SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-5305
BRE PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-1722214
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104-5525
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(Address of principal office) (Zip Code)
Registrant's telephone number,
including area code (415) 445-6530
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Inapplicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or15(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
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Number of shares of Class A common stock
outstanding as of January 31, 1995 10,925,483
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PART I FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BRE PROPERTIES, INC.
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BALANCE SHEETS (Dollar amounts in thousands)
January 31, July 31,
1995 1994
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ASSETS
Equity investments in real estate $ 372,579 $ 325,519
Less: Accumulated depreciation and amortization (44,441) (41,264)
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328,138 284,255
Investments in limited partnerships 1,140 1,109
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Real estate portfolio 329,278 285,364
Mortgage loans 5,896 4,516
Allowance for possible losses (1,000) (1,000)
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334,174 288,880
Cash and short-term investments 8,138 28,938
Other assets 3,752 5,077
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Total assets $ 346,064 $ 322,895
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities $ 3,695 $ 3,466
Mortgage loans payable 97,066 73,944
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Total liabilities 100,761 77,410
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Shareholders' equity
Class A common stock, $0.01 par value, issued and
outstanding 10,925,483 at January 31,1995 and
10,916,483 at July 31, 1994 109 109
Additional paid-in capital 211,619 211,340
Undistributed net realized gain on sales of properties 33,575 34,036
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Total shareholders' equity 245,303 245,485
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Total liabilities and shareholders' equity $ 346,064 $ 322,895
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See notes to financial statements.
2
BRE PROPERTIES, INC.
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STATEMENTS OF INCOME
(Amounts in thousands, expect in per share data)
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For the Three Months For the Six Months
Ended January 31 Ended January 31
--------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
REVENUE
Rental income $15,209 $12,779 $29,319 $24,911
Interest on short-term investments 112 129 354 404
Interest income on mortgage loans 165 129 303 260
Income from limited partnerships 149 149 231 254
Other income 156 99 273 196
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Total revenue 15,791 13,285 30,480 26,025
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EXPENSES
Operating expenses of equity investments 4,938 4,386 9,360 8,637
Provision for depreciation and amortization 1,955 1,663 3,740 3,236
Interest expense 1,889 950 3,340 1,957
General and administrative 1,067 807 2,641 1,724
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Total expenses 9,849 7,806 19,081 15,554
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Income before gain on sales of investments 5,942 5,479 11,399 10,471
Gain on sales of investments 1,389 169 1,389 169
Less: Related advisory fee (139) (16) (139) (16)
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Net gain on sales of investments 1,250 153 1,250 153
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NET INCOME $7,192 $5,632 $12,649 $10,624
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---------- --------- --------- ---------
Income per share
Primary
Income before gain on
sales of investments $.55 $.50 $1.05 $.96
Net gain on sales of investments .11 .01 .11 .01
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Net income $.66 .51 $1.16 $.97
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Dividends declared $.63 $.60 $1.23 $1.20
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Weighted average shares outstanding 10,934 10,939 10,933 10,938
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See notes to financial statements.
3
BRE PROPERTIES, INC.
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STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
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For the Six Months Ended
January 31
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1995 1994
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Cash flows from operating activities:
Net income $12,649 $10,624
Non-cash revenues and expenses included in income:
Net gain on tax-deferred exchanges (1,250)
Net gain on other sales (153)
Provision for depreciation and amortization 3,740 3,236
Increase (decrease) in accounts payable and other liabilities 229 (818)
Other (increase) decrease 1,385 552
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CASH FLOWS GENERATED BY OPERATING ACTIVITIES 16,753 13,441
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Cash flows from investing activities:
Equity investments:
Apartments purchased (18,041) (24,371)
Apartment expansion (1,687) (1,387)
Refurbishment of newly acquired apartments (91) (69)
Improvements to existing apartments (53) (113)
Tenant improvements:
Shopping centers (1,891) (820)
Light industrial and warehouse (608) (585)
Reconditioning of light industrial and
warehouse buildings (113) (117)
Advances on mortgage loans receivable (1,500)
Repayments on mortgage loans receivable 120 176
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NET CASH FLOWS USED IN INVESTING ACTIVITIES (23,864) (27,286)
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Cash flows from financing activities:
Mortgage loans payable:
Prepayments (1,017)
Other principal payments (579) (310)
Dividends paid (13,110) (13,100)
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NET CASH FLOWS USED IN FINANCING ACTIVITIES (13,689) (14,427)
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Decrease in cash and short-term investments (20,800) (28,272)
Balance at beginning of year 28,938 45,109
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Balance at end of period $8,138 $16,837
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4
BRE PROPERTIES, INC.
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NOTES TO FINANCIAL STATEMENTS
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January 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the company's Annual Report on Form 10-K for the fiscal year ended July 31,
1994, together with the portions of the company's 1994 Annual Report to
shareholders incorporated therein by reference. In the opinion of management,
all adjustments (consisting of normal recurring adjustments only) have been made
which are necessary for a fair statement of the results for the interim period
presented herein.
NOTE B - NET INCOME PER SHARE
Primary net income per share is based upon the average number of shares
outstanding during the periods, increased for the assumed exercise of vested,
in-the-money stock options.
NOTE C - LITIGATION
The company, because of the nature of its business, is sometimes subject to
various threatened or filed legal claims, including certain environmental
actions. While it is not feasible to predict or determine the ultimate outcome
of these matters, in the opinion of management, none of these actions,
individually or in the aggregate, will have a material effect on the company's
results of operations, cash flows, liquidity or financial position.
NOTE D - COMMITMENTS
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 a $23,800,000 construction loan made by Wells Fargo Bank. BRE
has guaranteed repayment of the loan and has the right to acquire the property
at or before completion of the construction, which is currently expected in May,
1996. In the meantime, BRE is making monthly option payments to Picerne of
$60,000 (February 1995- July 1995) and $134,000 (August 1995- March 1996). BRE's
purchase commitment to Picerne is $22,396,000, plus the option payments through
the date of purchase.
NOTE E - SUBSEQUENT EVENTS
On February 27, 1995, the Directors declared a dividend of $.63 per share,
payable March 23, 1995 to shareholders of record March 10, 1995.
5
BRE PROPERTIES, INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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January 31, 1995
LIQUIDITY AND CAPITAL RESOURCES
The company's cash and short-term investments totaled $8,138,000 at January 31,
1995, down from $28,938,000 at July 31, 1994.
In August 1994, BRE entered into an agreement to acquire seven garden apartment
communities, aggregating 1,301 units, in Tucson, Arizona from the Schomac Group,
a privately held apartment and self-storage developer headquartered in Tucson
and not affiliated with BRE. The six properties purchased during the six months
ended January 31, 1995 were as follows:
Principal
Amount of
Number Mortgages Interest
Name of Units Cost Cash Assumed Rate
- ---- -------- ---- ---- ------- ----
Casas Lindas 144 $ 7,564,000 $ 7,564,000 -- --
Colonia del Rio 176 8,868,000 3,558,000 $ 5,310,000 8.00%
Fountain Plaza 197 4,535,000 1,384,000 3,151,000 7.50%
Hacienda del Rio 248 9,296,000 418,000 (1) 5,645,000 6.45%
Oracle Village 144 6,046,000 1,826,000 4,220,000 7.88%
SpringHill 224 8,666,000 3,291,000 5,375,000 8.00%
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TOTAL 1,133 $44,975,000 $18,041,000 $23,701,000
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<FN>
(1) The cash investment in Hacienda del Rio included $3,233,000 in proceeds
from a tax-deferred exchange for Marymoor Warehouse, in Redmond, Washington.
The mortgages on Fountain Plaza and Hacienda del Rio are fully amortizing, with
final maturities in 2028. The three other mortgages assumed mature in the year
2000, with aggregate balloon payments of $13,939,000 due at that time.
Depending on market conditions at maturity, the company may choose, among other
things, to renegotiate the terms with the existing lenders, refinance the
property with other lenders or sell assets to repay the balloon amounts.
In October 1994, concurrent with the purchase of these apartment communities,
BRE also funded a $1,500,000, one-year second mortgage loan, bearing interest at
10%, secured by the Mission Heights Apartments in Tucson, Arizona, to entities
affiliated with the seller. Provided that no event of default has occurred, the
borrower may request a one-year extension, during which the interest rate rises
to 11%, and a second one-year extension, during which the interest rate rises to
12%.
6
During the six months ended January 31, 1995, construction of a 116-unit
expansion of the Scottsdale Cove Apartments in Scottsdale, Arizona was
completed. The total cost of the expansion was $6,138,000, $1,687,000 of which
was invested during the six months ended January 31, 1995.
As discussed further in Results of Operations, BRE has increased occupancy at
both The Hub and El Camino shopping centers. Space preparation and improvements
for the new tenants cost $1,572,000 at The Hub and $319,000 at El Camino. In
addition, BRE invested $749,000 for a new tenant at 515 Ellis, which property is
now under contract for sale at a reportable gain of approximately $1,055,000.
Cash commitments at January 31, 1995 include the March 23, 1995 dividend payment
of approximately $6,883,000.
As discussed in Note D, BRE plans to acquire Arcadia Cove, a 432-unit apartment
community currently under development.
In addition to cash and short-term investments, the company has available bank
lines of credit totaling $30,000,000. There were no borrowings under those
lines of credit at January 31, 1995. Management believes that its liquidity and
financial resources are sufficient to meet anticipated cash requirements.
RESULTS OF OPERATIONS
Net income for the quarter and six months ended January 31, 1995 was $7,192,000
($.66 per share), and $12,649,000 ($1.16 per share), respectively, compared to
$5,632,000 ($.51 per share) and $10,624,000 ($.97 per share) for the same
periods last year. Included in the January 31, 1995 results were net gains on
sales of investments of $1,250,000 ($.11 per share) for both the quarter and six
months, compared to $153,000 ($.01 per share) for both the quarter and six
months last year.
Funds from operations totaled $7,897,000 and $15,139,000 for the quarter and six
months ended January 31, 1995, up 11% and 10% from the comparable periods last
year. Funds from operations is defined as net income (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization.
Leasing has improved at The Hub Shopping Center, with the opening of 11 new
stores in the past several months. Both leasing and occupancy at The Hub are
now 95%, up from 89% at July 31, 1994. New tenants include Trader Joe's, which
operates 62 specialty food markets, Old Navy (part of The Gap), Taco Bell,
Styles for Less and Country Harvest Buffet. At El Camino Shopping Center,
occupancy is 93%, up from 89% at July 31, 1994. Soil stabilization and repairs
of structurally damaged buildings are underway following the January 17, 1994
Northridge earthquake. The repairs are estimated to be completed by July 1995,
with most of the costs covered by earthquake insurance. The net operating
income at both shopping centers improved during the six months ended January 31,
1995 over the comparable period last year, which included expenses for roof
replacements of $142,000 at The Hub and $100,000 at El Camino. In accordance
with industry practices, commencing August 1, 1994, future roof replacements for
all properties will be capitalized and depreciated over the expected useful
life. Roof repairs will continue to be expensed.
In the industrial segment of the portfolio, two properties are currently vacant
and being marketed to prospective tenants: the 358,000 square
7
foot warehouse in Pomona, California and the 50,000 square foot Irvine Spectrum
building in Irvine, California. Preliminary sale negotiations are underway on
Pomona Warehouse.
At January 31, 1995, overall occupancy levels by class of property were as
follows:
PROPERTY TYPE OVERALL OCCUPANCY
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Apartment Communities 96 %
Shopping Centers, including partnerships 96
Other 54
--
WEIGHTED AVERAGE 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.
REVENUE
Rental income, comprising approximately 96% of total revenue, rose 19% for the
quarter and 18% for the six months ended January 31, 1995 from the comparable
periods last year. Apartments acquired since August 1, 1993 generated gross
rents of $3,579,000 and $5,879,000 for the quarter and six months, up from
$872,000 and $1,160,000 for the comparable periods last year. Apartments owned
for two or more years contributed $208,000 and $418,000, respectively, in higher
revenue (up 3%).
As part of a financial settlement received in July 1994 from the former tenant
at Pomona Warehouse, BRE recorded $258,000 of rent during the first quarter
ended October 31, 1994. No additional revenue will be recorded until the
property is leased. Also during the first quarter ended October 31, 1994, the
tenant at Oak Creek I, who also occupies a portion of Oak Creek II, was
recapitalized, enabling it to pay BRE $175,000 of back rent and reimbursement
for other charges.
Revenues continue to be constrained by the two vacant commercial properties,
Pomona Warehouse and Irvine Spectrum. There can be no assurance that additional
vacancies will not occur.
EXPENSES
Operating expenses of equity investments increased 13% and 8% for the quarter
and six months ended January 31, 1995 from the year earlier periods, primarily
due to expenses on the new apartment acquisitions. 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 of the roof (out of a total 85,680
square feet) at 525 Almanor. The damage has been repaired, for a total estimated
cost of $375,000. Most of this cost is expected to be recovered through
property insurance. BRE has expensed $100,000 as the amount of the deductible
under its property insurance coverage.
8
The two vacant commercial properties, Pomona Warehouse and Irvine Spectrum, had
no expense for real estate taxes during either the quarter ended October 31,
1993 or October 31, 1994, because the former tenants had reimbursed the company
for the real estate taxes through December 31, 1994. Starting January 1, 1995,
the annual cost for real estate taxes is estimated to be $164,000 (Pomona
Warehouse) and $33,000 (Irvine Spectrum). In addition, BRE is paying
maintenance costs, such as security, landscaping and insurance.
Interest expense approximately doubled for the quarter and six months ended
January 31, 1995 from the comparable periods last year, reflecting the new
mortgage loans on Selby Ranch, Mira Mesa (Cimmaron, Hacienda and Westpark), and
the Schomac apartments.
General and administrative expenses for the first quarter ended October 31, 1994
include $437,000 of legal costs paid to reach an out-of-court settlement with
Big V Supermarkets, Inc. and Somers Development Corporation regarding alleged
chemical contamination of the soil and ground water underlying the Baldwin Place
Shopping Center in Somers, New York. In addition to the legal costs which have
been expensed, BRE paid $207,000 as its share of the settlement. The $207,000
is being carried in accounts receivable. BRE is seeking to recover the
settlement amount as well as 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.
On December 19, 1994, the company announced the retirement of Eugene P. Carver
as Chairman and as a Director. Director John McMahan was appointed interim
Chairman. Arthur G. von Thaden, BRE's Chief Executive Officer since the
company's founding in 1970, will replace Mr. McMahan as Chairman once a new
Chief Executive Officer is employed. Director L. Michael Foley is heading the
search committee , which has agreed to compensate an executive search firm an
amount equal to one-third of the successful candidate's estimated first year
cash compensation. The estimated fee is $100,000, of which $20,000 was paid
during the quarter ended January 31, 1995.
GAIN ON SALES
During the quarter and six months ended January 31, 1995, BRE recorded a gross
gain of $1,389,000 on the tax-deferred exchange of Marymoor Warehouse in
Redmond, Washington. The proceeds were reinvested in Hacienda del Rio Apartments
in Tucson, Arizona. The net gain on the transaction was $1,250,000 ($.11 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 $1,402,000 at January 31, 1995. The company has recorded in
its financial statements gains totaling $61,173,000 which have been deferred for
tax purposes since the company's 1970 inception through January 31, 1995.
The company has entered into an agreement to sell its light industrial property
located at 515 Ellis, in Mountain View, California. This sale is expected to
result in a reportable gain of approximately $1,055,000. In addition,
preliminary sale negotiations are underway on Pomona Warehouse, a currently
vacant light industrial property, located in Pomona, California. This sale (if
successful) is expected to result in a reportable loss, which will be more than
offset by the
9
reportable gains on Marymoor and 515 Ellis. The sales of 515 Ellis and Pomona
Warehouse are both intended for tax-deferred exchanges.
DIVIDENDS
The $.63 per share dividend declared for the quarter ended January 31, 1995, was
approximately 88% of funds from operations.
10
BRE PROPERTIES, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on November 22, 1994, the
shareholders elected two Directors for three-year terms, approved the amended
and restated 1992 Employee Stock Plan, approved the 1994 Non-Employee Director
Stock Plan, and the selection of auditors by the following votes:
FOR AGAINST WITHHELD
--------------------- ------- --------
No. of % of % of No. of No.of
Shares Quorum Outstanding Shares Shares
------ ------ ----------- ------ ------
ITEM NO. 1
(Election of Directors)
CLASS I
Malcolm R. Riley 9,036,426 99% 83% -- 94,635
Arthur G. von Thaden 9,040,492 99 83 -- 90,569
ITEM NO. 2
(Approval of
Amended and Restated 8,646,848 95 79 311,833 172,380
1992 Employee Stock
Plan)
ITEM NO. 3
(Approval of 1994
Non-Employee 8,472,943 93 78 442,269 215,849
Director Stock Plan)
ITEM NO. 4
(Approval of 9,017,102 99 83 50,564 63,395
Auditors)
There were no broker non-votes on any of the four items.
The terms of office of the company's four other directors continued after the
Annual Meeting, as follows:
Term Expires
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C. Preston Butcher 1996
Eugene P. Carver 1996*
L. Michael Foley 1995
John McMahan 1995
* On December 19, 1994, Mr. Carver retired as Chairman and as Director. The
Directors appointed John McMahan as interim Chairman. Mr. von Thaden, BRE's
Chief Executive Officer (CEO) since the company's founding in 1970, will replace
Mr. McMahan as Chairman once a new CEO has been employed. Mr. Foley is heading
the Search Committee for a candidate to fill the position of CEO.
11
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are submitted herewith:
10.1 Agreement for Continuing Services between the
company and Arthur G. von Thaden
11.0 Computation of Earnings Per Share
(b) Reports on Form 8-K. The company filed a Current
Report on Form 8-K on November 23, 1994 regarding
the acquisition of 1,301 units in seven apartment
communities in Tucson, Arizona from affiliates of
The Schomac Group.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRE PROPERTIES, INC.
(Registrant)
Date March 9, 1995 /s/ Howard E. Mason, Jr.
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Howard E. Mason, Jr.
Senior Vice President, Finance
Date March 9, 1995 /s/ Ellen G. Breslauer
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Ellen G. Breslauer
Secretary and Treasurer
13
EXHIBIT INDEX
Number Description
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10.1 Agreement for Continuing Services between the
company and Arthur G. von Thaden
11.0 Computation of Earnings per Share
27 Financial Data Schedule
14