Filed pursuant to Rule 424(b)(5)
Registration No. 333-68914
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 20, 2001
$150,000,000
BRE Properties, Inc.
5.95% Notes Due 2007
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The notes will mature on March 15, 2007. We will pay interest on the notes
on March 15 and September 15 of each year. The first interest payment on the
notes will be made on September 15, 2002. We may redeem the notes, in whole or
in part, at any time, at the make-whole redemption price described in this
prospectus supplement. The notes are senior unsecured debt securities and rank
equally with all of our other senior unsecured indebtedness from time to time
outstanding.
An investment in the notes involves various material risks. Before you
decide whether to purchase any of the notes, you should carefully consider the
risk factors under the heading "Risk Factors" on page 3 of the attached
prospectus.
Underwriting
Price to Discounts and Proceeds to
Public/(1)/ Commissions Company/(1)/
------------ ------------- ------------
Per Note 99.982% .600% 99.382%
Total... $149,973,000 $900,000 $149,073,000
(1) Plus accrued interest, if any, from March 12, 2002.
Delivery of the notes in book-entry form will be made on or about March 12,
2002.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
Book-Runner and Joint Lead Manager Joint Lead Manager
Credit Suisse First Boston Goldman, Sachs & Co.
Co-Managers
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Wachovia Securities
The date of this prospectus supplement is March 5, 2002.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
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BRE PROPERTIES, INC.............................. S-3
USE OF PROCEEDS.................................. S-3
DESCRIPTION OF NOTES............................. S-4
SUPPLEMENTAL FEDERAL INCOME TAX CONSIDERATIONS... S-7
UNDERWRITING..................................... S-13
LEGAL MATTERS.................................... S-14
PROSPECTUS
Page
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FORWARD-LOOKING STATEMENTS....................... 1
AVAILABLE INFORMATION............................ 1
INCORPORATION BY REFERENCE....................... 1
RISK FACTORS..................................... 3
BRE PROPERTIES, INC.............................. 3
USE OF PROCEEDS.................................. 4
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS. 4
GENERAL DESCRIPTION OF SECURITIES................ 5
DESCRIPTION OF DEBT SECURITIES................... 5
DESCRIPTION OF PREFERRED STOCK................... 25
DESCRIPTION OF COMMON STOCK...................... 28
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK;
REDEMPTION; REAL ESTATE INVESTMENT TRUST STATUS 29
FEDERAL INCOME TAX CONSIDERATIONS................ 30
PLAN OF DISTRIBUTION............................. 39
LEGAL MATTERS.................................... 39
EXPERTS.......................................... 40
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
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BRE PROPERTIES, INC.
We are a self-administered equity real estate investment trust or "REIT"
focused on the development, acquisition and management of multifamily apartment
communities in nine targeted metropolitan markets of the Western United States.
At December 31, 2001, our multifamily portfolio had real estate assets with a
book value of approximately $1.8 billion, which included: 72 wholly or majority
owned multifamily communities, aggregating 20,419 units; five communities held
through joint ventures, comprised of 1,242 apartment units; and nine apartment
communities in various stages of construction and development totaling 2,111
units.
Our principal operating objective is to maximize the economic returns of our
apartment communities so as to provide our shareholders with the greatest
possible total return and value. To achieve this objective, we pursue the
following primary strategies and goals:
. Accelerate growth from the operation of existing assets by achieving and
maintaining high occupancy levels, dynamic pricing, and operating margin
expansion through operating efficiencies and cost controls;
. Deploy new and recycled capital to supply constrained markets of the West
through a selective development and acquisition program that is supported
by a research-driven investment model;
. Create a valuable customer experience that focuses on services that
generate increased profitability from resident retention and referrals; and
. Seek to maintain balance sheet strength and financial flexibility to
provide continued access to attractively priced capital for intelligent
growth opportunities.
We have been a publicly-traded company since our founding in 1970 and have
paid 125 consecutive quarterly dividends to our shareholders from inception.
Our principal executive offices are located at 44 Montgomery Street, 36th
floor, San Francisco, California, 94104; our telephone number is (415) 445-6530.
USE OF PROCEEDS
The net proceeds from the sale of the notes are estimated to be
approximately $148,700,000. We intend to use the net proceeds to repay a
portion of the borrowings under our credit facility. We may subsequently
re-borrow amounts under the credit facility to invest in additional multifamily
apartment communities. At March 1, 2002, outstanding borrowings under our
current credit facility totaled $335 million, bear interest at the lender's
prime rate or LIBOR plus 0.70%, and were incurred for the purposes of financing
development and acquisition activities and for working capital.
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DESCRIPTION OF THE NOTES
The following description of certain terms of the notes supplements and
replaces, where inconsistent, the description of the general terms and
provisions of the debt securities set forth in the accompanying prospectus. The
following summaries of certain provisions do not purport to be complete and are
qualified in their entirety by reference to the actual provisions of the notes
and the indenture. Unless otherwise expressly stated or the context otherwise
requires, all references to the "we," "us," "our," and "ourselves" appearing
under this caption "Description of Notes" and under the caption "Description of
Debt Securities" in the accompanying prospectus shall mean BRE Properties,
Inc., excluding BRE Property Investors LLC, which we refer to as the operating
company, and its other consolidated subsidiaries. Other defined items used
under this caption "Description of Notes," but not otherwise defined shall have
the meanings given to them in the accompanying prospectus or, if not defined in
the prospectus, in the indenture referred to below.
The notes constitute debt securities (which are more fully described in the
accompanying prospectus) to be issued pursuant to an indenture dated as of June
23, 1997, as amended by a first supplemental indenture dated as of April 23,
1998, each between us and J.P. Morgan Trust Company, National Association
(successor to Chase Manhattan Bank and Trust Company, National Association), as
trustee. The terms of the notes include those provisions contained in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended. The notes are subject to all such terms, and
we urge you to read the indenture because it, and not these descriptions,
defines the rights of a holder of our notes.
General
The notes will be a separate series of debt securities under the indenture,
initially limited in aggregate principal amount to $150,000,000. The indenture
does not limit the amount of debt securities that we may issue under the
indenture, and we may, without the consent of the holders of the notes, reopen
this series of notes and issue additional notes under the indenture, in
addition to the $150,000,000 of notes authorized as of the date of this
prospectus supplement, on the same terms and conditions and with the same CUSIP
number as the notes being offered hereby. The notes will be our direct,
unsecured and unsubordinated obligations and will rank equally with all of our
other unsecured and unsubordinated indebtedness from time to time outstanding.
The notes will be exclusively our obligations. Although we own a substantial
portion of our consolidated assets ourselves, rather than through subsidiaries,
a portion of our consolidated assets (amounting to approximately 27% or our
total consolidated assets at December 31, 2001) are held by the operating
company, Cambridge Park LLC and other subsidiaries. Accordingly, our cash flow
and our consequent ability to service debt, including the notes, are partially
dependent on the earnings of our subsidiaries and the notes will be effectively
subordinated to all existing and future indebtedness, guarantees and other
liabilities of those subsidiaries. Subject to the terms of the Amended and
Restated Limited Liability Company Agreement dated as of November 18, 1997 and
the Delaware Limited Liability Company Act, we, as the sole managing member of
the operating company, have the exclusive right and power to manage the
operating company and the non-managing members have no authority to transact
business for, or participate in the management activities or decisions of, the
operating company. As of December 31, 2001, our subsidiaries had total
long-term liabilities of $100 million (consisting entirely of mortgage
indebtedness). In addition, the operating company and Cambridge Park LLC have
guaranteed amounts due under our $450 million credit facility with a syndicate
of banks. Likewise, any other subsidiary of ours with assets or net income
which, when multiplied by our effective percentage ownership interest in such
subsidiary, exceeds $30 million or 5% of our consolidated net income,
respectively, is required to guarantee the repayment or borrowings under the
credit facility. The operating company and Cambridge Park LLC and other
subsidiaries of ours may also from time to time guarantee our other
indebtedness. The notes are not guaranteed by any of our subsidiaries.
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The notes will also be effectively subordinated to any secured indebtedness
of ours with respect to any collateral pledged as security therefore. Although
the covenants described in the accompanying prospectus under "Description of
Debt Securities -- Certain Covenants" and the financial covenants in the
Amended and Restated Limited Liability Company Agreement will impose certain
limitations on the incurrence of additional indebtedness, both we and our
subsidiaries will retain the ability to incur substantial additional secured
and unsecured indebtedness in the future.
The notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The notes will be
evidenced by a global note in book-entry form, except under the limited
circumstances described in the accompanying prospectus under "Description of
Debt Securities -- Global Securities." The global note will be registered in
the name of Cede & Co., or in the name of another nominee of The Depository
Trust Company (DTC), as depositary for the notes. Notices or demands to or upon
us in respect to the notes and the indenture may be served and, in the event
that notes are issued in definitive certificated form, notes may be surrendered
for payment, registration of transfer or exchange, at the office or agency
maintained by us for this purpose in the Borough of Manhattan, New York City,
currently the corporate trust office of the trustee, located at J. P. Morgan
Trust Company, National Association, in care of JPMorgan Chase Bank,
Institutional Trust Securities Window, 55 Water Street Room 234, North
Building, New York, New York 10041.
Ratings
The notes are expected to be rated "Baa2" by Moody's, "BBB" by S&P and
"BBB+" by Fitch, Inc. The rating of the notes should be evaluated independently
from similar ratings on other types of securities. A rating is not a
recommendation to buy, sell or hold the notes, inasmuch as such rating does not
comment as to market price or suitability for a particular investor. The
ratings assigned to the notes address the likelihood of payment of principal
and interest on the notes pursuant to their terms. A rating may be subject to
revision or withdrawal at any time by the assigning rating agency.
Interest and Maturity
The notes will mature on March 15, 2007. The notes are not subject to any
sinking fund provisions.
The notes will bear interest at the rate per annum set forth on the cover
page of this prospectus supplement from March 12, 2002 or from the most recent
date to which interest has been paid or duly provided for, payable
semi-annually in arrears on each interest payment date of March 15 and
September 15, commencing September 15, 2002, to the persons in whose names the
notes are registered at the close of business on the regular record dates of
March 1 or September 1, as the case may be, immediately prior to such interest
payment dates, regardless of whether any such regular record date is a business
day. Interest on the notes will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
If any interest payment date, any redemption date, the maturity date, or any
other day on which the principal of or premium, if any, or interest on a note
becomes due and payable falls on a day that is not a business day, the required
payment will be made on the next business day as if it were made on the date
payment was due and no interest shall accrue on the amount so payable for the
period from and after the interest payment date, redemption date, maturity date
or other date, as the case may be.
Redemption at Our Option
We may redeem the notes, in whole or from time to time in part, at our
option on any date, at a redemption price equal to the greater of:
. 100% of the principal amount of the notes to be redeemed, and
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. the sum of the present values of the remaining scheduled payments of
principal and interest on the notes (exclusive of interest accrued to the
redemption date) discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 30 basis points, plus, in either case, accrued and
unpaid interest on the principal amount being redeemed to the redemption
date;
provided that installments of interest on notes which are due and payable on an
interest payment date falling on or prior to the relevant redemption date shall
be payable to the holders of such notes, or one or more predecessor debt
securities, registered as such at the close of business on the relevant regular
record date according to their terms and the provisions of the indenture.
"Treasury Rate" means, with respect to any redemption date for the notes,
. the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release published by the Board of Governors of the Federal
Reserve System designated as "Statistical Release H.15 (519)" or any
successor publication which is published weekly by the Board of Governors
of the Federal Reserve System and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity
corresponding to the Comparable Treasury Issue (if no maturity is within
three months before or after the maturity date, yields for the two
published maturities most closely corresponding to the Comparable Treasury
Issue shall be determined and the Treasury Rate shall be interpolated from
such yields on a straight line basis, rounding to the nearest month), or
. if such release (or successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate
per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such redemption date. The Treasury
Rate shall be calculated on the third business day preceding the
redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the notes to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes.
"Independent Investment Banker" means Credit Suisse First Boston Corporation
or its successor, or if such firm is unwilling or unable to select the
Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by the trustee after consultation with us.
"Comparable Treasury Price" means with respect to any redemption date for
the Notes (1) the average of four Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (2) if the trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, Goldman, Sachs & Co., Banc One Capital Markets, Inc. and Banc of
America Securities, LLC and their respective successors; provided, however,
that if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City ( a "Primary Treasury Dealer"), we will
substitute therefore another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
trustee, of the bid, and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
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We may exercise our redemption option by causing the trustee to mail written
notice of redemption to the registered holders of the particular notes to be
redeemed not less than 30 nor more than 60 calendar days prior to the date of
redemption. If less than all the notes are to be redeemed at our option, the
trustee will select, in such manner as it deems fair and appropriate, the notes
to be redeemed in whole or in part.
Unless we default in payment of the redemption price, on and after any
redemption date interest will cease to accrue on the notes or portions of the
notes called for redemption.
Covenants, Discharge, Defeasance and Covenant Defeasance
Reference is made to the sections titled "Description of Debt Securities --
Certain Covenants" and "Description of Debt Securities -- Certain Definitions"
in the accompanying prospectus for a description of certain covenants and
related defined terms applicable to the notes. In addition, the discharge,
defeasance and covenant defeasance provisions of the senior indenture described
under "Description of Debt Securities -- Discharge, Defeasance and Covenant
Defeasance" in the accompanying prospectus will apply to the notes. Such
covenant defeasance will be applicable with respect to the covenants described
in the accompanying prospectus under "Description of Debt Securities -- Certain
Covenants" (except that we will remain subject to the covenant to preserve and
keep in full force and effect our corporate existence, except as permitted as
described under "Description of Debt Securities -- Merger, Consolidation or
Sale" in the accompanying prospectus).
Except as described under "Description of Debt Securities -- Certain
Covenants" and "Description of Debt Securities -- Merger, Consolidation or
Sale" in the accompanying prospectus, the senior indenture does not contain any
provisions that would afford holders of the notes protection in the event of:
. a highly leveraged or similar transaction involving ourselves,
. a change of control or a change in our management, or
. a reorganization, restructuring, merger or similar transaction involving
ourselves that may adversely affect the holders of the notes.
In addition, subject to the limitations set forth under "Description of Debt
Securities -- Merger, Consolidation or Sale" in the accompanying prospectus, we
may, in the future, enter into certain transactions such as the sale of all or
substantially all of our assets or a merger or consolidation with another
entity that could increase the amount of our indebtedness or otherwise
adversely affect our financial condition or results of operations, which may
have an adverse affect on our ability to service our indebtedness, including
the notes.
We have no present intention of engaging in a highly leveraged or similar
transaction involving ourselves. In addition, certain restrictions on ownership
and transfers of our capital stock designed to preserve our status as a REIT
may act to prevent or hinder any such transaction or change of control. In
addition, a highly leveraged or similar transaction may violate the terms of
our outstanding debt instruments and permit the lenders to declare all
borrowings thereunder to be due and payable immediately, which would likely
have a material adverse effect on us. See "Risk Factors -- Risks Due to Real
Estate Financing" in our most recent annual report on Form 10-K which is
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
SUPPLEMENTAL FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal United States Federal income
tax consequences to you of purchasing, owning and disposing of the notes. This
summary is based on the Internal Revenue Code, legislative history,
administrative pronouncements and practices of the Internal Revenue Service,
judicial decisions and final, temporary and proposed Treasury regulations.
Future changes, legislation, Treasury regulations, administrative
interpretations and practices and court decisions may adversely affect, perhaps
retroactively, the
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tax consequences contained in this discussion. We have not requested, and do
not plan to request, any rulings from the Internal Revenue Service concerning
the tax treatment of the notes, and the statements in this prospectus
supplement are not binding on the Internal Revenue Service or any court. Thus,
the tax considerations contained in this discussion could be challenged by the
Internal Revenue Service and, if challenged, may not be sustained by a court.
This summary deals only with notes held as "capital assets" (within the
meaning of Section 1221 of the Internal Revenue Code), by holders who purchase
the notes upon their initial issuance at the price set forth on the cover of
this prospectus supplement. It does not address all the tax consequences that
may be relevant to you in light of your particular circumstances. In addition,
it does not address the tax consequences relevant to persons who receive
special treatment under the federal income tax law, except to the extent
discussed under the heading "Non-United States holders" or where specifically
noted. Holders receiving special treatment include, without limitation:
. financial institutions, banks and thrifts,
. insurance companies,
. tax-exempt organizations,
. "S" corporations,
. regulated investment companies and real estate investment trusts,
. foreign corporations or partnerships, and persons who are not residents or
citizens of the United States,
. dealers in securities or currencies,
. opersons holding notes as a hedge against currency risks or as a position
in a straddle, or
. persons whose functional currency is not the United States dollar.
In addition, if a partnership holds notes, the tax treatment of a partner in
the partnership will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding
our notes, you should consult your tax advisor regarding the tax consequences
of the ownership and disposition of the notes.
State, local and foreign income tax laws may differ substantially from the
corresponding federal income tax laws, and this discussion does not purport to
describe any aspect of the tax laws of any state, local or foreign
jurisdiction. Persons considering the purchase of notes should consult their
tax advisors concerning the application of United States federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the notes arising under the laws of any
state, local or foreign taxing jurisdiction.
As used in this section, the term "United States holder" means a beneficial
owner of a note that is for United States Federal income tax purposes either:
. a citizen or resident of the United States,
. a corporation, or a partnership, including an entity treated as a
corporation or partnership for United States Federal income tax purposes,
created or organized in or under the laws of the United States or any
State thereof or the District of Columbia, unless, in the case of a
partnership, Treasury regulations are adopted that provide otherwise,
. an estate the income of which is subject to United States Federal income
taxation regardless of its source,
. a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of such trust, or
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. any other person whose income or gain in respect of a note is effectively
connected with the conduct of a United States trade or business.
Notwithstanding the preceding sentence, to the extent provided in Treasury
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to be treated as United
States persons, shall also be considered United States holders. If you hold a
note and are not a United States holder, you are a "non-United States holder."
United States Holders
Stated Interest
Stated interest on the notes will generally be taxable to you as ordinary
income from domestic sources at the time it is paid or accrues in accordance
with your method of accounting for tax purposes.
Sale or Exchange of Notes
You will generally recognize gain or loss upon the sale, exchange,
retirement or other taxable disposition of a note equal to the difference
between the amount realized upon the sale, exchange or other disposition (less
an amount attributable to any accrued stated interest not previously included
in income, which will be taxable as interest income) and your adjusted tax
basis in the note. Your adjusted tax basis in a note will generally equal the
amount you paid for the note. Any gain or loss recognized on a disposition of
the note will be capital gain or loss. If you are an individual and have held
the note for more than one year, such capital gain will generally be subject to
tax at a maximum rate of 20%. Your ability to deduct capital losses may be
limited.
Backup Withholding and Information Reporting
Payments of interest and principal on the notes and the proceeds received
upon the sale or other disposition of such notes may be subject to information
reporting and backup withholding tax. Payments to certain holders (including,
among others, corporations and certain tax-exempt organizations) are generally
not subject to information reporting or backup withholding. Payments to a
non-corporate United States holder will be subject to information reporting and
backup withholding tax if such holder:
. fails to furnish its taxpayer identification number ("TIN"), which, for an
individual, is ordinarily his or her social security number;
. furnishes an incorrect TIN;
. is notified by the Internal Revenue Service that it has failed to properly
report payments of interest or dividends; or
. fails to certify, under penalties of perjury, that it has furnished a
correct TIN and that the Internal Revenue Service has not notified the
United States holder that it is subject to backup withholding.
The amount of any reportable payments, including interest, made to a United
States holder (other than to holders which are exempt recipients) and the
amount of tax withheld, if any, with respect to such payments will be reported
to such United States holders and to the Internal Revenue Service for each
calendar year.
A United States holder should consult its tax advisor regarding its
qualification for an exemption from backup withholding and information
reporting and the procedures for obtaining such an exemption, if applicable.
The backup withholding tax is not an additional tax, and taxpayers may use
amounts withheld as a credit against their United States federal income tax
liability or may claim a refund as long as they timely provide certain
information to the Internal Revenue Service.
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Non-United States Holders
The following is a summary of the United States federal tax consequences
that will apply to you if you are a non-United States holder of notes. The term
"non-United States holder" means a beneficial owner of a note that is not a
United States holder.
Special rules may apply to certain non-United States holders such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies." Such entities should consult their own
tax advisors to determine the United States federal, state, local and other tax
consequences that may be relevant to them.
Payment of Interest
The 30% United States federal withholding tax will not apply to any payment
to you of principal or interest on a note provided that:
. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock that are entitled to
vote within the meaning of Section 871(h)(3) of the Internal Revenue Code;
. you are not a controlled foreign corporation that is related to us through
stock ownership;
. you are not a bank whose receipt of interest on a note is described in
section 881(c)(3)(A) of the Internal Revenue Code; and
. (1) you provide your name and address, and certify, under penalties of
perjury, that you are not a United States person (which certification may
be made on an Internal Revenue Service Form W-8BEN (or a successor form))
or (2) a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its
business holds the note on your behalf and certifies, under penalties of
perjury, that it has received Internal Revenue Service Form W-8BEN from
you or from another qualifying financial institution intermediary, and, in
certain circumstances, provides a copy of the Internal Revenue Service
Form W-8BEN. If the notes are held by or through certain foreign
intermediaries or certain foreign partnerships, such foreign
intermediaries or partnerships must also satisfy the certification
requirements of applicable Treasury Regulations.
If you cannot satisfy the requirements described above, payments of interest
will be subject to the 30% United States federal withholding tax, unless you
provide us with a properly executed (1) Internal Revenue Service Form W-8BEN
claiming an exemption from or reduction in withholding under the benefit of an
applicable tax treaty or (2) Internal Revenue Service Form W-8ECI stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States. Alternative documentation may be applicable in certain circumstances.
If you are engaged in a trade or business in the United States and interest
on a note is effectively connected with the conduct of that trade or business,
you will be required to pay United States federal income tax on that interest
on a net income basis (although exempt from the 30% withholding tax provided
the certification requirement described above is met) in the same manner as if
you were a United States person as defined under the Internal Revenue Code,
except as otherwise provided by applicable tax treaty. In addition, if you are
a foreign corporation, you may be subject to a branch profits tax equal to 30%
(or lower applicable treaty rate) of your effectively connected earnings and
profits for the taxable year, subject to adjustments, that are effectively
connected with your conduct of a trade or business in the United States. For
this purpose, interest will be included in the earnings and profits of such
foreign corporation.
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Sale, Exchange or Other Taxable Disposition of Notes
Any gain realized upon the sale, exchange or other taxable disposition of a
note (except with respect to accrued and unpaid interest, which would be
taxable as described above) generally will not be subject to United States
federal income tax unless:
. that gain is effectively connected with your conduct of a trade or
business in the United States;
. you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other conditions
are met; or
. you are subject to Internal Revenue Code provisions applicable to certain
United States expatriates.
A holder described in the first bullet point above will be required to pay
United States federal income tax on the net gain derived from the sale, except
as otherwise required by an applicable tax treaty, and if such holder is a
foreign corporation, it may also be required to pay a branch profits tax at a
30% rate or a lower rate if so specified by an applicable income tax treaty. A
holder described in the second bullet point above will be subject to a 30%
United States federal income tax on the gain derived from the sale, which may
be offset by United States source capital losses, even though the holder is not
considered a resident of the United States.
United States Federal Estate Tax
The United States federal estate tax will not apply to the notes owned by
you at the time of your death, provided that (1) you do not own actually or
constructively 10% or more of the total combined voting power of all classes of
our voting stock (within the meaning of the Internal Revenue Code and the
Treasury Regulations) and (2) interest on the note would not have been, if
received at the time of your death, effectively connected with your conduct of
a trade or business in the United States.
Backup Withholding and Information Reporting
Backup withholding will likely not apply to payments made by us or our
paying agents, in their capacities as such, to a non-United States holder of a
note if the holder has provided the required certification that it is not a
United States person as described above. However, certain information reporting
may still apply with respect to interest payments even if certification is
provided. Payments of the proceeds of a disposition by a non-United States
holder of a note made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that information
reporting (but generally not backup withholding) may apply to those payments if
the broker is:
. a United States person;
. a controlled foreign corporation for United States federal income tax
purposes;
. a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified
three-year period; or
. a foreign partnership, if at any time during its tax year, one or more of
its partners are United States persons, as defined in Treasury
Regulations, who in the aggregate hold more than 50% of the income or
capital interest in the partnership or if, at any time during its tax
year, the foreign partnership is engaged in a United States trade or
business.
Payment of the proceeds of a disposition by a non-United States holder of a
note made to or through the United States office of a broker is generally
subject to information reporting and backup withholding unless the holder or
beneficial owner has provided the required certification that it is not a
United States person as described above.
S-11
A non-United States holder should consult its tax advisor regarding
application of withholding and backup withholding in its particular
circumstance and the availability of and procedure for obtaining an exemption
from withholding and backup withholding under current Treasury Regulations. In
this regard, the current Treasury Regulations provide that a certification may
not be relied on if we or our agent (or other payor) knows or has reasons to
know that the certification may be false. Any amounts withheld under the backup
withholding rules from a payment to a non-United States holder will be allowed
as a credit against the holder's United States federal income tax liability or
such holder may claim a refund, provided the required information is furnished
timely to the Internal Revenue Service.
S-12
UNDERWRITING
Under the terms and subject to the conditions contained in a terms agreement
and an underwriting agreement dated March 5, 2002, we have agreed to sell to
the underwriters named below the following respective principal amounts of the
notes:
Principal
Underwriter Amount
----------- ------------
Credit Suisse First Boston Corporation $ 90,000,000
Goldman, Sachs & Co................... 37,500,000
Banc of America Securities LLC........ 7,500,000
Banc One Capital Markets, Inc......... 7,500,000
First Union Securities, Inc........... 7,500,000
------------
Total.............................. $150,000,000
============
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes if any are purchased. The underwriting agreement also
provides that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may be increased or the offering of notes may be
terminated.
The underwriters propose to offer the notes initially at the public offering
price on the cover page of this prospectus supplement and to selling group
members at that price less a selling concession of 0.35% of the principal
amount per note. After the initial public offering, the underwriters may change
the public offering price and concession and discount to broker/dealers.
We estimate that our out of pocket expenses for this offering will be
approximately $350,000.
The notes are a new issue of securities with no established trading market.
One or more of the underwriters intend to make a secondary market for the
notes. However, they are not obligated to do so and may discontinue making a
secondary market for the notes at any time without notice. No assurance can be
given as to how liquid the trading market for the notes will be.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Over-allotment involves sales by the underwriters of notes in excess of
the principal amount of the notes the underwriters are obligated to
purchase, which creates a syndicate short position.
. Syndicate covering transactions involve purchases of notes in the open
market after the distribution has been completed in order to cover
syndicate short positions. The underwriters' short position can only be
closed out by buying notes in the open market. A short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the notes in the open market after
pricing that could adversely affect investors who purchase in the offering.
. Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the notes originally sold by such syndicate member
are purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
S-13
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
notes or preventing or retarding a decline in the market price of the notes. As
a result the price of the notes may be higher than the price that might
otherwise exist in the open market. These transactions, if commenced, may be
discontinued at any time.
In the ordinary course of their respective businesses, the underwriters and
their affiliates have engaged, and may in the future engage, in investment and
commercial banking transactions with us and certain of our affiliates, for
which they have received customary compensation. Affiliates of Banc of America
Securities LLC, Banc One Capital Markets, Inc. and First Union Securities,
Inc., underwriters in this offering, are lenders under our existing $450
million credit facility. Because we intend to use the net proceeds from this
offering to repay a portion of the borrowings under our credit facility, more
than 10% of the net proceeds of the offering may be paid to those lenders.
Therefore, this offering is being conducted in compliance with Rule 2710(c)(8)
of the Conduct Rules of the National Association of Securities Dealers, Inc.
First Union Securities, Inc. ("FUSI"), a subsidiary of Wachovia Corporation,
conducts its investment banking, institutional, and capital markets businesses
under the trade name of Wachovia Securities. Any references to "Wachovia
Securities" in this prospectus supplement, however, do not include Wachovia
Securities, Inc., a separate broker-dealer subsidiary of Wachovia Corporation
and sister affiliate of FUSI which may or may not be participating as a
separate selling dealer in the distribution of the notes.
We expect that delivery of the notes will be made against payment therefor
on or about the closing date specified on the cover page of this prospectus
supplement, which is the fifth business day following the date hereof (this
settlement cycle being referred to as "T+5"). Under Rule 15c6-1 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
trades in the secondary market generally are required to settle in three
business days, unless the parties to that trade expressly agree otherwise at
the time of the trade. Accordingly, purchasers who wish to trade the notes on
the date of this prospectus supplement or the next succeeding business day will
be required, by virtue of the fact that the notes initially will settle in T+5,
to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement and should consult their own advisor.
LEGAL MATTERS
Latham & Watkins, San Francisco, California will pass upon certain legal
matters relating to our issuance and sale of the notes, including certain of
the legal matters described in the accompanying prospectus under "Federal
Income Tax Considerations" as supplemented by the information set forth in this
prospectus supplement under "Supplemental Federal Income Tax Considerations."
Certain other legal matters relating to Maryland law will be passed upon by
Piper Marbury Rudnick & Wolfe LLP, Baltimore, Maryland, our special Maryland
counsel. Milbank, Tweed, Hadley & McCloy LLP, New York, New York will pass upon
certain legal matters for the underwriters.
S-14
PROSPECTUS
$700,000,000
BRE PROPERTIES, INC.
Debt Securities
Preferred Stock
Common Stock
-------------
We may, from time to time in one or more offerings, sell up to $700,000,000
in the aggregate of:
. our secured or unsecured debt securities, in one or more series, which may
be either senior, senior subordinated or subordinated debt securities;
. shares of our preferred stock, par value $0.01 per share, in one or more
series;
. shares of our common stock, par value $0.01 per share; or
. any combination of the foregoing.
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and any prospectus supplement
carefully before you invest.
See "Risk Factors" beginning on page 3 for a discussion of material risks
that you should consider before you invest in our securities being sold with
this prospectus.
Our common stock is traded on the New York Stock Exchange under the symbol
"BRE." On September 18, 2001, the last reported sale price for our common stock
on the New York Stock Exchange was $29.90 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is September 20, 2001.
We have not authorized any dealer, salesperson or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus and the accompanying prospectus
supplement. You must not rely upon any information or representation not
contained or incorporated by reference in this prospectus or the accompanying
prospectus supplement as if we had authorized it. This prospectus and the
accompanying prospectus supplement do not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the registered
securities to which they relate, nor does this prospectus and the accompanying
prospectus supplement constitute an offer to sell or the solicitation of an
offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. You should
not assume that the information contained in this prospectus and the
accompanying prospectus supplement is correct on any date after their
respective dates, even though this prospectus or a prospectus supplement is
delivered or securities are sold on a later date.
TABLE OF CONTENTS
Page
----
FORWARD-LOOKING STATEMENTS......................... 1
AVAILABLE INFORMATION.............................. 1
INCORPORATION BY REFERENCE......................... 1
RISK FACTORS....................................... 3
BRE PROPERTIES, INC................................ 3
USE OF PROCEEDS.................................... 4
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS...... 4
GENERAL DESCRIPTION OF SECURITIES.................. 5
Page
----
DESCRIPTION OF DEBT SECURITIES..................... 5
DESCRIPTION OF PREFERRED STOCK..................... 25
DESCRIPTION OF COMMON STOCK........................ 28
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK;
REDEMPTION; REAL ESTATE INVESTMENT TRUST STATUS.. 29
FEDERAL INCOME TAX CONSIDERATIONS.................. 30
PLAN OF DISTRIBUTION............................... 39
LEGAL MATTERS...................................... 39
EXPERTS............................................ 40
i
FORWARD-LOOKING STATEMENTS
In addition to historical information, we have made forward-looking
statements in this prospectus, the accompanying prospectus supplement and the
documents incorporated by reference within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including those pertaining to anticipated closings of
transactions and uses of proceeds and our capital resources, portfolio
performance and results of operations. Forward-looking statements involve
numerous risks and uncertainties and should not be relied upon as predictions
of future events and there can be no assurance that the events or circumstances
reflected in these statements will be achieved or will occur. You can identify
forward-looking statements by the use of forward-looking terminology including
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates," or "anticipates" or the negative
of these words and phrases or other variations of these words and phrases or
comparable terminology, or by discussions of strategy, plans or intentions.
Forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and may be incapable of being
realized.
The factors that could cause actual results and future events to differ
materially from those set forth or contemplated in the forward-looking
statements include those set forth in the risk factors incorporated by
reference in this prospectus and the accompanying prospectus supplement from
our Annual Report on Form 10-K for the year ended December 31, 2000. You are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's analysis only. We assume no obligation to update
forward-looking statements.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can inspect and
copy these reports, proxy statements and other information at the public
reference facilities of the Securities and Exchange Commission, in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain copies of
these materials from the public reference section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Securities and Exchange Commission also maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission (http://www.sec.gov). You can inspect reports and other information
we file at the office of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
This prospectus constitutes part of a registration statement on Form S-3
filed under the Securities Act with respect to the securities. As permitted by
the Securities and Exchange Commission's rules, this prospectus omits some of
the information, exhibits and undertakings included in the registration
statement. You may read and copy the information omitted from this prospectus
but contained in the registration statement, as well as the periodic reports
and other information we file with the Securities and Exchange Commission, at
the public reference facilities maintained by the Securities and Exchange
Commission in Washington, D.C.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance we refer
you to the copy of the contract or document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
INCORPORATION BY REFERENCE
We have elected to "incorporate by reference" certain information into this
prospectus. By incorporating by reference, we can disclose important
information to you by referring you to another document we have filed
1
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this prospectus, except for
information incorporated by reference that is superseded by information
contained in this prospectus. This prospectus incorporates by reference the
documents set forth below that we have previously filed with the Securities and
Exchange Commission:
. Annual Report on Form 10-K for the fiscal year ended December 31, 2000,
including information specifically incorporated by reference into our Form
10-K from our definitive proxy statement for our 2001 Annual Meeting of
Stockholders, filed with the Securities and Exchange Commission on April
2, 2001;
. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001,
filed with the Securities and Exchange Commission on May 9, 2001;
. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001,
filed with the Securities and Exchange Commission on July 30, 2001;
. Current Report on Form 8-K, filed with the Securities and Exchange
Commission on January 12, 2001; and
. the description of our 8 1/2% Series A Cumulative Redeemable Preferred
Stock contained in our Registration Statement on Form 8-A (File No.
333-47469), filed with the Securities and Exchange Commission on January
29, 1999.
We are also incorporating by reference all other reports that we file with
the Securities and Exchange Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act between the date of this prospectus and
the termination of the offering.
This prospectus may not be used to consummate sales of offered securities
unless accompanied by a prospectus supplement. The delivery of this prospectus
together with a prospectus supplement relating to particular offered securities
in any jurisdiction shall not constitute an offer in the jurisdiction of any
other securities covered by this prospectus.
We will provide to each person, including any beneficial owner, to whom this
prospectus is delivered a copy of any or all of the information that we have
incorporated by reference into this prospectus but not delivered with this
prospectus. To receive a free copy of any of the documents incorporated by
reference in this prospectus, other than exhibits, unless they are specifically
incorporated by reference in those documents, call or write to BRE Properties,
Inc., Attention: Investor Relations, 44 Montgomery Street, 36th Floor, San
Francisco, California 94104-4809 (telephone (415) 445-6530). The information
relating to us contained in this prospectus does not purport to be
comprehensive and should be read together with the information contained in the
documents incorporated or deemed to be incorporated by reference in this
prospectus.
2
RISK FACTORS
Before you decide whether to purchase any of our securities, in addition to
the other information in this prospectus and the accompanying prospectus
supplement, you should carefully consider the risk factors set forth under the
heading "Risk Factors" in the section entitled "Business" in our most recent
Annual Report on Form 10-K, which is incorporated by reference into this
prospectus and the accompanying prospectus supplement, as the same may be
updated from time to time by our future filings under the Securities Exchange
Act. For more information, see the section entitled "Incorporation by
Reference."
BRE PROPERTIES, INC.
We are a self-administered equity real estate investment trust focused on
the development, acquisition and management of multifamily apartment
communities in nine metropolitan markets of the Western United States. At June
30, 2001 our portfolio had real estate assets with a book value of
approximately $1.7 billion which included 72 wholly or majority-owned apartment
communities, aggregating 20,267 units; joint venture interests in three
additional apartment communities, comprised of 780 apartment units; and 10
apartment communities in various stages of construction and development
totaling 2,339 units. We have been a publicly-traded company since our founding
in 1970 and have paid uninterrupted quarterly dividends to our stockholders
from inception.
Our executive offices are located at 44 Montgomery Street, 36th Floor, San
Francisco, California 94104-4809, and our telephone number is (415) 445-6530.
BRE Properties, Inc. and the BRE logo are our service marks. All other service
marks and all brand names or trademarks appearing in this prospectus are the
property of their respective holders.
3
USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities for general
corporate purposes, which may include investing in additional multifamily
apartment communities, funding development activities, capital expenditures,
increasing our working capital, and reducing indebtedness. Pending the
application of the net proceeds, we expect to invest the proceeds in
investment-grade, interest-bearing securities.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following tables set forth our ratios of earnings to fixed charges and
earnings to fixed charges and preferred stock dividends for the periods
indicated:
Ratios of Earnings to Fixed Charges
Fiscal Year Ended December 31, Six Months
------------------------------ Ended
1996 1997 1998 1999 2000 June 30, 2001
---- ---- ---- ---- ---- -------------
3.2 3.1 2.2 2.4 2.1 2.3
Our ratios of earnings to fixed charges are computed by dividing earnings by
fixed charges. Earnings consist of our net income before gains (losses) on
sales of investments in rental properties and minority interests in income plus
provision for nonrecurring charges and fixed charges, excluding capitalized
interest and preferred stock dividends. Fixed charges consist of interest
payments and rental payments.
Ratios of Earnings to Fixed Charges and Preferred Stock Dividends
Fiscal Year Ended December 31, Six Months
------------------------------ Ended
1996 1997 1998 1999 2000 June 30, 2001
---- ---- ---- ---- ---- -------------
3.2 3.1 2.2 2.2 2.0 2.2
Our ratios of earnings to fixed charges and preferred stock dividends are
computed by dividing earnings by fixed charges and preferred stock dividends.
Earnings consist of our net income before gains (losses) on sales of
investments in rental properties and minority interests in income plus
provision for nonrecurring charges and fixed charges, excluding capitalized
interest and preferred stock dividends. Fixed charges consist of interest
payments and rental payments. Prior to January 1999, we did not have any
outstanding preferred stock.
4
GENERAL DESCRIPTION OF SECURITIES
We, directly or through agents, dealers or underwriters designated from time
to time, may offer, issue and sell, together or separately, in one or more
offerings, up to $700,000,000 in the aggregate of:
. secured or unsecured debt securities, in one or more series, which may be
either senior debt securities, senior subordinated debt securities or
subordinated debt securities;
. shares of our preferred stock, par value $0.01 per share, in one or more
series;
. shares of our common stock, par value $0.01 per share; or
. any combination of the foregoing, either individually or as units
consisting of one or more of the foregoing, each on terms to be determined
at the time of sale.
We may issue the debt securities as exchangeable for and/or convertible into
shares of common stock, preferred stock and/or other securities. The preferred
stock may also be exchangeable for and/or convertible into shares of common
stock, another series of preferred stock, or other securities. The debt
securities, the preferred stock and the common stock are collectively referred
to herein as the securities. When a particular series of securities is offered,
a supplement to this prospectus will be delivered with this prospectus, which
will set forth the terms of the offering and sale of the offered securities.
DESCRIPTION OF DEBT SECURITIES
This prospectus describes certain general terms and provisions of our debt
securities. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a supplement to this
prospectus. The following description of debt securities will apply to the debt
securities offered by this prospectus unless we provide otherwise in the
applicable prospectus supplement and in a supplement to the indenture, a board
resolution or an officers' certificate delivered pursuant to the indenture. The
applicable prospectus supplement for a particular series of debt securities may
specify different or additional terms.
We may offer under this prospectus up to $700,000,000 aggregate principal
amount of secured or unsecured debt securities, or if debt securities are
issued at a discount, or in a foreign currency or composite currency, such
principal amount as may be sold for an initial public offering price of up to
$700,000,000. The debt securities may be either senior debt securities, senior
subordinated debt securities or subordinated debt securities.
The debt securities are our obligations exclusively. Because a significant
portion of our operations is conducted through our subsidiaries, our cash flow
and consequent ability to service our debt, including the debt securities, are
partially dependent on the earnings of our subsidiaries and the debt securities
will be effectively subordinated to all existing and future indebtedness,
guarantees and other liabilities of our subsidiaries. Although our existing
indenture with JP Morgan Chase & Co., discussed below, imposes limitations on
the incurrence of additional indebtedness, we and our subsidiaries will retain
the ability to incur substantial additional indebtedness.
The debt securities will be issued under one or more indentures. Senior debt
securities and subordinated debt securities will be issued pursuant to separate
indentures, respectively, a senior indenture and a subordinated indenture, in
each case between us and a trustee, which may be the same trustee. The senior
indenture, with respect to any senior debt securities offered by this
prospectus, will be the indenture between us and JP Morgan Chase & Co.
(successor in interest to Chase Manhattan Bank and Trust Company, National
Association), filed as an exhibit to the registration statement of which this
prospectus is a part, or another senior indenture, the form of which is filed
as an exhibit to the registration statement of which this prospectus is a part.
The senior indenture and the subordinated indenture, as amended or supplemented
from time to time, are sometimes referred to collectively as the "indentures."
The indentures will be subject to and governed by the Trust Indenture Act of
1939, as amended. The descriptions of the debt securities and the indentures
set forth in this prospectus and in
5
any prospectus supplement do not purport to be complete and are subject to and
qualified in their entirety by reference to the forms of indentures and debt
securities, which have been or will be filed as exhibits to the registration
statement of which this prospectus is a part or incorporated by referenced by a
Form 8-K. In the summary below, we have included parenthetical cross-references
to the section numbers of the indentures so that you can easily locate these
provisions.
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions."
General
The debt securities will be our direct, secured or unsecured obligations.
Each indenture will provide that the debt securities issued under the indenture
may be issued without limit as to aggregate principal amount, in one or more
series, in each case as established from time to time in or pursuant to
authority granted by a resolution of our board of directors or as established
in one or more indentures supplemental to the applicable indenture. The terms
of any debt securities within any series may differ from the terms of any other
debt securities in that series. All debt securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the debt securities of the
series, for issuances of additional debt securities of the series. (Section
301) Any trustee under the applicable indenture may resign or be removed with
respect to one or more series of debt securities issued under the indenture,
and a successor trustee may be appointed to act with respect to that series.
Reference is made to each prospectus supplement for the specific terms of
the series of debt securities being offered thereby, including:
(1) The title of the debt securities and whether the debt securities will
be senior debt securities, senior subordinated debt securities or
subordinated debt securities;
(2) The aggregate principal amount of the debt securities and any limit
on the aggregate principal amount;
(3) The date or dates, or the method for determining the date or dates,
on which the principal of the debt securities will be payable;
(4) The rate or rates, which may be fixed or variable, or the method by
which the rate or rates shall be determined, at which the debt securities
will bear interest, if any;
(5) The date or dates, or the method for determining the date or dates,
from which the interest will accrue, the interest payment dates on which the
interest will be payable, the regular record dates for such interest payment
dates, or the method by which the regular record dates shall be determined,
and the basis upon which interest shall be calculated if other than that of
a 360-day year of twelve 30-day months;
(6) The place or places, other than or in addition to the Borough of
Manhattan, the City of New York, where the principal of, and premium, if
any, interest, if any, on, and additional amounts, if any, payable in
respect of the debt securities will be payable, any registered debt
securities may be surrendered for registration of transfer, exchange or, if
applicable, conversion, and notices or demands to or upon us in respect of
the debt securities and the applicable indenture may be served;
(7) The period or periods within which, the price or prices at which, the
currency or currencies, currency unit or units or composite currency or
currencies in which, and the other terms and conditions upon which, the debt
securities may be redeemed, in whole or in part, at our option, if we are to
have an option;
(8) Our obligation, if any, to redeem, repay or purchase the debt
securities pursuant to any sinking fund or analogous provision or at the
option of a holder, and the period or periods within which, or the date or
dates on which, the price or prices at which, the currency or currencies,
currency unit or units or composite currency or currencies in which, and
other terms and conditions upon which the debt securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to any obligation;
6
(9) If other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any registered debt securities will be
issuable and, if other than the denomination of $5,000, the denomination or
denominations in which any bearer debt securities will be issuable;
(10) If other than the trustee, the identity of each security registrar
and/or paying agent;
(11) If other than 100% of the principal amount thereof, the portion of
the principal amount of the debt securities payable upon declaration of
acceleration of the maturity thereof or, if applicable, the portion of the
principal amount of the debt securities which is convertible into our common
stock or other securities, or the method by which the portion shall be
determined;
(12) If other than United States dollars, the currency or currencies in
which the debt securities are denominated and payable;
(13) Whether the amount of payments of principal of, and premium, if any,
or interest, if any, on the debt securities may be determined with reference
to an index, formula or other method, which index, formula or method may,
but need not, be based on one or more currencies, currency units or
composite currencies, commodities, equity indices or other indices, and the
manner in which the amounts shall be determined;
(14) Whether the principal of, and premium, if any, or interest or
additional amounts, if any, on the debt securities are to be payable, at our
election or at the election of a holder, in a currency or currencies,
currency unit or units or composite currency or currencies other than that
in which the debt securities are denominated or stated to be payable, the
period or periods within which, and the terms and conditions upon which, an
election may be made, and the time and manner of, and identity of the
exchange rate agent with responsibility for, determining the exchange rate
between the currency or currencies, currency unit or units or composite
currency or currencies in which the debt securities are denominated or
stated to be payable and the currency or currencies, currency unit or units
or composite currency or currencies, currency unit or units or composite
currency or currencies in which the debt securities are to be so payable;
(15) Provisions, if any, granting special rights to the holders of debt
securities upon the occurrence of events as may be specified;
(16) Any deletions from, modifications of, or additions to the terms of
the debt securities with respect to the events of default or covenants set
forth in the applicable indenture;
(17) Whether the debt securities will be issued in certificated or
book-entry form;
(18) Whether the debt securities will be in registered or bearer form or
both and terms and conditions relating thereto;
(19) The person to whom any interest on any registered debt security will
be payable, if other than the person in whose name that debt security, or
one or more predecessor debt securities, is registered at the close of
business on the regular record date for such interest, the manner in which,
or the person to whom, any interest on any bearer debt security of the
series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature;
(20) The applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable indenture and any provisions in modification
of, in addition to or in lieu of such provisions;
(21) The circumstances, if any, under which we will pay additional
amounts on the debt securities in respect of any tax, assessment or
governmental charge and, if so, whether we will have the option to redeem
the debt securities in lieu of making the payment;
(22) The terms, if any, upon which the debt securities may be convertible
into our common stock, preferred stock or other securities or property and
the terms and conditions upon which the conversion will be effected,
including, without limitation, the initial conversion price or rate and the
conversion period; and
(23) Any other terms of the debt securities.
7
The debt securities may be original issue discount securities, which means
that they would provide for less than the entire principal amount to be payable
upon declaration of acceleration of the maturity. Any material United States
federal income tax, accounting and other considerations applicable to original
issue discount securities will be described in the applicable prospectus
supplement.
Except as set forth below under the captions "Certain Covenants--Aggregate
Debt Test," "--Maintenance of Total Unencumbered Assets," "--Debt Service Test"
and "--Secured Debt Test," which relate solely to our existing senior
indenture, the indentures will not contain any provision that would limit our
ability to incur indebtedness or that will afford holders of debt securities
protection in a highly leveraged or similar action or in the event of a change
of control. However, certain restrictions on ownership and transfers of our
equity securities designed to preserve our status as a real estate investment
trust may act to prevent or hinder a change of control.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus supplement, the
registered debt securities of any series will be issuable in denominations of
$1,000 and integral multiples of $1,000. (Section 302)
Unless otherwise specified in the applicable prospectus supplement, the
principal of, and premium, if any, and interest, if any, on any series of debt
securities will be payable at the office or agency maintained by us for such
purpose; provided that, at our option, payment of interest may be made by check
mailed to the address of the person entitled to payment as it appears in the
security register or by transfer of funds to that person at an account
maintained within the United States. (Sections 301, 305, 306, 307 and 1002)
Unless otherwise described in the applicable prospectus supplement, all
payments of principal of, and premium, if any, and interest, if any, on any
debt security that are payable in a foreign currency that ceases to be used by
its government of issuance shall be made in United States dollars.
Any defaulted interest--interest not punctually paid or duly provided for on
any interest payment date with respect to a debt security--will cease to be
payable to the holder on the applicable regular record date and may either be
paid to the person in whose name the debt security is registered at the close
of business on a special record date for the payment of the defaulted interest
to be fixed by the applicable trustee, notice of which shall be given to the
holder of the debt security not less than 10 days prior to the special record
date, or may be paid at any time in any other lawful manner, all as more
completely described in the applicable indenture. (Section 307)
Subject to certain limitations applicable to debt securities issued in
book-entry form, the debt securities of any series will be exchangeable for
other debt securities of the same series, and of a like aggregate principal
amount and tenor, in any authorized denominations upon surrender of the debt
securities at the office or agency maintained by us for such purpose. In
addition, subject to certain limitations applicable to debt securities issued
in book-entry form, the debt securities of any series may be surrendered for
conversion, if applicable, or registration of transfer thereof at the office or
agency maintained by us for such purpose. Every debt security surrendered for
conversion, if applicable, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any debt
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith. (Section 305)
If the applicable prospectus supplement refers to any transfer agent
initially designated by us with respect to any series of debt securities, we
may at any time rescind the designation of any such transfer agent or approve a
change in the location at which any such transfer agent acts, except that we
will be required to maintain a transfer agent in each place of payment for the
series. We may at any time designate additional transfer agents with respect to
any series of debt securities. (Section 1002)
8
Neither we nor any trustee will be required:
. to issue, register the transfer of or exchange debt securities of any
series if the debt securities may be among those selected for redemption
during a period beginning at the opening of business 15 days before
selection of debt securities of that series to be redeemed and ending at
the close of business on:
. the day of the mailing of the relevant notice of redemption, if the
debt securities are issuable only in registered form; or
. the day of the first publication of the relevant notice of
redemption, if the debt securities are issuable in bearer form, or
the day of mailing of the relevant notice of redemption, if the
debt securities are also issuable in registered form and there is
no publication;
. to register the transfer of or exchange any debt security in registered
form, or portion thereof, called for redemption, except the unredeemed
portion of any debt security being redeemed in part;
. to exchange any debt security in bearer form so selected for redemption
except in exchange for a debt security in registered form which is
simultaneously surrendered for redemption; or
. to issue, register the transfer of or exchange any debt security which has
been surrendered for repayment at the option of the holder, except the
portion, if any, of the debt security not to be so repaid. (Section 305)
Merger, Consolidation or Sale
Each indenture will provide that we will not, in any transaction or series
of related transactions, consolidate with, or sell, lease, assign, transfer or
otherwise convey all or substantially all of our assets to, or merge with or
into, any other person, unless:
. either we shall be the continuing corporation, or the successor person, if
other than us, formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets is a
corporation organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall expressly
assume, by supplemental indenture delivered to the trustee, the due and
punctual payment of the principal of, and premium, if any, and interest,
if any, on all of the outstanding debt securities issued under the
indenture and the due and punctual performance and observance of all of
the other covenants and conditions contained in the outstanding debt
securities and the indenture;
. immediately after giving effect to the transaction and treating any Debt,
including Acquired Debt, which becomes our obligation or an obligation of
any of our subsidiaries as a result thereof as having been incurred by us
or such subsidiary at the time of such transaction, no event of default
under the applicable indenture, and no event which, after notice or the
lapse of time or both, would become such an event of default, shall have
occurred and be continuing; and
. an officers' certificate and legal opinion concerning such conditions
shall be delivered to the relevant trustee.
In the event that we are not the continuing corporation, then, for purposes of
the second bullet point above, the references to us shall be deemed to refer to
the successor corporation. (Sections 801 and 803)
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which we are not the continuing corporation, the successor
corporation formed by such consolidation or into which we are merged or to
which such sale, assignment, transfer, lease or other conveyance is made shall
succeed to us, and be substituted for us, and may exercise all of our rights
and powers under the relevant indenture with the same effect as if the
successor corporation had been named as the Company under the indenture and
thereafter, except in the case of a lease, we shall be released from our
obligations under the indenture and the debt securities. (Section 802)
9
Certain Covenants
The existing senior indenture contains the following covenants:
Aggregate Debt Test. We will not, and will not cause or permit any of our
subsidiaries to, incur any Debt, including, without limitation, Acquired Debt,
if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom on a pro forma basis, the aggregate
principal amount of all of our outstanding Debt and all of the outstanding Debt
of our subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles, is greater than 60% of the sum of,
without duplication:
. the Total Assets of us and our subsidiaries as of the last day of the then
most recently ended fiscal quarter; and
. the aggregate purchase price of any real estate assets or mortgages
receivable acquired, and the aggregate amount of any securities offering
proceeds received, to the extent such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Debt, by us
or any of our subsidiaries since the end of such fiscal quarter, including
the proceeds obtained from the incurrence of such additional Debt,
determined on a consolidated basis in accordance with generally accepted
accounting principles. (Section 1004)
Debt Service Test. We will not, and will not cause or permit any of our
subsidiaries to, incur any Debt, including, without limitation, Acquired Debt,
if the ratio of Consolidated Income Available for Debt Service to the Annual
Debt Service Charge for the period consisting of the four consecutive fiscal
quarters most recently ended prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5:1 on a pro forma basis after
giving effect to the incurrence of such Debt and the application of the
proceeds therefrom, and calculated on the assumption that:
. such Debt and any other Debt, including, without limitation, Acquired
Debt, incurred by us or any of our subsidiaries since the first day of
such four-quarter period had been incurred, and the application of the
proceeds therefrom, including to repay or retire other Debt, had occurred,
on the first day of the period;
. the repayment or retirement of any of our other Debt or any other Debt of
our subsidiaries since the first day of such four-quarter period had
occurred on the first day of the period, except that, in making such
computation, the amount of Debt under any revolving credit facility, line
of credit or similar facility shall be computed based upon the average
daily balance of such Debt during such period; and
. in the case of any acquisition or disposition by us or any of our
subsidiaries of any asset or group of assets, in any such case with a fair
market value, determined in good faith by our board of directors, in
excess of $1 million, since the first day of such four-quarter period,
whether by merger, stock purchase or sale or asset purchase or sale or
otherwise, such acquisition or disposition had occurred as of the first
day of the period with the appropriate adjustments with respect to the
acquisition or disposition being included in such pro forma calculation.
If the Debt giving rise to the need to make the foregoing calculation or any
other Debt incurred after the first day of the relevant four-quarter period
bears interest at a floating rate then, for purposes of calculating the Annual
Debt Service Charge, the interest rate on such Debt shall be computed on a pro
forma basis as if the average rate which would have been in effect during the
entire such four-quarter period had been the applicable rate for the entire
period. (Section 1005)
Secured Debt Test. We will not, and will not cause or permit any of our
subsidiaries to, incur any Debt, including, without limitation, Acquired Debt,
secured by any lien on any of our property or assets or any of the property or
assets of our subsidiaries, whether owned on the date of the indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
the Debt and the application of the proceeds from the Debt on a pro forma
basis, the aggregate principal amount, determined on a consolidated basis in
accordance with generally accepted accounting principles, of all outstanding
Debt of ours and all outstanding Debt of our
10
subsidiaries which is secured by any lien on our property or assets or any lien
on property or assets of our subsidiaries is greater than 40% of the sum of,
without duplication:
. the Total Assets of us and our subsidiaries as of the last day of the then
most recently ended fiscal quarter; and
. the aggregate purchase price of any real estate assets or mortgages
receivable acquired, and the aggregate amount of any securities offering
proceeds received, to the extent such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Debt, by us
or any of our subsidiaries since the end of such fiscal quarter, including
the proceeds obtained from the incurrence of such additional Debt,
determined on a consolidated basis in accordance with generally accepted
accounting principles. (Section 1006)
Maintenance of Total Unencumbered Assets. We will, and will cause our
subsidiaries to, have at all times Total Unencumbered Assets of not less than
150% of the aggregate principal amount of all outstanding Unsecured Debt of us
and our subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles. (Section 1007)
The form senior and subordinated indentures do not contain any of the
covenants described above and do not contain any other limitation on the amount
of Debt of any kind which we or our subsidiaries may incur. The indentures will
not limit the amount of dividends or other distributions which we may pay to
our stockholders.
Each indenture will contain the following covenants:
Existence. Except as permitted under the provisions of the relevant
indenture described in "--Merger, Consolidation or Sale," we will do or cause
to be done all things necessary to preserve and keep in full force and effect
our corporate existence, rights, charter and statutory, and franchises;
provided, however, that we will not be required to preserve any right or
franchise if our board of directors determines that the preservation thereof is
no longer desirable in the conduct of our business and that the loss thereof is
not disadvantageous in any material respect to the holders of the debt
securities outstanding under the indenture. (Section 1008 of the existing
indenture and Section 1004 of the form senior and subordinated indentures)
Maintenance of Properties. We will cause all of our properties used or
useful in the conduct of our business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in our
judgment may be necessary so that the business carried on in connection with
our properties may be properly and advantageously conducted at all times;
provided, however, that we and our subsidiaries will not be prevented from
selling or otherwise disposing of for value their respective properties in the
ordinary course of business. (Section 1009 of the existing indenture and
Section 1005 of the form senior and subordinated indentures)
Insurance. Each indenture will require us to, and to cause each of our
subsidiaries to, keep in force upon all of our properties and operations
policies of insurance carried with responsible companies in amounts and
covering all risks as shall be customary in the industry in accordance with
prevailing market conditions and availability. (Section 1010 of the existing
indenture and Section 1006 of the form senior and subordinated indentures)
Payment of Taxes and Other Claims. We will pay or discharge or cause to be
paid or discharged, before they become delinquent:
. all taxes, assessments and governmental charges levied or imposed upon us
or any subsidiary or upon any of our income, profits or property or the
income, profits or property of any subsidiary; and
. all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien upon our property or the property of any
subsidiary, provided, however, that we will not be required to pay or
11
discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested
in good faith by appropriate proceedings. (Section 1011 of the existing
indenture and Section 1007 of the form senior and subordinated indentures)
Provision of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Securities Exchange Act, for so long as any debt
securities are outstanding, we will, to the extent permitted under the
Securities Exchange Act, file with the Securities and Exchange Commission the
annual reports, quarterly reports and other documents which we would have been
required to file with the Securities and Exchange Commission pursuant to
Section 13 or 15(d) if we were so subject, on or prior to the respective dates
by which we would have been required to file such documents. We will also in
any event:
. transmit by mail to all holders of debt securities, as their names and
addresses appear in the relevant security register, without cost to the
holders and within 15 days after each required filing date, copies of the
annual reports, quarterly reports and other documents which we would have
been required to file with the Securities and Exchange Commission pursuant
to Section 13 or 15(d) of the Securities Exchange Act if we were subject
to these sections; and
. file with the applicable trustee, within 15 days after each required
filing date, copies of the annual reports, quarterly reports and other
documents which we would have been required to file with the Securities
and Exchange Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act if we were subject to these sections.
Provided, however, that if filing such documents with the Securities and
Exchange Commission is not permitted under the Securities Exchange Act, we will
supply copies of such documents to any prospective holder of debt securities
under the relevant indenture promptly upon written request and payment of the
reasonable cost of duplication and delivery. (Section 1012 of the existing
indenture and Section 1008 of the form senior and subordinated indentures)
Events of Default, Notice and Waiver
Unless otherwise provided in the applicable prospectus supplement, each
indenture will provide that the following events are "Events of Default" with
respect to any series of debt securities issued thereunder:
. default for 30 days in the payment of any interest on or any additional
amounts payable in respect of any debt security of the series;
. default in the payment of any principal of, or premium, if any, on, any
debt security of the series at its maturity;
. default in making any sinking fund payment as required for any debt
security of the series;
. default in the performance of any other covenant or warranty contained in
the applicable indenture, other than a covenant or warranty included in
the indenture solely for the benefit of a series of debt securities other
than the series, continued for 60 days after written notice as provided in
the indenture;
. default under any bond, note, debenture or other evidence of indebtedness
of us or any of our subsidiaries or under any mortgage, indenture or other
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness of us or any of our subsidiaries
which results in the acceleration of such indebtedness in an aggregate
principal amount exceeding $20,000,000 or which constitutes a failure to
pay at maturity or other scheduled payment date (after expiration of any
applicable grace period) such indebtedness in an aggregate principal
amount exceeding $20,000,000, but only if such indebtedness is not
discharged or such acceleration is not rescinded or annulled within 10
days after notice to us by the trustee or to us and the trustee by the
holders of at least 10% in aggregate principal amount of the outstanding
debt securities of the series;
12
. certain events of bankruptcy, insolvency or reorganization with respect to
us or of any significant subsidiary; and
. any other event of default provided with respect to that series of debt
securities. (Section 501)
The term "significant subsidiary" means any subsidiary of ours which is a
significant subsidiary (as defined in Regulation S-X promulgated under the
securities Act as in effect on January 1, 1996).
If an event of default under any indenture with respect to debt securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable trustee or the holders of
not less than 25% in principal amount of the outstanding debt securities of
that series may declare the principal amount, or, if the debt securities of
that series are original issue discount securities or indexed securities, a
portion of the principal amount as may be specified in the terms thereof, of
all of the debt securities of that series to be due and payable immediately by
written notice thereof to us, and to the applicable trustee if given by the
holders. However, at any time after such a declaration of acceleration with
respect to debt securities of the series has been made, the holders of not less
than a majority in principal amount of outstanding debt securities of the
series may rescind and annul such declaration and its consequences if:
. we shall have deposited with the applicable trustee all required payments
of the principal of, and premium, if any, and interest, if any, on the
debt securities of the series, other than amounts which have become due
and payable as a result of the acceleration, plus certain fees, expenses,
disbursements and advances of the trustee; and
. all events of default, other than the nonpayment of accelerated principal,
or specified portion thereof, premium, if any, and interest, with respect
to debt securities of the series have been cured or waived as provided in
the indenture. (Section 502)
The indentures will also provide that the holders of not less than a
majority in principal amount of the outstanding debt securities of any series
may waive any past default with respect to the series and its consequences,
except a default:
. in the payment of the principal of, or premium, if any, or interest, if
any, on any debt security of the series; or
. in respect of a covenant or provision contained in the applicable
indenture that cannot be modified or amended without the consent of the
holder of each outstanding debt security of the series affected thereby.
(Section 513)
The indentures will require each trustee to give notice to the holders of
debt securities issued thereunder within 90 days of a default under the
applicable indenture known to the trustee, unless such default shall have been
cured or waived; provided, however, that the trustee may withhold notice to the
holders of any series of debt securities of any default with respect to the
series, except a default in the payment of the principal of, or premium, if
any, or interest, if any, on any debt security of the series or in the payment
of any sinking fund installment in respect of any debt security of the series,
if a responsible officer of the trustee determines the withholding to be in the
interest of the holders. (Section 601)
The indentures will provide that no holder of debt securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to the indenture or for any remedy thereunder, except in the case of
the failure of the applicable trustee, for 60 days, to act after it has
received a written request to institute proceedings in respect of an event of
default from the holders of not less than 25% in principal amount of the
outstanding debt securities of the series, as well as an offer of reasonable
indemnity. (Section 507) This provision will not prevent, however, any holder
of debt securities from instituting suit for the enforcement of payment of the
principal of, and premium, if any, and interest, if any, on the debt securities
held by that holder at the respective due dates thereof. (Section 508)
13
The indentures will provide that, subject to provisions to each indenture
relating to its duties in case of default, a trustee thereunder is under no
obligation to exercise any of its rights or powers under an indenture at the
request or direction of any holders of any series of debt securities then
outstanding under the indenture, unless the holders shall have offered to the
trustee thereunder reasonable security or indemnity. (Section 602) The holders
of not less than a majority in principal amount of the outstanding debt
securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
of exercising any trust or power conferred upon the trustee. However, a trustee
may refuse to follow any direction which is in conflict with any law or the
applicable indenture, which may involve the trustee in personal liability or
which may be unduly prejudicial to the holders of debt securities of the series
not joining therein. (Section 512)
Within 120 days after the close of each fiscal year, we must deliver to the
relevant trustee a certificate, signed by one of several of our specified
officers, stating whether or not such officer has knowledge of any
noncompliance under the applicable indenture and, if so, specifying such
noncompliance and the nature and status thereof. (Section 1014 of the existing
indenture and Section 1010 of the form senior and subordinated indentures)
Modification of the Forms of Indenture
Modifications and amendments of an indenture may be made only with the
consent of the holders of not less than a majority in principal amount of all
outstanding debt securities of each series issued thereunder which are affected
by such modification or amendment; provided, however, that no modification or
amendment may, without the consent of the holder of each such debt security
affected thereby:
. change the stated maturity of the principal of, or any installment of
interest, if any, or premium, if any, on, the debt security;
. reduce the principal amount of, or the rate or amount of interest on, or
any amount of premium payable on the debt security, or reduce the amount
of principal of an original issue discount security that would be due and
payable upon declaration of acceleration of the maturity thereof or would
be provable in bankruptcy, or adversely affect any right of the holder of
any such debt security to repayment of such debt security at the holder's
option;
. change the place of payment, or the coin or currency, for payment of
principal of, or premium, if any, or interest, if any, on the debt
security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to the debt security;
. reduce the percentage in principal amount of outstanding debt securities
of any series necessary to modify or amend the applicable indenture with
respect to the debt securities, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the applicable
indenture;
. modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to provide that
certain other provisions may not be modified or waived without the consent
of the holder of the debt security; or
. make any change that adversely affects the right, if any, to convert or
exchange any debt security for our equity securities or other securities
or property in accordance with the terms of the debt security.
(Section 902)
Each indenture provides that the holders of not less than a majority in
principal amount of outstanding debt securities of any series issued thereunder
have the right to waive our compliance with certain covenants in the
14
indenture applicable to the series, including those described in the section of
this prospectus captioned "Description of Debt Securities--Certain Covenants."
(Section 1013 of the existing indenture and Section 1009 of the form senior and
subordinated indentures)
Modifications and amendments of an indenture may be made by us and the
applicable trustee without the consent of any holder of debt securities issued
thereunder for any of the following purposes:
. to evidence the succession of another person to us as obligor under the
indenture;
. to add to our covenants for the benefit of the holders of all or any
series of debt securities issued thereunder or to surrender any right or
power conferred upon us in the indenture;
. to add events of default for the benefit of the holders of all or any
series of debt securities issued thereunder;
. to add or change any provisions of the indenture to facilitate the
issuance of debt securities issued thereunder in bearer form, or to permit
or facilitate the issuance of the debt securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
holders of the debt securities of any series in any material respect;
. to change or eliminate any provision of the indenture, provided that no
such change or elimination shall become effective with respect to the
outstanding debt securities of any series issued thereunder which were
first issued prior to the date of such change or elimination and which are
entitled to the benefit of the provision;
. to secure the debt securities issued thereunder;
. to establish the form or terms of debt securities of any series issued
thereunder, including the provisions and procedures, if applicable, for
the conversion of the debt securities into common stock or preferred stock;
. to provide for the acceptance of appointment by a successor trustee or to
facilitate the administration of the trusts under the indenture by more
than one trustee;
. to cure any ambiguity, defect or inconsistency in the indenture or to make
any other provisions with respect to matters or questions arising
thereunder, provided that such action shall not adversely affect the
interests of holders of outstanding debt securities of any series issued
thereunder in any material respect; or
. to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance, covenant defeasance and
discharge of any series of debt securities issued thereunder, provided
that such action shall not adversely affect the interests of the holders
of the debt securities of any series issued thereunder in any material
respect. (Section 901)
The indentures will provide, that in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
holders of the debt securities:
. the principal amount of an original issue discount security that shall be
deemed to be outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof;
. the principal amount of a debt security denominated in a foreign currency
that shall be deemed outstanding shall be the United States dollar
equivalent, determined on the issue date for the debt security, of the
principal amount, or, in the case of an original issue discount security,
the United States dollar equivalent on the issue date of the debt security
of the amount determined as provided in the first bullet point above;
15
. the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of the indexed security at
original issuance, unless otherwise provided with respect to the indexed
security pursuant to the indenture; and
. debt securities owned by us or any other obligor upon the debt securities
or any affiliate of us or of such other obligor shall be disregarded.
(Section 101)
The indentures will contain provisions for convening meetings of the holders
of debt securities of a series issued thereunder. (Section 1501) A meeting may
be called at any time by the applicable trustee and also, upon request, by us
or the holders of at least 10% in principal amount of the outstanding debt
securities of the series, in any such case upon notice given as provided in the
applicable indenture. (Section 1502) Except for any consent that must be given
by the holder of each debt security affected by certain modifications and
amendments of the indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding debt securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the holders of a specified percentage, which is less or
more than a majority, in principal amount of the outstanding debt securities of
a series may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the holders of such
specified percentage in principal amount of the outstanding debt securities of
that series. Any resolution passed or decision taken at any meeting of holders
of debt securities of any series duly held in accordance with the applicable
indenture will be binding on all holders of debt securities of that series. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding debt securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage, which is
less or more than a majority, in principal amount of the outstanding debt
securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding debt securities of the series
will constitute a quorum. (Section 1504)
Notwithstanding the provisions described above, the indentures will provide
that if any action is to be taken at a meeting of holders of debt securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the applicable indenture expressly
provides may be made, given or taken by the holders of a specified percentage
in principal amount of all outstanding debt securities affected thereby, or by
the holders of a specified percentage in principal amount of the outstanding
debt securities of the series and one or more additional series,
. there shall be no minimum quorum requirement for such meeting; and
. the principal amount of the outstanding debt securities of the series that
are entitled to vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into
account in determining whether any request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or
taken under the indenture. (Section 1504)
Discharge, Defeasance and Covenant Defeasance
Unless otherwise indicated in the applicable prospectus supplement, upon our
request, any indenture shall cease to be of further effect with respect to any
specified series of debt securities issued thereunder, except as to certain
limited provisions of the indenture which shall survive, when either all debt
securities of the series have been delivered to the trustee for cancellation,
subject to certain exceptions, or all debt securities of the series have become
due and payable or will become due and payable within one year, or, if
redeemable, are scheduled for redemption within one year, and we have
irrevocably deposited with the applicable trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which the debt securities are payable in an amount sufficient to
pay the entire indebtedness on the debt securities in respect of principal, and
16
premium, if any, and interest to the date of such deposit, if the debt
securities have become due and payable, or to the stated maturity or redemption
date, as the case may be.
Each indenture provides that, unless otherwise provided in the applicable
prospectus supplement, we may elect with respect to any series of debt
securities issued thereunder either:
. to defease and be discharged from any and all obligations with respect to
the debt securities, except, among other things, for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on the debt
securities and the obligations to register the transfer or exchange of the
debt securities, to replace temporary or mutilated, destroyed, lost or
stolen debt securities, to maintain an office or agency in respect of the
debt securities and to hold moneys for payment in trust) ("defeasance")
(Section 1402); or
. to be released from our obligations with respect to the debt securities
under the applicable covenants described above under the caption "Certain
Covenants", except that we will remain subject to the covenant to preserve
and keep in full force and effect our corporate existence, except as
permitted under the provisions described under "--Merger, Consolidation or
Sale", and, if provided pursuant to the indenture, our obligations with
respect to any other covenants applicable to the debt securities of the
series, and any omission to comply with such obligations shall not
constitute a default or an event of default with respect to the debt
securities. ("covenant defeasance") (Section 1403)
In either case, the discharge, defeasance or covenant defeasance shall occur
upon the irrevocable deposit by us with the applicable trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies in which the debt securities are payable at stated
maturity or, if applicable, upon redemption, or Government Obligations, or
both, applicable to the debt securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of, and premium, if any, and interest,
if any, on the debt securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor or the applicable
redemption date, as the case may be.
Such a trust may only be established if, among other things:
. we have delivered to the applicable trustee an opinion of counsel, as
specified in the applicable indenture, to the effect that the holders of
the debt securities will not recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable United States federal income tax law occurring after
the date of the indenture;
. if the cash and Government Obligations deposited are sufficient to pay the
outstanding debt securities of the series provided the debt securities are
redeemed on a particular redemption date, and we have given the applicable
trustee irrevocable instructions to redeem the debt securities on that
date; and
. no event of default or event which with notice or lapse of time or both
would become an event of default with respect to debt securities of the
series shall have occurred and shall be continuing on the date of, or,
solely in the case of events of default described in the sixth bullet of
the first paragraph under "--Events of Default, Notice and Waiver" above,
during the period ending on the 91st day after the date of, such deposit
into trust. (Section 1404)
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Unless otherwise provided in the applicable prospectus supplement, if after
we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series:
. the holder of a debt security of the series is entitled to, and does,
elect to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such debt security; or
. a Conversion Event occurs in respect of the currency, currency unit or
composite currency in which such deposit has been made; then:
the indebtedness represented by such debt security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest, if any, on such debt security
as it becomes due out of the proceeds yielded by converting the amount so
deposited in respect of such debt security into the currency, currency unit or
composite currency in which such debt security becomes payable as a result of
such election or such Conversion Event. (Section 1405)
In the event we effect covenant defeasance with respect to the debt
securities of any series and the debt securities are declared due and payable
because of the occurrence of any event of default, other than an event of
default with respect to any covenant as to which there has been covenant
defeasance, the amount of monies and Government Obligations deposited with the
applicable trustee to effect covenant defeasance may not be sufficient to pay
amounts due on the debt securities at the time of their stated maturity or at
the time of the acceleration resulting from such event of default. In any such
event, we would remain liable to make payment of amounts due at the time of
acceleration.
The applicable prospectus supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
Subordination of Subordinated Securities
The payment of the principal of, and premium, if any, and interest, if any,
on the subordinated debt securities will be subordinated as set forth in the
subordinated indenture in right of payment to the prior payment of all of our
Senior Indebtedness whether outstanding on the date of the subordinated
indenture or thereafter incurred. (Section 1601 of the subordinated indenture)
At June 30, 2001, we had approximately $483,000,000 of Senior Indebtedness
outstanding. There are no restrictions in the subordinated indenture upon the
incurrence of additional Senior Indebtedness.
The subordinated indenture will provide that, in the event
. of any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, whether in bankruptcy, insolvency,
reorganization or receivership proceeding or upon an assignment for the
benefit of creditors or any other marshaling of our assets and liabilities
or otherwise, except a distribution in connection with a merger or
consolidation or a conveyance or transfer of all or substantially all of
our properties which complies with the requirements of Article Eight of
the subordinated indenture (described above under "Merger, Consolidation
or Sale");
. that a default shall have occurred and be continuing with respect to the
payment of principal of, or premium, if any, or interest on any Senior
Indebtedness; or
. that the principal of the subordinated debt securities of any series
issued under the subordinated indenture, or in the case of original issue
discount securities, the portion of the principal amount thereof referred
to in Section 502 of the subordinated indenture, shall have been declared
due and payable pursuant to Section 502 of the subordinated indenture, and
such declaration shall not have been rescinded and annulled as provided in
Section 502; then:
(1) in a circumstance described in the first two bullet points, the
holders of all Senior Indebtedness, and in the circumstance described in
the third bullet point above, the holders of all Senior
18
Indebtedness outstanding at the time the principal of such subordinated
debt securities issued under the subordinated indenture, or in the case
of original issue discount securities, such portion of the principal
amount, shall have been so declared due and payable, shall first be
entitled to receive payment of the full amount due thereon in respect of
principal, premium, if any, interest and additional amounts, or
provision shall be made for such payment in money or money's worth,
before the holders of any of the subordinated debt securities are
entitled to receive any payment on account of the principal of, or
premium, if any, or interest, if any, on or any additional amount in
respect of the indebtedness evidenced by the subordinated debt
securities;
(2) any payment by us, or distribution of assets, of any kind or
character, whether in cash, property or securities, other than certain
of our subordinated debt securities issued in a reorganization or
readjustment, to which the holder of any of the subordinated debt
securities would be entitled except for the subordination provisions of
Article Seventeen of the subordinated indenture shall be paid or
delivered by the person making such payment or distribution directly to
the holders of Senior Indebtedness, as provided in clause (1) above, or
on their behalf, ratably according to the aggregate amount remaining
unpaid on account of such Senior Indebtedness, to the extent necessary
to make payment in full of all Senior Indebtedness, as provided in
clause (1) above, remaining unpaid after giving effect to any concurrent
payment or distribution, or provisions therefor, to the holders of such
Senior Indebtedness, before any payment or distribution is made to or in
respect of the holders of the subordinated debt securities; and
(3) in the event that, notwithstanding the foregoing, any payment by
us, or distribution of our assets of, of any kind or character is
received by the holders of any of the subordinated debt securities
issued under the subordinated indenture before all Senior Indebtedness
is paid in full such payment or distribution shall be paid over to the
holders of such Senior Indebtedness or on their behalf, ratably as
described, for application to the payment of all such Senior
Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution, or provisions therefor, to the holders of such Senior
Indebtedness.
By reason of such subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain of our general creditors,
including holders of Senior Indebtedness, may recover more, ratably, than the
holders of the subordinated debt securities.
Convertible Debt Securities
If set forth in the applicable prospectus supplement, debt securities of any
series may be convertible into common stock or other securities on the terms
and subject to the conditions set forth in the prospectus supplement.
The applicable prospectus supplement may set forth limitations on the
ownership or conversion of convertible debt securities intended to protect our
status as a real estate investment trust for United States federal income tax
purposes.
Reference is made to the sections captioned "Description of Common Shares,"
and "Description of Preferred Shares" for a general description of securities
which may be issued upon the conversion of convertible debt securities.
Global Securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, The Depository Trust Company, New York, New York ("DTC"), or such other
depository as may be identified in the applicable prospectus supplement. Global
securities may be issued in either registered or bearer form and in either
temporary or permanent form. Unless otherwise provided
19
in a prospectus supplement, debt securities that are represented by a global
security will be issued in any authorized denomination and will be issued in
registered or bearer form.
We anticipate that any global securities will be deposited with, or on
behalf of DTC, and that the global securities will be registered in the name of
Cede & Co., DTC's nominee. We further anticipate that the following provisions
will apply to the depository arrangements with respect to any global
securities. Any additional or differing terms of the depository arrangements
will be described in the prospectus supplement relating to a particular series
of debt securities issued in the form of global securities.
So long as DTC or its nominee is the registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole holder of
the debt securities represented by the global security for all purposes under
the applicable indenture. Except as described below, owners of beneficial
interests in a global security will not be entitled to have debt securities
represented by the global security registered in their names, will not receive
or be entitled to receive physical delivery of debt securities in certificated
form and will not be considered the owners or holders thereof under the
applicable indenture. The laws of some states require that certain purchasers
of securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests in
a global security.
Unless otherwise specified in the applicable prospectus supplement, each
global security of any series will be exchangeable for certificated debt
securities of the same series only if:
. DTC notifies us that it is unwilling or unable to continue as depository
or DTC ceases to be a clearing agency registered under the Securities
Exchange Act, if so required by applicable law or regulation, and, in
either case, a successor depository is not appointed by us within 90 days
after we receive such notice or become aware of any ineligibility;
. we in our sole discretion determine that the global securities shall be
exchangeable for certificated debt securities; or
. there shall have occurred and be continuing an event of default under the
indenture with respect to the debt securities of the series and beneficial
owners representing a majority in aggregate principal amount of the debt
securities represented by global securities advise DTC to cease acting as
depository. Upon any such exchange, owners of a beneficial interest in the
global security or securities will be entitled to physical delivery of
individual debt securities in certificated form of like tenor, terms and
rank, equal in principal amount to such beneficial interest, and to have
the debt securities in certificated form registered in the names of the
beneficial owners, which names are expected to be provided by DTC's
relevant participants, as identified by DTC, to the applicable trustee.
Unless otherwise described in the applicable prospectus supplement, debt
securities so issued in certificated form will be issued in denominations
of $1,000 or any integral multiple thereof, and will be issued in
registered form only, without coupons.
The following is based on information furnished to us:
DTC will act as securities depository for the debt securities. The debt
securities will be issued as fully registered securities registered in the name
of Cede & Co., DTC's partnership nominee. One fully registered debt security
certificate will be issued with respect to each $400 million, or another amount
as shall be permitted by DTC from time to time, of principal amount of the debt
securities of a series, and an additional certificate will be issued with
respect to any remaining principal amount of the series.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act. DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions,
20
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
direct participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others, such as securities
brokers and dealers, and banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the Securities and Exchange Commission.
Purchases of debt securities under the DTC system must be made by or through
direct participants, which will receive a credit for the debt securities on
DTC's records. The ownership interest of each actual purchaser of each debt
security ("Beneficial Owner") is in turn recorded on the direct and indirect
participants' records. A Beneficial Owner does not receive written confirmation
from DTC of its purchase, but is expected to receive a written confirmation
providing details of the transaction, as well as periodic statements of its
holdings, from the direct or indirect participant through which such Beneficial
Owner entered into the transaction. Transfers of ownership interests in debt
securities are accomplished by entries made on the books of direct and indirect
participants acting on behalf of Beneficial Owners. Beneficial Owners do not
receive certificates representing their ownership interests in debt securities,
except under the circumstances described above.
To facilitate subsequent transfers, the debt securities are registered in
the name of DTC's nominee, Cede & Co. The deposit of the debt securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the debt securities; DTC records reflect only the identity of the direct
participants to whose accounts debt securities are credited, which may or may
not be the Beneficial Owners. The participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to direct participants,
by direct participants to indirect participants, and by direct participants and
Indirect participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the debt
securities. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants to whose
accounts the debt securities are credited on the record date, identified on a
list attached to the omnibus proxy.
Principal payments, premium payments, if any, and interest payments, if any,
on the debt securities will be made to DTC. DTC's practice is to credit direct
participants' accounts on the payment date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it
will not receive payment on the payment date. Payments by direct and indirect
participants to Beneficial Owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such direct and indirect participants and not of DTC, the
applicable trustee or us, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal, and premium, if
any, and interest, if any, to DTC is our responsibility or the responsibility
of the applicable trustee, disbursement of payments to direct participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of direct and indirect participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the debt securities of a series represented by global securities are
being redeemed, DTC's practice is to determine by lot the amount of the
interest of each direct participant in the issue to be redeemed.
21
To the extent that any debt securities provide for repayment or repurchase
at the option of the holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the global security repaid by us,
through its participant, to the applicable trustee, and shall effect delivery
of interest in a global security by causing the direct participant to transfer
the participant's interest in the global security or securities representing
interest, on DTC's records, to the trustee. The requirement for physical
delivery of debt securities in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the global security or securities
representing the debt securities are transferred by direct participants on
DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the debt securities at any time by giving reasonable notice to us or
the applicable trustee. Under such circumstances, in the event that a successor
securities depository is not appointed, debt security certificates are required
to be printed and delivered as described above.
We may decide to discontinue use of the system of book-entry transfers
through DTC, or a successor securities depository. In that event, debt security
certificates will be printed and delivered as described above.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy of this information.
Neither we, the applicable trustee or any applicable paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a global security, or for
maintaining, supervising or reviewing any records relating to any beneficial
interest.
Certain Definitions
Set forth below are certain defined terms used in the indentures. Reference
is made to the applicable indenture for a full disclosure of all defined terms,
as well as any other terms used in this prospectus for which no definition is
provided.
"Acquired Debt" means Debt of a person:
. existing at the time that person is merged or consolidated with or into,
or becomes a subsidiary of, us; or
. assumed by us or any of our subsidiaries in connection with the
acquisition of assets from that person.
Acquired Debt shall be deemed to be incurred on the date the acquired person
is merged or consolidated with or into, or becomes a subsidiary of, us or the
date of the related acquisition, as the case may be.
"Annual Debt Service Charge" means, for any period, our interest expense and
the interest expense of our subsidiaries for such period, including, without
duplication, (1) all amortization of debt discount, (2) all accrued interest,
(3) all capitalized interest, and (4) the interest component of capitalized
lease obligations, determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of us and our subsidiaries for such period, plus
amounts which have been deducted and minus amounts which have been added for,
without duplication:
. interest expense on Debt;
. provision for taxes based on income;
. amortization of debt discount and deferred financing costs;
. provisions for gains and losses on sales or other dispositions of
properties and other investments;
. property depreciation and amortization;
22
. the effect of any non-cash items resulting from a change in accounting
principles in determining Consolidated Net Income; and
. amortization of deferred charges, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Consolidated Net Income" for any period means the amount of net income, or
loss, for us and our subsidiaries for such period, excluding, without
duplication, extraordinary items and the portion of net income, but not losses,
for us and our subsidiaries allocable to minority interests in unconsolidated
persons to the extent that cash dividends or distributions have not actually
been received by us or one of our subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Conversion Event" means the cessation of use of:
. a foreign currency, currency unit or composite currency both by the
government of the country which issued such currency and for the
settlement of transactions by a central bank or other public institution
of or within the international banking community;
. the European Currency Unit both within the European Monetary System and
for the settlement of transactions by public institutions of or within the
European Community; or
. any currency unit or composite currency other than the European Currency
Unit for the purposes for which it was established.
"Debt" means, with respect to any person, any indebtedness of that person,
whether or not contingent, in respect of:
. borrowed money or evidenced by bonds, notes, debentures or similar
instruments;
. indebtedness secured by any lien on any property or asset owned by such
person, but only to the extent of the lesser of:
. the amount of indebtedness so secured; and
. the fair market value, determined in good faith by the board of
directors of such person or, in the case of us or a subsidiary, by
our board of directors, of the property subject to such lien;
. reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance
deferred and unpaid of the purchase price of any property except any such
balance that constitutes an accrued expense or trade payable; or
. any lease of property by such person as lessee which is required to be
reflected on such person's balance sheet as a capitalized lease in
accordance with generally accepted accounting principles.
Debt also includes, to the extent not otherwise included, any obligation of
that person to be liable for, or to pay, as obligor, guarantor or otherwise,
other than for purposes of collection in the ordinary course of business, Debt
of the types referred to above of another person, it being understood that Debt
shall be deemed to be incurred by such person whenever such person shall
create, assume, guarantee or otherwise become liable in respect thereof.
"Government Obligations" means securities which are either:
. direct obligations of the United States of America or the government which
issued the foreign currency in which the debt securities of a particular
series are payable, for the payment of which its full faith and credit is
pledged; or
. obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or the
government which issued the foreign currency in which the debt
23
securities of the series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America or the other government, which, in either case,
are not callable or redeemable at the option of the issuer.
Government Obligations shall also include a depository receipt issued by a
bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any Government
Obligation held by a custodian for the account of the holder of a depository
receipt, provided that, except as required by law, such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Obligation or the specific payment of interest on or principal of
the Government Obligation evidenced by such depository receipt.
"Senior Indebtedness" means:
. the principal of, and premium, if any, and unpaid interest, if any, on
indebtedness for money borrowed or evidenced by a bond, note, debenture or
similar instrument;
. purchase money and similar obligations;
. obligations under capital leases;
. guarantees, assumptions or purchase commitments relating to, or other
transactions as a result of which we are responsible for the payment of,
indebtedness and obligations of others of the types referred to in the
first three bullet points above;
. renewals, extensions and refunding of any such indebtedness or obligations;
. interest in respect of any such indebtedness or obligations accruing after
the commencement of any insolvency or bankruptcy proceedings; and
. obligations associated with derivative products including interest rate
and currency exchange contracts, foreign exchange contracts, commodity
contracts, and similar arrangements;
unless, in each case, the instrument by which we incurred, assumed or
guaranteed the indebtedness or obligations described in all of the bullet
points above expressly provides that the indebtedness or obligation is
subordinate or junior in right of payment to all of our other indebtedness or
is not senior in right of payment to the subordinated debt securities or ranks
pari passu with or subordinate to the subordinated debt securities in right of
payment.
"Total Assets" means the sum of, without duplication, Undepreciated Real
Estate Assets and all other assets, excluding accounts receivable and
intangibles, of us and our subsidiaries, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Total Unencumbered Assets" means the sum of, without duplication, those
Undepreciated Real Estate Assets which are not subject to a lien securing Debt
and all other assets, excluding accounts receivable and intangibles, of ours
and our subsidiaries not subject to a lien securing Debt, all determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Undepreciated Real Estate Assets" means, as of any date, the cost, original
cost plus capital improvements, of our real estate assets and the real estate
assets of our subsidiaries on such date, before depreciation and amortization,
all determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Unsecured Debt" means Debt of ours or any of our subsidiaries which is not
secured by a lien on any property or assets of ours or any of our subsidiaries.
24
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the preferred stock sets forth
certain general terms and provisions of the preferred stock to which any
prospectus supplement may relate and will apply to the preferred stock offered
by this prospectus unless we provide otherwise in the applicable prospectus
supplement. The applicable prospectus supplement for a particular series of
preferred stock may specify different or additional terms. The description of
certain provisions of the preferred stock set forth below and in any prospectus
supplement does not purport to be complete and is subject to and qualified in
its entirety by reference to our certificate of incorporation and the
certificate of designations relating to each series of the preferred stock,
which will be filed as an exhibit to the registration statement of which this
prospectus is a part or incorporated by reference by a Form 8-K.
General
We have authority to issue 10,000,000 shares of preferred stock, 2,300,000
of which are designated 8 1/2% Series A Cumulative Redeemable Preferred Stock.
As of the date of this prospectus, 2,150,000 shares of our 8 1/2% Series A
Cumulative Redeemable Preferred Stock are outstanding.
Under our certificate of incorporation, our board of directors is authorized
without further stockholder action to provide for the issuance of up to the
remaining authorized but unissued shares of our preferred stock, in one or more
series, with such voting powers, full or limited, and with such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issue of a series of such stock
adopted, at any time or from time to time, by our board of directors. As used
herein, the term "board of directors" includes any duly authorized committee
thereof. The issuance of the preferred stock could adversely affect the voting
power of holders of our common stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control.
The preferred stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless we provide otherwise in a prospectus
supplement relating to a particular series of the preferred stock. Reference is
made to the prospectus supplement relating to the particular series of the
preferred stock offered thereby for specific terms, including:
. the designation and stated value per share of such preferred stock and the
number of shares offered;
. the amount of liquidation preference per share;
. the initial public offering price at which such preferred stock will be
issued;
. the dividend rate or method of calculation, the dates on which dividends
shall be payable and the dates from which dividends shall commence to
cumulate, if any;
. any redemption or sinking fund provisions;
. any conversion or exchange rights; and
. any additional voting, dividend, liquidation, redemption, sinking fund and
other rights, preferences, privileges, limitations and restrictions.
The preferred stock will, if and when issued, be fully paid and
nonassessable and will have no preemptive rights. The rights of the holders of
each series of the preferred stock will be subordinate to those of our general
creditors.
Dividend Rights
Holders of the preferred stock of each series will be entitled to receive,
when, as and if declared by our board of directors, out of our funds legally
available therefor, cash dividends on such dates and at such rates as set forth
in, or as are determined by the method described in, the prospectus supplement
relating to such series
25
of the preferred stock. Such rate may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on our stock
books on such record dates, fixed by our board of directors, as specified in
the prospectus supplement relating to such series of preferred stock.
Such dividends may be cumulative or noncumulative, as provided in the
prospectus supplement relating to such series of preferred stock. If our board
of directors fails to declare a dividend payable on a dividend payment date on
any series of preferred stock for which dividends are noncumulative, then the
right to receive a dividend in respect of the dividend period ending on such
dividend payment date will be lost, and we will have no obligation to pay any
dividend for such period, whether or not dividends on such series are declared
payable on any future dividend payment dates. Dividends on the shares of each
series of preferred stock for which dividends are cumulative will accrue from
the date on which we initially issue shares of such series.
Bank credit agreements that we may enter into from time to time and debt
securities that we may issue from time to time may restrict our ability to
declare or pay dividends on our capital stock.
Unless otherwise specified in the applicable prospectus supplement, so long
as the shares of any series of the preferred stock are outstanding, we may not
declare any dividends on any shares of our common stock or any of our other
stock ranking as to dividends or distributions of assets junior to such series
of preferred stock--we refer to this common stock and any such other stock as
junior stock--or make any payment on account of, or set apart money for, the
purchase, redemption or other retirement of, or for a sinking or other
analogous fund for, any shares of junior stock or make any distribution in
respect of any shares of junior stock, whether in cash or property or in
obligations of our stock, other than in junior stock which is neither
convertible into, nor exchangeable or exercisable for, any of our securities
other than junior stock, unless:
. full dividends, including if such preferred stock is cumulative, dividends
for prior dividend periods, have been paid or declared and set apart for
payment on all outstanding shares of the preferred stock of such series
and all other classes and series of our preferred stock, other than junior
stock, as defined below; and
. we are not in default or in arrears with respect to the mandatory or
optional redemption or mandatory repurchase or other mandatory retirement
of, or with respect to any sinking or other analogous funds for, any
shares of preferred stock of such series or any shares of any of our other
preferred stock of any class or series, other than junior stock.
Liquidation Preferences
Unless otherwise specified in the applicable prospectus supplement, in the
event of our liquidation, dissolution or winding up, whether voluntary or
involuntary, the holders of each series of the preferred stock will be entitled
to receive out of our assets available for distribution to stockholders, before
any distribution of assets is made to the holders of common stock or any other
shares of our stock ranking junior as to such distribution to such series of
the preferred stock, the amount set forth in the prospectus supplement relating
to such series of the preferred stock. If, upon our voluntary or involuntary
liquidation, dissolution or winding up, the amounts payable with respect to the
preferred stock of any series and any other shares of our preferred stock,
including any other series of the preferred stock, ranking as to any such
distribution on a parity with such series of the preferred stock are not paid
in full, the holders of the preferred stock of such series and of such other
shares of our preferred stock will share ratably in any such distribution of
our assets in proportion to the full respective preferential amounts to which
they are entitled. After payment to the holders of the preferred stock of each
series of the full preferential amounts of the liquidating distribution to
which they are entitled, unless we provide otherwise in the applicable
prospectus supplement, the holders of each such series of the preferred stock
will be entitled to no further participation in any distribution of our assets.
26
Redemption
A series of the preferred stock may be redeemable, in whole or from time to
time in part, at our option, and may be subject to mandatory redemption
pursuant to a sinking fund or otherwise, in each case upon terms, at the times
and at the redemption prices set forth in the prospectus supplement relating to
such series. Shares of the preferred stock redeemed by us will be restored to
the status of authorized but unissued shares of our preferred stock.
In the event that fewer than all of the outstanding shares of a series of
the preferred stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or
pro rata, subject to rounding to avoid fractional shares, as may be determined
by us or by any other method as may be determined by us in our sole discretion
to be equitable. From and after the redemption date, unless default is made by
us in providing for the payment of the redemption price plus accumulated and
unpaid dividends, if any, dividends will cease to accumulate on the shares of
the preferred stock called for redemption and all rights of the holders
thereof, except the right to receive the redemption price plus accumulated and
unpaid dividends, if any, will cease.
Unless otherwise specified in the applicable prospectus supplement, so long
as any dividends on shares of any series of the preferred stock or any other
series of our preferred stock ranking on a parity as to dividends and
distribution of assets with such series of the preferred stock are in arrears,
no shares of any such series of the preferred stock or such other series of our
preferred stock will be redeemed, whether by mandatory or optional redemption,
unless all such shares are simultaneously redeemed, and we will not purchase or
otherwise acquire any such shares; provided, however, that the foregoing will
not prevent the purchase or acquisition of such shares pursuant to a purchase
or exchange offer made on the same terms to holders of all such shares
outstanding.
Conversion and Exchange Rights
The terms, if any, on which shares of the preferred stock of any series may
be exchanged for or converted into shares of common stock, another series of
the preferred stock or any other security will be set forth in the applicable
prospectus supplement. Such terms may include provisions for conversion, either
mandatory, at the option of the holder or at our option, in which case the
number of shares of common stock, the shares of another series of the preferred
stock or the amount of any other securities to be received by the holders of
the preferred stock would be calculated as of a time and in the manner stated
in the prospectus supplement.
Voting Rights
Except as indicated in a prospectus supplement relating to a particular
series of the preferred stock, or except as required by applicable law, the
holders of the preferred stock will not be entitled to vote for any purpose.
27
DESCRIPTION OF COMMON STOCK
The following description of the common stock sets forth certain general
terms and provisions of the common stock to which any prospectus supplement may
relate and will apply to the common stock offered by this prospectus unless we
provide otherwise in the applicable prospectus supplement. The description of
the common stock set forth below and in any prospectus supplement does not
purport to be complete and is subject to and qualified in its entirety by
reference to the applicable provisions of our articles of incorporation and
bylaws.
General
We have the authority to issue up to 100,000,000 shares of common stock,
$.01 par value. As of June 30, 2001, there were 46,504,843 shares outstanding.
In addition, as of June 30, 2001, there were 6,193,569 shares of common stock
reserved for issuance upon the exercise of options under our stock option plans
and 1,377,999 shares of common stock were reserved for issuance under our
dividend reinvestment plan. Our common stock is listed on the New York Stock
Exchange under the symbol "BRE." Chase Mellon is the transfer agent and
registrar of our common stock.
The holders of common stock are entitled to one vote for each share held at
all meetings of our stockholders, except meetings at which only holders of
another specified class or series of capital stock are entitled to vote. The
holders of common stock are entitled to vote for the election of directors,
however, stockholders do not have cumulative voting rights in the election of
directors. Accordingly, the holders of a majority of the shares voting for the
election of directors can elect our entire board of directors if they choose to
do so and, in that event, the holders of the remaining shares will not be able
to elect any person to our board of directors.
The holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by our board of directors, subject to any
preferential dividend rights of any outstanding preferred stock. The rights,
preferences and privileges of holders of common stock are subject to, and may
be adversely affected by, the rights of the holders of any series of preferred
stock. Dividends may be paid in money, property or by the issuance of our fully
paid capital stock. Bank credit agreements that we may enter into and debt
securities that we may issue may restrict our ability to declare or pay
dividends on our common stock. Upon our liquidation, dissolution or winding up,
the holders of common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. The holders of common
stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares. All outstanding shares of common stock are, and all shares being
offered by this prospectus will be, fully paid and not subject to assessments
by us.
The issuance of preferred stock, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things, adversely affect the voting powers and other rights and
interests of holders of common stock and, under certain circumstances, could
make it more difficult for a third party to gain control of us and could have
the effect of delaying or preventing an attempted takeover.
Certain Provisions of Our Articles and Bylaws
Several other provisions of our articles of incorporation and bylaws may
have the effect of deterring a takeover. These provisions include:
. the requirement that 70% of the outstanding shares of voting stock approve
certain mergers, sales of assets or other business combinations with
stockholders owning 10% or more of then outstanding voting shares, unless
the transaction is recommended by a majority of the disinterested
directors or meets certain fair price criteria;
. the requirement that our directors may be removed by our stockholders only
for "cause" and that vacancies on our board of directors may be filled
only by action of the remaining directors;
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. the requirement that 70% of the outstanding shares of voting stock approve
amendments to certain provisions of our articles of incorporation;
. the classification of our board of directors into three classes serving
staggered three-year terms;
. a prohibition on certain stock repurchases by us from a holder of 5% or
more of the outstanding voting shares for a price exceeding fair market
value unless certain conditions are met; and
. a requirement that stockholder action without a meeting be taken by
unanimous written consent.
Furthermore, Maryland law imposes certain restrictions on business
combinations with a greater than ten percent stockholder unless a company's
charter states that it has elected not to be governed by these provisions. We
have made such an election in our articles of incorporation and therefore we
are not subject to these provisions. Maryland law eliminates the voting rights
of any shares of voting stock held by a person to the extent such shares exceed
20% of the outstanding voting stock of the company, and permits a company to
redeem any such shares at the fair value of the stock, unless a company's
charter states that it has elected not to be governed by these provisions. We
have made such an election in the our articles of incorporation and therefore
we are not subject to these provisions.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; REDEMPTION; REAL ESTATE
INVESTMENT TRUST STATUS
Our articles of incorporation provide that any stockholder must, upon
demand, disclose such information with respect to its direct and indirect
ownership of the shares of our stock as we deem necessary to permit us to
comply or to verify compliance with the real estate investment trust provisions
of the Internal Revenue Code, or the requirements of any other taxing
authority. Our articles of incorporation further provide that if our board of
directors determines in good faith that direct or indirect ownership of shares
of our stock has or may become concentrated to an extent that would prevent us
from qualifying as a real estate investment trust we may prevent the transfer
of stock to or call for redemption, by lot or by other means affecting one or
more stockholders selected at the sole discretion of our board of directors of
a number of shares of stock sufficient in our opinion to maintain or bring the
direct or indirect ownership of our stock into conformity with the requirements
for maintaining our status as a real estate investment trust.
If we redeem common stock, the redemption price shall be:
. the last reported sale price of the shares on the last business day prior
to the redemption date on the principal national securities exchange on
which the shares are listed or admitted to trading;
. if the shares are not so listed or admitted to trading but are reported in
the Nasdaq system, the last sale price on the last business day prior to
the redemption date, or if there is no sale on such day then at the last
bid price on such day as reported in the Nasdaq National Market;
. if the shares are not so reported or listed or admitted to trading, the
mean between the highest bid and lowest asked prices on such last business
day as reported by the National Quotation Bureau Incorporated or a similar
organization selected by our board for such purpose; or
. if not determined by the foregoing methods, as determined in good faith by
our board of directors.
From and after the date we fix for redemption, the holder of any shares of
stock so called for redemption will cease to be entitled to dividends,
distributions, voting rights and other benefits with respect to such shares,
excepting only the right to payment of the redemption price without interest.
Our bylaws provide that, whenever we determine it is reasonably necessary to
protect our status as a real estate investment trust, we may require a
statement or affidavit from each stockholder or proposed transferee
29
setting forth the number of shares already owned by such stockholder or
transferee or any related person. Our bylaws further provide that if any
proposed transfer would jeopardize our status as a real estate investment trust:
. we may refuse to permit such transfer;
. any attempt to transfer as to which we have refused permission will be
void and of no effect to transfer any legal or beneficial interest in the
shares; and
. all contracts for the sale or other transfer of shares are subject to
these restrictions.
. These provisions may also have the effect of preventing acquisition of
control of us unless our board of directors determines that maintenance of
our status as a real estate investment trust is no longer in our best
interests.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax considerations
regarding BRE Properties, Inc. we believe are material to a holder of our
securities. This summary is based on current law, is for general information
only and is not tax advice. Your tax treatment will vary depending upon the
terms of the specific securities that you acquire, as well as your particular
situation. This discussion does not attempt to address any aspects of federal
income taxation relevant to your ownership of the securities offered by this
prospectus. Instead, the material federal income tax considerations relevant to
your ownership of the securities offered by this prospectus may be provided in
the applicable prospectus supplement relating thereto.
The information in this section is based on:
. the Internal Revenue Code of 1986, as amended;
. current, temporary and proposed Treasury Regulations promulgated under the
Internal Revenue Code;
. the legislative history of the Internal Revenue Code;
. current administrative interpretations and practices of the Internal
Revenue Service; and
. court decisions;
in each case, as of the date of this prospectus. In addition, the
administrative interpretations and practices of the Internal Revenue Service
include its practices and policies as expressed in private letter rulings which
are not binding on the Internal Revenue Service, except with respect to the
particular taxpayers who requested and received these rulings. Future
legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may adversely affect the tax considerations contained in
this discussion. Any change could apply retroactively to transactions preceding
the date of the change. We have not requested, and do not plan to request, any
rulings from the Internal Revenue Service concerning our tax treatment, and the
statements in this prospectus are not binding on the Internal Revenue Service
or any court. Thus, we cannot assure you that the tax considerations contained
in this discussion will not be challenged by the Internal Revenue Service or,
if challenged, will be sustained by a court.
You are urged to consult the applicable prospectus supplement, as well as
your tax advisor, regarding the tax consequences to you of the acquisition,
ownership and sale of the securities offered by this prospectus, including the
federal, state, local, foreign and other tax consequences; our election to be
taxed as a real estate investment trust for federal income tax purposes; and
potential changes in the tax laws.
Taxation of BRE Properties, Inc.
General. We elected to be taxed as a real estate investment trust under
Sections 856 through 860 of the Internal Revenue Code, effective upon our
formation on May 22, 1970. We believe we have been organized and have operated
in a manner which allows us to qualify for taxation as a real estate investment
trust under the Internal Revenue Code commencing with our first taxable year
beginning May 22, 1970. We intend to continue to operate in this manner.
30
The sections of the Internal Revenue Code that relate to the qualification
and operation as a real estate investment trust are highly technical and
complex. The following describes the material aspects of the sections of the
Internal Revenue Code that govern the federal income tax treatment of a real
estate investment trust. This summary is qualified in its entirety by the
Internal Revenue Code, relevant rules and Treasury Regulations promulgated
under the Internal Revenue Code, and administrative and judicial
interpretations of the Internal Revenue Code and these rules and Treasury
Regulations.
The law firm of Latham & Watkins has acted as our tax counsel in connection
with the filing of this prospectus. Latham & Watkins will render an opinion
that, commencing with our taxable year ending December 31, 1997, (i) we have
been organized in conformity with the requirements for qualification and
taxation as a "real estate investment trust" under the Internal Revenue Code,
and (ii) our method of operation and our proposed method of operation has
enabled us to meet and will enable us to continue to meet, respectively, the
requirements for qualification and taxation as a "real estate investment trust"
under the Internal Revenue Code. This opinion will be rendered on the date this
prospectus is declared effective, and Latham & Watkins will have no obligation
to update its opinion subsequent to this date. The opinion of Latham & Watkins
will be based on various assumptions and representations made by us as to
factual matters, including representations made by us in this prospectus and a
factual certificate that will be provided by one of our officers. Moreover, our
qualification and taxation as a real estate investment trust depends upon our
ability to meet the various qualification tests imposed under the Internal
Revenue Code and discussed below, relating to our actual annual operating
results, asset diversification, distribution levels, and diversity of stock
ownership, the results of which have not been and will not be reviewed by
Latham & Watkins. Accordingly, neither Latham & Watkins nor we can assure you
that the actual results of our operations for any particular taxable year will
satisfy these requirements. See "--Failure to Qualify." Further, the
anticipated income tax treatment described in this prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time.
If we qualify for taxation as a real estate investment trust, we generally
will not be required to pay federal corporate income taxes on our net income
that is currently distributed to our stockholders. This treatment substantially
eliminates the "double taxation" that ordinarily results from investment in a
corporation. Double taxation means taxation once at the corporate level when
income is earned and once again at the stockholder level when this income is
distributed. We will be required to pay federal income tax, however, as follows:
. We will be required to pay tax at regular corporate rates on any
undistributed "real estate investment trust taxable income," including
undistributed net capital gains.
. We may be required to pay the "alternative minimum tax" on our items of
tax preference.
. If we have: (1) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business; or (2) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. Foreclosure property is generally defined
as property acquired through foreclosure or after a default on a loan
secured by the property or a lease of the property.
. We will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business.
. If we fail to satisfy the 75% gross income test or the 95% gross income
test discussed below, but nonetheless maintain our qualification as a real
estate investment trust because certain other requirements are met, we
will be required to pay a tax equal to:
. the greater of (1) the amount by which 75% of our gross income
exceeds the amount qualifying under the 75% gross income test
described below or (2) the amount by which 90% of our gross income
exceeds the amount qualifying under the 95% gross income test
described below, multiplied by
. a fraction intended to reflect our profitability.
31
. We will be required to pay a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to
distribute during each calendar year at least the sum of:
. 85% of our real estate investment trust ordinary income for the
year;
. 95% of our real estate investment trust capital gain net income for
the year; and
. any undistributed taxable income from prior periods.
. If we acquire any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in our hands
is determined by reference to the basis of the asset in the hands of the C
corporation, and we subsequently recognize gain on the disposition of the
asset during the ten-year period beginning on the date on which we
acquired the asset, then we will be required to pay tax at the highest
regular corporate tax rate on this gain to the extent of the excess of (1)
the fair market value of the asset over (2) our adjusted basis in the
asset, in each case determined as of the date on which we acquired the
asset. A C corporation is generally defined as a corporation required to
pay full corporate-level tax. The results described in this paragraph with
respect to the recognition of gain assume that we will make an election
under Treasury Regulation Section 1.337(d)-5T.
. We may be required to pay a 100% penalty tax to the extent our tenants'
rental, service, and/or our agreements with our taxable REIT subsidiaries
are not on commercially reasonable arm's-length terms.
Requirements for Qualification as a Real Estate Investment Trust. The
Internal Revenue Code defines a real estate investment trust as a corporation,
trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation but for Sections 856
through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals, including
specified entities, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that all of conditions (1) to (4), must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (5) and (6) do
not apply until after the first taxable year for which an election is made to
be taxed as a real estate investment trust. For purposes of condition (6),
pension funds and other specified tax-exempt entities generally are treated as
individuals, except that a "look-through" exception applies with respect to
pension funds.
We believe that we have satisfied conditions (1) through (7) during the
relevant time periods. In addition, our charter provides for restrictions
regarding ownership and transfer of shares. These restrictions are intended to
assist us in continuing to satisfy the share ownership requirements described
in (5) and (6) above. These ownership and transfer restrictions are described
above in the section "Restrictions on Transfers of Capital Stock; Redemption;
Real Estate Investment Trust Status." These restrictions, however, may not
ensure that we will, in all cases, be able to satisfy the share ownership
requirements described in (5) and (6) above. If we fail to satisfy these share
ownership requirements, except as provided in the next sentence, our status as
a real estate investment trust will terminate. If, however, we comply with the
rules contained in the Treasury Regulations that
32
require us to ascertain the actual ownership of our shares, and we do not know,
or would not have known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition (6) above, we will be
treated as having met this requirement. See "--Failure to Qualify."
In addition, we may not maintain our status as a real estate investment
trust unless our taxable year is the calendar year. We have and will continue
to have a calendar taxable year.
Ownership of a Partnership Interest. We own and operate one or more
properties through partnerships or limited liability companies. Treasury
Regulations provide that if we are a partner in a partnership, we will be
deemed to own our proportionate share of the assets of the partnership. Also,
we will be deemed to be entitled to our proportionate share of the income of
the partnership. The character of the assets and gross income of the
partnership retains the same character in our hands for purposes of Section 856
of the Internal Revenue Code, including satisfying the gross income tests and
the asset tests. In addition, for these purposes, the assets and items of
income of any partnership in which we own a direct or indirect interest include
such partnership's share of assets and items of income of any partnership in
which it owns an interest. We have included a brief summary of the rules
governing the federal income taxation of partnerships and their partners below
in "--Tax Aspects of the Partnerships." We have direct control of many of the
partnerships in which we are a partner, and intend to continue to operate them
in a manner consistent with the requirements for qualification as a real estate
investment trust. To the extent we do not have control of the partnerships of
which we are a member, we generally have the ability to restrict the
partnership from holding assets or deriving income which would jeopardize our
status as a real estate investment trust. The treatment described above also
applies with respect to the ownership of interests in limited liability
companies that are treated as partnerships for tax purposes.
Ownership of Subsidiaries. We own and operate a number of properties
through our wholly-owned subsidiaries that we believe will be treated as
"qualified real estate investment trust subsidiaries" under the Internal
Revenue Code. A corporation will qualify as a qualified real estate investment
trust subsidiary if we own 100% of its outstanding stock and if we and the
subsidiary do not jointly elect to treat it as a "taxable REIT subsidiary" as
described below. A corporation that is a qualified real estate investment trust
subsidiary is not treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a qualified real
estate investment trust subsidiary are treated as assets, liabilities and items
of income, deduction and credit (as the case may be) of the parent real estate
investment trust for all purposes under the Internal Revenue Code (including
all real estate investment trust qualification tests). Thus, in applying the
requirements described in this prospectus, the subsidiaries in which we own a
100% interest (other than taxable REIT subsidiaries) will be ignored, and all
assets, liabilities and items of income, deduction and credit of such
subsidiaries will be treated as our assets, liabilities and items of income,
deduction and credit. A qualified real estate investment trust subsidiary is
not subject to federal income tax and our ownership of the stock of such a
subsidiary will not violate the real estate investment trust asset tests,
described below under "Asset Tests."
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a real estate investment trust:
. First, each taxable year we must derive directly or indirectly at least
75% of our gross income, excluding gross income from prohibited
transactions, from (1) investments relating to real property or mortgages
on real property, including "rents from real property" and, in some
circumstances, interest, or (2) some types of temporary investments;
. Second, each taxable year we must derive at least 95% of our gross income,
excluding gross income from prohibited transactions, from (1) the real
property investments described above, or (2) dividends, interest and gain
from the sale or disposition of stock or securities or (3) any combination
of the foregoing.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any
person. An amount received or accrued generally will not be excluded from the
term "interest," however, solely by reason of being based on a fixed percentage
or percentages of receipts or sales.
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Rents we receive from a tenant will qualify as "rents from real property" in
satisfying the gross income requirements for a real estate investment trust
described above only if all of the following conditions are met:
. The amount of rent is not based in any way on the income or profits of any
person. An amount received or accrued generally will not be excluded from
the term "rents from real property" solely because it is based on a fixed
percentage or percentages of receipts or sales.
. We, or an actual or constructive owner of 10% or more of our capital
stock, do not actually or constructively own 10% or more of the interests
in the tenant.
. Rent attributable to personal property, leased in connection with a lease
of real property, is not greater than 15% of the total rent received under
the lease. If this condition is not met, then the portion of the rent
attributable to personal property will not qualify as "rents from real
property."
. We do not operate or manage our property or furnish or render services to
our tenants, subject to a 1% de minimis exception, other than through an
independent contractor from whom we derive no revenue. We may, however,
directly perform services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant" of the property. Examples
of these services include the provision of light, heat, or other
utilities, trash removal and general maintenance of common areas. Further,
under recently enacted legislation, beginning in 2001, we are permitted to
employ a "taxable REIT subsidiary" which is wholly or partially owned by
us, to provide both customary and noncustomary services to our tenants
without causing the rent we receive from those tenants to fail to qualify
as "rents from real property."
We generally do not intend to receive rent which fails to satisfy any of the
above conditions. Notwithstanding the foregoing, we may have taken and may
continue to take actions which fail to satisfy one or more of the above
conditions to the extent that we determine, based on the advice of our tax
counsel, that those actions will not jeopardize our status as a real estate
investment trust.
We believe that the aggregate amount of our nonqualifying income, from all
sources, in any taxable year will not exceed the limit on nonqualifying income
under the gross income tests. If we fail to satisfy one or both of the 75% or
95% gross income tests for any taxable year, we may nevertheless qualify as a
real estate investment trust for the year if we are entitled to relief under
the Internal Revenue Code. Generally, we may avail ourselves of the relief
provisions if:
. our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
. we attach a schedule of the sources of our income to our federal income
tax return; and
. any incorrect information on the schedule was not due to fraud with intent
to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set
of circumstances, we will not qualify as a real estate investment trust. As
discussed above in "--Taxation of the Company--General," even if these relief
provisions apply, and we retain our status as a real estate investment trust, a
tax would be imposed with respect to our non-qualifying income. We may not
always be able to maintain compliance with the gross income tests for real
estate investment trust qualification despite our periodic monitoring of our
income.
Prohibited Transaction Income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Our gain would
include our share of any gain realized by any of the partnerships, limited
liability companies or qualified real estate investment trust
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subsidiaries in which we own an interest. This prohibited transaction income
may also adversely affect our ability to satisfy the income tests for
qualification as a real estate investment trust. Under existing law, whether
property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business depends on all the facts and
circumstances surrounding the particular transaction. We intend to hold our
properties for investment with a view to long-term appreciation and to engage
in the business of acquiring, developing and owning our properties. We may make
occasional sales of the properties as are consistent with our investment
objectives. We do not intend to enter into any sales that are prohibited
transactions. The Internal Revenue Service may contend, however, that one or
more of these sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy four tests relating to the nature and diversification of our assets:
(1) at least 75% of the value of our total assets, including assets held
by our qualified real estate investment trust subsidiaries and our allocable
share of the assets held by the partnerships and limited liability companies
in which we own an interest, must be represented by real estate assets,
cash, cash items and government securities. For purposes of this test, real
estate assets include stock or debt instruments that are purchased with the
proceeds of a stock offering or a public debt offering with a term of at
least five years, but only for the one-year period beginning on the date we
receive these proceeds;
(2) not more than 25% of our total assets may be represented by
securities, other than those securities included in the 75% asset test;
(3) of the investments included in the 25% asset class, the value of any
one issuer's securities may not exceed 5% of the value of our total assets,
and we may not own more than 10% by vote or value of any one issuer's
outstanding securities. For years prior to 2001, the 10% limit applies only
with respect to voting securities of any issuer and not to the value of the
securities of any issuer; and
(4) the value of the securities we own in our taxable REIT subsidiaries
may not exceed 20% of the value of our total assets.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a real estate investment trust for failure to satisfy
the asset tests at the end of a later quarter solely by reason of changes in
asset values. If we fail to satisfy the asset tests because we acquire
securities or other property during a quarter, we can cure this failure by
disposing of sufficient nonqualifying assets within 30 days after the close of
that quarter. For this purpose, an increase in our interests in any partnership
or limited liability company in which we own an interest will be treated as an
acquisition of a portion of the securities or other property owned by that
partnership or limited liability company. We believe we have maintained and
intend to continue to maintain adequate records of the value of our assets to
ensure compliance with the asset tests. In addition, we intend to take those
other actions within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we fail to cure any noncompliance with
the asset tests within this time period, we would cease to qualify as a real
estate investment trust.
As discussed above, a real estate investment trust cannot currently own more
than 10% by vote or value of the outstanding securities of any one issuer.
Recently, legislation was enacted that, beginning in 2001, allows a real estate
investment trust to own up to 100% of the vote and/or value of a corporation
which jointly elects with the real estate investment trust to be treated as a
"taxable REIT subsidiary," provided that, in the aggregate, a real estate
investment trust's total investment in its taxable REIT subsidiaries does not
exceed 20% of the real estate investment trust's total assets, and at least 75%
of the real estate investment trust's total assets are real estate or other
qualifying assets. In addition, dividends from taxable REIT subsidiaries will
be nonqualifying income for purposes of the 75%, but not the 95%, gross income
test. Other than certain activities relating to lodging and health care
facilities, a taxable REIT subsidiary may generally engage in any business,
including the provision of customary or noncustomary services to tenants of its
parent real estate investment trust.
This new legislation contains provisions generally intended to insure that
transactions between a real estate investment trust and its taxable REIT
subsidiary occur "at arm's-length" and on commercially reasonable terms.
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These requirements include a provision that prevents a taxable REIT subsidiary
from deducting interest on direct or indirect indebtedness to its parent real
estate investment trust if, under a specified series of tests, the taxable REIT
subsidiary is considered to have an excessive interest expense level or debt to
equity ratio. In some cases the new legislation also imposes a 100% tax on the
real estate investment trust if its, or its tenants', rental, service and/or
other agreements with its taxable REIT subsidiary are not on arm's-length terms.
This new legislation will require us to monitor our investments in the
entities in which we own an interest and, in some circumstances, modify those
investments if we own more than 10% of the voting power or value of the
outstanding securities of another entity, other than a qualified real estate
investment trust subsidiary or a taxable REIT subsidiary, as described above.
The legislation concerning taxable REIT subsidiaries is generally effective
only for taxable years beginning after December 31, 2000. We own interests in
taxable REIT subsidiaries, including BRE Alliance Services Inc., BRE
Investments, Inc. and VelocityHSI, Inc. We and each of these companies have
jointly elected for each of them to be treated as a taxable REIT subsidiary. As
a result, our ownership of securities of these subsidiaries will not be subject
to the 10% asset test described above, and their operations will be subject to
the provisions described above which are applicable to a taxable REIT
subsidiary.
Annual Distribution Requirements. To maintain our qualification as a real
estate investment trust, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to the
sum of:
. 90% (95% for taxable years ending before January 1, 2001) of our "real
estate investment trust taxable income"; and
. 90% (95% for taxable years ending before January 1, 2001) of our after tax
net income, if any, from foreclosure property; minus
. the excess of the sum of specified items of our noncash income items over
5% of "real estate investment trust taxable income" as described below.
Our "real estate investment trust taxable income" is computed without regard
to the dividends paid deduction and our net capital gain. In addition, for
purposes of this test, non-cash income means income attributable to leveled
stepped rents, original issue discount on purchase money debt, or a like-kind
exchange that is later determined to be taxable.
In addition, if we dispose of any asset we acquired from a corporation which
is or has been a C corporation in a transaction in which our basis in the asset
is determined by reference to the basis of the asset in the hands of that C
corporation, within the ten-year period following our acquisition of such
asset, we would be required, under Treasury Regulations, to distribute at least
90% (95% for taxable years ending before January 1, 2001) of the after-tax
gain, if any, we recognize on the disposition of the asset, to the extent that
gain does not exceed the excess of (1) the fair market value of the asset on
the date we acquired the asset over (2) our adjusted basis in the asset on the
date we acquired the asset.
We must pay these distributions in the taxable year to which they relate, or
in the following taxable year if they are declared before we timely file our
tax return for that year and paid on or before the first regular dividend
payment following their declarations. Except as provided below, these
distributions are taxable to our stockholders, other than tax-exempt entities
in the year in which paid. This is so even though these distributions relate to
the prior year for purposes of our 90% distribution requirement. The amount
distributed must not be preferential. To avoid being preferential, every
stockholder of the class of stock to which a distribution is made must be
treated the same as every other stockholder of that class, and no class of
stock may be treated other than according to its dividend rights as a class. To
the extent that we do not distribute all of our net capital gain or distribute
at least 90% (95% for taxable years ending before January 1, 2001), but less
than 100%, of our "real estate investment trust taxable income," as adjusted,
we will be required to pay tax on this income at regular ordinary and capital
gain corporate tax rates. We believe we have made, and intend to continue to
make, timely distributions sufficient to satisfy these annual distribution
requirements.
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We expect that our "real estate investment trust taxable income" will be
less than our cash flow because of depreciation and other non-cash charges
included in computing our "real estate investment trust taxable income."
Accordingly, we anticipate that we will generally have sufficient cash or
liquid assets to enable us to satisfy our distribution requirements. We may
not, however, have sufficient cash or other liquid assets to meet these
distribution requirements because of timing differences between the actual
receipt of income and actual payment of deductible expenses, and the inclusion
of income and deduction of expenses in determining our taxable income. If these
timing differences occur, we may need to arrange for short-term, or possibly
long-term, borrowings or need to pay dividends in the form of taxable stock
dividends in order to meet the distribution requirements.
We may be able to rectify an inadvertent failure to meet the 90%
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which we may include in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
In addition, we will be required to pay a 4% excise tax on the excess of our
"required distribution" for a calendar year over our "distributed amount" for
that year. Our required distribution for a year is equal to the sum of 85% of
our ordinary income for the year and 95% of our capital gain net income for the
year, increased to the extent, in the prior year, our distributed amount was
less than 100% of our ordinary income and capital gain net income for that
year. Our distributed amount for a year is equal to the amount we actually
distributed during that year, increased to the extent, in the prior year, our
distributed amount was more than 100% of our ordinary income and capital gain
net income for that year, and increased by any amount on which tax was imposed
for our failure to distribute 100% of our real estate investment trust taxable
income or capital gain net income for that year.
Distributions with declaration and record dates falling in the last three
months of the calendar year, which are paid to our stockholders by the end of
January immediately following that year, will be treated for all federal income
tax purposes as having been paid on December 31 of the prior year.
Failure To Qualify
If we fail to qualify for taxation as a real estate investment trust in any
taxable year, and the relief provisions of the Internal Revenue Code do not
apply, we will be required to pay tax, including any alternative minimum tax,
on our taxable income at regular corporate rates. Distributions to stockholders
in any year in which we fail to qualify as a real estate investment trust will
not be deductible by us and we will not be required to distribute any amounts
to our stockholders. As a result, we anticipate that our failure to qualify as
a real estate investment trust would reduce the cash available for distribution
by us to our stockholders. In addition, if we fail to qualify as a real estate
investment trust, all distributions to stockholders will be taxable at ordinary
income rates to the extent of our current and accumulated earnings and profits.
In this event, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a real
estate investment trust for the four taxable years following the year in which
we lose our qualification. It is not possible to state whether in all
circumstances we would be entitled to this statutory relief.
Tax Aspects Of The Partnerships
General. We currently own interests in several partnerships and limited
liability companies and may own interests in additional partnerships and
limited liability companies in the future. Our ownership of an interest in such
partnerships and limited liability companies involves special tax
considerations. These special tax considerations include, for example, the
possibility that the IRS might challenge the status of one or more of the
partnerships or limited liability companies in which we own an interest as
partnerships, as opposed to associations taxable as corporations, for federal
income tax purposes. If a partnership or limited liability
37
company in which we own an interest, or one or more of its subsidiary
partnerships or limited liability companies, were treated as an association, it
would be taxable as a corporation and therefore be subject to an entity-level
tax on its income. In this situation, the character of our assets and items of
gross income would change, and could prevent us from satisfying the real estate
investment trust asset tests and/or the real estate investment trust income
tests. This, in turn, would prevent us from qualifying as a real estate
investment trust. In addition, a change in the tax status of one or more of the
partnerships or limited liability companies in which we own an interest might
be treated as a taxable event. If so, we might incur a tax liability without
any related cash distributions.
Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997, provide that a domestic business entity not otherwise
organized as a corporation and which has at least two members may elect to be
treated as a partnership for federal income tax purposes. Unless it elects
otherwise, an eligible entity in existence prior to January 1, 1997, will have
the same classification for federal income tax purposes that it claimed under
the entity classification Treasury Regulations in effect prior to this date. In
addition, an eligible entity which did not exist or did not claim a
classification prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. All of the
partnerships in which we own an interest intend to claim classification as
partnerships under these Treasury Regulations. As a result, we believe that
these partnerships will be classified as partnerships for federal income tax
purposes. The treatment described above also applies with respect to the
ownership of interests in limited liability companies that are treated as
partnerships for tax purposes.
Allocations of Income, Gain, Loss and Deduction. A partnership or limited
liability company agreement will generally determine the allocation of income
and losses among partners or members. These allocations, however, will be
disregarded for tax purposes if they do not comply with the provisions of
Section 704(b) of the Internal Revenue Code and the applicable Treasury
Regulations. Generally, Section 704(b) of the Internal Revenue Code and the
related Treasury Regulations require that partnership and limited liability
company allocations respect the economic arrangement of the partners and
members. If an allocation is not recognized for federal income tax purposes,
the relevant item will be reallocated according to the partners' or members'
interests in the partnership or limited liability company. This reallocation
will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners or members with respect to
such item. The allocations of taxable income and loss in each of the
partnerships and limited liability companies in which we own an interest are
intended to comply with the requirements of Section 704(b) of the Internal
Revenue Code and the Treasury Regulations thereunder.
Tax Allocations With Respect to the Properties. Under Section 704(c) of the
Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership or
limited liability company in exchange for an interest in the partnership or
limited liability company must be allocated in a manner so that the
contributing partner or member is charged with the unrealized gain or benefits
from the unrealized loss associated with the property at the time of the
contribution. The amount of the unrealized gain or unrealized loss is generally
equal to the difference between the fair market value or book value and the
adjusted tax basis of the contributed property at the time of contribution.
These allocations are solely for federal income tax purposes. These allocations
do not affect the book capital accounts or other economic or legal arrangements
among the partners or members. Some of the partnerships and/or limited
liability companies in which we own an interest were formed by way of
contributions of appreciated property. The relevant partnership and/or limited
liability company agreements require that allocations be made in a manner
consistent with Section 704(c) of the Internal Revenue Code.
Other Tax Consequences
We may be required to pay state or local taxes in various state or local
jurisdictions, including those in which we transact business. Our state and
local tax treatment may not conform to the federal income tax consequences
summarized above. Consequently, you should consult your tax advisor regarding
the effect of state and local tax laws on us.
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PLAN OF DISTRIBUTION
We may sell securities to one or more underwriters for public offering and
sale by them and may also sell securities to investors directly or through
agents. We have reserved the right to sell securities directly to investors on
our own behalf in those jurisdictions where and in such manner as we are
authorized to do so.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. Sales of securities offered
pursuant to this registration statement may be effected from time to time in
one or more transactions on the Nasdaq National Market or in negotiated
transactions or a combination of these methods. We may also, from time to time,
authorize dealers, acting as our agents, to offer and sell securities upon the
terms and conditions as are set forth in the applicable prospectus supplement.
In connection with the sale of securities, underwriters may receive
compensation from us in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of the securities for whom they
may act as agent.
Underwriters may sell securities to or through dealers and they may pay the
dealers compensation in the form of discounts, concessions or commissions. Any
purchasers may also pay the dealers commissions. Dealers and agents
participating in the distribution of securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions. Unless we provide otherwise in a prospectus
supplement, an agent will be acting on a best efforts basis and a dealer will
purchase securities as a principal, and may then resell the securities at
varying prices to be determined by the dealer.
We will identify any underwriter, dealer or agent involved in the offer and
sale of securities and set forth any compensation that we paid to underwriters
or agents in connection with the offering of securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers, in
the applicable prospectus supplement.
We may enter into agreements with underwriters, dealers and agents which may
entitle them to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act, and to
reimbursement by us for certain expenses.
To facilitate an offering of a series of securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the securities. This may include
over-allotments or short sales of the securities, which involves the sale by
persons participating in the offering of more securities than we have sold to
them. In such circumstances, such persons would cover the over-allotments or
short positions by purchasing in the open market or by exercising the
over-allotment option granted to such persons. In addition, such persons may
stabilize or maintain the price of the securities by bidding for or purchasing
securities in the open market or by imposing penalty bids, whereby selling
concessions allowed to dealers participating in any such offering may be
reclaimed if securities that they sold are repurchased in connection with
stabilization transactions. The effect of these transactions may be to
stabilize or maintain the market price of the securities at a level above that
which might otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the securities offered hereby will be
passed upon for us by Latham & Watkins, San Francisco, California and Piper
Marbury Rudnick & Wolfe LLP, Baltimore, Maryland. Certain legal matters will be
passed upon for any agents or underwriters by counsel for such agents or
underwriters identified in the applicable prospectus supplement.
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EXPERTS
The consolidated financial statements of BRE Properties, Inc. appearing in
BRE Properties, Inc.'s Annual Report (Form 10-K) for the year ended December
31, 2000, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated by reference
in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
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