-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ELl3XPkgOwdn+r+qVqJsr39l+gRxcmwIRPXnvx76g0Y300XbGZQQM2K6+kGZXyvC api4ChGouX8cnsK5zJKlyg== 0000912057-95-008853.txt : 19951025 0000912057-95-008853.hdr.sgml : 19951025 ACCESSION NUMBER: 0000912057-95-008853 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951024 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRE PROPERTIES INC CENTRAL INDEX KEY: 0000009677 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 941722214 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07993 FILM NUMBER: 95583483 BUSINESS ADDRESS: STREET 1: 1 MONTGOMERY ST STREET 2: TELESIS TWR STE 2500 CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4154456530 FORMER COMPANY: FORMER CONFORMED NAME: BANKAMERICA REALTY INVESTORS DATE OF NAME CHANGE: 19870927 10-K 1 BRE PROPERTIES 10-K FOR FY ENDED 1995 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. 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- - ------------------------------------------------------------------------------- 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- 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.
PERCENT OF REVENUES ------------------- Overall Occupancy Type of Property 1995 1994 1993 at July 31, 1995 - ---------------- ---- ---- ---- ----------------- Apartments 77% 71% 63% 95% Shopping centers 15 16 20 96 Other 8 13 17 54 --- --- --- -- 100% 100% 100% 90% --- --- --- -- --- --- --- --
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:
PERCENT OF REVENUES ------------------- 1995 1994 1993 ---- ---- ---- The Hub Shopping Center 11% 12% 14% Westlake Village Apartments 9 10 12 Sharon Green Apartments 8 10 11 -- -- -- 28% 32% 37% -- -- -- -- -- --
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:
PERCENT PERCENT ------- ------- NUMBER OF NUMBER OF PROPERTIES COST PROPERTIES COST --------------------- ---------------------- 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% --- --- --- --- --- --- --- ---
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- 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)
PRINCIPAL AMOUNT NUMBER OF MORTGAGES INTEREST NAME OF UNITS COST CASH ASSUMED RATE - ----------------------- --------- ------ ------- ------------ -------- 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 ------ -------- ------- ------- ------ -------- ------- -------
(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- 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- 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- 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:
Age at Name September 1, 1995 Position(s) - --------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------
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- 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- 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 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:
1995 1994 1993 1992 1991 ------------------------------------------------ Percentage of portfolio at cost 68% 62% 53% 41% 38% Revenues generated 77% 70% 63% 58% 54%
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- BRE PROPERTIES, INC. Wholly owned apartments owned at July 31, 1995 Operating Information
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) - -------------------------------------------------------------------------------------------- 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% - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
(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- 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:
YEAR ENDED JULY 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 95% 89% 93% 91% 89%
-13- The average effective annual rentals per square foot at the following dates are shown below:
YEAR ENDED JULY 31, 1995 1994 1993 1992 1991 ------ ------ ------ ----- ------ $11.15 $10.70 $10.43 $10.36 $10.49
(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.
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) -------- ------- -------- ------- -------- $30,145 $ 1,093 30 years 409 1.067% for original building (2) (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.
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- 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.
CURRENT TENANT AND SQUARE LEASE MONTHLY PRINCIPAL BUSINESS FOOTAGE EXPIRATION RENEWAL OPTIONS BASE RENT - ------------------ ------- ---------- --------------- ----------- 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 * Ground lease only. The tenant owns the improvements.
As of July 31, 1995, The Hub's lease expirations for the next 10 years are summarized as follows:
TOTAL PERCENTAGE NUMBER OF SQUARE OF GROSS TENANTS FOOTAGE ANNUAL RENT ------- ------- ----------- 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
-15- 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- - -------------------------------------------------------------------------------- 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- - -------------------------------------------------------------------------------- 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- 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- (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- 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- 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- 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- 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- 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:
1995 1994 1993 -------- -------- -------- 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 -------- -------- -------- -------- -------- --------
-25- BRE PROPERTIES, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION JULY 31, 1995 (000) OMITTED
Initial Cost to Company ----------------------- Cost Capitalized Dates Acquired/ Buildings and Subsequent to Name Location Constructed Land Improvements Acquisitions - ---- -------- --------------- ---- ------------- ------------- 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 ---------- ---------- ---------- Gross Amount at Which Carried at July 31, 1995 ---------------------------------------------- Buildings Depreciable and Accumulated Name Lives- Year Land Improvement Total Depreciation Encumbrances - ---- ----------- ---- ----------- ----- ------------ ------------ 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 --------- --------- ---------- ---------- ----------
* Subordinated land lease ** Nonsubordinated land lease -26- BRE PROPERTIES, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION JULY 31, 1995 (000) OMITTED
Initial Cost to Company ----------------------- Cost Capitalized Dates Acquired/ Buildings and Subsequent to Name Location Constructed Land Improvements Acquisitions ---- -------- ----------- ---- ------------ ------------ Other income-producing property 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 ------- -------- ------- ------- -------- ------- Gross Amount at Which Carried at July 31, 1995 ---------------------------------------------- Buildings Depreciable and Accumulated Name Lives- Years Land Improvements Total Depreciation Encumbrances ---- ------------ ---- ------------ ----- ------------ ------------ 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 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
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- 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:
1995 1994 1993 --------- --------- --------- 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 -------- -------- -------- -------- -------- --------
-28- BRE PROPERTIES, INC. SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE July 31, 1995 (000) OMITTED
Carrying Periodic Carrying Amount Subject to Final Payment Amount of Delinquent Principal Description Interest Rate Maturity Date Terms Mortgages or Interest ----------- ------------- ------------- -------- --------- -------------------- Office Building --------------- 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 ------ ------
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- 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:
1995 1994 1993 -------- -------- -------- 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 -------- -------- -------- -------- -------- --------
-30- EX-10.2 2 1992 EMPLOYEE STOCK OPTION PLAN 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 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. EX-10.3 3 1994 NON-EMPLOYEE DIRECTOR STOCK PLAN 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. (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. 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. 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. EX-10.7 4 AGREEMENT FOR CONTINUING SERVICES 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 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. (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 EX-10.8 5 EMPLOYMENT AGREEMENT 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 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 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 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 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 (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 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 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 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 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 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 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 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. 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 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 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 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 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 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
Summary 5-Year Potential Pro Rata Performance Actual Forgiveness Potential Through Last Forgiveness Forgiveness Quarter 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%
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 EX-10.12 6 ERISA SUPPLEMENTAL PLAN EXHIBIT 10.12 BRE PROPERTIES, INC. SUPPLEMENTAL ERISA RETIREMENT PLAN EFFECTIVE JANUARY 1, 1994 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. 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. 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. 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. EX-11 7 COMPUTATION OF EARNINGS PER SHARE 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.
For the Year Ended July 31, --------------------------- 1995 1994 1993 ----------- ----------- ----------- 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 ------ ----- ----- ------ ----- -----
-30- BRE PROPERTIES, INC. COMPUTATION OF EARNINGS PER SHARE (continued)
For the Year Ended July 31, --------------------------- 1995 1994 1993 ----------- ------------ ----------- 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 ------ ------ ------ ------ ------ ------
-31- EX-13.1 8 EXCERPTS FROM ANNUAL REPORT BALANCE SHEETS BRE Properties, Inc.
- ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- July 31 ------------------------- (Dollar amounts in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------- 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 ------------------------- -------------------------
See notes to financial statements 1 STATEMENTS OF INCOME BRE Properties, Inc.
- ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Years ended July 31 ------------------------------------- (Dollar amounts in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------- 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 ------------------------------------- -------------------------------------
See notes to financial statements 2 STATEMENTS OF CASH FLOWS BRE Properties, Inc.
- -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Years ended July 31 ------------------------------------- (Dollar amounts in thousands) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- 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 ------------------------------------- -------------------------------------
See notes to financial statements 3 STATEMENTS OF SHAREHOLDERS' EQUITY BRE Properties, Inc.
- -------------------------------------------------------------------------------------------------------------- Years ended July 31 -------------------------------------- (Dollar amounts in thousands) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- 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 -------------------------------------- --------------------------------------
See notes to financial statements 4 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:
(In thousands) 1995 1994 - ---------------------------------------------------------------------------- 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 ----------------------- -----------------------
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 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:
(In thousands) - ---------------------------------------------------------------------------- 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 ------ ------
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:
(In thousands) 1995 1994 - ---------------------------------------------------------------------- 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 --------------------- ---------------------
The future minimum lease payments under these operating leases at July 31, 1995 are as follows:
(In thousands) - ---------------------------------------------------------------------- 1996 . . . . . . . . . . . . .$11,417 1999. . . . . . . . . $ 8,308 1997 . . . . . . . . . . . . .$10,679 2000. . . . . . . . . $ 6,599 1998 . . . . . . . . . . . . .$ 8,762 Thereafter. . . . . . $27,431
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:
(In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------ 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 ---------------------------------- ----------------------------------
The carrying value of BRE's equity investments (before deduction for accumulated depreciation) for the two years ended July 31, is as follows:
(In thousands) 1995 1994 - ------------------------------------------------------------------------------- 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 ---------------------- ----------------------
6 - -------------------------------------------------------------------------------- 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:
(In thousands) 1995 1994 - ------------------------------------------------------------------------------- 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%
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:
(In thousands) - ---------------------------------------------------------------------- 1996 . . . . . . . . . . . . .$1,285 1999. . . . . . . . . $ 1,485 1997 . . . . . . . . . . . .$1,395 2000. . . . . . . . . $21,616 1998 . . . . . . . . . . . .$2,404
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:
1995 1994 1993 - ------------------------------------------------------------------------------- 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 ------------------------------------ ------------------------------------
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 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:
1995 - ------------------------------------------------------------------ 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 ------- -------
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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- K -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited quarterly results of operations for the years ended July 31, 1995 and 1994 are as follows:
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 - ---------------------------------------------------------------------------------------------------- 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 ----------------------------------------------------- -----------------------------------------------------
9 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 SELECTED FINANCIAL DATA BRE Properties, Inc.
- -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Years ended July 31 --------------------------------------------------- (Dollar amounts in thousands, except per share data) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------- OPERATING RESULTS 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 - --------------------------------------------------------------------------------------------------------------
11 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:
(Dollar amounts in thousands) Principal Amount of Number Mortgages Interest Name of Units Cost Cash Assumed Rate - -------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------- (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 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 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 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:
1995 1994 1993 - ------------------------------------------------------------------------ Property Type Apartments . . . . . . . . . . . . 95% 95% 95% Shopping centers, including partnerships . . . . . 96% 92% 95% Other. . . . . . . . . . . . . . . 54% 54% 84% ----------------------------- Weighted average . . . . . . . . . 90% 88% 93% ----------------------------- -----------------------------
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 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:
1995 1994 1993 - -------------------------------------------------------------------------- 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
- ------------------------------------------------------------------------------- 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 GENERAL INFORMATION
- --------------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------
As of July 31, 1995, there were 3,608 shareholders of record. EX-23.1 9 CONSENT OF ERNST & YOUNG, LLP 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 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUL-31-1995 AUG-01-1994 JUL-31-1995 4,462 0 14,129 (1,250) 0 17,341 378,356 (47,811) 347,886 4,116 100,828 109 0 0 242,833 347,886 62,594 62,594 19,643 19,643 12,649 2,000 7,117 21,185 0 21,185 0 2,370 0 23,555 2.12 2.12 RENTAL AND OTHER REVENUE REAL ESTATE EXPENSES INCLUDES $7,658 OF DEPRECIATION EXPENSE, A NON-CASH CHARGE NET GAIN ON SALES OF INVESTMENTS
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