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.
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.
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.
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 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.