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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-K



(Mark One)



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934
|- |  | -------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2002



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



Commission File No. 0-5305



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BRE PROPERTIES, INC.

(Exact name of registrant
as specified in its charter)



|Maryland                                                      |  | 94-1722214                            
|------------------------------------------------------------- |  | --------------------------------------
|(State or other jurisdictionof incorporation or organization) |  | (I.R.S. EmployerIdentification Number)



44
Montgomery Street, 36th Floor

San Francisco, California 94104-4809

(Address of principal executive offices) (Zip Code)



(415) 445-6530

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:



|Title of each class            |  | Name of each exchange on which registered
|------------------------------ |  | -----------------------------------------
|Common Stock, $.01 par value   |  | New York Stock Exchange                  
|8.50% Series A Preferred Stock |  | New York Stock Exchange                  
|8.08% Series B Preferred Stock |  | New York Stock Exchange                  
|Common Stock Purchase Rights   |  | New York Stock Exchange                  



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ̈



Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act rule 12b-2). Yes x No ̈



At February 28, 2003, the aggregate market value of the registrants shares of Common Stock par value, $.01 per share, held by
non-affiliates of the registrant was approximately $1,353,000,000. At that date 45,961,505 shares were outstanding.



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DOCUMENTS
INCORPORATED BY REFERENCE



Portions of the
Proxy Statement for the Annual Meeting of Shareholders of BRE Properties, Inc. to be filed within 120 days of December 31, 2002 are incorporated by reference in Part III of this report.



FORWARD-LOOKING STATEMENTS



In addition to historical information, we have made
forward-looking statements in this Annual Report on Form 10-K. These forward-looking statements pertain to, among other things, our capital resources, portfolio performance and results of operations. Forward-looking statements involve numerous risks
and uncertainties. You should not rely on these statements as predictions of future events because there is no assurance that the events or circumstances reflected in the statements can be achieved or will occur. Forward-looking statements are
identified by words such as believes, expects, may, will, should, seeks, approximately, intends, plans, pro forma,
estimates, or anticipates or in their negative form or other variations, or by discussions of strategy, plans or intentions. Forward-looking statements are based on assumptions, data or methods that may be incorrect or
imprecise or incapable of being realized. The following factors, among others, could affect actual results and future events: defaults or non-renewal of leases, increased interest rates and operating costs, failure to obtain necessary outside
financing, difficulties in identifying properties to acquire and in effecting acquisitions, failure to successfully integrate acquired properties and operations, inability to dispose of assets that no longer meet our investment criteria under
acceptable terms and conditions, risks and uncertainties affecting property development and construction (including construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities), failure to
qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. Our success also depends on general economic trends, including interest rates, income tax laws, governmental regulation, legislation, population changes and other factors, including those risk factors discussed in the
section entitled Risk Factors in this report as they may be updated from time to time by our subsequent filings with the Securities and Exchange Commission. Do not rely solely on forward-looking statements, which only reflect
managements analysis. We assume no obligation to update forward-looking statements.



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BRE PROPERTIES, INC.

PART I



Item 1.    BUSINESS



References in the Annual Report on Form 10-K to BRE, we or us refer to BRE Properties, Inc.



Corporate Profile



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, 2002, our multifamily portfolio had real estate assets with a net book value of approximately $2.1 billion, which
included: 81 wholly or majority owned completed multifamily communities, aggregating 22,371 units in California, Arizona, Washington, Utah, Oregon and Colorado; two communities owned through joint venture agreements, comprised of 488 apartment
units; and seven apartment communities in various stages of construction and development totaling 1,616 units. We have been a publicly traded company since our founding in 1970 and have paid 129 consecutive quarterly dividends to our
shareholders since inception.



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, acquisition and disposition 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 believe we can
best achieve our objectives by developing, acquiring and internally managing high-quality apartment communities in high-demand, supply constrained locations near the business, transportation, employment and recreation centers essential to customers
who value the convenience, service and flexibility of rental living. Recognizing that customers have many housing choices, we focus on developing and acquiring apartment homes with customer-defined amenities and providing professional management
services, delivered by well-trained associates. We have concentrated our investment and business focus in the Western United States because of certain characteristics of these markets, including propensity to rent and housing supply that currently
cannot keep pace with population and employment growth. From time to time, we dispose of assets that do not meet our long-term investment criteria, recycling the capital derived from property sales into apartment communities in supply constrained
locations that offer high return opportunities.



Events During
2002



On March 12, 2002, we issued
$150,000,000 of five-year senior unsecured notes in an underwritten public offering at a 5.95% coupon. On August 20, 2002, we issued $150,000,000 of seven-year senior unsecured notes in an underwritten public offering at a 5.75% coupon. Net
proceeds from the sales of the notes totaled approximately $297,407,000, after deducting the underwriting discounts and commissions and our offering expenses, and were used to repay a portion of the borrowings under our existing credit facility.



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On June 20,
2002, we closed the underwritten public offering of three million shares of 8.08% Series B Cumulative Redeemable Preferred Stock at $25 per share. The Series B Preferred Stock will be redeemable at $25 per share on or after June 20, 2007.
The preferred shares trade on the NYSE under the symbol BRE_prb. Net proceeds from the offering totaled $72,291,000, after deducting the underwriting discounts and commissions and our offering expenses, and were used to invest in additional
multifamily communities and, pending such use, to repay temporary borrowings under our existing credit facility.



During 2002, we consolidated five joint venture investments, transferring the assets from equity interests in real estate joint ventures
to direct investments in real estate. With respect to two of the joint ventures, the consolidation reflected BREs acquisition of its joint venture partners ownership interest in the properties. These properties are: Pinnacle at Blue
Ravine, a 260-unit apartment community located in Folsom, California; and Pinnacle Sonata, a 268-unit community located in Bothell, Washington. The acquisition price for our partners ownership interests was $56,520,000.



With respect to two of the joint ventures, the consolidation
reflected the termination of the joint venture arrangements prior to funding. These properties include: Pinnacle Stonecreek, a 226-unit community located in Phoenix, Arizona; and Pinnacle at the Creek, a 216-unit community located in the Denver
suburb of Aurora, Colorado. The effect of the consolidation was an increase to direct investments in real estate of $48,515,000, a reduction of equity interests in and advances to real estate joint ventures of $26,297,000 and an assumption of
secured indebtedness totaling $22,218,000. After consolidating these assets we paid down $6,722,000 of the related secured indebtedness.



With respect to the remaining joint venture property: Pinnacle at MacArthur Place, a 253-unit community located in the South Coast Metro
Area of Orange County, California, the consolidation resulted from a dispute between BRE and its joint venture partner that prevented the closing and funding of the joint venture. BRE and its joint venture partner have entered into litigation over
the matter (see Item 3, Legal Proceedings). The effect of the consolidation was an increase to direct investments in real estate of $64,227,000, a reduction of equity interests in and advances to real estate joint ventures of $24,227,000 and an
assumption of secured indebtedness totaling $40,000,000.



During 2002, we acquired an additional four properties totaling 848 units for approximately $100,000,000. The properties include: Bernardo Crest, with 216 units located in San Diego, California; Mission Trails, with
208 units also located in San Diego; Boulder Creek, with 264 units in Riverside, California; and Emerald Pointe Apartments, with 160 units located in Diamond Bar, California.



During 2002, we also completed the construction of Pinnacle at
Otay Ranch I and II, with a total of 364 units located in the San Diego suburb of Chula Vista, California; and Pinnacle at Lake Washington, with 180 units located in the Seattle suburb of Renton, Washington. Both communities are
directly owned by us.



During 2002, we sold three
communities totaling 663 units: The Arbors at Warner Center, with 250 units, located in the Los Angeles metro area of Woodland Hills, California; Pinnacle Lakeside, with 253 units, located in Salt Lake City, Utah; and Carriage House,
with 160 units, located in the Portland, Oregon metro area. The communities were sold for an aggregate sales price of approximately $58,300,000, resulting in a net gain on sale of $10,067,000. In connection with these transactions, the company
repaid approximately $13,216,000 in related secured mortgage debt.



Our Board of Directors authorized the purchase of BRE common stock in an amount up to $60,000,000 in 2001. The timing of repurchase activity is dependent upon the market price of BRE shares, and other market conditions and
factors. During 2002, we repurchased a total of $19,370,000 of our common stock, representing approximately 685,200 shares at an average purchase price of $28.27 per share. To date we have repurchased $50,422,000 of our common stock, representing
approximately 1,760,100 shares at an average price of $28.65 per share.



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Events During 2001



In the first quarter of 2001, we issued
$250,000,000 of 10-year senior unsecured notes at a 7.45% coupon.



During 2001, we completed the development and lease-up of one directly owned property with 248 units located in Bellevue Washington. We also purchased Pinnacle Belltown, located in downtown Seattle, and Pinnacle at
Laguna Niguel, located in Laguna Niguel, California, for a combined total of 597 units.



Our Board of Directors authorized the purchase of BRE common stock in an amount up to $60,000,000. The timing of repurchase activity is dependent upon the market price of BRE shares, and other market
conditions and factors. During 2001, we repurchased a total of $31,052,000 of our common stock, representing approximately 1,074,900 shares at an average purchase price of $28.89 per share.



During 2001, we sold three Tucson communities with
621 units for an aggregate sales price of $19,000,000, pursuant to an agreement with G&I III Residential One, LLC, an affiliate of DRA Advisors, Inc. The Tucson sale completed a $280,000,000 portfolio sale of apartment communities we
initiated in the third quarter of 2000 that was governed under a single master agreement. To facilitate the portfolio sale, we invested a total of approximately $13,674,000 of aggregate net proceeds in a joint venture controlled by an affiliate of
the buyer, in which BRE has a 15% interest. The buyers affiliate, DRA Growth and Income Fund III, LLC, has an 85% interest. Our remaining investment is included in other assets.



In 2001, we commenced a medium-term note program for the possible issuance, from time to time, of up to
$300,000,000 of medium term notes as part of our shelf registration statement. No such notes have yet been issued under the program.



Events During 2000



During 2000, we completed the development and lease-up of two directly owned communities totaling 460 units located in San Diego and
Sacramento, California. We also purchased two multifamily communities located in the San Francisco Bay Area, one located in Southern California, and one located in the Denver suburb of Littleton, Colorado, totaling 1,332 units, and eight land
sites for development of an estimated additional 1,666 units.



In September 2000, BRE and BRE Property Investors LLC, a majority owned and consolidated subsidiary, sold 19 communities (totaling 4,288 apartment units) pursuant to an agreement with G&I III Residential
One, LLC, an unrelated third party, for an aggregate sales price of $261,000,000. To facilitate the sale, we then invested approximately $11,288,000 of the net proceeds in a joint venture related to the buyer in which we have a 15% equity interest
and DRA Growth and Income Fund III, LLC has an 85% interest. The communities are located in Albuquerque, Las Vegas, Phoenix, and Tucson. BRE recorded a loss on sale of approximately $34,957,000.



In August 2000, we completed the spin-off of VelocityHSI, Inc.
(VelocityHSI). VelocityHSI was incorporated as a wholly owned subsidiary in April 2000 and was previously a segment within BRE. VelocityHSI provided high-speed Internet access to the multifamily apartment industry. On August 15, 2000, we
distributed approximately 87% of our investment in VelocityHSI to BRE shareholders and retained the balance. Each BRE common shareholder of record as of August 7, 2000 received one share of VelocityHSI for every five common shares of BRE owned.
Subsequent to the spin-off, our ownership in VelocityHSI was reduced to approximately 9.9% and was recorded under the equity method of accounting, which required BRE to recognize the losses of VelocityHSI against our interest in VelocityHSI. We also
advanced funds to VelocityHSI under two separate agreements, for a total of $7.6 million as of December 31, 2000. After the application of our equity in VelocityHSIs losses, our investment in and receivable from VelocityHSI was
recorded at $3.2 million as of December 31, 2000. This balance was reduced to zero during 2001.



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In December
2000, we renewed our line of credit through December 2003, increasing funds available to $450,000,000, with an option to upsize to $500,0000,000, and maintaining an interest rate of 70 basis points over LIBOR.



Competition



All of our communities are located in developed areas that
include other multifamily communities. There are numerous other multifamily properties and real estate companies within these areas that compete with BRE for residents and development and acquisition opportunities. Such competition could have a
material effect on our ability to lease apartment homes at our communities or at any newly developed or acquired communities and on the rents charged. We may be competing with others that have greater resources than BRE. In addition, other forms of
residential properties, including single-family housing, provide housing alternatives to potential residents of upscale apartment communities.



Structure, Tax Status and Investment Policy



We believe we are organized and operate so as to qualify as a real estate investment trust, or REIT under Sections 856-860 of the Internal
Revenue Code of 1986, as amended. If we qualify as a REIT, we generally will not be subject to Federal income tax to the extent we distribute 100% of our taxable income to our shareholders. REITs are subject to a number of complex organizational and
operational requirements. If BRE fails to qualify as a REIT, its taxable income may be subject to income tax at regular corporate rates. See Risk FactorsTax Risks.



Our long-range investment policy emphasizes the development, construction and acquisition of multifamily
communities located in the Western United States. As circumstances warrant, certain properties may be sold and the proceeds reinvested into multifamily communities which management believes better align with our growth objectives. Among other items,
this policy is intended to enable management to monitor developments in local real estate markets and to take an active role in managing our properties and improving their performance. The policy is subject to ongoing review by the Board of
Directors and may be modified in the future to take into account changes in business or economic conditions, as circumstances warrant.



Employees



As of December 31, 2002, we had approximately 780 employees. None of the employees are covered by collective bargaining
agreements.



Company Website



To view our current and periodic reports free of charge,
please go to our website at www.breproperties.com. We make these postings as soon as reasonably practicable after our filings with the SEC.



Investment Portfolio



See Part I, Item 2 (Properties) and Part II, Item 7 (Managements Discussion and Analysis of
Financial Condition and Results of Operations) of this report for a description of our individual investments and certain developments during the year with respect to these investments. See Part IV, Item 14(d), Schedule III
(financial statement schedule), for additional information about our portfolio, including location, costs and encumbrances.



Additionally, see Part II, Item 8 and Part IV, Item 15(d) of this report for our consolidated financial statements.



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Executive Officers of the
Registrant



The following persons were
executive officers of BRE as of February 15, 2003:



|Name                 |  | Age at February 15, 2003 |  | Position(s)                                                    
|-------------------- |  | ------------------------ |  | ---------------------------------------------------------------
|Frank C. McDowell    |  | 54                       |  | President, Chief Executive Officer and Director                
|Constance B. Moore   |  | 47                       |  | Executive Vice President, Chief Operating Officer and Director 
|Edward F. Lange, Jr. |  | 43                       |  | Executive Vice President, Chief Financial Officer and Secretary
|Bradley P. Griggs    |  | 45                       |  | Executive Vice President, Chief Investment Officer             
|Deirdre A. Kuring    |  | 41                       |  | Executive Vice President, Asset Management                     



Mr. McDowell was appointed to his current position in June 1995. Messrs. Lange and Griggs joined BRE in 2000. Ms. Kuring was appointed to her position in November of 2001 and Ms. Moore joined BRE in her current
position in 2002. Set forth below is information regarding the business experience of each of the executive officers:



From 1992 to 1995, Mr. McDowell was Chief Executive Officer and Chairman of Cardinal Realty Services, Inc., a Columbus, Ohio-based
apartment management company and owner of multifamily housing. From 1988 to 1992, Mr. McDowell was Senior Vice President, Head of Real Estate of First Interstate Bank of Texas. Mr. McDowell holds a Bachelor of Business Administration
Degree and a Master of Business Administration Degree, both from the University of Texas, Austin.



Ms. Moore held several executive positions with Security Capital Group & Affiliates from 1993 to 2002, including Co-Chairman and Chief
Operating Officer of Archstone Communities Trust. Ms. Moore holds a Bachelors Degree in Business Administration from San Jose State University and a Master of Business Administration Degree from the University of California, Berkeley.



Mr. Lange served as Executive Vice President and
Chief Financial Officer at Health Care REIT, Inc. from 1996 to 2000. Prior to joining Health Care REIT, Mr. Lange was Senior Vice President of Finance of The Careplex Group Inc., and affiliated companies from 1992 to 1996. Mr. Lange holds a
Master of Business Administration Degree from the University of Connecticut and a Bachelors Degree in Urban Planning from the University of Massachusetts.



Mr. Griggs served as a senior vice president of development for Homestead Village, Inc., a subsidiary of
Security Capital Group, Inc. from 1995 to 2000. Prior to joining Homestead, Mr. Griggs served as a senior real estate executive for The Fieldstone Company, Inc. and Ryland Homes, Inc. from 1987 to 1995. Mr. Griggs holds a Bachelors
Degree in Architecture from the California Polytechnic State University, in San Luis Obispo, California and is a registered California Architect.



Ms. Kuring was promoted to Executive Vice President in January 2003, and has served as an executive officer of BRE since November
2001. She served as Divisional Vice President, Pacific Northwest and Utah, from 2000 to 2001. From 1996 to 2000, Ms. Kuring was a vice president for Archstone Communities Trust, a Colorado-based multifamily real estate investment trust. Prior
to joining Archstone, she was Vice President, Operations for Lexford Properties, Inc. She holds a Bachelors Degree in Business Administration from Seattle University and is a Certified Property Manager.



There is no family relationship among any of BREs
executive officers or Directors.



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RISK FACTORS



The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report on Form 10-K.



Risks Due to Investment in Real Estate



Decreased Yields from an Investment in Real Property Due to Factors That May Cause a Decrease in Revenues or Values or an Increase in Operating Expenses



Real property investments are subject to varying degrees of risk. The yields available from equity
investments in real estate depend upon the amount of revenues generated and expenses incurred. If properties do not generate revenues sufficient to meet operating expenses, including debt service and capital expenditures, our results from operations
and ability to make distributions to our shareholders will be adversely affected. The performance of the economy in each of the areas in which the properties are located affects occupancy, market rental rates and expenses. These factors consequently
can have an impact on revenues from the properties and their underlying values. The financial results and labor decisions of major local employers may also have an impact on the revenues from and value of certain properties.



Other factors may further adversely affect revenues from and
values of our properties. These factors include the general economic climate, local conditions in the areas in which properties are located such as an oversupply of apartment units or a reduction in the demand for apartment units, the attractiveness
of the properties to residents, competition from other multifamily communities and our ability to provide adequate facilities maintenance, services and amenities. Our revenues would also be adversely affected if residents were unable to pay rent or
we were unable to rent apartments on favorable terms. If we were unable to promptly relet or renew the leases for a significant number of apartment units, or if the rental rates upon such renewal or reletting were significantly lower than expected
rates, then our funds from operations would, and our ability to make expected distributions to our shareholders and to pay amounts due on our debt may, be adversely affected. There is also a risk that as leases on the properties expire, residents
will vacate or enter into new leases on terms that are less favorable to us. Operating costs, including real estate taxes, insurance and maintenance costs, and mortgage payments, if any, do not, in general, decline when circumstances cause a
reduction in income from a property. We could sustain a loss as a result of foreclosure on the property, if a property is mortgaged to secure payment of indebtedness and we were unable to meet our mortgage payments. In addition, applicable laws,
including tax laws, interest rate levels and the availability of financing also affect revenues from properties and real estate values.



Development and Construction Projects May Not Be Completed or Completed Successfully



As a general matter, property development and construction
projects typically have a higher, and sometimes substantially higher, level of risk than the acquisition of existing properties. We intend to actively pursue development and construction of multifamily apartment communities. There can be no
assurance that we will complete development of the properties currently under development or any other development project that we may undertake. Risks associated with our development and construction activities may include the following:



| |  |  | development opportunities may be abandoned;
| | - |  | -------------------------------------------



| |  |  | construction costs of multifamily apartment communities may exceed original estimates, possibly making the communities uneconomical;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | occupancy rates and rents at newly completed communities may not be sufficient to make the communities profitable;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | financing for the construction and development of projects may not be available on favorable terms or at all;
| | - |  | -------------------------------------------------------------------------------------------------------------



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| |  |  | construction and lease-up may not be completed on schedule; and
| | - |  | ---------------------------------------------------------------



| |  |  | expenses of operating a completed community may be higher than anticipated.
| | - |  | ---------------------------------------------------------------------------



In addition, development and construction activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of managements time and attention. Development and construction activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy, and other required governmental permits and authorizations.



Investments in Newly Acquired Properties May Not Perform in Accordance with Expectations



In the normal course of business, we typically evaluate potential acquisitions, enter into non-binding letters of intent, and may, at any
time, enter into contracts to acquire and may acquire additional properties. However, no assurance can be given that we will have the financial resources to make suitable acquisitions or that properties that satisfy our investment policies will be
available for acquisition. Acquisitions of properties entail risks that investments will fail to perform in accordance with expectations. Estimates of the costs of improvements to bring an acquired property up to standards established for the market
position intended for that property might prove inaccurate. Other risks may include rehabilitation costs exceeding original estimates, possibly making a project uneconomical; financing not being available on favorable terms or at all; and
rehabilitation and lease-up not being completed on schedule. In addition, there are general real estate investment risks associated with any new real estate investment, including environmental risks. Although we undertake an evaluation of the
physical condition of each new investment before it is acquired, certain defects or necessary repairs may not be detected until after the investment is acquired. This could significantly increase our total acquisition costs, which could have a
material adverse effect on us and our ability to make distributions to our shareholders and pay amounts due on our debt.



Illiquidity of Real Estate and Reinvestment Risk May Reduce Economic Returns to Investors



Real estate investments are relatively illiquid and,
therefore, tend to limit our ability to adjust our portfolio in response to changes in economic or other conditions. Additionally, the Internal Revenue Code places certain limits on the number of properties a REIT may sell without adverse tax
consequences. To affect our current operating strategy, we have in the past raised, and will seek to continue to raise additional funds, both through outside financing and through the orderly disposition of assets that no longer meet our investment
criteria. Depending upon interest rates, current development and acquisition opportunities and other factors, generally we will reinvest the proceeds in multifamily properties, although such funds may be employed in other uses. In the markets we
have targeted for future acquisition of multifamily properties, there is considerable buying competition from other real estate companies, many of whom may have greater resources, experience or expertise than we. In many cases, this competition for
acquisition properties has resulted in an increase in property prices and a decrease in property yields. Due to the relatively low capitalization rates currently prevailing in the pricing of potential acquisitions of multifamily properties which
meet our investment criteria, no assurance can be given that the proceeds realized from the disposition of assets, which no longer meet our investment criteria, can be reinvested to produce economic returns comparable to those being realized from
the properties disposed of, or that we will be able to acquire properties meeting our investment criteria. To the extent that we are unable to reinvest proceeds from the assets that no longer meet our investment criteria, or if properties acquired
with such proceeds produce a lower rate of return than the properties disposed of, such results may have a material adverse effect on us. In addition, a delay in reinvestment of such proceeds may have a material adverse effect on us.



We may seek to structure future dispositions as tax-free
exchanges, where appropriate, utilizing the non-recognition provisions of Section 1031 of the Internal Revenue Code to defer income taxation on the disposition of the exchanged property. For an exchange of such properties to qualify for tax-free
treatment under Section 1031 of the Internal Revenue Code, certain technical requirements must be met. Given the competition



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for properties meeting our investment criteria, it may be difficult for us to identify suitable properties within the proscribed time frames
in order to meet the requirements of Section 1031. Even if we can structure a suitable tax-deferred exchange, as noted above, we cannot assure that we will reinvest the proceeds of any of these dispositions to produce economic returns comparable to
those currently being realized from the properties which were disposed of.



Substantial Competition Among Multifamily Properties and Real Estate Companies May Adversely Affect Our Rental Revenues and Development and Acquisition Opportunities



All of the properties currently owned by us are located in
developed areas. There are numerous other multifamily properties and real estate companies, many of which have greater financial and other resources than we have, within the market area of each of the properties which will compete with us for
residents and development and acquisition opportunities. The number of competitive multifamily properties and real estate companies in such areas could have a material effect on (1) our ability to rent the apartments and the rents charged, and (2)
development and acquisition opportunities. The activities of these competitors could cause us to pay a higher price for a new property than we otherwise would have paid or may prevent us from purchasing a desired property at all, which could have a
material adverse effect on us and our ability to make distributions to our shareholders and to pay amounts due on our debt.



Potential Effect on Operations Due to Geographic Concentration of Properties and Economic Conditions; Dependence on Western United
States Regions



Our portfolio is located in
the San Francisco Bay Area, Los Angeles/Orange County, San Diego, Sacramento, Seattle, Portland, Salt Lake City, the Denver area and Phoenix. Our performance could be adversely affected by economic conditions in, and other factors relating to, these
geographic areas, including supply and demand for apartments in these areas, zoning and other regulatory conditions and competition from other properties and alternative forms of housing. In that regard, certain of these areas have in the recent
past or are currently experiencing economic recessions and depressed conditions in the local real estate markets. To the extent general economic or social conditions in any of these areas further deteriorate or any of these areas experiences natural
disasters, the value of the portfolio, our results of operations and our ability to make distributions to our shareholders and to pay amounts due on our debt could be materially adversely affected.



Inability to Implement Growth Strategy; Potential Failure
to Identify, Acquire or Integrate New Acquisitions



Our future growth will be dependent upon a number of factors, including our ability to identify acceptable properties for development and acquisition, complete acquisitions and developments on favorable terms, successfully integrate
acquired and newly developed properties, and obtain financing to support expansion. There can be no assurance that we will be successful in implementing our growth strategy, that growth will continue at historical levels or at all, or that any
expansion will improve operating results. The failure to identify, acquire and integrate new properties effectively could have a material adverse affect on us and our ability to make distributions to our shareholders and to pay amounts due on our
debt.



A substantial portion of our growth over
the last several years has been attributable to acquisitions. We intend to continue to acquire stabilized multifamily apartment communities to the extent we identify communities that meet our investment criteria. Acquisitions of multifamily
apartment communities entail risks that investments will fail to perform in accordance with expectations. Estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that
property might prove inaccurate. In addition, there are general investment risks associated with any new real estate investment.



Uninsured and Underinsured Losses; Limited Insurance Coverage



We carry comprehensive liability, fire, extended coverage and rental loss insurance with respect to our
properties with certain policy specifications, limits and deductibles. While as of December 31, 2002, we carried



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flood and earthquake insurance for our properties with an aggregate annual limit of $100 million, subject to substantial deductibles, no
assurance can be given that such coverage will be available on acceptable terms or at an acceptable cost, or at all, in the future, or if obtained, that the limits of those policies will cover the full cost of repair or replacement of covered
properties. In addition, there may be certain extraordinary losses (such as those resulting from civil unrest or terrorist acts) that are not generally insured (or fully insured against) or underinsured losses (such as those resulting from claims in
connection with the occurrence of mold, asbestos, and lead) because they are either uninsurable or not economically insurable. Should an uninsured or underinsured loss occur to a property, we could be required to use our own funds for restoration or
lose all or part of our investment in, and anticipated revenues from, the property and would continue to be obligated on any mortgage indebtedness on the property. Any such loss could have a material adverse effect on us and our ability to make
distributions to our shareholders and pay amounts due on our debt.



Survey Exceptions to Certain Title Insurance Policies May Result in Incomplete Coverage in the Event of a Claim



We did not obtain updated surveys when we acquired properties from Trammell Crow Residential-West because we believe that prior owners of
the Trammell Crow Residential-West properties in the past obtained surveys of these properties. Because updated surveys of the Trammell Crow Residential-West properties acquired were not obtained, the title insurance policies obtained by us for
those fifteen properties contain exceptions for matters that an updated survey might have disclosed. Such matters might include such things as boundary encroachments, unrecorded easements or similar matters, which would have been reflected on a
survey. Moreover, because no updated surveys were prepared for these properties, there can be no assurance that the title insurance policies in fact cover the entirety of the real property, buildings, fixtures, and improvements which we believe they
cover, any of which could have a material adverse effect on us.



Adverse Changes in Laws May Affect Our Potential Liability Relating to the Properties and Our Operations



Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to residents or users in the form of
higher rents, and may adversely affect our cash available for distribution and our ability to make distributions to our shareholders and to pay amounts due on our debt. Similarly, changes in laws increasing the potential liability for environmental
conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which
could have a material adverse effect on us and our ability to make distributions to our shareholders and pay amounts due on our debt. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily
housing may reduce rental revenues or increase operating costs.



Potential Effect on Costs and Investment Strategy From Compliance With Laws Benefiting Disabled Persons



A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require
modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction. Legislation or
regulations adopted in the future may impose further burdens or restrictions on us with respect to improved access by disabled persons. The costs of compliance with these laws and regulations may be substantial, and limits or restrictions on
construction or completion of certain renovations may limit implementation of our investment strategy in certain instances or reduce overall returns on our investments, which could have a material adverse effect on us and our ability to make
distributions to our shareholders and to pay amounts due on our debt. We review our properties periodically to determine the level of compliance and, if necessary, take appropriate action to bring such properties into compliance. We believe, based
on property reviews to date, that the costs of such compliance should not have a material adverse effect on us. Such conclusions are based upon currently available information and data, and no assurance can be given that further review and analysis
of our properties, or future legal interpretations or legislative changes, will not significantly increase the costs of compliance.



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Restrictions on the Operations of the Operating Company



Fifteen of our properties are held by BRE Property Investors LLC, which is referred to in this Annual Report on Form 10-K as the operating company. We are the sole managing member of the operating
company and, as of December 31, 2002, held approximately an 87% equity interest in it. Third parties as non-managing members hold the remaining equity interests in the operating company.



Under the terms of the limited liability company agreement governing the operations of the operating company,
the operating company is required to maintain certain debt service coverage, debt-to-asset and other financial ratios intended to protect the members rights to receive distributions. In addition, with respect to the outstanding debt for
certain properties, the operating company is restricted from repaying its debt or taking certain other specified action that could have adverse tax consequences for the members. Further, we, as the managing member, are restricted from taking certain
other specified actionseither absolutely or without the consent of a majority in interest of the non-managing members (or of the non-managing members affected thereby)including, but not limited to, any actions:



| |  |  | that would make it impossible to carry out the business of the operating company
| | - |  | --------------------------------------------------------------------------------



| |  |  | that would subject a non-managing member to liability as a managing member; or
| | - |  | ------------------------------------------------------------------------------



| |  |  | that would cause the operating company to institute bankruptcy proceedings or permit an automatic judgment to be entered against it by a creditor.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



Any such requirement to maintain
financial ratios and any such restrictions on the actions of the operating company and its managing member could have a material adverse affect on us and our ability to make distributions to our shareholders and to pay amounts due on our debt.



Further, under the terms of the operating
companys limited liability company agreement, the operating company must obtain the consent of a majority in interest of the non-managing members in order to:



| |  |  | dispose of any of the properties held by the operating company (15 properties with a gross book value of $417,559,000) in a taxable sale or exchange prior to
respective dates which are specified in the operating companys limited liability company agreement for each of the properties, ranging from eight to 10 years from November 18, 1997, or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dissolve the operating company other than in certain limited circumstances specified in the operating companys limited liability company agreement, such as a
sale of all or substantially all of our assets, or any merger, consolidation or other combination by us with or into another person, or reclassification, recapitalization or change of our outstanding equity interests.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These restrictions on our ability to dispose of a portion of
our properties and to dissolve the operating company, even when such a disposition or dissolution of the operating company would be in our best interest, could have a material adverse effect on us and our ability to make distributions to our
shareholders and to pay amounts due on our debt.



The operating company also must distribute all available cash (as defined in the operating companys limited liability company agreement) on a quarterly basis: first, a priority distribution to members (other than us) until each
member has received, cumulatively on a per operating company unit basis, distributions equal to the cumulative dividends declared with respect to one share of BRE common stock over the corresponding period (subject to adjustment from time to time as
applicable to account for stock dividends, stock splits and similar transactions affecting BRE common stock); and second, the balance to us.



12



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If the
operating companys available cash in any quarterly period is insufficient to permit distribution of the full amount of the priority distribution described above for that quarter, we are required to make a capital contribution to the operating
company in an amount equal to the lesser of:



| |  |  | the amount necessary to permit the full priority distribution, or
| | - |  | -----------------------------------------------------------------



| |  |  | an amount equal to the sum of any capital expenditures made by the operating company plus the sum of any payments made by the operating company on account of any
loans to or investments in, or any guarantees of the obligations of, BRE or our affiliates for that quarterly period.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we may not be removed as the managing member of the operating company by the non-managing members, with or without cause,
other than with our consent. We may not voluntarily withdraw from the operating company or transfer all or any portion of our interest in the operating company without the consent of all of the non-managing members, except in certain limited
circumstances, such as a sale of all or substantially all of our assets, or any merger, consolidation or other combination by us with or into another person, or any reclassification, recapitalization or change of our outstanding equity interests.
Such restrictions on our withdrawal as the managing member of the operating company, and on our ability to transfer our interest in the operating company, could have a material adverse effect on us and our ability to make distributions to our
shareholders and to pay amounts due on our debt.



Risks Due to
Real Estate Financing



We anticipate that
future developments and acquisitions will be financed, in whole or in part, under various construction loans, lines of credit, and other forms of secured or unsecured financing or through the issuance of additional debt or equity by us. We expect
periodically to review our financing options regarding the appropriate mix of debt and equity financing. Equity, rather than debt, financing of future developments or acquisitions could have a dilutive effect on the interests of our existing
shareholders. Similarly, there are certain risks involved with financing future developments and acquisitions with debt, including those described below. In addition, if new developments are financed through construction loans, there is a risk that,
upon completion of construction, permanent financing for such properties may not be available or may be available only on disadvantageous terms or that the cash flow from new properties will be insufficient to cover debt service. If a newly
developed or acquired property is unsuccessful, our losses may exceed our investment in the property. Any of the foregoing could have a material adverse effect on us and our ability to make distributions to our shareholders and to pay amounts due on
our debt.



Potential Inability to Renew, Repay
or Refinance Our Debt Financing



We are
subject to the normal risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, the risk that indebtedness on our properties, or unsecured indebtedness, will
not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the existing terms of such indebtedness. If we were unable to refinance our indebtedness on acceptable terms, or at
all, we might be forced to dispose of one or more of the properties on disadvantageous terms, which might result in losses to us. Such losses could have a material adverse effect on us and our ability to make distributions to our shareholders and
pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of
rents and leases or pursue other remedies, all with a consequent loss of our revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution
requirements of the Internal Revenue Code.



Increase in Cost of Indebtedness Due to Rising Interest Rates



We have incurred and expect in the future to incur indebtedness that bears interest at a variable rate. Accordingly, increases in interest rates would increase our interest costs, which could have a
material adverse



13



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effect on us and our ability to make distributions to our shareholders or cause us to be in default under certain debt instruments. In
addition, an increase in market interest rates may lead holders of our common shares to demand a higher yield on their shares from distributions by us, which could adversely affect the market price for BRE common stock.



Potential Incurrence of Additional Debt and Related Debt
Service



We currently fund the acquisition
and development of multifamily communities partially through borrowings (including our line of credit) as well as from other sources such as sales of properties which no longer meet our investment criteria or the contribution of property to joint
ventures which may in turn secure debt. Our organizational documents do not contain any limitation on the amount of indebtedness that we may incur. Accordingly, subject to limitations on indebtedness set forth in various loan agreements, we could
become more highly leveraged, resulting in an increase in debt service, which could have a material adverse effect on us and our ability to make distributions to our shareholders and to pay amounts due on our debt and in an increased risk of default
on our obligations.



Restrictive Terms of
Certain Indebtedness May Cause Acceleration of Debt Payments



At December 31, 2002, we had outstanding borrowings of approximately $1.174 billion. Our indebtedness contains financial covenants as to minimum net worth, interest coverage ratios, maximum secured debt, and total
debt to capital, among others. In the event that an event of default occurs, our lenders may declare borrowings under the respective loan agreements to be due and payable immediately, which could have a material adverse effect on us and our ability
to make distributions to our shareholders and to pay amounts due on our debt.



Potential Liability Under Environmental Laws



Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances
in, on, around or under such property. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of, or failure to
remediate properly, such substances may adversely affect the owners or operators ability to sell or rent the affected property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials into the air, and third parties may also seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances.
Federal and state laws also regulate the operation and subsequent removal of certain underground storage tanks. In connection with the current or former ownership (direct or indirect), operation, management, development and/or control of real
properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as
certain other costs, including governmental fines, and claims for injuries to persons and property.



Our current policy is to obtain a Phase I environmental study on each property we seek to acquire and to proceed accordingly. No assurance
can be given, however, that the Phase I environmental studies or other environmental studies undertaken with respect to any of our current or future properties will reveal all or the full extent of potential environmental liabilities, that any prior
owner or operator of a property did not create any material environmental condition unknown to us, that a material environmental condition does not otherwise exist as to any one or more of such properties or that environmental matters will not have
a material adverse effect on us and our ability to make distributions to our shareholders and to pay amounts due on our debt. We currently carry no insurance for environmental liabilities.



14



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Certain
environmental laws impose liability on a previous owner of property to the extent that hazardous or toxic substances were present during the prior ownership period. A transfer of the property does not relieve an owner of such liability. Thus, we may
have liability with respect to properties previously sold by us or our predecessors.



Recently there has been an increasing number of lawsuits against owners and managers of multifamily properties alleging personal injury and property damage caused by the presence of mold in residential
real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements. Insurance carriers have reacted to these liability awards by excluding mold related claims from standard policies and pricing mold endorsements
separately. We have obtained a separate pollution insurance policy that covers mold-related claims and have adopted programs designed to minimize the existence of mold in any of our properties as well as guidelines for promptly addressing and
resolving reports of mold. To the extent not covered by our pollution policy, the presence of significant mold could expose us to liability from residents and others if property damage, health concerns, or allegations thereof, arise.



Ranking of Securities and Subordination of Claims



A portion of our operations is conducted through our
subsidiaries, including the operating company. Our cash flow and the consequent ability to make distributions and other payments on our equity securities and to service our debt will be partially dependent upon the earnings of such subsidiaries and
the distribution of those earnings to us, or upon loans or other payments of funds made by such subsidiaries to us. In addition, debt or other arrangements of our subsidiaries may impose restrictions that affect, among other things, our
subsidiaries ability to pay dividends or make other distributions or loans to us.



Likewise, a portion of our consolidated assets is owned by our subsidiaries, effectively subordinating certain unsecured indebtedness of BRE to all existing and future liabilities, including
indebtedness, trade payables, lease obligations and guarantees of our subsidiaries. The operating company has guaranteed amounts due under our $450 million bank credit facility with a syndicate of banks. Likewise, any other of our subsidiaries
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 of borrowings
under the credit facility. The operating company and other of our subsidiaries may also, from time to time, guarantee other of our indebtedness. Therefore, our rights and rights of our creditors, including the holders of other unsecured
indebtedness, to participate in the assets of any subsidiary upon the latters liquidation or reorganization will be subject to the prior claims of such subsidiarys creditors, except to the extent that we may ourselves be a creditor with
recognized claims against the subsidiary, in which case our claims would still be effectively subordinate to any security interests in or mortgages or other liens on the assets of such subsidiary and would be subordinate to any indebtedness of such
subsidiary senior to that held by us.



Provisions That Could
Limit a Change in Control or Deter a Takeover



In order to maintain our qualification as a REIT, not more than 50% in value of our outstanding capital stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include
certain entities). In order to protect us against risk of losing our status as a REIT due to a concentration of ownership among our shareholders, our charter provides, among other things, that if the Board of Directors determines, in good faith,
that direct or indirect ownership of BRE common stock has or may become concentrated to an extent that would prevent us from qualifying as a REIT, the Board of Directors may prevent the transfer of BRE common stock or call for redemption (by lot or
other means affecting one or more shareholders selected in the sole discretion of the Board of Directors) of a number of shares of BRE common stock sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect
ownership of BRE common stock into conformity with the requirements for maintaining REIT status. These limitations may have the effect of precluding acquisition of control of us by a third party without consent of the Board of Directors.



15



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In addition,
certain other provisions contained in our charter and bylaws may have the effect of discouraging a third-party from making an acquisition proposal for us and may thereby inhibit a change in control. Our articles of incorporation include provisions
establishing a staggered board of directors, restrictions on unsolicited business combinations and restrictions on our shareholders ability to amend our articles of incorporation. Our bylaws contain restrictions on our shareholders
ability to call special meetings of our board of directors, provisions allowing our board of directors to increase its size and restrictions on the transfer of shares of our capital stock with respect to the preservation of our REIT status. Such
provisions may deter tender offers for BRE common stock which offers may be attractive to the shareholders, or deter purchases of large blocks of BRE common stock, thereby limiting the opportunity for shareholders to receive a premium for their
shares of BRE common stock over then-prevailing market prices.



Tax Risks



Tax
Liabilities as a Consequence of Failure to Qualify as a REIT



Although management believes that we are organized and are operating so as to qualify as a REIT under the Internal Revenue Code, no assurance can be given that we have in fact operated or will be able to continue to operate
in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our taxable gross income in any year must be derived from qualifying sources and we must make
distributions to shareholders aggregating annually at least 90% of our REIT taxable income (excluding net capital gains). Thus, to the extent revenues from non-qualifying sources such as income from third-party management represents more than 5% of
our gross income in any taxable year, we will not satisfy the 95% income test and may fail to qualify as a REIT, unless certain relief provisions apply. Even if those relief provisions apply, a tax would be imposed with respect to excess net income,
any of which could have a material adverse effect on us and our ability to make distributions to our shareholders and to pay amounts due on our debt. Additionally, to the extent the operating company or certain other subsidiaries are determined to
be taxable as a corporation, we would not qualify as a REIT, which could have a material adverse effect on us and our ability to make distributions to our shareholders and to pay amounts due on our debt.



If we fail to qualify as a REIT, we will be subject to federal
income tax (including any applicable alternative minimum tax) on our taxable income at corporate rates, which would likely have a material adverse effect on us, our share price and our ability to make distributions to our shareholders and to pay
amounts due on our debt. In addition, unless entitled to relief under certain statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This
treatment would reduce funds available for investment or distribution to our shareholders because of the additional tax liability to us for the year or years involved. In addition, we would no longer be required to make distributions to our
shareholders. To the extent that distributions to our shareholders would have been made in anticipation of qualifying as a REIT, we might be required to borrow funds or to liquidate certain investments to pay the applicable tax. Finally, no
assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.



Item 2.    PROPERTIES



General



In addition to the information in this Item 2, certain information regarding our property portfolio is
contained in Schedule III (financial statement schedule) under Part IV, Item 14(d).



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Multifamily Property Data



Our multifamily properties represent 100%
of our real estate portfolio and 99% of our total revenue.



|Multifamily Properties                                       |  | 2002 |  | 2001 |  | 2000 |  | 1999 |  | 1998
|------------------------------------------------------------ |  | ---- |  | ---- |  | ---- |  | ---- |  | ----
|Percentage of total portfolio at cost, as of December 31     |  | 100% |  | 100% |  | 100% |  | 100% |  | 100%
|Percentage of total revenues, for the year ended December 31 |  | 99%  |  | 99%  |  | 98%  |  | 98%  |  | 97% 



No
single multifamily property accounted for more than 10% of revenues in any of the five years ended December 31, 2002.



The following table discloses certain operating data about our multifamily units:



|                              |  | December 31, |  
|----------------------------- |  | ------------ | -
|                              |  | 2002         |  
|Total number of units         |  | 22,371       |  
|Occupancy percentage(1)       |  | 94           | %
|Average monthly rent per unit |  | $1,114       |  
|Total number of properties    |  | 81           |  



This
table summarizes data about our operating multifamily properties:



|Market                    |  | Percentageof NOI(2) |   |  | Units  |  | Number ofCommunities |  | Occupancy(3) |   |  | MarketRent(4)
|------------------------- |  | ------------------- | - |  | ------ |  | -------------------- |  | ------------ | - |  | -------------
|San Francisco Bay Area    |  | 25                  | % |  | 3,488  |  | 10                   |  | 94           | % |  | $            
|San Diego                 |  | 22                  | % |  | 3,711  |  | 16                   |  | 96           | % |  | $            
|Los Angeles/Orange County |  | 13                  | % |  | 3,863  |  | 14                   |  | 95           | % |  | $            
|Seattle                   |  | 12                  | % |  | 3,149  |  | 13                   |  | 93           | % |  | $            
|Phoenix                   |  | 9                   | % |  | 2,920  |  | 8                    |  | 92           | % |  | $            
|Sacramento                |  | 9                   | % |  | 2,156  |  | 10                   |  | 95           | % |  | $            
|Salt Lake City            |  | 4                   | % |  | 1,264  |  | 4                    |  | 93           | % |  | $            
|Denver                    |  | 4                   | % |  | 1,200  |  | 4                    |  | 92           | % |  | $            
|Portland                  |  | 2                   | % |  | 620    |  | 2                    |  | 93           | % |  | $            
|                          |  |                     |   |  |        |  |                      |  |              |   |  |              
|Total/Weighted Average    |  | 100                 | % |  | 22,371 |  | 81                   |  | 94           | % |  | $            



The
following table summarizes our same-store operating results. Same-store properties are defined as completed and stabilized properties owned by us for at least two years.



|                                                     |  | December 31, |   
|---------------------------------------------------- |  | ------------ | --
|                                                     |  | 2002         |   
|Number of same-store units                           |  | 18,563       |   
|Same-store units % of total units                    |  | 83           | % 
|Same-store revenue (decrease) increase               |  | (3           | )%
|Same-store expense increase (decrease)               |  | 3            | % 
|Same-store net operating income (decrease) increase. |  | (5           | )%

---

|(1) |  | Portfolio occupancy is calculated by dividing the total occupied units by the total units in the portfolio at the end of the year. Apartment units are generally
leased to residents for rental terms not exceeding one year.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Represents the aggregate net operating income (NOI) from properties in each market divided by the total net operating income of multifamily properties for the year
ended December 31, 2002, and includes the results of properties acquired and developed during 2002 from the date of acquisition and completion. Excludes NOI from properties sold during 2002. Accordingly, these results do not reflect a full year of
operations for properties acquired or completed in 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) |  | Represents average physical occupancy for all stabilized properties for the twelve months ended December 31, 2002. The total is a weighted average by units for
all communities shown.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Represents average prevailing market rent per unit for the twelve months ended December 31, 2002. The total is a weighted average by units for all communities shown.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



Properties Completed during 2002



In 2002, we completed the development of
Pinnacle on Lake Washington, a 180-unit property in Renton, Washington; Pinnacle at Otay Ranch Phases I & II, totaling 364 units in Chula Vista, San Diego; Pinnacle at MacArthur Place, a 253-unit community in South Coast Metro Area of Orange
County; and Pinnacle at the Creek, a 216-unit community in Aurora, Colorado.



Development Properties



The following table provides data on our seven multifamily properties that are currently under various stages of development and construction. Completion of the development properties is subject to a number of risks and
uncertainties, including construction delays and cost overruns. No assurance can be given that these properties will be completed, or that they will be completed by the estimated dates, or for the estimated amounts, or will contain the number of
proposed units shown in the table below.



|Property Name                  |  | Location              |  | ProposedNumberof Units       |  | Costs Incurredto Date December 31,2002 |       |     | EstimatedCost toComplete |   | EstimatedTotalCost |  | EstimatedCompletionDate(1)
|------------------------------ |  | --------------------- |  | ---------------------------- |  | --------------------------------------- | ----- | --- | ------------------------ | - | ------------------ |  | --------------------------
|                               |  |                       |  | (Dollar amounts in millions)
|Direct Investment              |  |                       |  |                              |  |                                         |       |     |                          |   |                    |  |                           
|Pinnacle Denver Tech Center    |  | Greenwood Village, CO |  | 420                          |  | $                                       | 50.3  |     |                          | $ | 1.5                |  | $                         
|Pinnacle at Talega             |  | San Clemente, CA      |  | 252                          |  |                                         | 36.8  |     |                          |   | 6.9                |  |                           
|Pinnacle at Fullerton          |  | Fullerton, CA         |  | 192                          |  |                                         | 20.1  |     |                          |   | 23.6               |  |                           
|Pinnacle at Westridge(2)       |  | Valencia, CA          |  | 234                          |  |                                         | 17.4  |     |                          |   | 25.3               |  |                           
|Pinnacle at Talega II          |  | San Clemente, CA      |  | 110                          |  |                                         | 7.9   |     |                          |   | 12.5               |  |                           
|                               |  |                       |  |                              |  |                                         |       |     |                          |   |                    |  |                           
|Total Construction in Progress |  |                       |  | 1,208                        |  | $                                       | 132.5 | (3) |                          | $ | 69.8               |  | $                         
|                               |  |                       |  |                              |  |                                         |       |     |                          |   |                    |  |                           
|Land under development(4)      |  |                       |  |                              |  |                                         |       |     |                          |   |                    |  |                           
|Pinnacle Pasadena              |  | Pasadena, CA          |  | 200                          |  | $                                       | 8.5   |     |                          |   |                    |  |                           
|Pinnacle at Chino Hills        |  | Chino Hills, CA       |  | 208                          |  |                                         | 6.1   |     |                          |   |                    |  |                           
|                               |  |                       |  |                              |  |                                         |       |     |                          |   |                    |  |                           
|Total Land Under Development   |  |                       |  | 408                          |  | $                                       | 14.6  |     |                          |   |                    |  |                           
|                               |  |                       |  |                              |  |                                         |       |     |                          |   |                    |  |                           

---

|(1) |  | Completion is defined as our estimate of when an entire project will have a final certificate of occupancy issued and be ready for occupancy. Completion
dates have been updated to reflect our current estimates of receipt of final certificates of occupancy, which are dependent on several factors, including construction delays and the inability to obtain necessary public approvals.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Pinnacle at Westridge was formerly named Pinnacle at Valencia.
|--- |  | --------------------------------------------------------------



|(3) |  | Reflects all recorded and allocated costs incurred as of December 31, 2002, consisting of $90.7 million recorded on our consolidated balance sheet as direct
investments in real estate-construction in progress and $41.8 million of costs for completed buildings located on the listed properties, which are included in direct investments in real estate-investments in rental properties on
our consolidated balance sheet.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Land under development represents projects in various stages of pre-development, development, and initial construction, for which construction or supply contracts
have not yet been finalized. As these contracts are finalized, projects are transferred to construction in progress on our balance sheet.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Insurance, Property Taxes
and Income Tax Basis



We carry comprehensive
liability, fire, pollution, extended coverage and rental loss insurance on our properties with certain policy specifications, limits and deductibles. In addition, at December 31, 2002, we carried flood and earthquake coverage with an annual
aggregate limit of $100,000,000 (after policy deductibles ranging from 2%-5% of damages). Management believes the properties are adequately covered by such insurance.



Property taxes on portfolio properties are assessed on asset values based on the valuation method and tax
rate used by the respective jurisdictions; such rates ranged from approximately 1% to 2% of assessed values for 2002. The gross carrying value of our direct investments in rental properties was $2,143,960,000 as of December 31, 2002; at that
date our assets had an underlying federal income tax basis approximately $265,000,000 lower, which reflects, among other factors, the carryover of basis on tax-deferred exchanges.



Headquarters



We lease our corporate headquarters at 44 Montgomery Street, 36th Floor, San Francisco, California, 94104-4809, from OTR, an Ohio general
partnership. The lease covers 15,142 rentable square feet at annual per square foot rents, which began at $37.00 in 1999, and rise to $44.00 in the eighth year of the lease. The lease term ends on January 31, 2006. The Company also maintains
regional offices in: Seattle, Washington; Irvine and San Diego, California; Phoenix, Arizona; and Denver, Colorado.



Item 3.    LEGAL PROCEEDINGS



BRE is defending various claims and legal actions that arise in its normal course of business. While it is not feasible to predict or
determine the ultimate outcome of these matters, in the opinion of management, none of these actions will have a material adverse effect on us.



On June 29, 2000, BRE entered into an Agreement for Formation of Limited Liability Company and Contribution of Project with an unrelated
third party. The agreement contemplated that upon the completion of Pinnacle at MacArthur, BRE would contribute the project to a joint venture in which BRE and the third party would be members. The closing deadline under the agreement was April 1,
2002. However, due to disagreements between BRE and the third party regarding their respective rights and obligations under the Agreement, the closing did not occur.



On April 1, 2002, the third party brought litigation against BRE in the United States District Court for the
Central District of California, Santa Ana Division. The lawsuit seeks specific performance of the agreement or, in the alternative, damages. BRE has filed a counterclaim for a declaration that it was not, in fact, obligated to enter into the
transaction under the terms demanded by the third party. Resolution of this dispute is pending and the outcome is not yet determinable. Management does not anticipate that the litigation will have a material effect on BREs consolidated
financial statements.



Item
4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



19



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PART II



Item 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER  MATTERS



Our common stock is traded on the New York Stock Exchange under the symbol BRE. As of February 28, 2003, there were
approximately 5,800 recordholders of BREs common stock and the last reported sales price on the NYSE was $29.59. The number of holders does not include shares held of record by a broker or clearing agency, but does include each such broker or
clearing agency as one recordholder. As of February 28, 2003, there were approximately 22,850 beneficial holders of BREs common stock.



This table shows the high and low sales prices of our common stock reported on the NYSE Composite Tape and the dividends we paid for each
common share:



|               |  | Years ended December 31,
|-------------- |  | ------------------------
|               |  | 2002                    
|               |  | Stock Price             
|               |  | High                    
|First Quarter  |  | $                       
|Second Quarter |  | $                       
|Third Quarter  |  | $                       
|Fourth Quarter |  | $                       



Since
1970, when BRE was founded, we have made regular and uninterrupted quarterly distributions to shareholders. The payment of distributions by BRE is at the discretion of the Board of Directors and depends on numerous factors, including our cash flow,
financial condition and capital requirements; REIT provisions of the Internal Revenue Code and other factors.



During the three months ended December 31, 2002, an aggregate of 410,689 limited partnership units in BRE Property Investors LLC were
exchanged for shares of our common stock. The exchange of limited partnership units for shares of our common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule 506 of
Regulation D.



20



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Item
6.    SELECTED FINANCIAL DATA



The selected financial data below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes. The
results are affected by the transactions with G&I III Residential One, LLC (DRA Advisors) in 2001 and 2000 and numerous acquisitions and dispositions as discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations. As such, the consolidated financial statements and notes thereto included elsewhere in this report are not directly comparable to prior years.



|                                                                                     |  | 2002                                          |           |   | 2001 |   |           | 2000 |  |   | 1999      |   |  | 1998 |          
|------------------------------------------------------------------------------------ |  | --------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | ---------
|                                                                                     |  | (Amounts in thousands, except per share data) |          
|Operating Results                                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Revenues(1)                                                                          |  | $                                             | 271,817   |   |      | $ | 257,233   |      |  | $ | 247,466   |   |  | $    | 228,419  
|                                                                                     |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net income available to common shareholders                                          |  | $                                             | 88,044    |   |      | $ | 78,808    |      |  | $ | 36,734    |   |  | $    | 69,034   
|Plus:                                                                                |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net (gain) loss on sales of investments                                              |  |                                               | (4,862    | ) |      |   | 327       |      |  |   | 35,693    |   |  |      | (54      
|Gain on sales of discontinued operations                                             |  |                                               | (10,067   | ) |      |   |          |      |  |   |          |   |  |      |         
|Depreciation                                                                         |  |                                               | 46,217    |   |      |   | 39,028    |      |  |   | 36,181    |   |  |      | 34,304   
|Depreciation from discontinued operations                                            |  |                                               | 1,318     |   |      |   | 1,300     |      |  |   | 1,244     |   |  |      | 1,220    
|Depreciation related to unconsolidated entities                                      |  |                                               | 1,332     |   |      |   | 1,490     |      |  |   | 197       |   |  |      |         
|Provision for unusual charge                                                         |  |                                               |          |   |      |   |          |      |  |   |          |   |  |      | 1,250    
|Losses from Internet business                                                        |  |                                               |          |   |      |   | 7,163     |      |  |   | 8,765     |   |  |      |         
|Minority interest in income convertible into common shares                           |  |                                               | 2,963     |   |      |   | 3,413     |      |  |   | 4,614     |   |  |      | 4,847    
|                                                                                     |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Funds from operations (FFO)(2)                                                       |  | $                                             | 124,945   |   |      | $ | 131,529   |      |  | $ | 123,428   |   |  | $    | 110,601  
|                                                                                     |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net cash flows generated by operating activities                                     |  | $                                             | 136,963   |   |      | $ | 133,638   |      |  | $ | 120,884   |   |  | $    | 113,024  
|Net cash flows used in investing activities                                          |  | $                                             | (209,983  | ) |      | $ | (184,776  | )    |  | $ | (103,022  | ) |  | $    | (104,288 
|Net cash flows generated by (used in) financing activities                           |  | $                                             | 70,021    |   |      | $ | 54,768    |      |  | $ | (31,412   | ) |  | $    | 3,019    
|Dividends to common and preferred shareholders and distributions to minority
members |  | $                                             | 101,163   |   |      | $ | 95,025    |      |  | $ | 88,700    |   |  | $    | 79,313   
|Weighted average number of shares outstanding                                        |  |                                               | 45,860    |   |      |   | 46,235    |      |  |   | 45,181    |   |  |      | 44,540   
|Weighted average number of operating company units                                   |  |                                               | 1,560     |   |      |   | 1,875     |      |  |   | 2,739     |   |  |      | 3,100    
|Dilutive effect of stock options                                                     |  |                                               | 350       |   |      |   | 400       |      |  |   | 350       |   |  |      | 120      
|Weighted average number of shares outstandingassuming dilution                      |  |                                               | 47,770    |   |      |   | 48,510    |      |  |   | 48,270    |   |  |      | 47,760   
|Shares outstanding at end of period                                                  |  |                                               | 45,871    |   |      |   | 45,807    |      |  |   | 45,895    |   |  |      | 44,680   
|Operating company units outstanding at end of period                                 |  |                                               | 1,206     |   |      |   | 1,639     |      |  |   | 2,287     |   |  |      | 3,050    
|Net income per sharebasic                                                           |  | $                                             | 1.92      |   |      | $ | 1.70      |      |  | $ | 0.81      |   |  | $    | 1.55     
|Net income per shareassuming dilution                                               |  | $                                             | 1.91      |   |      | $ | 1.69      |      |  | $ | 0.81      |   |  | $    | 1.55     
|Dividends paid to common shareholders                                                |  | $                                             | 1.95      |   |      | $ | 1.86      |      |  | $ | 1.70      |   |  | $    | 1.56     
|Balance sheet information and other data                                             |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Real estate portfolio, before depreciation                                           |  | $                                             | 2,259,970 |   |      | $ | 1,977,668 |      |  | $ | 1,796,507 |   |  | $    | 1,779,958
|Total assets                                                                         |  | $                                             | 2,108,713 |   |      | $ | 1,875,981 |      |  | $ | 1,718,129 |   |  | $    | 1,707,162
|Long-term debt                                                                       |  | $                                             | 1,173,764 |   |      | $ | 1,008,431 |      |  | $ | 825,253   |   |  | $    | 779,403  
|Minority interest                                                                    |  | $                                             | 45,147    |   |      | $ | 52,151    |      |  | $ | 69,712    |   |  | $    | 87,640   
|Shareholders equity                                                                 |  | $                                             | 851,184   |   |      | $ | 784,896   |      |  | $ | 801,116   |   |  | $    | 822,907  

---

|(1) |  | Excludes revenues from discontinued operations totaling $6,390; $6,443; $6,011; $5,834 and $4,128 in 2002, 2001, 2000, 1999, and 1998, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | We consider Funds from Operations to be an appropriate supplemental measure of the performance of an equity REIT because it is predicated on cash flow analyses that
facilitate an understanding of the operating performances of our properties without giving effect to non-cash items such as depreciation. Additionally, we analyze the relationship between dividend payments and FFO to measure our ability to pay
dividends to our shareholders. FFO is defined by the National Association of Real Estate Investment Trusts as net income or loss (computed in accordance with accounting principles generally accepted in the United States) excluding gains or losses
from debt restructuring and sales of property, plus depreciation and amortization of real estate assets. FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United
States, and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by other REITs may vary
materially from our calculations, and therefore our FFO and the FFO of other REITs may not be directly comparable. On October 27, 1999, NAREIT revised its definition for periods after January 1, 2000. Consequently, FFO calculations for periods
ending subsequent to January 1, 2000 may not be comparable to calculations for periods ended prior to that date. Expenses related to VelocityHSI were added back to operating results to determine FFO from real estate in prior years. Our investment in
VelocityHSI was recorded under the equity method of accounting. The recognition of our portion of income or losses was recorded on a 90-day lag basis, with losses applied to the extent of our investment in and receivables from VelocityHSI. The
effect of including losses from this investment in FFO would be to decrease FFO by $7,163 and $8,765 for the years ended December 31, 2001 and 2000, respectively. There was no impact from VelocityHSI in 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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|Item 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Overview



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 metropolitan markets of the Western United States. At December 31, 2002, our portfolio had real estate assets with a net book value of approximately
$2.1 billion that included 81 wholly or majority owned completed apartment communities, aggregating 22,371 units; two multifamily communities owned in joint ventures, comprised of 488 apartment units; and seven apartment communities in
various stages of construction and development, totaling 1,616 units.



Critical Accounting Policies



We define critical accounting policies as those that require managements most difficult, subjective or complex judgments. A summary of our critical accounting policies follows. Additional discussion of accounting policies that
we consider significant, including further discussion of the critical accounting policies described below, can be found in the notes to our consolidated financial statements.



Real Estate



On January 1, 2002, we adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets which requires
that the assets and liabilities and the results of operations of any communities which have been sold during 2002, or otherwise qualify as held for sale as of December 31, 2002, be presented as discontinued operations in our consolidated financial
statements in both current and prior periods presented. The community specific real estate classified as held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs. Depreciation is not recorded on assets
classified as held for sale.



In accordance with
SFAS No. 144, our investments in real estate are carried at cost and are periodically evaluated for indicators of impairment. The evaluation of impairment and the determination of values are based on several factors, and future events could occur
which would cause management to conclude that indicators of impairment exist and a reduction in carrying value to estimated fair value is warranted.



In the normal course of business, we will receive offers for sale of our properties, either solicited or unsolicited. For those offers
that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. We
classify real estate as held for sale when it is probable, in the opinion of management, that a property will be disposed of within one year.



Capital Expenditures



We capitalize those expenditures related to conducting significant rehabilitation of existing assets and extending the useful life of
existing assets. These expenditures are depreciated over estimated useful lives determined by management. We expense certain improvements related to the operation of apartment communities, including carpets, window coverings and appliance
replacements, as well as those expenditures necessary to maintain an existing community in ordinary operating condition. The determination as to whether expenditures should be capitalized or expensed, and the period over which depreciation is
recognized, requires managements judgment.



Internal Cost Capitalization



We have a development group which manages the design, development and construction of our apartment communities. All direct and indirect costs incurred to ready these assets for their intended use and which are



22



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specifically identifiable, including interest and real estate taxes during construction, are capitalized as a cost of the communities.



Derivatives and Hedging Activities



We use derivative financial instruments in
the normal course of business with the objective of lowering our overall borrowing costs. As of December 31, 2002, we had five interest rate swap agreements with a notional value aggregating approximately $66,000,000, that are used to attain a
floating rate of interest on a portion of our fixed rate debt, maturing in 2004 and 2005. These derivatives qualify for hedge accounting as discussed in Note 8 to our December 31, 2002 consolidated financial statements. The instruments are
valued by third parties. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.



Stock-Based Compensation



Through December 31, 2002, we have elected to account for our stock-based compensation in accordance with APB No. 25, which results in no
compensation expense for options issued with an exercise price equal to the market value of our common shares on the grant date, instead of Statement No. 123, which would result in compensation expense being recorded based on the fair value of the
stock-based compensation issued. Beginning January 1, 2003, we will expense stock options under Statement No. 123.



Liquidity and Capital Resources



Depending upon the availability and cost of external capital, we anticipate making additional investments in multifamily apartment
communities. New investments are expected to be funded from temporary borrowings under our revolving line of credit, internally generated cash and the proceeds derived from asset sales. Permanent financing for future investments, which replaces
funds drawn under the revolving line of credit, is expected to be provided through a combination of public and private offerings of debt and equity securities and the assumption of secured debt. We believe our liquidity and various sources of
available capital are sufficient to fund operations, meet debt service and dividend requirements, and finance future investments.



On March 12, 2002, we issued $150,000,000 of five-year senior unsecured notes in an underwritten public offering at a 5.95% coupon. On
August 20, 2002, we issued $150,000,000 of seven-year senior unsecured notes in an underwritten public offering at a 5.75% coupon. Net proceeds from the sales of the notes totaled $297,407,000 after deducting the underwriting discounts and
commissions and our offering expenses, and were used to repay a portion of the borrowings under our existing credit facility.



On June 20, 2002, we closed the underwritten public offering of three million shares of 8.08% Series B Cumulative Redeemable Preferred
Stock at $25 per share. The Series B Preferred Stock will be redeemable at $25 per share on or after June 20, 2007. The preferred shares trade on the NYSE under the symbol BRE_prb. Net proceeds from the offering totaled $72,291,000 after deducting
the underwriting discounts and commissions and our offering expenses, and were used to invest in additional multifamily communities and, pending such use, to repay borrowings under our existing credit facility.



We have an unsecured credit facility that matures in December
2003, with a capacity of $450,000,000, and an option to upsize to $500,000,0000. Borrowings under the line of credit currently bear interest at LIBOR plus 0.70%, plus a fee of 0.20% payable on the unused portion of the credit facility. Our pricing
spread above LIBOR is dependent upon our credit ratings and can range from 0.55% to 1.35%.



Borrowings under our line of credit totaled $181,000,000 at December 31, 2002, compared to $315,000,000 at December 31, 2001. Drawings on the line of credit are available to fund our investment
activities and general



23



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corporate purposes. We typically reduce our outstanding balance on the line of credit with available cash balances.



We had a total of $773,000,000 in unsecured senior notes
(excluding a basis adjustment of $1,570,000 from hedging activities) at December 31, 2002, consisting of the following:



|Year of Maturity            |  | Unsecured SeniorNote Balance |             | Interest Rate |     
|--------------------------- |  | ---------------------------- | ----------- | ------------- | ----
|2003                        |  | $                            | 10,000,000  |               | 7.44
|2004                        |  |                              | 15,000,000  |               | 4.95
|2005                        |  |                              | 18,000,000  |               | 4.63
|2007                        |  |                              | 50,000,000  |               | 7.20
|2007                        |  |                              | 150,000,000 |               | 5.95
|2009                        |  |                              | 150,000,000 |               | 5.75
|2011                        |  |                              | 250,000,000 |               | 7.45
|2013                        |  |                              | 130,000,000 |               | 7.13
|                            |  |                              |             |               |     
|Total/Average Interest Rate |  | $                            | 773,000,000 |               | 6.64
|                            |  |                              |             |               |     



In
addition, at December 31, 2002, we had mortgage indebtedness totaling $216,264,000 (excluding a basis adjustment of $1,930,000 from hedging activities) with effective interest rates ranging from 2.87% to 8.25%, and remaining terms of from less than
one to 14 years.



As of December 31, 2002, we had
total outstanding debt balances of $1,173,764,000 and total outstanding shareholders equity and minority interest of $896,331,000, representing a debt to total book capitalization ratio of approximately 57%.



Our indebtedness contains financial covenants as to minimum
net worth, interest coverage ratios, maximum secured debt and total debt to capital, among others. We were in compliance with all such financial covenants throughout the year ended December 31, 2002.



We anticipate that we will continue to require outside sources
of financing to meet our long-term liquidity needs beyond 2002, such as scheduled debt repayments, construction funding and property acquisitions. At December 31, 2002, we had an estimated cost of $69,800,000 to complete existing construction in
progress, with funding estimated from 2003 through 2004. Scheduled debt repayments through December 31, 2003 total approximately $75,196,000 excluding our credit facility that matures in December of 2003. During the first quarter of 2003, we
commenced the process of renewing our line of credit facility.



We manage joint venture investments that are recorded under the equity method of accounting with total assets of $43,525,000 as of December 31, 2002. These joint ventures carry debt totaling $19,379,000, none of which is guaranteed
by us at December 31, 2002.



We have an effective
shelf registration statement on file with the Securities and Exchange Commission under which we may issue up to $700,000,000 of securities including debt, common stock and preferred stock. Our $300,000,000 note issuances in 2002 and our $75,000,000
preferred stock offering in June of 2002 reduced the amount available for future issuance to $325,000,000. Depending upon market conditions, we may issue securities under such shelf registration to invest in additional multifamily communities and to
repay borrowings under our line of credit. In 2001, we commenced a medium-term note program for the possible issuance, from time to time, of up to $300,000,000 of medium term notes as part of our shelf registration. No such notes have yet been
issued under the program.



24



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BRE continues
to consider other sources of possible funding, including further joint ventures and additional secured construction debt. BRE owns unencumbered real estate assets that could be sold, contributed to joint ventures or used as collateral for financing
purposes (subject to certain lender restrictions) and has encumbered assets with significant equity that could be further encumbered should other sources of capital not be available.



During the third quarter of 2001, BREs Board of Directors authorized the purchase of BRE common stock
in an amount up to $60,000,000. The timing of repurchase activity is dependent upon the market price of BRE shares, and other market conditions and factors. During 2002, we repurchased a total of $19,370,000 of our common stock, representing
approximately 685,200 shares at an average purchase price of $28.27 per share. To date we have repurchased $50,422,000 of our common stock, representing approximately 1,760,100 shares at an average price of $28.65 per share.



25



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RESULTS OF OPERATIONS



Comparison of the Years ended December 31, 2002, 2001 and 2000



General



At December 31, 2002, BREs portfolio of directly owned apartment communities consisted of the
following:



| |  |  | 18,563 units in 65 communities that were completed and stabilized for all of 2002 and 2001 (same-store communities);
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | 1,973 units in eight communities that were acquired in 2002 or 2001 and as a result did not have comparable year-over-year operating results; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 1,835 units in eight development communities that were completed and stabilized during 2002 and 2001 and as a result did not have comparable year-over-year operating
results.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The results of operations
for the three years ended December 31, 2002 were affected by year-over-year operating performance, income derived from acquisitions and completions of apartment communities, and the repositioning of our portfolio through the sale of apartment
communities located in non-core markets.



Our
2002 and 2001 operating results reflect deteriorating national and regional economic conditions and the corresponding impact on our market level rents and occupancy. Operating metrics toward the end of 2000, including market rents, occupancy and
turnover, reflected national and regional economic cycles at peak levels, just prior to entering a recessionary phase. Recessionary pressures that accelerated during 2001 continued throughout 2002, resulting in depressed market rents, stagnant
average occupancy levels and higher than normal resident turnover levels.



Economic conditions and continued job losses had the greatest impact in our San Francisco Bay Area market. During 2002, market level rents in our San Francisco Bay Area communities continued to decline from 2000 peak levels.
Average 2002 market rent levels in the Bay Area declined 15% to $1,523 per unit from $1,795 in 2001. Market rent in our Bay Area portfolio peaked in the third quarter of 2000 at approximately $2,000 per unit. San Francisco Bay Area results for 2002
and 2001 were further affected by a reduction in average physical occupancy levels from 2000. Occupancy in this region averaged 94% and 93% in 2002 and 2001, respectively, as compared with 97% during 2000. Turnover levels in the San Francisco Bay
Area have averaged 71%, 81% and 58% in 2002, 2001, and 2000, respectively.



Revenues



Total revenues
were $271,817,000 in 2002, $257,233,000 in 2001 and $247,466,000 in 2000, excluding revenues from discontinued operations. The increase in revenues in 2002 was primarily derived from 11 properties acquired or developed in 2002 and four
properties acquired or developed in 2001 that had their first complete year of stabilized operations in 2002. These increases were partially offset by a 3% reduction in revenues from same-store communities in 2002 as compared to 2001.
Revenues rose in 2001 due to increases in average monthly rents from same-store properties, the completion and lease up of two communities developed and four communities acquired in 2000, which were in operation for all of 2001, and revenues from
completed joint ventures. A summary of revenues for the years ended December 31, 2002, 2001 and 2000 follows:



|                             |  | 2002 Total |             | % of TotalRevenues |     |   | 2001 Total |   | % of TotalRevenues |  |     | 2000 Total |  | % of TotalRevenues |            
|---------------------------- |  | ---------- | ----------- | ------------------ | --- | - | ---------- | - | ------------------ |  | --- | ---------- |  | ------------------ | -----------
|Rental income                |  | $          | 255,814,000 |                    | 94  | % |            | $ | 237,360,000        |  | 92  | %          |  | $                  | 229,940,000
|Ancillary income             |  |            | 11,656,000  |                    | 4   |   |            |   | 12,110,000         |  | 5   |            |  |                    | 10,399,000 
|Partnership and other income |  |            | 4,347,000   |                    | 2   |   |            |   | 7,763,000          |  | 3   |            |  |                    | 7,127,000  
|                             |  |            |             |                    |     |   |            |   |                    |  |     |            |  |                    |            
|Total revenue                |  | $          | 271,817,000 |                    | 100 | % |            | $ | 257,233,000        |  | 100 | %          |  | $                  | 247,466,000
|                             |  |            |             |                    |     |   |            |   |                    |  |     |            |  |                    |            



26



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Rental and
Ancillary Income



As described above, the
increase in rental and ancillary revenues relates to acquired and developed communities. The following table summarizes our multifamily property acquisitions, development properties completed, and dispositions for the years ended December 31, 2002,
2001 and 2000 (dollar amounts are gross acquisition costs in the case of acquisitions, total delivered cost in the case of completed development communities and gross sales prices in the case of property dispositions):



|                                 |  | 2002 |  | 2001        |  | 2000
|-------------------------------- |  | ---- |  | ----------- |  | ----
|                                 |  | #    |  | $           |  | #   
|Multifamily                      |  |      |  |             |  |     
|Property acquisitions            |  | 6    |  | 156,500,000 |  | 2   
|Development properties completed |  | 5    |  | 168,000,000 |  | 2   
|Property dispositions            |  | 3    |  | 58,300,000  |  | 3   



Revenues
from newly acquired and developed income-producing communities were offset by negative same-store operating results. On a same-store basis, rental and ancillary revenues decreased 3%, primarily due to average market rent per
unit decreasing approximately 5%. On a same-store basis in 2001, rental revenues increased 6%, as market rent per unit increased approximately 4%. Occupancy for each of the three years ended December 31, 2002 follows:



|                                                           |  | 2002 |   |  | 2001 |   |  | 2000 |  
|---------------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Number of operating properties at December 31.             |  | 81   |   |  | 72   |   |  | 72   |  
|Average portfolio occupancy rates for operating properties |  | 94   | % |  | 94   | % |  | 96   | %



Portfolio occupancy is calculated by dividing the total occupied units by the total units in stabilized communities in the portfolio.



Partnership and other income



Partnership and other income was $4,347,000, $7,763,000, and $7,127,000 for the years ended December 31, 2002, 2001, and 2000,
respectively. The decrease in 2002 from 2001 primarily relates to the absence of development fee income in 2002 due to the stage of completion of our joint venture pipeline in 2002. The 2001 and 2000 totals include development fees of $2,105,000 and
$2,383,000, respectively. Additionally, partnership income in 2002 was lower than the 2001 amount as there were fewer joint ventures in 2002. The 2001 partnership income total was greater than 2000 due to: a full year of operations for two joint
venture development communities completed in 2000; income from one joint venture community completed in March of 2001; and a full year of our share of the net income from assets we sold to a joint venture in which we retained a 15% interest.



Expenses



Real estate expenses



Real estate expenses for multifamily rental properties (which
include repairs and maintenance, utilities, on-site staff payroll, property taxes, insurance, advertising and other direct operating expenses) were $76,777,000 in 2002, $68,558,000 in 2001, and $70,041,000 in 2000, excluding real estate expenses
from discontinued operations. This reflects an increase of $8,219,000 or 12% for the year ended December 31, 2002, as compared to the prior year. The six communities acquired and five communities developed in 2002, combined with 2001 acquisition and
development communities operating for a full year, primarily drive the year-over-year increase. Same-store expenses increased by $1,958,000, or 3% in 2002, primarily driven by an increase in payroll expense offset by a reduction of
utility expenses. The overall level of same-store expense increase was consistent with historical levels.



In 2001, real estate expenses decreased by $1,483,000 or 2%, as a result of reduced levels of repairs and maintenance as we disposed of 19
properties in September 2000, offset by an increase of $1,373,000, or 2%, in real estate expenses from our same-store communities.



27



---



Multifamily
real estate expenses as a percentage of multifamily rental and ancillary income were 28.7%, 27.5% and 29.1% for 2002, 2001 and 2000, respectively.



Provision for depreciation



The provision for depreciation increased by $7,189,000 (18%) for the year ended December 31, 2002 compared to 2001, and increased by
$2,847,000 (8%) for the year ended December 31, 2001 compared to 2000. The increases in 2002 and 2001 resulted from higher depreciable bases on new property acquisitions and development properties completed.



Interest expense



During the past three years, our interest expense has
increased due to higher average debt balances to support our acquisition and development activities. Interest expense for the years ended December 31, 2002, 2001 and 2000 follows:



|                                     |  | 2002 |             |   | 2001 |   |             | 2000 | 
|------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | ---- | 
|Interest on unsecured senior notes   |  | $    | 46,043,000  |   |      | $ | 36,081,000  |      | 
|Interest on mortgage loans payable   |  |      | 12,867,000  |   |      |   | 14,162,000  |      | 
|Interest on unsecured line of credit |  |      | 9,211,000   |   |      |   | 10,781,000  |      | 
|Capitalized interest                 |  |      | (12,015,000 | ) |      |   | (13,502,000 | )    | 
|                                     |  |      |             |   |      |   |             |      | 
|Total interest expense               |  | $    | 56,106,000  |   |      | $ | 47,522,000  |      | 
|                                     |  |      |             |   |      |   |             |      | 



Year-end
debt balances at December 31, 2002, 2001 and 2000 follow:



|                                                             |  | 2002 |               |   | 2001 |   |               | 2000 | 
|------------------------------------------------------------ |  | ---- | ------------- | - | ---- | - | ------------- | ---- | 
|Unsecured senior notes                                       |  | $    | 774,570,000   |   |      | $ | 483,000,000   |      | 
|Mortgage loans payable                                       |  |      | 218,194,000   |   |      |   | 210,431,000   |      | 
|Unsecured line of credit                                     |  |      | 181,000,000   |   |      |   | 315,000,000   |      | 
|                                                             |  |      |               |   |      |   |               |      | 
|Total debt                                                   |  | $    | 1,173,764,000 |   |      | $ | 1,008,431,000 |      | 
|                                                             |  |      |               |   |      |   |               |      | 
|Weighted average interest rate for all debt at end of period |  |      | 6.0           | % |      |   | 6.6           | %    | 
|                                                             |  |      |               |   |      |   |               |      | 



We
raised $300,000,000 in senior unsecured notes during 2002 to fix interest rates on a significant portion of our debt during the present low interest rate environment. This has the short-term effect of increasing our interest expense, as we paid down
balances on our variable rate line of credit with the proceeds of the notes. Overall, interest expense increased by $8,584,000 to $56,106,000 in 2002 due to the shift from floating to fixed rate debt, higher average debt balances to fund
construction and property acquisitions in 2002, and a lower level of capitalized interest, offset by a reduction in variable interest rates and our hedging activities over the course of 2002. Interest expense increased $3,526,000 to $47,522,000 in
2001 over 2000, also due to higher average debt balances to fund construction and acquisitions and a lower level of capitalized interest than in 2000. Capitalized interest decreased during both 2002 and 2001 due to the delivery and completion of
certain properties in construction, and reduced interest rates.



General and administrative expenses



General and administrative expenses for the three years ended December 31, 2002 were as follows:



|                                    |  | 2002 |           |   | 2001 |   |           | 2000 | 
|----------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|General and administrative expenses |  | $    | 9,847,000 |   |      | $ | 8,958,000 |      | 
|As a percentage of total revenues   |  |      | 3.6       | % |      |   | 3.5       | %    | 



28



---



The 2002
amount includes a $540,000 non-recurring expense related to the retirement of one of our executive officers. General and administrative expenses are 3.4% of total revenues in 2002 excluding this charge. In 2001 as compared to 2000, general and
administrative expenses as a percentage of total revenues increased by 0.3% due to new positions in senior management and increased office rent.



Office rent totaling $1,165,000, $1,246,000 and $821,000 for the years ended December 31, 2002, 2001 and 2000, respectively, is included
in general and administrative expense. In 2002, standard inflationary increases in our existing leases were offset by the closure of one of our satellite offices. The $425,000 increase from 2000 to 2001 relates to standard inflationary increases in
our existing leases, increased common area maintenance charges on our corporate office lease and an additional lease in the Orange County Area.



In 2003, we will begin expensing the cost associated with stock options in accordance with FAS 123. General and administrative
expenses for the three years ended December 31, 2002 do not include any expense associated with stock options.



Losses from Internet business



Losses from Internet business total $0, $7,163,000, and $8,765,000 for the years ended December 31, 2002, 2001, and 2000, respectively,
and represent the net losses of VelocityHSI, Inc., our former non-real estate investment which was spun off by BRE on August 15, 2000, including a $2,400,000 provision for potential future losses taken in 2001. Subsequent to the spin-off, our
investment in VelocityHSI was recorded under the equity method of accounting. We were required to record 100% of VelocityHSIs losses to the extent of our investment, including advances, until it secured an independent source of financing or
our investment and advances were reduced to zero. During the second quarter of 2001, we reduced our investment, including advances to VelocityHSI, to zero and provided for a reserve for our potential liabilities related to VelocityHSI. VelocityHSI
filed for bankruptcy protection during the third quarter of 2001. Our remaining reserve for potential VelocityHSI liabilities is approximately $900,000 at December 31, 2002 and is included in accounts payable and accrued expenses on the accompanying
consolidated balance sheet.



Net gain (loss)
on sales of investments



During 2002, we
sold our minority partnership interest in a commercial property for a net gain on sale of approximately $7,200,000. We also sold our investment in shares of common stock of Corrigo, Inc., a nonaffiliated technology company, for a loss of $800,000.
In addition, we sold excess land at a loss of approximately $1,500,000. These three transactions completed the disposition of our non multifamily investments and resulted in a net gain of $4,862,000.



During 2001, we sold three Tucson, AZ communities with 621
units for an aggregate sales price of approximately $19,000,000, pursuant to an agreement with G&I III Residential One, LLC, an affiliate of DRA Advisors, Inc. The sale completed a $280,000,000 portfolio sale of 22 apartment communities
(4,909 units) initiated by the company in the third quarter of 2000 that was governed under a single master agreement. To facilitate the sale, BRE retained a 15% equity interest in a joint venture with G&I III Residential One. In addition, we
sold our minority interest in a non-multifamily asset for $1,115,000. The transactions resulted in an aggregate net loss of $327,000 in 2001.



During 2000, we closed on the sale of the first 19 communities to G&I III Residential One and recorded a loss of approximately
$35,000,000. We also sold one commercial property and a land parcel for a combined net loss of approximately $700,000.



Minority interest in income



Minority interest in income relates to the earnings attributable to the minority members of our consolidated subsidiaries and was
$3,682,000 for the year ended December 31, 2002, down from $4,068,000 and $5,132,000 for the years ended December 31, 2001 and 2000, respectively. Minority interest and consequently, minority



29



---

interest in income declined each year as operating company unit holders of BRE Property Investors LLC exchanged their units for shares of BRE
common stock. Conversions of operating company units to common shares totaled 433,112, 648,449 and 701,508 for the years ended December 31, 2002, 2001 and 2000, respectively.



Discontinued operations



In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which became effective on January 1, 2002. For properties accounted for under SFAS No. 144, the results of operations for
properties sold during the period or designated as held for sale at the end of the period are required to be classified as discontinued operations. The property-specific components of net earnings that are classified as discontinued operations
include all property-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale, and property-specific interest expense to the extent there is secured debt on the property. In addition, the
net gain or loss on the eventual disposal of properties held for sale is reported as discontinued operations.



During 2002, we sold three operating communities with a total of 663 units. The communities were sold for an aggregate sales price of
approximately $58.3 million, resulting in a net gain on sale of approximately $10.1 million. The net gain on sale and the combined results of operations for these three communities for each year presented, are included in discontinued
operations on the consolidated statements of income. These amounts totaled $11,759,000, $1,768,000 and $1,452,000 for the years 2002, 2001 and 2000, respectively.



Dividends attributable to preferred stock



Dividends attributable to preferred stock represent the
dividends on our 8.50% Series A and 8.08% Series B Cumulative Redeemable Preferred Stock. Dividend payments totaled $7,765,000 for 2002 and $4,569,000 for 2001 and 2000. The increase in 2002 relates to dividends on our Series B Preferred Stock
offering, which closed on June 20, 2002.



Net
income available to common shareholders



As
a result of the various factors mentioned above, net income available to common shareholders for the year ended December 31, 2002 was $88,044,000, or $1.91 per diluted share, as compared with $78,808,000, or $1.69 per diluted share for the year
ended December 31, 2001 and $36,734,000, or $0.81 per diluted share for the year ended December 31, 2000.



Impact of Inflation



Approximately 99% of BREs total revenues for 2002 were derived from apartment properties. Due to the short-term nature of most apartment unit leases (typically one year or less), we may seek to
adjust rents to mitigate the impact of inflation upon renewal of existing leases or commencement of new leases, although there can be no assurance that BRE will be able to adjust rents in response to inflation. In addition, market rates may also
fluctuate due to short-term leases and other permitted and non-permitted lease terminations.



Dividends Paid to Common and Preferred shareholders and Distributions to Minority Members



A cash dividend has been paid to common shareholders each quarter since BREs inception in 1970. Cash dividends per common share were
$1.95 in 2002, $1.86 in 2001 and $1.70 in 2000. Total cash dividends paid to common shareholders for the three years ended December 31, 2002, 2001 and 2000 were $89,614,000, $86,289,000, and $76,607,000, respectively. In 2002, 2001 and 2000,
respectively, $7,765,000, $4,569,000 and $4,569,000 in dividends were paid to preferred shareholders.



30



---



On August 15,
2000, BRE also made a special non-cash, non-recurring dividend of one share of VelocityHSI, Inc. common stock for every five shares of BRE common stock owned as of August 7, 2000. The dividend had a value at the time of distribution of $0.24 per BRE
common share.



Distributions to minority members
were $3,784,000 in 2002, $4,167,000 in 2001, and $7,524,000 in 2000.



Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market risks relating to our operations result primarily from changes in short-term LIBOR interest rates. We do not have any direct
foreign exchange or other significant market risk.



Our exposure to market risk for changes in interest rates relates primarily to our unsecured line of credit. We primarily enter into fixed and variable rate debt obligations to support general corporate purposes, including
acquisitions and development, capital expenditures and working capital needs. We continuously evaluate our level of variable rate debt with respect to total debt and other factors, including its assessment of the current and future economic
environment. During 2002, we entered into six interest rate swap agreements to attain a floating rate of interest on a portion of our fixed rate debt. The objective of the agreements is to lower our overall borrowing costs. The swaps hedge the fair
market value of a portion of our debt. We do not use derivatives for trading or speculative purposes. The hedges are perfectly effective and, therefore, changes in the derivative fair value and the change in fair value of the hedged items during the
hedging period exactly offset with no valuation impact on our current earnings. See Notes 2 and 8 in the Notes to Consolidated Financial Statements for additional information.



The fair values of our financial instruments (including such items in the financial statement captions as
cash, other assets, and unsecured line of credit) approximate their carrying or contract values based on their nature, terms and interest rates that approximate current market rates. The fair value of mortgage loans payable and unsecured senior
notes is estimated using discounted cash flow analyses with an interest rate similar to that of current market borrowing arrangements. The estimated fair value of our mortgage loans payable and unsecured senior notes is approximately $1,022,800,000
at December 31, 2002.



We had $338,467,000 and
$347,530,000 in variable rate debt outstanding at December 31, 2002 and 2001, respectively. A hypothetical 10% adverse change in interest rates would have had an annualized unfavorable impact of approximately $1,200,000 and $1,700,000 on our
earnings and cash flows based on these year-end debt levels and our average variable interest rates for the years ended December 31, 2002 and 2001, respectively. We cannot predict the effect of adverse changes in interest rates on its variable rate
debt and, therefore, its exposure to market risk, nor can there be any assurance that fixed rate, long-term debt will be available to us at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes
discussed above.



Item 8.    FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA



See Part
IV, Item 15. Our Financial Statements and Schedules are incorporated herein by reference.



|Item 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



None.



31



---



PART III



Item 10.    DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT



(a)Executive Officers.    See Executive Officers of the Registrant in Part I of this report.



(b)Directors.    The information required by this Item is incorporated herein by reference to our
Proxy Statement relating to our 2003 Annual Meeting of Shareholders, under the headings Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance, to be filed with the Securities and Exchange
Commission within 120 days of December 31, 2002. A summary of the directors and their principal business for the last five years follows:



|John McMahan       |  | Mr. McMahan is Chairman of the Board of BRE. He has served as a director of BRE since 1993. He has been Executive
Director, The Center for Real Estate Enterprise Management, since 2000 and Managing Principal, The McMahan Group, real estate strategic management consultants, since 1996. Previously, Mr. McMahan served as President, John McMahan Associates,
Inc., a management consulting firm, and McMahan Real Estate Securities, Inc., a real estate investment firm, from 1994 to 1996.                                                          
|------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  
|William E. Borsari |  | Mr. Borsari has served as a director of BRE or its predecessor since 1992. He is currently self-employed, and a
private investor. He was the former Chairman or President, The Walters Management Company, a real estate asset management company, for more than five years.                                                                                                                                                                                                                                                                                 
|                  
|Robert A. Fiddaman |  | Mr. Fiddaman has served as a director of BRE since 1998. He is currently self-employed, and a private investor. He was
the former board chairman of SSR Realty Advisors, a real estate investment and management firm, from 1996 to 1998. Mr. Fiddaman served as President and Chief Executive Officer of Metric Realty from 1993 to 1996.                                                                                                                                                                                                                   
|                  
|L. Michael Foley   |  | Mr. Foley has served as a director of BRE since 1994. He has been Principal, L. Michael Foley and Associates,
real estate and corporate consulting, since 1996 and was a director and Executive Committee member of Western Property Trust, from 1999 to 2000. Mr. Foley was Senior Vice President and Chief Financial Officer, Coldwell Banker Corporation, from 1995
to 1996 and he served as Chairman and Chief Executive Officer, Sears Savings Bank, from 1989 to 1993.                                                                                 
|                  
|Roger P. Kuppinger |  | Mr. Kuppinger has served as a director of BRE or its predecessor since 1995. He has been President, The Kuppinger
Company, a private financial advisor to public and private companies, since February 1994. Mr. Kuppinger is also a director for Realty Income Corporation. He served as Senior Vice President and Managing Director, Sutro & Co., Inc., an investment
banking company, from 1969 to February 1994.                                                                                                                                         
|                  
|Edward E. Mace     |  | Mr. Mace has served as a director of BRE since 1998. He has been President, Vail Resorts Lodging Company and Rock
Resorts International LLC (both subsidiaries of Vail Resorts, Inc.), since 2001. Previously, Mr. Mace served as President and Chief Executive Officer of Fairmont Hotels & ResortsU.S. /Mexico division, from 2000 to 2001 and as President and
Chief Executive Officer of Fairmont Hotels, from 1996 to 2000. He was the midwest regional director of management consulting for the Real Estate Industry Group of KPMG from 1994 to 1996.



32



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|                  
|------------------
|Frank C. McDowell 
|                  
|Constance B. Moore
|                  
|Jeanne R. Myerson 
|                  
|Gregory M. Simon  



Item
11.    EXECUTIVE COMPENSATION



The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2003 Annual Meeting of Shareholders, under the headings EXECUTIVE COMPENSATION AND OTHER INFORMATION and
ELECTION OF DIRECTORSBoard and Committee Meetings; Compensation of Directors, to be filed with the Securities and Exchange Commission within 120 days of December 31, 2002.



Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
HOLDERS AND MANAGEMENT



The information
required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2003 Annual Meeting of Shareholders, under the heading Security Ownership of Certain Beneficial Owners and Management to be filed with
the Securities and Exchange Commission within 120 days of December 31, 2002.



Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2003 Annual Meeting of
Shareholders, under the headings Certain Relationships and Related Transactions, to be filed with the Securities and Exchange Commission within 120 days of December 31, 2002.



Item 14.    DISCLOSURE CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of



33



---

possible controls and procedures. Also, we have investments in certain unconsolidated entities. As we do not control these entities, our
disclosure controls with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.



Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.



There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls
subsequent to the date we completed our evaluation.



34



---



PART IV



Item 15.    EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



(a)  Financial Statements



| | 1. |  | Financial Statements:
| | -- |  | ---------------------



Report of Independent Auditors



Consolidated Balance Sheets at December 31, 2002 and 2001



Consolidated Statements of Income for the
years ended December 31, 2002, 2001 and 2000



Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000



Consolidated Statements of Shareholders Equity for the years ended December 31, 2002, 2001 and 2000

Notes to Consolidated Financial Statements



| | 2. |  | Financial Statement Schedule:
| | -- |  | -----------------------------



Schedule IIIReal Estate and Accumulated Depreciation



All other schedules for which provision is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related instructions or are inapplicable, and, therefore, have been omitted.



| | 3. |  | See Index to Exhibits immediately following the Consolidated Financial Statements. Each of the exhibits listed is incorporated herein by reference.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



(b)  Reports on Form
8-K:



The registrant filed a Current Report
on Form 8-K on November 15, 2002 in connection with its Third Quarter 2002 operating results.



(c)Exhibits



See Index to Exhibits.



(d)  Financial Statement Schedules



See Index to Financial Statements and Financial Statement Schedule.



35



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|Dated March 12, 2003 | BRE PROPERTIES, INC.
|-------------------- | --------------------



/s/    FRANK C. MCDOWELL

By:

Frank C. McDowell

President and Chief Executive Officer



Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



|Signature                                       |  | Title                                                                                                        |  | Dated         
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------------
|                                               
|/s/    FRANK C.
MCDOWELLFrank C. McDowell       |  | President and Director (Principal Executive Officer)                                                         |  | March 12, 2003
|                                               
|/s/    CONSTANCE B. MOOREConstance B. Moore     |  | Executive Vice President, Chief Operating Officer and Director                                               |  | March 12, 2003
|                                               
|/s/    EDWARD F. LANGE,
JR.Edward F. Lange, Jr. |  | Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and
Accounting Officer) |  | March 12, 2003
|                                               
|/s/    JOHN
MCMAHANJohn McMahan                 |  | Chairman and Director                                                                                        |  | March, 12 2003
|                                               
|/s/    WILLIAM E. BORSARIWilliam E. Borsari     |  | Director                                                                                                     |  | March 12, 2003
|                                               
|/s/    ROBERT A. FIDDAMANRobert A. Fiddaman     |  | Director                                                                                                     |  | March 12, 2003
|                                               
|/s/    L. MICHAEL FOLEYL. Michael Foley         |  | Director                                                                                                     |  | March 12, 2003
|                                               
|/s/    ROGER P. KUPPINGERRoger P. Kuppinger     |  | Director                                                                                                     |  | March 12, 2003
|                                               
|/s/    EDWARD E. MACEEdward E. Mace             |  | Director                                                                                                     |  | March 12, 2003
|                                               
|/s/    JEANNE R. MYERSON                        |  | Director                                                                                                     |  | March 12, 2003
|Jeanne R. Myerson                               |  |                                                                                                              |  |               
|                                               
|/s/    GREGORY M. SIMONGregory M. Simon         |  | Director                                                                                                     |  | March 12, 2003



36



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CERTIFICATIONS



I, Frank C. McDowell, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of BRE Properties, Inc.;
|-- |  | ------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dated: March 12, 2003 |  |  |  |  |  | /s/    FRANK C.
MCDOWELL
|--------------------- |  |  |  |  |  | ------------------------
|                      |  |  |  |  |  |                         
|                      |  |  |  |  |  |                         



37



---



I, Edward F. Lange, Jr., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of BRE Properties, Inc.;
|-- |  | ------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dated: March 12, 2003 |  |  |  |  |  | /s/    EDWARD F. LANGE,
JR.
|--------------------- |  |  |  |  |  | ---------------------------
|                      |  |  |  |  |  |                            
|                      |  |  |  |  |  |                            



38



---



Chief Financial Officer and Secretary



Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), we, Frank C. McDowell and Edward F. Lange, Jr. hereby certify, to the best of our
knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2002 of BRE Properties, Inc. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form
10-K fairly presents, in all material respects, the financial condition and results of operations of BRE Properties, Inc.



|Dated: March 12, 2003 |  |  |  |  |  | /s/    FRANK C. MCDOWELL
|--------------------- |  |  |  |  |  | ------------------------
|                      |  |  |  |  |  |                         
|                      |  |  |  |  |  |                         



|Dated: March 12, 2003 |  |  |  |  |  | /s/    EDWARD F. LANGE,
JR.
|--------------------- |  |  |  |  |  | ---------------------------
|                      |  |  |  |  |  |                            
|                      |  |  |  |  |  |                            



39



---



REPORT OF
INDEPENDENT AUDITORS



To the
Shareholders and Directors of

BRE Properties, Inc.



We have audited the accompanying consolidated balance sheets
of BRE Properties, Inc. and subsidiaries (the Company) as of December 31, 2002 and 2001, and the related consolidated statements of income, cash flows and shareholders equity for each of the three years in the period ended
December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and the related schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and the related schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the consolidated financial position of BRE Properties, Inc. and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.



LOGO



San Francisco, California

January 13, 2003



40



---

BRE PROPERTIES, INC.



CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)



|                                                                                                                                                                                                                                                                                                                                           |  | December 31, |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ---------
|                                                                                                                                                                                                                                                                                                                                           |  | 2002         |          
|ASSETS                                                                                                                                                                                                                                                                                                                                     |  |              |          
|Real estate portfolio                                                                                                                                                                                                                                                                                                                      |  |              |          
|Direct investments in real estate:                                                                                                                                                                                                                                                                                                         |  |              |          
|Investments in rental properties                                                                                                                                                                                                                                                                                                           |  | $            | 2,143,960
|Construction in progress                                                                                                                                                                                                                                                                                                                   |  |              | 90,675   
|Less: Accumulated depreciation                                                                                                                                                                                                                                                                                                             |  |              | (198,292 
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|                                                                                                                                                                                                                                                                                                                                           |  |              | 2,036,343
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Equity interests in and advances to real estate joint ventures:                                                                                                                                                                                                                                                                            |  |              |          
|Investments in rental properties                                                                                                                                                                                                                                                                                                           |  |              | 10,761   
|Construction in progress                                                                                                                                                                                                                                                                                                                   |  |              |         
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|                                                                                                                                                                                                                                                                                                                                           |  |              | 10,761   
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Land under development                                                                                                                                                                                                                                                                                                                     |  |              | 14,574   
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Total real estate portfolio                                                                                                                                                                                                                                                                                                                |  |              | 2,061,678
|Cash                                                                                                                                                                                                                                                                                                                                       |  |              | 893      
|Other assets                                                                                                                                                                                                                                                                                                                               |  |              | 46,142   
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Total assets                                                                                                                                                                                                                                                                                                                               |  | $            | 2,108,713
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                                                                                                       |  |              |          
|Unsecured senior notes                                                                                                                                                                                                                                                                                                                     |  | $            | 774,570  
|Mortgage loans payable                                                                                                                                                                                                                                                                                                                     |  |              | 218,194  
|Unsecured line of credit                                                                                                                                                                                                                                                                                                                   |  |              | 181,000  
|Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                                      |  |              | 38,618   
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Total liabilities                                                                                                                                                                                                                                                                                                                          |  |              | 1,212,382
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Minority interest                                                                                                                                                                                                                                                                                                                          |  |              | 45,147   
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Shareholders equity:                                                                                                                                                                                                                                                                                                                      |  |              |          
|Preferred stock, $.01 par value; 10,000,000 shares authorized. 2,150,000 shares 8.5%
Series A Cumulative Redeemable issued and outstanding, $25 liquidation preference (2,150,000 at December 31, 2001); 3,000,000 shares 8.08% Series B Cumulative Redeemable issued and outstanding, $25 liquidation preference (0 at
December 31, 2001) |  |              | 128,750  
|Common stock, $.01 par value; 100,000,000 shares authorized. Shares issued and
outstanding: 45,870,723 at December 31, 2002; 45,807,191 at December 31, 2001                                                                                                                                                                               |  |              | 459      
|Additional paid-in capital                                                                                                                                                                                                                                                                                                                 |  |              | 683,733  
|Accumulated net income in excess of cumulative dividends                                                                                                                                                                                                                                                                                   |  |              | 41,425   
|Stock purchase loans to executives                                                                                                                                                                                                                                                                                                         |  |              | (3,183   
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Total shareholders equity                                                                                                                                                                                                                                                                                                                 |  |              | 851,184  
|                                                                                                                                                                                                                                                                                                                                           |  |              |          
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                                                                 |  | $            | 2,108,713
|                                                                                                                                                                                                                                                                                                                                           |  |              |          



See Notes
to Consolidated Financial Statements



41



---



BRE
PROPERTIES, INC.



CONSOLIDATED STATEMENTS
OF INCOME

(Amounts in thousands, except per share data)



|                                                                                                 |  | Years ended December 31, |        
|------------------------------------------------------------------------------------------------ |  | ------------------------ | -------
|                                                                                                 |  | 2002                     |        
|Revenue                                                                                          |  |                          |        
|Rental income                                                                                    |  | $                        | 255,814
|Ancillary income                                                                                 |  |                          | 11,656 
|Partnership and other income                                                                     |  |                          | 4,347  
|                                                                                                 |  |                          |        
|Total revenue                                                                                    |  |                          | 271,817
|                                                                                                 |  |                          |        
|Expenses                                                                                         |  |                          |        
|Real estate                                                                                      |  |                          | 76,777 
|Provision for depreciation                                                                       |  |                          | 46,217 
|Interest                                                                                         |  |                          | 56,106 
|General and administrative                                                                       |  |                          | 9,847  
|Losses from Internet business                                                                    |  |                          |       
|                                                                                                 |  |                          |        
|Total expenses                                                                                   |  |                          | 188,947
|                                                                                                 |  |                          |        
|Income before gain (loss) on sales of investments, minority interest and discontinued
operations |  |                          | 82,870 
|Net gain (loss) on sales of investments                                                          |  |                          | 4,862  
|                                                                                                 |  |                          |        
|Income before minority interest and discontinued operations                                      |  |                          | 87,732 
|Minority interest in income                                                                      |  |                          | 3,682  
|                                                                                                 |  |                          |        
|Income from continuing operations                                                                |  |                          | 84,050 
|Net gain on sales of discontinued operations                                                     |  |                          | 10,067 
|Discontinued operations, net                                                                     |  |                          | 1,692  
|                                                                                                 |  |                          |        
|Income from discontinued operations                                                              |  |                          | 11,759 
|Net Income                                                                                       |  |                          | 95,809 
|Dividends attributable to preferred stock                                                        |  |                          | 7,765  
|                                                                                                 |  |                          |        
|Net income available to common shareholders                                                      |  | $                        | 88,044 
|                                                                                                 |  |                          |        
|Net income per common sharebasic                                                                |  | $                        | 1.92   
|                                                                                                 |  |                          |        
|Net income per common sharediluted                                                              |  | $                        | 1.91   
|                                                                                                 |  |                          |        
|Weighted average Common Shares outstandingbasic                                                 |  |                          | 45,860 
|Weighted average Common Shares outstandingdiluted                                               |  |                          | 47,770 
|Distributions declared per common share outstanding                                              |  | $                        | 1.95   



See Notes
to Consolidated Financial Statements



42



---



BRE
PROPERTIES, INC.



CONSOLIDATED STATEMENTS
OF CASH FLOWS

(Amounts in thousands)



|                                                                                         |  | Years ended December 31, |         
|---------------------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                                         |  | 2002                     |         
|Cash flows from operating activities                                                     |  |                          |         
|Net income                                                                               |  | $                        | 95,809  
|Adjustments to reconcile net income to net cash flows generated by operating
activities: |  |                          |         
|Net (gain) on sales of discontinued operations                                           |  |                          | (10,067 
|Net (gain) loss on sales of investments                                                  |  |                          | (4,862  
|Income from investments in unconsolidated entities                                       |  |                          | (3,392  
|Provision for depreciation                                                               |  |                          | 46,217  
|Depreciation from discontinued operations                                                |  |                          | 1,318   
|Minority interest in income                                                              |  |                          | 3,682   
|Losses from Internet business after spin-off                                             |  |                          |        
|(Increase) in other assets                                                               |  |                          | (349    
|Increase in accounts payable and accrued expenses                                        |  |                          | 8,607   
|                                                                                         |  |                          |         
|Net cash flows generated by operating activities                                         |  |                          | 136,963 
|                                                                                         |  |                          |         
|Cash flows from investing activities                                                     |  |                          |         
|Multifamily communities purchased                                                        |  |                          | (100,023
|Multifamily communities purchased from joint venture partners                            |  |                          | (56,510 
|Proceeds from sales of property, net                                                     |  |                          | 59,303  
|Rehabilitation expenditures and other                                                    |  |                          | (9,049  
|Capital expenditures                                                                     |  |                          | (5,728  
|Additions to direct investment construction in progress                                  |  |                          | (69,165 
|Advances to unconsolidated joint ventures for construction in progress                   |  |                          | (20,614 
|Reimbursements of construction in progress from unconsolidated joint
ventures            |  |                          | 13,753  
|Additions to land under development                                                      |  |                          | (24,264 
|Investments in unconsolidated joint ventures, net                                        |  |                          | 3,256   
|Investment in and advances to Internet business                                          |  |                          | (942    
|                                                                                         |  |                          |         
|Net cash flows used in investing activities                                              |  |                          | (209,983
|                                                                                         |  |                          |         
|Cash flows from financing activities                                                     |  |                          |         
|Issuance of unsecured senior notes, net                                                  |  |                          | 297,407 
|Principal payments on mortgage loans and unsecured senior notes                          |  |                          | (53,169 
|Proceeds from new mortgage loans                                                         |  |                          |        
|Lines of credit:                                                                         |  |                          |         
|Advances                                                                                 |  |                          | 390,000 
|Repayments                                                                               |  |                          | (524,000
|Renewal fees                                                                             |  |                          |        
|Cash dividends paid                                                                      |  |                          | (97,379 
|Repurchase of common shares                                                              |  |                          | (19,370 
|Proceeds from exercises of stock options, net                                            |  |                          | 3,274   
|Proceeds from preferred equity offering, net                                             |  |                          | 72,291  
|Distributions to minority members                                                        |  |                          | (3,784  
|Contributions from minority members                                                      |  |                          | 4,751   
|                                                                                         |  |                          |         
|Net cash flows generated by (used in) financing activities                               |  |                          | 70,021  
|                                                                                         |  |                          |         
|(Decrease) increase in cash                                                              |  |                          | (2,999  
|Balance at beginning of year                                                             |  |                          | 3,892   
|                                                                                         |  |                          |         
|Balance at end of year                                                                   |  | $                        | 893     
|                                                                                         |  |                          |         



See Notes
to Consolidated Financial Statements



43



---



BRE
PROPERTIES, INC.



CONSOLIDATED STATEMENTS
OF SHAREHOLDERS EQUITY

(Dollar amounts in thousands, except share and per share data)



|                                                                                                                                                                                                                                                          |  | Years ended December 31, |           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                                                                                                                                                                                          |  | 2002                     |           
|Common stock shares                                                                                                                                                                                                                                       |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  |                          | 45,807,191
|Stock options exercised                                                                                                                                                                                                                                   |  |                          | 355,052   
|Conversion of operating company units to common shares                                                                                                                                                                                                    |  |                          | 433,112   
|Shares repurchased and retired                                                                                                                                                                                                                            |  |                          | (685,200  
|Other                                                                                                                                                                                                                                                     |  |                          | (39,432   
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  |                          | 45,870,723
|                                                                                                                                                                                                                                                          |  |                          |           
|Preferred stock shares                                                                                                                                                                                                                                    |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  |                          | 2,150,000 
|Issuance of 8.08% Series B cumulative redeemable                                                                                                                                                                                                          |  |                          | 3,000,000 
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  |                          | 5,150,000 
|                                                                                                                                                                                                                                                          |  |                          |           
|Common stock                                                                                                                                                                                                                                              |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  | $                        | 458       
|Stock options exercised                                                                                                                                                                                                                                   |  |                          | 4         
|Conversion of operating company units to common shares                                                                                                                                                                                                    |  |                          | 4         
|Shares repurchased and retired                                                                                                                                                                                                                            |  |                          | (7        
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  | $                        | 459       
|                                                                                                                                                                                                                                                          |  |                          |           
|Preferred stock                                                                                                                                                                                                                                           |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  | $                        | 53,750    
|Issuance of 8.08% Series B cumulative redeemable                                                                                                                                                                                                          |  |                          | 75,000    
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  | $                        | 128,750   
|                                                                                                                                                                                                                                                          |  |                          |           
|Additional paid-in capital                                                                                                                                                                                                                                |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  | $                        | 690,309   
|Stock options exercised                                                                                                                                                                                                                                   |  |                          | 5,058     
|Conversion of operating company units to common shares                                                                                                                                                                                                    |  |                          | 11,659    
|Shares repurchased and retired                                                                                                                                                                                                                            |  |                          | (19,363   
|Issuance of preferred stock                                                                                                                                                                                                                               |  |                          | (2,709    
|Other                                                                                                                                                                                                                                                     |  |                          | (1,221    
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  | $                        | 683,733   
|                                                                                                                                                                                                                                                          |  |                          |           
|Accumulated net income in excess of cumulative dividends                                                                                                                                                                                                  |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  | $                        | 42,995    
|Net income for year                                                                                                                                                                                                                                       |  |                          | 95,809    
|Cash dividends paid: $1.95, $1.86, and $1.70 per common share for the years ended
December 31, 2002, 2001 and 2000, respectively; $2.13 per Series A preferred share in 2002, 2001 and 2000, respectively, and $1.07 per Series B preferred share in 2002 |  |                          | (97,379   
|Distribution of VelocityHSI, Inc. in spin-off                                                                                                                                                                                                             |  |                          |          
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  | $                        | 41,425    
|                                                                                                                                                                                                                                                          |  |                          |           
|Stock purchase loans to executives                                                                                                                                                                                                                        |  |                          |           
|Balance at beginning of year                                                                                                                                                                                                                              |  | $                        | (2,616    
|Additional loans granted                                                                                                                                                                                                                                  |  |                          | (1,104    
|Maturities and reserves on loans                                                                                                                                                                                                                          |  |                          | 537       
|                                                                                                                                                                                                                                                          |  |                          |           
|Balance at end of year                                                                                                                                                                                                                                    |  | $                        | (3,183    
|                                                                                                                                                                                                                                                          |  |                          |           
|Total shareholders equity                                                                                                                                                                                                                                |  | $                        | 851,184   
|                                                                                                                                                                                                                                                          |  |                          |           



See Notes
to Consolidated Financial Statements



44



---

BRE PROPERTIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    Company



BRE Properties, Inc. (BRE or the Company) is a self-administered real estate
investment trust focused on the development, acquisition and management of multifamily apartment communities in the Western United States. At December 31, 2002, BREs portfolio, owned directly or through subsidiaries, consisted of
81 multifamily communities (aggregating 22,371 units), classified as direct investments in real estateinvestments in rental properties on the accompanying consolidated balance sheets. Of these properties, 50 were located in California,
eight in Arizona, 13 in Washington, four in Utah, two in Oregon and four in Colorado. In addition, at December 31, 2002, there were seven properties under various stages of construction and development aggregating an estimated 1,616 units, including
five directly owned properties with 1,208 units classified as direct investments in real estate-construction in progress and two land parcels estimated to have 408 units which are classified as land under development. During 2001, BRE completed
the construction of two properties with 488 units held under joint venture agreements in which BRE is a minority interest holder and managing member. BRE also holds a 15% joint venture interest in 18 additional apartment communities totaling 4,175
units managed by a third party at December 31, 2002.



Transaction with Trammell Crow Residential-West



In November 1997, BRE acquired 16 completed properties and eight development properties from certain entities of Trammell Crow Residential-West (the Transaction) pursuant to a definitive agreement (the
Contribution Agreement). BRE paid a total of approximately $160 million in cash and issued $100 million in common stock based on a stock price of $26.93 per share, as provided for in the Contribution Agreement. In addition, certain
entities received Operating Company Units (OC Units) valued at $76 million in BRE Property Investors LLC (the Operating Company), a Delaware limited liability company and majority owned subsidiary of BRE. The Operating
Company also assumed approximately $120 million in debt. BRE is the sole managing member and majority owner of the Operating Company at December 31, 2002. Substantially all of the properties acquired in the Transaction were held through the
Operating Company, which was formed by BRE for the purpose of acquiring the properties in the Transaction.



The OC Units held by non-managing members are included in minority interest in the Companys consolidated financial statements.
Starting in November 1999, non-managing members of the Operating Company can exchange their units for common stock of BRE on a 1:1 basis or, at the option of the Company, cash in an amount equal to the market value of such common stock at the time
of the exchange. As of December 31, 2002, 1,968,069 OC Units have been exchanged for common stock. The non-managing members are entitled to priority distributions regardless of the cash flow of the Operating Company. The Operating Company is
also required to maintain certain financial ratios to protect the non-managing members distributions. Further, the Company has certain restrictions from selling assets of the Operating Company in a taxable sale for a period ranging from eight
to ten years from the date of the Transaction. The Operating Company has also guaranteed the repayment of the Companys $450 million line of credit.



2.    Accounting Policies



Consolidation



The accompanying consolidated financial statements include the accounts of the Company, the Operating Company and other controlled
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Due to the Companys ability to control the Operating Company and other subsidiaries, such entities have been consolidated with the
Company for financial reporting purposes. At December 31, 2002, BRE owned 87% of the Operating Company, which in turn owned 99% of the individual title holding companies.



45



---



Equity
Method of Accounting



The Companys
investments in non controlled real estate joint ventures are recorded under the equity method of accounting on the accompanying consolidated financial statements. Investments in real estate joint ventures which are managed or are being developed by
the Company are included in equity interests in and advances to real estate joint ventures. BRE has received certain fees for the development and construction of the real estate property held by these joint ventures and has recognized other income
using the percent of completion method to the extent of the third-party interest. Investments in real estate joint ventures managed by third parties are included in other assets because such investments do not represent a core activity within
BREs overall real estate investment strategy.



Rental property



Rental
properties are recorded at cost, less accumulated depreciation, less an adjustment, if any, for impairment. Rental properties are evaluated for impairment when conditions indicate that the sum of future expected undiscounted cash flows from a rental
property during the expected holding period may be less than its carrying value. Projects under development are carried at cost, including land, construction costs, capitalized interest and property taxes until units are placed in service, at which
time depreciation begins. Projects under development are evaluated for impairment when conditions indicate that the sum of future expected undiscounted cash flows from rental operations during the expected holding period may be less than the
estimated total cost at the end of development. Upon determination that such impairment has occurred, the related assets are reduced to estimated fair value. There were no assets for which an adjustment for impairment in value was made in 2002, 2001
or 2000.



Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets, which range from 35 to 45 years for buildings and three to ten years for other property. Direct investment development projects are considered placed in service as certificates of
occupancy are issued and the units become ready for occupancy. Land acquired for development is capitalized and reported as Land under development until the development plan for the land is formalized. Once the development plan is
determined and construction contracts are signed, the costs are transferred to the balance sheet line items Construction in progress.



Real estate held for sale



Real estate classified as held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs.
Depreciation is not recorded on assets classified as held for sale.



In the normal course of business, BRE will receive offers for sale of its properties, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period
before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. The Company classifies real estate as held for sale when it is probable, in the
opinion of management, that a property will be disposed of within one year, even if sales negotiations for such property are currently under way.



Rental revenue and expense, and capitalized costs



Rental income is recorded when due from residents and is recognized monthly as it is earned, which is not
materially different than on a straight-line basis as lease terms are generally for periods of one year or less. There were no contingent rental payments or percentage rents in the three years ended December 31, 2002.



For multifamily properties, costs of replacements, such as
appliances, carpets and drapes, are expensed. For all properties, improvements and betterments that increase the value of the property or extend its useful life are capitalized.



46



---



Cash and
short-term investments



Financial
instruments that potentially subject BRE to concentrations of credit risk include cash, short-term investments and funds held in escrow. BRE places its cash deposits and temporary cash investments with financial institutions believed by management
to be creditworthy and of high quality. Cash balances are held with various financial institutions and may at times exceed the applicable Federal Deposit Insurance Corporation limit of $100,000.



Deferred costs



Included in other assets are costs incurred in obtaining debt
financing that are deferred and amortized over the terms of the respective debt agreements as interest expense. Related amortization expense is included in interest expense in the accompanying consolidated statements of income. Net deferred
financing costs included in other assets in the accompanying consolidated balance sheets are $12,917,000 and $12,232,000 as of December 31, 2002 and 2001, respectively.



Income taxes



BRE has elected to be taxed as a Real Estate Investment Trust (REIT) under the Internal Revenue
Code of 1986, as amended (the Code). As a result, BRE will not be subject to federal taxation at the corporate level to the extent it distributes, annually, at least 100% of its REIT taxable income, as defined by the Code, to its
shareholders and satisfies certain other requirements. In addition, the states in which BRE owns and operates real estate properties have provisions equivalent to the federal REIT provisions. Accordingly, no provision has been made for federal or
state income taxes in the accompanying consolidated financial statements.



Net gain (loss) on sales of investments



Sales are generally recorded after title has been transferred to the buyer and after appropriate payments have been received and other criteria met.



Fair value of financial instruments



The fair values of BREs financial instruments (including such items in the consolidated financial
statement captions as cash, other assets, and unsecured line of credit) approximate their carrying or contract values based on their nature, terms and interest rates that approximate current market rates. The fair value of mortgage loans payable and
unsecured senior notes is estimated using discounted cash flow analyses with an interest rate similar to that of current market borrowing arrangements. The fair value of the Companys mortgage loans payable and unsecured senior notes was
approximately $1,022,800,000 at December 31, 2002.



Reclassifications



Certain reclassifications have been made to the prior years consolidated financial statements to conform to the presentation of the current years consolidated financial statements.



Use of estimates



The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at
the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



47



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Descriptive
information about reportable segments



BRE
follows Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 131 requires certain descriptive information to be provided about an
enterprises reportable segments. BRE has determined that it has one operating and reportable segment, multifamily communities, which comprised 98% and 97% of BREs consolidated assets at December 31, 2002 and 2001, respectively and
approximately 99% of its total consolidated revenues for the three years ended December 31, 2002. All multifamily communities owned by the Company are located in the Western United States, in three general markets that it defines as California,
Pacific Northwest, and Mountain/Desert States. The Company also considered VelocityHSI Inc. (VelocityHSI) to be a separate segment prior to the spin-off of this company in the third quarter of 2000 (See Note 10).



BREs business focus is the ownership and operation of
multifamily communities; it evaluates performance and allocates resources primarily based on the net operating income (NOI) of an individual multifamily community. NOI is defined by the Company (and generally by the real estate industry)
as the excess of all revenue generated by the community (primarily rental revenue) less direct operating expenses (primarily, but not limited to, payroll, property taxes, insurance and maintenance expense). Accordingly, NOI excludes depreciation,
capitalized expenditures and interest expense. NOI from multifamily communities totaled $191 million, $181 million and $170 million for the years ended December 31, 2002, 2001, and 2000, respectively. All other segment measurements are
presently disclosed in the accompanying consolidated balance sheets and notes to consolidated financial statements.



All revenues are from external customers and there are no revenues from transactions with other segments. There are no residents that
contributed 10% or more of BREs total revenues in the years ended December 31, 2002, 2001 or 2000. Interest income is not separately reported as it is immaterial. For segment reporting purposes, interest expense on debt is not allocated to
individual properties, even if such debt is secured. Further, minority interest in consolidated subsidiaries is not allocated to the related properties. There is no provision for income tax as the Company is organized as a REIT under the Code.



Derivative instruments and hedging activities



During 2002, BRE entered into interest rate
swap agreements to attain a floating rate of interest on a portion of its fixed rate debt. BRE designated these derivative instruments to be utilized as fair value hedges in accordance with SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. Under SFAS 133, the resulting assets or liabilities attributed to derivative instruments are carried on BREs consolidated financial statements at their estimated fair values. The hedges are perfectly
effective and, therefore, changes in the derivative fair value and the change in fair value of the hedged items during the hedging period exactly offset with no valuation impact on BREs current earnings.



Discontinued operations



On January 1, 2002, the Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets which requires that the assets and liabilities and the results of operations of any communities which have been sold during 2002, or otherwise qualify as held for sale as of
December 31, 2002, be presented as discontinued operations in the Companys consolidated financial statements in both current and prior periods presented. The community specific components of net income that are presented as discontinued
operations include net operating income, depreciation and interest expense to the extent there is a secured loan on the property. In addition, the net gain or loss on the eventual disposal of communities held for sale will be presented as
discontinued operations when recognized. Sales are generally recorded after title has been transferred to the buyer and after appropriate payments have been received and other criteria met. This change in presentation did not impact the
Companys financial condition or net income. Real estate assets held for sale will continue to be measured at the lower of the carrying amount or the fair value less the cost to sell. Subsequent to classification of a community as held for
sale, no further depreciation is recorded on the assets.



48



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Recently
Issued Accounting Pronouncements



In
December 2002, the Financial Accounting Standard Board (FASB) issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of FASB Statement 123. This statement amends SFAS No.
123 (Statement 123), Accounting for Stock-Based Compensation, to provide three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on
reported results. This statement is effective for fiscal years ending after December 15, 2002. Interim pro forma disclosures are required for interim periods beginning after December 15, 2002. The Company currently uses the intrinsic value based
method of accounting of stock compensation in accordance with APB No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company has decided to change its accounting for stock-based employee compensation
plans from the intrinsic value based method to the fair value based method under SFAS No. 123 effective January 1, 2003. The Company also intends to comply with the disclosure requirements of SFAS No. 148.



In November 2002, the FASB issued Financial Accounting
Standard Interpretation (FASI) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation requires additional disclosures and liability
recognition for most guarantees, including loan guarantees such as standby letters of credit. This interpretations disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. This
interpretations initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not expect FASI No. 45 to have a material impact on its
consolidated financial statements.



In January
2003, the FASB issued FASI No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements. This interpretation establishes accounting and
reporting standards requiring the consolidation of variable interest entities (formerly the consolidation of special purpose entities). This interpretation applies immediately to arrangements created after January 31, 2003. Enterprises required by
securities regulations to issue interim financial statements are required to apply this interpretation to pre-existing entities as of the beginning of the first interim period beginning after June 15, 2003. The Company is currently evaluating
whether the application of this interpretation would require the consolidation of any of the Companys existing equity method joint venture investees. The consolidation of the assets, liabilities and operations of any of the Companys
joint ventures could have an effect on the Companys financial ratios and other financial and operational indicators of the Company. This interpretation may be applied by restating previously issued financial statements with a cumulative-effect
adjustment as of the beginning of the first year restated. See Note 4 for additional information regarding the Companys joint venture arrangements.



3.    Real Estate Portfolio



The components of direct investments in real estateinvestments in rental properties follow:



|                         |  | December 31 |              
|------------------------ |  | ----------- | -------------
|                         |  | 2002        |              
|Land                     |  | $           | 386,671,000  
|Improvements             |  |             | 1,757,289,000
|                         |  |             |              
|Subtotal                 |  |             | 2,143,960,000
|Accumulated depreciation |  |             | (198,292,000 
|                         |  |             |              
|Total                    |  | $           | 1,945,668,000
|                         |  |             |              



49



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A roll-forward
of direct investments in real estateconstruction in progress follows:



|                                                                                                            |  | December 31 |            
|----------------------------------------------------------------------------------------------------------- |  | ----------- | -----------
|                                                                                                            |  | 2002        |            
|Opening balance                                                                                             |  | $           | 83,002,000 
|Additions to projects under construction                                                                    |  |             | 69,165,000 
|Transfers of construction in progress to direct investments in real
estateinvestments in rental properties |  |             | (94,459,000
|Transfers from land under development to direct investments in real
estateconstruction in progress         |  |             | 32,967,000 
|                                                                                                            |  |             |            
|Ending balance                                                                                              |  | $           | 90,675,000 
|                                                                                                            |  |             |            



BREs carrying value of its assets exceeded the tax basis by approximately $265,000,000 (unaudited) at December 31, 2002.



4.    Equity Interests in and Advances to Real Estate Joint Ventures



As of December 31, 2002, BRE had two joint venture
arrangements in which its capital interest is 35%; these joint ventures are managed by the Company (the joint ventures). Such arrangements are accounted for under the equity method because BRE does not control the ventures. The two
communities were developed by BRE and completed in 2001. BREs investment in the joint ventures totals $10,761,000 as of December 31, 2002 and is shown as Equity interests in and advances to real estate joint venturesinvestments in
rental properties on BREs consolidated balance sheets. The communities had a total cost of approximately $43,472,000. The joint ventures carry secured, non-recourse loans totaling $19,379,000, that mature in 2011 and have interest rates
of 7.25% and 8.0%. BRE has not guaranteed repayment of the joint venture debt. BRE and third-party members have funded the equity. For these joint ventures, BREs recognition of development and construction fees and responsibility to fund costs
incurred above an agreed upon level during the construction period resulted in a disproportionate capital account balance between BRE and the third-party member compared to each members percent interest. This amount differs from the amount of
the underlying equity in the net assets of the applicable joint ventures and is being depreciated over 40 years.



As of December 31, 2001, BRE had seven joint venture arrangements in which its interests ranged from 25% to 40%. These seven joint
ventures included: (i) five communities that were completed and delivered in 2001 and 2000, with a balance of $42,083,000 at December 31, 2001 and (ii) two communities under construction with a balance of $39,023,000 at December 31, 2001. At
December 31, 2001, these joint ventures carried $67,505,000 in secured debt with interest rates ranging from LIBOR plus 150 basis points to 8.0%. During 2002, BRE consolidated its interests in five of the joint ventures, resulting in a transfer of
$139,382,000 from Equity interests in and advances to real estate joint ventures to Direct investments in real estate, and an increase in secured debt of $62,218,000. BRE purchased the third-party interest in two joint
venture communities that were developed in 2000 for $56,520,000. Two of the joint ventures were consolidated upon termination of the joint venture arrangements prior to funding. The other joint venture was consolidated due to a dispute between BRE
and its joint venture partner that prevented the closing and funding of the joint venture (See Note 15). Upon consolidation of these joint ventures, any income that would have been allocated to the third-party joint venture members prior to
consolidation was credited to the basis of the underlying real estate assets.



50



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Following are
the combined, condensed balance sheets of the joint ventures (unaudited):



|                                      |  | December 31 |           
|------------------------------------- |  | ----------- | ----------
|                                      |  | 2002        |           
|Assets                                |  |             |           
|Investments in rental properties      |  | $           | 43,472,000
|Construction in progress              |  |             |          
|Less: accumulated depreciation        |  |             | (1,826,000
|                                      |  |             |           
|Total real estate portfolio           |  |             | 41,646,000
|Other assets                          |  |             | 1,879,000 
|                                      |  |             |           
|Total assets                          |  | $           | 43,525,000
|                                      |  |             |           
|Liabilities and Members Equity       |  |             |           
|Secured loans payable                 |  | $           | 19,379,000
|Other liabilities                     |  |             | 411,000   
|                                      |  |             |           
|Total liabilities                     |  |             | 19,790,000
|Members equity:                      |  |             |           
|Joint venture members                 |  |             | 12,974,000
|BRE                                   |  |             | 10,761,000
|                                      |  |             |           
|Total members equity                 |  |             | 23,735,000
|                                      |  |             |           
|Total liabilities and members equity |  | $           | 43,525,000
|                                      |  |             |           



In
addition to the joint ventures discussed above, the Company also has an investment in a real estate joint venture managed by a third-party (non-managed joint venture). The Companys investment in the non-managed joint venture consists of a 15%
equity interest in a portfolio of properties managed by a third-party (G&I III Residential One, LLC). The Companys investment approximates $11,858,000 at December 31, 2002 and is included in Other assets as this investment does
not represent a core activity within BREs overall real estate investment strategy. As of December 31, 2002, the joint venture that owns this portfolio had total assets of approximately $255,000,000, liabilities of approximately $177,000,000
and equity of approximately $78,000,000 (unaudited).



The Companys share of income from equity investments in joint ventures totaled $3,392,000, $3,894,000 and $2,299,000 for the years ended December 31, 2002, 2001 and 2000, respectively.



5.    Other Assets



The components of other assets follow:



|                                                          |  | December 31
|--------------------------------------------------------- |  | -----------
|                                                          |  | 2002       
|Prepaid loan fees, net                                    |  | $          
|Investment in G&I III Residential One, LLC                |  |            
|Accounts and mortgages receivable                         |  |            
|Furniture and equipment, net                              |  |            
|Interest rate swap agreements, at fair value (see Note 8) |  |            
|Prepaid expenses                                          |  |            
|Other                                                     |  |            
|Land held for sale                                        |  |            
|                                                          |  |            
|Total Other Assets                                        |  | $          
|                                                          |  |            



51



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During 2001,
BRE completed the remaining sale of three of a total of 22 communities in Tucson, Albuquerque, Las Vegas, and Phoenix. The Company contributed a portion of the proceeds to a joint venture related to the buyer for a 15% equity interest in order to
facilitate the sale of 85% of these assets. The interest in the joint venture is recorded under the equity method of accounting and is included above in Investment in G&I III Residential One, LLC. During 2002, G&I III Residential One,
LLC sold four communities. BREs share of income and gain from the joint venture is included in partnership and other income on the accompanying consolidated income statements.



6.    Mortgage Loans Payable



The following data pertain to loans payable at December 31, 2002 and 2001:



|                                                                   |  | December 31,
|------------------------------------------------------------------ |  | ------------
|                                                                   |  | 2002        
|Fixed rate secured mortgage loans                                  |  | $           
|Variable rate secured mortgage loans                               |  |             
|Secured mortgage loans subject to floating rate swaps              |  |             
|                                                                   |  |             
|Total mortgage loans payable                                       |  | $           
|                                                                   |  |             
|Cost of investments in real estate securing mortgage loans payable |  | $           
|Annual principal and interest payments                             |  | $           
|Remaining terms of mortgage loans payable                          |  |             
|Average interest rate on fixed rate mortgages                      |  |             
|Average interest rate on variable rate mortgages                   |  |             
|Average interest rate on mortgages subject to floating rate swaps  |  |             



Future
scheduled principal payments are included in Note 7.



As of December 31, 2002, BRE has entered into three fixed to floating rate swap agreements on secured debt with a notional amount totaling $32,941,000 and a carrying value of $34,871,000 due to a basis adjustment of $1,930,000 from
hedging activities. The related debt matures in 2005.



7.    Unsecured Senior Notes and Line of Credit



The following table pertains to unsecured senior notes and our line of credit at December 31, 2002 and 2001:



|                                                              |  | December 31,
|------------------------------------------------------------- |  | ------------
|                                                              |  | 2002        
|Fixed rate unsecured notes                                    |  | $           
|Unsecured line of credit                                      |  |             
|Unsecured notes subject to floating rate swaps                |  |             
|                                                              |  |             
|Total unsecured debt                                          |  | $           
|                                                              |  |             
|Average interest rate on fixed rate unsecured notes           |  |             
|Average interest rate on unsecured line of credit             |  |             
|Average interest rate on notes subject to floating rate swaps |  |             



As of
December 31, 2002 and 2001, there was $740,000,000 and $483,000,000, respectively, in unsecured senior notes outstanding with an average fixed interest rate of 6.9% and 7.5%, respectively. Included in this effective interest rate is the amortization
of costs related to the issuance of the debt.



52



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As of December
31, 2002, BRE had an unsecured line of credit expiring in December 2003, for up to $450,000,000 with an option to upsize to $500,000,000. Borrowings totaled $181,000,000 and $315,000,000 at December 31, 2002 and 2001, respectively. The interest rate
on the line of credit is currently based on LIBOR plus 70 basis points, plus a fee of 0.20% payable on the unused portion. The average interest rate was approximately 3.2% and 5.0% for the years ended December 31, 2002 and 2001, respectively.



As of December 31, 2002, BRE has entered into
two fixed to floating rate swap agreements on unsecured debt with a notional amount totaling $33,000,000 and a carrying amount of $34,570,000 due to a basis adjustment of $1,570,000 from hedging activities. Related debt of $15,000,000 matures in
2004 and $18,000,000 matures in 2005.



The line
of credit and unsecured senior note agreements contain various covenants that include, among other factors, tangible net worth and requirements to maintain certain financial ratios. BRE was in compliance with all such financial covenants throughout
the years ended December 31, 2002 and 2001.



Scheduled principal payments required on the unsecured line of credit, unsecured senior notes payable and mortgage loans payable for the next five years and thereafter are as follows.



|2003       |  | $ | 256,196,000  
|---------- |  | - | -------------
|2004       |  |   | 18,183,000   
|2005       |  |   | 62,870,000   
|2006       |  |   | 14,491,000   
|2007       |  |   | 216,478,000  
|Thereafter |  |   | 605,546,000  
|           |  |   |              
|Total      |  | $ | 1,173,764,000
|           |  |   |              



Included
in the 2003 amount is $181,000,000 for the unsecured line of credit. Interest expense on mortgage loans, unsecured line of credit and unsecured senior notes, including amortization of related costs, aggregated $68,121,000, $61,024,000 and
$60,430,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Capitalized interest was $12,015,000, $13,502,000 and $16,434,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Excluding capitalized interest,
cash paid for interest totaled $51,526,000, $41,096,000 and $44,042,000 in 2002, 2001, and 2000, respectively.



8.    Derivative Instruments and Hedging Activities



The notional amount of the interest rate swaps utilized in the fair value hedges is approximately $65,941,000, with maturity dates ranging
from 2004 to 2005. The principal amount of debt being hedged equals the notional amounts of the interest rate swaps. The fair value hedges convert debt with a weighted average fixed rate of 7.45% to a floating rate equal to LIBOR plus an average
spread of 3.0%, which resulted in an effective rate of 4.4% as of December 31, 2002. The fair value of the interest rate swaps at December 31, 2002 was $3,500,000 and is recorded in other assets on the consolidated balance sheets. At December 31,
2002, offsetting amounts of $1,930,000 and $1,570,000 have been recorded as an increase to mortgage loans payable and unsecured senior notes, respectively. To determine the fair values of derivatives, BRE uses market valuations provided by third
parties.



9.    Discontinued Operations



For properties accounted for under SFAS
144, the results of operations for properties sold during the period or designated as held for sale at the end of the period are required to be classified as discontinued operations. The property-specific components of net earnings that are
classified as discontinued operations include net operating income, depreciation expense and interest expense as well as the net gain or loss on the disposal. At



53



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December 31, 2002, BRE had no operating apartment communities classified as held for sale under the provisions of SFAS 144.



During 2002, BRE sold three operating
communities with a total of 663 units: The Arbors at Warner Center, with 250 units, located in the Los Angeles metro area of Woodland Hills, California; Pinnacle Lakeside, with 253 units, located in Salt Lake City, Utah; and Carriage House,
with 160 units, located in the Portland, Oregon metro area. The communities were sold for an aggregate sales price of approximately $58.3 million, resulting in a net gain on sale of $10.1 million. The following is a breakdown of the results of
operations and net gain on the sales of these properties that are included in discontinued operations:



|                                        |  | Years ended December 31 |       
|--------------------------------------- |  | ----------------------- | ------
|                                        |  | 2002                    |       
|                                        |  | (in thousands)          |       
|Rental income                           |  | $                       | 6,390 
|Real estate expenses                    |  |                         | (2,354
|Interest expense                        |  |                         | (1,026
|Provision for depreciation              |  |                         | (1,318
|Gain on sale of discontinued operations |  |                         | 10,067
|                                        |  |                         |       
|Total discontinued operations           |  | $                       | 11,759
|                                        |  |                         |       



10.    Spin-off and Distribution of VelocityHSI, Inc.



In August 2000, BRE completed the spin-off of VelocityHSI, Inc. (VelocityHSI). VelocityHSI was incorporated as a wholly owned
subsidiary in April 2000 and was previously a segment within BRE. VelocityHSI provided high-speed Internet access to the multifamily apartment industry. On August 15, 2000, BRE distributed shares representing approximately 87%, or $8,892,000 of
BREs $10.2 million investment in VelocityHSI on that date, to BRE shareholders and retained the balance. Each BRE shareholder of record as of August 7, 2000 received one share of VelocityHSI for every five common shares of BRE owned. BRE
option holders received options to purchase VelocityHSI common shares on the same one for five ratio (See Note 11).



Subsequent to the spin-off, BREs ownership in VelocityHSI was reduced to approximately 9.9% and was recorded under the equity method
of accounting due to BRE representation on the VelocityHSI board. BRE also advanced funds to VelocityHSI under two separate agreements, for a total of $9.1 million. BRE recorded 100% of VelocityHSIs losses, which were applied against the
Companys investment in and receivables from VelocityHSI, until its investment in and receivable from VelocityHSI were reduced to zero. Losses were recorded on a 90-day lag basis in order to allow VelocityHSI to complete its financial
reporting. During the quarter ended September 30, 2001, VelocityHSI filed for bankruptcy protection. BRE reduced the funds available to VelocityHSI for general corporate purposes by $2,400,000, to reserve against potential BRE liabilities related to
VelocityHSI. BRE provided for the $2,400,000 allowance as part of its $7,163,000 charge during 2001. Approximately $900,000 is reserved against future liabilities at December 31, 2002. The $8,765,000 loss for the year ended December 31, 2000 is
comprised of $3,076,000 in losses incurred prior to the spinoff and $5,689,000 of losses incurred between August 14, 2000 and September 30, 2000. There was no income statement impact from VelocityHSI in 2002.



11.    Stock Option Plans



BRE has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations in accounting for its employee and non-employee director stock options. As discussed below, the alternative fair value accounting provided
for under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation, requires the use of option valuation models that were not developed for use in valuing employee and non-employee director stock options. Under
APB 25,



54



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because the exercise price equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.



Employee Plans



The 1992 Stock Option Plan and the 1999 BRE Stock Incentive
Plan (the Plans) provide for the issuance of Incentive Stock Options, Non-Qualified Stock Options, restricted shares and other grants. The maximum number of shares that may be issued under the Plans is 5,850,000. The option price may not
be less than the fair market value of a share on the date that the option is granted and the options generally vest over three to five years, except for options granted pursuant to a reload, which vest 100% after 18 months from the date of the
grant. Shareholders adopted the 1999 BRE Stock Incentive Plan in 1999. The 1999 BRE Stock Incentive Plan incorporated the Broad Based Plan created in 1999, and allows for grants of up to 3,500,000 shares. During 2002, 2001 and 2000, certain key
employees were allowed to exercise options with a reload provision and 409,216, 247,852 and 233,146 reload grants were made, respectively, in those years. Changes in options outstanding during the years ended December 31, 2002, 2001 and 2000 were as
follows:



|                                                                         |  | Years ended December 31
|------------------------------------------------------------------------ |  | -----------------------
|                                                                         |  | 2002                   
|                                                                         |  | Sharesunderoption      
|Balance at beginning of period                                           |  | 2,011,157              
|Granted                                                                  |  | 1,091,976              
|Exercised                                                                |  | (711,670               
|Cancelled                                                                |  | (200,897               
|                                                                         |  |                        
|Balance at end of period                                                 |  | 2,190,566              
|                                                                         |  |                        
|Exercisable                                                              |  | 286,061                
|Shares available for granting future options                             |  | 1,525,816              
|Weighted average estimated fair value of options granted during the year |  |                        



At
December 31, 2002, the exercise price of shares under option ranged from $17.44 to $33.80, with a weighted average exercise price of $28.38. The exercise price of all options granted in the years ended December 31, 2002, 2001 and 2000 was
equal to the market price on the date of grant. Expiration dates range from 2003 through 2012; the weighted average remaining contractual life of these options is 7 years. Stock options were exercised during 2002 on options originally granted with
exercise prices from $15.39 to $31.89. At December 31, 2002, there were 8,637 restricted shares outstanding under the Plans. There were 1,700, 0 and 320 restricted shares granted in 2002, 2001 and 2000, respectively, vesting over three to
five years.



Direct Stock Purchase and
Dividend Reinvestment Plan



In 1996, the
Company instituted a direct stock purchase and dividend reinvestment plan (the DRIP) in which shareholders may purchase either newly issued or previously issued shares. The total amount of shares authorized under the DRIP is 1,500,000;
from inception through December 31, 2002, 122,001 new shares have been issued.



Non-Employee Director Stock Option Plan



The Amended and Restated Non-Employee Director Stock Option Plan provides for the issuance of 25,000 Non-Qualified Stock Options per year to each non-employee member of the Board of Directors and
up to an additional 25,000 options to the Chairman of the Board of Directors. In addition, up to 8,000 options may be



55



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granted to each non-employee director for committee membership and/or chairmanship, and up to 5,000 options may be granted based on the
Companys operational performance. This plan has a reload provision that granted an additional 377,915, 280,444, and 204,596 options in 2002, 2001 and 2000, respectively. The maximum number of shares that may be issued under this plan is
2,300,000. As with the Plans, the option price may not be less than the fair market value of a share on the date the option is granted. Changes in options outstanding for the years ended December 31, 2002, 2001 and 2000 were as follows:



|                                                                         |  | Years ended December 31
|------------------------------------------------------------------------ |  | -----------------------
|                                                                         |  | 2002                   
|                                                                         |  | Sharesunderoption      
|Balance at beginning of period                                           |  | 1,507,315              
|Granted                                                                  |  | 657,751                
|Exercised                                                                |  | (438,035               
|Cancelled                                                                |  |                       
|                                                                         |  |                        
|Balance at end of period                                                 |  | 1,727,031              
|                                                                         |  |                        
|Exercisable                                                              |  | 1,137,388              
|Shares available for granting future options                             |  | 227,939                
|Weighted average estimated fair value of options granted during the year |  |                        



At
December 31, 2002, the exercise prices of shares under option ranged between $15.14 and $34.24, with expiration dates from 2004 to 2012. The exercise price of all options granted in the years ended December 31, 1997 through 2002 was equal to
the market price on the date of grant. The options vest ratably over one year, except for options granted pursuant to a reload, which vest 100% after 18 months from the date of the grant, and options granted based on operational performance, which
vest immediately. The weighted average remaining contractual life of these options is 7 years.



Pro forma information regarding net income and earnings per share required by SFAS 123 was determined as if BRE had accounted for the employee and non-employee director stock options granted
in the years ended December 31, 1997 through 2002 under the fair value method of that Statement. The impact on the years ended December 31, 2002, 2001 and 2000 of options granted prior to 1996 was excluded from this presentation. The fair
value for these options was estimated as of the date of grant using a Black-Scholes option pricing model, with the following weighted average assumptions for the years ended December 31, 2002, 2001, and 2000:



|                             |  | Years ended December 31 |  
|---------------------------- |  | ----------------------- | -
|                             |  | 2002                    |  
|Risk-free interest rate      |  | 4.34                    | %
|Dividend yield               |  | 6.50                    | %
|Volatility                   |  | .20                     |  
|Weighted average option life |  | 7 years                 |  



The
Black-Scholes option-pricing model was developed for use in estimating the fair market value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the above stock option plans have characteristics significantly different from those of traded options, and because, in managements opinion, changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of the above stock option plans.



56



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For purposes
of pro forma disclosures, the estimated fair value of the options is amortized over the options vesting periods. BREs pro forma information, as if the Company had adopted SFAS 123 as discussed above, follows:



|                                                                                                     |  | Years ended December 31
|---------------------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                                     |  | 2002                   
|Net income available to common shareholders, as reported                                             |  | $                      
|Less: Total stock-based compensation expense determined under fair value based method
for all awards |  |                        
|                                                                                                     |  |                        
|Pro forma net income available to common shareholders                                                |  | $                      
|                                                                                                     |  |                        
|Earnings per share:                                                                                  |  |                        
|Basicas reported                                                                                    |  | $                      
|Basicpro forma                                                                                      |  | $                      
|Dilutedas reported                                                                                  |  | $                      
|Dilutedpro forma                                                                                    |  | $                      



The
effect of the pro forma application of SFAS 123 is not necessarily representative of the effect on net income for future years.



In connection with the spin-off and distribution of VelocityHSI common stock on August 15, 2000, BRE option holders received options to
purchase shares of VelocityHSI on the same one for five ratio as the stock distribution, as an anti-dilution mechanism. The VelocityHSI options granted to BRE option holders reflected the same terms as the BRE options, including the vesting
provisions and exercise periods of the BRE options. The Company established the exercise price of each VelocityHSI option using the ratio of the holders BRE option exercise price to the underlying BRE market value per share immediately before
the distribution. The Company then applied this ratio to the VelocityHSI value per share at the time of the distribution to establish the exercise price of the VelocityHSI option. The exercise price of the existing BRE option after the distribution
was calculated by applying the same ratio to the BRE market value per share immediately after the distribution. The Company computed the market value of BRE common stock immediately before the distribution based on the market capitalization of BRE
on August 4, 2000, the date which was three days prior to the distribution record date.



The formula used for determining the BRE and VelocityHSI option exercise prices was designed to assure that the aggregate intrinsic value of both the BRE option and the related VelocityHSI option for
each option holder following the distribution was not greater than the intrinsic value of the BRE option prior to the distribution, under the guidelines included in Financial Accounting Standards Board Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation, an interpretation of APB 25. The relevant guidelines, when applied in a spin-off transaction, provide that modifications to exercise prices of existing options and the granting of new
awards for each option holder do not result in financial accounting consequences to the grantors. The issuance of options to purchase shares of VelocityHSI common stock to BRE option holders and the modification of the price of BRE options in the
manner described did not result in a new measurement date for BREs accounting purposes.



57



---



12.    Earnings per Share



The following table sets forth the computation of basic and diluted earnings per share with respect to income from continuing operations:



|                                                                                                        |  | 2002 |             |   | 2001 |   |            | 2000 | 
|------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- | 
|Numerator:                                                                                              |  |      |             |   |      |   |            |      | 
|Net income available to common shareholders                                                             |  | $    | 88,044,000  |   |      | $ | 78,808,000 |      | 
|Less adjustment for (gain) loss on sales of investments                                                 |  |      | (4,862,000  | ) |      |   | 327,000    |      | 
|Less adjustment for earnings and gains from discontinued operations, net                                |  |      | (11,759,000 | ) |      |   | (1,768,000 | )    | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Numerator for basic earnings per share before gains on sales of investments and
discontinued operations |  |      | 71,423,000  |   |      |   | 77,367,000 |      | 
|Effect of dilutive securities                                                                           |  |      |             |   |      |   |            |      | 
|Minority interest in income convertible into common shares                                              |  |      | 2,963,000   |   |      |   | 3,413,000  |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Numerator for diluted earnings per share before sales of investments and discontinued
operations        |  | $    | 74,386,000  |   |      | $ | 80,780,000 |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Denominator:                                                                                            |  |      |             |   |      |   |            |      | 
|Denominator for basic earnings per shareweighted average shares                                        |  |      | 45,860,000  |   |      |   | 46,235,000 |      | 
|Effect of dilutive securities                                                                           |  |      |             |   |      |   |            |      | 
|Stock options                                                                                           |  |      | 350,000     |   |      |   | 400,000    |      | 
|Weighted average convertible operating company units                                                    |  |      | 1,560,000   |   |      |   | 1,875,000  |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Dilutive potential common shares                                                                        |  |      | 1,910,000   |   |      |   | 2,275,000  |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Denominator for diluted earnings per share adjusted for weighted average shares and
assumed conversion  |  |      | 47,770,000  |   |      |   | 48,510,000 |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Basic earnings per share before sales of investments and discontinued
operations                        |  | $    | 1.56        |   |      | $ | 1.67       |      | 
|Income per share from gain (loss) on sales of investments                                               |  |      | 0.10        |   |      |   | (0.01      | )    | 
|Net earnings per share from discontinued operations                                                     |  |      | 0.26        |   |      |   | 0.04       |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Basic earnings per share                                                                                |  | $    | 1.92        |   |      | $ | 1.70       |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Diluted earnings per share before sales of investments and discontinued
operations                      |  | $    | 1.56        |   |      | $ | 1.66       |      | 
|Income per share from gain (loss) on sales of investments                                               |  |      | 0.10        |   |      |   | (0.01      | )    | 
|Net earnings per share from discontinued operations                                                     |  |      | 0.25        |   |      |   | 0.04       |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 
|Diluted earnings per share                                                                              |  | $    | 1.91        |   |      | $ | 1.69       |      | 
|                                                                                                        |  |      |             |   |      |   |            |      | 



13.    Retirement Plan



BRE has a defined contribution retirement plan covering all employees with more than six months of continuous full-time employment. In addition to employee elective deferrals, in 2002, 2001, and 2000, BRE contributed up to
3% of the employees compensation up to $6,000, $5,100 and $4,800 per employee in 2002, 2001 and 2000, respectively. The aggregate amounts contributed and recognized as expense by BRE were $341,000, $323,000 and $365,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.



14.    Related Party Transactions



Certain executives of BRE have purchased stock, the consideration for which was interest-bearing recourse loans. The loans given prior to 2000 may be forgiven in whole or in part upon the achievement
of certain



58



---

performance goals for BRE related to growth in assets, funds from operations and stock price. A portion of the loans expected to be forgiven
are expensed currently as compensation. At December 31, 2002, the carrying amount of the loans was $3,183,000. The amounts of such loans expected to be forgiven and treated as compensation expense were $215,000, $300,000 and $300,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. Loans issued from 2000 through July 2002, at which time the loan program was suspended, no longer have forgiveness provisions.



BRE had notes receivable from third party minority members of
limited liability company subsidiaries of the company totaling $7,676,000 and $2,956,000 at December 31, 2002 and 2001, respectively. The amounts are recorded in other assets on the consolidated balance sheets.



15.    Litigation



As of December 31, 2002, there were no pending legal
proceedings to which we are a party or of which any of our properties is the subject, the adverse determination of which we anticipate would have a material adverse effect upon our consolidated financial condition and results of operations.



On June 29, 2000, BRE entered into an
Agreement for Formation of Limited Liability Company and Contribution of Project (the Agreement) with an unrelated third-party. The Agreement contemplated that upon the completion of Pinnacle at MacArthur, BRE would contribute the
project to a joint venture in which BRE and the third-party would be members. The closing deadline under the Agreement was April 1, 2002. However, due to disagreements between BRE and the third-party regarding their respective rights and obligations
under the Agreement, the closing did not occur.



On April 1, 2002, the third-party brought litigation against BRE in the United States District Court for the Central District of California, Santa Ana Division. The lawsuit seeks specific performance of the Agreement or, in the
alternative, damages. BRE has filed a counterclaim for a declaration that it was not, in fact, obligated to enter into the transaction under the terms demanded by the third-party. Resolution of this dispute is pending and the outcome is not yet
determinable. Management does not anticipate that the litigation will have a material effect on BREs consolidated financial statements. Our investment in Pinnacle at MacArthur was recorded under the equity method of accounting through
September 2002. Due to events associated with the litigation and the anticipated length of time required to resolve the dispute, we consolidated our investment and property-level indebtedness during the fourth quarter of 2002.



16.    Supplemental Financial Data (Unaudited)



Quarterly financial information follows:



|                                            |  | Year ended December 31, 2002                 
|------------------------------------------- |  | ---------------------------------------------
|                                            |  | Quarter endedMarch 31                        
|                                            |  | (amounts in thousands, except per share data)
|Revenues*                                   |  | $                                            
|Net income available to common shareholders |  | $                                            
|Net income per sharebasic                  |  | $                                            
|Net income per sharediluted                |  | $                                            



59



---



|                                            |  | Year ended December 31, 2001
|------------------------------------------- |  | ----------------------------
|                                            |  | Quarter endedMarch 31       
|Revenues*                                   |  | $                           
|Net income available to common shareholders |  | $                           
|Net income per sharebasic                  |  | $                           
|Net income per sharediluted                |  | $                           

---

|* |  | Revenue totals do not include revenues from discontinued operations.
|- |  | --------------------------------------------------------------------



For the years ended December 31, 2002, 2001 and 2000, the federal income tax components of the Companys
dividends on the common and preferred stock were as follows (unaudited).



|                         |  | OrdinaryIncome  |   |  | 20% CapitalGain  |   |  | UnrecapturedSection 1250Gain |   |  | Return ofCapital  |  
|------------------------ |  | --------------- | - |  | ---------------- | - |  | ---------------------------- | - |  | ----------------- | -
|Common stock             |  |                 |   |  |                  |   |  |                              |   |  |                   |  
|December 31, 2002        |  | 80              | % |  | 15               | % |  | 5                            | % |  |                  | %
|December 31, 2001        |  | 87              | % |  |                 | % |  |                             | % |  | 13                | %
|December 31, 2000        |  | 82              | % |  | 6                | % |  | 12                           | % |  |                  | %
|                        
|                         |  | Ordinary Income |   |  | 20% Capital Gain |   |  | UnrecapturedSection 1250Gain |   |  | Return of Capital |  
|Series A preferred stock |  |                 |   |  |                  |   |  |                              |   |  |                   |  
|December 31, 2002        |  | 80              | % |  | 15               | % |  | 5                            | % |  |                  | %
|December 31, 2001        |  | 100             | % |  |                 | % |  |                             | % |  |                  | %
|December 31, 2000        |  | 100             | % |  |                 | % |  |                             | % |  |                  | %
|                        
|                         |  | Ordinary Income |   |  | 20% Capital Gain |   |  | UnrecapturedSection 1250Gain |   |  | Return of Capital |  
|Series B preferred stock |  |                 |   |  |                  |   |  |                              |   |  |                   |  
|December 31, 2002        |  | 80              | % |  | 15               | % |  | 5                            | % |  |                  | %
|December 31, 2001        |  | N/A             |   |  | N/A              |   |  | N/A                          |   |  | N/A               |  
|December 31, 2000        |  | N/A             |   |  | N/A              |   |  | N/A                          |   |  | N/A               |  



17.    Subsequent Event



On February 18, 2003, BRE closed on the sale of Berkshire Court, a 266-unit apartment community located near Portland, Oregon for a sales price of approximately $17,000,000 and a net gain on sale of approximately
$800,000.



60



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BRE PROPERTIES, INC.



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



December 31, 2002

(Dollar amounts in thousands)



|Name                          |  | Location          |      | Dates Acquired/ Constructed |                          | Initial Cost to Company |        | Costs Capitalized Subsequent to Acquisition |      | Depreciable LivesYears |                          | Gross Amount at Which Carried at December 31, 2002
|----------------------------- |  | ----------------- | ---- | --------------------------- | ------------------------ | ----------------------- | ------ | ------------------------------------------- | ---- | ----------------------- | ------------------------ | --------------------------------------------------
|                              |  |                   | Land |                             | Buildings & Improvements |                         |        |                                             | Land |                         | Buildings & Improvements |                                                   
|APARTMENTS                    |  |                   |      |                             |                          |                         |        |                                             |      |                         |                          |                                                   
|Sharon Green                  |  | Menlo Park, CA    |      | 1971/1970                   |                          | $                       | 1,250  |                                             | $    | 5,770                   |                          | $                                                 
|Verandas                      |  | Union City, CA    |      | 1993/1989                   |                          |                         | 3,233  |                                             |      | 12,932                  |                          |                                                   
|Fosters Landing              |  | Foster City, CA   |      | 1996/1987                   |                          |                         | 11,742 |                                             |      | 47,846                  |                          |                                                   
|Pinnacle Crow Canyon          |  | San Ramon, CA     |      | 1996/1992                   |                          |                         | 8,724  |                                             |      | 34,895                  |                          |                                                   
|Blue Rock I & II*             |  | Vallejo, CA       |      | 1998/1986                   |                          |                         | 6,836  |                                             |      | 27,352                  |                          |                                                   
|Lakeshore Landing             |  | San Mateo, CA     |      | 1998/1988                   |                          |                         | 8,547  |                                             |      | 34,228                  |                          |                                                   
|Red Hawk Ranch                |  | Fremont, CA       |      | 1998/1995                   |                          |                         | 11,747 |                                             |      | 47,082                  |                          |                                                   
|Deer Valley*                  |  | San Rafael, CA    |      | 1998/1996                   |                          |                         | 6,042  |                                             |      | 24,169                  |                          |                                                   
|Pinnacle City Centre*         |  | Hayward, CA       |      | 2000/2000                   |                          |                         | 4,903  |                                             |      | 22,999                  |                          |                                                   
|Sun Pointe Village            |  | Fremont, CA       |      | 2000/1989                   |                          |                         | 12,638 |                                             |      | 50,690                  |                          |                                                   
|                              |  |                   |      |                             |                          |                         |        |                                             |      |                         |                          |                                                   
|San Francisco Bay Area        |  |                   |      |                             |                          |                         | 75,662 |                                             |      | 307,963                 |                          |                                                   
|                              |  |                   |      |                             |                          |                         |        |                                             |      |                         |                          |                                                   
|Montanosa                     |  | San Diego, CA     |      | 1992/1989-90                |                          |                         | 6,005  |                                             |      | 24,065                  |                          |                                                   
|Cimmaron                      |  | San Diego, CA     |      | 1993/1985                   |                          |                         | 1,899  |                                             |      | 7,517                   |                          |                                                   
|Hacienda                      |  | San Diego, CA     |      | 1993/1985                   |                          |                         | 1,979  |                                             |      | 8,027                   |                          |                                                   
|Westpark                      |  | San Diego, CA     |      | 1993/1985                   |                          |                         | 990    |                                             |      | 3,949                   |                          |                                                   
|Terra Nova Villas             |  | Chula Vista, CA   |      | 1994/1985                   |                          |                         | 2,925  |                                             |      | 11,699                  |                          |                                                   
|Winchester                    |  | San Diego, CA     |      | 1994/1987                   |                          |                         | 1,482  |                                             |      | 5,928                   |                          |                                                   
|Canyon Villas                 |  | Chula Vista, CA   |      | 1996/1981                   |                          |                         | 3,064  |                                             |      | 12,258                  |                          |                                                   
|Lakeview Village              |  | Spring Valley, CA |      | 1996/1985                   |                          |                         | 3,977  |                                             |      | 15,910                  |                          |                                                   
|Countryside Village           |  | El Cajon, CA      |      | 1996/1989                   |                          |                         | 1,002  |                                             |      | 4,007                   |                          |                                                   
|Cambridge Park*               |  | San Diego, CA     |      | 1998/1998                   |                          |                         | 7,628  |                                             |      | 30,521                  |                          |                                                   
|Reflections                   |  | San Diego, CA     |      | 1999/1989                   |                          |                         | 6,928  |                                             |      | 27,686                  |                          |                                                   
|Pinnacle at Carmel Creek      |  | San Diego, CA     |      | 2000/2000                   |                          |                         | 4,744  |                                             |      | 45,430                  |                          |                                                   
|Pinnacle at Otay Ranch I & II |  | Chula Vista, CA   |      | 2002/2002                   |                          |                         | 8,928  |                                             |      | 43,388                  |                          |                                                   
|Mission Trails                |  | San Diego, CA     |      | 2002/1987                   |                          |                         | 5,315  |                                             |      | 21,310                  |                          |                                                   
|Bernardo Crest                |  | San Diego, CA     |      | 2002/1988                   |                          |                         | 6,016  |                                             |      | 24,115                  |                          |                                                   
|                              |  |                   |      |                             |                          |                         |        |                                             |      |                         |                          |                                                   
|San Diego                     |  |                   |      |                             |                          |                         | 62,882 |                                             |      | 285,810                 |                          |                                                   
|                              |  |                   |      |                             |                          |                         |        |                                             |      |                         |                          |                                                   
|Village Green                 |  | La Habra, CA      |      | 1972/1971                   |                          |                         | 372    |                                             |      | 2,763                   |                          |                                                   



61



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BRE PROPERTIES, INC.



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



December 31, 2002

(Dollar amounts in thousands)



|                                   |  | Location                  |  | Dates Acquired/ Constructed |  | Initial Cost to Company  |  | Costs Capitalized Subsequent to Acquisition |  | Depreciable Lives  Years |  | Gross Amount at Which Carried at December 31, 2002
|---------------------------------- |  | ------------------------- |  | --------------------------- |  | ------------------------ |  | ------------------------------------------- |  | ------------------------- |  | --------------------------------------------------
|Name                               |  |                           |  | Land                        |  | Buildings & Improvements |  |                                             |  | Land                      |  | Buildings & Improvements                          
|APARTMENTS                         |  |                           |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Sycamore Valley                    |  | Fountain Valley, CA       |  | 1996/1969                   |  | 4,617                    |  | 18,691                                      |  | 1,987                     |  | 40                                                
|Windrush Village                   |  | Colton, CA                |  | 1996/1985                   |  | 3,747                    |  | 14,989                                      |  | 808                       |  | 40                                                
|The Summit                         |  | Chino, CA                 |  | 1996/1989                   |  | 1,838                    |  | 7,354                                       |  | 328                       |  | 40                                                
|Candlewood North                   |  | Northridge, CA            |  | 1996/1964-95                |  | 2,110                    |  | 8,477                                       |  | 404                       |  | 40                                                
|Parkside Village*                  |  | Riverside, CA             |  | 1998/1987                   |  | 3,417                    |  | 13,674                                      |  | 700                       |  | 40                                                
|Parkside Court*                    |  | Santa Ana, CA             |  | 1998/1987                   |  | 2,013                    |  | 8,632                                       |  | 479                       |  | 40                                                
|Parkside Terrace*                  |  | Santa Ana, CA             |  | 1998/1986                   |  | 3,016                    |  | 12,180                                      |  | 735                       |  | 40                                                
|Villa Siena                        |  | Costa Mesa, CA            |  | 2000/1974                   |  | 4,853                    |  | 19,739                                      |  | 7,874                     |  | 40                                                
|Cortesia at Rancho Santa Margarita |  | Rancho Santa Margarita,CA |  | 2000/1999                   |  | 7,740                    |  | 30,982                                      |  | 1,123                     |  | 40                                                
|Pinnacle at Laguna Niguel          |  | Laguna Niguel, CA         |  | 2001/1988                   |  | 12,571                   |  | 50,308                                      |  | 1,745                     |  | 40                                                
|Pinnacle Talega I                  |  | San Clemente, CA          |  | 2002/2002                   |  | 3,901                    |  | 10,730                                      |  |                          |  | 40                                                
|Pinnacle at MacArthur Place        |  | South Coast Metro, CA     |  | 2002/2002                   |  | 8,155                    |  | 54,257                                      |  | 1,815                     |  | 40                                                
|Boulder Creek                      |  | Riverside, CA             |  | 2002/1985                   |  | 3,564                    |  | 14,306                                      |  | 300                       |  | 40                                                
|Emerald Pointe*                    |  | Diamond Bar, CA           |  | 2002/1989                   |  | 5,052                    |  | 20,248                                      |  | 97                        |  | 40                                                
|                                   |  |                           |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Los Angeles/Orange County          |  |                           |  |                             |  | 66,966                   |  | 287,330                                     |  | 19,229                    |  |                                                   
|                                   |  |                           |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Selby Ranch                        |  | Sacramento, CA            |  | 1986/1971-74                |  | 2,660                    |  | 18,340                                      |  | 6,656                     |  | 40                                                
|Hazel Ranch                        |  | Fair Oaks, CA             |  | 1996/1985                   |  | 2,471                    |  | 9,885                                       |  | 962                       |  | 40                                                
|Rocklin Gold                       |  | Rocklin, CA               |  | 1996/1990                   |  | 1,558                    |  | 6,232                                       |  | 382                       |  | 40                                                
|Shaliko                            |  | Rocklin, CA               |  | 1996/1990                   |  | 2,050                    |  | 8,198                                       |  | 712                       |  | 40                                                
|Quail Chase                        |  | Folsom, CA                |  | 1996/1990                   |  | 1,303                    |  | 5,211                                       |  | 416                       |  | 40                                                
|Canterbury Downs                   |  | Roseville, CA             |  | 1996/1993                   |  | 2,297                    |  | 9,190                                       |  | 319                       |  | 40                                                
|Overlook at Blue Ravine I*         |  | Folsom, CA                |  | 1997/1991                   |  | 6,050                    |  | 24,203                                      |  | 1,615                     |  | 40                                                
|Arbor Pointe                       |  | Sacramento, CA            |  | 1997/1988                   |  | 1,814                    |  | 7,256                                       |  | 2,040                     |  | 40                                                
|Overlook at Blue Ravine II         |  | Folsom, CA                |  | 2000/2000                   |  | 1,014                    |  | 9,575                                       |  |                          |  | 40                                                
|Pinnacle at Blue Ravine            |  | Folsom, CA                |  | 2002/2000                   |  | 3,073                    |  | 32,689                                      |  | 35                        |  | 40                                                
|                                   |  |                           |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Sacramento                         |  |                           |  |                             |  | 24,290                   |  | 130,779                                     |  | 13,137                    |  |                                                   
|                                   |  |                           |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Scottsdale Cove                    |  | Scottsdale, AZ            |  | 1991-94/1992-94             |  | 3,243                    |  | 14,468                                      |  | 948                       |  | 40                                                
|Arcadia Cove                       |  | Phoenix, AZ               |  | 1996/1996                   |  | 4,909                    |  | 19,902                                      |  | 553                       |  | 40                                                



62



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BRE PROPERTIES, INC.



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



December 31, 2002

(Dollar amounts in thousands)



|                                |  | Location           |  | Dates Acquired/ Constructed |  | Initial Cost to Company  |  | Costs Capitalized Subsequent to Acquisition |  | Depreciable Lives  Years |  | Gross Amount at Which Carried at December 31, 2002
|------------------------------- |  | ------------------ |  | --------------------------- |  | ------------------------ |  | ------------------------------------------- |  | ------------------------- |  | --------------------------------------------------
|Name                            |  |                    |  | Land                        |  | Buildings & Improvements |  |                                             |  | Land                      |  | Buildings & Improvements                          
|APARTMENTS                      |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Newport Landing                 |  | Glendale, AZ       |  | 1995-96/1987-96             |  | 4,466                    |  | 18,171                                      |  | 1,080                     |  | 40                                                
|Pinnacle at S. Mountain I & II* |  | Phoenix, AZ        |  | 1998/1996                   |  | 11,062                   |  | 44,257                                      |  | 825                       |  | 40                                                
|Pinnacle at Union Hills*        |  | Phoenix, AZ        |  | 1998/1996                   |  | 4,626                    |  | 18,507                                      |  | 321                       |  | 40                                                
|Pinnacle at Towne Center*       |  | Phoenix, AZ        |  | 1999/1999                   |  | 6,688                    |  | 27,631                                      |  | 471                       |  | 40                                                
|Pinnacle Terrace*               |  | Chandler, AZ       |  | 1999/1999                   |  | 4,561                    |  | 18,793                                      |  | 177                       |  | 40                                                
|Pinnacle Stonecreek             |  | Phoenix, AZ        |  | 2002/2001                   |  | 4,941                    |  | 20,628                                      |  | 70                        |  | 40                                                
|                                |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Phoenix                         |  |                    |  |                             |  | 44,496                   |  | 182,357                                     |  | 4,445                     |  |                                                   
|                                |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Parkwood                        |  | Mill Creek, WA     |  | 1989/1989                   |  | 3,947                    |  | 15,811                                      |  | 606                       |  | 40                                                
|Shadowbrook                     |  | Redmond, WA        |  | 1987-98/1986                |  | 4,776                    |  | 17,415                                      |  | 1,211                     |  | 40                                                
|Citywalk                        |  | Seattle, WA        |  | 1988/1988                   |  | 1,123                    |  | 4,276                                       |  | 265                       |  | 40                                                
|Thrashers Mill                 |  | Bothell, WA        |  | 1996/1988                   |  | 2,031                    |  | 8,223                                       |  | 694                       |  | 40                                                
|Ballinger Commons               |  | Seattle, WA        |  | 1996/1989                   |  | 5,824                    |  | 23,519                                      |  | 1,291                     |  | 40                                                
|The Park at Dashpoint           |  | Federal Way, WA    |  | 1998/1989                   |  | 3,074                    |  | 12,411                                      |  | 760                       |  | 40                                                
|Montebello                      |  | Kirkland, WA       |  | 1998/1998                   |  | 6,680                    |  | 27,274                                      |  | 308                       |  | 40                                                
|Park Highland                   |  | Bellevue, WA       |  | 1998/1993                   |  | 5,602                    |  | 22,483                                      |  | 422                       |  | 40                                                
|Brentwood Townhomes             |  | Kent, WA           |  | 1998/1991                   |  | 1,387                    |  | 5,574                                       |  | 242                       |  | 40                                                
|Pinnacle BellCentre             |  | Bellevue, WA       |  | 2000/2000                   |  | 11,163                   |  | 32,821                                      |  |                          |  | 40                                                
|Pinnacle Bell Town              |  | Seattle, WA        |  | 2001/1992                   |  | 4,279                    |  | 17,259                                      |  | 561                       |  | 40                                                
|Pinnacle on Lake Washington     |  | Renton, WA         |  | 2002/2002                   |  | 4,878                    |  | 26,184                                      |  | 663                       |  | 40                                                
|Pinnacle Sonata                 |  | Bothell, WA        |  | 2002/2000                   |  | 8,576                    |  | 39,280                                      |  | 42                        |  | 40                                                
|                                |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Seattle                         |  |                    |  |                             |  | 63,340                   |  | 252,530                                     |  | 7,065                     |  |                                                   
|                                |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Brookdale Glen                  |  | Portland, OR       |  | 1993/1985                   |  | 2,797                    |  | 11,188                                      |  | 1,277                     |  | 40                                                
|Berkshire Court                 |  | Wilsonville, OR    |  | 1996/1996                   |  | 3,284                    |  | 13,200                                      |  | 2,284                     |  | 40                                                
|                                |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Portland                        |  |                    |  |                             |  | 6,081                    |  | 24,388                                      |  | 3,561                     |  |                                                   
|                                |  |                    |  |                             |  |                          |  |                                             |  |                           |  |                                                   
|Pinnacle Fort Union*            |  | Salt Lake City, UT |  | 1997/1997                   |  | 3,008                    |  | 12,034                                      |  | 181                       |  | 40                                                
|Pinnacle Reserve*               |  | Draper, UT         |  | 1997/1997                   |  | 8,698                    |  | 34,781                                      |  | 1,330                     |  | 40                                                
|Pinnacle Canyon View*           |  | Orem, UT           |  | 1998/1998                   |  | 5,049                    |  | 20,927                                      |  | 40                        |  | 40                                                



63



---

BRE PROPERTIES, INC.



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



December 31, 2002

(Dollar amounts in thousands)



|                            |  | Location              |  | Dates Acquired/ Constructed |  | Initial Cost to Company  |         | Costs Capitalized Subsequent to Acquisition |   | Depreciable Lives  Years |  | Gross Amount at Which Carried at December 31, 2002
|--------------------------- |  | --------------------- |  | --------------------------- |  | ------------------------ | ------- | ------------------------------------------- | - | ------------------------- |  | --------------------------------------------------
|Name                        |  |                       |  | Land                        |  | Buildings & Improvements |         |                                             |   | Land                      |  | Buildings & Improvements                          
|APARTMENTS                  |  |                       |  |                             |  |                          |         |                                             |   |                           |  |                                                   
|Pinnacle Mountain View*     |  | Clearfield, UT        |  | 1998/1998                   |  |                          | 5,031   |                                             |   | 20,684                    |  |                                                   
|                            |  |                       |  |                             |  |                          |         |                                             |   |                           |  |                                                   
|Salt Lake City              |  |                       |  |                             |  |                          | 21,786  |                                             |   | 88,426                    |  |                                                   
|                            |  |                       |  |                             |  |                          |         |                                             |   |                           |  |                                                   
|The Landing at Bear Creek   |  | Lakewood, CO          |  | 1999/1996                   |  |                          | 3,666   |                                             |   | 14,777                    |  |                                                   
|Pinnacle Hunters Glen*      |  | Thornton, CO          |  | 1998/1998                   |  |                          | 4,485   |                                             |   | 17,908                    |  |                                                   
|Pinnacle at Mountain Gate   |  | Littleton, CO         |  | 2000/1999                   |  |                          | 8,371   |                                             |   | 33,687                    |  |                                                   
|Pinnacle at the Creek       |  | Centennial, CO        |  | 2002/2002                   |  |                          | 1,693   |                                             |   | 20,487                    |  |                                                   
|Pinnacle Denver Tech Center |  | Greenwood Village, CO |  | 2002/2002                   |  |                          | 2,953   |                                             |   | 24,250                    |  |                                                   
|                            |  |                       |  |                             |  |                          |         |                                             |   |                           |  |                                                   
|Denver                      |  |                       |  |                             |  |                          | 21,168  |                                             |   | 111,109                   |  |                                                   
|                            |  |                       |  |                             |  |                          |         |                                             |   |                           |  |                                                   
|Total                       |  |                       |  |                             |  | $                        | 386,671 |                                             | $ | 1,670,692                 |  | $                                                 
|                            |  |                       |  |                             |  |                          |         |                                             |   |                           |  |                                                   

---

|* |  | Property held by a consolidated subsidiary of the Company
|- |  | ---------------------------------------------------------

|** |  | These properties are also collateral for the loan shown on the Cimmaron property.
|-- |  | ---------------------------------------------------------------------------------



64



---



BRE
PROPERTIES, INC.



SCHEDULE III-REAL ESTATE
AND ACCUMULATED DEPRECIATION



December 31,
2002

(Amounts in thousands)



The activity in investments in rental properties and related depreciation for the three-year period ended
December 31, 2002 is as follows:



Investments in rental
properties:



|                                                                               |  | Years ended December 31, |          
|------------------------------------------------------------------------------ |  | ------------------------ | ---------
|                                                                               |  | 2002                     |          
|Balance at beginning of year                                                   |  | $                        | 1,790,283
|Multifamily communities purchased                                              |  |                          | 156,543  
|Transfers from construction in progress and other miscellaneous
capitalization |  |                          | 94,909   
|Consolidation of equity interests in real estate joint ventures                |  |                          | 139,382  
|Investments sold                                                               |  |                          | (51,934  
|Capital expenditures                                                           |  |                          | 5,728    
|Rehabilitation expenditures                                                    |  |                          | 9,049    
|                                                                               |  |                          |          
|Balance at end of year                                                         |  | $                        | 2,143,960
|                                                                               |  |                          |          
|                                                                              
|Accumulated Depreciation:                                                      |  |                          |          
|                                                                               |  | Years ended December 31, |          
|                                                                               |  | 2002                     |          
|Balance at beginning of year                                                   |  | $                        | 158,873  
|Depreciation expense                                                           |  |                          | 47,535   
|Other depreciation                                                             |  |                          | (2,434   
|Accumulated depreciation on investments sold                                   |  |                          | (5,682   
|                                                                               |  |                          |          
|Balance at end of year                                                         |  | $                        | 198,292  
|                                                                               |  |                          |          



65



---

INDEX TO EXHIBITS



|Exhibit Number |  |                                                                                                                                                                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.0            |  | Amended and Restated Articles of Incorporation (previously filed on March 15, 1996 as
Exhibit 3.1 to the Registrants Current Report on Form 8-K)                                                                                                                                                             
|              
|3.1            |  | Articles of Amendment (previously filed on April 28, 1997 as Exhibit 4.2 to the
Registrants Registration Statement on Form S-3 (No. 333-24915), as amended, and incorporated by reference herein)                                                                                                            
|              
|3.2            |  | Articles Supplementary of the Registrant, classifying and designating the terms of
the Series A Cumulative Redeemable Preferred Stock (previously filed on January 29, 1999 as Exhibit 4.1 to the Registrants Current Report on Form 8-K and incorporated by reference herein)                               
|              
|3.3            |  | Articles Supplementary of the Registrant, classifying and designating the terms of
the Series B Cumulative Redeemable Preferred Stock (previously filed on June 17, 2002 as Exhibit 1.5 of the Registrants Form 8-A)                                                                                         
|              
|3.4            |  | Certificate of Correction of the Registrant (previously filed on January 29, 1999 as
Exhibit 1.3 to the Registrants Form 8-A and incorporated by reference herein)                                                                                                                                           
|              
|3.5            |  | Amended and Restated By-Laws of the Registrant (previously filed on August 14, 1998
as Exhibit 3(ii) to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                                  
|              
|4.0            |  | Indenture dated as of June 23, 1997 between the Registrant and Chase Trust Company of
California (previously filed on June 23, 1997 as Exhibit 4.1 to the Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                       
|              
|4.1            |  | First Supplemental Indenture dated as of April 23, 1998 between the Registrant and
Chase Manhattan Bank and Trust Company, National Association, as successor trustee (previously filed on May 14, 1998 as Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)
|              
|4.2            |  | Form of Note due 2007 (previously filed on June 23, 1997 as Exhibit 4.2 to the
Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                                                                                                  
|              
|4.3            |  | Form of Note due 2013 (previously filed on February 24, 1998 as Exhibit 4.2 to the
Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                                                                                              
|              
|4.4            |  | Form of Note due 2011 (previously filed on January 12, 2001 as Exhibit 4.1 to the
Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                                                                                               
|              
|4.5            |  | Form of Note due 2007 (previously filed on March 13, 2002 as Exhibit 4.2 to the
Registrants Current Report on Form 8-K)                                                                                                                                                                                      
|              
|4.6            |  | Form of Note due 2009 (previously filed on August 26, 2002 as Exhibit 4.2 to the
Registrants Current Report on Form 8-K)                                                                                                                                                                                     
|              
|4.7            |  | Specimen Common Stock Certificate (previously filed on April 10, 1997 as Exhibit 4.10
to the Registrants Registration Statement on Form S-3)                                                                                                                                                                 
|              
|4.8            |  | Specimen Series A Cumulative Redeemable Preferred Stock Certificate (previously filed
on January 29, 1999 as Exhibit 1.5 to the Registrants Form 8-A)                                                                                                                                                        
|              
|4.9            |  | Specimen Series B Cumulative Redeemable Preferred Stock Certificate (previously filed
on June 17, 2002 as Exhibit 1.6 to the Registrants Form 8-A)                                                                                                                                                           
|              
|10.0           |  | Amended and Restated 1992 Employee Stock Plan (previously filed on November 14, 1997
as Exhibit 10.45 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                                 
|              
|10.1           |  | First Amendment to BRE Properties, Inc. Amended and Restated 1992 Employee Stock Plan
(previously filed on November 8, 2002 as Exhibit 10.4 of the Registrants Quarterly Report on Form 10-Q)                                                                                                                



---

|Exhibit Number |  |                                                                                                                                                                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2           |  | 1992 Payroll Investment Plan (previously filed on October 19, 1992 in the Exhibits to
the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                                                   
|              
|10.3           |  | Amended and Restated Non-Employee Director Stock Option Plan (previously filed on
March 12, 2001 as Exhibit 10.59 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                    
|              
|10.4           |  | First Amendment to the Amended and Restated Non-Employee Director Stock Option Plan
(previously filed on March 12, 2001 as Exhibit 10.60 to the Registrants Annual Report onForm 10-K and incorporated by reference herein)                                                              
|              
|10.5           |  | Second Amendment to the Amended and Restated Non-Employee Director Stock Option Plan
(previously filed on November 8, 2002 as Exhibit 10.2 of the Registrants Quarterly Report on Form 10-Q)                                                                                             
|              
|10.6           |  | 1999 BRE Stock Incentive Plan (previously filed on August 16, 1999 as Exhibit 10.1 to
the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                                
|              
|10.7           |  | First amendment to the 1999 BRE Stock Incentive Plan (previously filed on March 12,
2001 as Exhibit 10.51 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                            
|              
|10.8           |  | Second amendment to the 1999 BRE Stock Incentive Plan (previously filed on March 12,
2001 as Exhibit 10.52 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                           
|              
|10.9           |  | Third Amendment to 1999 BRE Stock Incentive Plan (previously filed on November 8,
2002 as Exhibit 10.3 of the Registrants Quarterly Report on Form 10-Q)                                                                                                                                 
|              
|10.10          |  | Dividend Reinvestment Plan (previously filed on August 9, 1996 in the
Registrants Registration Statement on Form S-3 (File No. 333-09945) and incorporated by reference herein)                                                                                                          
|              
|10.11          |  | BRE Properties Inc. Deferred Compensation Plan effective January 1, 2000 (previously
filed on March 14, 2000 as Exhibit 10.43 to the Registrants Annual Report on Form 10-K, as amended by the Annual Report on Form 10-K/A filed on August 4, 2000 and incorporated by reference herein)
|              
|10.12          |  | Employment Agreement with LeRoy E. Carlson dated March 15, 1996 (previously filed on
December 22, 1995 in the Registrants Form S-4 (File No. 333-65365) and incorporated by reference herein)                                                                                            
|              
|10.13          |  | Employment Agreement with Edward F. Lange, Jr. dated June 23,
2000                                                                                                                                                                                                                        
|              
|10.14          |  | Employment Agreement with Bradley P. Griggs dated December 8, 2001 (previously filed
onMarch 12, 2001 as Exhibit 10.57 to the Registrants Annual Report on Form 10-K)                                                                                                                    
|              
|10.15          |  | Employment Agreement with Frank C. McDowell dated January 24, 2001 (previously filed
onMarch 12, 2001 as Exhibit 10.58 to the Registrants Annual Report on Form 10-K)                                                                                                                    
|              
|10.16          |  | Employment Agreement with Deirdre A. Kuring dated October 25, 2002 (previously filed
on February 27, 2002 as Exhibit 10.53 to the Registrants Annual Report on Form 10-K)                                                                                                                
|              
|10.17          |  | Employment Agreement with Constance B. Moore dated July 11, 2002 (previously filed on
November 8, 2002 as Exhibit 10.1 of the Registrants Quarterly Report on Form 10-Q)                                                                                                                 
|              
|10.18          |  | Form of deferred compensation agreement with Eugene P. Carver (previously filed on
October 13, 1994 as Exhibit 10.10 to the Registrants Annual Report Form 10-K and incorporated by reference herein)                                                                                    
|              
|10.19          |  | Form of Indemnification Agreement (previously filed on February 27, 2002 as Exhibit
10.53 to the Registrants Annual Report on Form 10-K)                                                                                                                                                 
|              
|10.20          |  | Treasury Lock Swap Transaction (previously filed on November 14, 1996 as Exhibit
10.16 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                            



---

|Exhibit Number |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.21          |  | Treasury rate guarantee hedge with Morgan Stanley, dated November 21, 1997
(previously filed on March 26, 1998 as Exhibit 10.36 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                                                                                                                              
|              
|10.22          |  | Loan Agreement between The Prudential Insurance Registrant of America, as Lender and
Real Estate Investment Trust of California, as Borrower, dated as of January 31, 1994 (previously filed on February 19, 1997 as Exhibit 10.30 to the Registrants Form 10-K, as amended by the Report on the Registrants Annual Report on Form
10-K/A filed on April 25, 1997 and incorporated by reference herein)         
|              
|10.23          |  | First Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and Real Estate Investment Trust of California, dated July 7, 1995 (previously filed on February 19, 1997 as Exhibit 10.31 to the Registrants Annual Report on Form 10-K, as amended by the Annual Report on the Registrants Form
10-K/A filed on April 25, 1997 and incorporated by reference herein)             
|              
|10.24          |  | Second Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated April 30, 1996 (previously filed on February 19, 1997 as Exhibit 10.32 to the Registrants Annual Report on Form 10-K, as amended by the Annual Report on the Registrants Form 10-K/A filed on April 25,
1997 and incorporated by reference herein)                                      
|              
|10.25          |  | Third Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated November 20, 1996 (previously filed on February 19, 1997 as Exhibits 10.33 to the Registrants Annual Report on Form 10-K, as amended by the Report on the Registrants Annual Report on Form 10-K/A filed on
April 25, 1997 and incorporated by reference herein)                         
|              
|10.26          |  | Fourth Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated February 25, 1997 (previously filed on August 12, 1997 as Exhibit 10.37 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                                           
|              
|10.27          |  | Fifth Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated June 30, 1997 (previously filed on August 12, 1997 asExhibit 10.39 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                                                 
|              
|10.28          |  | Loan Agreement between The Prudential Insurance Company of America, as Lender and
Real Estate Investment Trust of California, as Borrower, dated as of July 7, 1995 (previously filed onFebruary 19, 1997 as Exhibit 10.34 to the Registrants Annual Report on Form 10-K, as amended by the Report on the Registrants
Annual Report on Form 10-K/A filed on April 25, 1997 and incorporated by reference herein)
|              
|10.29          |  | First Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant dated April 30, 1996 (previously filed on February 19, 1997 asExhibit 10.35 to the Registrants Annual Report on Form 10-K, as amended by the Annual Report on the Registrants Form 10-K/A filed on April 25,
1997 and incorporated by reference herein)                                         
|              
|10.30          |  | Second Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated November 20, 1996 (previously filed on February 19, 1997 as Exhibit 10.36 to the Registrants Annual Report on Form 10-K, as amended by the Annual Report on the Registrants Form 10-K/A filed on April 25,
1997 and incorporated by reference herein)                                   
|              
|10.31          |  | Third Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated February 25, 1997 (previously filed on August 12, 1997 as Exhibit 10.38 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                                                            



---

|Exhibit Number |  |                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.32          |  | Fourth Amendment to Loan Agreement by and between The Prudential Insurance Company of
America and the Registrant, dated June 30, 1997 (previously filed on August 12, 1997 asExhibit 10.40 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                
|              
|10.33          |  | Second Amended and Restated Unsecured Line of Credit Loan Agreement by and among the
Registrant, Bank of America, N.A., and certain banks as parties thereto, dated December 19, 2000 (previously filed on March 12, 2001 as Exhibit 10.53 to the Registrants Annual Report onForm 10-K and incorporated by reference
herein)                                    
|              
|10.34          |  | Side Letter Agreement by and among the Registrant, Bank of America, N.A. and certain
banks as parties thereto, dated January 11, 2001 (previously filed on March 12, 2001 as Exhibit 10.54 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                   
|              
|10.35          |  | Amended and Restated Limited Liability Company Agreement of BRE Property Investors
LLC, dated as November 18, 1997 (previously filed on December 18, 1997 as Exhibit 10.1 to the Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                                                    
|              
|10.36          |  | Contribution Agreement dated as of September 29, 1997 between the Registrant, BRE
Property Investors LLC and the TCR Signatories (previously filed on November 14, 1997 as Exhibit 10.44 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                                  
|              
|10.37          |  | The Registration Rights Agreement among the Registrant, BRE Property Investors LLC
and the other signatories thereto dated November 18, 1997 (previously filed on December 3, 1997 as Exhibit 4.6 to the Registrants Registration Statement on Form S-3 (No. 333-41433), as amended, and incorporated by reference
herein)                                       
|              
|10.38          |  | The Registration Rights Agreement between the Registrant and Legg Mason Unit
Investment Trust Series 7, Legg Mason REIT Trust, December 1998 Series, dated as of December 23, 1997, (previously filed on January 27, 1998 as Exhibit 4.6 of the Registrants Registration Statement on Form S-3 (No. 333-44997), as amended, and
incorporated by reference herein)
|              
|10.39          |  | Purchase and Sale Agreement by and between the Registrant and G&I III Residential
One LLC dated July 10, 2000 (previously filed on September 8, 2000 as Exhibit 2.1 to the Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                                                          
|              
|10.40          |  | Amendment No. 1 to the Purchase and Sale Agreement by and between the Registrant and
G&I III Residential One LLC dated September 6, 2000 (previously filed on September 28, 2000 asExhibit 2.1 to the Registrants Current Report on Form 8-K and incorporated by reference herein)                                                                               
|              
|10.41          |  | Amendment No. 2 to the Purchase and Sale Agreement by and between the Registrant and
G&I III Residential One LLC dated October 24, 2000 (previously filed on November 14, 2000 asExhibit 10.3 to the Registrants Quarterly Report on Form 10-Q and incorporated by reference herein)                                                                             
|              
|10.42          |  | Amendment No. 3 to the Purchase and Sale Agreement by and between the Registrant and
G&I III Residential One LLC dated January 31, 2001 (previously filed on March 12, 2001 as Exhibit 10.50 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                 
|              
|10.43          |  | Office Lease between OTR, an Ohio general partnership and the Registrant dated
September 26, 1997 (previously filed on March 26, 1998 as Exhibit 10.37 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                                                       
|              
|10.44          |  | Promissory Note payable by BRE Properties, Inc. to the order of Prudential
Multifamily Mortgage, Inc. dated September 28, 2000 (previously filed on March 12, 2001 as Exhibit 10.55 to the Registrants Annual Report on Form 10-K and incorporated by reference herein)                                                                                          
|              
|10.45          |  | Retirement Plan for Employees of BRE Properties, Inc                                                                                                                                                                                                                                                                                                              
|              
|12             |  | Statements re: computation of ratios                                                                                                                                                                                                                                                                                                                              
|              
|21             |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                    
|              
|23             |  | Consent of Ernst & Young LLP