between
the company and the Optionee.
3.2 EXERCISE OF SARS. A holder of SARs may exercise such rights, in
whole or in part, in lieu of exercise of the related Option, only to the same
extent and subject to the same conditions as the related Option is then
exercisable and unexercised. At the time of exercise, the Optionee shall
surrender the Option with respect to the number of Shares equal to the number of
SARs exercised and shall receive in return the number of Shares or amount of
cash determined pursuant to Section 3.3. The number of Shares available for the
grant of future Options and SARs under the Plan shall be reduced by the number
of Shares with respect to which an Option is so surrendered. The Committee, in
its discretion, may prescribe terms, conditions and limitations on the exercise
of SARs, including, without limitation, the requirement that SARs be exercised
only during the "window period" specified in Rule 16b-3(e)(3)(iii) under the
Exchange Act (or any successor rule).
3.3 PAYMENT OF SARS. Upon exercise of SARs, in consideration of the
surrender of the related Option, the holder thereof shall be entitled to
receive, with respect to each such right, an amount equal to the excess of the
Fair Market Value of one Share at the time of exercise over the Option Price per
Share for the Shares subject to the related Option and SAR
6.
<PAGE>
being exercised. This amount shall be payable as the Optionee shall elect, in
cash, Shares or any combination of cash and Shares; provided, however, that the
Committee shall have sole discretion to consent to or disapprove any election to
receive cash in full or partial payment of such amount. If the Optionee is to
receive all or any portion of such amount in Shares, the number of Shares shall
be determined by dividing such amount or portion thereof by the Fair Market
Value of one Share at the time of exercise. If the number of Shares so
determined is not a whole number, such number shall be reduced to the next lower
whole number.
ARTICLE IV
RESTRICTED SHARES
4.1 AWARD OF RESTRICTED SHARES. The Committee may, from time to time
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, award Shares to be held under the restrictions set
forth in this Article IV to any eligible employee of the company. Upon making
such an award, the company shall cause to have Restricted Shares issued and
registered in the name of the employee to whom Restricted Shares are awarded
(the "Restricted Shareholder").
4.2 RESTRICTIONS. Restricted Shares shall be subject to forfeiture
upon such terms and conditions, e.g., continued employment and performance
goals, and to such restrictions against sale, transfer or other disposition as
may be determined by the Committee at the time Restricted Shares are awarded.
The Committee may, in its discretion, remove, modify or accelerate the release
of restrictions on any Restricted Shares, including upon a change of control as
defined in Section 2.4.
4.3 PERFORMANCE GOALS.
(a) When the Committee determines to provide for forfeiture of
Restricted Shares based on performance goals, and when in the Committee's
judgment the provisions of Code Section 162(m) may be applicable to an
Award of Restricted Stock, the Committee shall be guided by this Section
4.3. The Committee shall establish performance goals prior to the start
of the restriction period; provided that such goals may be established
after the start of the fiscal year but while the outcome of the
performance goal is substantially uncertain to the extent permitted under
proposed or final regulations issued under Section 162(m).
(b) Each performance goal shall identify one or more business
criterion that is to be monitored during the restriction period. Such
criteria may include, among other things, any of the following:
Funds from operations - per share Net income
Return on net assets Earnings per share
Operating ratios Debt reduction
7.
<PAGE>
Cash flow Return on investment
Shareholder return Revenue
Revenue growth
(c) The Committee shall determine the target level of performance that
must be achieved with respect to each criterion that is identified in a
performance goal in order for a performance goal to be treated as
attained.
4.4 FORFEITURE OF RESTRICTED SHARES. In the event of the forfeiture
of any Restricted Shares, the company shall have the right to reacquire all or
any portion of such Shares, as determined by the Committee in its sole
discretion, without the payment of consideration in any form to such Restricted
Shareholder, and the Restricted Shareholder shall unconditionally forfeit any
right, title or interest to such Restricted Shares. All forfeited Restricted
Shares shall be transferred and delivered to the company. The Committee may, in
its sole discretion, waive in writing the company's right to reacquire some or
all of a holder's Restricted Shares, whereupon such shares shall become fully
vested in such Restricted Shareholder.
4.5 ESCROW. In order to administer the provisions of this Article IV
the stock certificates evidencing Restricted Shares, although issued in the name
of the Restricted Shareholder, shall be held by the company in escrow subject to
delivery to the Restricted Shareholder upon vesting. An employee's receipt of an
award of Restricted Shares pursuant to the Plan shall constitute the grant of an
irrevocable power of attorney to the company to permit the transfer and delivery
to the company of any or all Restricted Shares which are forfeited to the
company.
4.6 DIVIDENDS ON RESTRICTED SHARES. While the Restricted Shares are
held in escrow, all cash dividends the company pays on the Restricted Shares
shall be subject to such terms, conditions and restrictions on payment as the
Committee shall determine, and shall be delivered directly to the Restricted
Shareholder, to the escrow account, or otherwise held in the manner specified by
the Committee. Share dividends or other dividends in kind on any Restricted
Shares held in escrow shall be paid into such escrow in the name of the
Restricted Shareholder and shall be subject to the same restrictions on
disposition and forfeiture provisions applicable to the Restricted Shares on
which such dividend was paid.
ARTICLE V
OTHER STOCK-BASED AWARDS
The Committee, in its discretion, may grant Awards under the Plan in the
form of Shares, either current or deferred, restricted or unrestricted, and in
tandem or combination with, or as an alternative to, any other employee
compensation plan of the company.
8.
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or messenger or
facsimile transmission, addressed
(a) if to the company, at
BRE Properties, Inc.
Telesis Tower, Suite 2500
One Montgomery Street
San Francisco, CA 94104
Attn: Treasurer
(b) If to the Award holder, at the last address shown on the
company's personnel records, or
(c) to such address as either party shall later designate by
notice to the other.
6.2 AMENDMENT OR TERMINATION. The Board may, at any time and from
time to time, modify, amend, suspend or terminate the Plan in any respect.
Amendments to the Plan shall be subject to stockholder approval to the extent
required to comply with any exemption to the short swing profit provisions of
Section 16(b) of the Exchange Act pursuant to rules and regulations promulgated
thereunder, with the exclusion for performance-based compensation under Internal
Revenue Code Section 162 (m), or with the rules and regulations of any
securities exchange on which the Shares are listed. The Board may also modify or
amend the terms and conditions of any outstanding Award, subject to the consent
of the holder and consistent with the provisions of the Plan.
6.3 LEAVE OF ABSENCE. The Committee shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence from the company taken by the recipient of any
grant under the Plan. Without limiting the generality of the foregoing, the
Committee shall be entitled to determine (a) whether or not any such leave of
absence shall be treated as a termination of employment with the company within
the meaning of the Plan and (b) the impact, if any, of any such leave of absence
on grants and awards under the Plan.
6.4 RECAPITALIZATION. In the event of any change in capitalization
which affects the Shares, whether by stock dividend, stock distribution, stock
split, subdivision or combination of Shares, reclassification, merger or
consolidation or otherwise, such proportionate adjustments, if any, as the
Committee in its discretion deems appropriate to reflect such
9.
<PAGE>
change shall be made with respect to the total number of Shares in respect of
which Awards may be granted under the Plan, the number of Shares covered by each
outstanding Award and the Option Price per Share under each Option and related
SAR; however, any fractional shares resulting from any such adjustment shall be
eliminated.
6.5 REORGANIZATION. If the company merges or consolidates with
another corporation and is not the surviving corporation, or if the company is
liquidated or sells or otherwise disposes of substantially all its assets while
unexercised Options remain outstanding under the Plan, (a) subject to the
provisions of clause (c) below, after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of any outstanding Option shall be entitled, upon exercise of an Option,
to receive, in lieu of Shares, the number and class or classes of shares of
stock or other securities or property to which the holder would have been
entitled if, immediately prior to the merger, consolidation, liquidation, sale
or other disposition, the holder had been the holder of record of a number of
Shares equal to the number of Shares as to which the Option may be exercised;
(b) the Committee may in its discretion waive any limitations set out in or
imposed pursuant to this Plan so that all Options, from and after a date prior
to the effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full; and (c) all outstanding Options which are exercisable at
any time prior to the effective date of any merger, consolidation, liquidation,
sale or other disposition may be cancelled by the Committee in its discretion,
as of such effective date.
6.6 GENERAL RESTRICTION. Each Award under the Plan shall be subject
to the requirement that, if at any time the Committee shall determine that (a)
the listing, registration or qualification of the related Shares upon any
securities exchange or under any state or federal law, (b) the consent or
approval of any government regulatory body, or (c) an agreement by the recipient
of an Award restricting disposition of Shares, is necessary or desirable as a
condition of, or in connection with, the making of an Award or the issue or
purchase of Shares thereunder, then such grant shall not be effective in whole
or in part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
6.7 WITHHOLDING TAXES. The company, with the approval of the
Committee, may, at the request of an employee, retain Shares which would
otherwise be delivered to the employee upon exercise of an Option or SAR or
vesting of Restricted Shares or other Award, to satisfy any withholding tax
liability that may result from such exercise or vesting. The Shares shall be
valued for this purpose at their Fair Market Value on the date of the exercise
or vesting, as the case may be. Whenever, under the Plan, payments by the
company are made in cash, such payments shall be net of an amount sufficient to
satisfy any federal, state and/or local withholding tax requirements.
6.8 NO RIGHT TO EMPLOYMENT. Nothing in the Plan nor in any agreement
entered into pursuant to the Plan shall confer upon any Award holder the right
to continue in the
10.
<PAGE>
employment of the company, nor affect any right which the company may have to
terminate the employment of such person.
6.9 RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a
stockholder with respect to Shares acquired under the Plan unless and until the
certificates for such Shares are delivered to him or her.
6.10 EXCHANGE ACT. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To
the extent any provision of the Plan or action by the Plan administrators fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
11.
<PAGE>
BRE PROPERTIES, INC.
1994 NON-EMPLOYEE DIRECTOR STOCK PLAN
September 26, 1994
1. PURPOSE OF THE PLAN. The purpose of the 1994 Non-Employee Director
Stock Option Plan (the "Plan") is to attract and retain the services of
experienced and knowledgeable non-employee directors to devote their
utmost effort and skill to the advancement and betterment of the company
by permitting them to participate in the ownership of the company.
2. DEFINITIONS. As used in the Plan and the related Option Agreements, the
following terms will have the meanings stated below:
(a) "Award" means any Option or Shares granted pursuant to the
Plan.
(b) "Board" means the Board of Directors of the company.
(c) "company" means BRE Properties, Inc., a Delaware corporation.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Board or its Compensation Committee
appointed by the Board to administer the Plan.
(f) "Exchange Act" means the Securities Exchange Act of 1934.
(g) The "Fair Market Value" of a Share on any date means the
closing price per Share on the New York Stock Exchange for that day (or,
if no Shares were publicly traded on that Exchange on that date, the next
preceding day that Shares were so traded on that Exchange).
(h) "Option" means an option to purchase Shares.
(i) "Optionee" means the holder of an Option.
(j) "Option Price" means the price to be paid for Shares upon
exercise of an Option.
<PAGE>
(k) "Shares" means shares of Class A common stock, $.01 par value,
of the company.
(l) "Subsidiary" means any corporation in which the company owns,
directly or indirectly, stock possessing more than 50 percent of the total
combined voting power of all classes of stock.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Subject to the provisions of the Plan, the Committee shall
have the power to interpret the Plan and prescribe, amend, and rescind
rules and regulations relating to it.
4. PARTICIPATION IN THE PLAN.
(a) ANNUAL STOCK OPTIONS FOR 2,500 SHARES.
(i) INITIAL GRANTS. Each director of the company who is not otherwise
an employee of the company (a "Non-employee Director") on the date
of the adoption of the Plan by the Board, but subject in any event
to the approval of the Plan by the shareholders of the company not
later than 12 months after the date the Board adopts the Plan, shall
automatically receive an Option, subject to the further terms and
conditions of the Plan, to acquire 2,500 Shares. Additionally, any
Non-employee Director hereafter appointed or elected to the Board
shall also automatically receive an Option to acquire 2,500 Shares,
which grant will be effective as of the date such Non-employee
Director shall be appointed or elected to the Board.
(ii) SUBSEQUENT ANNUAL GRANTS. In addition to the initial grant of
Options provided for in paragraph (a) above, each Non-employee
Director shall automatically receive an Option, subject to the terms
and conditions of the Plan, for 2,500 additional Shares on each
anniversary of the date of grant of the Option received pursuant to
paragraph (i) above.
(b) PAYMENT OF DIRECTOR FEES IN SHARES. Non-employee Directors may be
permitted or required, subject to policies and procedures established by
the Committee, to receive Shares at Fair Market Value in lieu of cash
payment of all or a portion of their fees for serving as a director and
attending Board and Board committee meetings.
5. SHARES SUBJECT TO PLAN. The maximum number of Shares which may be
issued pursuant to Awards under the Plan shall be 125,000, subject to
adjustment in accordance with Section 8. In the event that any outstanding
Award shall expire or terminate for any reason, the Shares allocable to
the unused portion of that Award may again be available for additional
Awards under the Plan.
2.
<PAGE>
6. TRANSFERABILITY. Except as permitted by the Committee in accordance
with the rules and regulations promulgated under the Exchange Act with
respect to any exemption from the short swing profit provisions of Section
16(b) of that Act, Awards under the Plan shall not be transferable by the
holder other than by will or the laws of descent and distribution and
shall be exercisable during the holder's lifetime only the holder or the
holder's guardian or legal representative.
7. TERMS AND CONDITIONS OF OPTIONS. The Options granted hereunder will not
be "incentive stock options" under Section 422 of the Code. Each Option
Agreement shall state the number of Shares subject to the Option, the
Option Price, the option period, the method of exercise, the manner of
payment, any restrictions on transfer, and such other terms and conditions
as the Committee shall determine consistent with the Plan and the
following:
(a) OPTION PRICE. The price to be paid for Shares upon the
exercise of an Option shall be 100% of the Fair Market Value of the Shares
on the date the Option is granted.
(b) EXPIRATION OF OPTION. No Option shall be exercisable after
the expiration of ten years from the date of grant.
(c) PAYMENT OF OPTION PRICE. Upon exercise of an Option, the
Option Price for the Shares to which the exercise relates shall be paid in
full in cash.
(d) VESTING OF OPTIONS. The Options granted hereunder shall
become exercisable as to 1,250 Shares on the first anniversary of the
grant date and the remaining 1,250 Shares on the second anniversary of the
grant date.
(e) TERMINATION OF OPTIONS. Options shall terminate prior to
expiration upon termination of a Non-employee Director's service as a
director of the company; provided that, the Option may be exercised for 90
days following the termination date (but not beyond the expiration date)
to the extent vested at the termination date; and provided further that,
if termination is caused the Non-employee Director's death or permanent
disability, the Option may be exercised in full during the one year period
following termination by the Optionee or the Optionee's estate.
(f) RIGHTS AS SHAREHOLDER. No Optionee shall have rights as a
shareholder with respect to Shares acquired under the Plan unless and
until the certificates for such Shares are delivered to him or her.
8. CAPITAL ADJUSTMENTS. The aggregate number of Shares with respect to
which Options or other Awards may be granted hereunder, the number of
Shares thereof covered by each outstanding Option and the purchase price
per Share shall be proportionately
3.
<PAGE>
adjusted for changes in the capitalization of the company resulting from a
recapitalization, reorganization, merger, consolidation, exchange of
shares, stock dividend, stock split, reverse stock split, or other
subdivision or consolidation of shares or the like. No fractional shares
shall be issued, and any fractional shares resulting from the adjustments
contemplated by this subparagraph shall be eliminated from the respective
Option.
9. EXCHANGE ACT SECTION 16. Transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successor under
the Exchange Act. To the extent any provision of the Plan or action by
the Plan administrators fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
10. DURATION OF THE PLAN. The Plan shall be deemed effective on September
26, 1994, if within twelve months after that date the Plan has been
approved by the affirmative vote of a majority of those outstanding shares
of voting stock of the company voting in person or by proxy at a duly held
shareholder meeting. The Plan shall terminate on September 25, 2004. The
Plan may be terminated by the Board at any time. Expiration or
termination of the Plan will not affect any Options then outstanding.
11. AMENDMENT OF THE PLAN. The Board may amend the Plan at any time;
provided, however, that the Plan may not be amended more than once every
six months, except to the extent permitted by Rule 16b-3 or to comply with
changes in the Code, or the rules and regulations thereunder, and provided
further that no such amendment shall, without the approval of the holders
of a majority of the Shares voting at a duly held shareholder meeting, (i)
increase the maximum number of Shares which may be purchased pursuant to
the Plan, (ii) change the purchase price, (iii) change the Option period
or increase the time limitation on the grant of Options under the Plan,
(iv) materially modify the Plan in any manner which requires shareholder
approval under Rule 16b-3 or its successor under the Exchange Act.
4.
<PAGE>
AGREEMENT
FOR CONTINUING SERVICES
THIS AGREEMENT FOR CONTINUING SERVICES ("Agreement") is made and entered
into this 19th day of December, 1994 by and between BRE Properties, Inc.
("Company") and Arthur G. von Thaden ("Employee"). As more fully set forth
below, this Agreement is intended to memorialize certain changes occurring with
respect to Employee's employment relationship with the Company and to clarify
Employee's agreements with the Company concerning his employment terms and
compensation package.
RECITALS
Employee has for many years acted as the Chief Executive Officer ("CEO") of
the Company pursuant to an employment agreement ("Employment Agreement") dated
August 22, 1988. The Company's current Chairman of the Board has decided to
retire, and Employee is 62 years of age. The Company's Board of Directors
("Board") has now decided to begin a search for a new CEO and to elevate
Employee to the position of Chairman of the Board at the time the new CEO is
appointed. The Board desires that Employee remain the Company's CEO until his
successor is appointed, at which time Employee will become the Company's
Chairman of the Board. As Chairman of the Board, Employee will continue to be
employed as a full-time corporate officer of the Company through December 31,
1995 and for such extended periods thereafter as may be agreed to by Company and
Employee.
During Employee's tenure as the Company's CEO, Employee has been granted
incentive stock options ("ISOs"), nonqualified stock options ("NQSOs"), and
restricted shares of the Company's stock ("Restricted Shares"). Pursuant to
this Agreement, the ability of Employee to exercise his ISOs and NQSOs following
the end of his employment will be clarified. In addition, the vesting date for
Employee's Restricted Shares will be accelerated to December 31, 1995 should
Employee remain employed with Company through such date.
NOW, THEREFORE, incorporating the above Recitals, Company and Employee
hereby agree as follows:
(1) In consideration for Employee's enthusiastic support during the one-
year transition period ending December 31, 1995, Employee will continue to be
employed by Company and to serve as the Company's CEO until the Board has chosen
a replacement. At that time, Employee will become the Company's Chairman of the
Board and will continue to be employed by the Company as a full-time corporate
officer subject to the provisions of the Employment Agreement until December 31,
1995, and for such extended periods thereafter as may be agreed to by Company
and Employee.
(2) Upon the termination of Employee's employment with Company, all
compensation and benefits under the Employment Agreement will cease. On or
before
<PAGE>
September 30, 1995, Company and Employee will determine whether an extension of
the Employment Agreement beyond December 31, 1995 will be effected. If so
extended, Company and Employee will determine whether any future extensions will
be effected within 90 days before the termination of the then current extension.
(3) Subject to all applicable fiduciary duties of the Company to its
shareholders, Company will use its best efforts to retain Employee as a director
of the Company for his current term.
(4) Should Employee's employment with Company terminate on or after
December 31, 1995 but before Employee reaches 65 years of age, such termination
will be treated as an "early retirement" for purposes of determining Employee's
rights with respect to any NQSOs and ISOs outstanding at that time. Pursuant to
Section 2(c)(ii) of Employee's NQSO and ISO agreements under the Company's 1984
Option Plan, Company hereby agrees that all NQSOs and ISOs of Employee will
become fully vested upon such early retirement and that Employee may exercise
such options up to and including the EARLIER of (i) the end of the applicable
Option Period (as defined and set forth in the applicable option agreement), and
(ii) three years from the date of early retirement. For example, should
Employee's employment with Company terminate on December 31, 1995, NQSOs and
ISOs granted to Employee prior to December 31, 1988 would terminate upon the
expiration of their regular ten-year terms, while options granted to employee on
and after January 1, 1989 would expire on December 31, 1998. Similar treatment
will apply to all NQSOs and ISOs granted to Employee under the Company's 1992
Option Plan. Employee understands that the exercise of ISOs after 3 months from
the date of Employee's termination of employment will NOT qualify the ISO for
favorable tax treatment under the Internal Revenue Code.
(5) Pursuant to Section 6 of the Restricted Share agreements covering the
outstanding Restricted Shares held by Employee, Company hereby agrees that all
of Employee's Restricted Shares will fully vest in Employee on December 31, 1995
should Employee remain employed with Company through such date.
(6) As a full-time corporate officer of the Company through December 31,
1995, Employee will be entitled to continuing participation in the Company's
various benefit plans. In particular, Employee's rights to participate in the
Company's tax-qualified Retirement Plan and Employee's rights to accrue deferred
compensation under his Supplemental Executive Retirement Plan shall remain in
full force and effect through December 31, 1995. Should Employee's employment
terminate on or after December 31, 1995 (unless such employment is terminated
for cause), Employee will be entitled to a pro-rata share of incentive
compensation generally considered and awarded by Company during the fiscal year
of Company in which such termination of employment occurs.
(7) Except as otherwise set forth in this Agreement, the terms of the
Employment Agreement and the terms of Employee's NQSO, ISO, and Restricted Share
agreements shall remain in full force and effect.
<PAGE>
(8) Company and Employee have entered into this Agreement in good faith
and hereby agree to use their best efforts to fully implement this Agreement in
accordance with its terms and their mutual intent. The provisions of Sections 6
through 10 of the Employment Agreement (covering arbitration, notices, etc.) are
hereby incorporated into this Agreement by reference. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, Company and Employee have executed this Agreement this
19th day of December, 1994.
COMPANY: BRE PROPERTIES, INC.
By: /s/ Eugene P. Carver
--------------------------------
EUGENE P. CARVER,
Chairman of the Board
EMPLOYEE: /s/ Arthur G. von Thaden
------------------------------
ARTHUR G. VON THADEN
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of
June 5, 1995 by and between BRE PROPERTIES, INC., a Delaware corporation (the
"COMPANY"), and FRANK MCDOWELL (the "EXECUTIVE").
BACKGROUND
WHEREAS, the Company desires to employ Executive, and Executive desires to
be employed by the Company, on the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the covenants, duties, terms, and
conditions set forth in this Agreement, the parties agree as follows:
1. TERM. The term of this Agreement is from June 5, 1995 to June 5,
2000, unless earlier terminated pursuant to Section 7 (the "TERM"). Executive
shall commence the rendering of personal services under this Agreement on June
22, 1995 (the "START DATE").
2. DUTIES. Executive shall be employed by the Company as its President
and Chief Executive Officer. Executive shall be under the direction and
supervision of the Company's Board of Directors (the "BOARD"). Executive shall
devote his full business time and best efforts to the Company, with his powers
and duties to be determined by the Board. Executive shall not, except for
incidental management of his personal financial affairs, engage in any other
business, nor shall he serve in any position with any other corporation or
entity, without the prior written consent of the Board. Effective as of the
Start Date, Executive shall be elected to the Board, and the Company agrees to
nominate Executive for election to the Board as a member of the management slate
at each annual meeting of stockholders during his employment hereunder.
3. COMPENSATION. During the Term, Executive shall be entitled to receive
compensation in accordance with this Section 3.
3.1 BASE SALARY. Commencing on the Start Date, Executive shall
receive an annual base salary ("BASE SALARY") of $300,000. The Board, in its
discretion, may increase the Base Salary based on relevant circumstances. The
Base Salary shall be payable by the Company to the Executive in equal
installments on the dates payments of salary are regularly made by the Company
to its executive employees.
3.2 ANNUAL INCENTIVE BONUS . Executive shall be eligible to receive
an annual incentive bonus (the "ANNUAL BONUS") of up to 100% of Base Salary for
each fiscal year of the Company during the Term (except that the initial Annual
Bonus shall be
<PAGE>
computed for the period commencing on the Start Date and ending on July 31, 1996
with reference to the Base Salary paid during that period). The amount of the
Annual Bonus shall be based on the achievement of predefined operating or
performance criteria established by the Board (the "ANNUAL CRITERIA"), with
emphasis on Funds from Operations ("FFO") and other operating measures deemed
appropriate by the Board. It is anticipated that, for any given year, the
amount of the Annual Bonus could range from 0% of Base Salary (in the event of a
failure to achieve the Annual Criteria), to 50% of Base Salary (in the event of
achievement of the Annual Criteria), to between 50% and 100% of Base Salary (in
the event the Annual Criteria are exceeded). Except as otherwise specified in
this Agreement, Executive shall earn the Annual Bonus only at the end of each of
the Company's fiscal years during the Term. The Annual Bonus, if earned, shall
be paid within 90 days after the end of each fiscal year.
3.3 ONE-TIME RESTRICTED STOCK AWARD. Pursuant to the Company's 1992
Employee Stock Plan (the "1992 PLAN"), the Company shall, on the date of this
Agreement, award Executive that number of shares of the Company's common stock
(the "COMMON STOCK") having an aggregate Market Value (as defined below) on the
first trading day preceding the date of this Agreement equal to $125,000. All
of such shares shall constitute "Restricted Shares" (as that term is defined in
the 1992 Plan) and shall be pursuant to a customary "Award Agreement" (as
defined under the 1992 Plan) providing for, among other things, restrictions
upon transfer, escrow, events of forfeiture and vesting. All of such shares
shall vest in accordance with the Award Agreement on the third anniversary of
the Start Date. As used herein, the term "MARKET VALUE" means the closing price
per share of the Common Stock on the New York Stock Exchange.
3.4 LONG-TERM INCENTIVE AWARDS. Executive shall also be entitled to
receive long-term incentive awards issued by the Company and approved by the
Board in accordance with the provisions of Section 6.
4. BENEFITS. During the Term, Executive shall be entitled to receive
such other benefits and to participate in such benefit plans as are generally
provided by the Company to its executive employees, including, without
limitation, automobile allowances, and profit sharing and insurance plans.
Executive shall be entitled to two weeks vacation during the 1995 calendar year
and four weeks vacation for each calendar year thereafter.
5. EXPENSES. The Company shall pay or reimburse Executive for all
reasonable travel and other expenses incurred by Executive in performing his
duties under this Agreement in accordance with Company policy. In addition,
Executive shall be reimbursed by the Company (upon presentation of appropriate
documentation) for reasonable out-of-pocket expenses related to relocating to
the San Francisco Bay Area for moving expenses for household goods, travel for
Executive and family to the San Francisco Bay Area, trips for locating housing,
and temporary housing for a period of up to six months. In addition, Executive
shall be reimbursed for storage of personal property in Dallas (including
loading
2
<PAGE>
and unloading dock costs) for up to one year from the date such storage began.
The total reimbursed relocation expenses shall not exceed $50,000.
6. LONG-TERM INCENTIVE AWARDS.
6.1 INITIAL LONG-TERM INCENTIVE AWARDS.
(a) On the date of this Agreement, pursuant to the 1992 Plan,
the Company shall (i) grant Executive an immediately exercisable non-qualified
option to purchase 20,000 shares of Common Stock at an exercise price equal to
the Market Value on the date of this Agreement and (ii) make a full recourse,
five-year loan to Executive in an amount equal to the aggregate exercise price
for such stock option (the "LOAN"). The Loan shall be made pursuant to a loan
agreement between Company and Executive in the form of EXHIBIT A to this
Agreement (the "LOAN AGREEMENT"), under which the shares so acquired (and any
securities resulting from ownership of such shares) shall be pledged by
Executive to the Company as collateral for amounts payable under the Loan
Agreement.
(b) On the date of this Agreement, Executive shall also receive
non-qualified stock options to purchase 50,000 shares of Common Stock (the
"OPTIONS") at the Market Value on the date of this Agreement. The Options shall
be evidenced by a stock option agreement containing the terms and provisions of
such Options (including, without limitation, term and termination provisions)
together with such other terms and conditions as the Company may reasonable
require to assure compliance with applicable law and stock exchange
requirements. One third of such Options (i.e., 16,667) shall vest and be fully
exercisable on each of the third, fourth, and fifth anniversaries of the Start
Date. All such unexercised Options shall, however, automatically terminate on
the close of business on the thirtieth day following the fifth anniversary of
the Start Date, provided that the Market Value of the Common Stock has not
exceeded $39.00 for ten consecutive trading days during the five-year period (as
adjusted for any stock split or share dividend). Notwithstanding the foregoing,
the Board, acting in its sole discretion, may modify the terms and conditions of
the Options, but not the economic substance, if necessary or appropriate to
achieve desired accounting treatment.
6.2 FUTURE LONG-TERM INCENTIVE AWARDS. Beginning with the fiscal
year commencing on August 1, 1996, and continuing with each subsequent fiscal
year during the Term, Executive shall be entitled to receive additional long-
term incentive awards under a Management Incentive Compensation Plan ("MICP") to
be approved by the Board. It is contemplated that awards under the MICP will
take into account financial, operating, and other results achieved during the
preceding fiscal year as well as future long-term performance goals. Such
awards may be in the form of options, restricted shares, SARs, stock sales,
stock grants, forgivable loans, or any other form of long-term compensation, as
determined by the Board. However, regardless of form, it is contemplated that
the annual awards to Executive under the MICP will provide Executive with the
opportunity to receive, assuming achievement of all applicable performance
goals, the financial equivalent of (i) a forgivable performance-
3
<PAGE>
based five-year loan to purchase 5,000 shares of Common Stock (with interest
payable quarterly), and (ii) performance options to purchase 25,000 shares of
Common Stock at Market Value on the date of award.
7. TERMINATION OF EMPLOYMENT.
7.1 TERMINATION DUE TO DEATH OR DISABILITY; VOLUNTARY TERMINATION.
If at any time during the Term, Executive shall die, suffer any Disability (as
defined below), or voluntarily terminate his employment by the Company, then, in
any such event, his employment under this Agreement shall automatically
terminate on the date of death, upon any Disability, or the date of voluntary
termination, as the case may be. As used herein, the term "DISABILITY" shall
mean the inability of Executive to perform his duties because of physical or
mental illness or incapacity as determined by the Board.
7.2 TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company may
terminate this Agreement and Executive's employment at any time for Good Cause.
In such event, this Agreement shall terminate on such date as shall be specified
in writing by the Company. As used herein, the term "GOOD CAUSE" shall mean (i)
any act or omission of gross negligence, willful misconduct, dishonesty, or
fraud by Executive in the performance of his duties hereunder, (ii) the failure
or refusal of Executive to perform the duties or to render the services assigned
to him from time to time by the Board, (iii) the charging or indictment of
Executive in connection with a felony or any misdemeanor involving dishonesty or
moral turpitude, or (iv) the material breach by Executive of this Agreement or
the breach of Executive's fiduciary duty or duty of trust to the Company.
7.3 TERMINATION BY THE COMPANY OTHER THAN FOR GOOD CAUSE. The
Company may terminate this Agreement and Executive's employment for any reason
other than for Good Cause. In such event, this Agreement shall terminate on the
30th day following written notice of such termination by the Company.
8. COMPENSATION UPON TERMINATION.
8.1 TERMINATION OTHER THAN IN CONNECTION WITH A CHANGE IN
CONTROL.
(a) In the event of termination of Executive's employment
pursuant to Section 7.1 or 7.2, the Company shall not be obligated, from and
after the date of termination, to provide to Executive, and Executive shall not
be entitled to receive from the Company, any compensation (including any
payments of Base Salary, Annual Bonus, or other awards) or other benefits
(including any benefits under the MICP); except that if termination pursuant to
Section 7.1 is due to death or Disability, Executive or his estate shall
receive, within 90 days after the close of the fiscal year in which the death or
Disability occurred, a lump-sum payment equal to the estimated Annual Bonus that
the Executive would have earned for the fiscal year in question (based on actual
performance relative to Annual Criteria for the fiscal year and Executive's
contribution up to the date of death or Disability),
4
<PAGE>
calculated on a pro-rated basis to the date of termination. In the case of any
termination of employment pursuant to Sections 7.1 or 7.2, the outstanding
balance of the Loan, and all accrued interest, shall be due and payable in full
15 days following the termination date; provided, however, that in the case of
termination based upon death or Disability, the outstanding balance on the Loan
shall be reduced by such amount by the Pro Rata Calculation (in which case, the
Company may delay the due date to complete the Pro Rata Calculation). For the
purpose of this Agreement, "PRO RATA CALCULATION" shall mean a pro rata
application of Sections 6.1, 6.2, and 6.3 of the Loan Agreement as described in
EXHIBIT B to this Agreement, taking into consideration the number of full months
worked and the Company's performance data through the last quarter having ended
45 days or more prior to the termination date, not withstanding the fact that
such sections of the Loan Agreement do not provide for such pro rata
application.
(b) In the event of termination of Executive's employment
pursuant to Section 7.3 within one year from the date of this Agreement, the
Company shall provide Executive with the following compensation within 15 days
after such termination: (i) Executive shall be entitled to receive a lump-sum
payment from the Company equal to 1.5 times his then Base Salary, (ii) all
restrictions (other than applicable federal and state securities law) on the
shares of Common Stock awarded to Employee under Section 3.3 would be eliminated
and such shares would fully vest in Executive, and (iii) the balance due under
the Loan Agreement shall be reduced to an amount equal to the product of 20,000
(or such number that reflects stock splits or dividends) times the Market Value
on the date of termination, with the balance of the Loan, and all accrued
interest, due and payable immediately.
(c) In the event of termination of Executive's employment
pursuant to Section 7.3 after one year from the date of this Agreement, the
Company shall provide Executive with the following compensation within 15 days
after such termination: (i) Executive shall be entitled to receive a lump-sum
payment from the Company equal to his then Base Salary plus an amount equal to
the average of his Annual Bonus, if any, over the most recent two years (or the
previous Annual Bonus if only one Annual Bonus period has passed), (ii) all
restrictions (other than applicable federal and state securities laws) on the
shares of Common Stock awarded to Employee under Section 3.3 would be eliminated
and such shares would fully vest in Executive, and (iii) the amount payable
under the Loan Agreement shall be reduced by the Pro Rata Calculation, with the
balance of the Loan, and all accrued interest, due and payable immediately.
8.2 TERMINATION FOLLOWING A CHANGE IN CONTROL. The following
provisions shall apply in lieu of Section 8.1 if, and only if, the termination
of Executive's employment occurs within 12 months following a Change in Control
(as defined in Section 8.2(d)):
(a) In the event of termination of Executive's employment
pursuant to Section 7.1 due to death or disability, or pursuant to Section 7.2,
the provisions of Section 8.1(a) apply.
5
<PAGE>
(b) In the event of termination of Executive's employment
pursuant to Section 7.1 due to voluntary termination by Executive without Good
Reason (as defined below), Executive shall be entitled to receive a lump-sum
payment from the Company equal to his then Base Salary plus an amount equal to
the average of his Annual Bonus, if any, over the most recent two years (or
previous Annual Bonus if only one Annual Bonus period has passed). As used
herein, the term "GOOD REASON" means (i) a material change in Executive's
duties, responsibilities, or authority, or (ii) the Company's relocation of the
Executive, without the Executive's consent, to a location outside of the San
Francisco metropolitan area. The outstanding balance of the Loan, and all
accrued interest, shall be due and payable in full on termination.
(c) In the event of termination of Executive's employment
pursuant to Section 7.1 due to voluntary termination by Executive with Good
Reason, or pursuant to Section 7.3, the Company shall provide Executive with the
following compensation within 15 days after such termination: (i) Executive
shall be entitled to receive a lump-sum payment from the Company equal to two
times his then Base Salary plus an amount equal to two times the average of his
Annual Bonus, if any, over the most recent two years (or previous Annual Bonus
if only one Annual Bonus period has passed), (ii) all restrictions (except
applicable federal and state securities law) on the shares of Common Stock
awarded to Employee under Section 3.3 would be eliminated and such shares would
fully vest in Executive, (iii) all unvested stock options (including the
Options) held by Executive at the date of termination, would vest and become
fully exercisable for a period of three months from the date of termination, and
(iv) the amount payable under the Loan Agreement shall be reduced by the Pro
Rata Calculation, and the balance of the Loan, and all accrued interest, shall
be due and payable immediately. In addition, the Executive shall receive within
90 days after such termination, a lump-sum payment equal to the estimated Annual
Bonus that Executive would have earned for the fiscal year in question (based on
actual performance relative to Annual Criteria for the fiscal year and
Executive's contribution up to the date of termination), calculated on a pro-
rated basis to the date of termination.
(d) As used herein, a "CHANGE IN CONTROL" shall be deemed to
have occurred when any of the following events occur:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), as in
effect on the date hereof, (a "PERSON")) acquiring "beneficial ownership" (as
defined in Rule 13D-3 under the Exchange Act), of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities; or
(ii) a change in the Board that is the result of a proxy
solicitation(s) or other action(s) to influence voting at a shareholders'
meeting of the Company (other than by voting one's own stock) by a Person or
group of Persons who has Beneficial Ownership of 5% or more of the combined
voting power of the securities of the
6
<PAGE>
Company and which causes the Continuing Directors (as defined below) to cease to
constitute a majority of the Board; provided, however, that neither of the
events described in (i) or (ii) of this Section 8.2(d) shall be deemed to be a
Change in Control if the event(s) or election(s) causing such change shall have
been approved specifically for purposes of this Agreement by the affirmative
vote of at least a majority of the members of the Continuing Directors. For
these purposes, a "CONTINUING DIRECTOR" shall mean a member of the Board (i) who
is a member of the Board on the date of this Agreement, or (ii) who subsequently
becomes a member of the Board and who either (x) is appointed or recommended for
election with the affirmative vote of a majority of the Directors then in office
who are Directors on the date hereof, or (y) is appointed or recommended for
election with the affirmative vote of a majority of the Directors then in office
who are described in clauses (i) and (ii) (including clause (ii)(y)), as
applicable.
(e) Notwithstanding anything to the contrary in this Section
8.2, if any of the payments or other compensation to be made to Executive
pursuant to this Section 8.2 are determined to be "parachute payments" as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"CODE"), then the amount of such payments or other compensation shall be reduced
to the largest amount which would not constitute "parachute payments" as so
defined.
9. CONFIDENTIALITY. It is specifically understood and agreed that some
of the Company's business activities are secret in nature and constitute trade
secrets, including but not limited to the Company's "know-how," methods of
business and operations, and property and financial analyses and reports (all
such information, "PROPRIETARY INFORMATION"). All of the Company's Proprietary
Information is and shall be the property of the Company for its own exclusive
use and benefit, and Executive agrees that he will hold all of the Company's
Proprietary Information in strictest confidence and will not at any time, either
during or after his employment by the Company, use or permit the use of the same
for his own benefit or for the benefit of others unless authorized to do so by
the Company's written consent or by a contract or agreement to which the Company
is a party or by which it is bound. The provisions of this Section 9 shall
perpetually survive the termination of the Agreement.
10. ARBITRATION. If a dispute arises between Company and Executive
concerning this Agreement, the disputed matter shall be submitted to
arbitration in the City of San Francisco, California in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA
RULES"). Any judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The arbitrators shall have the
authority to grant any equitable and legal remedies that would be available in
any judicial proceeding instituted to resolve the disputed matter. The
arbitrators shall apply the law of the State of California in making any
determination hereunder. Notwithstanding anything to the contrary which may now
or hereafter be contained in the AAA Rules, the parties agree any such
arbitration shall be conducted before a panel of three arbitrators who shall be
compensated for their services at a rate to be determined by the American
Arbitration Association in the event the parties are not able to agree upon
their rate of
7
<PAGE>
compensation. Each party shall have the right to appoint one arbitrator (to be
appointed within twenty days of the notice of a dispute to be resolved by
arbitration hereunder), and the two arbitrators so chosen shall mutually agree
upon the selection of the third, impartial arbitrator. The majority decision of
the arbitrators will be final and conclusive upon the parties hereto.
11. TAXES; WITHHOLDINGS. All compensation payable by the Company to the
Executive under this Agreement which is or may become subject to withholding
under the Code or other pertinent provisions of laws or regulation shall be
reduced for all applicable income and/or employment taxes required to be
withheld.
12. ADMINISTRATION BY THE BOARD. The Board, or its Compensation Committee
as determined by the Board, shall be (i) solely responsible for the
interpretation and administration of this Agreement and the Loan Agreement, and
(ii) entitled to modify this Agreement and the Loan Agreement (including,
without limitation, performance criteria and targets) as necessary or
appropriate to achieve the purposes and intents of the same in light of changing
or extenuating circumstances. All such actions, decisions, and modifications
regarding this Agreement or Loan Agreement made in good faith by the Board, or
by its Compensation Committee, shall be final and binding on Executive.
13. UPON TERMINATION OF THIS AGREEMENT. The Company shall have the right,
without any notice to the Executive, to offset any amounts payable to the
Company under the Loan Agreement against any amount payable to the Executive
pursuant to this Agreement.
14. MISCELLANEOUS.
14.1 Written notices required by this Agreement shall be sent to
Company or Executive by certified mail, with a return receipt requested, to
Company's registered address and to Executive's last shown address on Company's
records, respectively. Such notice shall be deemed to be delivered two days
after mailing.
IF TO COMPANY
BRE Properties, Inc.
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, CA 94104
Attn: Malcolm R. Riley
8
<PAGE>
WITH COPY TO:
Farella, Braun & Martel
235 Montgomery Street, Suite 3000
San Francisco, CA 94104
Attn: Morgan P. Guenther, Esq.
IF TO EXECUTIVE
Frank McDowell
BRE Properties, Inc.
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, CA 94104
14.2 This Agreement and the Loan Agreement contain the full and
complete understanding of the parties and supersede all prior representations,
promises, agreements, and warranties, whether oral or written.
14.3 This Agreement shall be governed by and interpreted according to
the laws of the State of California.
14.4 With respect to the Company, this Agreement shall inure to the
benefit of and be binding upon any successors or assigns of Company. With
respect to Executive, this Agreement shall not be assignable but shall inure to
the benefit of estate of Executive or his legal successor upon death or
disability.
14.5 The captions of the various sections of this Agreement are
inserted only for convenience and shall not be considered in construing this
Agreement.
14.6 This Agreement can be modified, amended, or any of its terms
waived only by a writing signed by both parties.
14.7 If any provision of this Agreement shall be held invalid,
illegal, or unenforceable, the remaining provisions of the Agreement shall
remain in full force and effect, and the invalid, illegal, or unenforceable
provision shall be limited or eliminated only to the extent necessary to remove
such invalidity, illegality, or unenforceability in accordance with the
applicable law at that time.
14.8 Without limiting the provisions of Section 10, if either party
institutes arbitration proceedings pursuant to Section 10 or an action to
enforce the terms of this
9
<PAGE>
Agreement, the prevailing party in such proceeding or action shall be entitled
to recover reasonable attorneys' fees, costs, and expenses.
14.9 No remedy made available to Company by any of the provisions of
this Agreement is intended to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder as well as those remedies existing at law, in equity, by statute, or
otherwise.
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
specified in the first paragraph.
COMPANY: BRE PROPERTIES, INC.
By: /s/ L. Michael Foley
----------------------------------
L. MICHAEL FOLEY
Its:
---------------------------------
EXECUTIVE: Frank McDowell
/s/ Frank C. McDowell
---------------------------------
FRANK C. MCDOWELL
11
<PAGE>
EXHIBIT A
LOAN AGREEMENT
This Loan and Stock Pledge Agreement (the "LOAN AGREEMENT") is made as of June
5, 1995, by and between BRE PROPERTIES, INC. (the "COMPANY") and FRANK MCDOWELL
(the "EXECUTIVE").
BACKGROUND
WHEREAS, Company and Executive have entered into an employment agreement as of
even date as this Loan Agreement (the "EMPLOYMENT AGREEMENT"); and
WHEREAS, in connection with the Employment Agreement, Company and Executive
desire Company to make a personal loan to Executive subject to the terms and
conditions of this Loan Agreement.
NOW, THEREFORE, in consideration of the covenants, duties, terms, and conditions
set forth in this Loan Agreement, the parties agree as follows:
1. CAPITALIZED TERMS. Capitalized terms used but not defined in this Loan
Agreement shall have the meanings given them in the Employment Agreement
2. LOAN. Subject to the terms and conditions stated in this Loan Agreement,
Company hereby makes a Loan to Executive in the amount of $612,500.
3. USE OF PROCEEDS. Executive agrees to use all of the proceeds from the Loan
to exercise his option to purchase, from the Company, 20,000 shares of Common
Stock granted pursuant to Section 6.1(a) of the Employment Agreement (the
"SHARES").
4. INTEREST. The outstanding principal amount of the Loan shall bear interest
at a rate of 8.25% per annum from the date hereof to the date of payment,
compounded annually.
5. PAYMENT. The outstanding principal balance of the Loan, and all interest
accrued thereon (such principal and interest, the "PAYMENT AMOUNT"), shall be
due and payable in full on June 5, 2000 (the "MATURITY DATE"), subject to (i)
acceleration of payment under the circumstances described in the Employment
Agreement, (ii) the reductions provided under
<PAGE>
Section 6 of this Loan Agreement and, as applicable, the Employment Agreement,
and (iii) the time periods required for calculating the performance-based
provisions of this Loan Agreement and the Employment Agreement (in the case of
such time periods, interest shall continue to accrue).
6. REDUCTION OF LOAN. Effective on the Maturity Date, the Payment Amount
shall be reduced to the extent provided by the following formulae:
6.1 ASSET GROWTH. Up to 20% of the Payment Amount may be reduced based on
the gross book value of the Company's equity investments in real estate,
investments in limited partnerships, and mortgages (the "ASSETS") as follows:
At the Maturity Date, the Payment Amount shall be reduced by 20% if the Assets
as of April 30, 2000 have a gross book value of $937 million or more. If the
Assets on such date have a gross book value of $791 million or less, there will
be no reduction of Payment Amount under this Subsection 6.1. If the Assets on
such date have a gross book value of between $791 million and $937 million, the
reduction shall be prorated on a scale between 0% and 20%. For example, if the
Assets are $820 million at the Maturity Date, the reduction shall be 4% of the
Payment Amount.
6.2. FUNDS FROM OPERATIONS. Up to 50% of the Payment Amount may be
reduced based on an increase in FFO per share of Common Stock. On the second
anniversary date of the Loan (although such reduction is only effective at the
Maturity Date), the growth in FFO per share of Common Stock between the twelve-
month period ending April 30, 1995 and the twelve-month period ending April 30,
1997 shall be compared against the growth in FFO per share of common stock of
the ten largest publicly-traded multi-family REITs as designated by the Company
based on total assets (the "INDEXED REITS"). Such comparison shall be made to
the extent reasonably practicable based on the most recent financial information
made available to the public by the Indexed REITs. If the increase in FFO per
share of Common Stock is equal to or less than the 50th percentile of the
Indexed REITs, there will be no reduction in Payment Amount (together with a
proportionate amount of accrued interest); if the increase is at or above the
80th percentile of the Indexed REITs, there will be a 20% reduction in Payment
Amount on the Maturity Date; if the increase is between 50% and 80%, the
reduction in Payment Amount shall be computed on a pro-rated basis between 0%
and 20%. For example, if the increase is 62%, the reduction shall be 8% of the
Payment Amount.
On the Maturity Date, the growth in FFO per share of Common Stock over the
three-year period ending April 30, 2000 shall be compared against the growth in
FFO per share of common stock of the ten Indexed REITs designated by the Company
for the most reasonably comparable three-year period (ending no later than April
30, 2000), respectively, of such Indexed REITs. Such comparison shall be made
to the extent reasonably practicable based on the most recent financial
information made available to the public by the Indexed REITs. In this case,
however, up to 30% of Payment Amount may be reduced on the Maturity Date if the
80th percentile performance is met, with the reduction to be pro-rated down to
0% if the performance is at or below the 50th percentile.
<PAGE>
6.3 CALENDAR YEAR-END SHARE PRICE MULTIPLE. Up to 30% of the Payment
Amount may be reduced based on the FFO MULTIPLE (as used herein, "FFO MULTIPLE"
shall mean Market Value as of the last trading date of the calendar year divided
by its FFO per share for the preceding twelve-month period). Following the
Maturity Date, the Company shall compute the simple numerical average of the FFO
Multiples as of December 31 of each of the preceding five years (each such
multiple being based on the preceding twelve months' FFO) (the "AVERAGE
MULTIPLE"). The Average Multiple will then be compared against the Average
Multiple of the ten Indexed REITs designated by the Company for such five-year
period. If the Average Multiple for the Company is at or below the 50th
percentile of the Indexed REITs, there will be no reduction in Payment Amount;
if the Average Multiple is at or above the 80th percentile, there will be a 30%
reduction in Payment Amount; if the increase is between 50th and 80th
percentile, the reduction in Payment Amount will be computed on a pro-rated
basis between 0% and 30%. For example, if the increase is at the 72nd
percentile, the reduction shall be 22% of the Payment Amount.
7. PLEDGE OF STOCK.
7.1 PLEDGED SHARES. Executive's obligations under this Loan Agreement are
secured by the Shares, and Executive hereby grants the Company a security
interest in the Shares, and in any other shares of Company's Common Stock (or
any warrants, rights, options or other securities) to which Executive may
hereafter be or become entitled as a result of his ownership of the Shares
(together with the Shares, the "PLEDGED SHARES"). The foregoing security
interest shall constitute a first priority interest to secure the payment of the
Payment Amount as such amount is reduced by Section 6 hereof and, as applicable,
the Employment Agreement. Upon issuance of the Shares, all certificates
representing the Shares shall be fully endorsed in blank by the Executive and
delivered by the Executive to the Company.
7.2 RIGHTS OF COMPANY AS SECURED PARTY. Company shall have all rights and
remedies set forth in this Loan Agreement and all other rights of a secured
party at law or in equity.
7.3 RIGHTS REGARDING PLEDGED SHARES. Company has the right to deliver any
or all of the Pledged Shares to any person, to have any or all of the Pledged
Shares registered in its name or in the name of any other person, and Executive
irrevocably appoints the Company its attorney-in-fact authorized at any time
during the term of this Loan Agreement to take any actions or exercise any
rights available to the Company under this Loan Agreement.
7.4 DIVIDENDS. Unless there is a default under this Loan Agreement, the
Executive shall be entitled to receive and retain dividends and other amounts
payable to the Executive as a result of its record ownership of the Pledged
Shares. Upon a default, the Company is entitled to all dividends and other
amounts that are paid after the default (whether or not declared prior to the
default), which Company shall apply towards the payment of principal and
interest on the Loan.
3
<PAGE>
7.5 VOTING RIGHTS. Unless there is a default under this Loan Agreement,
Executive shall have the right to vote the Pledged Shares.
7.6 EXECUTIVE'S REPRESENTATIONS REGARDING SHARES. The Executive
represents that, as of the date of this Loan Agreement, the Pledged Shares are
owned by the Executive, and Executive has not taken any action that would result
in the Pledged Shares being subject to any adverse claims, liens, or
encumbrances (other than the pledge under this Loan Agreement), and, to his
knowledge, there are no adverse claims, liens, or encumbrances on the Pledged
Shares as of the date of this Loan Agreement.
7.7 RELEASE OF SECURITY. Upon full payment of the Loan pursuant to the
terms of this Loan Agreement, Company shall deliver the certificates
representing the Pledged Shares to Executive.
7.8 REMEDIES RELATED TO COLLATERAL. Upon an Event of Default, Company
may, in its sole discretion and with or without further notice to Executive (in
addition to all rights or remedies available at law or equity or otherwise):
(i) register the Pledged Shares in the name of the Company or in any such name
as the Company may decide, (ii) exercise the Company's proxy or other voting
rights with respect to the Pledged Shares (and Executive agrees to deliver
promptly further evidence of the grant of such proxy in any form requested), and
(iii) exercise any rights provided to a secured party under the applicable
Commercial Code.
8. RECOURSE LOAN. The parties agree that the Loan is a recourse loan, and
Executive shall be personally liable for all amounts payable to the Company
under this Loan Agreement notwithstanding the Company's security interest in the
Pledged Shares.
9. EVENT OF DEFAULT. It shall be an event of default (an "EVENT OF DEFAULT")
if Executive fails to pay the Company pursuant to Section 5.
10. CERTAIN ACCOUNTING PRINCIPLES. All computations under this Loan Agreement
shall be made in accordance with generally accepted accounting principles as
such principles are applied in the Company's financial statements. With respect
to all computations hereunder based on FFO, the parties acknowledge that the
REIT industry, from time to time, adopts alternative measures designed to
reflect operating performance. The parties agree that, if such measures are
adopted by the Board for the Company's reporting purposes, such new measures
shall be substituted for FFO in this Loan Agreement to the extent practicable.
11. MISCELLANEOUS.
11.1 Any notice or other communication required or permitted hereunder
shall be in writing and be governed by the notice provisions of the Employment
Agreement.
4
<PAGE>
11.2 This Loan Agreement and the Employment Agreement contain the full and
complete understanding of the parties and supersede all prior representations,
promises, agreements, and warranties, whether oral or written.
11.3 This Loan Agreement shall be governed by and interpreted according to
the laws of the State of California.
11.4 With respect to Company, this Loan Agreement shall inure to the
benefit of and be binding upon any successors or assigns of Company. With
respect to Executive, this Loan Agreement shall not be assignable but shall
inure to the benefit of estate of Executive or his legal successor upon death or
disability.
11.5 The captions of the various sections of this Loan Agreement are
inserted only for convenience and shall not be considered in construing this
Loan Agreement.
11.6 This Loan Agreement can be modified, amended, or any of its terms
waived only by a writing signed by both parties.
11.7 If any provision of this Loan Agreement shall be held invalid,
illegal, or unenforceable, the remaining provisions of the Loan Agreement shall
remain in full force and effect and the invalid, illegal, or unenforceable
provision shall be limited or eliminated only to the extent necessary to remove
such invalidity, illegality or unenforceability in accordance with the
applicable law at that time.
11.8 This Loan Agreement shall be governed by the arbitration provisions
of the Employment Agreement, including the provision relating to recovery of
reasonable attorneys' fees, costs, and expenses.
11.9 No remedy made available to Company by any of the provisions of this
Loan Agreement is intended to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder as well as those remedies existing at law, in equity, by statute, or
otherwise.
5
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the date
specified in the first paragraph.
COMPANY: BRE PROPERTIES, INC.
By: /s/ L. Michael Foley
---------------------------------
L. MICHAEL FOLEY
Its:
EXECUTIVE: Frank McDowell
/s/ Frank C. McDowell
-----------------------------------
FRANK C. MCDOWELL
6
<PAGE>
EXHIBIT B
PRO RATA CALCULATION EXAMPLE
Termination prior to the five-year term of the Loan where Executive is eligible
for Pro Rata Loan Forgiveness:
Assumptions:
1. Agreement Date: June 15, 1995
2. Termination Date: August 5, 1998 (after 37 full months).
3. Performance:
Gross Book Value of Assets - $617 million (on April 30, 1998, the last
fiscal quarter ended 45 days or more prior to the termination date) or
18% compound annual growth from the $376.776 million starting point on
April 30, 1995 used in establishing the $791 million threshold (16%
compound annual growth), and the $937 million target (20% compound
annual growth).
FFO Growth over the first two years of 22% (between April 30, 1995 and
April 30, 1997), which is equal to the 70th percentile of the Indexed
REITs for a similar period, and of 12% in the third year (between
April 30, 1997 and April 30, 1998, the last fiscal quarter ended 45
days or more prior to the termination date), which is equal to the
90th percentile of the Indexed REITs for a similar period.
FFO Multiples for the prior year ends:
12/31/95 - 11.5 (Market Value/Prl2moFFO)
12/31/96 - 12.7
12/31/97 - 10.8
Average - 11.7 or equal to the 60th percentile of the Indexed
REITs for a similar period.
4. Calculation.
a) Pro Rata means that the executive is eligible for a maximum
forgiveness based on the number of full months worked, in this case 37
months or 61.67% of the five-year term of the Loan.
Calculating the Asset Growth component pursuant to Section 6.1,
which provides the potential for 20% forgiveness if the compound
annual asset growth meets or exceeds 20%, the Executive would be
eligible for a
<PAGE>
maximum of 12.33% (61.67% of 20%) forgiveness upon meeting or
exceeding the 20% targeted growth.
Calculating the Funds from Operation component pursuant to
Section 6.2, which provides the potential for 50% forgiveness if
FFO growth meets or exceeds the 80th percentile of the Indexed
REITs, the executive would be eligible for up to 20% forgiveness
for the first two years, and an additional 10.83% maximum
potential forgiveness for the last 13 months (13/36 x 30%).
Calculating the Share Price Multiple pursuant to Section 6.3,
which provides the potential for 30% forgiveness if the average
share price multiple meets or exceeds the 80th percentile of the
Indexed REITs, the Executive would be eligible for a maximum
18.50% forgiveness (61.67% of 30%) if the target is achieved.
b) Asset Growth Calculation: 18% achieved growth represents 50% of
the difference between the 16% threshold and the 20% target.
Consequently, the Executive would earn 6.17% forgiveness (0.50 x
12.33%) for this component.
c) Funds from Operation Growth Calculation: The achieved FFO growth
equal to the 70th percentile of the Indexed REITs during the first two
years represents 66.67% of the difference between the 50th percentile
threshold and the 80th percentile target. Consequently, the Executive
would earn 13.33% forgiveness (0.6667 x 20%) for the first two-year
component.
The achieved FFO growth equal to the 90th percentile in the April 30,
1997 to April 30, 1998 period represents 100% performance since it
exceeds the 80th percentile target. Consequently, the Executive would
earn 10.83% forgiveness (1.0000 x 10.83%) for the first 13 months of
the period from April 30, 1997 to April 30, 2000.
d) FFO Multiple Calculation - The achieved FFO Multiple at the 60th
percentile of the Indexed REITs represents 33.33% of the difference
between the 50th percentile threshold and the 80% target.
Consequently, the Executive would earn 6.17% forgiveness (.3333 x
18.50%) for this component.
2
<PAGE>
<TABLE>
<CAPTION>
Summary 5-Year Potential Pro Rata Performance Actual
Forgiveness Potential Through Last Forgiveness
Forgiveness Quarter
<S> <C> <C> <C> <C>
Asset Growth 20% 12.33% 50.00% 6.17%
FFO Growth
First 2 Years 20% 20.00% 66.67% 13.33%
Last 3 Years 30% 10.83% 100.00% 10.83%
FFO Multiple 30% 18.50% 33.33% 6.17%
Total 100% 61.66% 36.50%
</TABLE>
Note that all percentage calculations are calculated to two decimal points
(i.e., 18.50%).
Only the number of full months from the date of the Agreement are considered
(i.e., an exact 37-month period would end on July 14, 1998, and the Executive
would NOT get credit for an additional month until an August 14, 1998
termination date.)
Only data through the last quarter ending 45 days or more prior to the
termination date are considered for evaluating performance. Only Indexed REIT
published data up to and including the last date of data regarding the
Company's performance are utilized. This should permit a timely determination
of forgiveness on or shortly after the end of the five-year period or upon a
termination that qualifies for pro rata loan forgiveness.
3
<PAGE>
EXHIBIT 10.12
BRE PROPERTIES, INC.
SUPPLEMENTAL ERISA RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1994
<PAGE>
ARTICLE I
DEFINITIONS
1.01 "COMPANY" means BRE Properties, Inc. As designated in the Retirement
Plan.
1.02 "PARTICIPANT" means any employee who: (a) is eligible for benefits under
the Retirement Plan and (b) meets the eligibility requirements of Section
2.02 of this Plan.
1.03 "PLAN" means this plan, the BRE Properties, Inc. Supplemental ERISA Plan.
1.04 "RETIREMENT PLAN BENEFITS" is defined in Section 2.09 of this Plan.
1.05 "RETIREMENT PLAN" means BRE Properties, Inc. Retirement Plan.
1.06 "RETIREMENT PARTICIPANT" means a Participant who retired in accordance
with the provisions of the Retirement Plan.
1.07 "SPOUSE" means Spouse as defined in the Retirement Plan.
<PAGE>
ARTICLE II
ELIGIBILITY FOR AND AMOUNT OF BENEFITS
2.01 PURPOSE. The purpose of this Plan is to restore to employees of the
Company the benefits they lose under the Retirement Plan as a result of
the compensation limit in section 401(a)(17) of the Internal Revenue Code
of 1986, as amended, or any successor provision ["section 401(a)(17)].
2.02 ELIGIBILITY. Each Participant is eligible to receive a benefit under this
Plan if:
(a) he or she has vested in benefits under the Retirement Plan;
(b) he or she has vested benefits reduced because of the application
of section 401(a)(17); and
(c) he or she is not eligible to receive a benefit under BRE
Supplemental Executive Retirement Plan.
2.03 AMOUNT OF BENEFIT. The contribution under this Plan will equal the
contribution, if any, that would have been payable to the Participant
under the term of the Retirement Plan, but for the restrictions of section
401(a)(17) and section 415 of the Internal Revenue Code of 1986, as
amended, or any successor section ("section 415").
If benefits are not payable under the Retirement Plan because the
Participant has failed to vest or for any other reason, no payments will
be made under this Plan with respect to such Retirement Plan.
An unfunded account will be established for each Participant. Annually
an amount will be credited to the account and will equal the contribution
rate under the Retirement Plan multiplied by compensation in excess of the
401(1)(17) limit. Interest will be credited to this account quarterly
using the 5-year U.S. Treasury Rate adjusted and compounded quarterly.
2.04 PRERETIREMENT SURVIVING SPOUSE BENEFIT. Preretirement Surviving Spouse
Benefits will be payable under this Plan on behalf of a Participant if
such Participant's surviving Spouse is eligible for benefits payable from
the Retirement Plan. The benefit payable will be the account balance that
would have been payable under the Retirement Plan but for the restrictions
of section 401(a)(17) and section 415.
<PAGE>
2.05 DEATH BENEFITS AFTER RETIREMENT. Any remaining account balance will be
payable from this Plan to a beneficiary or contingent annuitant designated
by a Retired Participant.
No benefit will be payable under this Plan with respect to a beneficiary
or contingent annuitant after the death of such person.
2.06 FORMS AND TIMES OF BENEFIT PAYMENTS. The Company will determine the form
and timing of benefit payments in its sole discretion. However, for
payments made to supplement those of a particular Retirement Plan, the
Company will only select among the options available under that Retirement
Plan.
2.07 PLAN TERMINATION. No further benefits may be earned under this Plan with
respect to the Retirement Plan after the termination of such Retirement
Plan.
2.08 RETIREMENT PLAN BENEFITS. The term "Retirement Plan Benefits" generally
means the benefits actually payable to a Participant, Spouse, or
beneficiary under the Retirement Plan. However, this Plan is only
intended to remedy pension reductions caused by the operation of section
401(a)(17) and not reductions caused for any other reason.
<PAGE>
ARTICLE III
MISCELLANEOUS
3.01 AMENDMENT AND PLAN TERMINATION. The Company may, in its sole discretion,
terminate, suspend or amend this Plan at any time or from time to time, in
whole or in part, but no amendment, suspension or termination of the Plan
shall, without the consent of a Participant, affect the Participant's
right or the right of the surviving Spouse to receive benefits in
accordance with this Plan as in effect on the date the employee becomes a
Participant.
3.02 NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Plan gives any
Participant the right to be retained in the service of the Company, nor
does it interfere with the right of the Company to discharge or otherwise
deal with the Participants without regard to the existence of this Plan.
3.03 ASSIGNMENT OF BENEFITS. A Participant, Retired Participant, surviving
spouse or beneficiary may not, either voluntarily or involuntarily,
assign, anticipate, alienate, commute, pledge or encumber any benefits to
which he or she is or may become entitled under the Plan, nor may the same
be subject to attachment or garnishment by any creditor's claim or to
legal process.
3.04 CONSTRUCTION. The Company shall have full discretionary authority to
determine eligibility and to construe and interpret the terms of the Plan,
including the power to remedy possible ambiguities, inconsistencies or
omissions.
3.05 GOVERNING LAW. This Plan shall be governed by the law of the State of
California, except to the extent superseded by federal law.
3.06 NUMBER. The singular, where appearing in this Plan, will be deemed to
include the plural, unless the context clearly indicates the contrary.
<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,
---------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Shares outstanding at beginning of year 10,916,483 10,912,399 7,920,041
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 8,635 16,586 15,163
Restricted shares granted, less forfeitures 8,936 2,562 1,530
Shares issued on conversion of debentures 259,856
Exercise of stock options 6,923 1,118 695
----------- ----------- -----------
Average shares outstanding 10,940,977 10,932,665 8,774,208
----------- ----------- -----------
----------- ----------- -----------
Income before gain on sales of investments $23,184,412 $21,756,629 $16,613,020
----------- ----------- -----------
----------- ----------- -----------
Per share- as computed $2.12 $1.99 $1.89
----- ----- -----
----- ----- -----
Net gain on sales of investments $2,370,119 $548,334 $9,869,239
----------- ----------- -----------
----------- ----------- -----------
Per share- as computed $.21 $.05 $1.13
----- ----- -----
----- ----- -----
Provision for possible investment losses $(2,000,000)
-----------
-----------
Per share- as computed $(.18)
-----
-----
Primary earnings per share amount $2.15 $2.04 $3.02
------ ----- -----
------ ----- -----
</TABLE>
-30-
<PAGE>
BRE PROPERTIES, INC.
COMPUTATION OF EARNINGS PER SHARE (continued)
<TABLE>
<CAPTION>
For the Year Ended July 31,
---------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Shares outstanding at end of year 10,962,065 10,916,483 10,912,399
Exercisable, in-the-money, stock options 8,635 16,586 15,163
Assumed conversion of 9 1/2% Debentures due 2008
----------- ------------ -----------
Total Shares 10,970,700 10,933,069 10,927,562
------------ ------------ -----------
------------ ------------ -----------
Income before gain on sales of investments $23,184,412 $21,756,629 $16,613,020
Add interest on 9 1/2% Debentures due 2008 3,472,991
------------ ------------ -----------
$23,184,412 $21,756,629 $20,086,011
------------ ------------ -----------
------------ ------------ -----------
Per share- as computed $2.12 $1.99 $1.84
------ ------ ------
------ ------ ------
Net gain on sales of investments $2,370,119 $548,334 $9,869,239
----------- ------------ -----------
----------- ------------ -----------
Per share- as computed $.21 $.05 $.90
------ ------ ------
------ ------ ------
Provision for possible investment losses $(2,000,000)
-----------
-----------
Per share- as computed $(.18)
------
------
Fully diluted earnings per share - as computed $2.15 $2.04 $2.74
------ ------ ------
------ ------ ------
Fully diluted earnings per share - as reported $2.15 $2.04 $2.74
------ ------ ------
------ ------ ------
</TABLE>
-31-
<PAGE>
BALANCE SHEETS
BRE Properties, Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
July 31
-------------------------
(Dollar amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Equity investments in real estate. . . . . . . . . . . . . . . . . . . $377,175 $325,519
Less: Accumulated depreciation and amortization . . . . . . . . . . (47,811) (41,264)
-------------------------
329,364 284,255
Investments in limited partnerships. . . . . . . . . . . . . . . . . . 1,181 1,109
-------------------------
Real estate portfolio. . . . . . . . . . . . . . . . . . . . . . . 330,545 285,364
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,409 4,516
Allowance for possible investment losses . . . . . . . . . . . . . . . (1,250) (1,000)
-------------------------
336,704 288,880
Cash and short-term investments. . . . . . . . . . . . . . . . . . . . 4,462 28,938
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,720 5,077
-------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $347,886 $322,895
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities . . . . . . . . . . . . . . . . $ 4,116 $ 3,466
Mortgage loans payable . . . . . . . . . . . . . . . . . . . . . . . . 100,828 73,944
-------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 104,944 77,410
-------------------------
Shareholders' equity:
Class A common stock, $.01 par value, 50,000,000 shares authorized.
Shares issued and outstanding 10,962,065 in 1995 and
10,916,483 in 1994 . . . . . . . . . . . . . . . . . . . . . . . 109 109
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 212,127 211,340
Undistributed net realized gain on sales of properties . . . . . . . 30,706 34,036
-------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 242,942 245,485
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . $347,886 $322,895
-------------------------
-------------------------
</TABLE>
See notes to financial statements
1
<PAGE>
STATEMENTS OF INCOME
BRE Properties, Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Years ended July 31
-------------------------------------
(Dollar amounts in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Rental income . . . . . . . . . . . . . . . . . . . . $60,158 $51,374 $42,504
Interest income on mortgage loans . . . . . . . . . . 663 516 548
Interest income on short-term investments . . . . . . 616 845 808
Income from limited partnerships. . . . . . . . . . . 513 495 603
Other income. . . . . . . . . . . . . . . . . . . . . 644 349 232
-------------------------------------
Total revenue . . . . . . . . . . . . . . . . 62,594 53,579 44,695
-------------------------------------
EXPENSES
Real estate expenses. . . . . . . . . . . . . . . . . 19,643 16,970 12,886
Provision for depreciation and amortization . . . . . 7,658 6,674 5,453
Interest expense. . . . . . . . . . . . . . . . . . . 7,117 4,547 6,551
General and administrative. . . . . . . . . . . . . . 4,991 3,631 3,192
-------------------------------------
Total expenses. . . . . . . . . . . . . . . . 39,409 31,822 28,082
-------------------------------------
Income before gain on sales of investments. . . . . . 23,185 21,757 16,613
Gain on sales of investments. . . . . . . . . . . . . 2,633 626 10,966
Less: Related advisory fee. . . . . . . . . . . . . (263) (78) (1,097)
-------------------------------------
Net gain on sales of investments. . . . . . . . . . . 2,370 548 9,869
-------------------------------------
Provision for possible investment losses. . . . . . . (2,000)
-------------------------------------
NET INCOME. . . . . . . . . . . . . . . . . . $23,555 $22,305 $26,482
-------------------------------------
-------------------------------------
Net income per share:
Primary:
Income before gain on sales of investments. . . . $ 2.12 $ 1.99 $ 1.89
Net gain on sales of investments. . . . . . . . . .21 .05 1.13
Provision for possible investment losses. . . . . (.18)
-------------------------------------
NET INCOME. . . . . . . . . . . . . . . . . . $ 2.15 $ 2.04 $ 3.02
-------------------------------------
-------------------------------------
Fully diluted net income. . . . . . . . . . . $ 2.15 $ 2.04 $ 2.74
-------------------------------------
-------------------------------------
</TABLE>
See notes to financial statements
2
<PAGE>
STATEMENTS OF CASH FLOWS
BRE Properties, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Years ended July 31
-------------------------------------
(Dollar amounts in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,555 $22,305 $26,482
Non-cash revenues and expenses included in income:
Net gain on tax-deferred exchanges. . . . . . . . . . . . . . . . . (2,370) (9,339)
Net gain on other sales . . . . . . . . . . . . . . . . . . . . . . (548) (530)
Provision for depreciation and amortization . . . . . . . . . . . . 7,658 6,674 5,453
Provision for possible investment losses. . . . . . . . . . . . . . 2,000
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . (1,643) (661) 671
Increase (decrease) in accounts payable and other liabilities . . . . 650 (522) 375
Other (increase) decrease . . . . . . . . . . . . . . . . . . . . . . (517) 844 (2,099)
-------------------------------------
CASH FLOWS GENERATED BY OPERATING ACTIVITIES. . . . . . . . . 29,333 28,092 21,013
-------------------------------------
Cash flow from investing activities:
Equity investments:
Property purchased. . . . . . . . . . . . . . . . . . . . . . . . . (17,623) (37,106) (30,149)
Subsequent improvements to property purchased . . . . . . . . . . (131) (229)
Apartment expansion . . . . . . . . . . . . . . . . . . . . . . . (1,688) (4,451)
Invested in property acquired through tax-deferred exchange:
Mortgage loan proceeds . . . . . . . . . . . . . . . . . . . . . (17,500)
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (248) (1,556)
Space preparation and tenant improvements:
Shopping centers. . . . . . . . . . . . . . . . . . . . . . . . . (2,935) (1,224) (1,329)
Light industrial, warehouse and office. . . . . . . . . . . . . . (765) (1,642) (396)
Reconditioning of light industrial and warehouse buildings. . . . . (122) (838) (34)
Improvements to existing apartments . . . . . . . . . . . . . . . . (251) (222) (71)
Proceeds from the sale of property. . . . . . . . . . . . . . . . . 9,189
New mortgage loans funded . . . . . . . . . . . . . . . . . . . . . . (3,100)
Principal payments and satisfactions on mortgage loans receivable . . 207 320 418
-------------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES . . . . . . . . . (26,656) (36,203) (50,617)
-------------------------------------
Cash flow from financing activities:
Mortgage loans payable:
New mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . 19,718 36,442
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,017) (5,147)
Other principal payments . . . . . . . . . . . . . . . . . . . . (1,055) (689) (694)
Proceeds from grants of restricted shares and exercises
of stock options. . . . . . . . . . . . . . . . . . . . . . . . . 787 128 64
Net proceeds from public stock offering . . . . . . . . . . . . . . 54,971
Redemption of 9 1/2% debentures . . . . . . . . . . . . . . . . . . (703)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . (26,885) (26,200) (20,066)
-------------------------------------
NET CASH FLOWS GENERATED BY (USED IN) FINANCING ACTIVITIES. . (27,153) (8,060) 64,867
-------------------------------------
Increase (decrease) in cash and short-term investments. . . . . . . . (24,476) (16,171) 35,263
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . 28,938 45,109 9,846
-------------------------------------
Balance at end of year. . . . . . . . . . . . . . . . . . . . $ 4,462 $28,938 $45,109
-------------------------------------
-------------------------------------
</TABLE>
See notes to financial statements
3
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY
BRE Properties, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Years ended July 31
--------------------------------------
(Dollar amounts in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . $ 109 $ 109 $ 79
Sale of shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conversion of debentures. . . . . . . . . . . . . . . . . . . . . . 15
--------------------------------------
Balance at end of year. . . . . . . . . . . . . . . . . . . . . . 109 109 109
--------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . 211,340 211,212 110,701
Sale of shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 54,971
Conversion of debentures. . . . . . . . . . . . . . . . . . . . . . 45,476
Restricted shares granted and stock options exercised . . . . . . . 787 128 64
--------------------------------------
Balance at end of year. . . . . . . . . . . . . . . . . . . . . . 212,127 211,340 211,212
--------------------------------------
UNDISTRIBUTED NET REALIZED GAIN ON SALES OF PROPERTIES
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . 34,036 37,931 31,515
Net income for year . . . . . . . . . . . . . . . . . . . . . . . . 23,555 22,305 26,482
Cash dividends paid -- $2.46 per share in 1995 and
$2.40 per share in 1994 and 1993. . . . . . . . . . . . . . . . (26,885) (26,200) (20,066)
--------------------------------------
Balance at end of year. . . . . . . . . . . . . . . . . . . . . . 30,706 34,036 37,931
--------------------------------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . $242,942 $245,485 $249,252
--------------------------------------
--------------------------------------
</TABLE>
See notes to financial statements
4
<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 INVESTMENT LOSSES -- The company follows the practice of
establishing an allowance for possible investment losses 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.
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 and amortized, using the straight-line method, over the expected economic
lives of the assets, which range from 5 to 25 years. 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.
RECLASSIFICATION -- Certain reclassifications have been made to
the 1994 and 1993 financial statements to conform to the
presentation of the 1995 financial statements.
- --------------------------------------------------------------------------------
B -- INVESTMENTS
Twenty-two 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 the
revenue they produced for the two years ended July 31, are as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . $ 47,841 $ 37,511
Improvements . . . . . . . . . . . . . . . . 202,133 158,724
-----------------------
249,974 196,235
Less: Depreciation and amortization. . . . . (20,485) (15,750)
-----------------------
$229,489 $180,485
-----------------------
-----------------------
Total revenue. . . . . . . . . . . . . . . . $ 40,905 $ 31,043
-----------------------
-----------------------
</TABLE>
During fiscal 1995, BRE purchased 1,301 apartment units in seven communities in
Tucson, Arizona. The total cost was $51,670,000, consisting of $27,939,000
principal amount of mortgages assumed and $17,871,000 in cash. In addition,
$5,860,000 was reinvested into these Tucson apartments as the proceeds from
tax-deferred exchanges: 515 Ellis, in Mountain View, California and Marymoor
Warehouse, in Redmond, Washington.
In addition, during the year ended July 31, 1995, construction was completed of
a 116-unit expansion of the 200-unit Scottsdale Cove Apartments in Scottsdale,
Arizona, bringing the total number of units to 316. The cost of the expansion
was $6,139,000, $1,688,000 of which was invested during the year ended July 31,
1995, including $106,000 of capitalized interest expense.
5
<PAGE>
BRE has entered into a development and option agreement with Picerne Development
Corporation (Picerne), an Arizona corporation, which is a wholly owned
subsidiary of Picerne Investment Corporation, a privately held apartment
developer headquartered in Rhode Island. Picerne is developing Arcadia Cove, a
432-unit apartment complex in Phoenix, Arizona. The development is being
financed through two loans made by Wells Fargo Bank. The two loans are for
$4,226,000 (standing loan) and $19,125,000 (construction loan), for a total of
$23,351,000. As of July 31, 1995, $7,603,000 was outstanding under the loans.
BRE has guaranteed repayment of the loans and has the right to acquire the
property at or before completion of construction, which is currently expected in
mid-1996. BRE has made, or is committed to make, monthly option payments to
Picerne as follows:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------
<S> <C>
December 94 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220
February 95 - July 95 . . . . . . . . . . $ 60 x 6 months 360
August 95 - December 95 . . . . . . . . . 160 x 5 months 800
January 96 - March 96 . . . . . . . . . . 100 x 3 months 300
April 96 - May 96 . . . . . . . . . . . . 20 x 2 months 40
------
Estimated total option payments . . . . . . . . . . . . . . . $1,720
------
------
</TABLE>
BRE's estimated total cost for the property, including marketing expenses during
construction, is $23,900,000.
In addition, BRE has committed to purchase two phases of Newport Landing
Apartments, in Glendale, Arizona. Phase I includes 240 units constructed in
1987. This property is scheduled for purchase in September 1995, for $9,235,000.
Phase II is also planned to include 240 units, with construction expected to
begin during the Fall of 1995 and be completed 12 months thereafter. Picerne,
which owns Phase I, will be developing Phase II for BRE. The cost for Phase II
is projected to be $12,784,000.
Subsequent to July 31, 1995, the company committed to purchase an additional 266
units to be built near Portland, Oregon at a price of $16,350,000. Construction
is underway, with completion expected in the spring of 1996. BRE will purchase
the property following its completion in accordance with plans and
specifications.
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>
(In thousands) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Land leases . . . . . . . . . . . . . . . . $ 8,325 $ 8,325
Land . . . . . . . . . . . . . . . . . . . . 22,102 22,704
Improvements . . . . . . . . . . . . . . . . 96,774 98,255
---------------------
127,201 129,284
Less: Depreciation and amortization . . . . (27,326) (25,514)
---------------------
$ 99,875 $103,770
---------------------
---------------------
</TABLE>
The future minimum lease payments under these operating leases at July 31, 1995
are as follows:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1996 . . . . . . . . . . . . .$11,417 1999. . . . . . . . . $ 8,308
1997 . . . . . . . . . . . . .$10,679 2000. . . . . . . . . $ 6,599
1998 . . . . . . . . . . . . .$ 8,762 Thereafter. . . . . . $27,431
</TABLE>
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>
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Percentage rent
Portion attributable to:
Land leases. . . . . . . . . . . . . . $5,098 $4,783 $4,682
Wholly owned real estate . . . . . . . 188 285 374
Properties sold. . . . . . . . . . . . 279
----------------------------------
Total percentage rent . . . . . . . . . $5,286 $5,068 $5,335
----------------------------------
----------------------------------
</TABLE>
The carrying value of BRE's equity investments (before deduction for accumulated
depreciation) for the two years ended July 31, is as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
For financial statement purposes . . . . . . . . . $377,175 $325,519
Less: Tax-deferred gains . . . . . . . . . . . . . (62,307) (59,784)
----------------------
For federal income tax purposes . . . . . . . . . $314,868 $265,735
----------------------
----------------------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
C -- LINES OF CREDIT
At July 31, 1995, 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>
(In thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans payable . . . . . . . . . . . $100,828 $ 73,944
Cost of equity investments securing
mortgage loans payable . . . . . . . . . . $157,320 $119,523
Annual principal and interest
payments . . . . . . . . . . . . . . . . . $ 8,642 $ 6,574
Remaining terms of mortgage
loans payable. . . . . . . . . . . . . . . 3 - 34 years 1-11 years
Effective interest rates . . . . . . . . . . 5.5 - 8.4% 5.6 - 8.4%
</TABLE>
Included in mortgages payable is $9,240,000 of tax-exempt debt with a variable
interest rate, which was 3.9% at July 31, 1995. The effective interest rate on
this debt is 5.5%, which includes amortization of related fees and costs.
Scheduled principal repayments required on mortgage loans payable for the next
five years are as follows:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1996 . . . . . . . . . . . . .$1,285 1999. . . . . . . . . $ 1,485
1997 . . . . . . . . . . . .$1,395 2000. . . . . . . . . $21,616
1998 . . . . . . . . . . . .$2,404
</TABLE>
The payments due in 1998 include a balloon payment of $1,009,000 on El Camino
Shopping Center. The payments due in 2000 include $20,198,000 of balloon
payments, $16,205,000 on Montanosa Apartments and $3,993,000 on Camino Seco
Village Apartments.
Interest expense on mortgage loans payable aggregated $6,981,000 in 1995,
$4,429,000 in 1994 and $2,930,000 in 1993. Total interest paid on long-term debt
did not differ materially from interest expense.
- --------------------------------------------------------------------------------
E -- STOCK OPTION PLANS
EMPLOYEE PLAN -- The 1984 and 1992 Stock Option Plans ("Plans") provide for the
issuance of Incentive Stock Options, Non-Qualified 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>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . 239,600 187,020 157,850
Granted . . . . . . . . . . . . . . . . 88,000 56,500 56,000
Exercised . . . . . . . . . . . . . . . (32,500) (1,920) (19,830)
Canceled . . . . . . . . . . . . . . . . (2,000) (7,000)
------------------------------------
Balance at end of year . . . . . . . . . 295,100 239,600 187,020
------------------------------------
------------------------------------
Exercisable . . . . . . . . . . . . . . 199,350 156,100 110,020
------------------------------------
------------------------------------
Restricted Shares granted . . . . . . . 13,082 2,850 2,000
------------------------------------
------------------------------------
Shares available for
granting future options . . . . . . . 271,968 373,050 430,400
------------------------------------
------------------------------------
</TABLE>
In addition to the options granted under the Plans, the Directors granted an
option for 50,000 shares (at $30.63) to Frank C. McDowell, appointed June 5,
1995 as President and Chief Executive Officer. This option for 50,000 shares was
registered with the Securities and Exchange Commission on a Form S-8 and is not
part of the Plans.
At July 31, 1995, the price of shares under option ranged from $25.94 to $35.19,
with an average price of $31.05. Expiration dates ranged from August 19, 1995
through June 4, 2005. Stock options were exercised during the year on options
originally granted at prices ranging from $30.63 to $30.75.
In addition, at July 31, 1995, 21,532 Restricted Shares were outstanding at
grant prices ranging from $25.94 to $35.19 per share.
7
<PAGE>
NON-EMPLOYEE DIRECTOR STOCK PLAN -- At the November 22, 1994 annual meeting, the
shareholders approved the 1994 Non-Employee Director Stock Plan, which provides
for the issuance of 2,500 Non-Qualified Stock Options per year to each
non-employee director. The maximum number of shares that may be issued under the
Plan is 125,000. As with the Employee Plan, the option price may not be less
than the fair market value of a share on the date the Option is granted. Changes
in options outstanding during the year ended July 31 were as follows:
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------
<S> <C>
Balance at beginning of year . . . . . . . . . . . . . . --
Granted . . . . . . . . . . . . . . . . . . . . . . . . 12,500
Canceled . . . . . . . . . . . . . . . . . . . . . . . . (2,500)
-------
Balance at end of year . . . . . . . . . . . . . . . . . 10,000
-------
Exercisable . . . . . . . . . . . . . . . . . . . . . . --
-------
Shares available for granting future options . . . . . . 115,000
-------
-------
</TABLE>
At July 31, 1995, the price of shares under option was $30.50.
All the outstanding options had an expiration date of
September 25, 2004.
- --------------------------------------------------------------------------------
F -- SHAREHOLDER RIGHTS
On August 14, 1989, the 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 an amount equal to 10% of the compensation expense of participating
employees. The amounts contributed were $139,000 in 1995, $145,000 in 1994 and
$113,000 in 1993.
- --------------------------------------------------------------------------------
H -- TRANSACTIONS WITH RELATED PARTIES
On June 5, 1995, BRE appointed Frank C. McDowell to fill the position of
President and Chief Executive Officer. As part of his compensation, the company
granted Mr. McDowell an option to purchase 20,000 shares of common stock at the
current market price of $30.63. In connection with this grant, the company made
a recourse loan to Mr. McDowell to permit him to exercise the option
immediately. The interest rate on the five-year loan is 8.25%, equal to the
initial dividend yield on the shares so purchased. The loan, initially for
$612,500, may be forgiven in whole or in part upon the achievement of certain
performance goals for BRE related to growth in assets, funds from operations and
stock price. The portion of the loan subject to the forgiveness provisions
($612,500 at July 31, 1995) is reflected as an offset to shareholders' equity.
- --------------------------------------------------------------------------------
I -- 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.
- --------------------------------------------------------------------------------
J -- DIVIDEND DECLARATION
On August 28, 1995, a dividend was declared of $.63 per share payable September
28, 1995 to shareholders of record September 8, 1995.
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
K -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended July 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
Year ended July 31, 1995
-----------------------------------------------------
Quarter ended
-----------------------------------------------------
July 31, Apr. 30, Jan. 31, Oct. 31,
(In thousands, except per share data) 1995 1995 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . $ 16,183 $ 15,931 $ 15,791 $ 14,689
Income before gain on sales of investments . 5,993 5,793 5,942 5,457
Net gain on sales of investments . . . . . . 1,120 1,250
Provision for possible investment losses . . (2,000)
-----------------------------------------------------
Net income . . . . . . . . . . . . . . . . . $ 5,993 $ 4,913 $ 7,192 $ 5,457
-----------------------------------------------------
-----------------------------------------------------
Per share
Income before gain on sales of investments . $ .55 $ .53 $ .55 $ .50
Net gain on sales of investments . . . . . . .10 .11
Provision for possible investment losses . . (.18)
-----------------------------------------------------
Net income . . . . . . . . . . . . . . . . . $ .55 $ .45 $ .66 $ .50
-----------------------------------------------------
-----------------------------------------------------
Year ended July 31, 1995
-----------------------------------------------------
Quarter ended
-----------------------------------------------------
July 31, Apr. 30, Jan. 31, Oct. 31,
1994 1994 1994 1993
- ----------------------------------------------------------------------------------------------------
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
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
9
<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 LLP has full
and free access to the Audit Committee.
/S/ FRANK C. MCDOWELL
Frank C. McDowell
President and Chief Executive Officer
/S/ HOWARD E. MASON, JR.
Howard E. Mason, Jr.
Senior Vice President, Finance
Chief Financial and Accounting Officer
August 28, 1995
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, 1995 and 1994, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended July 31,
1995. 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, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in
the period ended July 31, 1995 in conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
San Francisco, California
August 28, 1995
10
<PAGE>
SELECTED FINANCIAL DATA
BRE Properties, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Years ended July 31
---------------------------------------------------
(Dollar amounts in thousands, except per share data) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $ 62,594 $ 53,579 $ 44,695 $ 39,639 $ 40,340
Net income . . . . . . . . . . . . . . . . . . . . . 23,555 22,305 26,482 20,292 15,342
Less: Net gain on sales of investments . . . . . . (2,370) (548) (9,819) (5,697)
Nonrecurring income received . . . . . . . . (150)
Plus: Provision for depreciation and
amortization . . . . . . . . . . . . . . . . 7,658 6,674 5,453 4,629 4,666
Provision for possible investment losses . . 2,000
-------------------------------------------------------
Funds from operations. . . . . . . . . . . . . . . . 30,843 28,431 22,116 19,224 19,858
Dividends paid . . . . . . . . . . . . . . . . . . . 26,885 26,200 20,066 19,004 18,989
Payout ratio . . . . . . . . . . . . . . . . 87% 92% 91% 99% 96%
Per share data
Income before gain on sales of investments . . . . . $ 2.12 $ 1.99 $ 1.89 $ 1.84 $ 1.94
Net gain on sales of investments . . . . . . . . . . .21 .05 1.13 .72
Provision for possible investment losses . . . . . . (.18)
-------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . 2.15 2.04 3.02 2.56 1.94
Dividends paid . . . . . . . . . . . . . . . . . . . 2.46 2.40 2.40 2.40 2.40
Average shares outstanding . . . . . . . . . . . . . 10,941 10,933 8,774 7,920 7,912
Financial position
Total assets . . . . . . . . . . . . . . . . . . . . $347,886 $322,895 $ 299,932 $208,882 $210,005
Real estate portfolio. . . . . . . . . . . . . . . . 378,356 326,628 284,134 221,965 213,871
Cash and short-term investments. . . . . . . . . . . 4,462 28,938 45,109 9,846 14,445
Long-term debt . . . . . . . . . . . . . . . . . . . 100,828 73,944 46,692 62,974 65,636
Shareholders' equity . . . . . . . . . . . . . . . . 242,942 245,485 249,262 142,295 140,850
- --------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
BRE continues to expand its apartment portfolio, purchasing 1,301 units in seven
communities during the fiscal year ended July 31, 1995. The company also
completed its 116-unit expansion of the Scottsdale Cove Apartments. The new
investments have been financed through tax-deferred exchanges of existing
properties, assumption of non-recourse mortgage loans and cash on hand. In
addition, BRE has under development 672 units in Phoenix, Arizona. Apartments
represent approximately 76% of BRE's portfolio, based on its estimated current
fair value.
- -------------------------------------------------------------------------------
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, 1995, cash and short-term investments
totaled $4,462,000, compared to $28,938,000 in 1994 and $45,109,000 in 1993. The
significant sources and uses of funds during the year are discussed below, as
are cash commitments.
BRE acquired the following apartment communities, all located in Tucson,
Arizona, during the fiscal year ended July 31, 1995:
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
Principal
Amount of
Number Mortgages Interest
Name of Units Cost Cash Assumed Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Camino Seco Village 168 $ 6,695 $ --(1) $ 4,238 8.00%
Casas Lindas 144 7,564 7,564 -- --
Colonia del Rio 176 8,868 3,558 5,310 8.00
Fountain Plaza 197 4,535 1,384 3,151 7.50
Hacienda del Rio 248 9,296 248(1) 5,645 6.45
Oracle Village 144 6,046 1,826 4,220 7.80
SpringHill 224 8,666 3,291 5,375 8.00
- -------------------------------------------------------------------------------------------
Total 1,301 $ 51,670 $ 17,871 $ 27,939
-------------------------------------------------------------------
<FN>
(1) The cash investments in Camino Seco Village and Hacienda del Rio do not
include $2,457 and $3,403, respectively, in proceeds from tax-deferred
exchanges for 515 Ellis, in Mountain View, California, and Marymoor
Warehouse, in Redmond, Washington.
</TABLE>
Since their acquisition, an additional $131,000 has been invested in these
properties.
The mortgages on Fountain Plaza and Hacienda del Rio are fully amortizing, with
final maturities in 2028. The four other mortgages assumed mature in the fiscal
years 2000 and 2001, with aggregate balloon payments of $17,932,000 due at those
times. Depending on market conditions at maturity, the company may choose, among
other things, to renegotiate the terms with the existing lenders, refinance the
properties with other lenders or sell assets to repay the balloon amounts.
Concurrent with the purchase of these apartment communities, BRE also funded two
second mortgage loans (one in November 1994 and the other in July 1995), each
for $1,500,000, aggregating $3,000,000, to entities affiliated with the seller.
Each loan bears interest at 10% for one year. One loan is secured by a second
mortgage loan on a 254-unit apartment project in Tucson. The second loan is
secured by a first mortgage on two parcels of undeveloped land in Tucson, plus a
personal guarantee from the principals of the borrower. Providing that no event
of default has occurred, the borrowers on each loan may request a one-year
extension, during which time the interest rate rises to 11%, and a second
one-year extension, during which time the interest rate rises to 12%
During the year ended July 31, 1995, construction was completed of a 116-unit
expansion of the 200-unit Scottsdale Cove Apartments in Scottsdale, Arizona,
bringing the total number of units to 316. The total cost of the expansion was
$6,139,000, $1,688,000 of which was invested during the year ended July 31,
1995.
As discussed further in Results of Operations, BRE has increased occupancy at
The Hub and El Camino shopping centers during fiscal 1995. Costs incurred for
space preparation and improvements for new tenants totaled $2,000,000 at The Hub
and $935,000 at El Camino. In addition, BRE invested $749,000 related to a new
tenant at 515 Ellis, which was subsequently sold for a reportable net gain of
$1,120,000.
Cash commitments at July 31, 1995 include the September 28, 1995 dividend
payment of approximately $6,906,000 and the $9,235,000 purchase price for the
240-unit first phase of the Newport Landing Apartments (scheduled to close
during the first quarter of fiscal 1996, which ends October 31, 1995). The
acquisition may be funded through a tax-deferred exchange for the Pomona
Warehouse property or by a combination of cash on hand and borrowings under the
existing lines of credit.
In addition, as more fully discussed in Note B of Notes to Financial Statements,
BRE plans to acquire Arcadia Cove, a 432-unit apartment community currently
under development, the 240-unit second phase of Newport Landing, and 266 units
to be built, in the summer of fiscal 1996. The aggregate purchase price for
these properties is approximately $53,034,000 (including, in the case of Arcadia
Cove, option payments made by the company). These acquisitions may be funded
through a combination of tax-deferred exchanges and borrowings under the
existing lines of credit.
12
<PAGE>
BRE has reached agreement with an institutional lender to borrow, on a
non-recourse basis, $12,000,000 secured by the Verandas Apartments in Union
City, California. The loan has a 10-year term, with amortization based on 30
years, and a fixed interest rate of 7.3%. The loan is expected to fund in the
first quarter of fiscal 1996, subject to customary closing conditions.
In addition to cash and short-term investments, the company has unused bank
lines of credit totaling $30,000,000, which are available to make real estate
equity investments and to finance tenant improvements at existing properties.
There were no borrowings under these lines of credit at July 31, 1995. Both
banks have offered to increase the size of the lines of credit and to extend the
maturity. Terms are being negotiated.
Management believes that its liquidity and financial resources are sufficient to
meet anticipated cash requirements.
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Funds from operations totaled $30,843,000 in fiscal 1995, up 8% from $28,431,000
in 1994, which was up 29% from $22,116,000 in 1993. The increases in 1995 and
1994 were primarily due to the contribution from the newly acquired apartment
communities. Dividends paid to shareholders totaled $26,885,000 in 1995,
$26,200,000 in 1994 and $20,066,000 in 1993.
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 provisions for depreciation,
amortization and possible investment losses. Because income-producing properties
are typically evaluated without taking into account non-cash charges such as
provisions for depreciation, amortization and possible investment losses,
management believes that funds from operations is an appropriate supplemental
measure of the company's operating performance.
- -------------------------------------------------------------------------------
REVENUE
Total revenue was $62,594,000 in fiscal 1995, up 17% from $53,579,000 in 1994,
which was up 20% from $44,695,000 in 1993. Rental revenue, representing 96% of
total revenue in fiscal 1995, was $60,158,000, up from $51,374,000 in 1994 and
$42,504,000 in 1993.
APARTMENTS -- Rental revenue from the 24 apartment communities at July 31, 1995
(both wholly owned and land leases) was $47,068,000 (77% of total rental and
partnership income for the year), up from $36,876,000 in 1994 and $26,885,000 in
1993. Revenue from apartments in the portfolio for all of fiscal 1995
and 1994 increased $943,000 (3%) in 1995 from the prior year. In addition, the
new acquisitions produced rents of $13,261,000. Apartments now comprise
approximately 76% of the equity portfolio, based on BRE's estimated current fair
value, up from 72% in 1994 and 66% in 1993. Overall occupancy levels at
apartment properties were 95%, as of July 31, 1995.
SHOPPING CENTERS -- Rental and partnership income from shopping centers was
$9,148,000 (representing 15% of total rental and partnership income for the
year), up from $8,569,000 in 1994 and $8,749,000 in 1993.
The Hub Shopping Center in Fremont, California generated 75%, 76% and 74% of
revenue from shopping centers for these years. Eight new stores have opened at
The Hub during the past year, including Trader Joe's, which operates 62
specialty food markets in the western United States, Old Navy (part of the Gap),
Taco Bell, Styles for Less and Country Harvest Buffet. Both leasing and
occupancy at The Hub are now 95%, up from 89% at July 31, 1994.
At El Camino Shopping Center in Woodland Hills, California, soil stabilization
has been completed following the January 17, 1994 Northridge earthquake. All the
structurally damaged buildings have been repaired except for Von's grocery
store, which is scheduled for its grand reopening, in a fully remodeled space,
in the fall of 1995. BRE's repair costs have been fully covered by its
$5,000,000 earthquake insurance policy, which also reimbursed BRE for
approximately $287,000 in tenant rents lost or abated as a result of the
earthquake. Approximately $224,000 of this $287,000 was attributable to the July
31, 1995 fiscal year and was recorded in income. Occupancy at El Camino is 95%,
up from 89% at July 31, 1994. By October 1995, it is expected that all
the earthquake repairs will be complete, two new restaurants, Islands (part of
Charthouse) and Taco Bell, will be open, and the center will be 99% occupied.
Taken together, the net operating income at the two shopping centers improved by
approximately 20% ($900,000) in fiscal 1995 from the prior year, which included
expenses for roof replacements of $157,000 at The Hub and $100,000 at El Camino.
In accordance with industry practices, commencing August 1, 1994, roof
replacements at all properties (which had been previously expensed) are
capitalized and depreciated over their expected useful lives. Roof repairs
continue to be expensed.
OTHER -- Other commercial properties produced $4,823,000 of rental revenues (8%
of total rental and partnership income for the year), down from $5,539,000 in
1994 and $7,398,000 in 1993.
In the industrial segment of the portfolio, two properties are currently vacant
and are being marketed to prospective tenants: the 358,000 square foot warehouse
in Pomona, California and
13
<PAGE>
the 50,000 square foot Irvine Spectrum building in Irvine, California. Sales
negotiations are underway at both properties, although there can be no assurance
that sales will be effected. As discussed below, the carrying value of the
Pomona Warehouse was reduced by $1,750,000 during the third quarter ended
April 30, 1995. Revenues continue to be constrained by these two vacant
commercial properties. There can be no assurance that additional vacancies will
not occur.
During the year, the remaining 34% of vacant space at 525 Almanor was leased.
Reflecting BRE's strategy to reduce this segment of the portfolio, two separate
sales were completed in the 1995 fiscal year: Marymoor Warehouse in Redmond,
Washington and 515 Ellis in Mountain View, California. The net reportable gain
on sales of these properties was $2,370,000 ($.21 per share). Both sales were
structured as tax-deferred exchanges, and the proceeds were reinvested in the
Camino Seco Village and Hacienda del Rio apartments.
OCCUPANCY -- At July 31, 1995, overall occupancy levels by class of property
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Property Type
Apartments . . . . . . . . . . . . 95% 95% 95%
Shopping centers,
including partnerships . . . . . 96% 92% 95%
Other. . . . . . . . . . . . . . . 54% 54% 84%
-----------------------------
Weighted average . . . . . . . . . 90% 88% 93%
-----------------------------
-----------------------------
</TABLE>
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.
INTEREST INCOME -- Interest income on short-term investments was $616,000, down
from $845,000 in 1994 and $808,000 in 1993. The 1995 income represents a higher
yield of 5.2% in 1995, up from 3.5% in 1994 and 3.1% in 1993. However, average
investment totals in 1995 were lower as cash was used to purchase apartments.
- -------------------------------------------------------------------------------
Expenses
Total expenses were $39,409,000 in 1995, up from $31,822,000 in 1994 and
$28,082,000 in 1993.
REAL ESTATE EXPENSE -- The largest expense category, 50% of total expenses, is
real estate expense, which includes the direct operating costs of properties.
Real estate expense totaled $19,643,000, up from $16,970,000 in 1994 and
$12,886,000 in 1993. Expenses rose 5% on apartments owned during both 1995 and
1994. The net operating income on these apartments increased 6%. In addition,
the 13 new apartment communities acquired during fiscal 1994 and 1995
had expenses of $5,256,000, up from $1,588,000 in 1994.
On January 17, 1995, a combination of heavy rains, high winds and debris
resulted in the collapse of an approximately 1,200 square foot section (out of a
total 85,680 square feet) of the roof at 525 Almanor. The damage has been
repaired, for a total cost of $266,000, of which $166,000 is expected to be
recovered through property insurance. BRE has expensed $100,000 as the amount of
the deductible under its property insurance coverage.
The two vacant commercial properties, Pomona Warehouse and Irvine Spectrum, had
no expense for real estate taxes through December 31, 1994, because the former
tenants had reimbursed the company for the real estate taxes. In addition, BRE
received reimbursement for the calendar 1995 real estate taxes from the former
tenant at Irvine Spectrum. Starting January 1, 1995, the annual cost for real
estate taxes for Pomona Warehouse is approximately $55,000. In addition, BRE is
incurring maintenance costs, such as security, landscaping and insurance, for
both the Pomona and Irvine properties.
INTEREST EXPENSE -- Interest expense rose 57% in 1995 from 1994, reflecting the
approximately $54,539,000 principal amount of new mortgage loans on Mira Mesa
and Selby Ranch (totaling $26,600,000 borrowed in the third quarter of fiscal
1994) and the Schomac apartments ($27,939,00 assumed in fiscal 1995). Interest
expense was down $2,004,000 (31%) in 1994 compared to the prior year 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 mortgages secured
by Mira Mesa and Selby Ranch.
DEPRECIATION -- The non-cash depreciation charge increased 15% in 1995, 22% in
1994 and 18% in 1993. These increases reflect the rises in the company's
ownership of equity investments of 16% (1995), 15% (1994) and 28% (1993).
GENERAL AND ADMINISTRATIVE -- General and administrative expenses rose 37% in
1995 after remaining fairly constant for several years. This sharp increase
includes several costs unlikely to reoccur in the foreseeable future. In
addition, as described below, the higher costs occurred in different quarters
and so should be considered in evaluating the quarterly results.
General and administrative expenses for the quarter ended October 31, 1994
included $402,000 of legal costs paid to reach an out-of-court settlement with
Big V Supermarkets, Inc. and
14
<PAGE>
Somers Development Corporation regarding alleged chemical contamination of the
soil and ground water underlying the Baldwin Place Shopping Center (a former BRE
investment) in Somers, New York. In addition to the legal costs which were
expensed, BRE paid $208,000 as its share of the settlement. In the fourth
quarter ended July 31, 1995, BRE successfully recovered the settlement amount as
well as approximately $363,000 of its legal costs from the insurance companies
which provided coverage to BRE at various times throughout BRE's 1974-1983
ownership of the land underlying Baldwin Place.
General and administrative expenses also include $169,000 paid to an executive
search firm in connection with the recruitment of Frank C. McDowell to succeed
Arthur G. von Thaden as Chief Executive Officer, and $198,000 paid for
investment banking services in connection with the company's strategic planning
process. John McMahan, acting as interim Chairman of the company, and L. Michael
Foley, acting as head of the company's search committee, received fees for their
services in such capacities of $10,000 and $5,000 per month, respectively,
commencing in December 1994. These amounts, together with regular Directors'
fees, are also included in general and administrative expenses.
Commencing August 1, 1995, BRE will allocate a portion of its salaries, employee
benefits and other personnel costs to the real estate expense of the properties
in the portfolio. While this reclassification does not change the company's net
income or funds from operations, such an allocation will reduce reported general
and administrative expenses and increase real estate expense by an equal amount.
Management believes that this allocation is consistent with industry practices
and will provide a better matching of the revenue generated by the properties
and the expenses required to generate that revenue.
- -------------------------------------------------------------------------------
GAIN ON SALES
During 1995, BRE recorded gross gains on sales of $1,389,000 from Marymoor
Warehouse and $1,244,000 from 515 Ellis. The aggregate net gain on these two
transactions was $2,370,000 ($.21 per share), after 10% of the gross gain was
credited against 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 $1,278,000
at July 31, 1995. Both of these transactions were structured as tax-deferred
exchanges, with the proceeds reinvested in the Hacienda del Rio and Camino Seco
Village apartments, respectively. Including these transactions, the company has
recorded in its financial statements through July 31, 1995 gains totaling
$62,307,000 which have been deferred for tax purposes since the company's 1970
inception.
- -------------------------------------------------------------------------------
PROVISION FOR POSSIBLE INVESTMENT LOSSES
Negotiations are underway for the sale of two vacant properties: Pomona
Warehouse in Pomona, California and Irvine Spectrum in Irvine, California.
During the quarter ended April 30, 1995, BRE recorded a $2,000,000 provision for
possible investment losses. Of this amount, $1,750,000 was credited against the
investment in Pomona Warehouse, thereby reducing its carrying value at
July 31, 1995 to $9,302,000, the estimated net sale proceeds. The remaining
$250,000 of the provision was added to the allowance for possible investment
losses, which totaled $1,250,000 at July 31, 1995.
The sales of both Pomona Warehouse and Irvine Spectrum are intended to be
treated as tax-deferred exchanges.
- -------------------------------------------------------------------------------
NET INCOME
The company's net income and net gain on sales of investments were as follows
for the three fiscal years ended July 31:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net income . . . . . . . $ 23,555,000 $ 22,305,000 $ 26,482,000
Per share. . . . . 2.15 2.04 3.02
Net gain on sales. . . . 2,370,000 548,000 9,869,000
Per share. . . . . .21 .05 1.13
Provision for possible
investment losses. 2,000,000
Per share. . . . . .18
</TABLE>
- -------------------------------------------------------------------------------
DIVIDENDS
Dividends paid to shareholders totaled $26,885,000 in 1995, representing 87% of
funds from operations. Dividends per share amounted to $2.46, up from $2.40 in
1994 and 1993. The current annualized dividend is $2.52 per share.
To the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than ordinary or
capital gain income, and will be applied to reduce the tax basis of 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
estimated taxability of the dividends per share.
15
<PAGE>
GENERAL INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MARKET PRICE RANGE AND DIVIDENDS PAID PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1994
- ---------------------------------------------------------------------------------------------------------------------------------
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> <S> <C> <C> <C> <C>
High . . . . . . . . . $ 32.38 $ 31.88 $ 31.25 $ 31.38 High . . . . . . . . . . . $31.50 $34.25 $35.63 $35.50
Low . . . . . . . . . 29.88 30.13 30.25 30.00 Low. . . . . . . . . . . . 30.25 30.50 33.13 33.25
Dividends . . . . . . .63 .63 .60 .60 Dividends. . . . . . . . . .60 .60 .60 .60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of July 31, 1995, there were 3,608 shareholders of record.
<PAGE>
EXHIBIT 23.1
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 28, 1995, included in the Annual Report on Form 10-K for the
year ended July 31, 1995.
Ernst & Young LLP
San Francisco, California
October 24, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 4,462
<SECURITIES> 0
<RECEIVABLES> 14,129
<ALLOWANCES> (1,250)
<INVENTORY> 0
<CURRENT-ASSETS> 17,341
<PP&E> 378,356
<DEPRECIATION> (47,811)
<TOTAL-ASSETS> 347,886
<CURRENT-LIABILITIES> 4,116
<BONDS> 100,828
<COMMON> 109
0
0
<OTHER-SE> 242,833
<TOTAL-LIABILITY-AND-EQUITY> 347,886
<SALES> 62,594<F1>
<TOTAL-REVENUES> 62,594
<CGS> 19,643<F2>
<TOTAL-COSTS> 19,643
<OTHER-EXPENSES> 12,649<F3>
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 7,117
<INCOME-PRETAX> 21,185
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,185
<DISCONTINUED> 0
<EXTRAORDINARY> 2,370<F4>
<CHANGES> 0
<NET-INCOME> 23,555
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
<FN>
<F1>RENTAL AND OTHER REVENUE
<F2>REAL ESTATE EXPENSES
<F3>INCLUDES $7,658 OF DEPRECIATION EXPENSE, A NON-CASH CHARGE
<F4>NET GAIN ON SALES OF INVESTMENTS
</FN>
</TABLE>
