-----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, RyLU35k8ofctoiUloLujdnnctUaDpT3dGYe5mBPjhc05SP21iQrB4NYi+N3Xptu4 ctmLX3+yTHkgy47ptpoLcw== 0000929624-97-001436.txt : 19971125 0000929624-97-001436.hdr.sgml : 19971125 ACCESSION NUMBER: 0000929624-97-001436 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971118 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971124 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRE PROPERTIES INC /MD/ CENTRAL INDEX KEY: 0001011174 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 941722214 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-09945 FILM NUMBER: 97726683 BUSINESS ADDRESS: STREET 1: ONE MONTGOMERY STREET STREET 2: SUITE 2500 TELESIS TOWER CITY: SAN FRANCISCO STATE: CA ZIP: 94104-5525 BUSINESS PHONE: 415-445-65 MAIL ADDRESS: STREET 1: ONE MONTGOMERY STREET STREET 2: SUITE 2500 TELESIS TOWER CITY: SAN FRANCISCO STATE: CA ZIP: 94104-5525 FORMER COMPANY: FORMER CONFORMED NAME: BRE MARYLAND INC DATE OF NAME CHANGE: 19960402 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 18, 1997 BRE PROPERTIES, INC. ________________________________________________________________________ (Exact name of registrant as specified in its charter) Maryland 0-5305 94-1722214 ________________________________ ______________________ ___________________ (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation or organization) Identification 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) 1 Item 2. Acquisition and Disposition of Assets On September 29, 1997, BRE Properties, Inc. ("BRE") signed a definitive agreement in which BRE would acquire certain assets and operations of Trammell Crow Residential located in the Western U.S. ("TCRW") (the "Transaction"). The Transaction was completed November 18, 1997. The Transaction combines 7,231 of TCRW's apartment units (including approximately 2,445 units under development and construction) with BRE's 13,543 units. The acquisition was structured using two newly organized operating companies, BRE Property Investors LLC and Blue Ravine Investors LLC, (collectively referred to as the "Operating Company"), of which BRE is the sole managing member in each. In addition to purchasing existing properties and development projects, BRE also acquired TCRW's development, construction and third-party property management operations. The acquisition consideration payable at the close of the Transaction was approximately $462 million (including closing costs), consisting of 3,713,331 shares of BRE common stock valued at $100 million, 2,672,087 units and 152,500 performance units of the Operating Company (the "OC Units") valued at $76 million, assumed debt of $126 million and cash of $160 million. Under the terms of the Transaction, additional OC Units up to a maximum of 627,594 OC Units valued at approximately $17 million, subject to possible adjustment, may be issued in the future upon achievement of certain specified conditions to issuance. The OC Units are convertible into shares of BRE common stock on a 1:1 basis, or into an equivalent amount of cash at BRE's election, beginning one year after the closing. Pursuant to the Transaction, all shares and OC Units have been valued at $26.93 per share. The acquisition consideration was determined pursuant to arm's length negotiations with TCRW; TCRW is not affiliated with BRE. The cash portion of the acquisition consideration was financed with proceeds from BRE's unsecured $265 million line of credit with Bank of America National Trust and Savings Association. Over the next two years, BRE expects to incur an estimated $113 million to complete development and construction of the eight apartment properties acquired in the Transaction. 2 Item 7. Financial Statements, Pro Forma Information and Exhibits (a) Financial statements Financial statements under Rule 3-14 of Regulation S-X for TCRW with Report of Independent Auditors are attached hereto on pages 17 to 22 (b) Pro forma financial information is attached hereto on pages 5 to 16 (c) Exhibits: 2.1 Contribution Agreement dated as of September 29, 1997 between BRE Properties, Inc., BRE Property Investors LLC and the TCR Signatories* 2.2 Amendment No. 1 to Contribution Agreement dated November 18, 1997. 23.1 Consent of Ernst and Young, LLP 99.1 Press Release dated November 18, 1997 - ------------------- *Incorporated by reference to Exhibit 10.45 to Form 10-Q, filed with the Securities and Exchange Commission on November 14, 1997. 3 Signatures: Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. BRE Properties, Inc. Date: November 21, 1997 By: /s/ LeRoy E. Carlson ______________________________________ LeRoy E. Carlson Executive Vice President and Chief Financial and Accounting Officer 4 BRE Properties, Inc. Introduction to Unaudited Pro Forma Financial Statements On September 29, 1997, BRE Properties, Inc., a Maryland corporation ("BRE"), entered into a definitive agreement (the "Contribution Agreement") to acquire certain real estate assets and operations of certain entities (described below) of Trammell Crow Residential - Western Region ("TCRW") (the "Transaction"). On November 18, 1997, the Transaction was completed and BRE paid to certain entities in TCRW a total of approximately $159 million in cash and $100 million in stock based on a stock price of $26.93 per share as provided for in the Contribution Agreement. Further, certain entities in TCRW received Operating Company Units ("OC Units") in BRE Property Investors LLC and Blue Ravine Investors LLC (collectively, the "Operating Company"), limited liability companies and subsidiaries of BRE, convertible into approximately $76 million (also based on a stock price of $26.93 per share) worth of BRE common stock on a 1:1 basis. The Operating Company will assume approximately $126 million in debt. The Operating Company is a newly formed subsidiary of BRE and BRE is the sole managing member. The Contribution Agreement also provides for an additional issuance of between $6 and $17 million in OC Units; the actual amount of units to be issued is dependent upon the extent to which the development properties included in the Transaction attain certain future performance levels. TCRW contributed real estate assets consisting of seventeen completed properties and eight properties in varying stages of development and construction. BRE anticipates incurring approximately $113 million to complete these properties during the two years subsequent to the close of the Transaction. In addition, BRE acquired TCRW's development, construction and third party management operations by the assignment of third party contracts and by BRE hiring certain key employees. The seventeen operating properties are subject to the Contribution Agreement, are commonly referred to as follows: Deer Valley, The Highlands, Somerset Park, Overlook at Blue Ravine, Parkside Village, Riverview, Pinnacle at South Mountain I, Pinnacle at South Mountain II, Pinnacle at Union Hills, Pinnacle Heights, Pinnacle Canyon, Pinnacle at Fort Union, Pinnacle Reserve, Pinnacle Lakeside, Pinnacle at High Desert, Cimarron Village and Villa Verde. The eight development properties subject to the Contribution Agreement are commonly referred to as follows: 5 Pinnacle at Sand Hill, Pinnacle at Towne Center, Pinnacle Terrace, Pinnacle at West Flamingo, Pinnacle at Hunters Glen, Pinnacle Estates, Pinnacle at High Resort and Pinnacle at Clearfield. TCRW entities participating in the Transaction are as follows: TCR South Mountain Limited Partnership, TCR Squaw Peak Limited Partnership, TCR Union Hills Limited Partnership, TCR Kolb Limited Partnership, TCR Snyder Limited Partnership, Pinnacle Terrace Apartments, L.P., TCR #812 Deer Valley Limited Partnership, Vallejo Highlands Associates Limited Partnership, Blue Ravine Realty Partners, TCR Riverside I, Ltd., TCR Riverview Limited Partnership, Vallejo Somerset Limited Partnership, ITCR Thornton Limited Partnership, ITCR Flamingo Limited Partnership, TCR Cimarron Limited Partnership, TCR High Desert Limited Partnership, TC Residential Phoenix II, Inc., ITCR Estates Limited Partnership, ITCR Clearfield Limited Partnership, TCR Fort Union Limited Partnership, MSK TCR Orem Partners, Woodlake Holdings L.L.C., TCR Draper Limited Partnership, ITCR Villa Verde Limited Partnership, Southwest RS, Inc., TCR Builders, Inc., West RS, Inc., TC Residential Phoenix, Inc., TC Residential Phoenix II, Inc., and TC Residential Phoenix III, Inc. 6 BRE Properties, Inc. Preface to Unaudited Pro Forma Condensed Statements of Operations For the Nine months ended September 30, 1997 and the Year ended December 31, 1996 The following unaudited pro forma statements of operations for BRE are presented as if the Transaction had been consummated on January 1, 1996 and include the historical operating results of the seventeen operating properties acquired in the Transaction. The purchase price for the portfolio was allocated between development and operating properties based on their estimated relative fair market values. Each asset acquired by TCRW during the periods covered by these unaudited pro forma statements of operations was assumed to have been acquired by BRE at the same time as TCRW acquired the asset. It is assumed that the consideration for the purchase price of each asset was comprised of cash, stock and OC Units in the same relative composition as that in the final acquisition price for all seventeen properties. This data further assumes that BRE distributed at least 95% of its taxable income and met all other requirements to qualify as a REIT and, therefore, incurred no federal or state income tax expense during the period from January 1, 1996 - September 30, 1997. The Transaction will be accounted for as an acquisition by BRE under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. In the opinion of BRE's management, all material adjustments necessary to reflect the effects of the Transaction have been made. The unaudited pro forma statements of operations are presented for information purposes only and are not necessarily indicative of what the actual results of operations of BRE would have been for the periods presented had the Transaction occurred on January 1, 1996, nor do they purport to represent the results for future periods. The unaudited pro forma condensed statements of operations should be read in conjunction with, and are qualified in their entirety by, the respective historical financial statements and notes thereto of BRE. Except for the historical information contained herein, these unaudited pro forma statements of operations contain forward-looking statements regarding BRE and property performance, and are based on BRE's current expectations and judgment. Actual results could vary materially depending on risks and uncertainties inherent to general and local real estate conditions, competitive factors specific to markets in which BRE operates, legislative or other regulatory decisions, future interest rate levels or capital markets conditions. BRE assumes no liability to update this information. For more details, please refer to BRE's SEC filings, including its most recent Annual Report on Form 10-K, as amended, and quarterly reports on Form 10-Q. 7 BRE Properties, Inc. Unaudited Pro Forma Condensed Statement of Operations For the nine months ended September 30, 1997
BRE TCRW Pro Forma Historical Historical Transaction BRE as (A) (B) Adjustments Adjusted ---------- ----------- ------------ ----------- (Amounts in thousands, except per share data) Revenues: Rental $ 91,544 $ 23,313 $ 114,857 Other 6,267 1,599 1,237 (D) 9,103 ---------- ---------- ----------- ----------- Total Revenues 97,811 24,912 1,237 123,960 ---------- ---------- ----------- ----------- Expenses: Real estate expenses 31,115 9,709 (511)(E) 40,313 Depreciation and amortization 12,635 5,518 (F) 18,153 Interest 15,344 7,849 (G) 23,193 General and administrative 3,114 702 (H) 3,816 ---------- ---------- ----------- ---------- Total expenses 62,208 9,709 13,558 85,475 ---------- ----------- ----------- ---------- Income before gains on sales of investments in rental properties and minority interest in consolidated subsidiary 35,603 15,203 (12,321) 38,485 Net gain on sales of investments in rental properties 28,160 -- -- 28,160 ---------- ---------- ----------- ---------- Income before minority interest in consolidated subsidiary 63,763 15,203 (12,321) 66,645 Minority interest in consolidated subsidiary -- -- 700 (I) 700 ---------- ---------- ----------- ---------- Net income $ 63,763 $ 15,203 (13,021) 65,945 ========== ========== =========== ========== Earnings per share and share equivalent: Income before gains on sales of investments in rental properties and minority interest in consolidated subsidiary $ 1.02 $ 0.96 Net gain on sales of investments in rental properties $ 0.81 $ 0.70 ---------- ---------- Earnings per share and share equivalent $ 1.83 $ 1.66 ========== ========== Weighted average shares and share equivalents outstanding (J) 34,790 5,198 39,988 ========== =========== ========== FUNDS FROM OPERATIONS: Net income 63,763 15,203 (13,021) 65,945 Less: net gain on sale of investments (28,160) -- -- (28,160) Plus: depreciation and amortization 12,635 -- 5,518 18,153 Plus: minority interest -- -- 700 700 ---------- ---------- ----------- ---------- Funds from operations (K) $ 48,238 $ 15,203 $ (6,803) $ 56,638 ========== ========== =========== ==========
[Footnotes appear on following pages] 8 BRE Properties, Inc. Unaudited Pro Forma Condensed Statement of Operations For the year ended December 31, 1996
BRE TCRW Pro Forma Historical Historical Transaction BRE as (Amounts in thousands, except per share data) (A) (C) Adjustments Adjusted ---------- ---------- ----------- ---------- Revenues: Rental $ 93,135 $ 18,420 $ 111,555 Other 8,516 1,223 $ 1,649 (D) 11,388 --------- --------- ---------- --------- Total Revenues 101,651 19,643 1,649 122,943 --------- --------- ---------- --------- Expenses: Real estate expenses 31,030 8,179 (472) (E) 38,737 Depreciation and amortization 13,283 4,368 (F) 17,651 Interest 16,325 6,334 (G) 22,659 General and administrative 3,999 885 (H) 4,884 --------- --------- ---------- --------- Total Expenses 64,637 8,179 11,115 83,931 --------- --------- ---------- --------- Income before gains on sales of investments in rental property and minority interest in consolidated subsidiary 37,014 11,464 (9,466) 39,012 Net gain on sales of investments in rental property 52,825 -- -- 52,825 --------- --------- ---------- --------- Income before minority interest in consolidated subsidiary 89,839 11,464 (9,466) 91,837 Minority interest in consolidated subsidiary -- -- 447 447 --------- --------- ---------- --------- Net Income $ 89,839 $ 11,464 $ ($9,913) $ 91,390 ========= ========= ========== ========= Earnings per share and share equivalents: Income before gains on sales of investments in rental properties and minority interest in consolidated subsidiary $1.21 $1.16 Net gain on sales of investments in rental properties $1.73 $1.57 --------- --------- ---------- --------- Earnings per share and share equivalents $2.94 $2.73 ========= ========= ========== ========= Weighted average shares and share equivalents outstanding (J) 30,520 3,078 33,598 ========= ========= ========== ========= FUNDS FROM OPERATIONS: Net income $ 89,839 $ 11,464 ($ 9,913) $ 91,390 Less: net gain on sales of investments (52,825) -- -- (52,825) Plus: depreciation and amortization 13,283 -- 4,368 17,651 Plus: minority interest -- -- 447 447 --------- --------- --------- --------- Funds from operations (K) $ 50,297 $ 11,464 ($ 5,098) $ 56,663 ========= ========= ========= =========
[Footnotes appear on following pages] 9 BRE Properties, Inc. Unaudited Pro Forma Condensed Statement of Operations Pro Forma Transaction Adjustments (A) Historical operating results of BRE for the periods indicated. (B) Historical operating results of TCRW for the nine months ended September 30, 1997. (C) Historical operating results of TCRW for the year ended December 31, 1996. (D) Represents management fees, net of expense, for third party property management activities, assuming all clients consented to continue the contracts under BRE. (E) Net decrease in real estate expenses as a result of the Transaction are assumed as follows:
Nine months Ended Year Ended September 30, December 31, 1997 1996 -------------- ------------- Operating cost decrease due to internalization of TCRW property management ($309) ($296) Net additional cost of insurance for TCRW properties, including earthquake risk 74 72 Construction related expenditures expensed by TCRW which would have been capitalized under BRE's accounting policy (458) (471) Property Tax increase due to California Proposition 13 reassessments of TCRW properties acquired by BRE 182 223 ----- ----- Pro forma adjustment ($511) ($472) ===== =====
The foregoing data constitutes forward-looking information as to the cost and availability of earthquake and other insurance, the increases in property taxes and the decreases in property management charges. Actual results could vary materially depending on market and regulatory conditions. 10 BRE Properties, Inc. Unaudited Pro Forma Condensed Statement of Operations Pro Forma Transaction Adjustments (continued) (F) Increase in depreciation expense provided on the cost basis of the properties acquired from TCRW at BRE's purchase price. Expense is provided for the actual period during which TCRW owned the asset and the asset was in operation. The related depreciation was calculated utilizing an estimated useful life of 40 years and a cost basis of approximately $460 million (allocated 80% to buildings and improvements in accordance with BRE's accounting policies) as follows:
Nine months Ended Year Ended September 30, December 31, 1997 1996 -------------- ------------- Pro forma depreciation expense on cost of depreciable assets acquired $5,518 $4,368 ------ ------ Pro forma adjustment $5,518 $4,368 ====== ======
(G) Increase in interest expense as follows:
Nine months Ended Year Ended September 30, December 31, 1997 1996 -------------- ------------- Interest expense on TCRW loans assumed $ 4,912 $ 4,126 Capitalized interest on qualified construction expenditures for the period during which properties were under development (3,754) (2,537) Additional interest on borrowings on lines of credit at 6.60% 6,691 4,745 ------- ------- Pro forma adjustment $ 7,849 $ 6,334 ======= =======
11 BRE Properties, Inc. Unaudited Pro Forma Condensed Statement of Operations Pro Forma Transaction Adjustments (continued) (H) Increases in general and administrative costs are assumed as follows:
Nine months Ended Year Ended September 30, December 31, 1997 1996 ------------- ------------- Additional costs to manage larger portfolio and administrate the Operating Company $702 $885 ---- ---- Pro forma adjustment $702 $885 ==== ====
The foregoing data constitutes forward looking information as to the costs associated with administrating a larger portfolio and the Operating Company itself. Actual results could vary materially depending on market and regulatory conditions. (I) Represents the allocable earnings on OC Units and Performance OC Units (described below) held by the minority members. For properties assumed to be acquired during the period covered in these unaudited pro forma statements of operations, the funding of the acquisition costs (including cash, debt, BRE Common Stock, OC Units and Performance OC Units) is assumed to be in the same relative composition as that expected in the final actual purchase price for the seventeen properties. Includes earnings associated with Performance OC Units because cash distributions will be paid on such units as if they were issued and because the performance criteria for their issuance will, in the opinion of management, likely be met. Such performance units are assumed issued by BRE at January 1, 1996. (J) Net income per share is based upon the average weighted number of shares and share equivalents associated with property operations assumed outstanding during the period. OC Units and Performance OC Units are assumed to be common stock equivalents. (K) BRE considers funds from operations ("FFO") to be an appropriate supplemental measure of the performance of an equity REIT because it is predicated on cash flow analyses which facilitate an understanding of the operating performances of BRE's properties without giving effect to non- cash items such as depreciation. FFO is defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains or losses from debt restructuring and sales of property, plus 12 depreciation and amortization of real estate assets. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles, and therefore should not be considered as a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by other REITs may vary materially from that of the BRE, and therefore BRE's FFO and the FFO of other REITs may not be directly comparable. 13 BRE Properties, Inc. Preface to Unaudited Pro Forma Condensed Balance Sheet September 30, 1997 The following unaudited pro forma condensed balance sheet is presented as if the Transaction had been consummated on September 30, 1997. The pro forma balance sheet assumes that in consideration for the seventeen operating properties and eight properties under construction and development, $100 million of stock was issued, $160 million of cash was paid, $126 million in debt was assumed and OC Units of $76 million were issued to the non-BRE OC Unit holders presented herein as minority interests. The consideration does not include OC Units up to a maximum of 627,594 OC Units representing approximately $17 million of current value (at $26.93 per unit) which units are issuable only if certain performance criteria related to the development properties are met in the future. Such consideration will be recorded when, and if, it becomes probable that the performance criteria will be met using the share price into which the units are convertible at the time such units become issuable. The Transaction will be accounted for as an acquisition by BRE under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. In the opinion of BRE's management, all material adjustments necessary to reflect the effects of this transaction have been made as explained in the notes to the unaudited pro forma condensed balance sheet. The unaudited pro forma condensed balance sheet is presented for comparative purposes only and is not necessarily indicative of what the actual financial position of BRE would have been at September 30, 1997, nor does it purport to represent the future financial position of BRE. The unaudited pro forma condensed balance sheet should be read in conjunction with, and is qualified in its entirety by, the historical financial statements and notes thereto of BRE. 14 BRE Properties, Inc. Unaudited Pro Forma Condensed Balance Sheet September 30, 1997
Pro Forma BRE Transaction Historical Adjustments BRE as (A) (B) Adjusted ------------ ------------ ----------- (Dollars amounts in thousands) Assets Equity investments in real estate, net $823,991 $384,607 (C) $1,208,598 Construction in Progress -- 74,389 (C) 74,389 Cash 875 (875) (B) -- Other assets 41,217 7,187 (C) 48,404 -------- -------- ---------- Total assets 866,083 465,308 1,331,391 ======== ======== ========== Liabilities Accounts payable and other liabilities 10,671 4,071 (C) 14,742 Mortgages 112,710 125,819 (B) 238,529 Unsecured notes payable 157,000 159,352 (B) 316,352 -------- -------- ---------- Total liabilities 280,381 289,242 569,623 ======== ======== ========== Minority interest -- 76,066 (B) 76,066 Shareholder's equity Common shares 370 37 (B) 407 Additional paid-in capital 585,332 99,963 (B) 685,295 -------- -------- ---------- Total shareholder's equity 585,702 100,000 685,702 -------- -------- ---------- Total liabilities and shareholders' equity $866,083 $465,308 $1,331,391 ======== ======== ==========
[Footnotes appear on following pages] 15 BRE Properties, Inc. Unaudited Pro Forma Condensed Balance Sheet Pro Forma Transaction Adjustments (A) Historical Balance Sheet of BRE as of September 30, 1997 (B) Adjustments to record the consideration in the Transaction in accordance with the purchase method of accounting, based upon a purchase price of approximately $462 million, which uses a value of $26.93 per share of BRE common stock, among other consideration, as follows (in thousands):
Issuance of shares of BRE Common Stock.................. $100,000 Assumption of mortgage and other notes payable.......... 125,819 Cash paid to fund purchase from draws on unsecured BRE lines of credit................................... 156,640 Cash paid to fund purchase.............................. 875 Cash paid to fund direct property acquisition costs, including title, legal and environmental due diligence from draws on unsecured BRE lines of credit................................................ 2,712 Minority interest representing the contribution of minority members in the Operating Company............. 76,066 -------- Basis in acquired assets................................ $462,112 ========
The above excludes up to a maximum of $17 million of Development OC Units (assuming a share price of $26.93 per unit) issuable to TCRW upon achieving certain asset performance goals which are not measurable at this time. Included in the minority interest component above, using a share price of $26.93 per unit, is $72 million in issued OC Units and $4 million in Performance OC Units which performance units are issuable to TCRW upon development properties achieving certain performance criteria. In the opinion of management, the performance criteria will likely be attained and therefore the related Performance OC Units are accounted for as if issued. (Distributions are payable currently on the Performance OC Units as if such units were outstanding.) BRE expects to incur an additional $113 million in the two years subsequent to the close of the Transaction to complete the construction in progress on eight properties. (C) The purchase price is allocated as follows (in thousands):
Equity investments in real estate, net ................ $384,607 Construction in progress .............................. 74,389 Other assets .......................................... 7,187 Accounts payable and other liabilities ................ (4,071) -------- Total purchase price allocation ....................... $462,112 ========
16 Report of Independent Auditors Board of Directors BRE Properties, Inc. We have audited the accompanying combined statement of gross income and direct operating expenses of certain Trammell Crow Residential multifamily properties (the "Multifamily Portfolio") described in Note 3 for the year ended December 31, 1996. The combined statement of gross income and direct operating expenses is the responsibility of the management of the Multifamily Portfolio. Our responsibility is to express an opinion on the combined statement of gross income and direct operating expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of gross income and direct operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of gross income and direct operating expenses. An audit also includes assessing the basis of accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the combined statement of gross income and direct operating expenses. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of gross income and direct operating expenses, described in Note 2, was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K filed by BRE Properties, Inc. and is not intended to be a complete presentation of the Multifamily Portfolio's revenues and expenses. In our opinion, the combined statement of gross income and direct operating expenses referred to above presents fairly, in all material respects, the combined gross income and direct operating expenses of the Multifamily Portfolio, as described in Note 2, for the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP September 11, 1997 17 Multifamily Portfolio Combined Statements of Gross Income and Direct Operating Expenses (Amounts in Thousands)
For the nine months For the year ended ended September 30, December 31, 1996 1997 (Unaudited) ------------------ --------------------- Gross Income Rental income $ 18,420 $ 23,313 Other income 1,223 1,599 -------- -------- 19,643 24,912 Direct operating expenses Property taxes 1,523 1,772 Salaries and wages 1,884 2,688 Utilities 1,201 1,314 Management fees to related party 882 1,056 Insurance 306 232 Repairs and maintenance 1,414 1,326 General and administrative 969 1,321 -------- -------- 8,179 9,709 -------- -------- Excess of gross income over direct operating expenses $ 11,464 $ 15,203 ======== ========
See report of independent auditors and accompanying notes to the combined statements of gross income and direct operating expenses. 18 Multifamily Portfolio Notes to Combined Statements of Gross Income and Direct Operating Expenses For the year ended December 31, 1996, and for the nine months ended September 30, 1997 (Unaudited) 1. Organization and Contribution Agreement BRE Properties, Inc. (the "Company") is a self-administered real estate investment trust which owns and operates multifamily communities and other income-producing properties in the Western United States. In September, 1997, the Company entered into a Contribution Agreement with the owners of certain Trammell Crow Residential multifamily partnerships and limited liability companies (the "Contributors") to acquire their interests in seventeen completed and operating multifamily properties (the "Multifamily Portfolio"). Each property is owned by a separate partnership or limited liability company. The Company will acquire ownership through either acquisition of the assets or the acquisition of partnership or member interests in assets. The Company has combined certain financial information of all seventeen properties because of the common control and ownership represented by Trammell Crow Residential or one of its partners or controlled affiliates. 2. Basis of Presentation and Significant Accounting Policies The accompanying combined statements of gross income and direct operating expenses for the year ended December 31, 1996, and for the nine months ended September 30, 1997 (unaudited), were prepared for purposes of complying with the rules and regulations of the Securities and Exchange Commission. The accompanying combined financial statements are not representative of the actual future operations of the Multifamily Portfolio for the periods presented as certain of the communities are in lease-up, under rehabilitation, or were in operation for less than twelve months. In addition, certain non-operating expenses, which may not be comparable to the expenses to be incurred by the Company in the proposed future operations of the properties, have been excluded. Expenses excluded consist of interest, depreciation and amortization, professional fees and other costs not directly related to the future operations of the Multifamily Portfolio. In preparation of the combined statements of gross income and direct operating expenses in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 19 2. Basis of Presentation and Significant Accounting Policies (continued) Rental income attributable to residential leases is recorded when due from tenants, which generally approximates the straight-line basis. Substantially all tenant leases are short-term in nature. Property taxes have not been adjusted to reflect the estimated reassessed value of the Multifamily Portfolio after acquisition by the Company. Expenditures for repairs, maintenance and minor renewals are charged to expense as incurred, while those expenditures that improve or extend the estimated useful life of the Multifamily Portfolio are capitalized. The Multifamily Portfolio has management agreements with affiliates of Trammell Crow Residential ("TCR") to maintain and manage the operations of the apartment complexes. Management fees are based on a range of 3% to 5% of gross receipts. All of the management fees incurred in the periods presented were paid to affiliates to TCR. 20 Multifamily Portfolio NOTES TO COMBINED STATEMENTS OF GROSS INCOME AND DIRECT OPERATING EXPENSES (CONTINUED) 3. DESCRIPTION OF PORTFOLIO The following properties are included in the combined statements of gross income and direct operating expenses:
Approximate Month Acquired or Months in Operations Operation Commenced During 1996 Property Name Location Total Units (Unaudited) (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- Pinnacle at South Mountain I Phoenix, AZ 360 1/96 12 Pinnacle at South Mountain II Phoenix, AZ 192 12/96 1 Pinnacle at Union Hills Phoenix, AZ 264 10/96 1 Pinnacle Canyon Tucson, AZ 225 2/96 10(2) Pinnacle Heights Tucson, AZ 310 3/95 12 Deer Valley San Rafael, CA 171 9/96(1) 3 The Highlands Vallejo, CA 280 7/86 12 Overlook at Blue Ravine Folsom, CA 400 6/91 12 Parkside Village Riverside, CA 304 5/96(1) 8 Riverview Santa Ana, CA 240 2/97(1) - Somerset Park Vallejo, CA 280 2/88 12 Cimarron Village Albuquerque, NM 216 6/97(1) - Pinnacle at High Desert Albuquerque, NM 430 6/95 11(3) Pinnacle at Fort Union Salt Lake City, UT 160 1/97(1) - Pinnacle Lakeside Salt Lake City, UT 252 10/96(1) 2.5 Pinnacle Reserve Salt Lake City, UT 492 10/96(1) 3 Villa Verde Santa Ana, CA 210 8/97(1) - ------- Total Multifamily Portfolio 4,786
1996 Excess (Deficit) of Gross Income Total 1996 over Direct Total 1996 Operating Operating Property Name Revenue Expenses Expenses - ----------------------------------------------------------------------------------------------------------------------------------- Pinnacle at South Mountain I $ 3,388,105 $ 1,017,289 $ 2,370,816 Pinnacle at South Mountain II 23,236 16,289 6,949 Pinnacle at Union Hills - 23,174 (23,174) Pinnacle Canyon 709,633 540,296 169,337 Pinnacle Heights 2,149,396 883,866 1,265,530 Deer Valley 595,788 178,939 416,849 The Highlands 2,126,965 957,520 1,169,445 Overlook at Blue Ravine 3,883,039 1,474,820 2,408,219 Parkside Village 819,369 673,329 146,040 Riverview - - - Somerset Park 2,080,936 956,657 1,124,279 Cimarron Village - - - Pinnacle at High Desert 3,406,852 1,152,538 2,254,314 Pinnacle at Fort Union - - - Pinnacle Lakeside 376,796 175,063 201,733 Pinnacle Reserve 83,094 129,338 (46,244) Villa Verde - - - ------------ ----------- ---------- Total Multifamily Portfolio $ 19,643,209 $ 8,179,116 $11,464,093
- ---------------- (1) Asset acquired by seller. (2) The first two buildings were completed in February 1996, while the remaining six buildings were completed in June 1996. (3) Construction was completed in January 1996. 21 3. Description of Portfolio (continued) At December 31, 1996, there were thirteen properties in the Multifamily Portfolio, of which four apartment properties, representing 1,119 units in total, were in lease-up. An additional two properties consisting of 556 units were undergoing rehabilitation while the remaining seven properties with 1996 operations, consisting of 2,285 units, had achieved stabilized occupancy. In addition, of the thirteen multifamily properties that had operating results during the year ended December 31, 1996, seven properties were acquired by TCR or commenced operations during 1996 and were operating for less than twelve months. During the unaudited nine-month period ended September 30, 1997, four of the seventeen total multifamily properties to be acquired by BRE, representing 826 units, were purchased or began operations. These four properties were in lease- up, under rehabilitation, and stabilized, respectively. The remaining thirteen projects representing 3,960 units had reached stabilized occupancy levels. 22 EX-2.2 2 AMENDMENT NO. 1 TO CONTRIBUTION AGREEMENT Exhibit 2.2 AMENDMENT NO. 1 TO CONTRIBUTION AGREEMENT This Amendment No. 1 to the Contribution Agreement ("Amendment No. 1") dated November 18, 1997, is made and entered into by and between the TCR Signatories, on the one hand, and BRE Properties, Inc., a Maryland corporation (the "Company"), and BRE Property Investors LLC, a Delaware limited liability company (the "Operating Company" and, together with the Company, the "Transferee"), on the other hand, and amends the Contribution Agreement, dated as of September 29, 1997, by and between the TCR Signatories and the Transferee (the "Contribution Agreement"). All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Contribution Agreement. WHEREAS, the TCR Parties and the Transferee have entered into the Contribution Agreement, which provides, among other things, for the transfer from the TCR Parties to the Transferee of certain properties and related assets in accordance with the terms and subject to the conditions of the Contribution Agreement; and WHEREAS, the TCR Parties and the Transferee desire to amend the Contribution Agreement. NOW, THEREFORE, the parties hereto do hereby agree as follows: 1. Transfer of Overlook at Blue Ravine to Blue Ravine LLC. The parties hereto agree that Blue Ravine Realty Partners, as a Contributor under the Contribution Agreement, shall convey to Blue Ravine Investors, LLC, a Delaware limited liability company ("Blue Ravine LLC"), rather than to the Operating Company, all of its Real Estate Property as set forth in Section 1.1 of the Contribution Agreement. At the Closing, Blue Ravine LLC shall issue and deliver to the TCR Representatives the number of units of limited liability company membership interest in Blue Ravine (the "Blue Ravine Units") set forth in Exhibit A of the Amended and Restated Limited Liability Company Agreement of Blue Ravine Investors, LLC (the "Blue Ravine LLC Agreement") which the Company and Blue Ravine Realty Partners shall enter into, in a form mutually satisfactory to each, concurrently with the Closing. By its signature hereto, Blue Ravine LLC is hereby added as a party to the Contribution Agreement and is included within the definition of "Transferee." 2. Merger of Blue Ravine LLC. The Operating Company agrees to effectuate a state law merger between Blue Ravine LLC and the Operating Company, wherein Blue Ravine LLC will be merged with and into the Operating Company, with the Operating Company as the surviving entity (the "Blue Ravine Merger"), upon the exercise by the managing member or the non-managing member of Blue Ravine LLC, as applicable, of their rights pursuant to the Blue Ravine LLC Agreement to demand the Blue Ravine Merger. Upon consummation of the Blue Ravine Merger, each Blue Ravine Unit will be exchanged for one Unit of the Operating Company and the holders of such Units shall have the same rights as the other non-managing member unit holders of the Operating Company. 3. Withdrawn Property. Pinnacle Grove shall be a Withdrawn Property as to which the Contribution Agreement is terminated, ITCR Elliot Grove Limited Partnership shall not be 23 included within the definition of "Contributor" and the Assumed Loan related thereto shall be deleted from Schedule 2.1(b). 4. Approval of Additional Conveyances of Partnership Interests. The parties hereto agree that each of the Contributors listed below, in lieu of the direct transfer of such Contributor's Real Estate Property to the Operating Company, shall cause each of the Partners listed adjacent to such Contributor's name below to transfer to the Operating Company 100% of its Partnership Interest (which collectively represent 100% of the Partnership Interests in such Contributor). Contributor Partners Riverview LLC TCR Riverview Limited Partnership TCR Riverside, Inc. ITCR Villa Verde Limited TCR V.V. Limited Partnership Partnership TCR Villa Verde Holdings Limited Partnership Woodlake Holdings L.L.C. TCR Woodlake Limited Partnership TC Residential Phoenix II, Inc. 5. Waiver of Time Requirements. Each party to the Contribution Agreement waives the failure of any other party to the Contribution Agreement to take an action required to be taken, or deliver a document required to be delivered, within the time period specified in the Contribution Agreement so long as such action is taken or such document is delivered at or prior to the Closing. 6. Waiver of Third Party Consents. The Transferee (a) acknowledges that no Contributor will obtain the consent from any third party to any Management Contract, Office Lease, sublease or Service Contract necessary for the Contributor or the Contributing Partner, as the case may be, to consummate the transactions contemplated by the Contribution Agreement and (b) waives any breach of the Contribution Agreement relating thereto. 7. Waivers of Deliveries at Closing. The Transferee waives the requirements of Sections 9.2(h) and (j) of the Contribution Agreement relating to the pre-Closing delivery of a list of Security Deposits and Rent Rolls for each Real Property. 8. Registration of Shares. The first sentence of Section 7.10 of the Contribution Agreement is amended to read in its entirety as follows: 24 "Within six (6) months following the Closing Date or at such later date as may be appropriate under applicable rules or guidelines of the SEC but in all events within eleven (11) months following the Closing Date, the Company shall cause to be filed with the SEC a shelf registration statement and related prospectus that comply in all material respects with applicable SEC rules providing for registration under the Securities Act of the offer and sale by the Investors (as defined in the Registration Rights Agreement) of the total number of Shares that the Investors would own if they were to convert all Units owned by them into Common Stock of the Company, and within ten (10) Business Days following the Closing Date, the Company shall cause to be filed with the SEC a shelf registration statement and related prospectus that comply in all material respects with applicable SEC rules providing for registration under the Securities Act of the offer and sale by the Investors of all Shares received hereunder." 9. Updated Schedules. The Schedules attached hereto shall amend and restate in their entirety the Schedules attached to the Contribution Agreement. 10. Post Closing Adjustments. The parties hereto agree that the post- closing adjustments required pursuant to Section 10.1 of the Contribution Agreement shall also include (i) any unassessed or unrecorded property taxes attributable to any period prior to the Closing; and (ii) as to non- construction projects only, any unpaid construction or repair labor performed or materials used prior to the Closing; provided, however, that TCR shall have the right to contest the payment for such labor or materials if it, in good faith, disputes the amounts charged for such labor or materials and diligently pursues the contest of same. 11. Waivers Related to Assumed Loans. The Transferee (a) acknowledges that no Contributor will obtain the consent of the lender under the Assumed Loans listed on Exhibit A hereto (the "Excluded Loans") and (b) waives any breach of the Contribution Agreement relating thereto. With respect to each Excluded Loan, the TCR Parties waive the requirements of Section 2.2 of the Contribution Agreement requiring the Transferee to execute and deliver the Loan Assumption Documents so long as the Transferee executes and delivers such Loan Assumption Documents within 30 days of the date hereof. In the event that the Transferee is unable for any reason to consummate any such assumption, the Operating Company shall cause the Excluded Loan to be paid in full at the expiration of such 30-day time period and such payment, in lieu of assumption, shall not affect the determination of Net Value under Section 2.1(b) of the Contribution Agreement or the Cash Consideration designated under Section 2.6 of the Contribution Agreement. Each Contributor (and each Contributing Partner) shall be responsible for the payment at the expiration of such 30-day time period of any prepayment premium or penalty due in connection with the Operating Company's prepayment of any Excluded Loan of that Contributor (or, in the case of a Contributing Partner, the Assumed Loan of the Contributor of which that Contributing Partner is a Partner). 25 IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 as of the date first written above. BRE PROPERTIES, INC. /s/ Frank C. McDowell ----------------------------- By: Frank C. McDowell Its: Chief Executive Officer BRE PROPERTY INVESTORS LLC By: BRE Properties, Inc., its Managing Member /s/ Frank C. McDowell ----------------------------- By: Frank C. McDowell Its: Chief Executive Officer BLUE RAVINE INVESTORS, LLC By: BRE Properties, Inc., its Managing Member /s/ Frank C. McDowell ----------------------------- By: Frank C. McDowell Its: Chief Executive Officer 26 Exhibit A Exluded Loans Project Name Location Lender - ------------ -------- ------ 1. Somerset Park Vallejo, CA Housing Authority of the City of Vallejo, California 2. Riverview Santa Ana, CA Merrill Lynch 3. Pinnacle at Lakeside Salt Lake City, UT FNMA 27 EX-23.1 3 CONSENT OF ERNST AND YOUNG,LLP Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 33-24915) of BRE Properties, Inc. and in the related Prospectus of our report dated September 11, 1997, with respect to the combined statement of gross income and direct operating expenses of certain Trammell Crow Residential multifamily properties for the year ended December 31, 1996, included in this Current Report on Form 8-K. /s/ Ernst Young LLP November 20, 1997 28 EX-99.1 4 PRESS RELEASE DATED NOVEMBER 18, 1997 NEWS RELEASE [LOGO OF BRE] Exhibit 99.1 FOR IMMEDIATE RELEASE Contact: Lauren L. Barr BRE Properties, Inc. (415) 445-6523 BRE PROPERTIES COMPLETES ACQUISITION OF TRAMMELL CROW RESIDENTIAL'S WESTERN U.S. ASSETS AND OPERATIONS --BRE Becomes Nation's 6th Largest Apartment REIT in Transaction Valued at $585 Million-- SAN FRANCISCO (November 18, 1997) BRE Properties, Inc. (NYSE: BRE) today announced the completion of its acquisition of Trammell Crow Residential's assets and operations in the Western U.S. (TCR-West). BRE's equity market capitalization now totals approximately $1.2 billion, making it the nation's 6th largest multifamily real estate investment trust (REIT). The calculation is based on BRE's most recent closing stock price and the number of common shares and Operating Company Units ("OP Units") outstanding following the acquisition. The acquisition comprises 7,231 apartment homes (including approximately 2,445 units under development) as well as TCR-West's development, construction, and third-party property management operations. The combined company will own 81 multifamily communities, totaling 20,774 apartment units in twelve major metropolitan regions in California, Arizona, Washington, Oregon, Nevada, New Mexico, Utah and Colorado. In connection with the transaction, BRE issued $100 million of common stock (3,713,331 shares) to Prudential Real Estate Investors at a share price of $26.93. In addition, former partners of TCR-West and other investors received approximately $72 million in OP Units (2,672,088 units). Additional OP Units, valued at approximately $15.5 million, may be issued at future dates in connection with performance-based measures. The OP Units will be convertible into shares of BRE common stock on a 1:1 basis, or into an equivalent amount of cash at BRE's election, beginning one year from the date of issue. The balance of the purchase price was funded with approximately $158 million in cash and $126 million in assumed mortgages. As part of the transaction, BRE obtained the nationally-recognized development team of TCR- West, with eight apartment sites under various stages of development. Costs to complete the development properties are estimated at $113.5 million and are expected to be funded incrementally over the next 24 months. - BRE Properties, Inc. - One Montgomery Street, Suite 2500 - - Telesis Tower, San Francisco, CA 94104-5525 - - Fax: 415-445-6505 - bremail@aol.com - - more - Frank C. McDowell, president and chief executive officer of BRE Properties, said, "The acquisition significantly advances BRE's goal of becoming the preeminent multifamily REIT in the West. Not only do we add more than 7,200 high-quality apartment homes in our target markets, we benefit from the combined talents of 1,000 of the best-trained professionals in the multifamily business as associates of TCR-West's development, construction and property management divisions join forces with the BRE team. "We believe that the people, assets, expanded geographic presence and operating strengths of the 'new' company gives BRE the ability to more effectively implement its performance and growth goals. Specifically, by adding the proven development capabilities of TCR-West, we believe BRE can significantly accelerate the growth rate of its funds from operations (FFO). Leading that effort will be Bruce C. Ward, former Group Managing Partner of TCR-West, who will join BRE's senior management team as Executive Vice President with primary responsibility for acquisition and development. Certain matters discussed in this press release are forward-looking statements within the meaning of federal securities laws. Although BRE believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the company can give no assurance that such expectations will be achieved. Factors that could cause the actual results to differ materially from BRE's current expectations include general economic conditions, local real estate conditions, the timely development and lease-up of apartment communities, legislative or other regulatory decisions, future interest rate levels or capital markets conditions, as well as other risks detailed from time to time in BRE's SEC reports. For more details, please refer to BRE's most recent Annual Report on Form 10-K, as amended, for the year ended December 31, 1996. BRE Properties, Inc., headquartered in San Francisco, is a self- administered, self-managed and fully integrated real estate investment trust focusing on the acquisition, development, ownership and management of multifamily properties in the Western United States. Today, BRE owns and operates 73 apartment communities totaling 18,329 units in California, Arizona, Washington, Oregon, Nevada, New Mexico, and Utah. The company currently has eight other apartment communities under development totaling 2,445 units and will shortly expand into Colorado. Additional information about BRE can be found on the company's web site (http:\\breproperties.com). ### - BRE Properties, Inc. - One Montgomery Street, Suite 2500 - - Telesis Tower, San Francisco, CA 94104-5525 - - Fax: 415-445-6505 - bremail@aol.com - -----END PRIVACY-ENHANCED MESSAGE-----