<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
COLLEGE PARK COMMUNITIES TRUST
(Exact Name of Registrant as Specified in Its Governing Instruments)
--------------------------
353 WEST LANCASTER AVENUE
SUITE 210
WAYNE, PENNSYLVANIA 19087
(610) 687-6321
(Address of Principal Executive Offices)
--------------------------
BRUCE F. ROBINSON
COLLEGE PARK COMMUNITIES TRUST
353 WEST LANCASTER AVENUE
SUITE 210
WAYNE, PENNSYLVANIA 19087
(610) 687-6321
(Name, Address and Telephone Number of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
Donald C. Walkovik, Esq. John F. Bales, III,Esq. Yaacov M. Gross, Esq.
Sullivan & Cromwell David R. King, Esq. Willkie Farr & Gallagher
125 Broad Street Morgan, Lewis & Bockius LLP One Citicorp Center
New York, NY 10004 2000 One Logan Square 153 East 53rd Street
Philadelphia, PA 19103 New York, NY 10022
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _____________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES BEING REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE(2)
<S> <C> <C>
Common Shares of Beneficial Interest, par value $.01 per
share......................................................... $184,000,000 $54,280
</TABLE>
(1) Includes exercise of the Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SHARES
COLLEGE PARK COMMUNITIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $.01 PER SHARE)
--------------------------
College Park Communities Trust, a Maryland real estate investment trust, was
formed to capitalize on what the Company believes is a growing shortage of
student housing in the United States. The Company's strategy is to own, acquire,
develop and manage attractive, high-quality off-campus student housing in
locations near colleges and universities throughout the United States and to
pursue selected opportunities to cooperate with colleges and universities in
developing private-sector owned, leased or managed student housing. The Company
intends to pay regular quarterly distributions to its shareholders, beginning
with a pro-rated distribution for the quarter ending June 30, 1998.
All of the Shares offered hereby are being sold by the Company. Prior to
this Offering, there has been no public market for the Shares. It is currently
anticipated that the initial public offering price per Share will be between $
and $ . For factors to be considered in determining the initial public offering
price, see "Underwriting." Upon completion of the Offering, the Continuing
Investors, which will include affiliates of Goldman, Sachs & Co., will own a
52.6% interest in the Operating Partnership. Application will be made to list
the Shares on the New York Stock Exchange under the symbol "XCP."
SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THIS PROSPECTUS FOR A DISCUSSION
OF MATERIAL RISKS RELEVANT TO AN INVESTMENT IN THE SHARES, INCLUDING:
- - The Company's lack of operating history, management's lack of experience in
operating a real estate investment trust, the potential lack of suitable
acquisition and development opportunities and the possibility that existing
and future acquisition and development properties will not perform as
expected.
- - Lack of operating history for certain of the Properties.
- - General real estate investment risks, including the possible adverse impact of
economic and other conditions.
- - Operating risks inherent in the student housing industry.
- - Risks associated with the development and construction of student housing.
- - Actual Cash Available for Distribution (as defined herein) may be insufficient
to allow the Company to maintain its distribution rate.
- - Risks associated with borrowing, including the possible inability to refinance
or make balloon payments on outstanding indebtedness and the inability to
predict interest rates on amounts to be borrowed after the Offering.
- - Potential conflicts of interest between the Company and certain officers,
trustees and Continuing Investors, including conflicts associated with sales
and refinancings of the Properties, operating the Company and leasing the Food
Service Spaces (as defined herein), which could result in decisions that do
not fully represent the interests of all shareholders.
- - Dependence on key personnel, particularly the Company's Chief Executive
Officer, Chief Financial Officer and Chief Operating Officer.
- - Absence of a limitation on the amount of indebtedness the Company can incur.
- - The taxation of the Company as a regular corporation if it fails to qualify as
a REIT (as defined herein), and the potential impact of pending or future
legislation affecting the taxation of REITs.
- - Anti-takeover effects of restrictions on the ownership of Shares to 9.8% of
the total Shares outstanding.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY(2)
-------------- ------------- -------------
<S> <C> <C> <C>
Per Share................................................................ $ $ $
Total (3)................................................................ $ $ $
</TABLE>
- --------------------------
(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $1.5 million payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional Shares at the initial public offering price per
Share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total Initial Public Offering Price,
Underwriting Discount and Proceeds to Company will be $-, $- and $-,
respectively. See "Underwriting."
------------------------------
The Shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the Shares will be ready for delivery in New York, New York on or about
, 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. [CO-MANAGERS]
----------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(MAP) AND (FOLD-OUT) (PICTURES)
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION................................................................ iv
FORWARD-LOOKING STATEMENTS........................................................... iv
PROSPECTUS SUMMARY................................................................... 1
The Company...................................................................... 1
Summary Risk Factors............................................................. 4
Objectives and Strategies........................................................ 5
The Properties................................................................... 6
Summary Selected Financial Information........................................... 9
Structure of the Company......................................................... 11
Management Subsidiary............................................................ 12
The Formation Transactions....................................................... 12
Benefits to the Continuing Investors............................................. 12
Benefits to the Company.......................................................... 14
Restrictions on Ownership........................................................ 14
Tax Considerations and Tax Status of the Company................................. 14
The Offering..................................................................... 15
RISK FACTORS......................................................................... 16
Lack of Operating History; Risks Associated with Growth.......................... 16
Real Estate Investment Risks..................................................... 16
Operating Risks Inherent in the Student Housing Industry; Seasonality............ 18
Risks of Development and Construction Activities................................. 18
Ability to Maintain Initial Distribution Rate.................................... 19
Real Estate Financing Risks...................................................... 19
Potential Conflicts of Interest.................................................. 20
Dependence on Key Personnel...................................................... 22
Taxation of the Company as a REIT; Other Tax Consequences........................ 23
Limitations on Size of Holdings of Shares of Beneficial Interest and Change in
Control......................................................................... 23
Changes in Policies.............................................................. 25
No Prior Market for the Shares................................................... 25
Possible Adverse Effects on Share Price Arising from Shares Available for Future
Sale............................................................................ 25
Effect of Interest Rates on Prices of Shares..................................... 26
Dilution......................................................................... 26
No Limitation on Debt............................................................ 26
Possible Environmental Liabilities............................................... 27
THE COMPANY.......................................................................... 28
General.......................................................................... 28
Objectives and Strategies........................................................ 30
THE STUDENT HOUSING MARKET........................................................... 33
Overview of Student Demographic Patterns......................................... 33
Status of the On-Campus Student Housing Market................................... 34
Supply of Student Housing........................................................ 36
USE OF PROCEEDS...................................................................... 37
DISTRIBUTIONS........................................................................ 38
CAPITALIZATION....................................................................... 39
DILUTION............................................................................. 40
SELECTED FINANCIAL INFORMATION....................................................... 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................... 43
Overview......................................................................... 43
Results of Operations............................................................ 43
Liquidity and Capital Resources.................................................. 46
Funds from Operations............................................................ 47
Inflation and Seasonality........................................................ 47
BUSINESS OF THE COMPANY AND ITS PROPERTIES........................................... 49
The Company's Properties......................................................... 49
Properties....................................................................... 52
Managed Properties............................................................... 66
Development Properties........................................................... 66
Pending Acquisitions............................................................. 67
Terms of Student Leases.......................................................... 68
Food Services Space Lease with Food Service Operator............................. 69
Relationship Between Housekeeping Operator and the Company....................... 71
Governmental Regulations Affecting the Properties................................ 71
Insurance Coverage............................................................... 72
Competition...................................................................... 72
Employees........................................................................ 73
Legal Proceedings................................................................ 73
MORTGAGE DEBT AND CREDIT FACILITY.................................................... 74
Mortgage Indebtedness............................................................ 74
Credit Facility.................................................................. 74
POLICIES AND OBJECTIVES IN RESPECT OF CERTAIN ACTIVITIES............................. 75
Investment Policies and Objectives............................................... 75
Financing Policies and Objectives................................................ 76
Policies and Objectives in Respect of Other Activities........................... 77
Prohibited Investments and Activities; Conflict of Interest Policies............. 77
Working Capital Reserves......................................................... 78
Declaration of Trust and Bylaw Provisions........................................ 78
MANAGEMENT........................................................................... 79
Trustees and Executive Officers of the Company................................... 79
Classification and Election of the Board of Trustees............................. 80
Committees of the Board of Trustees.............................................. 81
Compensation of Trustees......................................................... 81
Executive Compensation........................................................... 81
Employment Agreements............................................................ 82
Compensation Programs............................................................ 82
Limitation of Liability and Indemnification...................................... 84
CONFLICTS OF INTEREST................................................................ 86
General.......................................................................... 86
Potential Conflicts of Interest.................................................. 86
Steps Taken by the Company to Address Potential Conflicts of Interest............ 88
THE FORMATION TRANSACTIONS........................................................... 88
Management Subsidiary............................................................ 88
Formation Transactions........................................................... 89
Benefits to the Continuing Investors............................................. 89
Benefits to the Company.......................................................... 91
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
No Appraisals; Allocation of Consideration in the Formation Transactions......... 91
RELATIONSHIP BETWEEN FOOD SERVICE OPERATOR AND THE COMPANY
AFTER THE FORMATION TRANSACTIONS................................................... 91
CERTAIN RELATIONSHIPS AND TRANSACTIONS............................................... 92
THE OPERATING PARTNERSHIP............................................................ 94
General.......................................................................... 94
Certain Provisions of the Partnership Agreement.................................. 94
Management....................................................................... 94
Transferability of Interests..................................................... 94
Awards Under Equity Plans........................................................ 95
Tax Matters...................................................................... 95
Allocation of Net Income or Net Loss............................................. 95
Operations....................................................................... 95
Term............................................................................. 95
Exchange of Partnership Units.................................................... 95
PRINCIPAL SHAREHOLDERS OF THE COMPANY................................................ 97
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST......................................... 98
General.......................................................................... 98
Common Shares.................................................................... 98
Preferred Shares................................................................. 99
Power to Issue Additional Shares and Preferred Shares............................ 99
Restrictions on Size of Holdings of Shares....................................... 99
PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S
DECLARATION OF TRUST AND BYLAWS.................................................... 102
Classification and Election of the Board of Trustees............................. 102
Removal of Trustees.............................................................. 102
Business Combinations............................................................ 102
Control Share Acquisitions....................................................... 103
Amendment to the Declaration of Trust............................................ 103
Dissolution of the Company....................................................... 104
Advance Notice of Trustee Nominations and New Business........................... 104
Anti-takeover Effect of Certain Provisions of Maryland Law and of
the Declaration of Trust and Bylaws............................................
Maryland Asset Requirements...................................................... 104
SHARES AVAILABLE FOR FUTURE SALE..................................................... 104
FEDERAL INCOME TAX CONSIDERATIONS.................................................... 106
Taxation of the Company as a REIT................................................ 106
Taxation of Holders of Shares.................................................... 111
Other Tax Consequences........................................................... 115
UNDERWRITING......................................................................... 116
EXPERTS.............................................................................. 117
VALIDITY OF THE SHARES............................................................... 117
GLOSSARY............................................................................. 118
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Shares offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and financial schedules thereto. For
further information with respect to the Company and the Shares offered hereby,
reference is made to the Registration Statement and such exhibits and financial
schedules filed therewith. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
For further information with respect to the Company and the Shares,
reference is made to the Registration Statement and such exhibits and financial
schedules, copies of which may be examined without charge at, or copies obtained
upon payment of prescribed fees from, the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission also maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file documents with the Commission, including the Company, and the address
is http://www.sec.gov. Moreover, application will be made to list the Shares on
the New York Stock Exchange (the "NYSE"). Accordingly, upon official notice of
issuance, periodic reports, proxy material, and other information concerning the
Company, when filed, may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Following the closing of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and will, therefore, be required to file reports, proxy
and information statements and other information with the Commission pursuant to
the reporting requirements of Section 13(a) thereof, in addition to any other
legal or NYSE requirements. Such reports, statements and information can also be
inspected and copied at the Commission's offices and web site listed above.
The Company currently intends to furnish its shareholders with annual
reports containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
FORWARD-LOOKING STATEMENTS
THE STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT HISTORICAL FACTS OR
STATEMENTS OF CURRENT CONDITION ARE FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "FORECASTS,"
"ESTIMATES," "INTENDS," "SEEKS," "CONTINUES," "MAY," "WILL," "SHOULD" OR
"ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, OR BY DISCUSSIONS OF THE COMPANY'S OBJECTIVES OR STRATEGIES THAT
INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS, SUCH AS
STATEMENTS REGARDING ANTICIPATED OR BUDGETED FUTURE REVENUES, RETURNS ON COST
AND EQUITY, CAPITAL EXPENDITURES, DEVELOPMENT, CONSTRUCTION, ACQUISITION,
MANAGEMENT AND LEASING ACTIVITIES, POTENTIAL TAX LAW CHANGES, PROJECTED
COLLEGE-AGE POPULATION AND ENROLLMENT, STUDENT HOUSING REQUIREMENTS AND
PREFERENCES AND OTHER STATEMENTS REGARDING MATTERS THAT ARE NOT HISTORICAL
FACTS, INVOLVE PREDICTIONS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED
BY, THESE FORWARD-LOOKING STATEMENTS. POTENTIAL RISKS AND UNCERTAINTIES THAT
COULD AFFECT THE COMPANY'S FUTURE RESULTS OR PERFORMANCE INCLUDE, BUT ARE NOT
LIMITED TO, THE RISKS SET FORTH UNDER "RISK FACTORS" HEREIN AND ECONOMIC
CONDITIONS, INCLUDING ECONOMIC CONDITIONS RELATED TO THE REAL ESTATE AND STUDENT
HOUSING INDUSTRY. GIVEN THESE RISKS AND UNCERTAINTIES, POTENTIAL INVESTORS ARE
CAUTIONED AGAINST PLACING UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.
THE COMPANY DOES NOT INTEND, AND DISCLAIMS ANY OBLIGATION, TO ISSUE ANY PUBLIC
STATEMENT OR ANNOUNCEMENT UPDATING ANY FORWARD-LOOKING STATEMENT.
iv
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES (A) AN
INITIAL PUBLIC OFFERING PRICE OF $ - PER SHARE (THE MID-POINT OF THE RANGE
OF THE ESTIMATED INITIAL PUBLIC OFFERING PRICES SET FORTH ON THE FRONT COVER OF
THIS PROSPECTUS); (B) THE CONSUMMATION OF THE FORMATION TRANSACTIONS (AS DEFINED
HEREIN); (C) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; (D) THAT
THE PENDING ACQUISITIONS (AS DEFINED) HAVE NOT BEEN COMPLETED; (E) THAT ALL
LIMITED PARTNERSHIP INTERESTS ("UNITS") IN THE OPERATING PARTNERSHIP (AS DEFINED
HEREIN) OWNED BY THE CONTINUING INVESTORS (AS DEFINED HEREIN) HAVE BEEN
EXCHANGED FOR SHARES; AND (F) A - -FOR-ONE STOCK SPLIT TO BE EFFECTIVE PRIOR TO
THE CONSUMMATION OF THE OFFERING. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES IN THIS PROSPECTUS TO (1) THE "COMPANY" SHALL MEAN COLLEGE PARK
COMMUNITIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST, AND, IF THE CONTEXT
REQUIRES, THE OPERATING PARTNERSHIP, THE PREDECESSOR PARTNERSHIPS (AS DEFINED
HEREIN) AND THE MANAGEMENT SUBSIDIARY (AS DEFINED HEREIN) ON A CONSOLIDATED
BASIS; (2) THE "PREDECESSOR PARTNERSHIPS" SHALL MEAN ONE OR ALL, AS THE CONTEXT
REQUIRES, OF THE LIMITED PARTNERSHIPS AND THE LIMITED LIABILITY COMPANIES THAT
OWNED THE PROPERTIES (AS DEFINED HEREIN) PRIOR TO THE FORMATION TRANSACTIONS;
(3) THE "OPERATING PARTNERSHIP" SHALL MEAN COLLEGE PARK COMMUNITIES, L.P., A
DELAWARE LIMITED PARTNERSHIP; (4) THE "OFFERING" SHALL MEAN THE OFFERING OF THE
COMPANY'S COMMON SHARES OF BENEFICIAL INTEREST, PAR VALUE $.01 PER SHARE (THE
"SHARES"), PURSUANT TO THIS PROSPECTUS; AND (5) "ON-CAMPUS," WHEN USED TO REFER
TO AVAILABLE STUDENT HOUSING, SHALL MEAN THE TOTAL NUMBER OF TRADITIONAL
DORMITORIES, RESIDENCE HALLS OR APARTMENTS LOCATED ON A COLLEGE OR UNIVERSITY
CAMPUS AND ANY OTHER ON OR OFF-CAMPUS STUDENT HOUSING OTHERWISE OWNED OR
CONTROLLED BY COLLEGES OR UNIVERSITIES OR FRATERNITIES, SORORITIES OR CLUBS
AFFILIATED WITH COLLEGES OR UNIVERSITIES. CERTAIN CAPITALIZED TERMS USED HEREIN
ARE DEFINED BELOW WITH A DETAILED DEFINITION ALSO SET FORTH IN THE GLOSSARY
BEGINNING ON PAGE 118.
THE COMPANY
The Company was formed to continue the Predecessor Partnerships' business
and to capitalize on what the Company believes is a growing shortage of student
housing in the United States. The Company's principal business strategy is to
own, acquire, develop and manage attractive, high quality off-campus student
housing in locations near colleges and universities throughout the United States
and to pursue selected opportunities to cooperate with colleges and universities
in developing private-sector owned, leased or managed student housing. The
Company believes that it is the largest private-sector owner and operator of
off-campus student housing in the United States, based on the number of student
apartments, bedrooms and beds owned or under management.
The Company believes that there are substantial opportunities in the
private-sector student housing business because of the projected growth in
student enrollment and the demand for high quality student housing and premium
student housing services. According to the Association of College and University
Housing Officers-International Membership Directory for 1998, student enrollment
at 64 major colleges and universities surveyed was approximately 1,720,000 while
the total on-campus student housing capacity at those institutions was only
approximately 375,000, or approximately 21.8% of the total number of students.
In addition, according to the U.S. Department of Education's National Center for
Educational Statistics ("NCES"), enrollment at four-year institutions of higher
education in the United States is projected to increase from 8,582,000 students
in 1997 to 9,938,000 students in 2007, an increase of approximately 15.8%,
compared to an increase of 8.4% from 1986 to 1996. The Company further believes
that due to budgetary constraints, colleges and universities have not
sufficiently expanded, renovated or modernized existing on-campus student
housing to meet this demand. The Company also believes that many college and
university students favor a distinctive student housing product that offers
functional units with specific amenities and services designed to meet their
particular lifestyles and needs.
1
<PAGE>
To focus on this market, the Company seeks to own, acquire, develop and
manage premium student housing located near colleges or universities. The
Properties (as defined) include both high-rise and mid-rise residence halls, and
garden-style apartment complexes. Amenities offered vary by Property, but
include those commonly sought by students, such as private bedrooms, high
quality student furnishings, fitness centers, swimming pools, air conditioning,
computer centers and study rooms. At various properties, the Company also
provides, or makes available through affiliates or third parties, either
kitchens or convenient food service facilities and a range of value-added
services such as linen and laundry services, housecleaning services, private
telephones, cable television, vending machines, moving services and wellness
programs.
The Company also believes that, because of the structural and functional
obsolescence of many existing on-campus student housing facilities, future
opportunities may exist to establish joint ventures with colleges and
universities to manage, lease, renovate or develop on-campus student housing,
although it has not yet entered into any such arrangements.
Upon the completion of the Formation Transactions, the Company will own a
diverse portfolio (the "Properties") of off-campus student housing located
within close proximity to 23 major colleges and universities in 17 states. The
portfolio will include over 6,300 student apartment units and approximately
19,450 beds in 32 residential student housing complexes located throughout the
United States. In addition, the Company will also manage two off-campus
properties (the "Managed Properties") with a total of 743 student apartment
units and approximately 2,200 beds. The Company also is developing two
off-campus student housing sites (the "Development Properties") that, when
completed, will include 480 garden-style student apartment units and
approximately 1,600 beds. The construction of such Development Properties is
being conducted by an affiliated construction company. The Operating Partnership
has also entered into agreements to purchase an additional property and certain
rights, including the management rights, to a second property. The Company
believes that, following the Offering, it will be the only self-administered and
self-managed publicly-traded real estate investment trust ("REIT") in the United
States focusing on owning, acquiring, developing and managing student housing.
The Predecessor Partnerships have completed acquisitions totaling
approximately $355.0 million, exclusive of development projects and transaction
costs, since December 19, 1995. These acquisitions include six student-housing
properties acquired on December 30, 1997 for an aggregate purchase price of
$115.5 million (the "JPI Acquisition"), and one additional property acquired on
January 5, 1998 for an aggregate purchase price of $8.8 million (the "Glenmorris
Acquisition," and together with the JPI Acquisition, the "Recent Acquisitions").
On February 26, 1998, the Operating Partnership entered into a purchase
agreement to acquire a property in Austin, Texas for a purchase price of $8.0
million and entered into an agreement to acquire certain rights, obligations and
liabilities with respect to a second property in Austin, Texas (including the
rights of the seller under an installment sale agreement and the right to manage
such property) for a purchase price of $3.8 million (collectively, the "Pending
Acquisitions"). The Pending Acquisitions are subject to certain conditions, and
there can be no assurance that such property or rights will be acquired.
As of December 31, 1997, the Properties and the Managed Properties were,
collectively, approximately 93.1% occupied compared to 93.0% occupied as of
December 31, 1996. For those 13 properties that the Predecessor Partnerships
have owned or managed as of December 31, 1996, occupancy rates have decreased
from approximately 97.3% as of December 31, 1996 to approximately 92.4% as of
December 31, 1997. Revenues for those 13 properties, however, increased from
approximately $19.7 million for the year ended December 31, 1996 to
approximately $20.4 million for the year ended December 31, 1997. For the nine
Properties that the Predecessor Partnerships owned as of December 31, 1995,
occupancy rates were 96.9%, 96.5% and 88.9% as of December 31, 1995, 1996 and
1997, respectively. The Company believes that the declines in occupancy rates
were the result of a variety of factors, including local and regional management
problems during the ownership transition period and,
2
<PAGE>
in respect of certain properties, the failure of local and regional property
managers to adequately respond to newly constructed off-campus housing complexes
located near such properties. The Company is focusing on increasing occupancy
rates and has replaced local and regional property managers where appropriate.
The Company is negotiating to obtain a commitment from a major financial
institution (the "Bank") regarding a revolving credit facility that will provide
for borrowings in an amount up to $250 million (the "Credit Facility"). The
Company expects the Credit Facility to take effect concurrently with the closing
of the Offering and intends to use borrowings under the Credit Facility to repay
indebtedness and to fund acquisition, construction, development and renovation
costs of student housing and for working capital and other corporate purposes.
The Company currently intends to maintain a capital structure that limits
consolidated debt to less than 50% of its total market capitalization (i.e.,
total debt of the Company as a percentage of the sum of the Company's equity
market value and total debt, hereinafter, "Debt-to-Total-Market Capitalization
Ratio"). The Company may, however, from time to time change such expected ratio
without prior public announcement, and such ratio is expected to change as the
Company completes significant acquisitions. Following the Offering, the Company
is expected to have $129.6 million of outstanding indebtedness and a pro forma
Debt-to-Total-Market Capitalization Ratio of 27.7%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources" and "Policies and Objectives in Respect of Certain
Activities--Financing Policies and Objectives."
The Company is led by a senior management team with experience in both the
real estate and student housing industries and is supported by a highly
experienced Board of Trustees. Gary M. Holloway, the Chairman of the Board of
Trustees and Chief Executive Officer of the Company, and two of the Company's
other senior executives have over 50 years combined experience in various
aspects of the real estate business. In addition, Mr. Holloway has been involved
in the student housing industry since 1985 and, together with Whitehall (as
defined) and other affiliates of Goldman, Sachs & Co., has been acquiring,
renovating, developing and managing student housing since December 1995.
The Company expects to qualify as a REIT for Federal income tax purposes
commencing with its tax year ending December 31, 1998. In order to qualify as a
REIT, a specified percentage of the Company's gross income must be derived from
certain sources, including rents from real property (and generally excluding
income from the operation of non-rental related assets). See "Federal Income Tax
Considerations--Taxation of the Company as a REIT--Requirements for
Qualification--Income Tests." Accordingly, the Company is generally precluded
from operating non-rental related assets such as the cafeteria and food services
(the "Food Services") through facilities located on certain of the Company's
Properties (the "Food Service Spaces"). As a result, the Food Services will be
conducted by College Food Services, L.L.C. (the "Food Service Operator"), a
limited liability company owned by, among others, Gary M. Holloway and certain
other Continuing Investors. The Operating Partnership will lease the Food
Service Spaces required for the Food Service Operator to operate the Food
Services pursuant to a negotiated lease arrangement (the "Food Service Space
Lease"). See "Business of the Company and its Properties--Food Service Space
Lease with Food Services Operator" and "Relationship Between Food Service
Operator and the Company after the Formation Transactions." In addition, as a
REIT, the Company is precluded from providing housekeeping services to tenants.
As a result the housekeeping services at the Properties will be conducted by
College Maid Services, L.L.C. (the "Housekeeping Operator"), a limited liability
company owned by, among others, Gary M. Holloway and certain other Continuing
Investors. The Company will not derive or receive any income from the
Housekeeping Operator. The Company's third party student housing management
services are provided by the Management Subsidiary. See "The Formation
Transactions--Management Subsidiary."
3
<PAGE>
SUMMARY RISK FACTORS
Prospective investors should carefully consider, among other factors, the
material risks discussed under "Risk Factors" prior to making an investment
decision regarding the Shares offered hereby. Such material risks include:
- The Company's lack of operating history, management's lack of experience
in operating in accordance with the requirements for maintaining the
Company's qualification as a REIT, the potential lack of suitable
acquisition and development opportunities and the possibility that
existing and future acquisition or development properties will not perform
as expected;
- Lack of operating history for certain of the Properties;
- General real estate investment risks that may affect the value of the
Shares and the Company's ability to make expected distributions to
shareholders, including (a) general economic conditions, (b) government
regulations on the environment, zoning, public access and taxes, (c) the
possibility that a Property could sustain an uninsured loss and (d)
competition from other operators of student housing;
- Operating risks inherent in the student housing industry;
- Risks associated with the development of student housing, including those
associated with construction, lease-up, financing, cost overruns and
delays in obtaining necessary approvals, the risk that the Company may be
unable to complete a project and the risk that newly developed properties
will not perform as expected;
- Actual Cash Available for Distribution (defined generally as Funds from
Operations (as defined herein) of the Company plus amortization of
deferred financing costs and non-real estate related depreciation, and
minus capital expenditures and principal payments on indebtedness) may be
insufficient to allow the Company to maintain its distribution rate;
- Risks associated with borrowing, such as the possibility that (a) the
Company will not have sufficient funds available to make balloon payments
of principal on $129.6 million of long-term indebtedness expected to be
outstanding after completion of the Formation Transactions or payments of
principal and interest on the Credit Facility, (b) such indebtedness might
not be able to be refinanced or might be refinanced at higher interest
rates or otherwise on terms less favorable to the Company than existing
indebtedness and (c) the interest rate on debt which is financed at a
variable rate may increase;
- Potential conflicts of interest between the Company and certain of its
officers, trustees and other Continuing Investors, including conflicts
associated with sales and refinancings of the Properties due to differing
tax consequences for those officers, trustees and Continuing Investors who
hold Units, and conflicts in connection with operating the Company and in
connection with the Food Service Space Lease;
- The dependence on certain key personnel, particularly Messrs. Gary M.
Holloway, Bruce F. Robinson and Joseph Coyle;
- Absence of a limitation on the amount of indebtedness the Company can
incur;
- The taxation of the Company as a regular corporation if it fails to
qualify as a REIT, and the potential impact of pending or future
legislation affecting the taxation of REITs;
- Anti-takeover effect of limiting beneficial or constructive ownership of
Shares to 9.8% of the outstanding Shares, subject to certain specified
exceptions, to ensure compliance with certain requirements related to
qualification of the Company as a REIT and certain other provisions
contained in the organizational documents of the Company, any of which may
have the effect of
4
<PAGE>
delaying, deferring or preventing a change in control of the Company or
other transaction that might involve a premium price for the Shares or
otherwise be in the best interests of the Company's shareholders;
- The ability of the Company to make changes in its investment and financing
policies without the approval of its shareholders;
- The lack of a prior market for the Shares; and
- The immediate and substantial dilution of $- per Share in the net tangible
book value per share of the Shares purchased in the Offering.
For a discussion of the Company's transactions with related parties and the
compensation therefor, see "Conflicts of Interest," "The Formation
Transactions," "Certain Relationships and Transactions," "Relationship Between
Food Service Operator and the Company after the Formation Transactions."
OBJECTIVES AND STRATEGIES
The Company's primary objectives are to achieve increasing Funds from
Operations per Share and enhance shareholder value by owning, acquiring,
developing and managing a diverse portfolio of high quality student housing. The
Company's goal is to continue to be the private-sector leader in the student
housing industry through a comprehensive plan of ownership, acquisitions,
development, rehabilitation and management of student housing and through joint
ventures, leasing arrangements and strategic alliances with colleges and
universities. The Company intends to achieve its objectives through the
implementation of the following strategies:
GROWTH STRATEGY
- Acquire additional student housing, purchasing such facilities with a
combination of cash, Shares and/or Units (thereby creating the opportunity
for tax-deferred transactions for the seller and potentially reducing the
price that would otherwise be paid in all-cash transactions);
- Develop modern, state-of-the-art student housing with amenities and
services commonly sought by college and university students;
- Maximize revenues by increasing occupancy rates and operating efficiencies
at the Properties (or any newly developed or acquired properties) by
implementing marketing and leasing strategies, making available high
quality properties and additional amenities and services to students and,
to the extent compatible with market conditions, through increasing rental
rates;
- Target for development or acquisition selected locations near colleges or
universities with large student enrollments, where there is a lack of
existing modern student housing; and
- Identify opportunities to cooperate with colleges and universities in
renovating, leasing and managing existing student housing or in developing
new student housing through joint ventures, leasing arrangements and
strategic alliances.
OPERATING STRATEGY
- Continue to be the leading provider of high quality off-campus student
housing in the United States by offering student housing with a wide
variety of amenities, including, at various locations, private bedrooms,
high quality student furnishings, fitness centers, hot tubs,
tennis/volleyball courts, clubhouses, activity/entertainment centers,
swimming pools, air conditioning, computer centers, study rooms and either
kitchens or convenient food service facilities;
5
<PAGE>
- Actively market the Properties as viable alternative off-campus student
housing by emphasizing the comfortable living areas, state-of-the-art
technology infrastructure, the wide variety of available amenities and
services and the Properties' proximity to the local college or university;
- Optimize student housing operations by actively managing properties
through on-site employees and area managers and instituting the Company's
standard leasing requirements, including (a) a requirement that parents
guarantee virtually every student lease, (b) frequent and regular
apartment inspections conducted during the course of the lease term and
(c) maintenance of a price list for any damages incurred, thereby
providing students with the incentive to maintain their apartments; and
- Increase year-round occupancy levels through leasing arrangements during
the summer months, including leasing certain units to seasonal tenants,
such as senior citizens and other participants in continuing education
programs, as well as to participants in sports and other camp programs.
There can be no assurance that the Company will be able to achieve its
objectives or implement the listed strategies. Further, the Company may change
such objectives or strategies without prior public announcement.
THE PROPERTIES
The Properties consist of over 6,300 student apartment units with
approximately 19,450 beds in 32 residential complexes located throughout the
United States. The Properties are located within close proximity to 23 major
colleges and universities in 17 states. All of the Properties are presently
owned by the Predecessor Partnerships and will be acquired by the Operating
Partnership in connection with the Formation Transactions. The only Properties
which have been owned by the Predecessor Partnerships for more than one year are
the nine Properties purchased in December 1995 and the two Properties purchased
in October 1996. The Predecessor Partnerships purchased 21 of the Properties
within the last 12 months in April, May and December 1997 and January 1998. The
Operating Partnership has also entered into agreements to purchase an additional
property and certain rights, obligations and liabilities (including the rights
of the seller under an installment sale agreement and the management rights to
such property) to a second property, both in Austin, Texas; however, such
acquisitions are subject to certain conditions, and there can be no assurance
that such properties or rights will be acquired. Following the completion of the
Formation Transactions, and except as noted below, the Company will hold title
to all of its existing Properties in fee simple.
The Managed Properties consist of 743 student apartment units and
approximately 2,200 beds located near two major universities in Pennsylvania,
and the Development Properties, when completed, are expected to consist of 480
garden-style student apartment units and approximately 1,600 beds located near a
major university in each of Florida and Virginia.
The Properties, Managed Properties and Development Properties are either (i)
garden-style apartments, which are clusters of low-rise buildings that generally
consist of student housing units with four private bedrooms and two bathrooms
centered around a common area consisting of a living room, a dining area and a
kitchen, or (ii) high-rise or mid-rise residence halls that do not have kitchens
but, in certain cases, have food services available on the premises.
6
<PAGE>
The following table sets forth certain summary information regarding each of
the Properties, the Managed Properties and the Development Properties:
<TABLE>
<CAPTION>
MONTH/YEAR
NAME YEAR BUILT ACQUIRED UNIVERSITY LOCATION PROPERTY TYPE
------------------- ----------- ----------- ------------------------ ------------------ ---------------------
<C> <S> <C> <C> <C> <C> <C>
PROPERTIES
1. Athens 1988 Dec/95 University of Georgia Athens, GA Garden Apts
2. Auburn I 1989 Dec/95 Auburn University Auburn, AL Garden Apts
3. Auburn II 1991 Dec/95 Auburn University Auburn, AL Garden Apts
4. Blacksburg 1990 Dec/95 Virginia Tech University Blacksburg, VA Garden Apts
5. Columbia(1) 1990 Dec/95 University of Missouri Columbia, MO Garden Apts
6. Fayetteville 1988 Dec/95 University of Arkansas Fayetteville, AR Garden Apts
7. Knoxville 1995 Dec/95 University of Tennessee Knoxville, TN Garden Apts
8. Starkville 1997 Dec/95 Mississippi State Univ. Starkville, MI Garden Apts
9. State College Park 1991 Dec/95 Penn State University State College, PA Garden Apts
10. Ashby Crossing 1989/97 Oct/96 James Madison Univ. Harrisonburg, VA Garden Apts
11. Treehouse Village 1980/84 Oct/96 Texas A&M University College Station, Garden Apts
TX
12. El Conquistador 1966 Apr/97 San Diego State Univ. San Diego, CA High Rise
13. Fontana Hall 1967 Apr/97 Univ. of South Florida Tampa, FL High Rise
14. Harrison House 1966 Apr/97 Ohio State University Columbus, OH High Rise
15. Illini Towers 1966 Apr/97 University of Illinois Champaign, IL High Rise
16. Naismith Hall 1966 Apr/97 University of Kansas Lawrence, KS High Rise
17. Pierpont Apts. 1967 Apr/97 West Virginia University Morgantown, WV High Rise
18. Summit Suites 1966 Apr/97 West Virginia University Morgantown, WV High Rise
19. The Castilian 1967 Apr/97 University of Texas Austin, TX High Rise
20. The Regent 1964 Apr/97 University of Wisconsin Madison, WI High Rise
21. The Towers 1964 Apr/97 University of Wisconsin Madison, WI High Rise
22. Carlos Bee Hall 1963 May/97 University of California Hayward, CA Mid Rise
23. Cash Hall(2) 1968 May/97 Florida State University Tallahassee, FL Mid Rise/Garden Apts
24. Osceola Hall 1966/88 May/97 Florida State University Tallahassee, FL Mid Rise
25. The Commons(3) 1989 May/97 Auburn University Auburn, AL Mid Rise
26. Nittany Crossing 1996 Dec/97 Penn State University State College, PA Garden Apts
27. The Landings I 1996 Dec/97 University of Texas Austin, TX Garden Apts
28. The Landings II 1997 Dec/97 University of Texas Austin, TX Garden Apts
29. Rams Point 1997 Dec/97 Colorado State Fort Collins, CO Garden Apts
University
30. The Enclave 1994 Dec/97 Texas A&M University College Station, Garden Apts
TX
31. The Ridge 1994 Dec/97 Texas A&M University College Station, Garden Apts
TX
32. Eagles Pointe(1) 1967 Jan/98 Kent State University Kent, OH Garden Apts
MANAGED PROPERTIES
1. Citiline Towers 1968 Sep/93(4) Duquesne University Pittsburgh, PA High Rise
2. Parkway Plaza 1965/66 Sep/93(4) Penn State University State College, PA Mid Rise
DEVELOPMENT PROPERTIES
1. Orlando(5) 1998/99 (6) June/97 Univ. of Central Florida Orlando, FL Garden Apts
2. Blacksburg II(5) 1998/99 (6) Aug/97 Virginia Tech University Blacksburg, VA Garden Apts
<CAPTION>
# OF # OF # OF
BUILDINGS UNITS BEDS
------------- --------- ---------
<C> <C> <C> <C>
1. 9 154 489
2. 9 180 623
3. 11 172 598
4. 11 180 622
5. 10 172 650
6. 7 156 457
7. 17 192 701
8. 14 120 420
9. 15 196 750
10. 24 288 1,152
11. 30 444 1,000
12. 1 146 560
13. 1 223 758
14. 1 132 457
15. 1 196 709
16. 1 127 486
17. 1 127 491
18. 1 171 344
19. 1 196 716
20. 1 241 825
21. 1 164 420
22. 1 76 280
23. 25 234 758
24. 2 159 636
25. 1 151 302
26. 11 204 684
27. 14 252 684
28. 15 270 810
29. 13 192 660
30. 15 340 549
31. 12 192 315
32. 38 270 540
--- --------- ---------
314 6,317 19,446
1. 1 315 1,100
2. 4 428 1,108
--- --------- ---------
5 743 2,208
1. 29 372 1,152
2. 7 108 432
--- --------- ---------
36 480 1,584
</TABLE>
- ----------------------------------
(1) The Company owns land adjacent to the Property which is available for
development.
(2) A portion of this Property's parking lot is leased from a third party.
(3) Third party ground leased property.
(4) Refers to the date that this Property began to be managed by the Predecessor
Partnerships.
(5) Construction began in August 1997. Number of units represents total units to
be constructed.
(6) Anticipated completion date indicated.
7
<PAGE>
The following table sets forth certain summary historical information
regarding each of the Properties and the Managed Properties, including the (a)
typical term of the student leases, (b) revenues (not including food service
revenue at any Property) for the year ended December 31, 1997 and December 31,
1996, if applicable, (c) occupancy rates as of December 31, 1997 and December
31, 1996, if applicable, and (d) a list of amenities.
<TABLE>
<CAPTION>
REVENUES (1) OCCUPANCY RATE (%) (1)
------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED AS OF AS OF
TYPICAL TERM OF DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, AMENITIES
NAME STUDENT LEASES 1997 1996 1997 1996 (2)
------------------- ------------------- -------------- -------------- ----------------- ----------------- ---------
<C> <S> <C> <C> <C> <C> <C> <C>
PROPERTIES
1. Athens 12 months $ 1,633,868 $ 1,591,542 100.0% 100.0% a
2. Auburn I 12 months 1,780,927 1,900,457 87.4 99.2 a
3. Auburn II 12 months 1,706,729 1,957,001 86.3 99.2 a
4. Blacksburg 12 months 1,847,460 1,783,455 100.0 99.8 a
5. Columbia 12 months 1,567,281 1,746,565 78.1 88.1 a
6. Fayetteville 9 and 12 months 1,034,257 1,246,660 78.1 82.7 a
7. Knoxville 12 months 2,210,060 2,278,639 87.3 99.0 a
8. Starkville 9 months 1,003,114 1,142,519 77.1 96.6 a
9. State College Park 12 months 2,687,892 2,682,930 100.0 100.0 a
10. Ashby Crossing 12 months 2,063,362 1,054,036 96.6 100.0 a
11. Treehouse Village 9 and 12 months 2,692,273 2,559,251 91.8 100.0 a
12. El Conquistador 9 months 2,296,489 2,104,346 98.8 77.0 a
13. Fontana Hall 9 months 1,594,404 1,499,305 88.5 68.1 a
14. Harrison House 9 months 1,574,641 1,584,613 91.5 81.7
15. Illini Tower 9 months 2,777,906 2,736,808 94.8 98.0
16. Naismith Hall 9 months 1,302,293 1,198,538 95.9 88.3 a
17. Pierpont Apartments 9 months 1,074,583 1,023,031 76.0 85.0
18. Summit Suites 9 months 1,133,060 1,105,201 84.6 78.7
19. The Castilian 9 months 3,109,287 2,917,380 99.2 97.5 a
20. The Regent(3) 9 months 2,448,063 2,476,261 93.0 95.6
21. The Towers 9 months 2,095,455 1,916,012 100.0 98.6
22. Carlos Bee Hall 9 months 876,964 783,999 91.5 78.3
23. Cash Hall 9 months 2,376,239 2,068,071 80.9 80.6 a
24. Osceola Hall 9 months 2,030,190 1,997,147 90.1 89.7 a
25. The Commons 9 months 1,375,025 1,329,518 98.7 92.7 a
26. The Nittany 12 months 2,473,985 944,873 97.4 92.4 a
27. The Landings I 12 months 3,115,182 1,035,067 98.7 98.7 a
28. The Landings II 12 months 1,347,199 -- (4) 99.5 -- (4) a
29. Rams Point 12 months 1,115,184 -- (4) 97.3 -- (4) a
30. The Ridge 9 and 12 months 1,679,511 1,637,181 98.9 96.9 a
31. The Enclave 9 and 12 months 2,825,962 1,338,614(5) 98.5 92.4 a
32. Eagles Pointe 12 months 1,582,786 1,727,665 91.7 97.0 a
-------------- -------------- ----- -----
Total/Weighted Average $ 60,431,631 $ 51,366,685 92.4% 92.2%
MANAGED PROPERTIES(6)
1. Citiline Towers 9 months $ 183,433 $ 165,680 100.0% 88.2% a
2. Parkway Plaza 9 months 152,681 156,031 98.4 97.7 a
-------------- -------------- ----- -----
Total/Weighted Average $ 336,114 $ 321,711 99.2% 93.0%
TOTAL/WEIGHTED AVERAGE $ 60,767,745 $ 51,688,396 93.1% 93.0%
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. b U o e z h u -- D
2. b U o e z h u -- D
3. b U o e z h u -- D
4. b U o e z h u -- D
5. b U o e z h u -- D
6. b U o e z h u -- D
7. b U o e z h u -- D
8. b U o e z h u -- D
9. b U o e z h u -- D
10. b U o e z h u -- D
11. b U e z u -- D V
12. b U e + h u -- D V
13. b U e + h u -- D V
14. b h u -- D V
15. b e + h u -- D V
16. b e + h u -- D V
17. b e h u -- D V
18. b e + h u -- D V
19. b e + h u -- D V
20. b U o + h u -- D V
21. b U e + h u -- D V
22. o e + h u -- D V
23. b U + h u -- D V
24. b U + h u -- D V
25. b U e + h u -- D V
26. b U o e z h u -- D
27. b U o e z h u -- D
28. b o e z u -- D
29. b U o e z h u -- D
30. b U o e z h -- D
31. b o e z -- D
32. U e u -- D
1. b e u -- D V
2. u D V
</TABLE>
- ----------------------------------
(1) Information in respect of periods prior to acquisition or management of the
properties by the Predecessor Partnerships is based solely on unaudited data
made available by the prior owners or managers of the properties, or data
included in the books and records of the properties, if any, that were
delivered to the Predecessor Partnerships by the prior owners. In addition,
revenues from providing housekeeping services, which are not in the
aggregate material to the Company, are included for certain Properties. Such
housekeeping services will not be provided by the Company after the
consummation of the Formation Transactions.
(2) Amenities indicated by the following legends:
<TABLE>
<S> <C> <C> <C> <C> <C>
Activity/Entertainment
a Swimming Pool e Centers u Furniture
Private bedrooms
b Fitness Center + Food Service -- available
Tennis/Volleyball
U Courts z Hot tub D Air conditioning
o Clubhouse h Computer Center V Utilities included
</TABLE>
(3) The Company expects that Food Services will begin to be provided at this
Property during the 1998/99 academic year.
(4) Property under construction at December 31, 1996.
(5) Represents revenues for the period from June 1996 (the date on which the
previous owner acquired the Property) to December 31, 1996.
(6) Revenues represent management fees.
8
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial and other
information for the Company and combined historical financial information for
the Predecessor Partnerships. The pro forma operating information is presented
as if the Offering, the Formation Transactions, the entering into of and
drawdown under the Credit Facility, the repayment of certain indebtedness, the
Glenmorris Acquisition and the acquisition of the 14 Properties in April and May
1997 (the "WHNML-S Acquired Properties") and the JPI Acquired Properties in
December 1997 (the WHNML-S Acquired Properties and the JPI Acquired Properties
are collectively referred to as the "Acquired Properties") had been consummated
as of January 1, 1997 and therefore reflects certain assumptions that are
described in the Adjustments to the Unaudited Pro Forma Condensed Consolidated
Statement of Operations included elsewhere in this Prospectus. The pro forma
balance sheet information is presented as if the Offering, the Formation
Transactions, the entering into of and drawdown under the Credit Facility, the
repayment of certain indebtedness and the Glenmorris Acquisition had been
consummated on December 31, 1997, and therefore reflects certain assumptions
that are described in the Adjustments to the Unaudited Pro Forma Condensed
Consolidated Balance Sheet included elsewhere in this Prospectus. The pro forma
information does not purport to represent what the Company's financial position
or results of operations actually would have been had the Offering, the
Formation Transactions, the repayment of certain indebtedness, the Glenmorris
Acquisition, the entering into of and drawdown under the Credit Facility and the
purchase of the Acquired Properties, in fact, occurred on such date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
The historical and pro forma financial information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
PRO FORMA DECEMBER 19,
--------------- 1995
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1997 1997 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATING DATA:
Revenue:
Rental.............................. $ 58,216 $ 35,668 $ 16,155 $ 534
Food service........................ -- 10,222 -- --
Interest............................ 500 500 145 --
Other............................... 3,459 1,604 971 19
--------------- --------------- --------------- ---------------
Total revenue......................... 62,175 47,994 17,271 553
Expenses:
Rental operations................... 16,015 11,003 3,321 24
Food service........................ -- 5,974 -- --
Operating payroll................... 9,353 6,357 1,666 31
Real estate taxes................... 4,243 2,517 1,028 28
Management fees..................... -- 1,871 638 22
General and administrative.......... 3,971 1,711 86 4
Interest............................ 11,009 14,334 6,230 214
Depreciation........................ 10,955 6,497 3,075 102
--------------- --------------- --------------- ---------------
Total expenses........................ 55,546 50,264 16,044 425
--------------- --------------- --------------- ---------------
Net Income (loss) before minority
interest............................ 6,629 (2,270) 1,227 128
Minority interests.................... 3,487 -- -- --
--------------- --------------- --------------- ---------------
Net income (loss)..................... $ 3,142 $ (2,270) $ 1,227 $ 128
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Pro forma earnings per Share (1)...... -- -- --
Pro forma earnings per Share assuming
dilution (1)........................ -- -- --
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------------- ----------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA (AT PERIOD END):
Properties--net of accumulated
depreciation........................ $ 374,714 $ 368,152 $ 105,156
Total assets.......................... 399,822 398,331 109,177
Total indebtedness.................... 129,828 270,146 78,915
Total liabilities..................... 150,243 290,942 82,457
Minority interests.................... 131,279 -- --
Total shareholders' and owners'
equity.............................. $ 118,300 $ 107,389 $ 26,720
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
--------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 19, 1995
DECEMBER 31, DECEMBER 31, DECEMBER 31, (INCEPTION) TO
1997 1997 1996 DECEMBER 31, 1995
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
(FUNDS FROM OPERATIONS DATA IN THOUSANDS)
OTHER DATA:
Funds from Operations (2):
Net income (loss)................... $ 3,142 $ (2,270) $ 1,227 $ 128
Add: real estate related
depreciation...................... 7,630 4,373 2,055 102
--------------- --------------- ------- -----
Funds from Operations............... $ 10,772 $ 2,103 $ 3,282 $ 230
--------------- --------------- ------- -----
--------------- --------------- ------- -----
Properties owned at end of period
(excluding development land)........ 32 31 11 9
Rentable beds at end of period........ 19,446 18,906 6,694 5310
Occupancy of properties owned at end
of period........................... 92.4% 92.2% 96.8% 96.9%
</TABLE>
- ------------------------
(1) Pro forma net income per Share is based upon - Shares expected to be
outstanding after the Offering.
(2) The White Paper on Funds from Operations approved by the NAREIT Board of
Governors in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flows from operating activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. The Company's Funds from Operations is not
comparable to Funds from Operations reported by other REITs that do not
define the term using the current NAREIT definition or that interpret the
current NAREIT definition differently than does the Company. Funds from
Operations should not be considered as an alternative to net income
(computed in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities (computed
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.
10
<PAGE>
STRUCTURE OF THE COMPANY
The Company will conduct substantially all of its activities through the
Operating Partnership and its subsidiaries, including the Management Subsidiary.
All expenses of the Company will be borne by the Operating Partnership or the
Management Subsidiary, as the case may be. The Company, as the sole general
partner of the Operating Partnership, will have control over the management of
the Operating Partnership and each of the Properties, Managed Properties and
Development Properties. After the completion of the Offering, the Company will
be governed by a seven-member Board of Trustees, four of whom will be
independent of the Company and the Continuing Investors for purposes of the
requirements of the NYSE. See "Management." The following diagrams depict the
ownership of the Company, the Operating Partnership and the Management
Subsidiary upon completion of the Offering and the Formation Transactions:
[CHART]
- ------------------------
(1) Represents ownership of the Company assuming the exchange of all Units held
by the Continuing Investors for Shares on the basis of an initial exchange
ratio of one Share for each Unit.
(2) The Management Subsidiary is owned by the Operating Partnership, which owns
non-voting common stock (representing a 95% economic interest therein), and
GMH Management, Inc.-North, which owns voting common stock (representing a
5% economic interest therein).
11
<PAGE>
MANAGEMENT SUBSIDIARY
The Company's third party student housing management business is conducted
by College Park Management Inc., a Pennsylvania corporation and a subsidiary of
the Operating Partnership ("Management Subsidiary"). The Management Subsidiary
currently provides management services for the Managed Properties, and it is
expected that in the future, the Management Subsidiary will provide management
services for other student housing units not owned by the Company. The Operating
Partnership owns all of the non-voting common stock, representing 95% of the
outstanding common stock, of the Management Subsidiary, and GMH Management,
Inc.-North owns all of the voting common stock, representing 5% of the
outstanding common stock, of the Management Subsidiary.
THE FORMATION TRANSACTIONS
The Company was formed to succeed, through the Operating Partnership, to the
business of the Predecessor Partnerships. The Company has engaged in certain of
the transactions described below, and prior to, or simultaneously with, the
consummation of the Offering, will engage in the other transactions described
below (collectively, the "Formation Transactions"), all of which are designed to
transfer ownership interests of the Predecessor Partnerships and certain of the
contractual rights of an affiliated management company to the Operating
Partnership and the Management Subsidiary (hereby collectively referred to as
the "Contributed Properties"). Those persons receiving Units or Shares in
exchange for their interests in the Contributed Properties are hereinafter
referred to herein as the "Continuing Investors."
The Formation Transactions include:
- The limited partners of W9/GLM Real Estate Limited Partnership (all of
whom are Continuing Investors) contributed their limited partnership
interests (the "GLM Interests") to the Company in exchange for -
Shares;
- One of the Predecessor Partnerships was reorganized as the Operating
Partnership and will be renamed College Park Communities, L.P. Pursuant to
several mergers, the Continuing Investors will exchange their interests in
the Contributed Properties to the Operating Partnership for Units therein.
In addition, the Company has transferred the GLM Interests to the
Operating Partnership in exchange for Units therein;
- GMH Management, Inc.-North has entered into certain management
subcontracts with the Management Subsidiary and has transferred the
non-voting common stock of the Management Subsidiary to the Operating
Partnership in exchange for Units therein;
- The Company will sell - Shares in the Offering and will contribute
the net proceeds of approximately $148.1 million after deduction of the
underwriting discount and estimated offering expenses (assuming an initial
public offering price of $ - per Share) to the Operating Partnership
in exchange for - Units representing 47.4% of the Operating
Partnership's outstanding Units; and
- The Company will enter into the Food Service Space Leases with Food
Service Operator and a Janitorial Agreement (as defined) and a billing and
collection agreement with the Housekeeping Operator.
BENEFITS TO THE CONTINUING INVESTORS
The benefits of the Formation Transactions to the Continuing Investors
include:
- The Continuing Investors have received Shares of the Company in exchange
for their GLM Interests;
12
<PAGE>
- The Continuing Investors will receive Units in the Operating Partnership
upon contribution of certain of their interests in the Contributed
Properties to the Operating Partnership. In addition, GMH Management,
Inc.--North, an entity controlled by Gary M. Holloway, has received Units
in the Operating Partnership in exchange for transferring to the Operating
Partnership shares of non-voting common stock of the Management
Subsidiary. The Units received will be exchangeable for - Shares
representing - % economic interest of the Company. Gary M. Holloway and
other Named Executive Officers (as defined) as a group and the other
Continuing Investors will have an aggregate - % and - % economic
interest in the Company, respectively. The Units, and the Shares into
which Units are exchangeable, will be more liquid than the Continuing
Investors' previous ownership interests in the Contributed Properties
after applicable restrictions on exchange and transfer expire;
- The Units to be received by the Continuing Investors are valued at
approximately - based upon the midpoint of the range of estimated
initial public offering prices for the Shares set forth on the cover page
of this Prospectus, which exceeded the book value (net of depreciation) of
the Contributed Properties exchanged therefor as of - , 1998 by
approximately $ - . It is anticipated that the receipt of Units by the
Continuing Investors, in general, will not constitute a taxable event to
such persons, but the exchange of Units for Shares will be a taxable event
to such persons;
- Gary M. Holloway, the Chairman of the Board of Trustees and Chief
Executive Officer of the Company, will be granted - Restricted Shares
(as defined herein) pursuant to the Restricted Share Program and options
to purchase - Shares pursuant to the Share Option Program. Bruce F.
Robinson, the Chief Financial Officer of the Company, will be granted
- Restricted Shares pursuant to the Restricted Share Program and
options to purchase - Shares pursuant to the Share Option Program.
Joseph Coyle, the Chief Operating Officer, will be granted - Restricted
Shares pursuant to the Restricted Share Program and options to purchase
- Shares pursuant to the Share Option Program;
- Gary M. Holloway or certain affiliated entities and certain other
Continuing Investors will be relieved of potential liability, as either
general partners or guarantors, with respect to indebtedness of the
Contributed Properties in an aggregate amount equal to approximately $3.6
million as of December 31, 1997. In addition, the Continuing Investors
will be relieved of potential liabilities under certain of the existing
loan agreements, including without limitation, potential environmental
liabilities. In addition, certain of the Continuing Investors have
provided cash and other collateral to support certain indebtedness of the
Company that will be retired upon consummation of the Offering. Upon
retirement of such debt, collateral will be released to the Continuing
Investors having an aggregate value of approximately $ - ;
- Gary M. Holloway or certain affiliated entities and certain other
Continuing Investors will be released of potential liability as either
general partners or guarantors with respect to performance bonds for the
payment and completion guarantees to project construction lenders for
certain on-going projects. Such releases from such performance bonds
represent a release of approximately $ - of potential liability;
- Gary M. Holloway and certain other Continuing Investors will own the Food
Service Operator and the Housekeeping Operator;
- Gary M. Holloway will own 353 Associates, an affiliated company that will
lease space to the Company for its principal executive offices in Wayne,
Pennsylvania;
- The Company will enter into employment agreements with Gary M. Holloway,
Bruce F. Robinson and Joseph Coyle providing for annual initial
compensation of $ - , $ - and $ - ,
13
<PAGE>
respectively, and special bonuses upon consummation of the Formation
Transactions of $ - , $ - and $ - , respectively;
- The trustees and officers of the Company will be indemnified by the
Company and the Operating Partnership to the maximum extent permitted by
applicable law; and
- The Continuing Investors will have certain registration rights in respect
of Shares acquired in connection with the Formation Transactions and upon
the exchange of Units.
BENEFITS TO THE COMPANY
The benefits of the Formation Transactions to the Company include:
- The ability to access public capital markets;
- The creation of an entity which allows its shareholders to participate in
real estate investments while reducing the "double taxation" of income
that generally results from an investment in a regular corporation; and
- The ability of the Company to take advantage of acquisition and
development opportunities through its strong capital base.
RESTRICTIONS ON OWNERSHIP
The Company's Declaration of Trust contains restrictions on the acquisition
of Shares intended to ensure compliance with the Internal Revenue Code of 1986,
as amended (the "Code"), and for other purposes. Subject to certain exceptions
specified in the Declaration of Trust, no person may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.8% of the number
or value of the Company's issued and outstanding Shares. See "Description of
Shares of Beneficial Interest-- Restrictions on Size of Holdings of Shares."
TAX CONSIDERATIONS AND TAX STATUS OF THE COMPANY
The Company intends to make an election to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. As a REIT, the Company generally will not be taxed on income it
distributes to its shareholders so long as it currently distributes at least 95%
of its taxable income. REITs are also subject to a number of organizational and
operational requirements. Even if the Company continues to qualify for taxation
as a REIT, the Company will be subject to certain Federal income taxes and to
certain state and local taxes on its income and property. The Company will also
be subject to the potential impact of pending and future legislation which may
affect the taxation of REITs. See "Risk Factors--Taxation of the Company as a
REIT; Other Tax Consequences" and "Federal Income Tax Considerations."
14
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered hereby.............
Shares to be outstanding after the
Offering........................ (1)
Use of proceeds................... Approximately $148.1 million of the net proceeds of the
Offering will be used by the Company to acquire Units.
The Operating Partnership will use the funds it receives
to repay existing indebtedness, including prepayment
penalties with respect to such indebtedness. See "Use of
Proceeds."
Proposed NYSE Symbol.............. XCP
</TABLE>
- ------------------------
(1) Excludes - Restricted Shares granted pursuant to the Company's Restricted
Share Program, and options to purchase - Shares granted pursuant to the
Company's Share Option Program. See "Management--Compensation Programs."
15
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE
MATTERS DESCRIBED BELOW PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE
SHARES OFFERED HEREBY. EACH OF THESE FACTORS COULD MATERIALLY AND ADVERSELY
AFFECT THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION AND ITS
ABILITY TO MAKE EXPECTED DISTRIBUTIONS TO SHAREHOLDERS. PROSPECTIVE INVESTORS
SHOULD ALSO SEE "FORWARD-LOOKING STATEMENTS" TO UNDERSTAND THE CONTEXT IN WHICH
ANY FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS ARE BEING MADE.
LACK OF OPERATING HISTORY; RISKS ASSOCIATED WITH ACQUISITIONS
The Company has been recently organized and has no operating history. In
addition, all of the Properties have been acquired by the Predecessor
Partnerships within the past two and one half years and have limited operating
histories under current management. The only Properties owned by the Predecessor
Partnerships for more than one year are the nine Properties purchased in
December 1995 and the two Properties purchased in October 1996. The Predecessor
Partnership purchased 21 of the Properties within the past 12 months in April,
May and December 1997 and January 1998. Consequently, the financial data set
forth in this Prospectus may not provide a meaningful measure of the Company's
financial performance or of its future profit potential. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Properties may have characteristics or deficiencies unknown to the Company that
could affect such Properties' valuation or revenue potential. There can be no
assurance that the operating performance of the Properties will not decline
under the Company's management or that the Company will be able to generate
sufficient revenue from operations to make anticipated distributions.
The Company's objectives and operating strategies include the acquisition
and development of additional student housing. As the Company acquires
additional properties, it will be subject to risks associated with managing new
properties, including lease-up and integration risks. The Company's ability to
manage growth effectively will require it to successfully integrate new
acquisitions into its existing management structure. There can be no assurances
that the Company will be able to succeed with such integration or effectively
manage additional properties. In addition, newly acquired properties may not
perform as expected and may have characteristics or deficiencies unknown to the
Company at the time of acquisition. Additionally, there can be no assurance that
the Company will be able to maintain its current rate of growth in the future,
that future acquisition and development opportunities will be available to the
Company on terms that meet the Company's investment criteria or that the Company
will be successful in capitalizing on such opportunities.
The Company will also be subject to the risks generally associated with the
formation of any new business. The Company's management has no experience in
running a public company or in operating in accordance with the requirements for
maintaining its qualification as a REIT.
REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. Real
estate cash flows and values of the Properties will be affected by a number of
factors, including changes in the general economic climate, local conditions
(such as an oversupply of student housing or a reduction in rental demand in an
area), competition from other available facilities, the ability of the operator
to control operating costs while providing adequate maintenance and the need to
make capital improvements such Properties. Real estate cash flows and values are
also affected by such factors as government regulations, including
environmental, public access, zoning and tax laws, interest rate levels and the
availability of financing.
16
<PAGE>
Equity real estate investments are relatively illiquid and, therefore, may
tend to limit the ability of the Company to react promptly to changes in
economic or other conditions. In addition, certain significant expenditures
associated with equity investments (such as principal and interest payments on
indebtedness, real estate taxes and maintenance costs) are generally not reduced
when circumstances cause a reduction in income from the investments.
GOVERNMENT REGULATIONS
Governmental authorities at the Federal, state and local levels are actively
involved in the promulgation and enforcement of laws and regulations relating to
the environment, public access, land use, zoning restrictions and taxes.
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
at, on, under or in its property. In addition, the Properties and any newly
developed or acquired properties must comply with Title III of the Americans
with Disabilities Act of 1990 (the "ADA") to the extent that such properties are
"public accommodations" and/or "commercial facilities" as defined by the ADA.
Although the Company believes the Properties are in substantial compliance with
applicable environmental laws, no assurance can be given that any investigation
of the Properties did or will reveal all potential environmental liabilities,
that no prior owner or operator created any material environmental condition not
known to the Company or that future uses and conditions (including, without
limitation, tenant actions or changes in applicable laws and regulations) will
not result in the imposition of environmental liabilities. In addition, no
assurance can be given that the Company is in material compliance with the ADA
at any Property. See "Business of the Company and its Properties-- Governmental
Regulations Affecting the Properties--Environmental Laws" and "--Americans with
Disabilities Act of 1990."
UNINSURED LOSS
Each Property is insured in respect of fire, vandalism and malicious
mischief, extended coverage perils, all physical loss perils, commercial general
liability, flood (when the Property is located in whole or in material part in a
designated flood plain area) and workers' compensation. Each Property is also
insured under a $100 million umbrella policy covering liability, fire and theft.
There are, however, certain types of losses (such as property damage from
earthquakes or wars, employment discrimination losses and punitive damage
awards) that may be either uninsurable or not economically insurable. Should an
uninsured loss occur, the Company would likely suffer the loss of its capital
invested in and anticipated profits from the affected Property and will also
likely remain liable with respect to any debt associated with such Property.
COMPETITION
The Company competes with other regional or national operators of off-campus
student housing in a number of markets as well as with smaller local or regional
owner-operators of student housing. Currently, the industry is highly fragmented
with no participant holding a significant market share. There are, however,
various off-campus student housing complexes that compete directly with the
Company located near or in the same general vicinity of many of the Properties.
Such competing student housing complexes may be newer than the Properties,
possess more attractive amenities or offer more services than provided at the
Properties. Rental income at a particular Property could be affected by a number
of other factors, including the construction of new on-campus and off-campus
residences near a Property, increases or decreases in the general levels of
rents for housing in contiguous communities, increases or decreases in the
number of students enrolled at a particular college or university in proximity
to a Property and other general economic conditions.
17
<PAGE>
The Company is subject to competition for students from on-campus housing
operated by colleges and universities and public authorities. On-campus housing
has certain inherent advantages over off-campus student housing complexes, such
as those operated by the Company, due to their physical proximity to the campus
and because the colleges and universities can better integrate such on-campus
facilities into the academic community. Furthermore, colleges and universities
can generally borrow funds at lower interest rates than the Company and other
private sector operators, thereby decreasing their costs of building and
operating new student housing.
The Company believes that a number of other large national companies with
substantial financial resources may be potential entrants in the student housing
business and the entry of one or more of these companies could increase
competition for students and for the acquisition or development of other student
housing properties. The Company will also be subject to competition for the
acquisition of student housing with other existing local and national owners and
operators of student housing. Further, the pace and size of acquisitions in the
real estate industry have increased significantly in recent months;
consequently, prices have generally increased while cash on cash investment
yields have fallen.
OPERATING RISKS INHERENT IN THE STUDENT HOUSING INDUSTRY; SEASONALITY
The Company generally leases its Properties to students under nine- or
12-month leases, and in certain cases, under shorter-term semester or
month-to-month leases. During the lease-up period, the Company is dependent on
the effectiveness of the marketing efforts of its on-site management team. The
Company receives rental payments throughout the terms of these leases and,
therefore, during the summer months (June-August) no rent is received with
respect to the nine-month or many of the shorter-term leases (except for rentals
to summer camps or other similar rentals). Accordingly, when evaluating its cash
requirements, the Company must estimate and reserve an amount adequate to
sustain the operation of the Properties during the summer months when rental
revenues are lower.
The ability of the Company to operate successfully in the student housing
industry depends on a number of factors, including maintaining good
relationships with the local college and university communities and maximizing
future occupancy of the Properties during a limited lease-up period (typically a
student housing property will sign the substantial majority of its leases in the
five-month period between April and August preceding such leases' September
commencement). Consequently, the failure to maintain good relationships with
local colleges and universities, or to adequately market and lease-up the
Properties, could have a material adverse effect on the Company.
Federal and state laws require colleges to publish and distribute reports of
on-campus crime statistics, which may result in negative publicity and media
coverage associated with crimes occurring in the vicinity of, or on the premises
of, the Company's off-campus Properties. Amendments to current Federal law are
currently being considered which, if passed, would expand the requirement for
colleges to report on-campus crimes by broadening the persons who must report
on-campus crimes and making detailed and current campus security records
accessible to the public. Such amendments may result in an increase in adverse
publicity of on-campus crimes that occur on or in the vicinity of the Company's
off-campus Properties. Reports of crime or other negative publicity regarding
the safety of the students residing on, or near, the Company's Properties may
have an adverse effect on the Company's business.
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to continue to develop and construct student housing in
accordance with its growth strategies. See "The Company--Objectives and
Strategies." These activities may include any of the following risks:
development efforts may be abandoned; construction costs of a property may
exceed original estimates, possibly making the development uneconomical;
occupancy rates and rents at a newly completed property may be insufficient to
make the property profitable; acceptable financing may not be available on
favorable terms for development of a property; construction may not be
18
<PAGE>
completed on schedule, resulting in increased debt service expense and
construction costs and delayed leasing (particularly if delayed beyond August in
a particular year); and lease-up may take longer than expected. In addition, new
development activities, regardless of whether or not they are ultimately
successful, typically will require a substantial portion of the time and
attention of management. The Company anticipates that it may, from time to time,
elect not to proceed with ongoing development projects. If the Company elects
not to proceed with a development project, the development costs associated
therewith will ordinarily be charged against income for the then-current period.
Any such charge could have a material adverse effect on the Company's results of
operations in the quarter in which the charge is taken. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, the necessary zoning, land-use, building, occupancy and other
required governmental permits and authorizations.
The construction of real estate projects entails certain risks, including
risks that construction costs of a project may exceed original estimates, and
that the project will fail to conform to building plans, specifications and
timetables, which may in turn be affected by strikes, weather, government
regulations and other conditions beyond the Company's control. In addition, the
Company may become liable for injuries and accidents occurring during the
construction process and for environmental liabilities related to off-site
disposal of construction materials.
ABILITY TO MAINTAIN INITIAL DISTRIBUTION RATE
The Company plans to pay regular quarterly distributions to its
shareholders. If actual Cash Available for Distribution falls short of
estimates, the Company may be unable to maintain its distribution rate. The
Company's income will consist primarily of the Company's share of the income of
the Operating Partnership, and the Company's cash flow will consist primarily of
its share of distributions from the Operating Partnership. Differences in timing
between the actual receipt of income and the actual payment of expenses, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income, as well as the effect of required debt
amortization payments, could require the Company to borrow funds on a short-term
basis to meet the distribution requirements that are necessary to qualify as a
REIT. In such instances, the Company might need to borrow funds in order to
avoid adverse tax consequences even if management believed that the then
prevailing market conditions generally were not favorable for such borrowings or
that such borrowings would not be advisable in the absence of such tax
considerations. For Federal income tax purposes, distributions paid to
shareholders may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. The Company will provide its shareholders with
an annual statement indicating the tax character of the distributions.
Distributions by the Operating Partnership will be determined by the Company
as general partner of the Operating Partnership and will be dependent on a
number of factors, including cash flow from operating activities, the Operating
Partnership's financial condition, any decision to reinvest funds rather than to
distribute such funds, the Operating Partnership's capital expenditures, the
annual distribution requirements under the REIT provisions of the Code and such
other factors as the Company deems relevant. Hence, no assurance can be given as
to the Company's or the Operating Partnership's ability to pay future
distributions.
REAL ESTATE FINANCING RISKS
The Company intends to enter into the Credit Facility concurrent with or
immediately following the Offering, although there can be no assurance it will
do so. The Company expects to borrow under the Credit Facility to acquire
additional properties, to construct new facilities, to fund development and
renovation costs and for working capital and other general corporate purposes.
Failure to enter into the Credit Facility or have the anticipated borrowing
ability under the Credit Facility may adversely affect the Company's growth
strategy. The Company may require additional financing to the extent it does not
19
<PAGE>
have sufficient borrowing availability under the Credit Facility. To the extent
it incurs debt, the Company will be subject to the risks associated with
interest rates and debt financing, including the risks that the Company's cash
flow from operations will be insufficient to meet required payments of principal
and interest, that the Company will be unable to refinance the Credit Facility
or future mortgage indebtedness on its properties, that the terms of such
refinancings will not be as favorable as the terms of existing indebtedness and
that the Company will be unable to make necessary capital expenditures for such
purposes as renovations due to lack of available funds. The Company's borrowings
under the Credit Facility will bear interest at variable rates, which will
subject the Company to the risk that interest rates may increase, which in turn
could adversely affect its ability to make distributions. If a property is
mortgaged to secure payment of indebtedness and the Company is in default under
such mortgage, 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 income and asset value to the Company.
Foreclosures could also create taxable income without accompanying cash
proceeds, thereby hindering the Company's ability to meet the REIT distribution
requirements of the Code.
Upon consummation of the Formation Transactions and the Offering, the
Company expects to have outstanding approximately $75.7 million of long-term
mortgage indebtedness secured by six of the Properties and approximately $53.8
million of indebtedness under the Credit Facility. See "Mortgage
Debt and Credit Facility."
If the Company is unable to refinance its indebtedness on acceptable terms,
or at all, the Company might be forced to dispose of one or more of the
Properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect Cash Available for Distribution. If
prevailing interest rates or other factors at the time of refinancing result in
higher interest rates on refinancings, the Company's interest expense would
increase, which would adversely affect Cash Available for Distribution and its
ability to pay distributions to its shareholders.
POTENTIAL CONFLICTS OF INTEREST
BENEFITS TO RELATED PARTIES IN FORMATION TRANSACTIONS AND THE OFFERING
The Continuing Investors, including certain trustees and members of
management, will realize significant benefits from the Formation Transactions
and the Offering that will not generally be received by other persons
participating in the formation of the Company or the shareholders of the Company
following the Offering, such as the release of guarantees of indebtedness,
releases from certain payment and completion guarantees with respect to certain
on-going development projects and the receipt of Units, Shares and common stock
of the Management Subsidiary. See "The Formation Transactions-- Benefits to the
Continuing Investors." Thus, these persons may have interests that conflict with
the interests of persons acquiring Shares in the Offering.
FAILURE TO ENFORCE TERMS OF CONTRIBUTIONS
The terms of the contribution of the Contributed Properties were not
determined through arm's-length negotiations. Gary M. Holloway and certain other
members of management may have a conflict of interest with respect to their
obligations as officers and/or trustees of the Company to enforce the terms of
the agreements relating to such contributions to the Operating Partnership and
the Management Subsidiary. The failure to enforce the material terms of these
agreements could result in a monetary loss to the Company.
AFFILIATED TRUSTEES
Gary M. Holloway is the Chairman of the Board of Trustees and Chief
Executive Officer of the Company and President of Food Service Operator and
Housekeeping Operator. Mr. Holloway, as well as
20
<PAGE>
certain other trustees or officers of the Company or directors or officers of
Food Service Operator, will also own, directly or indirectly, equity interests
in each of the following entities after the closing of the Offering: the
Company, the Food Service Operator, the Housekeeping Operator, the Management
Subsidiary, GMH Management, Inc.-North, GMH Development, Inc. and Citiforbes
Associates Ltd. and State College Investment Associates, the entities that own
the Managed Properties. In addition, the Company will lease its principal
executive offices in Wayne, Pennsylvania from 353 Associates, an affiliated
company owned by Mr. Holloway, and will lease the Food Service Spaces to an
affiliated entity owned by Mr. Holloway and certain other Continuing Investors.
The Company will also lease an airplane from an entity controlled by Gary M.
Holloway from time to time based on a per hour usage cost at fair market rates.
See "Certain Relationships and Transactions" and "Policies and Objectives in
Respect of Certain Activities--Declaration of Trust and Bylaw Provisions."
TERMS OF LEASES
The payment obligations with respect to the Food Service Spaces and the
lease for the Company's principal executive offices were determined by the
managements of Food Service Operator and 353 Associates, respectively, and
management of the Company. The lease payments that Food Service Operator is
obligated to make are based on an initial aggregate annual base rent of
approximately $1.3 million for all of the twelve Food Service Spaces, which the
Company believes, based on market analyses and studies of similar operations,
reflects the fair rental value of such Food Service Spaces to the Company. In
addition, Food Service Operator will pay a percentage rent to the Company based
on the Food Service Operator's gross revenues realized from the Food Service
Spaces to the extent that such gross revenues exceed a breakpoint. See "Business
of the Company and its Properties -- Food Service Lease with Food Service
Operator." The lease payments that the Company is obligated to make to 353
Associates are based on an initial lease rate of $25 per square foot, gross,
which the Company also believes reflects the fair rental value of the Company's
principal executive offices.
SHARED EMPLOYEES AND FACILITIES
After the Offering, certain employees of the Company will provide services
to both the Company and certain other entities (including the Management
Subsidiary), which are affiliated, managed or controlled by Gary M. Holloway and
certain other Continuing Investors. The salaries and other benefits of these
shared employees have been allocated between the Company and such other entities
based on historical estimates. The number of such shared employees may vary in
the future. The Company will enter into various salary-, fee- and lease-sharing
agreements and arrangements with certain other entities affiliated, managed or
controlled by Gary M. Holloway and certain other Continuing Investors. These
agreements will relate to certain employees, office facilities and services,
such as the human resources staff and a computer network, which are utilized and
maintained for and by more than one such entity.
POTENTIAL FOR FUTURE CONFLICTS
After the Offering, Food Service Operator, Housekeeping Operator, 353
Associates and the Company may be in situations where they have differing
interests resulting from the significant ongoing relationship between the
entities. Such situations include the fact that, after the Offering, Food
Service Operator will lease, pursuant to the Food Service Space Leases, the
space required to provide cafeteria and food services at the Properties and the
Company will lease its principal executive offices from 353 Associates, an
entity wholly owned by Gary M. Holloway. Accordingly, the potential exists for
disagreements as to the compliance with these leases. Because of the
relationships described above, there exists the risk that the Company will not
achieve the same results in its dealings with Food Service Operator,
Housekeeping Operator or from 353 Associates that it might achieve if such
relationships did not exist.
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PLACEMENT OF TITLE INSURANCE
Historically, Bryn Mawr Abstract Inc., an entity affiliated with Gary M.
Holloway, has acted as agent in placing the title insurance policies on the
Properties and received a commission therefrom. Title insurance may be placed on
any new properties acquired by the Company through Bryn Mawr Abstract Inc., and,
from time to time, Bryn Mawr Abstract Inc. may renew the title insurance
policies on the Properties and such new properties.
TAX CONSEQUENCES UPON SALE OR REFINANCING OF PROPERTIES
Holders of Units may suffer different and more adverse tax consequences than
the Company upon the sale or refinancing of any of the Properties and,
therefore, such holders, including Gary M. Holloway and other members of
management, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of the Properties. While the Company, as the
sole general partner of the Operating Partnership, has the exclusive authority
as to whether, and on what terms, to sell or refinance an individual Property,
those members of the Board of Trustees of the Company who hold Units may
influence the Company not to sell or refinance the Properties, even though such
sale or refinancing might otherwise be financially advantageous to the Company,
or may influence the Company to refinance a Property with a high level of debt.
POLICIES WITH RESPECT TO CONFLICTS OF INTERESTS
The Company has adopted certain policies designed to minimize potential
effects of conflicts of interest. Without the approval of the Board of Trustees,
including a majority of the Independent Trustees, after the material facts as to
the relationship or interest and as to the contract or transaction are disclosed
or are known to such trustees, the Company will not (a) acquire from or sell to
any trustee, officer or employee of the Company, or a member of such person's
immediate family or any entity in which a trustee, officer or employee of the
Company or a member of such person's immediate family beneficially owns more
than a 5% equity interest, or acquire from or sell to any affiliate of any of
the foregoing, assets or other property of the Company with a fair market value
greater than $50,000, (b) make any loan to or borrow from any of the foregoing
persons or (c) engage in any other transaction with any of the foregoing
persons, other than the transactions described under "The Formation
Transactions," "Certain Relationships and Transactions" and "Conflicts of
Interest." However, there can be no assurance that these policies always will be
successful in eliminating the effects of such conflicts, and if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all shareholders. See "Policies and Objectives in Respect of
Certain Activities--Prohibited Investments and Activities; Conflict of Interest
Policies" and "--Declaration of Trust and Bylaw Provisions."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of its key executives: Gary M. Holloway, who will serve as the
Company's Chairman of the Board of Trustees and Chief Executive Officer, Bruce
F. Robinson, who will serve as the Company's Chief Financial Officer, and Joseph
Coyle, who will serve as the Company's Chief Operating Officer. Messrs. Holloway
and Robinson will also continue to serve as officers of and provide services to
entities affiliated with Mr. Holloway. It is expected that Mr. Holloway will
devote a majority of his time to the Company's business while Messrs. Robinson
and Coyle will devote most of their time to the Company's business. See
"Management--Trustees and Executive Officers of the Company." The loss of the
services of any of these individuals could have a material adverse effect on the
Company, its operations and its business prospects. See "Management--Employment
Agreements." The Company's success also depends upon its ability to attract and
maintain qualified personnel following the Formation Transactions.
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TAXATION OF THE COMPANY AS A REIT; OTHER TAX CONSEQUENCES
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT
The Company plans to make an election to be taxed as a REIT under the Code,
commencing with its taxable year ending December 31, 1998. A REIT generally is
not taxed on the income it distributes to its shareholders as long as it
currently distributes at least 95% of its taxable income and satisfies certain
income and asset tests. See "Federal Income Tax Consequences--Taxation of the
Company as a REIT--Requirements for Qualification." No assurance can be given
that the Company will qualify as a REIT or be able to remain so qualified. No
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the rules
applicable to the Company with respect to qualification as a REIT or the Federal
income tax consequences of such qualification.
If the Company fails to continue to qualify as a REIT, it will be subject to
Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax liability could significantly reduce
cash flows.
On February 2, 1998, as part of a balanced federal budget proposal for
fiscal year 1999, the Clinton Administration proposed legislation (the "Proposed
Legislation") that would, among other things, prohibit a REIT from holding stock
possessing more than 10 percent of the vote or value of all classes of stock of
a corporation. The proposal would be effective with respect to stock acquired on
or after the date of first Congressional committee action. In addition, to the
extent that a REIT's stock ownership is grandfathered by virtue of this
effective date, the grandfathered status will terminate if the subsidiary
corporation engages in a trade or business that it is not engaged in on the date
of first committee action or acquires substantial new assets on or after that
date. The Company has an affiliated corporation (the Management Subsidiary)
which, if not grandfathered, would fail the test under the Proposed Legislation,
and the Company would be forced to reduce its indirect interest in such
affiliated corporation. There can be no assurance that the Proposed Legislation
will not be enacted in its proposed form and, if any legislation is enacted,
that the Management Subsidiary will be grandfathered. See "Federal Income Tax
Consequences--Taxation of the Company as a REIT--Requirements for
Qualification--Asset Tests."
OTHER TAX CONSEQUENCES
Even if the Company qualifies as a REIT, it will be subject to certain
Federal income taxes and to certain state and local taxes on its income and
property, including the income generated by the Management Subsidiary. See
"Federal Income Tax Considerations--Other Tax Consequences." In addition, the
Operating Partnership may be subject to state and local taxes in certain
jurisdictions.
LIMITATIONS ON SIZE OF HOLDINGS OF SHARES OF BENEFICIAL INTEREST AND CHANGE IN
CONTROL
EXEMPTIONS FOR WHITEHALL FROM THE MARYLAND BUSINESS COMBINATION STATUTE
Under the MGCL, as applicable to REITs, certain "business combinations"
(including certain issuances of equity securities) between a Maryland REIT and
any person who beneficially owns ten percent or more of the voting power of the
trust's shares (an "Interested Shareholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Shareholder becomes an Interested Shareholder. Thereafter, any such business
combination must be approved by two super-majority shareholder votes unless,
among other conditions, the trust's common shareholders receive a minimum price
(as defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Shareholder for
its common shares of beneficial interest. Whitehall V-S Real Estate Limited
Partnership, Whitehall Street Real Estate Limited Partnership III, Whitehall
Street Real Estate Limited Partnership VII, Whitehall Street Real Estate Limited
Partnership
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IX and their affiliates (collectively, "Whitehall") beneficially own more than
10% of the Company's voting shares and would, therefore, be subject to the
business combination provisions of the MGCL. However, pursuant to the statute,
the Company has exempted any business combination involving Whitehall and,
consequently, the five-year prohibition and the super-majority vote requirements
described above will not apply to a business combination between any of them and
the Company. As a result, Whitehall may be able to enter into business
combinations with the Company, which may not be in the best interest of the
shareholders, without compliance by the Company with the super-majority vote
requirements and other provisions of the statute. See "Provisions of Maryland
Law and of the Company's Declaration of Trust and Bylaws--Business
Combinations."
ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT
For the Company to maintain its qualification as a REIT under the Code, not
more than 50% in value of the outstanding shares of beneficial interest of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of the Company's taxable year (other than the first taxable year for which
the election to be treated as a REIT has been made).
The Company's Declaration of Trust, subject to certain exceptions,
authorizes the Board of Trustees to take such actions as are necessary and
desirable to preserve its qualification as a REIT and to limit any person, other
than Whitehall, to direct or indirect ownership of no more than 9.8% (the
"Ownership Limit") of the number or value of the outstanding shares of
beneficial interest of the Company. The Board of Trustees, in its sole
discretion, may exempt a proposed transferee from the Ownership Limit. However,
the Board of Trustees may not grant an exemption from the Ownership Limit if
such exemption would result in the termination of the Company's status as a
REIT. See "Description of Shares of Beneficial Interest--Restrictions on Size of
Holdings of Shares." The Ownership Limit does not apply to the Shares owned,
directly or indirectly, by Whitehall. Thus, there can be no assurance that there
will not be five or fewer individuals who will own more than 50% in value of the
outstanding shares of beneficial interest of the Company, thereby causing the
Company to fail to qualify as a REIT. These restrictions on transferability and
ownership will not apply if the Board of Trustees determines that it is no
longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT.
CLASSIFIED BOARD OF TRUSTEES
The Board of Trustees has been divided into three classes of trustees. The
terms of the classes will expire in 1999, 2000 and 2001, respectively. Beginning
in 1999, as the term of a class expires, trustees in that class will be elected
for a three-year term and the trustees in the other two classes will continue in
office. The staggered terms of trustees may delay, defer or prevent a tender
offer or an attempt to change control of the Company, even though a tender offer
or change in control might be in the best interest of the shareholders. See
"Certain Provisions of Maryland Law and of the Company's Declaration of Trust
and Bylaws--Classification and Election of the Board of Trustees."
SHARES AND PREFERRED SHARES
The Company's Declaration of Trust authorizes the Board of Trustees, without
the approval of shareholders, to issue additional Shares or preferred shares of
beneficial interest, par value $.01 per share (the "Preferred Shares"), of the
Company, or classify any unissued Shares or Preferred Shares and to reclassify
any previously classified but unissued Shares or Preferred Shares of any series
from time to time. See "Description of Shares of Beneficial Interest--General"
and "--Preferred Shares." No such Shares or Preferred Shares have been so
classified or reclassified to date. The issuance of Preferred Shares or other
Shares with voting rights different from the Shares could make it more difficult
for a potential acquiror to obtain sufficient votes to approve proposed
transactions.
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ADVANCE NOTICE PROVISIONS
For nominations or other business to be properly brought before an annual
meeting of shareholders by a shareholder, the Company's Bylaws require such
shareholder to deliver a notice in writing to the Secretary, absent specified
circumstances, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting setting forth: (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
trustee, all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of trustees pursuant to
Regulation 14A of the Exchange Act; (b) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the shareholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (x) the name and
address of such shareholder as it appears on the Company's books and of such
beneficial owner and (y) the number of shares which are owned beneficially and
of record by such shareholder and such beneficial owner, if any.
The "business combination" provisions of the MGCL, the ownership limit, the
classified Board of Trustees, the issuance of Preferred Shares and the advance
notice provisions discussed in the preceding paragraphs each could have the
effect of delaying, deferring or preventing a change in control of the Company
or other transaction even if a change in control or other transaction were in
the shareholders' interests.
CHANGES IN POLICIES
The policies of the Company, including its policies with respect to
investments, financing, growth, debt capitalization, REIT qualification and
distributions, are determined solely by the Board of Trustees. Although it has
no present intention to do so, the Board of Trustees may amend or revise these
and other policies from time to time without a vote of the shareholders of the
Company. See "Policies and Objectives With Respect to Certain Activities."
Accordingly, shareholders will have limited control over changes in policies of
the Company.
NO PRIOR MARKET FOR THE SHARES
Prior to the Offering, there has been no public market for the Shares.
Although application will be made for the Shares to be listed on the NYSE, there
can be no assurance that an active trading market will develop or that the
Shares will be so listed. The initial public offering price will be determined
through negotiations between the Company and the Underwriters and may not be
indicative of the market price of the Shares after the Offering. See
"Underwriting."
POSSIBLE ADVERSE EFFECTS ON SHARE PRICE ARISING FROM SHARES AVAILABLE FOR FUTURE
SALE
No prediction can be made as to the effect, if any, that future sales of
Shares, or the availability thereof for future sale, will have on the market
price of the Shares. Sales of substantial amounts of Shares, additional classes
of shares, Preferred Shares, securities convertible into either or warrants to
purchase either, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Shares. In addition, from time to
time after the completion of the Offering, the Company will grant to its
trustees, and may grant to certain persons who are employees of the Company, (i)
options to purchase up to an aggregate of - Shares at a price per share equal
to the fair market price of the Shares at the time of grant or award pursuant to
the terms of the Company's 1998 Share Incentive Plan (the "1998 Share Incentive
Plan") and (ii) Restricted Shares up to an aggregate of - Shares at a price
per Share equal to the fair market price of the Shares at the time of grant
pursuant to the terms of the Company's Restricted Share Program. See
"Management--Compensation Plans." The Restricted Shares, options and any Shares
to be issued upon the exercise thereof will be
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"restricted securities" within the meaning of Rule 144 under the Securities Act,
and may not be transferred unless they are registered under the Securities Act
or transferred in compliance with Rule 144 or another available exemption from
registration under the Securities Act. The Company currently intends to register
under the Securities Act the grants of Restricted Shares and the Shares issuable
upon the exercise of any options. In addition, the Company has granted to the
Continuing Investors registration rights with respect to sales of Shares that
constitute "restricted" Shares by such persons after the expiration of a
one-year lock-up period.
Units exchangeable for - Shares have been or will be received by
Continuing Investors in connection with the Formation Transactions. After
expiration of the lock-up period applicable to the Continuing Investors (see
"The Operating Partnership--Transferability of Interests"), the Continuing
Investors will be able to resell such Shares. See "Shares Available for Future
Sale." Resales or distribution of such Shares received by the Continuing
Investors upon exchange of the Units may adversely affect the market price of
the Shares. See "Shares Available for Future Sale" and "Underwriting."
EFFECT OF INTEREST RATES ON PRICES OF SHARES
One of the factors that may influence the price of the Shares in public
markets will be the annual yield on the price paid for Shares from distributions
by the Company. Thus, an increase in interest rates may lead purchasers of
Shares to demand a higher annual yield, which could adversely affect the market
price of the Shares.
DILUTION
The pro forma net tangible book value per Share after the Offering will be
lower than the initial public offering price per Share in the Offering.
Accordingly, persons acquiring Shares in the Offering will experience an
immediate and substantial dilution of $- per Share in the net tangible book
value of Shares acquired in the Offering. See "Dilution."
NO LIMITATION ON DEBT
Upon completion of the Offering and the Formation Transactions, the pro
forma Debt-to-Total-Market Capitalization Ratio of the Company would be
approximately 27.7%. The Company currently intends to adhere to a policy of
maintaining a Debt-to-Total-Market Capitalization Ratio below 50%, although the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness that the Company may incur. Accordingly, the Board of
Trustees may alter or eliminate this policy at any time without prior public
announcement, and such ratio is expected to change as the Company completes
significant acquisitions. If this policy were changed, the Company could become
more leveraged, resulting in an increase in debt service that could adversely
affect the Company's cash available for distributions and could increase the
risk of default on the Company's existing indebtedness. Reductions in the market
price of the Shares will also impact the Company's Debt-to-Total-Market
Capitalization Ratio. Factors affecting the market price of the Shares may be
beyond the Company's control.
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets (the "Debt-to-Book Capitalization Ratio") because it believes that the
book value of its assets (which to a large extent is the depreciated value of
real property, the Company's primary tangible asset) does not accurately reflect
its ability to borrow or to meet debt service requirements. The market
capitalization of the Company, however, is more variable than book value, and
does not necessarily reflect the fair market value of the underlying assets of
the Company at all times. Although the Company will consider factors other than
market capitalization in making decisions regarding the incurrence of
indebtedness (such as the estimated market value of any of the Properties upon
refinancing and the ability of particular Properties and the Company as a whole
to generate cash flow to cover expected debt service), there can be no assurance
that the Debt-to-Total-
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Market Capitalization Ratio (or to any other measure of asset value) will be
consistent with the expected level of distributions to shareholders. See
"Policies and Objectives in Respect of Certain Activities-- Financing Policies
and Objectives."
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate, as well as
certain other categories of parties, may be required to investigate and
remediate the effects of hazardous or toxic substances or petroleum product
releases at such property, and may be held liable to a governmental entity or to
third parties for property damage and for investigation and remediation costs
incurred by such parties in connection with the contamination. Such laws
typically impose remediation responsibility and liability without regard to
whether the owner knew of or caused the presence of the contaminants and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The cost of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site. Owners of
multi-resident apartment complexes may also face liability or remediation
expenses as a result of the presence of asbestos containing materials ("ACMs")
in buildings or the presence of underground fuel tanks, radon, and lead paint.
All of the Properties have recently been subjected to "Phase I"
environmental assessments (which involves general inspections of visible areas
without soil sampling, ground water analysis or testing for the presence of lead
paint or ACMs and generally without radon testing). The assessments of the
Properties have not revealed any environmental liability that the Company
believes would be reasonably likely to have a material adverse effect on the
Company's business, assets or results of operations. Nevertheless, it is
possible that the assessments do not accurately reflect current conditions or
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Furthermore, in connection with the
operation, management, construction or development of real properties, the
Company may be considered an operator of such properties or as having arranged
for the disposal or treatment of hazardous or toxic substances or off-site
construction materials and, therefore, potentially liable for removal or
remediation costs as well as certain other potential costs which could relate to
such hazardous or toxic substances or removal or remediation of ACMs, radon or
lead paint or the disposal of off-site construction materials (including
governmental fines and injuries to persons and property). The Company is not
aware of any environmental liabilities with respect to properties it has
managed, constructed or developed, and believes that the Properties are in
compliance in all material respects with applicable environmental laws. No
assurances can be given that (a) future laws, ordinances or regulations will not
impose any material environmental liability or (b) the current environmental
condition of the communities will not be affected by residents and other
occupants of the communities, by the operations at or in the vicinity of the
communities (such as the presence of underground storage tanks or other
containers), or by third parties unrelated to the Company. See "Business of the
Company and its Properties--Governmental Regulations Affecting the Properties--
Environmental Laws."
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THE COMPANY
GENERAL
The Company was formed to continue the Predecessor Partnerships' business
and to capitalize on what the Company believes is a growing shortage of student
housing in the United States. The Company's principal business strategy is to
own, acquire, develop and manage attractive, high quality off-campus student
housing in locations near colleges and universities throughout the United States
and to pursue selected opportunities to cooperate with colleges and
universities, through joint ventures, leasing arrangements and other types of
strategic alliances, in developing private-sector owned, leased or managed
student housing. The Company believes that it is the largest private-sector
owner and operator of off-campus student housing in the United States, based on
the number of student apartments, bedrooms and beds owned or under management.
The Company believes that there are substantial opportunities in the
private-sector student housing business because of the projected growth in
student enrollment and demand for high quality student housing and premium
student housing services. According to the Association of College and University
Housing Officers-International Membership Directory for 1998, student enrollment
at 64 major colleges and universities surveyed was approximately 1,720,000 while
the total on-campus student housing capacity at those institutions was only
approximately 375,000, or approximately 21.8% of the total number of students.
In addition, according to the NCES, enrollment at four-year institutions of
higher education in the United States is projected to increase from 8,582,000
students in 1997 to 9,938,000 students in 2007, an increase of approximately
15.8%, compared to an increase of 8.4% from 1986 to 1996. The Company further
believes that due to budgetary constraints, colleges and universities have not
sufficiently expanded, renovated or modernized existing on-campus student
housing to meet this demand. The Company also believes that many college and
university students favor a distinctive student housing product that offers
functional units with specific amenities and services designed to meet their
particular lifestyles and needs.
Upon the completion of the Formation Transactions, the Company will own
Properties located within close proximity to 23 major colleges and universities
in 17 states. The portfolio will include over 6,300 student apartment units and
approximately 19,450 beds in 32 residential student housing complexes located
throughout the United States. In addition, on February 26, 1998, the Operating
Partnership entered into an agreement to acquire a property in Austin, Texas for
a purchase price of $8.0 million and entered into an agreement to acquire
certain rights, obligations and liabilities with respect to a second property in
Austin, Texas (including, the rights of the seller under an installment sale
agreement and the right to manage such property) for a purchase price of $3.8
million. The Pending Acquisitions are subject to certain conditions, and there
can be no assurance that such properties or rights will be acquired. The Company
will also manage the Managed Properties and is in the process of developing the
Development Properties. The Company believes that, following the Offering, it
will be the only self-administered REIT in the United States focusing on owning,
acquiring, developing and managing student housing.
As of December 31, 1997, the Properties and the Managed Properties were
collectively approximately 93.1% occupied compared to 93.0% occupied as of
December 31, 1996. For those 13 properties that the Predecessor Partnerships
have owned or managed as of December 31, 1996, occupancy rates have decreased
from approximately 97.3% as of December 31, 1996 to approximately 92.4% as of
December 31, 1997. Revenues for those 13 properties, however, increased from
approximately $19.7 million for the year ended December 31, 1996 to
approximately $20.4 million for the year ended December 31, 1997. For the nine
Properties that the Predecessor Partnerships owned at December 31, 1995,
occupancy rates were 96.9%, 96.5% and 88.9% as of December 31, 1995, 1996 and
1997, respectively. The Company believes that the declines in occupancy rates
were the result of a variety of factors, including local and regional management
problems during the ownership transition period and,
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in respect of certain properties, the failure of local and regional property
managers to adequately respond to newly constructed off-campus housing complexes
located near such properties. The Company is focusing on increasing occupancy
rates and has replaced local and regional property managers where appropriate.
The Company also believes that many college and university students favor a
distinctive student housing product that offers functional units with specific
amenities and services designed to meet their particular lifestyles and needs.
To focus on this market, the Company seeks to own, acquire, develop and manage
premium student housing located near colleges or universities. The Properties
include both high-rise and mid-rise residence halls and garden-style apartment
complexes. Amenities offered vary by Property, but include those commonly sought
by students, such as private bedrooms, high quality student furnishings, fitness
centers, swimming pools, air conditioning, computer centers and study rooms. At
various Properties, the Company also provides, or makes available through
affiliates or third parties, either kitchens or convenient food service
facilities and a range of value-added services such as linen and laundry
services, housecleaning services, private telephones, cable television, vending
machines, moving services and wellness programs. The Company is also evaluating
other services such as pre-paid telephone cards and cellular telephones for
students. To the extent that the revenues derived by the Company from the
provision of any of these services is non-rental income, the Company will
provide such services only in a manner consistent with maintaining its status as
a REIT for Federal income tax purposes or such services will be provided by an
independent contractor from which the Company does not derive or receive any
income. See "Federal Income Tax Considerations--Taxation of the Company as a
REIT--Requirements for Qualification."
The Company further believes that, because of the structural and functional
obsolescence of many existing on-campus student housing facilities, future
opportunities may exist to establish joint ventures with colleges and
universities to manage, lease, renovate or develop on-campus student housing,
although it has not yet entered into any such arrangement. See "Student Housing
Industry--Status of the On-Campus Student Housing Market." Opportunities may
exist for the Company to participate in such arrangements through the ownership
or leasing of properties or otherwise. The Company will only consider those
opportunities which are consistent with the Company maintaining its status as a
REIT for Federal income tax purposes. See "Federal Income Tax
Considerations--Taxation of the Company as a REIT--Requirements for
Qualification."
The Company is negotiating to obtain a commitment from the Bank to enter
into the Credit Facility. The Company expects the Credit Facility to take effect
concurrently with the Offering and intends to use borrowings under the Credit
Facility to repay indebtedness and to fund acquisition, construction,
development and renovation costs of student housing and for working capital and
other corporate purposes. The Company currently intends to maintain a capital
structure that limits Debt-to-Total-Market Capitalization Ratio to 50%. The
Company may, however, from time to time change such expected ratio without prior
public announcement, and such ratio is expected to change as the Company
completes significant acquisitions. Following the Offering, the Company is
expected to have $129.6 million of outstanding indebtedness and a pro forma
Debt-to-Total-Market Capitalization Ratio of 27.7%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Policies in Respect of Certain Activities--Financing
Policies."
The Company is led by a senior management team with experience in both the
real estate and student housing industries and is supported by a highly
experienced Board of Trustees. Gary M. Holloway, the Chairman of the Board of
Trustees and Chief Executive Officer of the Company, and two of the Company's
other senior executives have over 50 years combined experience in various
aspects of the real estate business. In addition, Mr. Holloway has been involved
in the student housing industry since 1985 and, together with Whitehall and
other affiliates of Goldman, Sachs & Co., has been acquiring, renovating,
developing and managing student housing properties since December 1995.
29
<PAGE>
The Company expects to qualify as a REIT for Federal income tax purposes
commencing with its tax year ending December 31, 1998. In order to qualify as a
REIT, a specified percentage of the Company's gross income must be derived from
certain sources, including rents from real property (and generally excluding
income from the operation of non-rental related assets). See "Federal Income Tax
Considerations--Taxation of the Company as a REIT--Requirements for
Qualification--Income Tests." Accordingly, the Company is generally precluded
from operating non-rental related assets such as the Food Services through
facilities located on the Food Service Spaces. As a result, the Food Services
will be conducted by Food Service Operator. The Operating Partnership will lease
the Food Services Spaces required for Food Service Operator to operate the Food
Services pursuant to the Food Service Space Lease. See "Business of the Company
and its Properties--Food Service Space Lease with Food Services Operator" and
"Relationship Between Food Service Operator and the Company after the Formation
Transactions." In addition, as a REIT, the Company is precluded from providing
housekeeping services to tenants. As a result the housekeeping services at the
Properties will be conducted by the Housekeeping Operator, an entity owned by,
among others, Gary M. Holloway and certain other Continuing Investors. The
Company will not derive or receive any income from the Housekeeping Operator.
The Company's third party student housing management services are provided by
the Management Subsidiary. See "The Formation Transactions--Management
Subsidiary."
The Company has adopted policies and procedures designed to mitigate future
conflicts of interest, including maintaining a Board of Trustees consisting of a
majority of independent trustees unaffiliated with management and the Continuing
Investors. See "Policies and Objectives in Respect of Certain
Activities--Prohibited Investments and Activities; Conflict of Interest
Policies" and "--Declaration of Trust and Bylaw Provisions."
Upon completion of the Offering, the Company will own a 47.4% interest in
the Operating Partnership (51.8% if the Underwriters' overallotment option is
exercised in full), and Gary M. Holloway and other Named Executive Officers as a
group and other Continuing Investors, including affiliates of Goldman, Sachs &
Co., will own approximately % and %, respectively, of the Operating
Partnership ( % and %, respectively, if the Underwriters' overallotment
option is exercised in full).
The Company's Declaration of Trust provides that the Board of Trustees will
consist of seven trustees, including Messrs. Holloway, and ,
each of whom is, or is affiliated with, a Continuing Investor, and four
Independent Trustees (as defined herein).
The Company, a Maryland real estate investment trust, was formed on December
9, 1997. The Company's principal executive offices are located at 353 West
Lancaster Avenue, Suite 210, Wayne, Pennsylvania 19087 and its telephone number
is (610) 687-6321.
OBJECTIVES AND STRATEGIES
The Company's primary objectives are to achieve increasing Funds from
Operations per Share and enhance shareholder value by owning, acquiring,
developing and managing a diverse portfolio of high quality student housing. The
Company's goal is to continue to be the private-sector leader in the student
housing industry through a comprehensive plan of ownership, acquisitions,
development, rehabilitation and management of student housing and through joint
ventures, leasing arrangements and strategic alliances with colleges and
universities. The Company intends to achieve its objectives through the
implementation of the following strategies:
GROWTH STRATEGY
The Company intends to implement each of the growth strategies outlined
below:
ACQUIRE ADDITIONAL PROPERTIES. The Company has evaluated in excess of 200
off-campus and on-campus student housing in over 40 markets throughout the
United States over the past 18 months, and management believes that its
knowledge of the student housing market will provide a base to evaluate
30
<PAGE>
and acquire additional properties in the future. The Company believes that upon
completion of the Offering, it will have the opportunity to acquire student
housing, purchasing such facilities with a combination of cash, Shares and/or
Units (thereby creating the opportunity for tax-deferred transactions for the
seller (through a subsidiary partnership or otherwise) and potentially reducing
the price that would be paid in all-cash transactions).
DEVELOP MODERN, STATE-OF-THE-ART STUDENT HOUSING. The Company's development
strategy is to continue to construct modern, state-of-the-art student housing,
with fitness centers, dedicated telephone ports for Internet and ethernet access
and other amenities and services commonly sought by college and university
students that command the highest rental and occupancy rates. For example, all
of the Company's newly developed off-campus student housing consist primarily of
garden-style apartments with four bedrooms and two bathrooms centered around a
common area consisting of a living room, a dining area and a kitchen. In
addition to the Development Properties, the Company owns land adjacent to its
Properties at Columbia, Missouri and Kent, Ohio which is available for
development.
MAXIMIZE REVENUES. The Company expects to maximize revenues by increasing
occupancy rates and operating efficiencies at the Company's Properties (or any
newly developed or acquired properties) by implementing the Company's marketing
and leasing strategies, making available high quality properties and additional
amenities and services to students and, to the extent compatible with market
conditions, through increasing rental rates. In addition, acquisitions in the
regions already served by the Company should permit the Company to gain
economies of scale by enabling the Company to consolidate management and leasing
services, reduce costs of capital goods, supplies, furniture and other goods and
services bought in bulk and increase students' and parents' awareness of the
Company through its marketing programs.
TARGET SELECTED PROPERTIES AND LOCATIONS. The Company believes that the
best acquisition and development sites are those located near universities or
colleges with a student enrollment of at least 20,000, where there is a lack of
existing modern student housing and where the site is within two miles of the
relevant university or college campus. The Company will continue to identify
locations for acquisition and development of new student housing through its
experienced management team and its affiliations with and active membership in
leading university-related organizations such as the National Association of
College and University Business Officers, the Association of College and
University Housing Officers International and the National Association of
College Personnel Administration. In addition, in order to find such sites, the
Company recently commenced a program whereby students in certain targeted
markets have been hired as part of a "Student Acquisition Program" to inventory
the market, prepare demographic surveys and market analyses and locate potential
acquisition and development sites for the Company.
FORM STRATEGIC ALLIANCES WITH COLLEGES AND UNIVERSITIES. The Company's
management has engaged, and expects to continue to engage, in discussions with
selected colleges and universities to identify opportunities to cooperate with
these institutions in renovating, leasing and managing existing student housing
or in developing new student housing through joint ventures, under leasing
arrangements and through strategic alliances. Over the past six months, the
Company's management has met with several colleges and universities to discuss
student housing. Future arrangements that could be considered with colleges and
universities are assigning students to off-campus student apartments built by
the private sector, entering into joint ventures to lease on-campus student
housing and share in revenues, commissioning turn-key construction of new or
renovated student housing on college land leased to the joint venture or
private-sector operator, and turning over the entire student housing function to
a private-sector operator.
31
<PAGE>
OPERATING STRATEGY
As the Company pursues its growth strategy involving the acquisition and
development of additional properties, the Company intends to implement the
following operating strategy:
CONTINUE AS LEADING PROVIDER OF HIGH QUALITY OFF-CAMPUS STUDENT HOUSING.
The Company's goal is to continue to be the leading provider of high quality
off-campus student housing in the United States by offering a wide variety of
amenities at the Company's Properties, including, at various locations, private
bedrooms, high quality student furnishings, fitness centers, hot tubs,
tennis/volleyball courts, clubhouses, activity/entertainment centers, swimming
pools, air conditioning, computer centers and study rooms. The Company also
provides, or makes available through affiliates or third parties, (i) either
kitchens or convenient food service facilities and (ii) a range of value-added
services to tenants such as linens and laundry services, private telephones,
cable television, vending machines, moving services and wellness programs. The
Company is also evaluating business activities such as pre-paid telephone cards
and cellular telephones for students.
ACTIVELY MARKET PROPERTIES. The Company intends to continue to actively
market the Properties to increase occupancy and maximize revenues. The Company
believes that the key to its long-term success is to provide a safe, home-like
environment with state-of-the-art technological capabilities and amenities and
services in order to maximize a student's university experience. The Company
intends to continue to market its Properties as viable alternative off-campus
student housing to students, parents and universities by emphasizing the
comfortable living areas, state-of-the-art technology infrastructure, the wide
variety of amenities and services and the Properties' proximity (usually less
than two miles) to the local college or university.
OPTIMIZE STUDENT HOUSING OPERATIONS. All of the Company's Properties are
managed, leased and maintained by on-site employees. In addition, the Company
has ten area managers who are responsible for coordinating the Company's
policies. The Company has developed systems to optimize student housing
operations, such as (a) a requirement that parents guarantee virtually every
student lease, (b) frequent and regular apartment inspections conducted during
the course of the lease term and (c) maintenance of a price list for any damages
incurred, thereby providing students with the incentive to maintain their
apartments. The Company's management also works closely with the neighboring
college and university housing and development staffs to ensure that the needs
of students, parents and the schools are being met throughout the year. For
example, the Company coordinates with colleges and universities to provide
students with access, where available, to the college or university computer
network from each Property's computer room or student apartment units and to
become an approved provider of student housing for the local university or
college.
INCREASE OCCUPANCY RATES THROUGH NON-TRADITIONAL LEASING ARRANGEMENTS. The
Company will seek to increase its occupancy rates by continuing to lease certain
units during the summer months to seasonal tenants, such as senior citizens and
other participants in continuing education programs, as well as participants in
sports and other camp programs.
There can be no assurance that the Company will be able to achieve its
objectives or implement the listed strategies. Further, the Company may change
such objectives or strategies without prior public announcement.
32
<PAGE>
THE STUDENT HOUSING MARKET
OVERVIEW OF STUDENT DEMOGRAPHIC PATTERNS
Demographic patterns and trends in education over the past several years
suggest that there is an increasing number of college age individuals and an
increasing number of students enrolling in colleges and universities in the
United States. According to a report dated May 1997 by the NCES, during the ten-
year period 1997 through 2007 the number of college age individuals (18 to 24
year olds) is expected to increase from 24,807,000 to 28,937,000, an increase of
approximately 16.6%, as compared to a decline of 13.1% in the number of such
individuals from 28,468,000 to 24,736,000 during the ten-year period from 1986
to 1996. Likewise, the NCES estimates that enrollment at four-year institutions
of higher education in the United States will increase from 8,582,000 in 1997 to
9,938,000 in 2007, an increase of approximately 15.8%. By contrast, during the
period from 1986 to 1996, total student enrollment at such institutions is
estimated to have increased from 7,824,000 to 8,483,000, an increase of only
8.4%, while from 1991 to 1995 total student enrollment actually declined by
approximately 2.3% from 8,707,000 to 8,505,000.
The bulk of the undergraduate population on university campuses today are
classified by the NCES as "traditional" (18 to 24 year olds). The following
table indicates the college age population of traditional students based on U.S.
Census projections for the periods indicated:
COLLEGE-AGE POPULATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR (AT JULY 1) 18-24 YEARS OLD 10-YEAR % CHANGE
- --------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
1986..................................................... 28,468 --
1996*.................................................... 24,736 (13.1)
1997*.................................................... 24,807 --
2007*.................................................... 28,937 16.6
</TABLE>
- ------------------------
* Projected.
SOURCE: NATIONAL CENTER FOR EDUCATION STATISTICS.
The following table indicates the total enrollment at four-year institutions
of higher education for the periods indicated:
TOTAL ENROLLMENT AT FOUR-YEAR INSTITUTIONS OF HIGHER EDUCATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
10-YEAR %
YEAR STUDENTS CHANGE
- ----------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
1986................................................................... 7,824 --
1996*.................................................................. 8,483 8.4
1997*.................................................................. 8,582 --
2007*.................................................................. 9,938 15.8
</TABLE>
- ------------------------
* Projected, as of the fall of each year.
SOURCE: NATIONAL CENTER FOR EDUCATION STATISTICS.
33
<PAGE>
The projected increase in the absolute numbers of college age individuals,
combined with increasing enrollment, is expected to create a greater demand for
student housing in those communities in which college and university campuses
are located. Both on-and off-campus student housing markets will compete for
these additional students, but the Company believes that existing on-campus
facilities will be at a disadvantage as such facilities tend to be older units
that have not been sufficiently expanded, renovated or modernized to meet
students' increasing needs and expectations.
STATUS OF THE ON-CAMPUS STUDENT HOUSING MARKET
As student enrollment increases, the Company believes that one of the
biggest challenges facing many colleges and universities is an antiquated
student housing infrastructure. In addition, it may be difficult for colleges
and universities to reconfigure or build new student housing to meet the high
expectations of students. Retrofitting existing dormitories or building new
student housing can be expensive and funds for such facilities are typically
scarce. According to American School & University's 8th Annual Residence Hall
Construction Report published in May 1997, based on statistics compiled from
surveys taken in the relevant year of selected residence hall construction
projects, the median residence hall in 1996 cost $94.45 per square foot, or
$27,200 per resident, compared to $81.40 per square foot, or $22,987 per
resident, in 1989. Accordingly, the Company believes that in order to economize,
colleges and universities will enter into joint agreements with the private
sector for the construction and development of student housing and will rely on
private companies to provide on- and off-campus student housing to meet the
increased demand.
The Company further believes that, because of the structural and functional
obsolescence of many existing on-campus student housing facilities, future
opportunities may exist to establish joint ventures to manage, lease, renovate
or develop student housing. With the development of the use of computer networks
and other forms of telecommunications in colleges and universities, changes in
students' demands for single occupancy housing and deferrals in the maintenance
of student dormitories brought about by budgetary constraints, many colleges and
universities have dormitories that are, in terms of design, obsolete. Renovating
existing dormitories may be expensive due to the costs of enlarging units,
changing double occupancy to single occupancy, maintaining the character of
historical buildings and adding computer networks and other telecommunications
facilities, study halls and kitchens. Thus, the Company believes that further
opportunities may exist for private sector developers to address student housing
needs by entering into arrangements with colleges and universities to assign
students to off-campus student apartments built by the private sector, enter
into joint ventures to lease on-campus student housing and share in revenues,
commission turn-key construction of new or renovated student housing on college
land leased to the joint venture or private-sector operator, and turn over the
entire student housing function to a private-sector operator.
As discussed in "Business of the Company and its Properties--The Company's
Properties," a number of colleges and universities do not have the capacity to
house all of their students. For example, according to The Association of
College and University Housing Officers-International Membership Directory for
1998, total student enrollment at 64 major colleges and universities surveyed
was approximately 1,720,000 while the on-campus student housing capacity at
these institutions was only approximately 375,000, or approximately 21.8% of the
total number of students.
The following table indicates the total enrollment, the on-campus housing
capacity and the percentage of the total enrollment that can be housed on-campus
at selected colleges and universities in the Company's targeted markets (bold
face indicates locations where the Company is currently operating):
34
<PAGE>
TOTAL ENROLLMENT AND ON-CAMPUS HOUSING CAPACITY
<TABLE>
<CAPTION>
TOTAL ON-CAMPUS % OF
COLLEGE OR UNIVERSITY ENROLLMENT CAPACITY* ENROLLMENT
- ----------------------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
AUBURN UNIVERSITY, AL................................ 21,800 3,600 16.5
University of Alabama, AL............................ 19,494 4,001 20.5
Arizona State University, AZ......................... 44,550 5,000 11.2
Northern Arizona University, AZ...................... 19,242 6,415 33.3
University of Arizona, AZ............................ 35,000 4,732 13.5
UNIVERSITY OF ARKANSAS, AR........................... 14,692 3,437 23.4
SAN DIEGO STATE UNIVERSITY, CA....................... 30,000 3,077 10.3
San Jose State University, CA........................ 27,000 2,000 7.4
University of California at Berkeley, CA............. 30,000 5,942 19.8
University of California at Santa Barbara, CA........ 18,531 4,164 22.5
COLORADO STATE UNIVERSITY, CO........................ 22,000 7,000 31.8
University of Colorado, CO........................... 25,013 5,876 23.5
FLORIDA STATE UNIVERSITY, FL......................... 30,268 5,202 17.2
University of Central Florida, FL.................... 28,200 1,600 5.7
University of Florida, FL............................ 40,000 6,992 17.5
UNIVERSITY OF SOUTH FLORIDA, FL...................... 36,000 2,593 7.2
UNIVERSITY OF GEORGIA, GA............................ 30,000 5,634 18.8
Northern Illinois University, IL..................... 22,558 6,149 27.3
UNIVERSITY OF ILLINOIS AT URBANA, IL................. 36,000 10,754 29.9
Indiana University, IN............................... 28,500 1,000 3.5
Purdue University, IN................................ 35,715 11,346 31.8
Iowa State University, IA............................ 24,899 7,328 29.4
University of Iowa, IA............................... 27,000 5,569 20.6
Kansas State University, KS.......................... 21,000 3,500 16.7
UNIVERSITY OF KANSAS, KS............................. 26,127 4,997 19.1
University of Kentucky, KY........................... 22,000 6,023 27.4
Louisiana State University, LA....................... 27,000 4,978 18.4
University of Maryland at College Park, MD........... 37,000 7,920 21.4
Michigan State University, MI........................ 41,000 17,047 41.6
University of Michigan at Ann Arbor, MI.............. 37,500 9,893 26.4
University of Minnesota at Twin Cities, MN........... 37,548 5,519 14.7
MISSISSIPPI STATE UNIVERSITY, MI..................... 13,500 4,068 30.1
UNIVERSITY OF MISSOURI AT COLUMBIA, MO............... 22,000 5,500 25.0
University of Nebraska at Lincoln, NE................ 24,500 5,419 22.1
Rutgers University, NJ............................... 37,779 14,400 38.1
East Carolina University, NC......................... 18,500 5,450 29.5
North Carolina State University, NC.................. 27,300 6,610 24.2
KENT STATE UNIVERSITY, OH............................ 27,000 5,600 20.7
OHIO STATE UNIVERSITY, OH............................ 48,000 9,547 19.9
University of Toledo, OH............................. 22,000 2,889 13.1
Oklahoma State University, OK........................ 18,244 5,308 29.1
University of Oklahoma, OK........................... 22,670 3,747 16.5
Oregon State University, OR.......................... 14,700 3,200 21.8
University of Oregon, OR............................. 16,593 3,900 23.5
Drexel University, PA................................ 11,000 1,596 14.5
PENN STATE UNIVERSITY, PA............................ 42,250 12,392 29.3
University of Pennsylvania, PA....................... 23,000 7,000 30.4
University of South Carolina at Columbia, SC......... 26,000 6,190 23.8
University of Memphis, TN............................ 20,062 2,502 12.5
UNIVERSITY OF TENNESSEE, KNOXVILLE, TN............... 25,998 9,366 36.0
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
TOTAL ON-CAMPUS % OF
COLLEGE OR UNIVERSITY ENROLLMENT CAPACITY* ENROLLMENT
- ----------------------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
TEXAS A&M UNIVERSITY, TX............................. 42,000 10,661 25.4
Texas Tech University, TX............................ 24,500 6,000 24.5
UNIVERSITY OF TEXAS AT AUSTIN, TX.................... 48,008 6,077 12.7
Brigham Young University, UT......................... 27,000 6,399 23.7
University of Utah, UT............................... 26,000 2,317 8.9
JAMES MADISON UNIVERSITY, VA......................... 12,800 4,925 38.5
University of Richmond, VA........................... 4,336 2,673 61.6
University of Virginia, VA........................... 18,000 6,911 38.4
Virginia Commonwealth University, VA................. 22,000 3,100 14.1
VIRGINIA TECH UNIVERSITY, VA......................... 23,873 8,364 35.0
University of Washington, WA......................... 34,700 5,660 16.3
Washington State University, WA...................... 16,700 6,385 38.2
WEST VIRGINIA UNIVERSITY, WV......................... 23,000 3,500 15.2
UNIVERSITY OF WISCONSIN AT MADISON, WI............... 39,826 8,023 20.1
</TABLE>
- ------------------------
* Total number of traditional dormitories, residence halls or apartments
located on a college or university campus and any other student housing
otherwise owned or controlled by colleges or universities or fraternities,
sororities or clubs affiliated with colleges or universities.
SOURCE: THE ASSOCIATION OF COLLEGE AND UNIVERSITY HOUSING OFFICERS-INTERNATIONAL
MEMBERSHIP DIRECTORY FOR 1998.
SUPPLY OF STUDENT HOUSING
New construction and development by colleges and universities, various
commercial developers, real estate companies and other owners of real estate
that are engaged in the construction and development of student housing are
expected to compete with the Company in meeting the anticipated increased demand
in student housing over the next ten years. See "Business of the Company and its
Properties--Competition."
The Company believes, however, that there remains a shortage of student
housing in crucial areas that the Company has targeted for development. For
example, the University of Central Florida in Orlando, Florida and Virginia Tech
University in Blacksburg, Virginia have total student enrollments of
approximately 28,000 and 23,900, respectively, and on-campus housing capacity
for approximately 1,600 and 8,400 students, respectively. See "Business of the
Company and its Properties--The Properties--Development Properties."
The Company further believes that it is well-positioned to capitalize on the
expected growing shortage of student housing in the United States due to its
experience in the student housing industry, the economies of scale afforded by
the Company's size, its access to capital for the acquisition and development of
additional student housing, its high quality student housing product and its
developed systems designed to optimize student housing operations.
36
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby,
after deducting estimated expenses of the Offering and the underwriting
discount, are expected to be approximately $148.1 million (approximately $172.1
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $ - per Share (the midpoint of
the range of the initial public offering prices set forth on the cover page of
this Prospectus). The Company will contribute the net proceeds of the Offering
to the Operating Partnership in exchange for Units. See "The Formation
Transactions." It is intended that all of the net proceeds of the Offering will
be used by the Operating Partnership to repay existing indebtedness in the
amount of $146.8 million and pay prepayment penalties equal to $1.3 million.
The indebtedness bears interest at the following rates and has the following
maturity dates: (i) $46.1 million bears interest at rates ranging from 7.70% to
8.95% (as of December 31, 1997) and has various maturity dates ranging from
August 31, 2000 to December 1, 2003; (ii) $6.7 million bears interest at LIBOR
plus 4% and is payable upon demand (the "Glenmorris Debt"); and (iii) $94.0
million bears interest at 7.99% and matures on August 31, 2000 (the "WHNML-S
Debt"). The Glenmorris Debt was incurred in January 1998 and the proceeds from
such indebtedness were used by the Predecessor Partnerships to purchase the
Glenmorris Property. The WHNML-S Debt was incurred in April and May 1997 and the
proceeds from such indebtedness were used by the Predecessor Partnerships to
purchase the WHNML-S Acquired Properties. See "Mortgage Debt and Credit
Facility."
Pending the application of the net proceeds of the Offering as described
above, the Operating Partnership will invest such proceeds and any remaining net
proceeds, if any, in short-term investment grade instruments, interest-bearing
bank accounts, certificates of deposit, U.S. government securities or
mortgage-backed securities guaranteed by Federal agencies.
37
<PAGE>
DISTRIBUTIONS
The Company intends to make distributions to its shareholders in amounts not
less than the amounts required to maintain REIT status under the Code and, in
general, in amounts exceeding taxable income. In order to qualify as a REIT, the
Company is required to make distributions to its shareholders in amounts at
least equal to (i) the sum of (A) 95% of its "real estate investment trust
taxable income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (B) 95% of the net income (after tax), if any,
from foreclosure property minus (ii) the sum of certain items of non-cash
income. See "Federal Income Tax Considerations -- Taxation of the Company as a
REIT."
The Company's ability to make distributions will depend upon its Cash
Available for Distribution. The following factors, among others, will affect
Cash Available for Distribution and will influence the decisions of the Board of
Trustees regarding distributions: (a) scheduled increases in rent under leases
with students with respect to the Properties; (b) receipt of rents under the
Food Service Space Leases; (c) returns from short-term investments; and (d)
receipt of interest and dividends from the Management Subsidiary. Hence, there
can be no assurance as to the Company's ability to pay future distributions.
Although the Company will receive most of its rental payments on a monthly
basis, it intends to make distributions quarterly. Amounts accumulated for
distribution will be invested by the Company in short-term investments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
38
<PAGE>
CAPITALIZATION
The following table sets forth the combined historical capitalization of the
Predecessor Partnerships and the pro forma combined capitalization of the
Company as of December 31, 1997 as adjusted to give effect to the Formation
Transactions, the entering into of and drawdown under the Credit Facility, the
Offering and the application of the net proceeds from the Offering as described
under "Use of Proceeds." The information set forth in the table should be read
in conjunction with the combined historical financial statements and notes
thereto, the pro forma financial information and adjustments thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------
<S> <C> <C>
COMBINED PRO FORMA
HISTORICAL AS ADJUSTED
---------- ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage notes payable (1)............................................................. $ 270,146 $ 75,994
Line of Credit (2)..................................................................... -- 53,834
Minority interests in Operating Partnership............................................ -- 131,279
Shareholders' and Owners' Equity:
Preferred Shares, par value $.01; 5,000,000 shares authorized.......................... -- --
Common Shares, par value $.01; 50,000,000 shares authorized, no shares issued
historical; - shares issued and outstanding pro forma (3)....................... -- -
Additional paid-in capital............................................................. -- -
Accumulated equity of Continuing Investors............................................. 107,389 --
---------- ------------
Total shareholders' and owners' equity................................................. 107,389 118,300
---------- ------------
Total Capitalization................................................................... $ 377,535 $ 379,407
---------- ------------
---------- ------------
</TABLE>
- ------------------------
(1) See Note 5 of the notes to the combined financial statements of the
Predecessor Partnerships for information relating to outstanding
indebtedness on a combined historical basis as of December 31, 1997.
(2) The Company expects to drawdown approximately $53.8 million under the Credit
Facility simultaneously with the completion of the Offering.
(3) Pro forma as adjusted includes the Shares to be issued in the Offering, but
does not include (a) - Shares that may be issued upon the exchange of
Units issued in connection with the Formation Transactions, (b) -
Shares that are subject to the Underwriters' overallotment option and (c)
- Shares subject to options to be granted to officers, trustees and
employees of the Company in connection with the Formation Transactions.
39
<PAGE>
DILUTION
The initial public offering price per Share will exceed the net tangible
book value per Share. Therefore, the holders of Units issued in connection with
the Formation Transactions will realize an immediate increase in the net
tangible book value of their Units, while purchasers of Shares sold in the
Offering will realize an immediate dilution in the net tangible book value of
their Shares. Net tangible book value per Share is determined by subtracting
total liabilities from total tangible assets and dividing the remainder by the
number of Shares that will be outstanding after the Offering and assuming all
Units outstanding after the Offering are exchanged for Shares. The following
table illustrates the dilution to purchasers of Shares sold in the Offering
based on the assumed initial public offering price and assuming no exercise of
the Underwriters' over-allotment option.
<TABLE>
<S> <C> <C>
Assumed initial public offering price (1)................................ $
Net pro forma tangible book value per Share prior to the Offering (2).... $
Increase in net pro forma tangible book value per Share attributable to
payments by purchasers of Shares sold in the Offering.................. $
Net pro forma tangible book value per Share after the Offering (2).......
---------
Dilution per Share sold in the Offering (2).............................. $
---------
---------
</TABLE>
- ------------------------
(1) Before deducting underwriting discounts and estimated expenses of the
Offering.
(2) Determined by dividing total pro forma tangible assets of the Company as of
-, 1998 by the total number of Shares to be outstanding following the
Formation Transactions, treating all Units as if exchanged for Shares.
The following table sets forth the number of Shares to be sold by the
Company in the Offering as well as the number of Units and Shares issued or to
be issued to the Continuing Investors in the Formation Transactions and the net
tangible book value of the average contribution per Share based on total
contributions. The Shares issued and per Share amounts are presented as if each
Continuing Investor receiving Units had exchanged such Units for Shares.
<TABLE>
<CAPTION>
SHARES ISSUED BY THE COMPANY BOOK VALUE OF
CONTRIBUTIONS
-------------------------------- ----------------------------
SHARES PERCENT VALUE PERCENT
------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
Units issued to Continuing Investors in the Formation
Transactions...............................................
Shares issued by the Company in the Offering................. (1)
Total........................................................
<CAPTION>
BOOK VALUE
OF AVERAGE
CONTRIBUTION
PER SHARE
-------------------
<S> <C>
Units issued to Continuing Investors in the Formation
Transactions...............................................
Shares issued by the Company in the Offering.................
Total........................................................
</TABLE>
- ------------------------
(1) Before deducting underwriting discounts and estimated expenses of the
Offering.
40
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial and other
information for the Company and combined historical financial information for
the Predecessor Partnerships. The pro forma operating information is presented
as if the Offering, the Formation Transactions, the entering into of and
drawdown under the Credit Facility, the repayment of certain indebtedness, the
Glenmorris Acquisition and the purchase of the Acquired Properties had been
consummated as of January 1, 1997 and therefore reflects certain assumptions
that are described in the Adjustments to the Unaudited Pro Forma Condensed
Consolidated Statement of Operations included elsewhere in this Prospectus. The
pro forma balance sheet information is presented as if the Offering, the
Formation Transactions, the entering into of and drawdown under the Credit
Facility, the repayment of certain indebtedness and the Glenmorris Acquisition
had been consummated on December 31, 1997, and therefore reflects certain
assumptions that are described in the Adjustments to the Unaudited Pro Forma
Condensed Consolidated Balance Sheet included elsewhere in this Prospectus. The
pro forma information does not purport to represent what the Company's financial
position or results of operations actually would have been had the Offering, the
Formation Transactions, the repayment of certain indebtedness, the Glenmorris
Acquisition, the entering into of and drawdown under the Credit Facility and the
purchase of the Acquired Properties, in fact, occurred on such date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
The historical and pro forma financial information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
PRO FORMA DECEMBER 19,
--------------- 1995
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENT OF OPERATING DATA:
Revenue:
Rental......................................... $ 58,216 $ 35,668 $ 16,155 $ 534
Food service................................... -- 10,222 -- --
Interest....................................... 500 500 145 --
Other.......................................... 3,459 1,604 971 19
--------------- --------------- --------------- -----
Total revenue.................................... 62,175 47,994 17,271 553
Expenses:
Rental operations.............................. 16,015 11,003 3,321 24
Food service................................... -- 5,974 -- --
Operating payroll.............................. 9,353 6,357 1,666 31
Real estate taxes.............................. 4,243 2,517 1,028 28
Management fees................................ -- 1,871 638 22
General and administrative..................... 3,971 1,711 86 4
Interest....................................... 11,009 14,334 6,230 214
Depreciation................................... 10,955 6,497 3,075 102
--------------- --------------- --------------- -----
Total expenses................................... 55,546 50,264 16,044 425
--------------- --------------- --------------- -----
Net Income (loss) before minority interest....... 6,629 (2,270) 1,227 128
Minority interests............................... 3,487 -- -- --
--------------- --------------- --------------- -----
Net income (loss)................................ $ 3,142 $ (2,270) $ 1,227 $ 128
--------------- --------------- --------------- -----
--------------- --------------- --------------- -----
Pro forma earnings per Share (1)................. -- -- --
Pro forma earnings per Share assuming dilution
(1)............................................ -- -- --
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
-------------- ------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA (AT PERIOD END):
Properties--net of accumulated depreciation....................... $ 374,714 $ 368,152 $ 105,156
Total assets...................................................... 399,822 398,331 109,177
Total indebtedness................................................ 129,828 270,146 78,915
Total liabilities................................................. 150,243 290,942 82,457
Minority interest................................................. 131,279 -- --
Total shareholders' and owners' equity............................ $ 118,300 $ 107,389 $ 26,720
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
PRO FORMA DECEMBER 19,
--------------- 1995
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
(FUNDS FROM OPERATIONS DATA IN THOUSANDS)
OTHER DATA:
Funds from Operations(2):
Net income (loss).............................. $ 3,142 $ (2,270) $ 1,227 $ 128
Add: real estate related depreciation.......... 7,630 4,373 2,055 102
--------------- ------- ------- -----
Funds from Operations.......................... $ 10,772 $ 2,103 $ 3,282 $ 230
--------------- ------- ------- -----
--------------- ------- ------- -----
Properties owned at end of period (excluding
development land)................................ 32 31 11 9
Rentable beds at end of period................... 19,446 18,906 6,694 5310
Occupancy of properties owned at end of period... 92.4% 92.2% 96.8% 96.9%
</TABLE>
- ------------------------
(1) Pro forma net income per Share is based upon - Shares expected to be
outstanding after the Offering.
(2) The White Paper on Funds from Operations approved by the NAREIT Board of
Governors in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flows from operating activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. The Company's Funds from Operations is not
comparable to Funds from Operations reported by other REITs that do not
define the term using the current NAREIT definition or that interpret the
current NAREIT definition differently than does the Company. Funds from
Operations should not be considered as an alternative to net income
(computed in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities (computed
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Financial Statements of the Company, the
Audited Combined Financial Statements of the Predecessor Partnerships and
"Selected Financial Information" contained elsewhere in this Prospectus.
OVERVIEW
The Company was organized as a Maryland real estate investment trust on
December 9, 1997, and intends to make an election to qualify under the Code as a
REIT commencing with its taxable year ending December 31, 1998. Substantially
all of the Company's initial revenues are expected to be derived from: (a) rents
received under leases of the Properties; (b) rents received under the Food
Service Space Lease; (c) interest earned from the temporary investment of funds
in short-term investments; and (d) income derived from the Company's third party
student housing management business. See "Business of the Company and its
Properties--Leases with Students," "--Food Service Space Leases with Food
Service Operator" and "The Formation Transactions--Management Subsidiary."
The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, office rental and related occupancy costs and various expenses
incurred in the process of acquiring additional properties and maintaining,
leasing and operating its existing Properties. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company will engage legal, accounting, tax and
financial advisors from time to time.
The primary non-cash expense of the Company will be the depreciation of its
properties. The Company expects to depreciate buildings and improvements over
35-year and 40-year periods for financial reporting purposes. The Company also
expects to employ moderate leverage, pursuant to the Credit Facility or
otherwise, to fund additional investments and will incur long and short-term
indebtedness, and related interest expense, from time to time. See "Risk
Factors--General Real Estate Investment Risks--Debt Financing and Existing Debt
Maturities."
The Company intends to make distributions to its shareholders in amounts not
less than the amounts required to maintain REIT status under the Code and, in
general, in amounts exceeding taxable income. The Company's ability to make
distributions will depend upon its Cash Available for Distribution.
RESULTS OF OPERATIONS
GENERAL
The Company had no operations prior to December 9, 1997 (the date of
organization). The Company's future results of operations will depend upon,
among other things, revenues from the Properties, the variability of the
Company's expenses, including interest expense, and the results from any
subsequent investments the Company may make. All of the Properties have been
recently acquired by the Predecessor Partnerships and have limited operating
histories under current management. The only Properties owned by the Predecessor
Partnerships for more than one year are the nine Properties purchased in
December 1995 (the "Original Properties") and the two properties acquired in
October 1996 (the "1996 Properties"). The 14 WHNML-S Acquired Properties were
acquired in April and May 1997, the six JPI Acquired Properties were acquired in
December 1997 and one Property was acquired in January 1998 (the "Glenmorris
Property"). See "Description of the Company and its Properties" and "Risk
Factors--Lack of Operating History."
43
<PAGE>
The historical comparisons set forth below reflect the acquisition of
Properties at different dates and do not include operating data for the same
Properties for each of the periods indicated. Only the Original Properties (nine
Properties) and the 1996 Properties (two Properties) are included in the results
of operations for the year ended December 31, 1996, while 31 Properties (of the
32 Properties currently owned by the Predecessor Partnerships) are included in
the results of operations for the year ended December 31, 1997. Of the
Properties included in the results of operations for the year ended December 31,
1996, operating data for the Original Properties (nine Properties) is included
for the entire period, while operating data for the two 1996 Properties is
included since October 1996, the date of acquisition of such Properties. Of the
Properties included in the results of operations for the year ended December 31,
1997, operating data for the Original Properties and 1996 Properties (11
Properties) is included for the entire period, operating data for ten and four
WHNML-S Acquired Properties, respectively, is included since April and May 1997,
their respective dates of acquisition, and operating data for the JPI Acquired
Properties (six Properties) is included for only one day, as a result of the
acquisition of the JPI Acquired Properties on December 30, 1997. As a result of
the Company's acquisitions, the financial data set forth in this Prospectus may
not provide a meaningful measure of the Company's financial performance or of
its future profit potential. In addition, Property data for operating periods of
less than one year may not provide an accurate or meaningful measure of a
Property's performance for a variety of reasons, including seasonality of
revenues and expenditures.
COMPARISON OF HISTORICAL YEAR ENDED DECEMBER 31, 1997 TO HISTORICAL YEAR ENDED
DECEMBER 31, 1996
Total revenues for the year ended December 31, 1997 increased $30.7 million
from the year ended December 31, 1996 primarily due to the inclusion of the
WHNML-S Acquired Properties for a portion of 1997 and the 1996 Properties for
the entire period in 1997. Rental revenue increased $19.5 million primarily due
to the inclusion of the WHNML-S Acquired Properties and the 1996 Properties and
increasing rental rates which were partly offset by a 4.6% overall decrease in
occupancy rates to 92.2% for the year ended December 31, 1997 from 96.8% for the
year ended December 31, 1996. Food service revenue was $10.2 million for the
year ended December 31, 1997 due to the inclusion of the WHNML-S Acquired
Properties, which provide food services on premises. The Original Properties and
the 1996 Properties do not provide food services; therefore, there was no food
service revenue for 1996. Interest revenue increased $.4 million primarily due
to the increase in cash and cash equivalents as a result of the acquisition of
the WHNML-S Acquired Properties, which allow students to prepay rent for the
entire lease term. Other revenue increased $.6 million primarily due to the
inclusion of the WHNML-S Acquired Properties and the 1996 Properties. Total
revenues from the Original Properties decreased 5.3%, or $.9 million, for 1997
due to the decreases in occupancy rates at the Original Properties, the effects
of which were partially offset by increases in rental rates at the Original
Properties. Such declines in occupancy rates were the result of a variety of
factors, including local and regional management problems during the ownership
transition period and, in respect of certain properties, the failure of local
and regional property managers to adequately respond to newly constructed
off-campus housing complexes located near such properties. The Company is
focusing on increasing occupancy rates and has replaced local and regional
property managers where appropriate.
Total expenses for the year ended December 31, 1997 increased $34.2 million
from the year ended December 31, 1996 primarily due to the inclusion of the
WHNML-S Acquired Properties for a portion of 1997 and the 1996 Properties for
the entire period in 1997. Rental operations expense increased $7.7 million due
to the costs of operating the WHNML-S Acquired Properties in the short lease-up
period following their acquisition and prior to the start of the 1997/98
university year, the cost of operating the 1996 Properties for the 1997/98
university year and the related start-up expense. Real estate tax and management
fee expense increased $1.5 million and $1.2 million, respectively, due to the
greater number of Properties owned by the Company, while operating payroll
expense increased $4.7 million due to the hiring of new employees to service the
additional acquired Properties. Depreciation expense
44
<PAGE>
increased $3.4 million due to the greater number of Properties owned by the
Company, while interest expense increased $8.1 million primarily as a result of
the incurrence of approximately $94.0 million of indebtedness in connection with
the acquisition of the WHNML-S Acquired Properties. General and administrative
expense increased $1.6 million as a result of the higher number of Properties
served, the greater number of employees and start-up costs related to the
acquisition of the 1996 Properties and the WHNML-S Acquired Properties. Food
service expense was $6.0 million for the year ended December 31, 1997 due to the
inclusion of the WHNML-S Acquired Properties, which provide food services on
premises while the Original Properties and the 1996 Properties do not. Total
expenses from the Original Properties increased 10.4%, or $1.6 million, for 1997
primarily due to higher interest costs as a result of additional indebtedness of
$6.6 million, increased building interior maintenance and repair costs incurred
to improve individual units in the Original Properties and administrative costs
incurred in connection with the hiring and professional development of qualified
managers and office personnel in anticipation of the Offering.
Net income (loss) decreased to ($2.3) million for the year ended December
31, 1997 from $1.2 million for the year ended December 31, 1996. The decrease in
net income is primarily attributable to the increase in total expenses of the
Original Properties, as well as decreases in occupancy rates of six of the
Original Properties and at certain other Properties, the effects of which were
partially offset by increases in rental rates and increases in summer rental
revenue at certain Properties. Net income (loss) from the Original Properties
decreased $2.4 million for 1997. Such decrease is primarily attributable to the
increase in total expenses at the Original Properties, as well as decreases in
occupancy rates at six of the Original Properties, the effects of which were
partially offset by increases in rental rates at the Original Properties.
PRO FORMA YEAR ENDED DECEMBER 31, 1997
The pro forma operating results for the year ended December 31, 1997 are
presented as if the Offering, the Formation Transactions, the entering into of
and drawdown under the Credit Facility, the repayment of certain indebtedness
and the acquisitions of the WHNML-S Acquired Properties, the JPI Acquired
Properties and the Glenmorris Property all had occurred at the beginning of the
period presented, and therefore include operating data for all Properties (32
Properties). The Company estimates that after giving effect to the Offering, the
Formation Transactions, the entering into of and drawdown under the Credit
Facility, the repayment of certain indebtedness and the acquisitions of the
WHNML-S Acquired Properties, the JPI Acquired Properties and the Glenmorris
Property, rental, interest and other revenue, respectively, on a pro forma basis
would have been $58.2 million, $.5 million and $3.5 million for the year ended
December 31, 1997, while total revenues on a pro forma basis would have been
$62.2 million. Rental operations, operating payroll and interest expense,
respectively, would have been $16.0 million, $9.4 million and $11.0 million for
the year ended December 31, 1997. Depreciation, real estate taxes and general
and administrative expenses would have been $11.0 million, $4.2 million and $4.0
million, respectively, for the year ended December 31, 1997, while the Company
would not have incurred any food service expenses or management fees. The total
operating expenses on a pro forma basis would have been $55.6 million for the
year ended December 31, 1997. The resulting net income on a pro forma basis
would have been $6.6 million, or $ - net income per share. See "Selected
Financial Information."
The pro forma financial information is not necessarily indicative of what
the actual financial position and results of operations of the Company would
have been as of and for the periods indicated, nor does it purport to represent
the future financial position and results of operations for future periods. In
addition, the pro forma results of operations assume that the net proceeds of
the Offering and the drawdown under the Credit Facility will be used to repay
approximately $200.6 million of outstanding indebtedness. Such expectation is
based on an assumption that the net proceeds to the Company from the sale of the
Shares offered hereby, after deducting estimated expenses of the Offering and
the
45
<PAGE>
underwriting discount, are expected to be approximately $148.1, assuming an
initial public offering price of $ - per Share (the midpoint of the range of
the initial public offering prices set forth on the cover page of this
Prospectus). See "Use of Proceeds." If the initial public offering price is less
than $- or the Company's actual expenses are more than estimated, the net
proceeds to the Company from the Offering will be less than expected, thereby
reducing the amount of mortgage indebtedness repaid by the Company and
increasing the Company's interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its initial working capital and cash from
operations, together with the Credit Facility anticipated to be available to the
Company, will provide adequate liquidity to conduct its operations, fund
administrative and operating costs, interest payments and acquisitions, and
allow distributions to the Company's shareholders in accordance with the Code's
requirements for qualification as a REIT and to avoid any corporate level
Federal income or excise tax.
In order to qualify as a REIT for Federal income tax purposes, the Company
will be required to make substantial distributions to its shareholders. The
following factors, among others, will affect Funds from Operations and will
influence the decisions of the Board of Trustees regarding distributions: (a)
scheduled increases in rent under leases with students with respect to the
Properties; (b) receipt of rents under the Food Service Space Leases; (c)
returns from short-term investments; and (d) income derived from the Company's
third party student housing management business. Although the Company will
receive most of its rental payments on a monthly basis, it intends to make
distributions quarterly. Amounts accumulated for distribution will be invested
by the Company in short-term investments.
Under the terms of the Food Service Space Lease, Food Service Operator is
responsible for substantially all expenses associated with the operation of the
Food Service Spaces of the Properties, such as utilities, janitorial and
maintenance services. In addition, Food Service Operator pays a gross rent to
the Company which the Company believes will compensate the Company for taxes and
operating expenses attributable to the Food Service Spaces. See "Business of the
Company and its Properties-- Food Service Space Lease with Food Service
Operator." As a result of these arrangements, the Company does not believe it
will incur any major expenses in connection with the Food Service Spaces during
the term of the Food Service Space Lease. The Company anticipates, however, that
any other expenditures associated with the Properties will be funded by cash
from operations and, in the case of major expenditures, possibly by borrowings.
To the extent that unanticipated expenditures or significant borrowings are
required, the Company's Funds from Operations and liquidity may be adversely
affected.
The Company is negotiating to obtain a $250 million Credit Facility that
will be used to repay outstanding mortgage indebtedness and to finance the
acquisition of additional properties, to fund construction, renovation and
development costs and for working capital and other general operating purposes,
as necessary. It is expected that the Credit Facility will have a maturity of
between two and three years following the Formation Transactions and will bear
interest at variable rates based on a spread over the London Interbank Offered
Rate. It is also expected that the Credit Facility will contain affirmative and
negative covenants customary and standard for a REIT, including a requirement
that the Company repay amounts in excess of the total commitment amount, as
adjusted to reflect mandatory reductions. See "Mortgage Debt and Credit
Facility--Credit Facility."
The Company currently has no commitments with respect to capital
expenditures. The Company may raise additional long-term capital by issuing, in
public or private transactions, equity or debt securities, but the availability
and terms of any such issuance will depend upon the market and other conditions.
The Company anticipates that as a result of its initial Debt-to-Total-Market
Capitalization Ratio of 27.7%, and its current intention to maintain a
Debt-to-Total-Market Capitalization Ratio of less than 50%, it will be able to
obtain financing for its long-term capital needs. However, there can be no
46
<PAGE>
assurance that such additional financing or capital will be available on terms
acceptable to the Company. The Company expects to borrow under the Credit
Facility to acquire additional properties and may, under certain circumstances,
borrow additional amounts in connection with the acquisition of additional
properties, the renovation or expansion of Properties, or, as necessary, to meet
certain distribution requirements imposed on REITs under the Code. See "Policies
and Objectives with Respect to Certain Activities--Investment Policies and
Objectives."
Acquisitions will be made subject to the investment objectives and policies
to maximize both current income and long-term growth in income described
elsewhere in this Prospectus. The Company's liquidity requirements with respect
to future acquisitions may be reduced to the extent the Company uses Shares or
Units as consideration for such purchases.
The Company has developed a plan to modify its information technology to
recognize the Year 2000 and will begin converting the necessary data by the end
of 1998. The Company's general ledger and accounts payable data is presently
Year 2000 compatible; therefore, the Year 2000 conversion is only necessary on
the tenant data base. The Company does not expect this project to have a
significant effect on operations or to involve a material cost.
FUNDS FROM OPERATIONS
The Company believes Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows from
operating activities, it provides investors with an understanding of the ability
of the Company to incur and service debt and make capital expenditures. Funds
from Operations is calculated as net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
computes Funds from Operations in accordance with standards established by the
White Paper on Funds from Operations approved by the NAREIT Board of Governors
in March 1995, which may differ from the methodology for calculating Funds from
Operations utilized by other equity REITs, and, accordingly, the Company's Funds
from Operations may not be comparable to the Funds from Operations of such other
REITs. Further, Funds from Operations does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties. The
Company believes that in order to facilitate a clear understanding of the pro
forma operating results of the Properties and the Company, Funds from Operations
should be examined in conjunction with the Pro Forma Financial Statements
included elsewhere in this Prospectus. Funds from Operations should not be
considered as an alternative to net earnings (computed in accordance with GAAP)
as an indication of the Company's financial performance or to cash flows from
operating activities (computed in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions.
INFLATION AND SEASONALITY
Substantially all of the leases at the Properties are for a term of one year
or less, which is expected to permit the Company to seek increased rents upon
renewal of existing leases or commencement of new leases. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation.
Because the Credit Facility is expected to provide for a variable interest rate,
inflation could have a material adverse effect on the Company's net income if
interest rates increase substantially during any year. Accordingly, when deemed
appropriate, based on the then current interest rates, the Company may seek to
replace the Credit Facility with a credit facility that provides for a fixed
interest rate.
The operations of the Properties have historically been seasonal in nature,
reflecting higher occupancy rates primarily during the fourth, first and second
quarters of the year (the September to May
47
<PAGE>
university year). The ability of the Company to operate successfully in the
student housing industry depends on maximizing the occupancy of the Properties
during a limited lease-up period (typically a student housing property will sign
the substantial majority of its leases in the five-month period between April
and August preceding such leases' September commencement). In addition, the
Company generally leases its Properties to students under nine- or 12-month
leases, and in certain cases, under shorter-term semester or month-to-month
leases (except for rentals to summer camps or other similar rentals). The
Company receives rental payments throughout the terms of these leases, and,
therefore, during the summer months (June-August) no rent is received with
respect to the nine-month or many of the shorter-term leases. The Company's
capital expenditures during the summer months, however, may be higher as a
result of the Company making capital improvements to the Properties while many
students are away for summer break. Accordingly, when calculating Funds from
Operations and Cash Available for Distribution, the Company must estimate and
reserve an amount adequate to sustain the operation of the Properties during the
summer months when reduced rents are received from student leases, and any
material miscalculation of such estimates and reserves could have a material
adverse effect on the Company's business. See "Risk Factors--Operating Risks
Inherent in the Student Housing Industry; Seasonality."
The Company expects that revenues received during each quarter will be
sufficient to fund estimated distributions to shareholders. To the extent that
cash flow from operations is insufficient, due to the effects of seasonality or
otherwise, to fund distributions, the Company expects to utilize cash on hand or
borrowings to make such distributions.
48
<PAGE>
BUSINESS OF THE COMPANY AND ITS PROPERTIES
THE COMPANY'S PROPERTIES
The Properties consist of over 6,300 student apartment units with
approximately 19,450 beds in 32 residential complexes located throughout the
United States. The Properties are located within close proximity to 23 major
colleges and universities in 17 states. All of the Properties are presently
owned by the Predecessor Partnerships and will be acquired by the Operating
Partnership in connection with the Formation Transactions. The only Properties
which have been owned by the Predecessor Partnerships for more than one year are
the nine Properties purchased in December 1995 and the two Properties purchased
in October 1996. The Predecessor Partnerships purchased 21 of the Properties
within the last 12 months in April, May and December 1997 and January 1998. The
Operating Partnership has also entered into agreements to purchase an additional
property and certain rights, obligations and liabilities (including the rights
under an installment note and the management rights to such property) to a
second property, both in Austin, Texas; however, such acquisitions are subject
to certain conditions, and there can be no assurance that such properties or
rights will be acquired. Following the completion of the Formation Transactions,
and except as noted below, the Company will hold title to all of its existing
Properties in fee simple.
The Managed Properties consist of 743 student apartment units and
approximately 2,200 beds located near two major universities in Pennsylvania,
and the Development Properties, when completed, are expected to consist of 480
garden-style student apartment units and approximately 1,600 beds located near a
major university in each of Florida and Virginia.
The Properties, Managed Properties and Development Properties are either (i)
garden-style apartments, which are clusters of low-rise buildings that generally
consist of student housing units with four private bedrooms and two bathrooms
centered around a common area consisting of a living room, a dining area and a
kitchen, or (ii) high-rise or mid-rise residence halls that do not have kitchens
but, in certain cases, have food services available on the premises.
49
<PAGE>
The following table sets forth certain summary information regarding each of
the Properties, the Managed Properties and the Development Properties:
<TABLE>
<CAPTION>
MONTH/YEAR
NAME YEAR BUILT ACQUIRED UNIVERSITY
------------------- ---------- ---------- ----------------------------
<C> <S> <C> <C> <C>
PROPERTIES
1. Athens 1988 Dec/95 University of Georgia
2. Auburn I 1989 Dec/95 Auburn University
3. Auburn II 1991 Dec/95 Auburn University
4. Blacksburg 1990 Dec/95 Virginia Tech University
5. Columbia(1) 1990 Dec/95 University of Missouri
6. Fayetteville 1988 Dec/95 University of Arkansas
7. Knoxville 1995 Dec/95 University of Tennessee
8. Starkville 1997 Dec/95 Mississippi State University
9. State College Park 1991 Dec/95 Penn State University
10. Ashby Crossing 1989/97 Oct/96 James Madison University
11. Treehouse Village 1980/84 Oct/96 Texas A&M University
12. El Conquistador 1966 Apr/97 San Diego State University
13. Fontana Hall 1967 Apr/97 University of South Florida
14. Harrison House 1966 Apr/97 Ohio State University
15. Illini Towers 1966 Apr/97 University of Illinois
16. Naismith Hall 1966 Apr/97 University of Kansas
17. Pierpont Apartments 1967 Apr/97 West Virginia University
18. Summit Suites 1966 Apr/97 West Virginia University
19. The Castilian 1967 Apr/97 University of Texas
20. The Regent 1964 Apr/97 University of Wisconsin
21. The Towers 1964 Apr/97 University of Wisconsin
22. Carlos Bee Hall 1963 May/97 University of California
23. Cash Hall(2) 1968 May/97 Florida State University
24. Osceola Hall 1966/88 May/97 Florida State University
25. The Commons(3) 1989 May/97 Auburn University
26. Nittany Crossing 1996 Dec/97 Penn State University
27. The Landings I 1996 Dec/97 University of Texas
28. The Landings II 1997 Dec/97 University of Texas
29. Rams Point 1997 Dec/97 Colorado State University
30. The Ridge 1994 Dec/97 Texas A&M University
31. The Enclave 1994 Dec/97 Texas A&M University
32. Eagles Pointe(1) 1967 Jan/98 Kent State University
MANAGED PROPERTIES
1. Citiline Towers 1968 Sep/93(4) Duquesne University
2. Parkway Plaza 1965/66 Sep/93(4) Penn State University
DEVELOPMENT
PROPERTIES
1. Orlando(5) 1998/99(6) Jun/97 Univ. of Central Florida
2. Blacksburg II(5) 1998/99(6) Aug/97 Virginia Tech University
<CAPTION>
# OF # OF # OF
LOCATION PROPERTY TYPE BUILDINGS UNITS BEDS
-------------------- --------------------- --------- ----- ------
<C> <C> <C> <C> <C> <C>
1. Athens, GA Garden Apts 9 154 489
2. Auburn, AL Garden Apts 9 180 623
3. Auburn, AL Garden Apts 11 172 598
4. Blacksburg, VA Garden Apts 11 180 622
5. Columbia, MO Garden Apts 10 172 650
6. Fayetteville, AR Garden Apts 7 156 457
7. Knoxville, TN Garden Apts 17 192 701
8. Starkville, MI Garden Apts 14 120 420
9. State College, PA Garden Apts 15 196 750
10. Harrisonburg, VA Garden Apts 24 288 1,152
11. College Station, TX Garden Apts 30 444 1,000
12. San Diego, CA High Rise 1 146 560
13. Tampa, FL High Rise 1 223 758
14. Columbus, OH High Rise 1 132 457
15. Champaign, IL High Rise 1 196 709
16. Lawrence, KS High Rise 1 127 486
17. Morgantown, WV High Rise 1 127 491
18. Morgantown, WV High Rise 1 171 344
19. Austin,TX High Rise 1 196 716
20. Madison, WI High Rise 1 241 825
21. Madison, WI High Rise 1 164 420
22. Hayward, CA Mid Rise 1 76 280
23. Tallahassee, FL Mid Rise/Garden Apts 25 234 758
24. Tallahassee, FL Mid Rise 2 159 636
25. Auburn, AL Mid Rise 1 151 302
26. State College, PA Garden Apts 11 204 684
27. Austin, TX Garden Apts 14 252 684
28. Austin, TX Garden Apts 15 270 810
29. Fort Collins, CO Garden Apts 13 192 660
30. College Station, TX Garden Apts 15 340 549
31. College Station, TX Garden Apts 12 192 315
32. Kent, OH Garden Apts 38 270 540
--- ----- ------
314 6,317 19,446
1. Pittsburgh, PA High Rise 1 315 1,100
2. State College, PA Mid Rise 4 428 1,108
--- ----- ------
5 743 2,208
1. Orlando, FL Garden Apts 29 372 1,152
2. Blacksburg, VA Garden Apts 7 108 432
--- ----- ------
36 480 1,584
</TABLE>
- ------------------------
(1) The Company owns land adjacent to the Property which is available for
development.
(2) A portion of this Property's parking lot is leased from a third party.
(3) Third party ground leased property.
(4) Refers to the date that this Property began to be managed by the Predecessor
Partnerships.
(5) Construction began in August 1997. Number of units represents total units to
be constructed.
(6) Anticipated completion date indicated.
50
<PAGE>
The following table sets forth certain summary historical information
regarding each of the Properties and the Managed Properties, including the (a)
typical term of the student leases, (b) revenues (not including food service
revenue at any Property) for the year ended December 31, 1997 and December 31,
1996, if applicable, (c) occupancy rates as of December 31, 1997 and December
31, 1996, if applicable, and (d) a list of amenities.
<TABLE>
<CAPTION>
OCCUPANCY
RATE(%)(1)
REVENUES(1) -----------------
----------------------------- AS OF AS OF
YEAR ENDED YEAR ENDED DECEMBER DECEMBER
TYPICAL TERM OF DECEMBER 31, DECEMBER 31, 31, 31,
NAME STUDENT LEASES 1997 1996 1997 1996
------------------------- ------------------------- ------------- ------------- ------- -------
<C> <S> <C> <C> <C> <C> <C>
PROPERTIES
1. Athens 12 months $ 1,633,868 $ 1,591,542 100.0% 100.0%
2. Auburn I 12 months 1,780,927 1,900,457 87.4 99.2
3. Auburn II 12 months 1,706,729 1,957,001 86.3 99.2
4. Blacksburg 12 months 1,847,460 1,783,455 100.0 99.8
5. Columbia 12 months 1,567,281 1,746,565 78.1 88.1
6. Fayetteville 9 and 12 months 1,034,257 1,246,660 78.1 82.7
7. Knoxville 12 months 2,210,060 2,278,639 87.3 99.0
8. Starkville 9 months 1,003,114 1,142,519 77.1 96.6
9. State College Park 12 months 2,687,892 2,682,930 100.0 100.0
10. Ashby Crossing 12 months 2,063,362 1,054,036 96.6 100.0
11. Treehouse Village 9 and 12 months 2,692,273 2,559,251 91.8 100.0
12. El Conquistador 9 months 2,296,469 2,104,346 98.8 77.0
13. Fontana Hall 9 months 1,594,404 1,499,305 88.5 68.1
14. Harrison House 9 months 1,574,641 1,584,613 91.5 81.7
15. Illini Tower 9 months 2,777,906 2,736,808 94.8 98.0
16. Naismith Hall 9 months 1,302,293 1,198,538 95.9 88.3
17. Pierpont Apartments 9 months 1,074,583 1,023,031 76.0 85.0
18. Summit Suites 9 months 1,133,060 1,105,201 84.6 78.7
19. The Castilian 9 months 3,109,287 2,917,380 99.2 97.5
20. The Regent(3) 9 months 2,446,063 2,476,261 93.0 95.6
21. The Towers 9 months 2,095,455 1,916,012 100.0 98.6
22. Carlos Bee Hall 9 months 876,964 783,999 91.5 78.3
23. Cash Hall 9 months 2,376,239 2,068,071 80.9 80.6
24. Osceola Hall 9 months 2,030,190 1,997,147 90.1 89.7
25. The Commons 9 months 1,375,025 1,329,518 98.7 92.7
26. The Nittany 12 months 2,473,985 944,873 97.4 92.4
27. The Landings I 12 months 3,115,182 1,035,067 98.7 98.7
28. The Landings II 12 months 1,347,199 -(4) 99.5 -(4)
29. Rams Point 12 months 1,115,184 -(4) 97.3 -(4)
30. The Ridge 9 and 12 months 1,679,511 1,637,181 98.9 96.9
31. The Enclave 9 and 12 months 2,825,962 1,338,614(5) 98.5 92.4
32. Eagles Pointe 12 months 1,582,786 1,727,665 91.7 97.0
------------- ------------- ------- -------
Total/Weighted Average $ 60,431,631 $ 51,366,685 92.4% 92.2%
MANAGED PROPERTIES(6)
1. Citiline Towers 9 months $ 183,433 $ 165,680 100.0% 88.2%
2. Parkway Plaza 9 months 152,681 156,031 98.4 97.7
------------- ------------- ------- -------
Total/Weighted Average $ 336,114 $ 321,711 99.2% 93.0%
TOTAL/WEIGHTED AVERAGE $ 60,767,745 $ 51,688,396 93.1% 93.0%
<CAPTION>
AMENITIES(2)
-------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. a b Y o e z h u -- D
2. a b Y o e z h u -- D
3. a b Y o e z h u -- D
4. a b Y o e z h u -- D
5. a b Y o e z h u -- D
6. a b Y o e z h u -- D
7. a b Y o e z h u -- D
8. a b Y o e z h u -- D
9. a b Y o e z h u -- D
10. a b Y o e z h u -- D
11. a b Y e z u -- D V
12. a b Y e + h u -- D V
13. a b Y e + h u -- D V
14. b h u -- D V
15. b e + h u -- D V
16. a b e + h u -- D V
17. b e h u -- D V
18. b e + h u -- D V
19. a b e + h u -- D V
20. b Y o + h u -- D V
21. b Y e + h u -- D V
22. o e + h u -- D V
23. a b Y + h u -- D V
24. a b Y + h u -- D V
25. a b Y e + h u -- D V
26. a b Y o e z h u -- D
27. a b Y o e z h u -- D
28. a b o e z u -- D
29. a b Y o e z h u -- D
30. a b Y o e z h -- D
31. a b o e z -- D
32. a Y e u -- D
1. a b e u -- D V
2. a u D V
</TABLE>
- ----------------------------------
(1) Information in respect of periods prior to acquisition or management of the
properties by the Predecessor Partnerships is based solely on unaudited data
made available by the prior owners or managers of the properties, or data
included in the books and records of the properties, if any, that were
delivered to the Predecessor Partnerships by the prior owners. In addition,
revenues from providing housekeeping services, which are not in the
aggregate material to the Company, are included for certain of the
Properties. Such housekeeping services will not be provided by the Company
after the consummation of the Formation Transactions.
(2) Amenities indicated by the following legends:
<TABLE>
<S> <C> <C> <C> <C>
a Swimming Pool e Activity/Entertainment Centers u
b Fitness Center + Food Service --
Y Tennis/Volleyball Courts z Hot tub D
o Clubhouse h Computer Center V
<CAPTION>
a Furniture
<S> <C>
b Private bedrooms available
Y Air conditioning
o Utilities included
</TABLE>
(3) The Company expects that Food Services will begin to be provided at this
Property during the 1998/99 academic year.
(4) Property under construction at December 31, 1996.
(5) Represents revenues for the period from June 1996 (the date on which the
previous owner acquired the Property) to December 31, 1996.
(6) Revenues represent management fees.
51
<PAGE>
PROPERTIES
INFORMATION IN RESPECT OF PERIODS PRIOR TO ACQUISITION OR MANAGEMENT OF THE
PROPERTIES BY THE PREDECESSOR PARTNERSHIPS IS BASED SOLELY ON UNAUDITED DATA
MADE AVAILABLE BY THE PRIOR OWNERS OR MANAGERS OF THE PROPERTIES, OR DATA
INCLUDED IN THE BOOKS AND RECORDS OF THE PROPERTIES, IF ANY, THAT WERE DELIVERED
TO THE PREDECESSOR PARTNERSHIPS BY THE PRIOR OWNERS OR MANAGERS OF THE
PROPERTIES. THE RENTAL RATE PER BED PER PROPERTY REFLECTS THE MOST POPULAR
RENTAL PLAN AT SUCH PROPERTY FOR THE ACADEMIC YEAR AND, EXCEPT AS NOTED,
REFLECTS INFORMATION FOR A 12-MONTH PERIOD. INFORMATION IN RESPECT OF UNIVERSITY
AND COLLEGE ENROLLMENT IS BASED ON INFORMATION PROVIDED BY THE ASSOCIATION OF
COLLEGE AND UNIVERSITY HOUSING OFFICERS. SEE "THE STUDENT HOUSING MARKET--TOTAL
ENROLLMENT AND ON-CAMPUS HOUSING CAPACITY."
1. COLLEGE PARK-ATHENS
This garden apartment complex comprises three stories with approximately
159,898 leasable square feet and consists of nine buildings with 154 units and
489 beds. Originally built in 1988, this Property was acquired in December 1995.
Since its acquisition, the Company has renovated the Property's clubhouse. In
addition, the Property has various recreational features and amenities including
a fitness center, a computer room, a study room, a hot tub, swimming pool and
tennis courts. Each unit is equipped with a full-service kitchen. Parking at the
Property is provided for 606 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 100.0% as of both December 31, 1997 and December 31, 1996, and the rental
rate per bed for the 1997/98 academic year was $3,180 compared to $3,060 for the
1996/97 academic year. The total revenue of the Property for the year ended
December 31, 1997 was $1,633,868 compared to $1,591,542 for the year ended
December 31, 1996.
The College Park-Athens property is located in Athens, Georgia,
approximately three miles from the main campus of the University of Georgia. The
university has a current student enrollment of approximately 30,000, of which
only approximately 5,634 (or 18.8%) can currently be housed on-campus; the
remaining 24,366 students must live off-campus.
2. COLLEGE PARK-AUBURN I
This garden apartment complex comprises three stories with approximately
201,196 leasable square feet and consists of nine buildings with 180 units and
623 beds. Originally built in 1989, this Property was acquired in December 1995.
Since its acquisition, the Company has renovated the Property's
activity/entertainment center and added new pool furniture and exercise
equipment. In addition, the Property has various recreational features and
amenities including a fitness center, a computer-study room, swimming pool,
clubhouse, hot tub, tennis courts, basketball and sand volleyball courts. Each
unit is equipped with a full-service kitchen. Parking at the Property is
provided for 710 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 87.4% as of December 31, 1997 compared to 99.2% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,940 compared to
$2,820 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $1,780,927 compared to $1,900,457 for the year
ended December 31, 1996. The decrease in occupancy from December 31, 1996 to
December 31, 1997, primarily due to local and regional management problems
during the ownership transition period and the failure of the local property
manager and the regional property manager (the "Regional Manager") to adequately
respond to increased competition from newly-constructed off-campus housing
complexes near the Property, was partially offset by an increase in rental
rates. Such local property manager and Regional Manager have been replaced.
52
<PAGE>
The College Park-Auburn I property is located in Auburn, Alabama,
approximately .5 miles from the main campus of Auburn University. The university
has a current student enrollment of approximately 21,800, of which only
approximately 3,600 (or 16.5%) can currently be housed on-campus; the remaining
18,200 students must live off-campus.
3. COLLEGE PARK-AUBURN II
This garden apartment complex comprises three stories with approximately
201,956 leasable square feet and consists of 11 buildings with 172 units and 598
beds. Originally built in 1991, this Property was acquired in December 1995.
Since its acquisition, the Company has added an activity/ entertainment center,
carpeting and furniture and renovated the clubhouse. In addition, the Property
has various recreational features and amenities including a fitness center, a
computer room, study room, swimming pool, hot tub and tennis courts. Each unit
is equipped with a full service kitchen. Parking at the Property is provided for
690 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 86.3% as of December 31, 1997 compared to 99.2% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,880 compared to
$2,820 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $1,706,729 compared to $1,957,001 for the year
ended December 31, 1996. The decrease in occupancy from December 31, 1996 to
December 31, 1997, primarily due to local and regional management problems
during the ownership transition period and the failure of the local property
manager and the Regional Manager to adequately respond to increased competition
from newly-constructed off-campus housing complexes near the Property, was
partially offset by an increase in rental rates. Such local property manager and
Regional Manager have been replaced.
The College Park-Auburn II property is located near the College Park-Auburn
I property, approximately 1.5 miles from the main campus of Auburn University.
The university has a current student enrollment of approximately 21,800, of
which only approximately 3,600 (or 16.5%) can currently be housed on-campus; the
remaining 18,200 students must live off-campus.
4. COLLEGE PARK-BLACKSBURG
This garden apartment complex comprises three stories with approximately
196,512 leasable square feet and consists of 11 buildings with 180 units and 622
beds. Originally built in 1990, this Property was acquired in December 1995.
Since its acquisition, the Company has added fitness equipment, computers and
implemented a resident activities program. In addition, the Property has various
recreational features and amenities including a fitness center, a clubhouse, a
computer room, a study room, a swimming pool, hot tub and tennis courts. Each
unit is equipped with a full-service kitchen. Parking at the Property is
provided for 711 cars .
This Property is rented primarily on a 12-month basis. The occupancy rate
was 100.0% as of December 31, 1997 compared to 99.8% as of December 31, 1996,
and the rental rate per bed for the 1997/98 academic year was $2,820 compared to
$2,700 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $1,847,460 compared to $1,783,455 for the year
ended December 31, 1996.
The College Park-Blacksburg property is located in Blacksburg, Virginia,
approximately one mile from the main campus of Virginia Tech University. The
university has a current student enrollment of approximately 23,900, of which
only approximately 8,364 (or 35.0%) can currently be housed on-campus; the
remaining 15,536 students must live off-campus.
The Company began construction of an additional property in Blacksburg,
Virginia in August 1997 comprising three stories with approximately 129,600
leasable square feet and consisting of seven
53
<PAGE>
buildings with 108 units and 432 beds. See "--Development Properties--College
Park-Blacksburg (Phase II)."
5. COLLEGE PARK-COLUMBIA
This garden apartment complex comprises three stories with approximately
201,956 leasable square feet and consists of ten buildings with 172 units and
650 beds. Originally built in 1990, this Property was acquired in December 1995.
Since its acquisition, the Company has renovated the Property's computer room
and is currently renovating the clubhouse. In addition, the Property has various
recreational features and amenities including a fitness center, a computer room,
a study room, a swimming pool, a hot tub, a basketball and volleyball court and
a putting green. Each unit is equipped with a full-service kitchen. Parking at
the Property is provided for 784 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 78.1% as of December 31, 1997 compared to 88.1% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,820 compared to
$2,700 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $1,567,281 compared to $1,746,565 for the year
ended December 31, 1996. The decrease in occupancy from December 31, 1996 to
December 31, 1997, primarily due to local management problems during the
ownership transition period and the failure of the local property manager to
adequately respond to increased competition from newly-constructed off-campus
housing complexes near the Property, was partially offset by an increase in
rental rates. Such local property manager has been replaced.
The College Park-Columbia property is located in Columbia, approximately 1.5
miles from the main campus of the University of Missouri. The university has a
current student enrollment of approximately 22,000, of which only approximately
5,500 (or 25.0%) can currently be housed on-campus; the remaining 16,500
students live off-campus. This Property is also accessible to students at the
University of Columbia, Stephens College and Columbia Community College. The
total student enrollment at these other three institutions is approximately
18,000, of which only 5,000 (or 27.8%) can currently be housed on-campus; the
remaining 13,000 students must live off-campus.
In addition, the Company owns approximately 13 acres of vacant land near the
Property, which may be developed into student housing in the future.
6. COLLEGE PARK-FAYETTEVILLE
This garden apartment complex comprises three stories with approximately
162,084 leasable square feet and consists of seven buildings with 156 units and
457 beds. Originally built in 1988, this Property was acquired in December 1995.
Since its acquisition, the Company has repainted the exterior of the Property's
building and resealed the parking lot's pavement. In addition, the Property has
various recreational features and amenities including tennis courts, a
basketball court, a sand volleyball court, a swimming pool, a hot tub, computer
center, activity/entertainment center and a fitness center. Each unit is
equipped with a full-service kitchen. Parking at the Property is provided for
504 cars.
This Property is rented on both a nine- and 12-month basis. The occupancy
rate was 78.1% as of December 31, 1997 compared to 82.7% as of December 31,
1996, and the rental rate per bed for the 1997/98 academic year was $2,205
compared to $2,160 for the 1996/97 academic year (each based on a nine-month
rental plan). The total revenue of the Property for the year ended December 31,
1997 was $1,034,257 compared to $1,246,600 for the year ended December 31, 1996.
The decrease in occupancy from December 31, 1996 to December 31, 1997, primarily
due to local and regional management problems during the ownership transition
period and the failure of the local property manager and the Regional Manager to
adequately respond to increased competition from newly-constructed off-campus
housing complexes near the Property, was partially offset by an increase in
rental rates. Such local property manager and Regional Manager have been
replaced.
54
<PAGE>
The College Park-Fayetteville property is located just off a major
thoroughfare in Fayetteville, Arkansas, approximately .75 miles from the main
campus of the University of Arkansas. The university has a current student
enrollment of approximately 14,700, of which only approximately 3,437 (or 23.4%)
can currently be housed on-campus; the remaining 11,263 students must live
off-campus.
7. COLLEGE PARK-KNOXVILLE
This garden apartment complex comprises three stories with approximately
223,320 leasable square feet and consists of 17 buildings with 192 units and 701
beds. Originally built in 1995, this Property was acquired in December 1995.
Since its acquisition, the Company has installed new fitness equipment at the
Property. In addition, the Property has various recreational features and
amenities including a fitness center, a computer room, a study room, a swimming
pool, clubhouse and tennis courts. Each unit is equipped with a full-service
kitchen. Parking at the Property is provided for 728 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 87.3% as of December 31, 1997 compared to 99.0% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,300 compared to
$3,180 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $2,210,060 compared to $2,278,639 for the year
ended December 31, 1996. The decrease in occupancy from December 31, 1996 to
December 31, 1997 was due primarily to lower enrollment at the University of
Tennessee, local and regional management problems during the ownership
transition period and increased competition in the off-campus student housing
market, resulting in competitors offering nine-month leases and lower rental
rates. Such decrease in occupancy was offset by increased rental rates. The
local property manager and the Regional Manager have been replaced.
The College Park-Knoxville property is located in Knoxville, Tennessee,
approximately 1.5 miles from the main campus of the University of Tennessee. The
university has a current student enrollment of approximately 26,000, of which
approximately 9,366 (or 36.0%) can currently be housed on-campus; the remaining
16,634 students must live off-campus.
8. COLLEGE PARK-STARKVILLE
This garden apartment complex comprises three stories with approximately
131,455 leasable square feet and consists of 14 buildings with 120 units and 420
beds. Originally built in 1987, this Property was acquired in December 1995.
Since its acquisition, the Company has remodeled the Property's clubhouse and
office. In addition, the Property has various recreational features and
amenities including a fitness center, an activity/entertainment center, a
computer room, a swimming pool, a hot tub, tennis courts, and volleyball and
basketball courts. Each unit is equipped with a full-service kitchen. Parking at
the Property is provided for 426 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 77.1% as of December 31, 1997 compared to 96.6% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,760 compared to
$2,640 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $1,003,114 compared to $1,142,519 for the year
ended December 31, 1996. The decrease in occupancy from December 31, 1996 to
December 31, 1997, primarily due to problems with the local property manager and
the Regional Manager during the ownership transition period, was partially
offset by an increase in rental rates. Such local property manager and Regional
Manager have been replaced.
The College Park-Starkville property is located in Starkville, Mississippi
directly across from Mississippi State University's Veterinary School and
approximately one mile from the university's main campus. The university has a
current student enrollment of approximately 13,500, of which only approximately
4,068 (or 30.1%) can currently be housed on-campus; the remaining 9,432 students
must live off-campus.
55
<PAGE>
9. COLLEGE PARK-STATE COLLEGE PARK
This garden apartment complex comprises three stories with approximately
231,116 leasable square feet and consists of 15 buildings with 196 units and 750
beds. Originally built in 1991, this Property was acquired in December 1995.
Since its acquisition, the Company has installed new fitness equipment and
computers at the Property and is currently renovating the clubhouse. In
addition, the Property has various recreational features and amenities including
a fitness center, a computer room, a study room, a swimming pool, a hot tub,
tennis courts, volleyball courts and a sauna. Each unit is equipped with a
full-service kitchen. Parking at the Property is provided for 648 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 100.0% as of both December 31, 1997 and December 31, 1996, and the rental
rate per bed for the 1997/98 academic year was $3,360 compared to $3,240 for the
1996/97 academic year. The total revenue of the Property for the year ended
December 31, 1997 was $2,687,892 compared to $2,682,930 for the year ended
December 31, 1996.
The College Park-State College Park property is located in State College,
Pennsylvania, approximately .75 miles from the main campus of Penn State
University, one of the Company's largest markets in terms of student enrollment.
The university has a current student enrollment of approximately 42,250, of
which only approximately 12,392 (or 29.3%) can currently be housed on campus;
the remaining 29,858 students must live off-campus.
10. COLLEGE PARK-ASHBY CROSSING
This garden apartment complex comprises three stories with approximately
343,680 leasable square feet and consists of 24 buildings with 288 units and
1,152 beds. Originally built in 1989, the Property was acquired in October 1996.
Since its acquisition, the Company has built Phases II and III, comprising an
additional 192 units. Each unit is fully furnished, and the Property has various
recreational features and amenities including basketball and volleyball courts,
a fitness center, a computer room, a study room, a hot tub, a swimming pool, a
clubhouse and tennis courts. College Park-Ashby Crossing is serviced by local
bus transportation that is funded through students' tuition. Each unit is
equipped with a full-service kitchen. Parking at the Property is provided for
1,010 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 96.6% as of December 31, 1997 (for 288 units) compared to 100.0% as of
December 31, 1996 (for the initial 96 units), and the rental rate per bed for
the 1997/98 academic year was $2,940 compared to $2,832 for the 1996/97 academic
year. The total revenue of the Property for the year ended December 31, 1997 was
$2,063,362 compared to $1,054,036 for the year ended December 31, 1996. The 1997
occupancy rates and total revenues at this Property were impacted by the
Company's completion of construction and the leasing-up of an additional 192
units on the Property.
The Property is located in Harrisonburg, Virginia and is within walking
distance of James Madison University, which has a current student enrollment of
approximately 12,800. In addition, the university is expanding its College of
Integrated Science and Technology ("CISAT") from a current student enrollment of
approximately 1,000 to 4,500 by 2001 upon completion of on-going construction.
The on-campus housing stock at James Madison University and CISAT currently
accommodates only approximately 4,925 (or 32.8%); the remaining 7,875 students
must live off-campus.
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11. COLLEGE PARK-TREEHOUSE VILLAGE
This garden apartment complex comprises two stories with approximately
320,806 leasable square feet and consists of 30 buildings with 444 units and
1,000 beds. College Park-Treehouse Village is one of two Properties that is
leased by unit rather than by bed; such units may have two, three or four beds.
Originally built in two phases which were completed in 1980 and 1984,
respectively, this Property was acquired in October 1996. Since its acquisition,
the Company has refurnished many of the Property's apartments and is currently
constructing a clubhouse with a fitness center and cafe. In addition, the
Property has various recreational features and amenities including a fitness
center, swimming pools, hot tub, tennis courts, a basketball court, an
activity/entertainment center, coin operated laundry rooms and charcoal barbeque
pits. Parking at the Property is provided for 1,200 cars.
This Property is rented on both a nine- and 12-month basis. The occupancy
rate was 91.8% as of December 31, 1997 compared to 100.0% as of December 31,
1996, and the rental rate per bed for the 1997/98 academic year was $3,398
compared to $3,330 for the 1996/97 academic year (each based on a nine-month
rental plan). The total revenue of the Property for the year ended December 31,
1997 was $2,692,273 compared to $2,559,251 for the year ended December 31, 1996.
The decrease in occupancy from December 31, 1996 to December 31, 1997 was
primarily due to problems with the local property manager during the ownership
transition period. The total revenue at such Property increased from December
31, 1996 to December 31, 1997, despite such decreased occupancy rates, as a
result of increased revenue during the summer months, resulting from 12-month
leases, and increased rental rates. Such local property manager has been
replaced.
The College Park-Treehouse Village property is located in College Station,
Texas, approximately one mile from the main campus of Texas A&M University. The
university has a current student enrollment of approximately 42,000, of which
only approximately 10,661 (or 24.5%) can currently be housed on-campus; the
remaining 31,339 students must live off-campus.
12. COLLEGE PARK-EL CONQUISTADOR
This high-rise residence hall comprises nine stories with approximately
60,000 leasable square feet and consists of 146 units and 560 beds. Originally
built in 1966, this Property was acquired in April 1997. The Property has
various recreational features and amenities including a cafeteria, swimming
pool, computer/learning center, fitness center, tennis/volleyball courts,
billiards and ping-pong tables and a study lounge. Parking at the Property is
provided for 140 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 98.8% as of December 31, 1997 compared to 77.0% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,407 compared to
$3,275 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $2,296,489 compared to
$2,104,346 for the year ended December 31, 1996.
The College Park-El Conquistador property is located in San Diego,
California, two blocks from the main campus of San Diego State University. The
university has a current student enrollment of approximately 30,000, of which
only approximately 3,077 (or 10.3%) can currently be housed on-campus; the
remaining 26,923 students must live off-campus.
13. COLLEGE PARK-FONTANA HALL
This high-rise residence hall comprises 13 stories with approximately
105,000 leasable square feet and consists of 223 units and 758 beds. Originally
built in 1967, this Property was acquired in April 1997. Since its acquisition,
the Company has renovated the Property's hallways, expanded the first floor
common areas, which include a game room and a study room, installed an access
control system, and converted a two unit townhouse into an office area. In
addition, the Property has various recreational features and amenities including
a laundry room, a cafeteria, a fitness center, a swimming pool, a game
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room, tennis/volleyball courts, a study room and a computer room. Parking at the
Property is provided for 228 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 88.5% as of December 31, 1997 compared to 68.1% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,668 compared to
$2,589 for the 1996/97 academic year. The total revenue of the Property
(excluding revenues derived from Food Services) for the year ended December 31,
1997 was $1,594,404 compared to $1,499,305 for the year ended December 31, 1996.
The College Park-Fontana Hall property is located in Tampa, Florida, across
the street from the campus of the University of South Florida. The university
has a current student enrollment of approximately 36,000 on the main Tampa
campus, of which only approximately 2,593 (or 7.2%) can currently be housed
on-campus; the remaining 33,407 students must live off-campus.
14. COLLEGE PARK-HARRISON HOUSE
This high-rise residence hall comprises 12 stories with approximately 76,500
leasable square feet and consists of 132 units and 457 beds. Originally built in
1966, this Property was acquired in April 1997. In addition to multi-student
apartments, College Park-Harrison House offers a number of single occupancy
units, which tend to appeal to upperclassmen. Since its acquisition, the Company
has renovated all of the Property's corridors and commenced the repair and
repainting of the building. Many apartments have received new furniture. In
addition, the Property has various recreational features and amenities including
a laundry room, an exercise room, a computer center, a television lounge and a
basketball court. Each unit is equipped with a full-service kitchen. Parking at
the Property is provided for 209 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 91.5% as of December 31, 1997 compared to 81.7% as of December 31, 1996, and
the rental rate per bed was $2,018 for both of the 1996/97 and 1997/98 academic
years (based on a nine-month rental plan). The total revenue of the Property for
the year ended December 31, 1997 was $1,574,641 compared to $1,584,613 for the
year ended December 31, 1996. The decline in revenues from December 31, 1996 to
December 31, 1997 was primarily due to a decrease in total rental revenues as a
result of incentives and discounts offered to prospective tenants for the 1997
fall semester, and was offset by an increase in occupancy rates.
The College Park-Harrison House property is located in Columbus, Ohio across
the street from Ohio State University's main campus. The university has a
current student enrollment of approximately 48,000, of which only approximately
9,547 (or 19.9%) can currently be housed on-campus; the remaining 38,453
students must live off-campus.
15. COLLEGE PARK-ILLINI TOWER
This high-rise residence hall comprises 16 stories with approximately
190,000 leasable square feet and consists of 196 units and 709 beds. Originally
built in 1966, this Property was acquired in April 1997. Since its acquisition,
the Company has added new fitness equipment and ethernet access from the
Property to the university. In addition, the Property has various recreational
features and amenities including a cafeteria, fitness center, study area and a
computer center. Parking at the Property is provided for 70 cars in an
underground garage.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 94.8% as of December 31, 1997 compared to 98.0% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,949 compared to
$3,779 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $2,772,906 compared to
$2,736,808 for the year ended December 31, 1996. The decrease in occupancy from
December 31, 1996 to December 31, 1997 was primarily due to attrition at the
University of Illinois combined with the previous owner's policy of
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allowing students to terminate their leases for a nominal amount at any point
they ceased to be students of such university. Such decrease in occupancy was
offset by increased rental rates. The Company's current leases do not contain
such termination provisions.
The College Park-Illini Tower property is located in Champaign, Illinois,
two blocks from the main campus of the University of Illinois. The university
has a current student enrollment of approximately 36,000, of which only
approximately 10,754 (or 30.0%) can currently be housed on-campus; the remaining
25,246 students must live off-campus. In addition, the university has designated
College Park-Illini Tower as "Private Certified Housing," which means that the
university includes marketing material for the Property in its mailings and
allows the Company to market the Property to the university's freshmen.
16. COLLEGE PARK-NAISMITH HALL
This high-rise residence hall comprises ten stories with approximately
57,740 leasable square feet and consists of 127 units and 486 beds. Originally
built in 1966, this Property was acquired in April 1997. Since its acquisition,
the Company has renovated resident floors and hallways as well as the Property's
fitness center. In addition, the Property has various recreational features and
amenities including a cafeteria, a fitness center, swimming pool, student
lounges, laundry rooms, a computer room and an academic resource center. Parking
at the Property is provided for 270 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 95.9% as of December 31, 1997 compared to 88.3% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,425 compared to
$2,349 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $1,302,293 compared to
$1,198,538 for the year ended December 31, 1996.
The College Park-Naismith Hall property is located in Lawrence, Kansas,
approximately one block from the main campus of the University of Kansas. The
university has a current student enrollment of approximately 26,100, of which
only 4,997 (or 19.2%) can currently be housed on-campus; the remaining 21,103
students must live off-campus.
17. COLLEGE PARK-PIERPONT APARTMENTS
This high-rise residence hall comprises nine stories with approximately
88,057 leasable square feet and consists of 127 units and 491 beds. Originally
built in 1967, this Property was acquired in April 1997. Since the acquisition
of this Property, the Company has started renovations which include
refurbishment of hallways, new fitness equipment, new plumbing of the building,
remodeling of the ground floor and common areas, a new chiller, replacement
furniture and new computers for the office and student computer center. In
addition, the Property has various recreational features and amenities including
a sandpit volleyball court, a basketball court, a fitness center, an on-site
laundry facility, a 24-hour study room, television lounges, a computer lab and a
recreation center with billiards and ping-pong tables. Each unit is equipped
with a full-service kitchen. Parking at the Property is provided for 177 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 76.0% as of December 31, 1997 compared to 85.0% as of December 31, 1996, and
the rental rate per bed was $1,425 for both of the 1996/97 and 1997/98 academic
years (based on a nine-month rental plan). The total revenue of the Property for
the year ended December 31, 1997 was $1,074,583 compared to $1,023,031 for the
year ended December 31, 1996. The decrease in occupancy from December 31, 1996
to December 31, 1997 was primarily due to attrition at West Virginia University
combined with the previous owner's policy of allowing students to terminate
their leases for a nominal amount at any point they ceased to be students of
such university. Such decrease in occupancy was offset by an increase in rental
revenues. The Company's current leases do not contain such termination
provisions.
The College Park-Pierpont Apartments property is located in Morgantown, West
Virginia adjacent to the Evansdale campus of West Virginia University. The
university has a current student enrollment of
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approximately 23,000, of which only 3,500 (or 15.2%) can currently be housed
on-campus; the remaining 19,500 students must live off-campus.
18. COLLEGE PARK-SUMMIT SUITES
This high-rise residence hall comprises ten stories with approximately
71,840 leasable square feet and consists of 171 units and 344 beds. Originally
built in 1966, this Property was acquired in April 1997. Since its acquisition,
the Company has refurbished most of the units and installed new fitness center
equipment. In addition, the Property has various features and amenities
including a cafeteria, laundry rooms, a computer center, a basketball court and
a recreation room. Parking at the Property is provided for 138 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 84.6% as of December 31, 1997 compared to 78.7% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,507 compared to
$2,450 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $1,133,060, compared to
$1,105,201 for the year ended December 31, 1996.
The College Park-Summit Suites property is also located in Morgantown, West
Virginia two blocks from the downtown campus of West Virginia University. The
university has a current student enrollment of 23,000, of which only 3,500 (or
15.2%) can currently be housed on-campus; the remaining 19,500 students must
live off-campus.
19. COLLEGE PARK-THE CASTILIAN
This high-rise residence hall comprises 22 stories with approximately
327,988 leasable square feet and consists of 196 units and 716 beds. Originally
built in 1967, this Property was acquired in April 1997. The Property has
various recreational features and amenities including a cafeteria, a fitness
center, a swimming pool, an ethernet-equipped computer center and a recreation
center. Parking at the Property is provided for 371 cars in an attached
seven-story covered garage.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 99.2% as of December 31, 1997 compared to 97.5% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $4,070 compared to
$3,889 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $3,109,287 compared to
$2,917,380 for the year ended December 31, 1996.
The College Park-The Castilian property is located in Austin, Texas, one
block from the main Austin campus of the University of Texas. The university has
a current student enrollment of approximately 48,000, of which only
approximately 6,077 (or 12.7%) can currently be housed on-campus; the remaining
41,923 students must live off-campus.
20. COLLEGE PARK-THE REGENT
This high-rise residence hall comprises eight stories with approximately
207,078 leasable square feet and consists of 241 units and 825 beds. Originally
built in 1964, this Property was acquired in April 1997. Since its acquisition,
the Company has renovated the Property's corridors and installed new carpeting.
Also, many apartments have been recarpeted, repainted and refurnished. Further,
improvements to the plant and equipment include a new fuel tank, hot water
heaters and boiler refractors. The Property has various recreational features
and amenities including housekeeping, laundry rooms, a clubhouse, a computer
center, a fitness center, volleyball and basketball courts, study rooms and a
rooftop sundeck with picnic spaces and gas grills. Each unit is equipped with a
full-service kitchen. Parking at the Property is provided for 144 cars. The
Company expects that Food Services will begin to be provided at this Property
during the 1998/99 academic year.
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This Property is rented primarily on a nine-month basis. The occupancy rate
was 93.0% as of December 31, 1997 compared to 95.6% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $1,995 compared to
$1,691 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property for the year ended December 31, 1997 was
$2,448,063 compared to $2,476,261 for the year ended December 31, 1996. The
decrease in occupancy from December 31, 1996 to December 31, 1997 was primarily
due to attrition at the University of Wisconsin combined with the previous
owner's policy of allowing students to terminate their leases for a nominal
amount at any point they ceased to be students of such university. Such decrease
in occupancy was substantially offset by increased rental rates. The Company's
current leases do not contain such termination provisions.
The College Park-The Regent property is also located in Madison, Wisconsin,
approximately .5 miles from the main campus of the University of Wisconsin and
adjacent to the university's field house and football stadium. The university
has a current student enrollment of approximately 39,800, of which only
approximately 8,023 (or 20.1%) can currently be housed on-campus; the remaining
31,777 students must live off-campus.
21. COLLEGE PARK-THE TOWERS
This high-rise residence hall comprises 11 stories with approximately 83,157
leasable square feet and consists of 164 units and 420 beds. Originally built in
1964, this Property was acquired in April 1997. The Company is currently
renovating the hallways, lobbies and residence rooms of this Property. In
addition, the Property has various recreational features and amenities including
housekeeping, a fitness center, tennis/volleyball courts, a computer center, a
cafeteria, laundry rooms, study rooms and social and academic programs. Parking
is not available at the Property.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 100.0% as of December 31, 1997 compared to 98.6% as of December 31, 1996,
and the rental rate per bed for the 1997/98 academic year was $2,968 compared to
$2,939 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $2,095,455 compared to
$1,916,012 for the year ended December 31, 1996.
The College Park-The Towers property is located in Madison, Wisconsin,
approximately .25 miles from the main campus of the University of Wisconsin and
three blocks from the newly constructed Kohl Center, an 18,000 seat facility
that will be the home to the university's basketball and hockey teams. The
university has a current student enrollment of approximately 39,800, of which
only approximately 8,023 (or 20.1%) can currently be housed on-campus; the
remaining 31,777 students must live off-campus.
22. COLLEGE PARK-CARLOS BEE HALL
This mid-rise residence hall comprises three stories with approximately
59,730 leasable square feet and consists of 76 units and 280 beds. Originally
built in 1963, this Property was acquired in May 1997. The Property has various
recreational features and amenities including a cafeteria, a 24-hour computer
lab, a study room, a game room, laundry rooms and recreational facilities for
basketball and volleyball. In addition each room at the Property has cable
television access. Parking is provided for 129 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 91.5% as of December 31, 1997 compared to 78.3% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,445 compared to
$2,318 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $876,964 compared to $783,999
for the year ended December 31, 1996.
The College Park-Carlos Bee Hall property is located in Hayward, California,
approximately .25 miles from the California State University, Hayward campus.
The university has a current student
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enrollment of approximately 12,500, of which only approximately 400 (or 3.2%)
can currently be housed on-campus; the remaining 12,100 students must live
off-campus. In addition, College Park-Carlos Bee Hall draws residents from
several local colleges in the Hayward area.
23. COLLEGE PARK-CASH HALL
This mid-rise apartment and garden apartment complex comprises approximately
129,900 leasable square feet and consists of 25 buildings with 234 units and 758
beds. Originally built in 1964 and 1968, this Property was acquired in May 1997.
Since its acquisition, the Company has recarpeted over 100 units and continues
to make ongoing improvements to the apartment units and corridors as well. In
addition, the Property has various recreational features and amenities including
two swimming pools, tennis/volleyball courts, a computer center, a computer
room, laundry rooms, a study room and a fitness center. There is a cafeteria
also located within the main residence hall building. Parking at the Property is
provided for 366 cars, of which 98 spaces are located in an underground garage.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 80.9% as of December 31, 1997 compared to 80.6% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $2,830 compared to
$2,695 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $2,376,239 compared to
$2,068,071 for the year ended December 31, 1996.
The College Park-Cash Hall property is located in Tallahassee, Florida,
approximately 150 yards from the main campus of Florida State University. The
university has a current student enrollment of approximately 30,300, of which
only approximately 5,202 (or 17.2%) can currently be housed on-campus; the
remaining 25,098 students must live off-campus. The College Park-Cash Hall
property has been certified by Florida State University as Privatized Housing,
which means that the Company is able to coordinate housing with the university.
24. COLLEGE PARK-OSCEOLA HALL
This mid-rise apartment complex comprises four stories with approximately
75,135 leasable square feet and consists of two buildings with 159 units and 636
beds. The two buildings, one completed in 1966 and the other in 1988, were
acquired in May 1997. Since its acquisition, the Company has replaced a
significant amount of furniture. In addition, the Property has various
recreational features and amenities including a cafeteria, a swimming pool, a
computer room, a fitness center, tennis/volleyball courts, study rooms, a
television lounge and recreation rooms. Parking at the Property is provided for
350 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 90.1% as of December 31, 1997 compared to 89.7% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,275 compared to
$2,966 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $2,030,190 compared to
$1,997,147 for the year ended December 31, 1996. The higher revenues for 1996
were primarily due to increased summer rental revenues as a result of the
British Olympic team renting units at the Property during the 1996 Summer
Olympic games.
The College Park-Osceola Hall property is located in Tallahassee, Florida,
approximately one mile from the main campus of Florida State University. The
university has a current student enrollment of approximately 30,300, of which
only approximately 5,202 (or 17.2%) can currently be housed on-campus; the
remaining 25,098 students must live off-campus. In addition, the College
Park-Osceola Hall property has also been certified by Florida State University
as Privatized Housing, which means that the Company is able to coordinate
housing with the university.
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25. COLLEGE PARK-THE COMMONS
This mid-rise residence hall comprises five stories with approximately
66,539 leasable square feet and consists of 151 units and 302 beds. Originally
built in 1989, this Property was acquired in May 1997. Since its acquisition,
the Company has added a fitness center and completed refurbishments which
included replacing the carpets and furniture in a significant number of the
units. In addition, the Property has various recreational features and amenities
including a cafeteria, fitness center, tennis/volleyball courts, swimming pools,
television lounges and a computer room. Parking at the Property is provided for
160 cars.
This Property is rented primarily on a nine-month basis. The occupancy rate
was 98.7% as of December 31, 1997 compared to 92.7% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,481 compared to
$3,187 for the 1996/97 academic year (each based on a nine-month rental plan).
The total revenue of the Property (excluding revenues derived from Food
Services) for the year ended December 31, 1997 was $1,375,025 compared to
$1,329,518 for the year ended December 31, 1996.
The College Park-The Commons property is located in Auburn, Alabama,
approximately .25 miles from the main campus of Auburn University. Auburn has a
current student enrollment of approximately 21,800, of which only approximately
3,600 (or 16.5%) can currently be housed on-campus; the remaining 18,200
students must live off-campus.
26. COLLEGE PARK-NITTANY CROSSING
This garden apartment complex comprises three stories with approximately
225,060 leasable square feet and consists of 11 buildings with 204 units and 684
beds. Originally built in 1996, this Property was acquired in December 1997. The
Property has various recreational features and amenities including a fitness
center, a computer room, clubhouse, hot tub, a swimming pool, tennis and
basketball courts and a gameroom. Each unit is equipped with a full-service
kitchen. Parking at the Property is provided for 665 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 97.4% as of December 31, 1997 compared to 92.4% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,720 compared to
$3,420 for the 1996/97 academic year. The total revenue of the Property for the
year ended December 31, 1997 was $2,473,985 compared to $944,873 for the period
from September 1996 (the date the Property opened) to December 31, 1996.
The College Park-Nittany Crossing property is located in State College,
Pennsylvania, approximately 2.5 miles from the campus of Penn State University.
The university has a current student enrollment of approximately 42,250, of
which only approximately 12,392 (or 29.3%) can currently be housed on-campus or
in fraternity or sorority houses; the remaining 29,858 students must live off-
campus.
27. COLLEGE PARK-THE LANDINGS I
This garden apartment complex comprises three stories with approximately
241,668 leasable square feet and consists of 14 buildings with 252 units and 684
beds. Originally built in 1996, this Property was acquired in December 1997. The
Property has various recreational features and amenities including a fitness
center, a swimming pool, clubhouse, a television room, hot tub, computer room,
tennis and sand volleyball courts and a game room. Each unit is equipped with a
full-service kitchen. Parking at the Property is provided for 647 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 98.7% as of both December 31, 1997 and December 31, 1996, and the rental
rate per bed for the 1997/98 academic year was $5,460 compared to $5,220 for the
1996/1997 academic year. The total revenue of the Property for the year ended
December 31, 1997 was $3,115,182 compared to $1,035,067 for the period from
September 1996 (the date the Property opened) to December 31, 1996.
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The College Park-The Landings I property is located in Austin, Texas,
approximately five miles from the campus of the University of Texas. The
university has a current student enrollment of approximately 48,000, of which
only approximately 6,077 (or 12.7%) can currently be housed on-campus; the
remaining 41,923 students must live off-campus.
28. COLLEGE PARK-THE LANDINGS II
This garden apartment complex comprises three stories with approximately
265,950 leasable square feet and consists of 15 buildings with 270 units and 810
beds. Originally built in 1997, this Property was acquired in December 1997. The
Property has various recreational features and amenities including a fitness
center, a television room, swimming pool, a clubhouse, a computer room, an
indoor half-court basketball court, a hot tub and a game room. Each unit is
equipped with a full-service kitchen. Parking at the Property is provided for
800 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 99.5% as of December 31, 1997 and the rental rate per bed for the 1997/98
academic year was $5,700. The property was under construction as of December 31,
1996 and therefore had no occupants. The total revenue of the Property for the
year ended December 31, 1997 was $1,347,199.
The College Park-The Landings II property is located in Austin, Texas,
approximately five miles from the campus of the University of Texas. This
Property is immediately adjacent to College Park-The Landings I, and the two
Properties are connected by a pedestrian bridge. The university has a current
student enrollment in excess of 48,000, of which only approximately 6,077 (or
12.7%) can currently be housed on-campus; the remaining 41,923 students must
live off-campus.
29. COLLEGE PARK-RAMS POINT
This garden apartment complex comprises three stories with approximately
212,136 leasable square feet and consists of 13 buildings with 192 units and 660
beds. Originally built in 1997, this Property was acquired in December 1997. The
Property has various recreational features and amenities including a fitness
center, a computer room, clubhouse, hot tub, a swimming pool, tennis and
basketball courts and a game room. Each unit is equipped with a full-service
kitchen. Parking at the Property is provided for 554 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 97.3% as of December 31, 1997 and the rental rate per bed for the 1997/98
academic year was $4,464. The property was under construction as of December 31,
1996 and therefore had no occupants. The total revenue of the Property for the
year ended December 31, 1997 was $1,115,184.
The College Park-Rams Point property is located in Fort Collins, Colorado,
approximately one mile from the campus of Colorado State University. The
university has a current student enrollment of approximately 22,000, of which
only approximately 7,000 (or 31.8%) can currently be housed on-campus; the
remaining 15,000 students must live off-campus.
30. COLLEGE PARK-THE RIDGE
This garden apartment complex comprises two stories with approximately
164,320 leasable square feet and consists of 15 buildings with 192 units and 315
beds. Originally built in 1994, this Property was acquired in December 1997. The
Property has various recreational features and amenities including a fitness
center, a computer room, clubhouse, activity/entertainment center, hot tub, a
swimming pool and a sand volleyball court. Each unit is equipped with a
full-service kitchen. Parking at the Property is provided for 465 cars.
This Property is rented primarily on both a nine- and 12-month basis. The
occupancy rate was 98.9% as of December 31, 1997 compared to 96.9% as of
December 31, 1996, and the rental rate per bed for the 1997/98 academic year was
$6,240 compared to $6,426 for the 1996/97 academic year. The
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total revenue of the Property for the year ended December 31, 1997 was
$1,679,511 compared to $1,637,181 for the year ended December 31, 1996.
The College Park-The Ridge property is located in College Station, Texas,
approximately two miles from the campus of Texas A&M University. The university
has a current student enrollment of approximately 42,000, of which only
approximately 10,661 (or 24.5%) can currently be housed on-campus; the remaining
31,339 students must live off-campus.
31. COLLEGE PARK-THE ENCLAVE
This garden apartment complex comprises three stories with approximately
281,680 leasable square feet and consists of 12 buildings with 340 units and 549
beds. Originally built in 1994, this Property was acquired by the Predecessor
Partnerships in December 1997. The Property has various recreational features
and amenities including a fitness center, a swimming pool,
activity/entertainment center, hot tub and a gazebo. Each unit is equipped with
a full-service kitchen. Parking at the Property is provided for 807 cars.
This Property is rented primarily on both a nine- and 12-month basis. The
occupancy rate was 98.5% as of December 31, 1997 compared to 92.4% as of
December 31, 1996, and the rental rate per bed for the 1997/98 academic year was
$4,463 compared to $4,455 for the 1996/97 academic year (each based on a
nine-month rental plan). The total revenue of the Property for the year ended
December 31, 1997 was $2,825,962 compared to $1,338,614 for the period from June
1996 (the date the previous owner acquired such Property) to December 31, 1996.
The College Park-The Enclave property is located in College Station, Texas,
approximately two miles from the campus of Texas A&M University. The university
has a current student enrollment of approximately 42,000 of which approximately
only 10,661 (or 24.5%) can currently be housed on-campus; the remaining 31,339
students must live off-campus.
32. COLLEGE PARK-EAGLES POINTE
This garden apartment complex, originally built in 1967, comprises three
stories with approximately 159,340 leasable square feet and consists of 38
buildings with 270 units and 540 beds. The Property is one of two Properties
that is leased by unit rather than bed; such units having two bedrooms. The
Property has various recreational features and amenities including a swimming
pool, a volleyball court, a study lounge and a game room. Each unit is equipped
with a full-service kitchen. Parking at the Property is provided for 405 cars.
This Property is rented primarily on a 12-month basis. The occupancy rate
was 91.7% as of December 31, 1997 compared to 97.0% as of December 31, 1996, and
the rental rate per bed was $6,180 for both of the 1996/97 and 1997/98 academic
years. The total revenue of the Property for the year ended December 31, 1997
was $1,582,786 compared to $1,727,665 for the year ended December 31, 1996. The
decrease in occupancy from December 31, 1996 to December 31, 1997 was primarily
due to a substantial number of leases terminating in December 1997. The Company
acquired this Property on January 5, 1998 and, therefore, had no control over
the termination of leases in December 1997.
The College Park-Eagles Pointe property is located in Kent, Ohio across the
street from the campus of Kent State University. The university has a current
student enrollment of approximately 27,000, of which only approximately 5,600
(or 20.7%) can currently be housed on-campus; the remaining 21,400 students must
live off-campus.
In addition, the Company owns approximately eight acres of vacant land near
the Property, which the Company intends to develop by August 1999.
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MANAGED PROPERTIES
1. CITILINE TOWERS
This high-rise residence hall comprises 20 stories with approximately
189,000 leasable square feet and consists of 315 units and 1,100 beds. This
property is owned by Citiforbes Associates Ltd., and is managed by the
Management Subsidiary pursuant to a subcontract with GMH Management, Inc.-North,
under the Management Agency Agreement (the "CT Management Agreement"). Citiline
Towers is located in Pittsburgh, Pennsylvania, across the street from Duquesne
University. The university has a current student enrollment of approximately
9,400, of which only approximately 2,802 (or 29.2%) can currently be housed
on-campus; the remaining 6,798 students must live off-campus.
Under the subcontract to the CT Management Agreement, the Management
Subsidiary receives a specified percentage of gross rents collected (subject to
increase upon attaining certain specified targets) and a commission based on the
gross sales price of the property if it is sold. The CT Management Agreement is
terminable by either party on 30 days' prior written notice.
This property is rented primarily on a nine-month basis. The occupancy rate
was 100.0% as of December 31, 1997 compared to 88.2% as of December 31, 1996,
and the rental rate per bed for the 1997/98 academic year was $6,849 as of
December 31, 1997 compared to $6,813 for the 1996/97 academic year (each based
on a nine-month rental plan). GMH Management, Inc.-North earned $183,433 for the
year ended December 31, 1997 compared to $165,680 for the year ended December
31, 1996 from the management of the property.
2. PARKWAY PLAZA
This mid-rise residence hall comprises three buildings of seven stories and
one building of five stories with approximately 394,500 leasable square feet and
consists of 428 units and 1,108 beds. This property is owned by State College
Investment Associates, and is managed by the Management Subsidiary pursuant to a
subcontract with GMH Management, Inc.-North under the Management Agency
Agreement (the "PWP Management Agreement"). Parkway Plaza is located in State
College, Pennsylvania, two miles from the campus of Penn State University. The
university has a current student enrollment of approximately 42,250, of which
only approximately 12,392 (or 29.3%) can currently be housed on-campus; the
remaining 29,858 students must live off-campus.
Under the subcontract to the PWP Management Agreement, the Management
Subsidiary receives a specified percentage of the gross income of the property.
The PWP Management Agreement is terminable by either party on 30 days' prior
written notice.
This property is rented primarily on a nine-month basis. The occupancy rate
was 98.4% as of December 31, 1997 compared to 97.7% as of December 31, 1996, and
the rental rate per bed for the 1997/98 academic year was $3,906 compared to
$3,807 for the 1996/97 academic year (each based on a nine-month rental plan).
GMH Management, Inc.-North earned $152,681 for the year ended December 31, 1997
compared to $156,031 for the year ended December 31, 1996 from the management of
the property.
DEVELOPMENT PROPERTIES
1. COLLEGE PARK-ORLANDO
The Predecessor Partnerships began construction of the first phase (of two)
of this garden apartment complex in August 1997. The property will comprise
three stories with approximately 328,578 leasable square feet that, when
completed, is expected to consist of 29 buildings with 396 units and 1,296 beds.
Phase I of the property comprises 19 buildings with 252 units and 864 beds and
is expected to be completed in August 1998. Phase II comprises 10 buildings with
120 units and 288 beds and is expected to be completed in August 1999. The
parcels of land which make up College Park-Orlando were acquired in 1997.
Amenities are expected to include two swimming pools, an activity/entertainment
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center, a hot tub, a computer room, a fitness center and tennis and volleyball
courts. Each unit will be equipped with a full-service kitchen. Parking at the
property will be provided for 300 cars.
This property is owned by a Predecessor Partnership, and GMH Development,
Inc. is engaged by such Predecessor Partnership as the general contractor for
construction of the property.
The College Park-Orlando property is located in Orlando, Florida,
approximately one mile from the University of Central Florida's main campus. The
university has a current student enrollment of approximately 28,200, of which
only approximately 1,600 (or 5.7%) can currently be housed on-campus; the
remaining 26,600 students must live off-campus.
2. COLLEGE PARK-BLACKSBURG (PHASE II)
The Predecessor Partnerships began construction of an additional property in
Blacksburg, Virginia in August 1997 comprising three stories with approximately
129,600 leasable square feet that, when completed, is expected to consist of
seven buildings with 108 units and 432 beds. Amenities are expected to include a
swimming pool, an activity/entertainment center, a hot tub, a computer room, a
fitness center and tennis and volleyball courts. Each unit will be equipped with
a full-service kitchen. Parking at the property will be provided for 359 cars.
This property is owned by a Predecessor Partnership, and GMH Development,
Inc. is engaged by such Predecessor Partnership as the general contractor for
construction of the property.
The College Park-Blacksburg (Phase II) property is located approximately one
mile from the main campus of the Virginia Tech University and is adjacent to
College Park-Blacksburg. The university has a current student enrollment of
approximately 23,900, of which only approximately 8,364 (or 35.1%) can currently
be housed on-campus; the remaining 15,536 students must live off-campus.
Construction is expected to be completed by August 1998.
PENDING ACQUISITIONS
On February 26, 1998, the Operating Partnership entered into a purchase
agreement to acquire a property in Austin, Texas for a purchase price of $8.0
million and entered into an agreement to acquire certain rights, obligations and
liabilities with respect to a second property in Austin, Texas (including the
rights of the seller under an installment sale agreement and the right to manage
such property) for a purchase price of $3.8 million. The Pending Acquisitions
are subject to certain conditions, and there can be no assurance that such
property or rights will be acquired.
1. THE CONTESSA
This garden apartment complex, originally built between 1964 and 1969 and
renovated between 1994 and 1996, comprises three buildings, each with either two
or four stories, with approximately 96,290 leasable square feet and consists of
184 units and 387 beds. A purchase agreement regarding this property was
executed in February 1998. The property has various recreational features and
amenities including two swimming pools, a sports court, a computer room, a study
room, a television room, a fitness center, tennis courts and a kitchen and
dining room.
This property is located in Austin, Texas, approximately .5 miles from the
campus of the University of Texas. The university has a current student
enrollment of approximately 48,000, of which only approximately 6,077 (or 12.7%)
can currently be housed on-campus; the remaining 41,923 students must live
off-campus.
2. THE MADISON
This garden apartment complex comprises three buildings, each with either
two or three stories, with approximately 60,490 leasable square feet and
consists of 140 units and 266 beds. Originally built between 1959 and 1962, this
property was renovated between 1994 and 1996. The property has various
recreational features and amenities including two swimming pools, a sports
court, a computer room, a study room, a television room, a fitness center,
tennis courts and a kitchen and dining room.
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This Property is owned by the Texas Student Housing Corporation ("TSHC"),
and pursuant to a purchase agreement executed in February 1998, the Company will
acquire, among other things, the right to manage the property, the rights of the
seller under the installment sale agreement and mortgage with respect to such
property and the rights under the other security documents entered into by TSHC
to secure its obligations under the installment sale agreement.
This property is located in Austin, Texas, approximately .5 miles from the
campus of the University of Texas. The university has a current student
enrollment of approximately 48,000, of which only approximately 6,077 (or 12.7%)
can currently be housed on-campus; the remaining 41,923 students must live
off-campus.
TERMS OF STUDENT LEASES
THE FOLLOWING SUMMARY OF THE COMPANY'S FORM OF LEASES SETS FORTH THE
MATERIAL TERMS OF THE LEASES THAT ARE USED OR INTENDED TO BE USED BY THE COMPANY
AS OF THE DATE OF THIS PROSPECTUS.
CURRENT STUDENT LEASES. The Predecessor Partnerships have generally used
one basic form of student lease at each Property with slight variations from
Property to Property and state to state. At the JPI Acquired Properties and the
Glenmorris Property, however, the Predecessor Partnerships currently use the
form of student lease which was in effect at the time of acquisition of such
Properties. Each existing lease is governed by and construed in accordance with
the laws of the state in which the related Property is situated. The Operating
Partnership will assume all of such leases in connection with the Formation
Transactions.
FORM OF NATIONAL STUDENT LEASE. The Company has developed a form of
national student lease which will be used to lease units to students following
the consummation of the Formation Transactions and the Offering. The national
student lease form will vary slightly from state to state, as necessary to
conform the lease to the laws of the state in which the related Property is
situated, and such leases will be governed by and construed in accordance with
the laws of the state in which the related Property is situated.
The material terms of the form of the Company's national student lease are
as follows:
(i) Each unit will be leased to a student for a term of either nine or
twelve months, but occasionally the Company will enter into leases for shorter
terms if seasonal changes in occupancy make shorter lease terms desirable.
(ii) Each lease will require students to use their units for residential
purposes only. Each lease will be for either (i) an apartment unit in an
apartment building, (ii) a share of an apartment unit, (iii) a bedroom in a
residence hall or (iv) one-half of a bedroom in a two bedroom suite. Where
applicable, the students will have shared use and occupancy of the bathroom(s),
kitchen, and living/dining areas with the other co-tenants of such unit. The
lease will prohibit the tenant(s) from sharing or subletting the unit, and the
leases will be assignable only upon the Company's written consent.
(iii) Although the leases will typically permit rent to be paid in equal
monthly installments, some leases may require the rent for the entire term of
the lease to be paid in one installment at the beginning of the term of the
lease. In such cases, the lease will specify that such rent is payable for the
entire term of the lease even if the student ceases to attend the nearby
university or college. Parents or other responsible sponsors will be required to
guarantee, among other things, the amounts payable under the leases. See
"Objectives and Strategies for Growth--Operating Strategy."
(iv) The Company will collect a security deposit from every student,
generally equal to one or two months' rent. The security deposit will be applied
against any damage caused to the unit (including the furnishings and household
items within the unit) by a student. In addition, students (and guarantors) will
be responsible for any damage caused to a unit and will be responsible for their
proportionate share of any damage caused to the common areas of the Property.
The students will be required to sign a move-in and move-out form that will
evidence the presence of any such damage to the unit and the student's (and
guarantor's) responsibility therefor.
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(v) The Company will have the option of exercising its legal remedies upon
the failure of a student to pay rent when due, the breach of any other covenant
contained in the lease or the abandonment of the unit by a student.
The Food Service Operator will separately contract with and provide Food
Services to tenants and non-tenants at the Food Service Spaces. The Housekeeping
Operator will separately contract with and provide housekeeping services to
tenants.
FOOD SERVICES SPACE LEASE WITH FOOD SERVICE OPERATOR
THE FOLLOWING SUMMARY OF THE FOOD SERVICE SPACE LEASE DOES NOT PURPORT TO BE
COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
LEASE WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS FORMS A PART.
The Company will lease each Food Service Space to Food Service Operator
pursuant to the Food Service Space Lease. If any additional properties are
developed or acquired that have facilities of a like nature, then such
facilities will be leased to Food Service Operator or to another lessee pursuant
to such terms and conditions as may be agreed upon between the Company and Food
Service Operator or such lessee, as applicable, at the time of such development
or acquisition, and such terms and conditions may vary from the terms and
conditions of the Food Service Space Lease.
The Food Service Space Lease, as it applies to each Food Service Space, will
be governed by, and construed in accordance with, the law of the Commonwealth of
Pennsylvania except to the extent that state law provides otherwise. None of the
agreements to be entered into by the Company or Food Service Operator in
connection with the Formation Transactions prohibits or otherwise restricts the
Company's ability to lease portions of the Properties to parties other than Food
Service Operator.
Food Service Operator's interest in each Property on which a Food Service
Space is operating includes only the portion of the Property on which the
cafeteria and food services are provided. The Company will not own or lease any
personal property, furniture or equipment included in the operation of the Food
Service Space following the Formation Transactions, all of which will be owned
or leased from third parties by Food Service Operator.
LEASE TERM. The Food Service Lease will have a term of - years. Both the
Company and Food Service Operator will have the right to terminate the lease
upon the expiration of the original term by providing notice at least - days
prior to the expiration date. In the absence of such notice from either party,
the lease will continue on a year to year basis until terminated by either party
by delivery of notice at least - days prior to the expiration of the then
current lease year.
USE OF THE PROPERTIES. The Food Service Space Lease will require Food
Service Operator to operate each Food Service Space only as a cafeteria and for
the incidental sale of food, food products, candy and non-alcoholic beverages in
connection therewith. The Food Service Space Lease will generally require that
Food Service Operator operate each Food Service Space in an efficient and
professional manner.
AMOUNTS PAYABLE UNDER THE LEASES. During the term of the Food Service Space
Lease, Food Service Operator will pay annual base rent, which will be payable in
monthly installments. Such rent will be a "gross rent" in that Food Service
Operator will not be responsible for its proportionate share of operating
expenses and real estate taxes incurred in connection with the related
Properties. However, Food Service Operator will be obligated to pay for its own
consumption of gas, electricity, water and other like utility charges. If the
lease continues on a year to year basis following the original term, the annual
base rent will be increased for the first continuation year and each year
thereafter based upon the Consumer Price Index.
In addition to the base rent, Food Service Operator will pay percentage
rent. Percentage rent will be % of the gross revenues realized by Food Service
Operator from its operations at all of the Food Service Spaces to the extent
that such gross revenues exceed a breakpoint.
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MAINTENANCE AND MODIFICATION. Food Service Operator will, at its sole cost
and expense, maintain the interior of each leased space in good order, repair
and appearance. Food Service Operator will also be obligated to provide
janitorial, cleaning and related services to ensure that the leased space is
clean and sanitary and to maintain the personal property used in connection with
Food Service Operator's business.
The Company will be responsible for any structural repairs and replacements
and for any maintenance, repairs and replacements of systems serving the leased
space that may be necessary and appropriate to keep such leased space in good
order, repair and appearance.
Food Service Operator, at its sole cost and expense, may make alterations,
additions, changes and/ or improvements to any Food Service Space. Alterations,
additions, changes and/or improvements that will cost less than $- may be made
without the prior written consent of the Company, but any alterations,
additions, changes and/or improvements that will cost more than such amount will
require the Company's written consent.
INSURANCE. The Food Service Space Lease provides that Food Service Operator
will maintain insurance providing for the following coverages in such amounts as
are or shall customarily be insured against with respect to leased space similar
to Food Service Operator's leased space at the Properties: (a) fire, earthquake,
vandalism, and other physical loss perils, (b) commercial general public
liability with products, contractual and broad form vendor's coverages (for
personal injury, death and property damage), (c) worker's compensation and (d)
such other insurance as the Company or any holder of a mortgage, deed of trust
or other security agreement encumbering such Properties (a "Company Mortgagee")
may reasonably require. The foregoing insurance policies will name the Company
and any Company Mortgagee as additional insured parties.
COMPLIANCE WITH LAWS. Food Service Operator will be obligated to comply
with all laws pertaining to the use and occupancy of the Food Service Spaces and
to obtain all required permits and licenses applicable to a food service
operation.
ASSIGNMENT AND SUBLETTING. Except to the extent described in the following
paragraph, Food Service Operator may not, without the prior written consent of
the Company, assign or sublease all or any portion of any Food Service Space.
The Company may not unreasonably withhold or delay any proposed assignment or
sublease, but it shall not be unreasonable to withhold consent if a proposed
assignment or sublease would have the effect of causing all or a portion of the
amount received or accrued by the Company under the Food Service Space Lease to
be treated as other than "rents from real property" within the meaning of
Section 856(d) of the Code. It is expected that Food Service Operator will enter
into various subleases with concessionaires or licensees to provide vending
machines and other incidental food products.
Food Service Operator will be permitted, without the Company's prior
consent, to assign or sublease all or a portion of any Food Service Space to an
entity controlling, under common control with or controlled by Food Service
Operator, including an entity resulting from a merger or consolidation by Food
Service Operator, but excluding, in each case, any entity formed to avoid the
restrictions on assignment or sublease. However, any such assignment or sublease
will be prohibited if it would have the effect of causing all or a portion of
the amount received or accrued by the Company under the Food Service Space Lease
to be treated as other than "rents from real property" within the meaning of
Section 856(d) of the Code.
Any permitted assignment or sublease shall not impose any obligations on the
Company, or modify or limit any right or power of the Company under the Food
Service Space Lease. Any permitted sublease will be subject and subordinate to
the provisions of the Food Service Space Lease as it applies to such Property.
Any permitted assignment will not in any way impair the continuing primary
liability of Food Service Operator unless the Company so consents at the time of
the assignment. Food Service Operator will, within 15 days after the execution
and delivery of any permitted assignment or sublease, deliver a copy thereof to
the Company.
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INDEMNIFICATION GENERALLY. Under the Food Service Space Lease, Food Service
Operator will indemnify, and is obligated to save harmless, the Company from and
against all liabilities, costs and expenses (including reasonable attorneys'
fees and expenses) and all actual or consequential damages to the extent such
liabilities, cost, expenses and damages are imposed upon or asserted against the
Company as owner on account of (a) any injury to, or the death of, any person or
loss or damage to property on or about the Food Service Space, (b) the
possession, use, misuse, occupancy or condition of any Food Service Space
(except for any condition resulting from the failure of the Company to perform
its obligations under the Food Service Space Lease), or (c) any violation, or
alleged violation, by Food Service Operator of the Food Service Space Lease or
of any legal requirements (including without limitation the ADA). Under the Food
Service Space Lease, the Company will indemnify and is obligated to save
harmless, Food Service Operator from and against all liabilities, costs and
expenses (including reasonable attorneys' fees) and all actual or consequential
damages to the extent such liabilities, costs and expenses are imposed upon or
asserted against Food Service Operator as a result of the Company's gross
negligence or willful misconduct.
ENVIRONMENTAL MATTERS. The Food Service Space Lease provides for various
covenants by Food Service Operator relating to environmental matters, including
without limitation, covenants requiring compliance with all federal, state or
local laws, ordinances, regulations, orders or decrees relating to the
protection of human health or the environment in respect of the Property. In
addition, Food Service Operator is required to indemnify and hold harmless the
Company and any Company Mortgagee from and against all liabilities, costs and
expenses imposed upon or asserted against the Company or the Property on account
of, among other things, Food Service Operator's breach of such covenants.
EVENTS OF DEFAULT. An "Event of Default" will be deemed to have occurred
under the Food Service Space Lease if (a) Food Service Operator fails to pay any
rent within 10 days after notice of non-payment from the Company,(b) Food
Service Operator fails to continuously operate a cafeteria at the leased space,
(c) Food Service Operator fails to observe or perform any other covenant,
agreement or undertaking contained in the Food Service Space Lease, and such
failure continues for 30 days after written notice from the Company, or (d) a
petition is filed by or against Food Service Operator for adjudication as a
bankrupt or insolvent or for its reorganization or for the appointment of a
receiver or trustee of its property pursuant to any local, state or federal
bankruptcy or insolvency law (and certain other similar insolvency events).
Upon the occurrence of any Event of Default, the Company may evict Food
Service Operator from the applicable Property and either terminate the lease or
re-let the leased portion of the Property. In either event, Food Service
Operator shall remain responsible for the rental value of such Property for the
remainder period of the term in excess of rents received by the Company from any
successor occupant. In addition, the Company may elect a liquidated damages
remedy or exercise any other rights that it may have under law.
RELATIONSHIP BETWEEN HOUSEKEEPING OPERATOR AND THE COMPANY
Housekeeping Operator and the Company have entered into a janitorial
agreement (the "Janitorial Agreement") which provides that the Housekeeping
Operator will perform janitorial services in the common areas at certain of the
Properties for a fee of $ per annum. Such fee was negotiated under
substantially arm's-length terms, which the Company believes reflects the fair
value of janitorial services to be received by the Company.
GOVERNMENTAL REGULATIONS AFFECTING THE PROPERTIES
ENVIRONMENTAL LAWS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
at, on, under or in its property. The costs of such removal or remediation of
such substances could be substantial. Such laws often impose such liability
without
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regard to whether the owner or operator knew of, or was responsible for, the
release or presence of such hazardous or toxic substances. The presence of such
substances may adversely affect the owner's ability to sell or rent such real
estate or to borrow using such real estate as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances also may be
liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Owners of multi-resident apartment complexes may also
face liability or remediation expenses as a result of the presence of ACMs in
buildings or the presence of underground tanks, radon and lead paint. In
addition, as an entity engaged in construction, the Company may be liable for
the improper disposal of off-site materials. See "Risk Factors--Possible
Environmental Liabilities."
Each of the Properties has undergone a Phase I environmental assessment
(which involves general inspections of visible areas without soil sampling,
ground water analysis or testing for the presence of lead paint or ACMs and
generally without radon testing) by independent consultants within the last
three years. While some of these assessments have led to further investigation
and sampling, none of the environmental assessments has revealed, nor is the
Company aware of, any environmental liability that the Company believes would
have a material adverse effect on the Company's business, financial condition or
results of operations. No assurance can be given, however, that these
assessments and investigations reveal all potential environmental liabilities,
that no prior owner or operator created any material environmental condition not
known to the Company or that future uses and conditions (including, without
limitation, resident actions or changes in applicable environmental laws and
regulations) will not result in the imposition of environmental liabilities.
AMERICANS WITH DISABILITIES ACT OF 1990
The Properties and any newly developed or acquired student housing
properties must comply with Title III of the ADA to the extent that such
properties are "public accommodations" and/or "commercial facilities" as defined
by the ADA. Compliance with the ADA requires that public accommodations
"reasonably accommodate" individuals with disabilities and that new construction
or alterations made to "commercial facilities" conform to accessibility
guidelines unless "structurally impracticable" for new construction, or in
excess of 20% of the cost of the alteration for existing structures. There can
be no assurance that the Company is in material compliance with the ADA at any
Property. Noncompliance with the ADA could result in the imposition of
injunctive relief, fines or an award of damages to private litigants or
additional capital expenditures to remedy such non-compliance.
INSURANCE COVERAGE
Each Property is insured in respect of fire, vandalism and malicious
mischief, extended coverage perils, all physical loss perils, commercial general
liability, flood (when the Property is located in whole or in material part in a
designated flood plain area) and workers' compensation insurance. Each Property
is also insured under a $100 million umbrella policy covering liability, fire
and theft. Management believes that all of the Properties are therefore
adequately insured in accordance with standard industry practice for similar
properties; however, an uninsured loss could result in loss of capital
investment and anticipated profits. See "Risk Factors--Real Estate Investment
Risks--Uninsured Loss."
COMPETITION
Following the Formation Transactions and the Offering, the Company believes
it will be the largest owner and operator of student housing in the United
States. The Company will seek to compete for students by providing high quality
student residences at rental levels competitive in the particular student market
in which the Property is located. The Company competes with other regional or
national operators of off-campus student housing in a number of markets as well
as with smaller local or regional owner-operators of student housing. Currently,
the industry is highly fragmented with no participant holding a significant
market share. There are, however, various off-campus student housing complexes
that compete directly with the Company located near or in the same general
vicinity of many of the
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<PAGE>
Company's Properties. Such competing student housing complexes may be newer than
the Company's Properties or possess more attractive amenities than the Company
provides at their Properties. Rental income at a particular Property could be
affected by a number of other factors, including the construction of new
on-campus and off-campus residences near a Property, increases or decreases in
the general levels of rents for housing in contiguous communities, increases or
decreases in the number of students enrolled at a particular college or
university in proximity to a Property and other general economic conditions.
The Company is subject to competition for students from on-campus housing
operated by colleges and universities and public authorities. On-campus housing
has certain inherent advantages over off-campus student housing complexes, such
as those operated by the Company, due to their physical proximity to the campus
and because the colleges and universities can better integrate such on-campus
facilities into the academic community. Furthermore, colleges and universities
can generally borrow funds at lower interest rates than the Company and other
private sector operators, thereby decreasing their costs of building and
operating new student housing.
The Company believes that a number of other large national companies with
substantial financial resources may be potential entrants in the student housing
business and the entry of one or more of these companies could increase
competition for students and for the acquisition or development of other student
housing properties. The Company will also be subject to competition for the
acquisition of student housing with other existing local and national owners and
operators of student housing. Further, the pace and size of acquisitions in the
real estate industry have increased significantly in recent months;
consequently, prices have generally increased while cash on cash investment
yields have fallen.
EMPLOYEES
Upon completion of the Offering, the Company expects to employ approximately
560 persons, of which 527 will be located at the properties and 33 will be in
headquarter positions.
There are no collective bargaining agreements with any of the Company's
employees. Management believes that its relationship with its employees is good.
A number of employees will either divide their time or be shared by the Company
and one or more entities affiliated, controlled or managed by Gary M. Holloway.
The Company has made certain arrangements or agreements with such entities with
regard to the allocation of such employees' salaries, benefits and workload. See
"Management" and "Conflicts of Interest--Potential Conflicts of Interest--Shared
Employees."
LEGAL PROCEEDINGS
None of the Company, the Operating Partnership, any of the Predecessor
Partnerships or any of the Properties, Managed Properties or Development
Properties presently is subject to any litigation nor, to the Company's
knowledge, is any litigation threatened against any of them, other than routine
litigation and administrative proceedings arising in the ordinary course of
business, some of which are expected to be covered by liability insurance and
none of which, individually or in the aggregate, is expected to have a material
adverse effect on the business, financial condition or results of operations of
the Company.
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<PAGE>
MORTGAGE DEBT AND CREDIT FACILITY
MORTGAGE INDEBTEDNESS
Upon completion of the Offering, the entering into of and drawdown under the
Credit Facility and the consummation of the Formation Transactions, the Company
will repay approximately $200.6 million of indebtedness. As a result of the
assumption of mortgage debt related to the JPI Acquisition (bearing interest at
various rates ranging from 7.88% to 8.50% (as of March 1, 1998) and with
maturity dates ranging from June 1, 2003 to December 1, 2003), the Company will
have approximately $75.7 million in consolidated mortgage debt outstanding upon
completion of the Offering. In addition, the Company will have approximately
$53.8 million outstanding under the Credit Facility. See "--Credit Facility."
The following table sets forth certain information regarding the mortgage
indebtedness encumbering the Properties as of March 1, 1998, assuming
consummation of the Offering, the entering into of and drawdown under the Credit
Facility, the application of the proceeds therefrom as set forth in "Use of
Proceeds" and the application of such proceeds effective as of March 1, 1998.
For information concerning the refinancing of certain indebtedness in connection
with the Offering, see "Use of Proceeds."
MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
BALANCE AS OF BALANCE
MARCH 1, INTEREST FIRST YEAR MATURITY DUE AT
PROPERTY NAME 1998 RATE PAYMENT (1) DATE MATURITY
- ----------------------------------- -------------- ------------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
JPI ACQUIRED PROPERTIES(2)
26. Nittany Crossing............... $ 12,801 8.50% $ 1,256.2 12/1/03 $ 7,337
27. Landings I..................... 13,540 8.29 1,328.6 12/1/03 12,252
28. Landings II.................... 15,437 8.29 1,471.5 12/1/03 14,056
29. Rams Point..................... 14,411 8.29 1,376.6 12/1/03 13,125
30. The Enclave.................... 11,421 7.88 1,009.3 6/1/03 10,709
31. The Ridge...................... 8,124 8.50 797.2 12/1/03 7,337
-------------- ------------- ---------
Total........................... $ 75,734 -- $ 7,239.4 -- $ 64,816
-------------- ------------- ---------
-------------- ------------- ---------
</TABLE>
- ------------------------
(1) Represents principal and interest based on a 25-year loan amortization
schedule for the JPI Acquired Properties.
(2) All of the JPI Acquired Properties (other than the Enclave) are
cross-collateralized and cross-defaulted.
CREDIT FACILITY
The Company and the Bank are expected to enter into the Credit Facility
which is anticipated to take effect concurrently with the closing of the
Offering. The Company expects to make a drawdown under such facility of
approximately $53.8 million concurrently with the closing of the Offering and
will use such proceeds to repay existing indebtedness. The Company intends to
use future borrowings under the Credit Facility to fund construction,
development, renovation and acquisition costs and for working capital purposes
and other corporate purposes. The Credit Facility is expected to be a two- or
three-year revolving facility (subject to extension under certain circumstances)
which will provide for borrowings in an amount up to $250 million. The terms of
the credit agreement are not finalized but are expected to generally consist of
the terms set forth below.
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<PAGE>
The borrowings under the Credit Facility will bear interest at a floating
rate. The Credit Facility will require the Company to pay various fees and
expenses, including a fee upon entering into the Credit Facility, a fee on
unused borrowings, an application fee and a yearly administration fee. See "Risk
Factors--Real Estate Investment Risks--Debt Financing and Existing Debt
Maturities."
The Company will be the borrower under the Credit Facility, with all
indebtedness under the Credit Facility being guaranteed by the Operating
Partnership. The Credit Facility will contain customary representations,
warranties, covenants and events of default. The Credit Facility will likely
require the Company to comply with a number of affirmative and negative
covenants, including, among other things, the requirements that (a) the
Company's minimum tangible net worth may not be less than certain specified
levels; (b) the total leverage of the Company, as measured by total liabilities
divided by the sum of the Company's total assets and accumulated depreciation,
may not exceed certain specified levels; (c) the ratio of the Company's total
secured debt to total assets may not exceed certain specified levels; (d) EBITDA
divided by interest expense may not be less than certain specified levels; and
(e) EBITDA minus capital expenditure reserves divided by interest expense,
scheduled principal amortization payments and preferred dividends, if any, may
not be less than certain specified levels. The Credit Facility will also limit
the Company's ability to incur indebtedness. The Credit Facility will also limit
distributions by the Company to certain specified levels of Funds Available for
Distribution and Funds Available for Distribution less reserves during any
twelve-month period. Funds Available for Distribution will be calculated in a
manner consistent with the Company's estimated pro forma Cash Available for
Distribution.
The Credit Facility will contain events of default, including (a)
non-payment of interest, principal or fees, (b) a payment default with respect
to any indebtedness or guaranteed obligation, (c) the acceleration of any
indebtedness or guaranteed obligation, (d) the occurrence of any event which has
a Material Adverse Effect (as defined therein), (e) a person or group acquiring
over certain specified levels of the Company's voting power or a change in a
majority of the Company's continuing trustees, (f) the creation of an
environmental lien for costs or damages in excess of specified amounts and (g)
bankruptcy or insolvency, or the commencement of involuntary insolvency
proceedings.
POLICIES AND OBJECTIVES IN RESPECT OF CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies and objectives of the Company. These policies have been determined by
the Board of Trustees and may be amended or revised from time to time by the
Board of Trustees without a vote of the shareholders of the Company, except that
the Company cannot change its policy of holding its assets and conducting its
business only through the Operating Partnership without the consent of the
holders of Units as provided in the agreement of limited partnership of the
Operating Partnership and cannot change its policy with respect to the matters
discussed under "--Prohibited Investments and Activities; Conflict of Interest
Policies" without a vote of the Company's shareholders.
INVESTMENT POLICIES AND OBJECTIVES
The Company's investment objectives are to achieve increased cash flow from
operating activities and long-term capital appreciation through increases in the
value of the Company's Properties. For a discussion of the Company's Properties
and its development, acquisition and other strategic objectives, see "Business
of the Company and its Properties" and "The Company--Objectives and Strategies."
The Company's policy is to develop and acquire real estate assets primarily for
the generation of current income and appreciation in long-term value.
The Company will develop and acquire income-producing student housing for
long-term investment, expand and improve the Properties presently owned or other
properties purchased, sell such Properties (although the Company has no present
intention to sell any of the Properties) or other
75
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properties, in whole or in part, when circumstances warrant, or enter into
arrangements with colleges and universities to develop, own or lease student
housing. While the Company intends to maintain a prudent level of
diversification in terms of property location, size and market, the Company will
not have any limit on the amount or percentage of its assets invested in any one
property or any one market. While the Company anticipates focusing its
development activities on student housing in its primary markets, future
investments will not necessarily be limited to any geographic area or any
specific type of property. Equity investments may be subject to existing
mortgage financing and other indebtedness or such financing or indebtedness as
may be incurred in connection with acquiring or refinancing these investments.
Debt service on such financing or indebtedness will have priority over the
Shares and any distributions thereon.
While the Company emphasizes equity real estate investments in student
housing, it may, in the discretion of the Board of Trustees, invest in other
types of equity real estate investment, mortgages (including participating or
convertible mortgages), securities of other real estate investment trusts, other
real estate operating companies and other real estate interests, consistent with
its qualification as a real estate investment trust. The investment in
securities of other concerns engaged in real estate activities or other issuers
is subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, although investments in securities of other
REITs qualify for purposes of these tests. See "Federal Income Tax
Considerations." The Company may in the future acquire all or substantially all
of the economic interest in a real estate-related operating business. The
Company has no present intention to invest to a significant extent in such
investments.
FINANCING POLICIES AND OBJECTIVES
Upon completion of the Offering and the Formation Transactions, the pro
forma Debt-to-Total-Market Capitalization Ratio of the Company will be
approximately 27.7%. The Company currently has a policy of incurring debt only
if upon such incurrence the Debt-to-Total-Market Capitalization Ratio would
continue to be 50% or less. This ratio will fluctuate with changes in the price
of the Shares (and the issuance of additional Shares or other shares of capital
stock, if any) and differs from the Debt-to-Book Capitalization Ratio, which is
based upon book values. As the Debt-to-Book Capitalization Ratio may not reflect
the current income potential of a company's assets and operations, the Company
believes that the Debt-to-Total-Market Capitalization Ratio provides a more
appropriate indication of leverage for a company whose assets are primarily
income-producing real estate.
The Company's Declaration of Trust and Bylaws do not, however, limit the
amount or percentage or indebtedness that the Company may incur. The Company
expects the Credit Facility, however, to contain standard and customary
covenants restricting the Company's incurrence of additional indebtedness. In
addition, the Company may from time to time modify its debt policy in light of
current economic conditions, relative costs of debt and equity capital, market
value of its properties, general conditions in the market for debt and equity
securities, fluctuations in the market price of the Shares, growth opportunities
and other factors. Accordingly, the Company may increase or decrease its
Debt-to-Total-Market Capitalization Ratio to more or less than the limit
described above without prior public announcement. To the extent that the Board
of Trustees decides to obtain additional capital, the Company may raise such
capital through additional equity offerings (including offerings of senior
securities), debt financings or retention of Funds from Operations (subject to
provisions in the Code concerning taxation of undistributed real estate
investment trust income), or a combination of these methods. As long as the
Operating Partnership is in existence, the net proceeds of the sale of Shares or
other equity securities by the Company will be transferred to the Operating
Partnership in exchange for an increase in its general partnership interest in
the Operating Partnership. See "The Operating Partnership--Operations." The
Company presently anticipates that any additional borrowings would be made
through the Operating Partnership, although the Company might incur
indebtedness, the proceeds of which would be loaned to the Operating
Partnership. Borrowings may be unsecured or may be secured by any or all of the
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<PAGE>
assets of the Company, the Operating Partnership or any existing or new
property-owning partnership and may have full or limited recourse to all or any
portion of the assets of the Company, the Operating Partnership or any existing
or new property-owning partnership. Indebtedness incurred by the Company may be
in the form of bank borrowings, tax-exempt bonds, purchase money obligations to
sellers of apartment properties or other properties, publicly or privately
placed debt instruments or financing from institutional investors or other
lenders. The proceeds from any borrowings by the Company may be used for working
capital, to refinance existing indebtedness and to finance expansions,
development of new properties or acquisitions, and for the payment of
distributions. The Company has not established any limit on the number or amount
of mortgages that may be placed on any single property or on its portfolio as a
whole.
POLICIES AND OBJECTIVES IN RESPECT OF OTHER ACTIVITIES
The Company has authority to offer additional Shares, senior securities or
options to purchase Shares in exchange for property and to repurchase or
otherwise acquire its Shares or other securities in the open market or otherwise
and may engage in such activities in the future. The Company may be obligated to
issue Shares to holders of Units in the Operating Partnership upon exercise of
their right of exchange. Except in connection with the Formation Transactions,
the Restricted Share Program and the 1998 Share Incentive Plan, the Company has
not issued Shares, Units or any other securities in exchange for property or for
any other purpose, and the Board of Trustees has no present intention of causing
the Company to repurchase any Shares. The Company may issue Preferred Shares
from time to time, in one or more series, as authorized by the Board of Trustees
without the need for shareholder approval. See "Description of Shares of
Beneficial Interest--Preferred Shares." The Company does not intend to engage in
trading, underwriting or agency distribution or sale of securities of other
issuers other than the Operating Partnership, nor has the Company invested in
the securities of other issuers other than the Operating Partnership for the
purposes of exercising control, and does not intend to do so. At all times, the
Company intends to make investments in such a manner as to qualify as a REIT.
The Company has not made any loans to third parties, although it may in the
future make loans to third parties, including, without limitation, to joint
ventures in which it may participate. The Company intends to make investments in
such a way that it will not be treated as an investment company under the
Investment Company Act of 1940. The Company's policies with respect to such
activities may be reviewed and modified or amended from time to time by the
Company's Board of Trustees without a vote of shareholders.
PROHIBITED INVESTMENTS AND ACTIVITIES; CONFLICT OF INTEREST POLICIES
The Company has adopted in its Bylaws certain policies designed to minimize
potential effects of conflicts of interest. Without the approval of the Board of
Trustees, including a majority of the Independent Trustees, after the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are made known to such trustees, the Company will not (a)
acquire from or sell to any trustee, officer or employee of the Company, or a
member of such person's immediate family or any entity in which a trustee,
officer or employee of the Company or a member of such person's immediate family
beneficially owns more than a 5% equity interest, or acquire from or sell to any
affiliate of any of the foregoing, assets or other property of the Company with
a fair market value greater than $50,000, (b) make any loan to or borrow from
any of the foregoing persons or (c) engage in any other transaction with any of
the foregoing persons, other than the transactions described under "The
Formation Transactions," "Certain Relationships and Transactions" and "Conflicts
of Interest."
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WORKING CAPITAL RESERVES
The Company will attempt to maintain working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Trustees
determines to be adequate to meet normal contingencies in connection with the
operation of the Company's business and investments.
DECLARATION OF TRUST AND BYLAW PROVISIONS
The Company's Bylaws provide that any transactions between the Company and
any of its trustees or any other entity in which a trustee has a material
financial interest is subject to the interested director transaction provision
of the MGCL. Such provision, as applicable to the Company through its Bylaws,
provides that a contract or other transaction between a corporation and any of
its directors or between a corporation and any other corporation, firm or other
entity in which any of its directors has a material financial interest is not
void or voidable if (a) the fact of the common directorship or interest is
disclosed or known to (i) the board of directors, and the board of directors
authorizes, approves or ratifies the contract or transaction by the affirmative
vote of a majority of disinterested directors, even if the disinterested
directors constitute less than a quorum, or (ii) the stockholders entitled to
vote, and the contract or transaction is approved by a majority of the votes
cast by stockholders entitled to vote other than the interested person or (b)
the contract or transaction is fair and reasonable to the corporation.
Pursuant to the Declaration of Trust, each trustee is required to discharge
his or her duties in good faith, with the care an ordinarily prudent person in a
like position would exercise under similar circumstances and in a manner he
reasonably believes to be in the best interest of the Company.
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MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS OF THE COMPANY
The Board of Trustees currently consists of one member, Gary M. Holloway.
Upon completion of the Offering, the Board of Trustees will consist of seven
members, four of whom will be independent for purposes of the requirements of
the NYSE.
Certain information regarding the trustees and the executive officers of the
Company is set forth below:
<TABLE>
<CAPTION>
YEARS ASSOCIATED WITH
THE COMPANY'S POSITIONS AND YEAR TRUSTEE TERM
NAME AGE PREDECESSORS OFFICES HELD EXPIRES
- -------------------- --- --------------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
Gary M. Holloway.... 42 13 Chairman of the
Board of Trustees
and Chief
Executive Officer
Bruce F. Robinson... 42 12 Chief Financial n/a
Officer
Joseph Coyle........ 43 3 Chief Operating n/a
Officer
Trustee
Trustee
Independent Trustee
Independent Trustee
Independent Trustee
Independent Trustee
</TABLE>
GARY M. HOLLOWAY is the Chief Executive Officer and Chairman of the Board of
Trustees of the Company. Mr. Holloway has formed numerous non-public real estate
partnerships, all of which were organized to acquire commercial and residential
properties. Mr. Holloway has been involved in the student housing industry since
1985. Prior to formation of the Company, Mr. Holloway was involved in various
aspects of the real estate industry. From 1985 to 1997, Mr. Holloway was the
Chief Executive Officer, President and Founder of GMH Associates, Inc., one of
the predecessors of the Company. From 1979 to 1985, he served as Chief Financial
Officer for the Holloway Corporation, a closely held business that specialized
in residential and nursing home developments. From 1977 to 1979, he was employed
by Touche Ross & Co., Certified Public Accountants, where he was primarily
involved in providing accounting and tax services to real estate clients. Mr.
Holloway received a Bachelor's degree in Business Administration from Villanova
University in 1977.
BRUCE F. ROBINSON is the Chief Financial Officer, Secretary and Treasurer of
the Company. Prior to the formation of the Company, Mr. Robinson was the
Executive Vice President of Finance/Legal for GMH Associates, Inc. from 1986 to
1997. From 1977 until 1986, Mr. Robinson was a Senior Tax Manager for Touche
Ross & Co., Certified Public Accountants, where he specialized in real estate
syndication, partnerships and corporate acquisitions. He served as an adjunct
professor at Drexel University at the graduate and undergraduate levels from
1983 through 1989. A certified public accountant, Mr. Robinson holds a
Bachelor's degree (1978) and a Master's degree in Taxation (1982) from Drexel
University.
JOSEPH COYLE is the Chief Operating Officer of the Company. Prior to the
formation of the Company, Mr. Coyle was the Executive Vice President of Student
Housing for GMH Associates, Inc. from 1996 to 1997 and Executive Vice President
of Acquisitions for GMH Associates, Inc. from 1995 to 1996. Mr. Coyle has over
19 years experience in real estate, acquisitions, sales and marketing,
international finance,
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securities and syndications. From 1993 to 1995, Mr. Coyle was an Executive Vice
President of Sinclair Group, a real estate development and management company.
In addition, he previously held positions as general partner in several real
estate ventures and held executive positions with New America Network, Reliance
Insurance Companies and Commonwealth Land Title Insurance Company. Mr. Coyle
also worked as a Certified Public Accountant for Touche Ross & Co. Mr. Coyle
received a Bachelor's degree in Accounting from Villanova University in 1977.
is a Trustee.
is a Trustee.
is an Independent Trustee.
is an Independent Trustee.
is an Independent Trustee.
is an Independent Trustee.
The Company is currently in discussion with prospective individuals for an
additional executive position and additional support staff. The Company intends
to fill these positions following the Formation Transactions.
CLASSIFICATION AND ELECTION OF THE BOARD OF TRUSTEES
Pursuant to the terms of the Company's Declaration of Trust, the Board of
Trustees is divided into three classes of trustees. One class (consisting of -)
will hold office for a term expiring at the annual meeting of shareholders to be
held in 1999, a second class (consisting of -) will hold office for a term
expiring at the annual meeting of shareholders to be held in 2000 and a third
class (consisting of -) will hold office for a term expiring at the annual
meeting of shareholders to be held in 2001. Each trustee will hold office for
the term to which he or she is elected and until his or her successor is duly
elected and qualified. At each annual meeting of shareholders of the Company,
the successors to the class of trustees whose terms expire at such meeting will
be elected to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of their election. See
"Provisions of Maryland Law and of the Company's Declaration of Trust and
Bylaws." The Company's Declaration of Trust does not require that a specified
number of trustees be Independent Trustees. However, the Company considers -, -,
- - and - to be independent trustees (the "Independent Trustees") for purposes of
NYSE requirements.
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COMMITTEES OF THE BOARD OF TRUSTEES
The Board of Trustees expects to establish an Audit Committee consisting of
one or more Independent Trustees that will be initially comprised of -, - and -.
The Audit Committee will make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.
The Board of Trustees also expects to establish a Compensation Committee
consisting of three or more Independent Trustees that will be initially
comprised of -, - and -. The Compensation Committee will exercise all powers of
the Board of Trustees in connection with compensation matters, including
incentive compensation and benefit plans. The Compensation Committee also will
have authority to grant awards under the Company's 1998 Share Incentive Plan.
See "--Compensation Programs--1998 Share Incentive Plan."
The Board of Trustees initially will not have a standing Nominating
Committee. It is presently anticipated that the full Board of Trustees will
perform the function of such a committee.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Trustees.
COMPENSATION OF TRUSTEES
The Company will pay an annual retainer of $- to each of its Independent
Trustees. The annual retainer will be paid -% in cash and -% in Shares. A
trustee may elect to receive all of the retainer in Shares and may also elect to
defer payment of his annual retainer under the Company's Deferred Compensation
Plan for Trustees. Such trustees will also receive $- for each Board of Trustees
meeting attended, which will also be paid in cash. Non-employee chairpersons of
Board of Trustees committees will receive $- payable in cash for each committee
meeting attended and non-employee members of the Board of Trustees committees
will receive $- payable in cash for each committee meeting attended. Officers of
the Company or its affiliates who are trustees will not be paid any trustees
fees. Trustees will be reimbursed for any out-of-town travel expenses incurred
in connection with attendance at Board of Trustees meetings.
In addition, pursuant to the Share Option Program, each Independent Trustee
will be entitled to receive an option to purchase - Shares on the effective date
of the Registration Statement relating to the Offering and will automatically
receive an option to purchase - Shares on the date of each subsequent annual
meeting of shareholders at a price per Share equal to the closing price of the
Shares on such annual meeting date. See "--Compensation Programs--Share Option
Program."
EXECUTIVE COMPENSATION
Prior to the Offering, the Company will not pay any compensation to its
executive officers. All compensation received, earned or accrued by such
executive officer has been from the Predecessor Partnerships. The following
summary compensation table sets forth the annual base salary rates and other
compensation expected to be paid by the Company in 1998 to the most highly
compensated executive officers of the Company (I.E., those whose cash
compensation from the Company in 1998 on an annualized basis is expected to
exceed $100,000) (the "Named Executive Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION AWARDS
------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
SECURITIES
RESTRICTED UNDERLYING
SHARE AWARDS OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS ($)(2) SARS(#)
- ------------------------------------------ --------- --------------- ------------- --------------- -----------
Gary M. Holloway.......................... 1998 $
Chief Executive Officer
and President
Bruce F. Robinson......................... 1998 $
Chief Financial Officer,
Treasurer and Secretary
Joseph Coyle.............................. 1998 $
Chief Operating Officer
</TABLE>
- ------------------------
(1) Amounts given are annualized salaries effective for the year ended December
31, 1998.
(2) These Shares are entitled to receive distributions to the extent paid by the
Company.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with Gary M. Holloway,
Bruce F. Robinson and Joseph Coyle, pursuant to which Mr. Holloway will serve as
the Chief Executive Officer, Mr. Robinson will serve as the Chief Financial
Officer and Mr. Coyle will serve as the Chief Operating Officer of the Company,
each for a period of - years at an initial annual compensation of $-, $- and $-,
respectively, subject to any increases in base compensation approved by the
Compensation Committee. Upon consummation of the Formation Transactions, Mr.
Holloway, Mr. Robinson and Mr. Coyle will receive a special bonus of $-, $-and
$-, respectively. Such agreements are expected to contain termination provisions
and prohibitions against competing with the Company during the term of their
employment.
COMPENSATION PROGRAMS
The Company has implemented various compensation programs (the "Compensation
Programs") to attract and retain executive officers and other key employees of
the Company, to provide incentives to such persons to maximize the Company's
Funds from Operations and to enable executive officers and other key employees
of the Company to participate in the ownership of the Company. The Annual
Incentive Program provides for the payment of certain incentive payments based
on performance. The Share Purchase Program provides executive officers the
opportunity to purchase Shares. The Restricted Share Program provides for the
grant of Restricted Shares. The Share Option Program provides for the award to
executive officers and other key employees of the Company of nonqualified
options and incentive options to purchase Shares.
The Compensation Programs will be administered by the Compensation
Committee, which is authorized to select from among the eligible employees of
the Company individuals to whom incentive and other share-based awards are to be
granted and to determine the number of Shares to be subject thereto and the
terms and conditions thereof. The Compensation Committee is also authorized to
adopt, amend and rescind rules relating to the administration of any such
compensation programs. No member of the Compensation Committee is eligible to
participate in any Compensation Program other than non-employee trustees of the
Company.
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Following are summary descriptions of above named programs:
ANNUAL INCENTIVE PROGRAM. The Annual Incentive Program provides for
incentive payments based on Funds from Operations performance measured against a
target or the achievement of certain strategic objectives. Maximum, target and
threshold levels will be set for each participant at the time of grant. All or
part of the incentive payments may be paid in unrestricted Shares at the
participant's option.
1998 SHARE INCENTIVE PLAN.
SHARE PURCHASE PROGRAM. Pursuant to the Share Purchase Program, the Company
may provide participants the opportunity to purchase Shares. The Company can
arrange for third party full recourse loans for such purchases.
RESTRICTED SHARE PROGRAM. For every - Shares purchased by an executive
officer pursuant to the Share Purchase Program, such officer will be granted one
Restricted Share. The Company may also grant Restricted Shares from time to time
to other employees of the Company. Restricted Shares vest - years after the
grant date, although vesting can be accelerated, beginning after - years, based
on the achievement of multi-year performance goals, or upon a change of control
of the Company. Restricted Shares may also be sold to participants at various
prices (or issued without monetary consideration) and may be made subject to
such restrictions as may be determined by the Compensation Committee. Restricted
Shares typically may be purchased by the Company at the original purchase price
if the conditions or restrictions are not met. In general, Restricted Shares may
not be sold, or otherwise transferred or hypothecated, until restrictions are
removed by the Company or expire. Purchasers of Restricted Shares, unlike
recipients of stock options, will have voting rights and will receive dividends
and distributions prior to the time such restrictions lapse.
SHARE OPTION PROGRAM. For every - Shares purchased by an executive officer
pursuant to the Share Purchase Program, such officer will be granted an option
to purchase one Share. The Company may also grant options to purchase Shares
from time to time to other employees of the Company. In addition, each
Independent Trustee will be entitled to receive an option to purchase - Shares
as of the effective date of the Registration Statement relating to the Offering
and will automatically receive an option to purchase - Shares on the date of
each subsequent meeting of shareholders at a price per Share equal to the
closing price of one Share on such annual meeting date. Options may be either
nonqualified options or incentive options and may also be issued to participants
at various prices (or issued without monetary consideration) and may be made
subject to such restrictions as may be determined by the Compensation Committee.
NONQUALIFIED OPTIONS, if granted, will provide for the right to purchase
Shares at a specific price that may be less than the fair market value of Shares
on the grant date and usually will become exercisable in installments after the
grant date. Nonqualified options may be granted for any reasonable term and may
be transferrable in certain limited circumstances.
INCENTIVE OPTIONS, if granted, will be designed to comply with the
"incentive stock option" provisions of the Code and will be subject to
restrictions contained therein, including that the exercise price must generally
equal at least 100% of the fair market value of Shares on the grant date and
that the term generally must not exceed ten years. Incentive options may be
modified after the grant date to disqualify them from treatment as "incentive
share options."
SHARES SUBJECT TO THE COMPENSATION PROGRAMS. A maximum of -Shares
(including the - Shares reserved pursuant to the awards made prior to the
consummation of the Offering) will be reserved for issuance under the
Compensation Programs. There is no limit on the number of awards that may be
granted to any one individual so long as the grant does not violate the
Ownership Limit or cause the Company to fail to qualify as a REIT for Federal
income tax purposes. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer."
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The term of the options granted to certain officers will be ten years from
the date of grant. Each such option will vest in -% increments at the end of the
years following the Offering, and will be exercisable at a price per Share equal
to the initial public offering price per share. Unvested options and Restricted
Shares will be forfeited if the executive officer sells the Shares purchased
pursuant to the Share Purchase Program during the --year period subsequent to
grant. Dividends on the Restricted Shares may be used to pay accrued interest on
the loans pursuant to which such executive officers purchased Shares under the
Share Purchase Program.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended (the "Maryland REIT Law"), permits a Maryland real
estate investment trust to include in its declaration of trust a provision
limiting the liability of its trustees and officers to the trust and its
shareholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Company's Declaration of Trust contains
such a provision which eliminates such liability to the maximum extent permitted
by the Maryland REIT Law.
The Company's Declaration of Trust authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer or (b) any individual who, while a
trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his or her status as a present or
former trustee or officer of the Company. The Company's Bylaws obligate it, to
the maximum extent permitted by Maryland law, to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer who is made a party to the
proceeding by reason of his service in that capacity or (b) any individual who,
while a trustee or officer of the Company and at the request of the Company,
serves or has served another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer, shareholder or partner of such real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made a party to the proceeding by
reason of his service in that capacity, against any claim or liability to which
he may become subject by reason of such status. The Declaration of Trust and
Bylaws also permit the Company to indemnify and advance expenses to any person
who served a predecessor of the Company in any of the capacities described above
and to any employee or agent of the Company or a predecessor of the Company. The
Bylaws require the Company to indemnify a trustee or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the
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act or omission was unlawful. However, under the MGCL, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director upon the corporation's receipt of (a)
a written affirmation by the director of his or her good faith belief that he or
she has met the standard of conduct necessary for indemnification by the
corporation and (b) a written undertaking by or on behalf of the director or
officer to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
The Company and the Operating Partnership have also entered into indemnity
agreements with each of its officers and trustees which provide for
reimbursement of all expenses and liabilities of such officer or trustee,
arising out of any lawsuit or claim against such officer or trustee due to the
fact that he or she was or is serving as an officer or trustee, except for such
liabilities and expenses (a) the payment of which is judicially determined to be
unlawful, (b) relating to claims under Section 16(b) of the Exchange Act or (c)
relating to judicially determined criminal violations.
Additionally, under Maryland law, a shareholder is not personally liable for
the obligations of a real estate investment trust solely as a result of his
status as a shareholder. The Company's Bylaws further provide that the Company
shall indemnify each shareholder against any claim or liability to which the
shareholder may become subject solely by reason of his being or having been a
shareholder, and that the Company shall reimburse each shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability to the fullest extent permitted under Maryland law. In addition, it
will be the Company's policy to include a clause in its contracts which provides
that shareholders assume no personal liability for obligations entered into on
behalf of the Company. However, with respect to tort claims, contractual claims
where shareholder liability is not so negated, claims for taxes and certain
statutory liability, the shareholder may, in some jurisdictions, including
Texas, be personally liable to the extent such claims are not satisfied by the
Company. Insofar as the Company will carry public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited to
situations in which the Company's assets plus its insurance coverage would be
insufficient to satisfy claims against the Company and its shareholders in those
states like Texas where such liability may be imposed.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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CONFLICTS OF INTEREST
GENERAL
Several conflicts of interest exist among the Company, its trustees and
executive officers and certain other Continuing Investors and the Operating
Partnership and its respective officers. The following descriptions set forth
the principal conflicts of interest, including the relationships through which
they arise, and the policies and procedures implemented by the Company to
address those conflicts.
POTENTIAL CONFLICTS OF INTEREST
BENEFITS TO RELATED PARTIES IN FORMATION TRANSACTIONS AND THE OFFERING
The Continuing Investors, including certain trustees and members of
management, will realize significant benefits from the Formation Transactions
and the Offering that will not generally be received by other persons
participating in the formation of the Company or the shareholders of the Company
following the Offering, such as the release of guarantees of indebtedness,
releases from certain payment and completion guarantees with respect to certain
on-going development projects and the receipt of Units, Shares and common stock
of the Management Subsidiary. See "The Formation Transactions-- Benefits to the
Continuing Investors." Thus, these persons may have interests that conflict with
the interests of persons acquiring Shares in the Offering.
FAILURE TO ENFORCE TERMS OF CONTRIBUTIONS
The terms of the contribution of the Contributed Properties were not
determined through arm's-length negotiations. Gary M. Holloway and certain other
members of management may have a conflict of interest with respect to their
obligations as officers and/or trustees of the Company to enforce the terms of
the agreements relating to such contributions to the Operating Partnership and
the Management Subsidiary. The failure to enforce the material terms of these
agreements could result in a monetary loss to the Company.
AFFILIATED TRUSTEES
Gary M. Holloway is the Chairman of the Board of Trustees and Chief
Executive Officer of the Company and President of Food Service Operator and
Housekeeping Operator. Mr. Holloway, as well as certain other trustees or
officers of the Company or directors or officers of Food Service Operator, will
also own, directly or indirectly, equity interests in each of the following
entities after the Offering: the Company, the Food Service Operator, the
Housekeeping Operator, the Management Subsidiary, GMH Management, Inc.-North,
GMH Development, Inc. and Citiforbes Associates Ltd. and State College
Investment Associates, the entities that own the Managed Properties. In
addition, the Company will lease its principal executive offices in Wayne,
Pennsylvania from 353 Associates, an affiliated company owned by Mr. Holloway,
and will lease the Food Service Spaces to an affiliated entity owned by Mr.
Holloway and certain other Continuing Investors. The Company will also lease an
airplane from an entity controlled by Gary M. Holloway from time to time based
on a per hour usage rate at fair market rates. Section 2-419 of the MGCL,
relating to interested transactions by directors, shall be available for, and
apply to, contracts and other transactions between the Company and any of its
trustees or between the Company and any other trust, corporation, firm or other
entity in which any of the Company's trustees is a trustee or director or has a
material financial interest. See "Certain Relationships and Transactions" and
"Policies and Objectives in Respect of Certain Activities--Declaration of Trust
and Bylaw Provisions."
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TERMS OF LEASES
The payment obligations with respect to the Food Service Spaces and the
lease for the Company's principal executive offices were determined by
management of Food Service Operator and 353 Associates, respectively, and
management of the Company. The lease payments that Food Service Operator is
obligated to make are based on an initial aggregate annual base rent of
approximately $1.3 million for all of the twelve Food Service Spaces, which the
Company believes, based on market analyses and studies of similar operations,
reflects the fair rental value of such Food Service Spaces to the Company. In
addition, Food Service Operator will pay a percentage rent to the Company based
on the Food Service Operator's gross revenues realized from the Food Service
Spaces to the extent that such gross revenues exceed a breakpoint. See "Business
of the Company and its Properties--Food Service Lease with Food Services
Operator." The lease payments that the Company is obligated to make to 353
Associates are based on an initial lease rate of $25 per square foot, gross,
which the Company also believes reflects the fair rental value of the Company's
principal executive offices.
JANITORIAL AGREEMENT
Pursuant to the Janitorial Agreement, the Housekeeping Operator, an entity
controlled by Gary M. Holloway and certain other Continuing Investors, will
provide janitorial services in the common areas at certain of the Properties for
a fee of $ per annum. The payment obligations by the Company to the
Housekeeping Operator were determined by the management of the Housekeeping
Operator and management of the Company, and the Company believes such fees
reflect the fair value of the janitorial services to be received by the Company.
SHARED EMPLOYEES AND FACILITIES
After the Offering, certain employees of the Company will provide services
to both the Company and certain other entities (including the Management
Subsidiary) which are affiliated, managed or controlled by Gary M. Holloway and
certain other Continuing Investors. The salaries and other benefits of these
shared employees have been allocated between the Company and such other entities
based on historical estimates. The number of such shared employees may vary in
the future. The Company will enter into various salary-, fee- and lease-sharing
agreements and arrangements with certain other entities affiliated, managed or
controlled by Gary M. Holloway and certain other Continuing Investors. These
agreements will relate to certain employees, office facilities and services,
such as the human resources staff and a computer network, which are utilized and
maintained for and by more than one such entity.
AFFILIATED CONTRACTOR
Mr. Holloway has a controlling interest in GMH Development, Inc., a general
contractor that is currently engaged by the Company in the building of the
Development Properties. During the year ended December 31, 1997, the Predecessor
Partnerships paid approximately $21.9 million to this company for construction
and capital improvement projects.
POTENTIAL FOR FUTURE CONFLICTS
After the Offering, Food Service Operator, Housekeeping Operator, 353
Associates and the Company may be in situations where they have differing
interests resulting from the significant ongoing relationship between the
entities. Such situations include the fact that, after the Offering, Food
Service Operator will lease, pursuant to the Food Service Space Leases, the
space required to provide cafeteria and food services at the Properties and the
Company will lease its principal executive offices from 353 Associates, an
entity wholly owned by Gary M. Holloway. Accordingly, the potential exists for
disagreements as to the compliance with these leases. Because of the
relationships described above, there exists the risk that the Company will not
achieve the same results in its dealings with Food Service
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Operator, Housekeeping Operator or from 353 Associates that it might achieve if
such relationships did not exist.
PLACEMENT OF TITLE INSURANCE
Historically, Bryn Mawr Abstract Inc., an entity affiliated with Gary M.
Holloway, has acted as agent in placing the title insurance policies on the
Properties and received a commission therefrom. Title insurance may be placed on
any new properties acquired by the Company through Bryn Mawr Abstract Inc., and,
from time to time, Bryn Mawr Abstract Inc. may renew the title insurance
policies on the Properties and such new properties.
TAX CONSEQUENCES UPON SALE OR REFINANCING OF PROPERTIES
Holders of Units may suffer different and more adverse tax consequences than
the Company upon the sale or refinancing of any of the Properties and,
therefore, such holders, including Gary M. Holloway and other members of
management, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of the Properties. While the Company, as the
sole general partner of the Operating Partnership, has the exclusive authority
as to whether, and on what terms, to sell or refinance an individual Property,
those members of the Board of Trustees of the Company who hold Units may
influence the Company not to sell or refinance the Properties, even though such
sale or refinancing might otherwise be financially advantageous to the Company,
or may influence the Company to refinance a Property with a high level of debt.
STEPS TAKEN BY THE COMPANY TO ADDRESS POTENTIAL CONFLICTS OF INTEREST
The Company has adopted in its Bylaws certain policies designed to minimize
potential effects of conflicts of interest. Without the approval of the Board of
Trustees, including a majority of the Independent Trustees, after the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to such trustees, the Company will not (a) acquire
from or sell to any trustee, officer or employee of the Company, or a member of
such person's immediate family or any entity in which a trustee, officer or
employee of the Company or a member of such person's immediate family
beneficially owns more than a 5% equity interest, or acquire from or sell to any
affiliate of any of the foregoing, assets or other property of the Company with
a fair market value greater than $50,000, (b) make any loan to or borrow from
any of the foregoing persons or (c) engage in any other transaction with any of
the foregoing persons, other than the transactions described under "The
Formation Transactions," "Certain Relationships and Transactions" and "Conflicts
of Interest." In addition, the Company's Bylaws provide that any transactions
between the Company and any of its trustees or any other entity in which trustee
has a material financial interest is subject to the interested director
transaction provision of the MGCL. See "Policies and Objectives with Respect to
Certain Activities--Prohibited Investments and Activities; Conflict of Interest
Policies," "--Declaration of Trust and Bylaw Provisions" and "Relationship
Between Food Service Operator and the Company after the Formation Transactions."
THE FORMATION TRANSACTIONS
MANAGEMENT SUBSIDIARY
The Company's third party student housing management business is conducted
by Management Subsidiary, a Delaware corporation and a subsidiary of the
Operating Partnership. The Management Subsidiary currently provides management
services for the Managed Properties, and it is expected that in the future, the
Management Subsidiary will provide management services for other student housing
units not owned by the Company. The Operating Partnership owns all of the
non-voting common stock, representing 95% of the outstanding common stock, of
the Management Subsidiary, and GMH Management, Inc.-North owns all of the voting
common stock, representing 5% of the outstanding common stock, of the Management
Subsidiary.
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FORMATION TRANSACTIONS
The Company was formed to succeed, through the Operating Partnership, to the
business of (a) WHGMH Realty, L.L.C., a Delaware limited liability company, (b)
WHGMH-S Ashby, L.L.C., a Delaware limited liability company, (c) WHG Treehouse,
L.P., a Delaware limited partnership, (d) WHORL Real Estate, Limited
Partnership, a Delaware limited partnership, (e) WHNML-S Real Estate Limited
Partnership, a Delaware limited partnership, (f) W9/GLM Real Estate Limited
Partnership, a Delaware limited partnership, and (g) W9/JP-M Real Estate Limited
Partnership (to be renamed College Park Communities, L.P.), a Delaware limited
partnership, and to control the other assets acquired by the Operating
Partnership and the Company. The Company has engaged in certain of the Formation
Transactions, and prior to, or simultaneously with, the consummation of the
Offering, the Company will engage in the other Formation Transactions, all of
which are designed to transfer ownership interests of WHGMH Realty, L.L.C.,
WHGMH-S Ashby, L.L.C., WHG Treehouse, L.P., WHORL Real Estate, Limited
Partnership, WHNML-S Real Estate Limited Partnership and W9/GLM Real Estate
Limited Partnership to the Operating Partnership and certain of the contractual
rights of GMH Management, Inc.-North to the Management Subsidiary.
The Formation Transactions include:
- The limited partners of W9/GLM Real Estate Limited Partnership (all of
whom are Continuing Investors) contributed their GLM Interests to the
Company in exchange for - Shares. Subsequently, the Company transferred
the GLM Interests to the Operating Partnership in exchange for Units
therein;
- W9/JP-M Real Estate Limited Partnership, a Delaware limited partnership
formed on December 17, 1997 in connection with the acquisition of the JPI
Acquired Properties by W9/JP-M Gen-Par. Inc., GHJP, Inc., Whitehall Street
Real Estate Limited Partnership IX, The Goldman Sachs Group, L.P. and Gary
M. Holloway was reorganized as the Operating Partnership and will be
renamed College Park Communities, L.P.;
- Pursuant to several mergers, (a) the general and limited partners of WHG
Treehouse, L.P., WHORL Real Estate, Limited Partnership and WHNML-S Real
Estate Limited Partnership and the general partners of W9/GLM Real Estate
Limited Partnership will exchange their interests therein to the Operating
Partnership for Units and (b) the members of WHGMH Realty, L.L.C. and
WHGMH-S Ashby, L.L.C. will exchange their interests therein to the
Operating Partnership for Units;
- GMH Management, Inc.-North has entered into certain management
subcontracts with the Management Subsidiary and has transferred the
non-voting common stock of the Management Subsidiary to the Operating
Partnership in exchange for Units therein;
- The Company, which was formed as a Maryland real estate investment trust
on December 9, 1997, will sell Shares in the Offering and will
contribute the net proceeds of approximately $148.1 million after
deduction of the underwriting discount and estimated offering expenses
(assuming an initial public offering price of $ - per Share) to the
Operating Partnership in exchange for - Units representing 47.4% of the
Operating Partnership's outstanding Units after completion of the
Formation Transactions; and
- The Company will enter into the Food Service Space Leases with Food
Service Operator and the Janitorial Agreement and a billing and collection
agreement with Housekeeping Operator.
BENEFITS TO THE CONTINUING INVESTORS
The benefits of the Formation Transactions to the Continuing Investors
include:
- The Continuing Investors have received Shares of the Company in exchange
for their GLM Interests;
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- The Continuing Investors have received or will receive Units in the
Operating Partnership upon completion of the Formation Transactions. In
addition, GMH Management, Inc.-North, an entity controlled by Gary M.
Holloway, has received Units in the Operating Partnership in exchange for
transferring to the Operating Partnership shares of non-voting common
stock of the Management Subsidiary. The Units received will be
exchangeable for - Shares representing a -% economic interest in the
Company. Gary M. Holloway and other Named Executive Officers as a group
and the other Continuing Investors will have an aggregate -% and -%
economic interest in the Company, respectively. The Units, and the Shares
into which Units are exchangeable, will be more liquid than the Continuing
Investors' previous ownership interests in the Contributed Properties
after applicable restrictions on exchange and transfer expire;
- The Units to be received by the Continuing Investors are valued at
approximately $- based upon the midpoint of the range of estimated initial
public offering prices for the Shares set forth on the cover page of this
Prospectus, which exceeded the book value (net of depreciation) of the
Contributed Properties exchanged therefor as of -, 1998 by approximately
$-. It is anticipated that the receipt of Units by the Continuing
Investors, in general, will not constitute a taxable event to such
persons, but the exchange of Units for Shares will be a taxable event to
such persons;
- Gary M. Holloway, the Chairman of the Board of Trustees and Chief
Executive Officer of the Company, will be granted -Restricted Shares
pursuant to the Restricted Share Program and options to purchase - Shares
pursuant to the Share Option Program. Bruce F. Robinson, the Chief
Financial Officer of the Company, will be granted - Restricted Shares
pursuant to the Restricted Share Program and options to purchase - Shares
pursuant to the Share Option Program. Joseph Coyle, the Chief Operating
Officer, and will be granted - Restricted Shares pursuant to the
Restricted Share Program and options to purchase - Shares pursuant to the
Share Option Program;
- Gary M. Holloway or certain affiliated entities and certain other
Continuing Investors will be relieved of potential liability, as either
general partners or guarantors, with respect to indebtedness of the
Contributed Properties in an aggregate amount equal to approximately $3.6
million as of December 31, 1997. In addition, the Continuing Investors
will be relieved of potential liabilities under certain of the existing
loan agreements, including, without limitation, potential environmental
liabilities. Gary M. Holloway will be relieved of approximately $- of such
potential liability. In addition, certain of the Continuing Investors have
provided cash and other collateral to support certain indebtedness of the
Company that will be retired upon consummation of the Offering. Upon
retirement of such debt, collateral will be released to the Continuing
Investors having an aggregate value of approximately $-;
- Gary M. Holloway or certain affiliated entities and certain other
Continuing Investor will be released of potential liability as either
general partners or guarantors with respect to performance bonds for the
payment and completion guarantees to project construction lenders for
certain on-going projects. Such releases from such performance bonds
represent a release of approximately $- of potential liability;
- Gary M. Holloway and certain other Continuing Investors will own the Food
Service Operator and Housekeeping Operator;
- Gary M. Holloway will own 353 Associates, an affiliated company that will
lease space to the Company for its principal executive offices in Wayne,
Pennsylvania;
- The Company will enter into employment agreements with Gary M. Holloway,
Bruce F. Robinson and Joseph Coyle providing for annual initial
compensation of $-, $- and $-, respectively, and special bonuses upon
consummation of the Formation Transactions of $-, $- and $-, respectively;
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- The trustees and officers of the Company will be indemnified by the
Company and the Operating Partnership to the maximum extent permitted by
applicable law; and
- The Continuing Investors will have certain registration rights in respect
of Shares acquired in connection with the Formation Transactions and upon
the exchange of Units.
BENEFITS TO THE COMPANY
The benefits of the Formation Transactions to the Company include:
- The ability to access public capital markets;
- The creation of an entity which allows its shareholders to participate in
real estate investments while reducing the "double taxation" of income
that generally results from an investment in a regular corporation; and
- The ability of the Company to take advantage of acquisition and
development opportunities through its strong capital base.
NO APPRAISALS; ALLOCATION OF CONSIDERATION IN THE FORMATION TRANSACTIONS
The valuation of the Company has been determined based primarily upon a
capitalization of estimated cash flow of the Company available for distribution
and the factors discussed under "Underwriting," rather than upon individual
property valuations based on historical cost or current market value. This
methodology has been used because management believes it appropriate to value
the Company as an ongoing business, rather than with the view to values that
could be obtained from a liquidation of the Company or of individual properties
owned by the Company. The aggregate number of Units allocated to the Continuing
Investors in the Formation Transactions was calculated by determining the
percentage beneficial interest of the Company that is available for allocation
to the Continuing Investors after sufficient beneficial interest is allocated to
the purchasers in the Offering for the Company to be able to pay expected
distributions. The allocation of Units issued in exchange for interests in the
Predecessor Partnerships and for the other assets transferred to the Company was
based primarily on adjusted relative contributions to net operating income
without, in most cases, adjustment for debt service costs and without adjustment
for any anticipated benefit for potential for growth provided by the ongoing
business of the Contributed Properties, and was not determined as a result of
arms' length negotiations. There can be no assurance that the fair market value
of the Properties (or interests therein) and other assets transferred to the
Company will equal or exceed the sum of the value of the Units delivered to
Continuing Investors and the amount of cash paid by the Company.
RELATIONSHIP BETWEEN FOOD SERVICE OPERATOR AND
THE COMPANY AFTER THE FORMATION TRANSACTIONS
For the purpose of governing certain of the ongoing relationships between
Food Service Operator and the Company after the Formation Transactions and to
provide mechanisms for an orderly transition, prior to the completion of the
Formation Transactions, Food Service Operator and the Company will have entered
into the Food Service Space Lease and will adopt policies as described herein.
The Company believes that the agreement is fair to it and contain terms which
generally are comparable to those that would have been reached in arm's-length
negotiations with unaffiliated parties.
CAFETERIA AND FOOD SERVICE SPACE LEASE. The Company will lease all of its
Food Service Spaces to Food Service Operator pursuant to the Food Service Space
Lease, which will be negotiated under substantially arm's-length terms and the
rent will be determined by using market analyses and studies of similar
operations to determine a market rent. For a detailed discussion of the terms
and conditions of the lease, see "Business of the Company and its
Properties--Food Service Space Lease with Food Service Operator."
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POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS. After completion of the
Formation Transactions, Food Service Operator and the Company will have
significant contractual and other ongoing relationships, as described above.
Such ongoing relationships may present certain conflict situations where the
Company and Food Service Operator may have differing interests. See "Risk
Factors-- Conflicts of Interest." The Board of Trustees will adopt appropriate
policies and procedures to be followed by the Company to address these
conflicts. Whether or not a conflict of interest situation exists will be
determined on a case-by-case basis in accordance with the policies and
procedures to be developed by the Board of Trustees. The Company's Bylaws
provide that any transactions between the Company and any of its trustees or any
other entity in which a trustee has a material financial interest is subject to
the interested director transaction provision of the MGCL. See "Policies and
Objectives in Respect of Certain Activities--Declaration of Trust and Bylaw
Provisions."
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In addition to the transactions which have occurred or will occur in
connection with the organization of the Company as described under the heading
"The Formation Transactions," the Company has engaged or will engage in the
following transactions with certain of its executive officers, trustees, trustee
nominees and persons who will hold more than five percent of the outstanding
Shares upon consummation of the Formation Transactions and the Offering. See
"The Formation Transactions" and "Conflicts of Interest."
The Company will lease its principal executive offices in Wayne,
Pennsylvania from 353 Associates, an affiliated company owned by Mr. Holloway.
The lease payments for such offices that the Company is obligated to make to 353
Associates are based on an initial lease rate of $25 per square foot, gross. In
addition, the Company will lease the use of an airplane from an entity
controlled by Mr. Holloway based on a per hour usage rate at fair market values.
See "Conflicts of Interest."
After the Offering, certain employees of the Company will provide services
to both the Company and certain other entities (including, without limitation,
the Management Subsidiary), which are affiliated, managed or controlled by Gary
M. Holloway and certain other Continuing Investors. The salaries and other
benefits of these shared employees have been allocated between the Company and
such other entities based on historical estimates. The number of such shared
employees may vary in the future. The Company will enter into various salary-,
fee- and lease-sharing agreements and arrangements with certain other entities
affiliated, managed or controlled by Gary M. Holloway and certain other
Continuing Investors. These agreements will relate to certain employees, office
facilities and services, such as the human resources staff and a computer
network, which are utilized and maintained for and by more than one such entity.
See "Conflicts of Interest."
Bryn Mawr Abstract Inc., an entity affiliated with Mr. Holloway, has
historically acted as agent in placing the title insurance policies on the
Properties and received a commission relating thereto. Title insurance may be
placed on any new properties acquired by the Company through Bryn Mawr Abstract
Inc. and, from time to time, Bryn Mawr Abstract Inc. may renew the title
insurance policies on the Properties and such new properties. See "Conflicts of
Interest."
Because of certain limitations on the nature of income which a REIT may
count towards its rents from real property, see "Federal Income Tax
Considerations--Taxation of the Company as a REIT-- Income Tests," the Company
will lease the Food Service Spaces to Food Service Operator which will provide
Food Services at the Properties. Housekeeping services will be provided to the
tenants at certain of the Properties by the Housekeeping Operator. Food Service
Operator and Housekeeping Operator will be owned by, among others, Mr. Holloway
and certain other Continuing Investors, and Mr. Holloway will act as president
of each of the Food Service Operator and the Housekeeping Operator. As a result
of such arrangements, a portion of the income and expenses previously generated
by the Food Services and housekeeping services will be attributed to the Food
Service Operator and the Housekeeping Operator, respectively. The Food Service
Operator will be obligated to make lease payments to the
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Company that are based on an initial aggregate annual base rent of approximately
$1.3 million for all of the twelve Food Service Spaces. In addition, Food
Service Operator will pay a percentage rent to the Company based on the Food
Service Operator's gross revenues realized from the Food Service Spaces to the
extent that such gross revenues exceed a breakpoint. See "Business of the
Company and its Properties--Food Service Lease with Food Service Operator."
Pursuant to the Janitorial Agreement, the Housekeeping Operator, an entity
controlled by, among others, Gary M. Holloway and certain other Continuing
Investors, will provide janitorial services in the common areas at certain of
the Properties for a fee of $ per annum.
Both of the Managed Properties are owned by limited partnerships in which
Mr. Holloway holds a controlling interest. The Managed Properties are managed by
the Management Subsidiary pursuant to a subcontract with GMH Management,
Inc.-North, an entity controlled by Mr. Holloway, whereby the Management
Subsidiary receives a specified percentage of the gross income of the property
and, in the case of one of the Managed Properties, a commission based on the
gross sales price of the property if such property is sold. See "Business of the
Company and its Properties--Managed Properties."
In addition, Mr. Holloway has a controlling interest in GMH Development,
Inc., a general contractor that is currently engaged by the Company in the
construction of the Development Properties. During the year ended December 31,
1997, the Predecessor Partnerships paid approximately $21.9 million to this
company for construction and capital improvement projects. In addition, the
Predecessor Partnerships have historically hired and the Company expects in the
future to hire GMH Domestics, Inc., an entity controlled by Mr. Holloway, to
procure new carpeting and furniture for certain properties.
In connection with the Company entering into the Credit Facility, Goldman,
Sachs & Co. expects to receive a financial advisory fee from the Company.
Goldman, Sachs & Co. provides investment advisory services to Whitehall, and the
parent company of Goldman, Sachs & Co., The Goldman Sachs Group, L.P., is the
largest single investor in Whitehall. See "Underwriting."
Archon Group, L.P., an affiliate of Goldman, Sachs & Co., has historically
provided environmental consulting services for the Predecessor Partnerships. It
is expected that Archon Group, L.P. will continue to provide such services for
the Company in the future.
In connection with the Pending Acquisitions, it is expected that Whitehall
Street Real Estate Limited Partnership IX will enter into a bridge loan with the
Operating Partnership for approximately $9.0 million in order to finance a
portion of the acquisition price of such properties.
The Company has adopted certain policies designed to minimize potential
effects of conflicts of interest. Without the approval of the Board of Trustees,
including a majority of the Independent Trustees, after the material facts as to
the relationship or interest and as to the contract or transaction are disclosed
or known to such trustees, the Company will not (a) acquire from or sell to any
trustee, officer or employee of the Company, or a member of such person's
immediate family or any entity in which a trustee, officer or employee of the
Company or a member of such person's immediate family beneficially owns more
than a 5% equity interest, or acquire from or sell to any affiliate of any of
the foregoing, assets or other property of the Company with a fair market value
greater than $50,000, (b) make any loan to or borrow from any of the foregoing
persons or (c) engage in any other transaction with any of the foregoing
persons, other than the transactions described under "The Formation
Transactions," "Certain Relationships and Transactions" and "Conflicts of
Interest." In addition, the Company's Bylaws provide that any transactions
between the Company and any of its trustees or any other entity in which trustee
has a material financial interest is subject to the interested director
transaction provision of the MGCL. See "Policies and Objectives in Respect of
Certain Activities--Prohibited Investments and Activities; Conflict of Interest
Policies" and "--Declaration of Trust and Bylaw Provisions."
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THE OPERATING PARTNERSHIP
GENERAL
The Operating Partnership is a Delaware limited partnership in which the
Company will hold the sole general partnership interest. The Company, through
the Operating Partnership, will own all of the interests in the Properties. All
of the land and improvements of the Properties will be held by the Operating
Partnership.
CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, including the
descriptions of certain provisions set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
MANAGEMENT
The Operating Partnership was formed as a Delaware limited partnership,
pursuant to the terms of the Partnership Agreement. Generally, pursuant to the
Partnership Agreement, the Company, as the sole general partner of the Operating
Partnership, will have the maximum rights and powers permitted to the general
partner of a Delaware limited partnership, including sole and complete authority
to manage, control and make all decisions affecting the business and assets of
the Operating Partnership. The limited partners of the Operating Partnership
(the "Limited Partners") will have only such rights and powers as are reserved
to limited partners expressly by Delaware law, and will have no authority to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership. However, the consent of the Limited Partners who
hold in the aggregate more than 80% of the interests of the Operating
Partnership then allocable to and held by such Limited Partners will be required
in order to (a) consummate a merger, consolidation or sale of substantially all
of the assets of the Operating Partnership; (b) make a general assignment for
the benefit of creditors or appoint or acquiesce in the appointment of a
custodian, receiver or trustee for all or any part of the assets of the
Operating Partnership; (c) institute any proceeding for bankruptcy on behalf of
the Operating Partnership; (d) take title to any personal or real property other
than in the name of the Operating Partnership; (e) dissolve the Operating
Partnership; (f) increase or decrease the ownership transfer restrictions in the
Declaration of Trust of the Company or amend certain provisions thereof; (g)
terminate the Partnership Agreement, or except as expressly otherwise provided
therein, amend the Partnership Agreement; or (h) amend or modify the Partnership
Agreement with respect to any of the foregoing provisions. The Limited Partners
do not have the rights to remove the general partner of the Operating
Partnership (the "General Partner").
TRANSFERABILITY OF INTERESTS
The Partnership Agreement provides that the Company may not transfer or
assign any of its interest in the Operating Partnership or withdraw as General
Partner without the consent of the Limited Partners who hold in the aggregate
more than 80% of the interests of the Operating Partnership then allocable to
and held by such Limited Partners. The Limited Partners may transfer their
interests in the Operating Partnership to a transferee, subject to the approval
of the General Partner, provided that such transferee assumes all obligations of
the transferor Limited Partner. However, pursuant to the Partnership Agreement,
the Continuing Investors may not transfer their Units for a period of one year
from the completion of the Offering.
The Partnership Agreement permits the Company, without the consent of the
Limited Partners, to add limited partners and issue additional Units.
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AWARDS UNDER EQUITY PLANS
If options granted in connection with the 1998 Share Incentive Plan or other
compensation programs are exercised at any time or from time to time, or Shares
are issued pursuant to the Restricted Share Program, any stock purchase plan,
dividend reinvestment plan or similar plan, the Partnership Agreement requires
the Company to contribute to the Operating Partnership as an additional
contribution an amount equal to the exercise price received by the Company in
connection with the exercise of options or the purchase price of the Shares
issued pursuant to such Restricted Share Program or stock purchase, dividend
reinvestment or similar plan. The Company will receive newly-issued Units in the
Operating Partnership equal to the number of Shares issued to the exercising
party or purchaser, even if the exercise price or purchase price is less than
the fair market value of the Shares at the time of exercise or purchase.
TAX MATTERS
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Operating Partnership and, as such, will have authority to make
tax elections under the Code on behalf of the Operating Partnership.
ALLOCATION OF NET INCOME OR NET LOSS
The net income or net loss of the Operating Partnership generally will be
allocated to the Company and the Limited Partners in accordance with their
percentage interests, subject to compliance with the provisions of Sections
704(b) and 704(c) of the Code and the regulations promulgated thereunder.
OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for qualification as a REIT. In addition, pursuant to the terms of the
Partnership Agreement, the Company may not engage in any business other than
acting as the general partner of the Operating Partnership, and the Company has
agreed that all business activities of the Company, including activities
pertaining to the acquisition, development and ownership of the Properties,
shall be conducted through the Operating Partnership.
The Partnership Agreement provides that the net operating cash revenues of
the Operating Partnership, as well as net sales and refinancing proceeds, will
be distributed from time to time as determined by the General Partner, in
accordance with the partners' interests. The Partnership Agreement provides that
during the term of the Operating Partnership, substantially all business
activities of the Company, including substantially all activities pertaining to
the acquisition and operation of student housing, must be conducted through the
Operating Partnership.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2097 or until the dissolution or termination of the Company (unless
the Limited Partners elect to continue the Operating Partnership).
EXCHANGE OF PARTNERSHIP UNITS
Commencing one year after the Offering, the Limited Partners shall have the
right, subject to the limitations on ownership of the Company's Shares (see
"Description of Shares of Beneficial Interest-- Restrictions on Transfer"), to
require the Company to exchange on a specified date all or a portion of the
Units held by such Limited Partners for Shares or, at the discretion of the
Company, in cash, in an amount equal to the value of the Units exchanged. See
"Formation Transactions."
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Each Unit will be exchangeable for one Share, subject to anti-dilution
adjustments in certain events, including, without duplication: (i) dividends
(and other distributions) payable in Shares on any class of capital stock of the
Company; (ii) the issuance to all holders of Shares of rights or warrants
entitling holders of such rights or warrants to subscribe for or purchase Shares
at less than the current market price; (iii) subdivisions and combinations of
Shares; (iv) dividends (and other distributions) to all holders of Shares of
evidence of indebtedness of the Company, shares of capital stock, cash or assets
(including securities, but excluding those rights, warrants, dividends and
distributions referred to above); (v) dividends (and other distributions) on
Shares paid exclusively in cash, excluding the per share portion of any
quarterly cash dividend or distribution that does not exceed the per share
amount of the next preceding quarterly cash dividend or distribution (as
adjusted to reflect any of the events referred to in clauses (i) through (vi) of
this sentence), or all of any such quarterly cash dividend if the per share
amount thereof multiplied by four does not exceed - percent of the current
market price of the Shares on the trading day next preceding the date of
declaration of such dividend; (vi) payment in respect of a tender or exchange
offer by the Company or any subsidiary of the Company for Shares if the cash and
value of any other consideration included in such payment per Share (as
determined by the Board of Trustees) exceeds the current market price per Share
on the trading day next succeeding the last date tenders or exchanges may be
made pursuant to such tender or exchange offer; and (vii) the occurrence of any
transaction or event in connection with a plan pursuant to which all or
substantially all the Shares shall be exchanged for, converted into, acquired
for or constitute solely the right to receive securities, cash or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise).
In addition, in the event that the Company is a party to any merger,
consolidation, sale of all or substantially all of the Company's assets or
recapitalization or reclassification of the Shares (each of the foregoing being
referred to as a "Transaction"), each Unit shall thereafter be convertible into
the kind and amount of securities, cash and other property receivable upon the
consummation of such Transaction by a holder of that number of Shares into which
one Unit was convertible immediately prior to such Transaction (but after giving
effect to any adjustment discussed above).
The Shares received upon conversion of Units will constitute "restricted
securities" within the meaning of Rule 144 and, accordingly, may be sold or
transferred only if registered under the Securities Act or in compliance with
Rule 144 or another exemption from registration. The Company has granted the
Continuing Investors certain registration rights. See "Shares Available For
Future Sale."
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PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth certain information regarding the beneficial
ownership of Shares by each trustee of the Company, by each Named Executive
Officer, by all trustees and executive officers of the Company as a group and by
each person who is expected to be the beneficial owner of 5% or more of the
outstanding Shares immediately following the closing of the Offering. The table
assumes (a) the consummation of the Formation Transactions and (b) no exercise
of the Underwriters' over-allotment option. Each person named in the table has
sole voting and investment power with respect to all the Shares shown as
beneficially owned by such person except as otherwise set forth in the notes to
the table.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
NAME AND ADDRESS NUMBER OF FOLLOWING
OF BENEFICIAL OWNERS SHARES THE OFFERING
- ---------------------------------------------------------------------------- -------------- -----------------------
<S> <C> <C>
Gary M. Holloway............................................................ %
Bruce F. Robinson...........................................................
Joseph Coyle................................................................
353 West Lancaster Avenue
Wayne, PA 19087
Whitehall V-S Real Estate Limited Partnership
Whitehall Street Real Estate Limited Partnership III
Whitehall Street Real Estate Limited Partnership VII
Whitehall Street Real Estate Limited Partnership IX
85 Broad Street
New York, NY 10004 (1)....................................................
All executive officers and trustees as a group (9 persons) %
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes Shares beneficially owned by certain other investment limited
partnerships of which affiliates of The Goldman Sachs Group, L.P. (the "GS
Group") are the general partner or managing general partner. GS Group
disclaims beneficial ownership of Shares held by such investment
partnerships to the extent partnership interests in such partnerships are
held by persons other than GS Group and its affiliates. GS Group does own
Shares indirectly, however, by virtue of its ownership interest in
Whitehall, Stone Street Real Estate Fund 1997, L.P. and Bridge Street Real
Estate Fund 1997, L.P., all of which are beneficial owners of Shares. [Two]
of the Company's trustees are [Position] of Whitehall, an affiliate of
Goldman, Sachs & Co., one of the underwriters. See "Management" and
"Underwriting".
Goldman, Sachs & Co., one of the Underwriters, is an affiliate of Whitehall.
See "Underwriting."
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
THE FOLLOWING SUMMARY OF THE MATERIAL TERMS OF THE SHARES OF BENEFICIAL
INTEREST OF THE COMPANY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS, COPIES OF WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART.
GENERAL
The Declaration of Trust provides that the Company may issue up to
50,000,000 Shares and 5,000,000 Preferred Shares. Upon the closing of the
Offering, - Shares will be issued and outstanding and no Preferred Shares will
be issued and outstanding. As permitted by the Maryland REIT Law, the
Declaration of Trust also contains a provision permitting the Board of Trustees,
without any action by the shareholders of the Company, to amend the Declaration
of Trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Company has authority to issue. Under Maryland law, a shareholder is
not personally liable for the obligations of a real estate investment trust
solely as a result of such shareholder's status as a shareholder. For a
description of certain provisions that could have the effect of delaying,
deferring or preventing a change in control, see "Risk Factors--Limitations on
Size of Holdings of Shares and Change in Control" and "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws."
The transfer agent and registrar for the Shares is The Bank of New York.
COMMON SHARES
All Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of beneficial interest and to the provisions of the Declaration of Trust
regarding the restriction of the transfer of shares of beneficial interest,
holders of Shares are entitled to receive dividends on such shares if, as and
when authorized and declared by the Board of Trustees of out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its shareholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of the Company.
Subject to the provisions of the Declaration of Trust regarding the
restriction on the transfer of shares of beneficial interest, each outstanding
Share entitles the holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees, and, except as provided with
respect to any other class or series of shares, the holders of such Shares will
possess the exclusive voting power. There is no cumulative voting in the
election of trustees, which means that the holders of a majority of the
outstanding Shares can elect all of the trustees then standing for election and
the holders of the remaining Shares will not be able to elect any trustees.
Holders of Shares have no preference, conversion, exchange, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
Shares will have equal dividend, liquidation and other rights.
Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot amend its declaration of trust or merge, unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the trust's Declaration of Trust. The Declaration of Trust of the Company does
not provide for a lesser percentage in such situations. Under the Maryland REIT
Law, a declaration of trust may permit the trustees by a two-thirds vote to
amend the declaration of trust from time to time to qualify as a REIT under the
Code or the Maryland REIT
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Law without the affirmative vote or written consent of the shareholders. The
Company's Declaration of Trust permits such action by the Board of Trustees.
The Declaration of Trust authorizes the Board of Trustees to reclassify any
unissued Shares into other classes or series of classes of beneficial interest
and to establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time, in one or more
classes or series, as authorized by the Board of Trustees. Prior to the issuance
of shares of each new class or series, the Board of Trustees is required by the
Maryland REIT Law to set, subject to the provisions of the Declaration of Trust
regarding the restriction on transfers of shares of beneficial interest, the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class or series. The issuance of
Preferred Shares could have the effect of delaying, deferring or preventing a
change in control of the Company or other transaction that might involve a
premium price for holders of Shares or otherwise be in their best interest and
may adversely affect the voting and other rights of shareholders. Upon the
closing of the Offering, no Preferred Shares will be outstanding and the Company
has no present plans to issue any Preferred Shares following the closing of the
Offering.
POWER TO ISSUE ADDITIONAL SHARES AND PREFERRED SHARES
The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Shares or Preferred Shares and to classify or
reclassify unissued Shares or Preferred Shares and thereafter to cause the
Company to issue such classified or reclassified shares of beneficial interest
will provide the Company with increased flexibility in structuring possible
future financings and acquisitions and in meeting other needs which might arise.
The additional classes or series, as well as the Shares, will be available for
issuance without further action by the Company's shareholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded. Although the Board of Trustees has no intention at the present time of
doing so, it could authorize the Company to issue a class or series that could,
depending upon the terms of such class or series, delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for holders of Shares or otherwise be in their best interest.
RESTRICTIONS ON SIZE OF HOLDINGS OF SHARES
For the Company to qualify as a REIT under the Code, its shares of
beneficial interest must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months (other than the first year for
which an election to be a REIT has been made) or during a proportionate part of
a shorter taxable year. Also, not more than 50% of the value of the outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year for which an election
to be a REIT has been made).
The Declaration of Trust, subject to certain exceptions, contains certain
restrictions on the number of shares of beneficial interest of the Company that
a person may own. The Declaration of Trust provides that no person may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.8% (the "Ownership Limit") of the number or value of the outstanding shares of
beneficial interest
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of the Company. In addition, the Declaration of Trust prohibits any person from
acquiring or holding, directly or indirectly, Shares in excess of 9.8% (in value
or in number of shares, whichever is more restrictive) of the aggregate of the
outstanding common shares of beneficial interest (the "Share Ownership Limit").
The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the Ownership Limit and the Share Ownership Limit (an "Excepted
Holder"). However, the Board of Trustees may not grant such an exemption to any
person if such exemption would result in the Company being "closely held" within
the meaning of Section 856(h) of the Code or otherwise would result in the
Company failing to qualify as a REIT. In order to be considered by the Board of
Trustees as an Excepted Holder, a person also must not own, directly or
indirectly, an interest in a tenant of the Company (or a tenant of any entity
owned or controlled by the Company) that would cause the Company to own,
directly or indirectly, more than a 9.9% interest in such a tenant. The person
seeking an exemption must represent to the satisfaction of the Board of Trustees
that it will not violate the two aforementioned restrictions. The person also
must agree that any violation or attempted violation of any of the foregoing
restrictions will result in the automatic transfer of the shares of stock
causing such violation to the Trust (as defined below). The Ownership Limit and
the Share Ownership Limit do not apply to the Shares owned, directly or
indirectly, by Whitehall. Thus, there can be no assurance that there will not be
five or fewer individuals who will own more than 50% in value or number of the
outstanding shares of beneficial interest of the Company, thereby causing the
Company to fail to qualify as a REIT. The Board of Trustees may require a ruling
from the Internal Revenue Service (the "IRS") or an opinion of counsel, in
either case in form and substance satisfactory to the Board of Trustees, in its
sole discretion, in order to determine or ensure the Company's status as a REIT.
The Declaration of Trust further prohibits (a) any person from beneficially
or constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of the Company if such transfer would
result in shares of beneficial interest of the Company being owned by fewer than
100 persons. Any person who acquires or attempts or intends to acquire
beneficial or constructive ownership of shares of beneficial interest of the
Company that will or may violate any of the foregoing restrictions on
transferability and ownership, or any person who would have owned shares of the
beneficial interest of the Company that resulted in a transfer of shares to the
Trust, is required to give notice immediately to the Company and provide the
Company with such other information as the Company may request in order to
determine the effect of such transfer on the Company's status as a REIT. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Trustees determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT.
If any transfer of shares of beneficial interest of the Company occurs
which, if effective, would result in any person beneficially or constructively
owning shares of beneficial interest of the Company in excess or in violation of
the above transfer or ownership limitations (a "Prohibited Owner"), then that
number of shares of beneficial interest of the Company the beneficial or
constructive ownership of which otherwise would cause such person to violate
such limitations (rounded to the nearest whole share) shall be automatically
transferred to a trust (the "Trust") for the exclusive benefit of one or more
charitable beneficiaries (the "Charitable Beneficiary"), and the Prohibited
Owner shall not acquire any rights in such shares. Such automatic transfer shall
be deemed to be effective as of the close of business on the Business Day (as
defined in the Declaration of Trust) prior to the date of such violative
transfer. Shares of beneficial interest held in the Trust shall be issued and
outstanding shares of beneficial interest of the Company. The Prohibited Owner
shall not benefit economically from ownership of any shares of beneficial
interest held in the Trust, shall have no rights to dividends and shall not
possess any rights to vote or other rights attributable to the shares of
beneficial interest held in the Trust. The trustee of the Trust (the "Trustee")
shall have all voting rights and rights to dividends or other distributions with
respect
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to shares of beneficial interest held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or other distribution paid prior to the discovery by the Company that shares of
beneficial interest have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand, and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares of beneficial interest held in the Trust
and, subject to Maryland law, effective as of the date that such shares of
beneficial interest have been transferred to the Trust, the Trustee shall have
the authority (at the Trustee's sole discretion) (a) to rescind as void any vote
cast by a Prohibited Owner prior to the discovery by the Company that such
shares have been transferred to the Trust and (b) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary. However, if the Company has already taken irreversible
trust action, then the Trustee shall not have the authority to rescind and
recast such vote.
Within 20 days of receiving notice from the Company that shares of
beneficial interest of the Company have been transferred to the Trust, the
Trustee shall sell the shares of beneficial interest held in the Trust to a
person, designated by the Trustee, whose ownership of the shares will not
violate the ownership limitations set forth in the Declaration of Trust. Upon
such sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as follows. The Prohibited
Owner shall receive the lesser of (a) the price paid by the Prohibited Owner for
the shares or, if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Trust (e.g., a
gift, devise or other such transaction), the Market Price (as defined in the
Declaration of Trust) of such shares on the day of the event causing the shares
to be held in the Trust and (b) the price per share received by the Trustee from
the sale or other disposition of the shares held in the Trust. Any net sale
proceeds in excess of the amount payable to the Prohibited Owner shall be paid
immediately to the Charitable Beneficiary. If, prior to the discovery by the
Company that shares of beneficial interest have been transferred to the Trust,
such shares are sold by a Prohibited Owner, then (a) such shares shall be deemed
to have been sold on behalf of the Trust and (b) to the extent that the
Prohibited Owner received an amount for such shares that exceeds the amount that
such Prohibited Owner was entitled to receive pursuant to the aforementioned
requirement, such excess shall be paid to the Trustee upon demand.
In addition, shares of beneficial interest of the Company held in the Trust
shall be deemed to have been offered for sale to the Company, or its designee,
at a price per share equal to the lesser of (a) the price per share in the
transaction that resulted in such transfer to the Trust (or, in the case of a
devise or gift, the Market Price at the time of such devise or gift) and (b) the
Market Price on the date the Company, or its designee, accepts such offer. The
Company shall have the right to accept such offer until the Trustee has sold the
shares of beneficial interest held in the Trust. Upon such a sale to the
Company, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of the
Company's shares of beneficial interest, including the Shares, within 30 days
after the end of each taxable year is required to give written notice to the
Company stating the name and address of such owner, the number of shares of each
class and series of shares of beneficial interest of the Company which the owner
beneficially owns and a description of the manner in which such shares are held.
Each such owner shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such beneficial
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limit. In addition, each shareholder shall upon demand be required to
provide to the Company such information as the Company may request, in good
faith, in order to determine the Company's status as a REIT and to
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comply with the requirements of any taxing authority or governmental authority
or to determine such compliance.
These ownership limitations could delay, defer or prevent a change in
control of the Company or other transaction that might involve a premium price
for the Shares or otherwise be in the best interest of the shareholders.
PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE
COMPANY'S DECLARATION OF TRUST AND BYLAWS DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND TO THE
COMPANY'S DECLARATION OF TRUST AND BYLAWS, COPIES OF WHICH HAVE BEEN FILED AS
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART.
CLASSIFICATION AND ELECTION OF THE BOARD OF TRUSTEES
The Company's Declaration of Trust provides that the number of trustees may
be established and increased or decreased from time to time by the vote of a
majority of the Board of Trustees but may not be less than three. Pursuant to
the Company's Declaration of Trust, the trustees are divided into three classes.
One class will hold office initially for a term expiring at the annual meeting
of shareholders to be held in 1999, another class will hold office initially for
a term expiring at the annual meeting of shareholders to be held in 2000 and
another class will hold office initially for a term expiring at the annual
meeting of shareholders to be held in 2001. As the term of each class expires,
trustees in that class will be elected for a term of three years and until their
successors are duly elected and qualify. The Company believes that
classification of the Board of Trustees will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Trustees. Holders of Shares will have no right to cumulative voting in
the election of trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Shares will be able to elect all of the
successors of the class of trustees whose terms expire at that meeting. The
Company's Bylaws provide that such annual meeting of shareholders shall be held
during the second quarter of each year or as the Board of Trustees otherwise
determines after the delivery of the Company's annual report.
The classified board provision could have the effect of making the removal
of incumbent trustees more time-consuming and difficult. At least two annual
meetings of shareholders, instead of one, will generally be required to effect a
change in a majority of the Board of Trustees. Thus, the classified Board of
Trustees provision could increase the likelihood that incumbent trustees will
retain their positions. The staggered terms of trustees may delay, defer or
prevent a tender offer or an attempt to change control of the Company, even
though a tender offer or change in control might be in the best interest of the
shareholders.
REMOVAL OF TRUSTEES
The Declaration of Trust provides that a trustee may be removed only for
cause (as defined in the Declaration of Trust) and only by the affirmative vote
of at least two-thirds of the votes entitled to be cast in the election of
trustees. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Trustees to fill vacant trusteeships, precludes
shareholders from removing incumbent trustees except upon the existence of cause
for removal and a substantial affirmative vote and filling the vacancies created
by such removal with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including certain mergers, consolidations,
share exchanges and asset transfers and certain
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issuances and reclassifications of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of beneficial interest of the trust (an "Interested
Shareholder") or an affiliate of the Interested Shareholder are prohibited for
five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of beneficial interest of the trust and (b)
two-thirds of the votes entitled to be cast by holders of voting shares of the
trust other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Shareholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations
that are approved or exempted by the board of trustees of the trust prior to the
time that the Interested Shareholder becomes an Interested Shareholder.
Whitehall beneficially own more than ten percent of the Company's voting shares
and would, therefore, be subject to the business combination provision of the
MGCL. However, pursuant to the statute, the Company has exempted any business
combinations involving Whitehall and, consequently, the five-year prohibition
and the super-majority vote requirements will not apply to business combinations
between any of them and the Company. As a result, Whitehall may be able to enter
into business combinations with the Company that may not be in the best interest
of its shareholders without compliance by the Company with the super-majority
vote requirements and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that "control shares" of a Maryland real estate investment trust acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of beneficial interest owned by the acquiror, by officers or by
trustees who are employees of the trust. The Bylaws of the Company contain a
provision exempting from the control share acquisition statute any and all
acquisitions by any person of the Company's shares of beneficial interest. There
can be no assurance that such provision will not be amended or eliminated at any
time in the future.
AMENDMENT TO THE DECLARATION OF TRUST
The Declaration of Trust, including its provisions on classification of the
Board of Trustees and removal of trustees, may be amended only by the
affirmative vote of the holders of not less than two-thirds of all of the votes
entitled to be cast on the matter. Under the Maryland REIT Law, a real estate
investment trust generally cannot dissolve, amend its declaration of trust or
merge, unless approved by the affirmative vote of shareholders holding at least
two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the real estate investment trust's declaration of
trust. The Company's Declaration of Trust does not provide for a lesser
percentage in such situations. Under the Maryland REIT Law, a declaration of
trust may permit the trustees by a two-thirds vote to amend the declaration of
trust from time to time to qualify as a real estate investment trust under the
Code or the Maryland REIT Law without the affirmative vote or written consent of
the shareholders. The Company's Declaration of Trust permits such action by the
Board of Trustees.
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DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than two-thirds of all of the votes entitled to be cast
on the matter.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
For nominations or other business to be properly brought before an annual
meeting of shareholders by a shareholder, the Company's Bylaws require such
shareholder to deliver a notice to the Secretary, absent specified
circumstances, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting setting forth: (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
trustee, all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of trustees, pursuant to
Regulation 14A of the Exchange Act; (b) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the shareholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (x) the name and
address of such shareholder as they appear on the Company's books, and of such
beneficial owner and (y) the number of shares which are owned beneficially and
of record by such shareholder and such beneficial owner, if any.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions of the MGCL, the provisions of the
Company's Declaration of Trust on classification of the Board of Trustees and
removal of trustees and the advance notice provisions of the Company's Bylaws
could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Shares or otherwise be
in their best interest.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.
SHARES AVAILABLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had - Shares issued and
outstanding. Upon the closing of the Offering, the Company will have - Shares
issued and outstanding or reserved for issuance upon exercise of outstanding
Options. The Company has reserved an additional - Shares for future issuance
upon exercise of awards granted under the Compensation Programs. See
"Management-- Compensation Programs." All of the - Shares to be issued or
sold by the Company in the Offering will be tradeable without restriction under
the Securities Act. The Shares currently issued and outstanding or reserved for
issuance upon exercise of options will be eligible for sale in the future,
subject to the volume resale, manner of sale and notice limitations of Rule 144
under the Securities Act.
In general, under Rule 144, a person (or persons whose Shares are aggregated
in accordance with the Rule) who has beneficially owned his or her Shares for at
least one year, including any such persons who may be deemed "affiliates" of the
Company (as defined in the Securities Act), would be entitled to sell within any
three-month period a number of Shares that does not exceed the greater of 1% of
the then outstanding number of Shares or the average weekly trading volume of
the Shares during the four
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calendar weeks preceding each such sale. After Shares are held for two years, a
person who is not deemed an "affiliate" of the Company is entitled to sell such
Shares under Rule 144 without regard to the volume limitations described above.
Sales of Shares by affiliates will continue to be subject to the volume
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through the use of one or more intermediaries,
controls, is controlled by, or is under common control with, such issuer.
The Company has granted to the Continuing Investors registration rights with
respect to sales of Shares that constitute "restricted" Shares by such persons
after the expiration of a one-year lock-up period. These registration rights
grant, with certain limitations, such parties opportunities to request
registration of all or any portion of their Shares, the right to have such
Shares registered incidentally to any registration being conducted by the
Company of shares of beneficial interest or securities exchangeable for shares
of beneficial interest and the right to have the Company file a shelf
registration statement with respect to resales of such Shares. The Company
generally will bear the expenses incident to its registration requirements under
the registration rights, except that such expenses will not include any
underwriting discounts or commissions. The Company will be obligated to maintain
the effectiveness of such registration statement for a period of 90 days
following the date of effectiveness or, if earlier, until such time as all of
the shares of beneficial interest registered pursuant to such registration
statement (a) have been disposed of pursuant to such registration statement, (b)
are permitted to be distributed pursuant to Rule 144(k) or (c) have been
otherwise transferred in a transaction resulting in the transferee receiving
shares of beneficial interest no longer deemed to be "restricted" Shares.
No prediction can be made as to the effect, if any, that future sales of
Shares or the availability of Shares for future sale will have on the market
prices of Shares. Sales of substantial amounts of Shares (including Shares
issued upon the exercise of options), or the perception that such sales could
occur, could adversely affect the prevailing market price of the Shares.
For a description of certain restrictions on transfers of Shares by the
Company (and certain of its trustees and officers), see "Underwriting."
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the taxation of the Company and the material
Federal income tax consequences to holders of the Shares is for general
information only, and is not tax advice. The tax treatment of a holder of Shares
will vary depending upon the holder's particular situation, and this discussion
addresses only holders that hold Shares as capital assets and does not purport
to deal with all aspects of taxation that may be relevant to particular holders
in light of their personal investment or tax circumstances, or to certain types
of holders (including dealers in securities or currencies, traders in securities
that elect to mark to market, banks, tax-exempt organizations, life insurance
companies, persons that hold Shares that are a hedge or that are hedged against
currency risks or that are part of a straddle or conversion transaction) subject
to special treatment under the Federal income tax laws. This summary is based on
the Code, its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all
subject to change at any time, perhaps with retroactive effect.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF SHARES, INCLUDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE IN THEIR PARTICULAR CIRCUMSTANCES AND POTENTIAL CHANGES IN
APPLICABLE LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL
The Company plans to make an election to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. The Company believes that, commencing with such taxable year, it will
be organized and will operate in such a manner as to qualify for taxation as a
REIT under the Code.
In the opinion of Sullivan & Cromwell, commencing with its taxable year
ending December 31, 1998, the Company will be organized in conformity with, and
its proposed method of operation will enable it to meet, the requirements for
qualification and taxation as a REIT under the Code. Investors should be aware,
however, that opinions of counsel are not binding upon the IRS or any court. It
must be emphasized that Sullivan & Cromwell's opinion is based on various
assumptions and is conditioned upon certain representations made by the Company,
the Food Services Operator and the Housekeeping Operator, including, without
limitation, representations of the Company, the Food Services Operator and the
Housekeeping Operator concerning their business and the properties. Sullivan &
Cromwell has not independently verified or investigated the accuracy of such
assumptions and representations. The qualification and taxation of the Company
as a REIT depends upon its ability to meet, through actual annual operating
results, distribution levels, share ownership requirements and the various
qualification tests imposed under the Code. Accordingly, while the Company
intends to qualify to be treated as a REIT, no assurance can be given that the
actual results of the Company's operations for any particular year will satisfy
such requirements. Sullivan & Cromwell will not monitor the compliance of the
Company with the requirements for REIT qualification on an ongoing basis.
The sections of the Code applicable to REITs are highly technical and
complex. Certain aspects thereof are summarized below.
As a REIT, the Company generally will not be subject to Federal corporate
income taxes on its net income that is currently distributed to shareholders.
This treatment substantially eliminates the "double taxation" (at the corporate
and shareholder levels) that generally results from investment in a regular
corporation. However, the Company will be subject to Federal income tax as
follows. First, the Company will be taxed at regular corporate rates on any
undistributed real estate investment trust taxable income,
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including undistributed net capital gains. Second, under certain circumstances,
the Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (a) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (b) other non-qualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from "prohibited
transactions" (which are, in general, certain sales or other dispositions of
property, other than foreclosure property, held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (a) 85% of its real estate investment trust
ordinary income for such year, (b) 95% of its real estate investment trust
capital gain net income for such year, and (c) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if the Company acquires any asset from a C corporation (i.e., generally
a corporation subject to full corporate-level tax) in certain transactions in
which the basis of the asset in the hands of the Company is determined by
reference to the basis of the asset (or any other property) in the hands of the
C corporation, and the Company recognizes gain on the disposition of such asset
during the ten-year period beginning on the date on which such asset was
acquired by the Company (the "Recognition Period"), then, pursuant to the
Treasury regulations that have not yet been issued and to the extent of the
excess of the fair market value of the asset as of the date of the Company's
acquisition over the Company's adjusted basis in such asset on such date, such
gain will be subject to tax at the highest regular corporate rate. The results
described above with respect to assets acquired from a C corporation assume that
the Company will make an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees, (2) the beneficial ownership of which is
evidenced by transferable shares, or by transferable certificates of beneficial
interest, (3) which would otherwise be taxable as a domestic corporation, but
for Sections 856 through 859 of the Code, (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code,
(5) the beneficial ownership of which is held by 100 or more persons, (6) during
the last half of each taxable year, not more than 50% in value of the
outstanding shares of which is owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) and (7)
which meets certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (1) to (4) must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months.
The Company's Declaration of Trust provides for restrictions regarding the
ownership and transfer of the Company's Shares, which restrictions are intended
to assist the Company in satisfying the share ownership requirements described
in (5) and (6) above. The ownership and transfer restrictions pertaining to the
Shares are described under the heading "Description of Shares of Beneficial
Interest-- Restrictions on Transfers."
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property") or
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from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments,
dividends, interest and gain from the sale or disposition of stock or securities
(or from any combination of the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the terms "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, directly or under the applicable attribution rules,
owns a 10% or greater interest in such tenant (a "Related Party Tenant"). Third,
if rent attributable to personal property leased under, or in connection with, a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives or receives no
income; PROVIDED, HOWEVER, that the Company may directly perform (i) certain
"permissible services," i.e., services that are not considered "rendered to the
occupant" of the property, which are generally services that (a) are not
primarily for the occupant's convenience or (b) are "usually or customarily
rendered" in connection with the rental of rooms or other space for occupancy
only and (ii) services that are not permissible services if the amount received
or accrued directly or indirectly by the Company for providing such services
does not exceed one percent of all amounts received or accrued during such
taxable year directly or indirectly by the Company with respect to such Property
("DE MINIMIS Services").
On an ongoing basis, the Company will use its best efforts: (a) not to
charge rent for any property that is based in whole or in part on the income or
profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above); (b) not to rent any property to a
Related Party Tenant (taking into account the applicable constructive ownership
rules), unless the Company determines in its discretion that the rent received
from such Related Party Tenant is not material and will not jeopardize the
Company's status as a REIT; (c) not to derive rental income attributable to
personal property (other than personal property leased under, or in connection
with, the lease of real property, the amount of which is equal to or less than
15% of the total rent received under the lease); and (d) not to furnish or
render services considered to be "rendered to the occupant" of the property,
other than (i) through an independent contractor from whom the Company derives
or receives no income or (ii) if the provisions of such services will not
jeopardize the Company's status as a REIT. Because the Code provisions
applicable to REITs are complex, however, the Company may fail to meet one or
more of the foregoing objectives, which failure may jeopardize the Company's
status as a REIT. For a discussion of the consequences of any failure be the
Company to qualify as a REIT, see "--Failure to Qualify."
For rents to constitute "rents from real property," the requirements
enumerated above must be satisfied. One requirement is that the rent
attributable to personal property leased under, or in connection with, the lease
of a property must not be greater than 15% of the total rent received under the
leases. The rent attributable to the personal property leased under, or in
connection with, a lease is the amount that bears the same ratio to total rent
for the taxable year as the average of the adjusted bases of the personal
property in the property at the beginning and at the end of the taxable year
bears to the average of the aggregate adjusted bases of both the real and
personal property comprising the property at the beginning and at the end of
such taxable year (the "Adjusted Basis Ratio"). The Company intends to lease
furniture, including, without limitation, beds, desks, chairs, night stands,
couches, coffee tables, small dining sets, stools and other customary
residential furniture; and appliances, including, without limitation,
refrigerators, ranges, microwaves, dishwashers, non-coin operated laundry
machines and
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other customary residential appliances, under, or in connection with, the leases
of real property. However, the Company will carefully monitor the Adjusted Basis
Ratio and will use its best efforts to maintain the Adjusted Basis Ratio equal
to or less than 15%. Accordingly, rent received by the Company is anticipated to
satisfy this requirement.
A second requirement for qualification of rents as "rents from real
property" is that the rent must not be based in whole or in part on the income
or profits of any person. The Company anticipates that all the rental income
that it receives or accrues will satisfy this requirement. The rent received or
accrued from the college or university students for the lease of the residential
units will not be based on the income or profits of any person. The Company will
also receive rental income from owners of vending machines, owners of
coin-operated laundry machines or other unrelated third parties ("Vendors") to
whom the Company will lease space and which rent may be based on a fixed
percentage of gross receipts or sales of such tenant with respect to such leased
space. Finally, pursuant to the Food Service Space Lease, the Company will lease
Food Service Spaces to Food Service Operator for an annual base rent and a
percentage rent. The percentage rent will be % of the gross revenues realized
by Food Service Operator from its operations at all of the Food Service Spaces
to the extent that such gross revenues exceed a breakpoint. See "Business of the
Company and its Properties-Food Service Space Lease with Food Service
Operator-Amounts Payable Under the Lease." In no event will the rent from the
Vendors or from Food Service Operator be based on the income or profits of any
person.
A third requirement for qualification of rents as "rents from real property"
is that the Company must not own, directly or constructively, 10% or more of any
tenant of the Properties. The constructive ownership rules generally provide
that if 10% or more in value of the shares of the Company are owned, directly or
indirectly, by or for any person, the Company is considered as owning the shares
owned, directly or indirectly, by or for such person. The Declaration of Trust
provides that no person may own, directly or constructively, more than 9.8% of
the Company. See "Description of Shares of Beneficial Interest--Restrictions on
Transfer." Assuming the Declaration of Trust is complied with, no person should
ever own, directly or constructively, 10% or more of the Company, and thus the
constructive ownership rules should not be triggered.
A fourth requirement for qualification of rents as "rents from real
property" is that the Company generally must not operate or manage its
properties or furnish or render services to its tenants, other than through an
independent contractor from whom the Company derives or receives no income;
PROVIDED, HOWEVER, that the Company may directly perform "permissible services"
or DE MINIMIS Services. Under the literal wording of Section 856 of the Code, if
the Company provides services that are not permissible services and that do not
qualify as DE MINIMIS Services, then all amounts received or accrued by the
Company with respect to the property will not qualify as "rents from real
property," even if the impermissible services are provided to some, but not all,
of the tenants of the property.
The Company may furnish or render certain services, including, without
limitation, housekeeping services, linen and laundry services and Internet
services, through the Housekeeping Operator and other independent contractors
from whom the Company will not derive or receive any income. The Company
believes that all other services that it furnishes or renders directly to its
tenants are permissible services or DE MINIMIS Services. The Food Services are
not analyzed under this requirement because the Food Services are provided by
Food Service Operator (not by the Company) to tenants and non-tenants.
To the extent that the Company receives any income from the Properties which
does not constitute either "rents from real property" or interest or dividends,
the Company will monitor such items so as to ensure that the amount of income
will not exceed 5% of the Company's total income.
Based on the foregoing, the rent should qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests. As described
above, however, there can be no complete assurance
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that the IRS will not assert successfully a contrary position and, therefore,
prevent the Company from qualifying as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its Federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether, in all
circumstances, the Company would be entitled to the benefit of these relief
provisions. As discussed above under "General", even if these relief provisions
apply, a tax would be imposed with respect to the excess income.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (a) the Company's allocable share of real estate assets
held by partnerships in which the Company owns an interest, (b) for a period of
one year from the date of the Company's receipt of proceeds of an offering of
its shares or long-term (at least five years) debt, stock or debt instruments
purchased with such proceeds and (c) stock issued by another REIT, cash, cash
items and government securities. Second, not more than 25% of the Company's
total assets may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities (other than securities issued by another REIT) owned
by the Company may not exceed 5% of the value of the Company's total assets and
the Company may not own more than 10% of any one issuer's outstanding voting
securities.
On February 2, 1998, as part of a balanced federal budget proposal for
fiscal year 1999, the Clinton Administration proposed legislation that would,
among other things, prohibit a REIT from holding stock possessing more than 10
percent of the vote or value of all classes of stock of a corporation. The
proposal would be effective with respect to stock acquired on or after the date
of first Congressional committee action. In addition, to the extent that a
REIT's stock ownership is grandfathered by virtue of this effective date, the
grandfathered status will terminate if the subsidiary corporation engages in a
trade or business that it is not engaged in on the date of first committee
action or acquires substantial new assets on or after that date. The Company has
an affiliated corporation (the Management Subsidiary) which, if not
grandfathered, would fail the test under the Proposed Legislation, and the
Company would be forced to reduce its indirect interest in such affiliated
corporation. There can be no assurance that the Proposed Legislation will not be
enacted in its proposed form and, if any legislation is enacted, that the
Management Subsidiary will be grandfathered.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (a) 95% of the
Company's "real estate investment trust taxable income" (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (b) 95%
of the net income (after tax), if any, from foreclosure property minus (B) the
sum of certain items of non-cash income. In addition, if the Company disposes of
any asset acquired from a C corporation in a carryover basis transaction during
its Recognition Period, the Company will be required, pursuant to Treasury
regulations which have not yet been promulgated, to distribute at least 95% of
the built-in gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "real estate investment trust taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (a) 85% of its ordinary income for such year,
(b) 95% of its capital gain net income for such year, and (c) any undistributed
taxable income from prior
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periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company intends
to satisfy the annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (a) the actual receipt of income and actual payment
of deductible expenses and (b) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable share
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF HOLDERS OF SHARES
U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Shares who
(for United States Federal income tax purposes) is (a) a citizen or resident of
the United States, (b) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (c) an estate the income of which is subject to United
States Federal income taxation regardless of its source or (d) a trust if a
United States court is able to exercise primary supervision over administration
of the trust and one or more United States persons have authority to control all
substantial decisions of the trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Shareholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Shareholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to U.S.
Shareholders as gain from the sale and exchange of a capital asset held for more
than one year (to the extent that they do not exceed the Company's actual net
capital gain for the taxable year) without regard to the period for which a U.S.
Shareholder has held his shares. U.S. Shareholders that are corporations may,
however, be required to treat up to 20% of certain capital gain dividends as
ordinary income.
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To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in his Shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in his shares taxable as capital gains (PROVIDED
that the Shares have been held as a capital asset). Dividends authorized by the
Company in October, November or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the shareholder on December 31 of such
year, PROVIDED that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Shareholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Shareholder of Shares will not be treated as passive activity income
and, as a result, U.S. Shareholders generally will not be able to apply any
"passive losses" against such income or gain.
Upon any sale or other disposition of Shares, a U.S. Shareholder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (a) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (b) the holder's
adjusted basis in the Shares for tax purposes. Such gain or loss will be capital
gain or loss if the Shares have been held by the U.S. Shareholder as a capital
asset. Long-term capital gain of an individual U.S. Shareholder is generally
subject to a maximum tax rate of 28% in respect of property held for more than
one year and the maximum rate is reduced to 20% in the case of property held in
excess of 18 months. In general, any loss recognized by a U.S. Shareholder upon
the sale or other disposition of shares of the Company that have been held for
six months or less (after applying certain holding period rules) will be treated
as a long-term capital loss, to the extent of distributions received by such
U.S. Shareholder from the Company which were required to be treated as long-term
capital gains.
U.S. Shareholders holding Shares at the close of the Company's taxable year
will be required to include, in computing their long-term capital gains for the
taxable year in which the last day of the Company's taxable year falls, such
amount as the Company may designate in a written notice mailed to its
shareholders. The Company may not designate amounts in excess of the Company's
undistributed net capital gain for the taxable year. Each U.S. Shareholder
required to include such a designated amount in determining such shareholder's
long-term capital gains will be deemed to have paid, in the taxable year of the
inclusion, the tax paid by the Company in respect of such undistributed net
capital gains. U.S. Shareholders subject to these rules will be allowed a credit
or a refund, as the case may be, for the tax deemed to have been paid by such
shareholders. U.S. Shareholders will increase their basis in their Shares by the
difference between the amount of such includible gains and the tax deemed paid
by such shareholders in respect of such gains.
BACKUP WITHHOLDING. The Company will report to its U.S. Shareholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any. Under the backup withholding rules, a shareholder may
be subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Shareholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to the Company.
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TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, PROVIDED that a tax-exempt shareholder (except certain tax-exempt
shareholders described below) has not held its Shares as "debt financed
property" within the meaning of the Code and such Shares are not otherwise used
in a trade or business, the dividend income from Shares will not be UBTI to a
tax-exempt shareholder. Similarly, income from the sale of Shares will not
constitute UBTI unless such tax-exempt shareholder has held such Shares as "debt
financed property" within the meaning of the Code or has used the Shares in a
trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from Federal income taxation under Sections
501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from
an investment in the Company's Shares will constitute UBTI unless the
organization is able to properly deduct amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its Shares. Such
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Tax-exempt entities will be subject to the rules described above, under the
heading "--U.S. Shareholders" concerning the inclusion of the Company's
designated undistributed net capital gains in the income of its shareholders.
Thus, such entities will, after satisfying filing requirements, be allowed a
credit or refund of the tax deemed paid by such entities in respect of such
includible gains.
NON-U.S. SHAREHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a limited summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in Shares, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by the Company of U.S.
real property interests (discussed below) and other than distributions
designated by the Company as capital gain dividends, will be treated as ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions to Non-U.S. Shareholders will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution, unless an applicable tax treaty reduces that tax. However, if
income from the investment in the Shares is treated as effectively connected
with the Non-U.S. Shareholder's conduct of a U.S. trade or business, the
Non-U.S. Shareholder generally will be subject to tax at graduated rates in the
same manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax if the shareholder is a
foreign corporation). The Company expects to withhold U.S. tax at the rate of
30% on the gross amount of any dividends, other than dividends treated as
attributable to gain from sales or exchanges of U.S. real property interests and
capital gain dividends, paid to a Non-U.S. Shareholder, unless (a) a lower
treaty rate applies and the required form evidencing eligibility for that
reduced rate is filed with the Company or the appropriate withholding agent or
(b) the Non-U.S. Shareholder files an IRS Form 4224 (or a successor form) with
the Company or the appropriate withholding agent claiming that the distributions
are "effectively connected" income.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gain dividends which are not attributable
to or treated as attributable to the disposition by the Company of a U.S. real
property interest generally will not be subject to U.S. Federal income taxation,
except as described below.
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RETURN OF CAPITAL. Distributions in excess of current and accumulated
earnings and profits of the Company, which are not treated as attributable to
the gain from disposition by the Company of a U.S. real property interest, will
not be taxable to a Non-U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the Non-U.S. Shareholder's Shares, but rather will reduce
the adjusted basis of such Shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's Shares, they will give rise to
tax liability if the Non-U.S. Shareholder otherwise would be subject to tax on
any gain from the sale or disposition of its Shares, as described below. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Shareholder may seek a refund of such amounts
from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of current and accumulated earnings and profits of the Company.
CAPITAL GAIN DIVIDENDS. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by the
Company of U.S. real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980,
as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Shareholders will be taxed on such distributions at the normal
capital gain rates applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in the case of
nonresident alien individuals). The Company is required by applicable Treasury
regulations under FIRPTA to withhold 35% of any distribution that could be
designated by the Company as a capital gain dividend. However, if the Company
designates as a capital gain dividend a distribution made prior to the day the
Company actually effects such designation, then (although such distribution may
be taxable to a Non-U.S. Shareholder) such distribution is not subject to
withholding under FIRPTA; rather, the Company must effect the 35% FIRPTA
withholding from distributions made on and after the date of such designation,
until the distributions so withheld equal the amount of the prior distribution
designated as a capital gain dividend. The amount withheld is creditable against
the Non-U.S. Shareholder's U.S. tax liability.
SALES OF SHARES. Gain recognized by a Non-U.S. Shareholder upon a sale or
exchange of Shares generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," defined generally as a REIT in respect of which
at all times during a specified testing period less than 50% in value of the
stock is and was held directly or indirectly by foreign persons. It is currently
anticipated that the Company will be a "domestically controlled REIT," and,
therefore, that the sale of Shares will not be subject to taxation under FIRPTA.
However, gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if
(a) investment in the Shares is treated as "effectively connected" with the
Non-U.S. Shareholder's U.S. trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. Shareholders with
respect to such gain, or (b) the Non-U.S. Shareholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, or maintains an office
or a fixed place of business in the United States to which the gain is
attributable, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains. A similar rule will apply to
capital gain dividends not subject to FIRPTA.
If the Company were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Shares would be subject to tax under FIRPTA only if the
selling Non-U.S. Shareholder owned more than 5% of the class of Shares sold at
any time during a specified period (generally the shorter of the period that the
Non-U.S. Shareholder owned the Shares sold or the five-year period ending on the
date of disposition). If the gain on the sale of Shares were to be subject to
tax under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident
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alien individuals) and the purchaser of such Shares would be required to
withhold 10% of the gross purchase price.
TREATY BENEFITS. Pursuant to current Treasury Regulations, dividends paid
to an address in a country outside the United States are generally presumed to
be paid to a resident of such country for purposes of determining the
applicability of withholding discussed above and the applicability of a tax
treaty rate.
Under Final Regulations that are effective for distributions made after
December 31, 1998, however, a Non-U.S. Shareholder who wishes to claim the
benefit of an applicable treaty rate would be required to satisfy applicable
certification requirements. In addition, under the Final Regulations, in the
case of Shares held by a foreign partnership, (x) the certification requirement
would generally be applied to the partners in the partnership and (y) the
partnership would be required to provide certain information, including a United
States taxpayer identification number. The Final Regulations provide
look-through rules in the case of tiered partnerships.
Shareholders that are partnerships or entities that are similarly fiscally
transparent for Federal income tax purposes, and persons holding Shares through
such entities, may be subject to restrictions on their ability to claim benefits
under U.S. tax treaties and should consult a tax advisor.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders are urged to consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co. and [co-managers] are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- ----------------------------------------------------------------- ---------
<S> <C>
Goldman, Sachs & Co..............................................
[Co-Managers]....................................................
---------
Total........................................................
---------
---------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Shares offered hereby,
if any are taken.
The Underwriters propose to offer the Shares in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $- per Share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $- per Share to certain brokers and
dealers. After the Shares are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
additional Shares solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the Shares offered.
The Company and its trustees and executive officers have agreed that, during
the period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the last closing of the Offering, they will
not offer, sell, contract to sell or otherwise dispose of any Shares, Units or
securities of the Company (other than pursuant to employee or trustee share
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) or the
Operating Partnership which are substantially similar to the Shares or Units or
which are convertible into or exchangeable for securities which are
substantially similar to the Shares or Units without the prior written consent
of Goldman, Sachs & Co. except that the Company may sell Shares to the
Underwriters in connection with the Offering.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of Shares
offered by them.
Prior to this Offering, there has been no public market for the Shares. The
initial public offering price will be negotiated among the Company and the
representatives. Among the factors to be considered in determining the initial
public offering price of the Shares, in addition to prevailing market
conditions, will be the dividend yields and price to earnings ratios of publicly
traded real estate investment trusts that the Company and the representatives
believe to be comparable to the Company, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management,
the current state of the Company's industry and the economy as a whole.
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Application has been made to list the Shares on the NYSE under the symbol
"XCP." In order to meet one of the requirements for listing the Shares on the
NYSE, the Underwriters have undertaken to sell lots of 100 or more Shares to a
minimum of 2,000 beneficial holders.
In connection with the Offering, the Underwriters may purchase and sell the
shares in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the shares; and syndicate short positions involve the
sale by the Underwriters of a greater number of shares than they are required to
purchase from the Company in the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the shares sold in the Offering for their account
may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Shares, which
may be higher than the price that might otherwise prevail in the open market;
and these activities, if commenced, may be discontinued at any time. These
transactions may be effected on the NYSE, in the over-the-counter market or
otherwise.
Goldman, Sachs & Co. provides investment advisory services to Whitehall, and
the parent company of Goldman, Sachs & Co., The Goldman Sachs Group, L.P., is
the largest single investor in Whitehall. Consequently Goldman, Sachs & Co. may
be deemed to control Whitehall and its various investments, including those in
the Company and the Operating Partnership. In addition, in connection with the
Company entering into the Credit Facility, Goldman, Sachs & Co. expects to
receive a financial advisory fee from the Company.
The Company and the Operating Partnership have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
EXPERTS
The combined financial statements and schedule of the Predecessor
Partnerships at December 31, 1997 and 1996, and for the years ended December 31,
1997 and 1996 and for the period December 19, 1995 (inception) through December
31, 1995, the balance sheet of College Park Communities Trust at December 31,
1997, and the combined statement of revenue and certain expenses of the WHNML-S
Acquired Properties for the year ended December 31, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firms as experts in accounting and auditing.
The combined statement of revenues and certain expenses of the JPI Acquired
Properties for the twelve months ended August 31, 1997, have been included
herein, in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
VALIDITY OF THE SHARES
The validity of the Shares offered hereby will be passed upon for the
Company by Sullivan & Cromwell, New York, New York and for the Underwriters by
Willkie Farr & Gallagher, New York, New York. Certain legal matters will be
passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania and Sonnenschein Nath & Rosenthal, Chicago, Illinois. As to certain
matters of Maryland law, Sullivan & Cromwell, Morgan, Lewis & Bockius LLP and
Willkie Farr & Gallagher may rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland.
117
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for purposes of this Prospectus:
"Acquired Properties" collectively means the JPI Acquired Properties and the
WHNML-S Acquired Properties.
"ADA" means the Americans with Disabilities Act of 1990.
"Bank" means the financial institution expected to enter into the Credit
Facility with the Company.
"Board of Trustees" means the Company's Board of Trustees.
"Cash Available for Distribution" means Funds from Operations plus
amortization of deferred financing costs and non-real estate related
depreciation and minus capital expenditures and principal payments on
indebtedness.
"Charitable Beneficiary" means an organization or organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code and identified by the Board of
Trustees as the beneficiary or beneficiaries of the Excess Shares trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" means College Park Communities Trust, a Maryland real estate
investment trust formed on December 9, 1997.
"Continuing Investors" means those persons receiving Units and Shares in
exchange for their interests in the Contributed Properties.
"Contributed Properties" means the interests and certain employees,
contracts and assets in WHGMH Realty, L.L.C., WHGMH-S Ashby, L.L.C., WHG
Treehouse, L.P., WHORL Real Estate, Limited Partnership, WHNML-S Real Estate
Limited Partnership, W9/GLM Real Estate Limited Partnership transferred to the
Operating Partnership and the contracts entered into between GMH Management,
Inc.-North and the Management Subsidiary in the Formation Transactions.
"Control Share acquisition" means, under Maryland law, the acquisition of
Control Shares, subject to certain exceptions.
"Control Shares" means, under Maryland law, voting shares which, if
aggregated with all other such shares previously acquired by the acquiror, or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (a) one-fifth or more but less than one-third,
(b) one-third or more but less than a majority, or (c) a majority of all voting
power.
"Credit Facility" means the Company's proposed $250 million line of credit.
"Debt-to-Book Capitalization Ratio" means the total debt of the Company as a
percentage of the book value of its assets.
"Debt-to-Total-Market Capitalization Ratio" means the total debt of the
Company as a percentage of the sum of the Company's equity market value and
total debt.
"Development Properties" means the properties currently under development by
the Company.
"EBITDA" means earnings before income taxes, depreciation and amortization
expense.
"Event of Default" means an event of default under a Food Service Space
Lease.
118
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"Food Service Operator" means the entity that will operate the Food Services
pursuant to the Food Service Space Leases.
"Food Service Space Lease" means the long-term modified net lease with Food
Service Operator relating to the Food Service Spaces or as applicable, each Food
Service Space.
"Food Service Spaces" means the facilities located on certain of the
Company's Properties where Food Services are provided.
"Food Services" means the cafeteria and food services provided to tenants
and non-tenants by the Food Service Operator.
"Formation Transactions" means the transactions designed to consolidate the
ownership interests in the Properties in the Company, to facilitate the Offering
and to enable the Company to qualify as a REIT for Federal income tax purposes
commencing with its taxable year ending December 31, 1998.
"Funds from Operations" means net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
"GAAP" means generally accepted accounting principles.
"Glenmorris Acquisition" means the acquisition of a Property from Suburban
Campus Properties, Inc. on January 5, 1998.
"Glenmorris Property" means the one Property acquired from Suburban Campus
Properties, Inc. on January 5, 1998.
"GLM Interests" means the limited partnership interests of W9/GLM Real
Estate Limited Partnership contributed to the Operating Partnership.
"Housekeeping Operator" means College Maid Services, L.L.C., the entity that
will provide the housekeeping and janitorial services at the Properties.
"Independent Trustees" means the trustees that will be independent for
purposes of NYSE requirements.
"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares or an
affiliate of a Maryland real estate investment trust who, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then-outstanding voting shares of the real
estate investment trust.
"IRS" means the Internal Revenue Service.
"Janitorial Agreement" means the agreement between the Company and
Housekeeping Operator relating to the provision of janitorial services by the
Housekeeping Operator in the common areas at certain of the Properties.
"JPI Acquired Properties" means the six Properties acquired by the
Predecessor Partnerships on December 30, 1997.
"JPI Acquisition" means the acquisition of the six Properties by the
Predecessor Partnerships on December 30, 1997.
"Managed Properties" means the properties currently managed by the
Management Subsidiary.
119
<PAGE>
"Management Subsidiary" means College Park Management, Inc., a Pennsylvania
corporation formed on March 18, 1998.
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland.
"MGCL" means the Maryland General Corporation Law.
"Named Executive Officers" means the most highly executive officers of the
Company whose cash compensation in 1998, on an annualized basis, is expected to
exceed $100,000.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NCES" means the U.S. Department of Education's National Center for
Educational Statistics.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering of Shares to the public by the Company
pursuant to this Prospectus.
"on-campus," when used to refer to available student housing, shall mean the
total number of traditional dormitories, residence halls or apartments located
on a college or university campus and any other student housing otherwise owned
or controlled by colleges or universities or fraternities, sororities or clubs
affiliated with colleges or universities.
"Operating Partnership" means College Park Communities, L.P., a limited
partnership organized under the laws of the State of Delaware.
"Ownership Limit" means 9.8% of the number or value of the Company's issued
and outstanding shares of beneficial interest.
"Pending Acquisitions" means the pending acquisitions by the Operating
Partnership pursuant to the purchase agreements dated February 26, 1998.
"Predecessor Partnerships" means the general and limited partnerships and
the limited liability companies that owned the Contributed Properties prior to
the Formation Transactions.
"Preferred Shares" means preferred shares of beneficial interest, par value
$.01 per share, of the Company.
"Properties" means the properties the Operating Partnership will own as a
result of the Formation Transactions.
"Recent Acquisitions" means the Glenmorris Acquisition and the JPI
Acquisition.
"Recognition Period" means the 10-year period beginning on the day the
Company acquires assets from a C corporation in certain transactions.
"Registration Statement" means the Company's registration statement on Form
S-11 of which this Prospectus forms a part, under the Securities Act.
"REIT" means a real estate investment trust as defined under the Code.
"Restricted Shares" means Shares granted by the Company pursuant to the
Restricted Share Program.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the common shares of beneficial interest, par value $.01 per
share, of the Company.
"Treasury" means the United States Treasury Department.
120
<PAGE>
"UBTI" means unrelated business taxable income as defined under the Code.
"Underwriters" means the Underwriters named in this Prospectus.
"Underwriting Agreement" means the Underwriting Agreement among the Company,
the Operating Partnership and the Underwriters.
"Units" means the partnership interests in the Operating Partnership.
"Whitehall" means Whitehall V-S Real Estate Limited Partnership, Whitehall
Street Real Estate Limited Partnership III, Whitehall Street Real Estate Limited
Partnership VII, Whitehall Street Real Estate Limited Partnership IX and their
affiliates.
"WHNML-S Acquired Properties" means the 14 Properties acquired by the
Predecessor Partnerships in April and May 1997.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
COLLEGE PARK COMMUNITIES TRUST
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Pro Forma Condensed Consolidated Financial Statements.................... F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1997... F-3
Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet........ F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1997.......................................................... F-5
Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of
Operations....................................................................... F-6
HISTORICAL:
Report of Independent Auditors..................................................... F-8
Balance Sheet as of December 31, 1997.............................................. F-9
Notes to Balance Sheet............................................................. F-10
PREDECESSOR PARTNERSHIPS
COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors..................................................... F-12
Combined Balance Sheets as of December 31, 1997 and 1996........................... F-13
Combined Statements of Operations for the Years Ended December 31, 1997 and 1996
and the Period from December 19, 1995 (inception) through December 31, 1995...... F-14
Combined Statements of Owners' Equity for the Years Ended December 31, 1997 and
1996 and the Period from December 19, 1995 (inception) through December 31,
1995............................................................................. F-15
Combined Statements of Cash Flows for the Years Ended December 31, 1997 and 1996
and the Period from December 19, 1995 (inception) through December 31, 1995...... F-16
Notes to Combined Financial Statements............................................. F-17
Schedule III-Real Estate and Accumulated Depreciation as of December 31, 1997...... F-24
WHNML-S ACQUIRED PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES:
Report of Independent Auditors..................................................... F-27
Combined Statement of Revenue and Certain Expenses for the Year Ended December 31,
1996............................................................................. F-28
Notes to Combined Statement of Revenue and Certain Expenses........................ F-29
JPI ACQUIRED PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES:
Independent Auditors' Report....................................................... F-30
Combined Statement of Revenues and Certain Expenses for the Twelve Months Ended
August 31, 1997.................................................................. F-31
Notes to Combined Statement of Revenues and Certain Expenses....................... F-32
</TABLE>
F-1
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheet is presented as
if the Offering, the Formation Transactions, including the entering into of the
Credit Facility and the repayment of certain indebtedness, and the acquisition
of the Glenmorris Property on January 5, 1998 (the "Glenmorris Acquisition") all
had been consummated on December 31, 1997. The pro forma December 31, 1997
balance sheet also gives effect to the recording of minority interests for Units
in the Operating Partnership as if these transactions had occurred on December
31, 1997.
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1997 is presented as if the Offering, the Formation
Transactions, including the entering into of the Credit Facility and the
repayment of certain indebtedness, the Glenmorris Acquisition and the
acquisition of the fourteen properties in April and May 1997 and the six
properties in December 1997 (the WHNML-S Acquired Properties and the JPI
Acquired Properties, collectively the "Acquired Properties") all had occurred on
January 1, 1997.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the Company's financial position or results of
operations would have been assuming the completion of the Offering, the
Formation Transactions, the entering into of the Credit Facility and the
repayment of certain indebtedness and the acquisitions described above all had
occurred on such date or at the beginning of the period indicated, nor does it
purport to project the Company's financial position or results of operations at
any future date or for any future period.
The following unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the Predecessor Partnerships
combined financial statements and notes thereto included elsewhere in this
Prospectus. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
F-2
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLEGE PARK HISTORICAL
COMMUNITIES PREDECESSOR GLENMORRIS THE OFFERING OTHER PRO FORMA COMPANY
TRUST PARTNERSHIPS ACQUISITION(A) (B) ADJUSTMENTS PRO FORMA
----------------- ------------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Properties, net........... $ -- $ 368,152 $ 8,904 $ $ (2,342)(G) $ 374,714
Cash and cash
equivalents............. 15,921 142 148,100 (147,630)(D) 15,871
2,543(F)
(1,330)(E)
(1,875)(C)
Restricted cash........... 6,190 107 (2,543)(F) 3,754
Accounts receivable....... 940 940
Deposits and other
assets.................. 1,359 (66) 1,293
Due from affiliates....... 522 522
Deferred financing costs,
net..................... 5,247 1,875(C) 2,728
(4,394)(E)
--- ------------- ------- ------------ ----------------- -----------
Total assets.......... $ -- $ 398,331 $ 9,153 $ 148,034 $ (155,696) $ 399,822
--- ------------- ------- ------------ ----------------- -----------
--- ------------- ------- ------------ ----------------- -----------
LIABILITIES
Mortgage notes payable.... $ 270,146 $ $ $ (194,152)(D) $ 75,994
Loan payable.............. -- 6,652 (6,652)(D) --
Line of credit............ 53,834(D) 53,834
Accounts payable and
accrued liabilities..... 4,408 111 (660)(D) 3,859
Due to affiliates......... 2,698 2,698
Tenant security
deposits................ 3,266 107 3,373
Prepaid rents............. 10,424 61 10,485
--- ------------- ------- ------------ ----------------- -----------
Total liabilities..... -- 290,942 6,931 (147,630) 150,243
Minority interests........ -- 131,279(H) 131,279
SHAREHOLDERS' AND OWNERS'
EQUITY
Common shares............. -- 80 80
Additional paid-in
capital................. -- 147,954 (29,734) (I) 118,220
Accumulated equity of
continuing interests.... 107,389 2,222 (5,724)(E) --
(2,342)(G)
(131,279)(H)
29,734(I)
--- ------------- ------- ------------ ----------------- -----------
Total shareholders' and
owners' equity.......... 107,389 2,222 148,034 (139,345) 118,300
--- ------------- ------- ------------ ----------------- -----------
Total liabilities and
shareholders' and
owners' equity.......... $ -- $ 398,331 $ 9,153 $ 148,034 $ (155,696) $ 399,822
--- ------------- ------- ------------ ----------------- -----------
--- ------------- ------- ------------ ----------------- -----------
</TABLE>
F-3
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS AND PERCENTAGES)
The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 1997 are as follows:
<TABLE>
<S> <C> <C>
(A) Represents the acquisition of the Glenmorris Property on January 5, 1998:
Purchase Price............................................................ $ 8,800
Closing Costs............................................................. 104
---------
Total Capitalized Costs................................................... $ 8,904
---------
---------
(B) Sale of common shares of beneficial interest in the Offering:
Proceeds from the Offering based on initial price of - per share.......... $ 160,000
Costs associated with the Offering........................................ (11,900)
---------
148,100
Offering costs prepaid by the Predecessor Partnerships prior to the
Offering.................................................................. (66)
---------
$ 148,034
---------
---------
Par value of Shares to be issued.......................................... $ 80
Additional paid-in capital from proceeds of sale of Shares................ $ 147,954
---------
$ 148,034
---------
---------
(C) Represents a .75% line of credit origination fee on line of credit
facility of $250,000. Although the Company has received proposal letters
from prospective lenders which set forth the terms of the line of credit,
such lenders have not provided the Company with any binding commitment
letter.................................................................... $ 1,875
---------
---------
(D) Drawdown on line of credit for repayment of certain indebtedness.......... $ 53,834
Repayment of certain mortgage notes....................................... (194,152)
Repayment of loan payable on Glenmorris Property.......................... (6,652)
Payment of accrued interest on certain mortgage notes to be repaid........ (660)
---------
$(147,630)
---------
---------
(E) Write-off of unamortized loan fees and prepayment penalties to be incurred
relating to the mortgage notes payable expected to be repaid with the
proceeds from the Offering and drawdown on line of credit:
Write off of unamortized loan fees........................................ $ 4,394
Prepayment penalties...................................................... 1,330
---------
$ 5,724
---------
---------
(F) Release of restriction on capital improvement and tax reserves relating to
the mortgage notes to be repaid........................................... $ 2,543
---------
---------
(G) Distribution of food service equipment, at net book value, to continuing
investors pursuant to food service lease.................................. $ 2,342
---------
---------
(H) Represents minority interests in the Operating Partnership based on Units
issued:
Total equity and minority interests....................................... $ 249,579
Percentage allocable to minority interests................................ 52.6%
---------
Minority interests........................................................ $ 131,279
---------
---------
(I) Represents the elimination of owners' equity.............................. $ 29,734
---------
---------
</TABLE>
F-4
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-
ACQUISITION
HISTORICAL PERIOD FOR
PREDECESSOR ACQUIRED GLENMORRIS OTHER PRO FORMA COMPANY
PARTNERSHIPS PROPERTIES (J) ACQUISITION (K) ADJUSTMENTS PRO FORMA
------------- --------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental................................... $ 35,668 $ 19,549 $ 1,678 $ 1,321(P) $ 58,216
Food service............................. 10,222 4,528 -- (14,750)(P) --
Interest................................. 500 -- -- 500
Other.................................... 1,604 1,445 74 336(M) 3,459
------------- --------------- ------- -------- -----------
Total revenue............................ 47,994 25,522 1,752 (13,093) 62,175
EXPENSES:
Rental operations........................ 11,003 4,640 372 16,015
Food service............................. 5,974 2,621 -- (8,595)(P) --
Operating payroll........................ 6,357 2,767 229 9,353
Real estate taxes........................ 2,517 1,607 119 4,243
Management fees.......................... 1,871 -- -- (1,871)(Q) --
General and administrative............... 1,711 68 -- 2,192(L) 3,971
Interest................................. 14,334 8,799 665 (12,789)(N) 11,009
Depreciation............................. 6,497 -- -- 4,458(O) 10,955
------------- --------------- ------- -------- -----------
Total expenses........................... 50,264 20,502 1,385 (16,605) 55,546
------------- --------------- ------- -------- -----------
Income (loss) before minority
interests.............................. (2,270) 5,020 367 3,512 6,629
Minority interests....................... -- -- -- 3,487(R) 3,487
------------- --------------- ------- -------- -----------
Net Income (loss)........................ $ (2,270) $ 5,020 $ 367 $ 25 $ 3,142
------------- --------------- ------- -------- -----------
------------- --------------- ------- -------- -----------
</TABLE>
F-5
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
(DOLLARS IN THOUSANDS)
The adjustments to the Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the year ended December 31, 1997 are as follows:
(J) Represents the actual unaudited historical results of the Acquired
Properties and imputed interest expense from the beginning of the period
through the dates of acquisition. Ten of the WHNML-S Acquired Properties
were acquired on April 9, 1997 and four additional properties were acquired
on May 15, 1997. The JPI Acquired Properties consist of six student housing
properties and were acquired on December 30, 1997.
<TABLE>
<CAPTION>
WHNML-S
ACQUIRED JPI ACQUIRED TOTAL ACQUIRED
PROPERTIES PROPERTIES PROPERTIES
----------- ------------- ---------------
<S> <C> <C> <C>
Revenue:
Rental............................ $ 7,996 $ 11,553 $ 19,549
Food Service...................... 4,528 -- 4,528
Other............................. 615 830 1,445
----------- ------------- ---------------
13,139 12,383 25,522
Expenses:
Rental operations................. 3,029 1,611 4,640
Food service...................... 2,621 -- 2,621
Operating payroll................. 1,599 1,168 2,767
Real estate taxes................. 428 1,179 1,607
General and administrative........ -- 68 68
Interest.......................... 2,387 6,412 8,799
----------- ------------- ---------------
10,064 10,438 20,502
----------- ------------- ---------------
Revenue in excess of certain
expenses.......................... $ 3,075 $ 1,945 $ 5,020
----------- ------------- ---------------
----------- ------------- ---------------
</TABLE>
(K) Represents the actual unaudited historical results and imputed interest on
the bridge loan used to finance the Glenmorris Acquisition for the year
ended December 31, 1997.
<TABLE>
<S> <C>
Revenue:
Rental........................................................... $ 1,678
Other............................................................ 74
---------
1,752
Expenses:
Rental operations................................................ 372
Operating payroll................................................ 229
Real estate taxes................................................ 119
Interest......................................................... 665
---------
1,385
---------
Revenue in excess of certain expenses.............................. $ 367
---------
---------
</TABLE>
F-6
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(L) Total Company pro forma general and administrative costs estimated by
management amount to $3,971 including $2,491 in compensation expense.......... $ 2,192
---------
---------
(M) Management fee income to be realized by the Company relating to management
contracts with two non-affiliated properties.................................. $ 336
---------
---------
(N) Decrease in interest expense:
Increase in interest expense due to the drawdown on the line of credit based
on an annual interest rate of 7.25%........................................... $ 3,903
Annual maintenance fee on line of credit...................................... 50
Decrease in interest expense due to repayment of certain mortgage notes
payable....................................................................... (17,367)
Increase in amortization of finance costs related to the line of credit
origination fee............................................................... 625
---------
Net decrease in interest expense.............................................. $ (12,789)
---------
---------
(O) Increase in depreciation expense to reflect a full period of depreciation for
the Acquired Properties and the Glenmorris Acquisition utilizing a 40 year
useful life for buildings and improvements and a 7 year useful life for
furniture, fixtures and equipment............................................. $ 4,458
---------
---------
Reconciliation of pro forma depreciation:
Pro forma depreciation on the Acquired Properties:
Pro forma depreciation as if the Acquired Properties were purchased on January
1, 1997....................................................................... $ 6,333
Less historical depreciation recorded by Predecessor Partnerships on Acquired
Properties.................................................................... (2,118)
---------
Net increase in depreciation expense.......................................... 4,215
Pro forma depreciation on the Glennmorris Acquisition......................... 243
---------
Total pro forma depreciation.................................................. $ 4,458
---------
---------
(P) Elimination of food service revenue and related expenses. It is intended that
food service will be provided by an independent contractor and the Company
will enter into a lease with such contractor the terms of which will provide
for an annual fixed rental payment of $1,321
(Q) Elimination of management fees that will no longer be provided by a separate
affiliated management company................................................. $ (1,871)
---------
---------
(R) Income before minority interests.............................................. $ 6,629
Minority interests percentage................................................. 52.6%
---------
Minority interests share of income............................................ $ 3,487
---------
---------
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees
College Park Communities Trust
We have audited the accompanying balance sheet of College Park Communities
Trust (a Maryland business trust) as of December 31, 1997. This balance sheet is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of College Park Communities Trust as
of December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 19, 1998
F-8
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash............................................................................... $ 100
-----
$ 100
-----
-----
SHAREHOLDERS' EQUITY
Common shares, $.01 par value per share, 1,000 shares authorized, no shares issued
and outstanding.................................................................. $ --
Additional paid-in capital......................................................... 100
-----
$ 100
-----
-----
</TABLE>
See accompanying notes.
F-9
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
NOTES TO BALANCE SHEET
AS OF DECEMBER 31, 1997
1. ORGANIZATION
College Park Communities Trust (the "Company") was formed in the State of
Maryland on December 9, 1997 to continue the business of a group of limited
partnerships and limited liability companies, collectively referred to as the
"Predecessor Partnerships," which were formed to own, acquire, develop and
manage various student housing properties (the "Properties") located throughout
the United States.
The Company will be the sole general partner of College Park Communities,
L.P. (the "Operating Partnership"). The Operating Partnership will initially
hold all the interests in the Properties. The Company will initially hold an
aggregate of 47.4% of the ownership interests in the Operating Partnership. The
Company will conduct substantially all of its business through the Operating
Partnership. As the sole general partner of the Operating Partnership, the
Company will have exclusive power to manage and conduct the business of the
Operating Partnership.
Concurrently with the consummation of a proposed public offering of the
Company's Shares (the "Offering"), the Company and the Operating Partnership,
together with partners and members of the Predecessor Partnerships (the
"Continuing Investors"), will engage in certain formation transactions (the
"Formation Transactions"). The Formation Transactions have been designed to (a)
consolidate the ownership of the Properties in the Operating Partnership, (b)
facilitate the Offering, (c) provide for the repayment of certain indebtedness
of the Predecessor Partnerships, (d) provide for a credit facility for the
prepayment of certain indebtedness; funding of acquisitions and construction and
development costs; and for other corporate purposes, (e) enable the Company to
comply with certain requirements under the Federal income tax laws and
regulations relating to real estate investment trusts and (f) preserve certain
tax advantages for the Continuing Investors.
The Company entered into a pre-formation transaction on March 18, 1998,
whereby the Company issued 100 shares to the limited partners of W9/GLM Real
Estate Limited Partnership ("W9/GLM") for all of the limited partnership
interests therein. The Company simultaneously contributed its limited
partnership interests in W9/GLM to the Operating Partnership for 5.02% of the
limited partnership interests of the Operating Partnership.
2. COMMITMENTS AND CONTINGENCIES
The Company will become a party to various legal actions resulting from the
operating activities to be transferred to the Operating Partnership. These
actions are incidental to the transferred business and management does not
believe that these actions will have a material adverse effect on the Company.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
4. INCOME TAXES
The Company intends to make an election to be taxed as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"). As a
F-10
<PAGE>
COLLEGE PARK COMMUNITIES TRUST
NOTES TO BALANCE SHEET
AS OF DECEMBER 31, 1997
4. INCOME TAXES (CONTINUED)
REIT, the Company generally will not be subject to Federal income tax to the
extent that it distributes at least 95 percent of its taxable income for each
tax year to its shareholders. REITs are subject to a number of organizational
and operational requirements.
If the Company fails to qualify as a REIT in any taxable year, the Company
will be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate tax rates. Even if the
Company qualifies for taxation as a REIT, the Company may be subject to certain
state and local taxes on its income and property and to Federal income and
excise taxes on its undistributed income.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 Reporting Comprehensive Income ("SFAS
130"), and No. 131 Disclosure About Segments of an Enterprise and Related
Information ("SFAS 131"). All of these statements are effective for fiscal years
beginning after December 15, 1997.
SFAS 130 specifies the presentation and disclosure requirement of reporting
comprehensive income which includes those items which have been formerly
reported as a component of shareholders' equity. SFAS 131 establishes the
disclosure requirements for reporting segment information.
The management of the Company believes that, when adopted, the statements
noted above will not have a significant impact on the Company's financial
statements.
F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners and Members of the
Predecessor Partnerships
We have audited the accompanying combined balance sheets of the Predecessor
Partnerships as of December 31, 1997 and 1996 and the related combined
statements of operations, owners' equity, and cash flows for the years ended
December 31, 1997 and 1996 and the period from December 19, 1995 (inception)
through December 31, 1995. Our audits also included the financial statement
schedule included on the index at F-1 of this Prospectus. These financial
statements and financial statement schedule are the responsibility of the
management of the Predecessor Partnerships. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of the Predecessor
Partnerships at December 31, 1997 and 1996, and the combined results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 and
the period from December 19, 1995 (inception) through December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 20, 1998
F-12
<PAGE>
PREDECESSOR PARTNERSHIPS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
ASSETS
Properties:
Land................................................................ $ 53,369 $ 15,835
Buildings and improvements.......................................... 293,008 84,034
Furniture, fixtures, and equipment.................................. 25,462 7,438
Construction-in-progress............................................ 5,986 1,026
--------- ---------
377,825 108,333
Less: accumulated depreciation........................................ (9,673) (3,177)
--------- ---------
Properties, net....................................................... 368,152 105,156
Cash and cash equivalents............................................. 15,921 167
Restricted cash....................................................... 6,190 1,965
Accounts receivable................................................... 940 195
Deposits and other assets............................................. 1,359 111
Due from affiliates................................................... 522 --
Deferred financing costs, net......................................... 5,247 1,583
--------- ---------
Total assets.......................................................... $ 398,331 $ 109,177
--------- ---------
--------- ---------
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable................................................ $ 270,146 $ 78,915
Accounts payable and accrued liabilities.............................. 4,408 1,182
Due to affiliates..................................................... 2,698 727
Tenant security deposits.............................................. 3,266 940
Prepaid rents......................................................... 10,424 693
--------- ---------
Total liabilities..................................................... 290,942 82,457
Owners' equity........................................................ 107,389 26,720
--------- ---------
Total liabilities and owners' equity.................................. $ 398,331 $ 109,177
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-13
<PAGE>
PREDECESSOR PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 19,
1995
YEAR ENDED DECEMBER (INCEPTION)
31 THROUGH
-------------------- DECEMBER 31,
1997 1996 1995
--------- --------- -----------------
<S> <C> <C> <C>
Revenue:
Rental................................................. $ 35,668 $ 16,155 $ 534
Food service........................................... 10,222 -- --
Interest............................................... 500 145 --
Other.................................................. 1,604 971 19
--------- --------- -----
Total revenue............................................ 47,994 17,271 553
Expenses:
Rental operations...................................... 11,003 3,321 24
Food service........................................... 5,974 -- --
Operating payroll...................................... 6,357 1,666 31
Real estate taxes...................................... 2,517 1,028 28
Management fees........................................ 1,871 638 22
General and administrative............................. 1,711 86 4
Interest............................................... 14,334 6,230 214
Depreciation........................................... 6,497 3,075 102
--------- --------- -----
Total expenses........................................... 50,264 16,044 425
--------- --------- -----
Net income (loss)........................................ $ (2,270) $ 1,227 $ 128
--------- --------- -----
--------- --------- -----
</TABLE>
See accompanying notes.
F-14
<PAGE>
PREDECESSOR PARTNERSHIPS
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD FROM
DECEMBER 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 19, 1995 (inception)......................................... $ --
Owners' contributions.......................................................... 22,479
Net income..................................................................... 128
---------
Balance at December 31, 1995..................................................... 22,607
Owners' contributions.......................................................... 5,083
Owners' contributions of property, net of related debt......................... 2,153
Owners' distributions.......................................................... (4,350)
Net income..................................................................... 1,227
---------
Balance at December 31, 1996..................................................... 26,720
Owners' contributions.......................................................... 93,582
Owners' distributions.......................................................... (10,643)
Net loss....................................................................... (2,270)
---------
Balance at December 31, 1997..................................................... $ 107,389
---------
---------
</TABLE>
See accompanying notes.
F-15
<PAGE>
PREDECESSOR PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 19,
1995
YEAR ENDED DECEMBER (INCEPTION)
31 THROUGH
-------------------- DECEMBER 31,
1997 1996 1995
--------- --------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ (2,270) $ 1,227 $ 128
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation..................................... 6,496 3,075 102
Amortization of deferred financing costs......... 944 299 9
Increase in restricted cash...................... (4,225) (49) (70)
Increase in accounts receivable.................. (745) (138) (56)
Increase in deposits and other assets............ (1,248) (111) --
Increase in due from affiliates.................. (350) -- --
Increase in accounts payable and accrued
liabilities.................................... 2,580 217 296
Increase in due to affiliates.................... 352 -- --
Increase (decrease) in tenant security
deposits....................................... 2,326 (252) 15
Increase in prepaid rents........................ 9,731 64 628
--------- --------- --------------
Net cash provided by operating activities............ 13,591 4,332 1,052
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and improvements of rental properties... (186,515) (8,063) (87,654)
Construction-in-progress............................. (4,492) (506) --
Capitalization of interest........................... (285) -- --
--------- --------- --------------
Net cash used in investing activities................ (191,292) (8,569) (87,654)
CASH FLOWS FROM FINANCING ACTIVITIES
Owners' contributions................................ 93,410 5,083 22,479
Owners' distributions................................ (10,643) (4,350) --
Proceeds from mortgage notes payable................. 115,536 3,261 66,217
Repayment of mortgage note payable................... (300) -- --
Deferred financing costs............................. (4,548) (471) (1,213)
--------- --------- --------------
Net cash provided by financing activities............ 193,455 3,523 87,483
Net increase (decrease) in cash and cash
equivalents........................................ 15,754 (714) 881
Cash and cash equivalents at beginning of period..... 167 881 --
--------- --------- --------------
Cash and cash equivalents at end of period........... $ 15,921 $ 167 $ 881
--------- --------- --------------
--------- --------- --------------
</TABLE>
See accompanying notes.
F-16
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
The entities (the "Predecessor Partnerships") consist of the following
companies that own and operate a portfolio of student housing properties (the
"Properties"): WHGMH Realty, L.L.C. ("Realty"), WHGMH-S Ashby, L.L.C. ("Ashby"),
WHG Treehouse, L.P. ("Treehouse"), WHNML-S Real Estate Limited Partnership
("WHNML-S"), W9/JP-M Real Estate Limited Partnership ("W9/JP-M"), and WHORL Real
Estate Limited Partnership ("WHORL"). Thirty-one student housing properties were
owned and operated by the combined entities as of December 31, 1997, excluding
land parcels. Three parcels of land were acquired in 1997.
The partners and members of the Predecessor Partnerships are comprised
primarily of affiliates of GMH Associates, Inc. and the Whitehall Real Estate
Fund (the "Continuing Investors"). The Continuing Investors will, concurrently
with a proposed public offering (the "Offering"), enter into a series of
transactions with College Park Communities Trust, a Maryland business trust (the
"Company"), to form a real estate investment trust (the "REIT") to continue and
expand the business of the Continuing Investors.
These combined financial statements include the assets, liabilities,
revenues, and expenses associated with the operations of the Predecessor
Partnerships, the interests of which are intended to be exchanged for cash or
ownership units of the Operating Partnership, defined below. The business
combination will be accounted for as a reorganization of entities under common
control, which is similar to the accounting used for a pooling of interests. All
significant intercompany balances and transactions have been eliminated in the
combined financial statements.
PROPOSED TRANSACTIONS
Concurrently with the consummation of the Offering of the Company's Shares,
the Company and a newly formed limited partnership (the "Operating
Partnership"), together with the Continuing Investors, will engage in certain
formation transactions (the "Formation Transactions"). The Formation
Transactions have been designed to (a) consolidate the ownership of the
Properties in the Operating Partnership, (b) facilitate the Offering, (c)
provide for the repayment of certain indebtedness of the Predecessor
Partnerships, (d) provide for a credit facility for the prepayment of certain
indebtedness, fundings of acquisitions and construction and development costs,
and for other corporate purposes, (e) enable the REIT to comply with certain
requirements under the Federal income tax laws and regulations relating to REITs
and (f) preserve certain tax advantages for the Continuing Investors.
The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the Company and the Continuing
Investors in forming the REIT under the Internal Revenue Code of 1986.
The REIT will be the sole general partner in the Operating Partnership and
Continuing Investors will transfer certain property and operating interests in
the Predecessor Partnerships in exchange for limited partnership interests in
the Operating Partnership and/or cash.
F-17
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 date of the financial
statements and the reported amounts of revenues and expenses for the reporting
period. Actual results could differ from those estimates.
PROPERTIES
The Properties are recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the expected useful lives
of depreciable property, which is generally 35-40 years for buildings and
improvements, and 5-7 years for furniture, fixtures, and equipment. Expenditures
for ordinary maintenance and repairs are expensed to operations as incurred.
Interest costs incurred during construction periods are capitalized.
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires impairment losses to be recorded on long-lived assets held for
investment when indicators of impairment are present and the future cash flows
(undiscounted and without interest charges) estimated to be generated by those
assets are less than the assets' carrying amount. As of December 31, 1997,
management believes that no indicators of impairment exist relating to its
Properties. All Properties are held for investment as of December 31, 1997.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining long term financing are
amortized over the contractual life of the related note. Amortization is
reported as interest expense. Accumulated amortization of deferred financing
costs amounted to $1,252 and $308 as of December 31, 1997 and 1996,
respectively.
REVENUE RECOGNITION
Rental income attributable to student rental leases is recorded when due
from tenants. Generally, leases are for a term of either nine or twelve months.
Certain leases provide for the prepayment of rent, generally equal to an entire
lease term or in two installments during the lease term.
FAIR VALUE OF MORTGAGE NOTES PAYABLE
The carrying amount of the mortgage notes payable with variable rates of
interest approximates fair value as of December 31, 1997 as the notes reprice
based on changes in current interest rates. The carrying value of mortgage notes
payable with fixed interest rates also approximate fair value based on current
rates offered for the debt of the same remaining maturity.
F-18
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAP AGREEMENT
An interest rate swap agreement was entered into with an affiliate to reduce
the impact of changes in interest rates on the Realty variable rate mortgage
note (see Note 5). The interest rate differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.
INCOME TAXES
The combined entities that make up the Predecessor Partnerships consist of
limited partnerships and limited liability companies. Taxable income is recorded
on the separate tax returns of the individual partners and membership unit
holders. Accordingly, no provision for income taxes has been recorded in the
accompanying financial statements.
PER SHARE DATA
Per share data is not relevant since the Predecessor Partnerships represent
a presentation of the operations of a group of limited partnerships and limited
liability companies.
STATEMENTS OF CASH FLOWS
The Predecessor Partnerships consider all highly liquid investments,
including money market accounts, with a maturity of three months or less when
purchased and that are not restricted to be cash equivalents. The carrying
amount of these assets approximates their fair market value.
Interest paid on the mortgage notes payable, net of interest capitalized,
amounted to $12,715 and $5,664 for the years ended December 31, 1997 and 1996,
respectively. Interest paid and capitalized in 1997 amounted to $285.
In connection with the formation of Treehouse in 1996, rental property
assets of $11,590 and related debt of $9,437 were contributed by affiliates of
the Continuing Investors.
Mortgage notes payable approximating $75,994 have been assumed relating to
the acquisition of six student housing properties by W9/JP-M.
The majority of cash and cash equivalents and restricted cash is held with
one financial institution.
3. PROPERTIES
The Properties at December 31, 1997 consisted of thirty-one student housing
rental properties with 6,047 student housing units located near 22 major college
campuses throughout the United States. All of the Properties are pledged as
collateral under various mortgage notes. Also included in the Properties are
three parcels of vacant land that were acquired in 1997 for a combined purchase
price of $3,350. Two of these parcels are being developed into student housing
apartments. Approximately 480 total units are expected to be constructed. Total
construction costs capitalized approximated $5,986 as of December 31, 1997, and
total budgeted costs approximate $28,342 as of December 31, 1997.
WHNML-S acquired a total of fourteen properties with 2,343 rental units for
a purchase price of $121,775 in 1997. On December 30, 1997, W9/JP-M acquired six
student housing properties with 1,450
F-19
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
3. PROPERTIES (CONTINUED)
rental units for a purchase price approximating $115,500, which included the
assumption of mortgage notes payable described in Note 2.
At December 31, 1997, the Predecessor Partnerships' investment in rental
properties, based on the net book value of land and buildings and improvements,
was located in the following states:
<TABLE>
<S> <C> <C> <C>
Texas....................... 28.8% Alabama..................... 7.3%
Pennsylvania................ 9.3% Illinois.................... 6.5%
Florida..................... 8.7% Colorado.................... 5.9%
Virginia.................... 8.1% Ten Other States............ 25.4%
</TABLE>
The Properties located in the ten other states do not individually exceed 5%
of the net book value of land and buildings and improvements.
4. RESTRICTED CASH
Restricted cash consists of tenant security deposits and lender required
deposits for capital improvements and real estate taxes. Withdrawals from
certain capital improvement reserves require lender approval. Restricted cash as
reflected in the accompanying combined balance sheets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Tenant security deposits................................................... $ 3,266 $ 1,012
Capital improvement reserves............................................... 804 346
Real estate taxes.......................................................... 2,120 607
--------- ---------
$ 6,190 $ 1,965
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
5. MORTGAGE NOTES PAYABLE
The following mortgage notes payable were outstanding at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Realty mortgage note with lending institution, monthly interest due at
LIBOR plus 2.1%, monthly principal payments of $100, maturing May
2002, collateralized by nine properties............................... $ 72,920 $ 66,492
Ashby mortgage note with bank, monthly interest due at LIBOR plus 1.75%,
principal payments commence April 1, 1999 based on 25 year loan
amortization, maturing December 2000, collateralized by one
property.............................................................. 17,820 2,986
Treehouse mortgage note with lending institution, monthly interest due
at LIBOR plus 3.25%, maturing October 2001, collateralized by one
property.............................................................. 9,437 9,437
WHNML-S mortgage notes with insurance company, monthly interest due at
7.99%, principal payments commence October 1, 1999 based on 7.99% and
a 25 year loan amortization, maturing August 2000, collateralized by
fourteen properties................................................... 93,975 --
W9/JP-M mortgage notes with insurance companies, monthly principal and
interest due based on rates ranging from 7.88% to 8.5%, maturing June
and December 2003, collateralized by six properties................... 75,994 --
--------- ---------
$ 270,146 $ 78,915
--------- ---------
--------- ---------
</TABLE>
The Realty and Ashby mortgage notes were amended in 1997 to provide for
increases in the aggregate principal loan amounts, decreases in interest rates,
and extension of original maturity dates.
The Ashby amended mortgage note provides for the option of selecting the
interest rate to be applied to the outstanding principal. The options include
the prime rate of the lending institution plus .5%, LIBOR plus 1.75% and a fixed
rate equal to the lending institutions quote on U.S. Treasury instruments with
comparable terms from the date of determination to the maturity date plus 1.9%.
Different rate options may apply simultaneously to different parts of the note.
Rate selections must be made three days prior to the commencement of an interest
period, as defined. The Ashby note is guaranteed by affiliates of the Whitehall
Real Estate Fund as to payment up to a maximum liability of $3,570.
An interest rate swap agreement was entered into with an affiliate to reduce
the impact of changes in interest rates on the Realty variable rate mortgage
note. The notional principal amount of the interest rate swap agreement is
$67,000. The agreement effectively changed the interest rate exposure on this
floating rate mortgage note payable to a fixed 8.14% for amounts borrowed up to
the notional amount. The interest rate swap agreement matures on December 1,
2000. The Predecessor Partnerships are exposed to credit risk in the event of
default by the other party to the extent of any amounts that have been recorded
in the balance sheet, and market risk as a result of potential future decreases
in LIBOR. Interest on outstanding principal above the notional principal amount
bears interest at LIBOR plus 2.1%.
F-21
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
5. MORTGAGE NOTES PAYABLE (CONTINUED)
The Predecessor Partnerships have $12,034 in undisbursed principal available
at December 31, 1997, to fund certain construction projects and deferred
maintenance costs.
Total interest incurred, net of interest capitalized and amortization of
deferred financing costs, during the year ended December 31, 1997 and 1996 and
for the period from December 19, 1995 (inception) through December 31, 1995
amounted to $13,390, $5,932 and $206, respectively.
The LIBOR rate was 5.69% and 5.38% at December 31, 1997 and 1996,
respectively.
Future principal payments due on the mortgage notes payable are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 2,150
1999............................................................. 2,679
2000............................................................. 113,671
2001............................................................. 11,856
2002............................................................. 69,445
Thereafter....................................................... 70,345
---------
$ 270,146
---------
---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
Amounts due to affiliates include the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1997 1996
--------- -----
Construction and development costs.......................... $ 2,164 $ 520
Allocable overhead costs.................................... 221 --
Property acquisition costs.................................. 168 --
Financing fees.............................................. 145 207
--------- -----
$ 2,698 $ 727
--------- -----
--------- -----
</TABLE>
Management fees are paid to an affiliate pursuant to management agreements
for each of the Properties at the rate of 4% of monthly gross revenues, as
defined. The agreements are for one year terms and automatically renew for
successive one-year periods under the existing terms for up to three years
unless terminated. Management fees amounted to $1,871, $638 and $22 for the
years ended December 31, 1997 and 1996 and for the period from December 19, 1995
(inception) through December 31, 1995, respectively.
The Predecessor Partnerships incurred fees payable to affiliates in
connection with securing financing from lending institutions totaling $1,357,
$270 and $880 in 1997, 1996 and 1995, respectively. These fees have been
recorded as deferred financing costs on the combined balance sheets. Costs paid
to affiliates relating to the amendment of mortgage notes have been recorded as
interest expense.
F-22
<PAGE>
PREDECESSOR PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Other significant costs incurred by affiliates in 1997 included corporate
overhead costs of $775, property acquisition costs of $1,208, construction and
development costs of $18,894 relating to properties under development, and
purchases of furniture, fixtures, and equipment and related services
approximating $7,320.
7. COMMITMENTS AND CONTINGENCIES
The Predecessor Partnerships are subject to legal proceedings, claims and
liabilities that arise in the ordinary course of its business. In management's
opinion, none of these matters are material in relation to the financial
position of the Predecessor Partnerships.
8. YEAR 2000
The Company has developed a plan to modify its information technology to
recognize the Year 2000 and will begin converting the necessary data by the end
of 1998. The Company's general ledger and accounts payable data is presently
Year 2000 compatible; therefore, the Year 2000 conversion is only necessary
relating to the tenant data base. The Company does not expect this project to
have a significant effect on operations or to involve a material cost.
9. SUBSEQUENT EVENTS
On January 5, 1998, the Continuing Investors, through W9/GLM Real Estate
Limited Partnership ("W9/GLM"), acquired a 270 unit student housing property for
a purchase price of $8,800. A bridge loan amounting to $6,652 was obtained from
an affiliate to partially finance the acquisition. The Continuing Investors
intend to transfer its interests in W9/GLM to the Operating Partnership as
described in Note 1.
F-23
<PAGE>
SCHEDULE III
PREDECESSOR PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD DECEMBER
31, 1997
COSTS ---------------------------
CAPITALIZED
INITIAL COST SUBSEQUENT
----------------------------- TO BUILDING AND
LOCATION UNIVERSITY ENCUMBRANCES LAND BUILDING ACQUISITION LAND IMPROVEMENTS
- ------------------------ ------------ --------------- -------------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Starkville.............. Mississippi $ 4,602,151 $ 815,091 $ 4,232,203 $ 81,693 $ 815,091 $ 4,313,896
Starkville, MS State
University
Athens.................. University 7,051,059 1,104,384 5,734,335 26,884 1,104,384 5,761,219
Athens, GA of
Georgia
Fayetteville............ University 3,078,933 1,038,635 5,392,941 40,967 1,038,635 5,433,908
Fayetteville, AR of
Arkansas
Auburn I................ Auburn 9,215,962 1,551,473 8,055,811 52,830 1,551,473 8,108,641
Auburn, AL University
Auburn II............... Auburn 9,576,759 1,459,425 7,577,859 20,018 1,459,425 7,597,877
Auburn, AL University
Columbia................ University 6,523,984 1,595,922 8,260,647 449,646 1,916,088 8,390,127
Columbia, MO of
Missouri
Blacksburg.............. Virginia 8,741,082 1,472,575 7,646,139 513,595 1,938,790 7,693,519
Blacksburg, VA Tech
University
State College Park...... Pennsylvania 12,474,505 2,077,461 10,786,959 108,876 2,077,461 10,895,835
State College, PA State
University
Knoxville............... University 11,655,362 2,038,012 10,582,123 33,329 2,038,012 10,615,452
Knoxville, TN of
Tennessee
Treehouse Village....... Texas A & M 9,437,000(1) 1,679,237(1) 9,515,678(1) 46,213 1,679,237 9,561,891
College Station, TX University
Ashby Crossing.......... James 17,820,000 1,002,641 5,681,636 12,095,813 1,002,641 17,771,449
Harrisonburg, VA Madison
University
The Commons............. Auburn 4,950,000 1,057,223 5,990,931 1,692 1,057,223 5,992,623
Auburn, AL University
Carlos Bee Hall......... University 1,950,000 395,330 2,240,205 177,269 395,330 2,417,474
Hayward, CA of
California-
Hayward
El Conquistador......... San Diego 8,100,000 1,210,983 6,862,234 170,989 1,210,983 7,033,223
San Diego, CA State
University
Illini Towers........... University 15,900,000 3,360,052 19,040,298 1,692 3,360,052 19,041,990
Champaign, IL of
Illinois
Naismith Hall........... University 4,875,000 912,906 5,173,135 94,902 912,906 5,268,037
Lawrence, KS of
Kansas
Pierpont Apartments..... West 2,100,000 644,582 3,652,631 810,510 644,582 4,463,141
Morgantown, WV Virginia
University
The Castilian........... University 15,300,000 2,452,717 13,898,728 210,345 2,452,717 14,109,073
Austin, TX of
Texas
Summit Suites........... West 3,150,000 727,656 4,123,383 289,987 727,656 4,413,370
Morgantown, WV Virginia
University
Harrison House.......... Ohio State 4,500,000 499,593 2,831,029 599,220 499,593 3,430,249
Columbus, OH University
The Towers.............. University 5,850,000 1,434,910 8,131,158 206,775 1,434,910 8,337,933
Madison, WI of
Wisconsin
The Regent.............. University 9,675,000 901,017 5,105,761 239,992 901,017 5,345,753
Madison, WI of
Wisconsin
Fontana Hall............ University 2,100,000 980,920 5,558,545 665,750 980,920 6,224,295
Tampa, FL of
South
Florida
Cash Hall............... Florida 5,625,000 1,397,915 7,921,515 248,442 1,397,915 8,169,957
Tallahassee, FL State
University
Osceola Hall............ Florida 9,900,000 1,529,000 8,664,335 342,050 1,529,000 9,006,385
Tallahassee, FL State
University
<CAPTION>
ACCUMULATED
TOTAL BALANCE DEPRECIATION
AT DECEMBER AT DECEMBER NUMBER OF DATE OF DATE OF
LOCATION 31, 1997 31, 1997 UNITS CONSTRUCTION ACQUISITION
- ------------------------ -------------- -------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Starkville.............. $ 5,128,987 $ 257,167 120 1987 1995
Starkville, MS
Athens.................. 6,865,603 340,706 154 1988 1995
Athens, GA
Fayetteville............ 6,472,543 322,238 156 1988 1995
Fayetteville, AR
Auburn I................ 9,660,114 478,478 180 1989 1995
Auburn, AL
Auburn II............... 9,057,302 447,777 172 1991 1995
Auburn, AL
Columbia................ 10,306,215 519,012 172 1990 1995
Columbia, MO
Blacksburg.............. 9,632,309 453,517 180 1990 1995
Blacksburg, VA
State College Park...... 12,973,296 658,690 196 1991 1995
State College, PA
Knoxville............... 12,653,464 626,709 192 1995 1995
Knoxville, TN
Treehouse Village....... 11,241,128 288,905 444 1980/ 1996
College Station, TX 1984
Ashby Crossing.......... 18,780,090 292,945 288 1989 1996
Harrisonburg, VA
The Commons............. 7,049,846 99,849 151 1989 1997
Auburn, AL
Carlos Bee Hall......... 2,812,804 39,074 76 1963 1997
Hayward, CA
El Conquistador......... 8,244,206 130,199 146 1966 1997
San Diego, CA
Illini Towers........... 22,402,042 357,017 196 1966 1997
Champaign, IL
Naismith Hall........... 6,180,943 101,449 127 1966 1997
Lawrence, KS
Pierpont Apartments..... 5,107,723 74,448 127 1967 1997
Morgantown, WV
The Castilian........... 16,561,790 262,720 196 1967 1997
Austin, TX
Summit Suites........... 5,141,026 79,739 171 1966 1997
Morgantown, WV
Harrison House.......... 3,929,842 57,696 132 1966 1997
Columbus, OH
The Towers.............. 9,772,843 154,139 164 1964 1997
Madison, WI
The Regent.............. 6,246,770 97,977 241 1964 1997
Madison, WI
Fontana Hall............ 7,205,215 109,074 223 1967 1997
Tampa, FL
Cash Hall............... 9,567,872 133,763 234 1968 1997
Tallahassee, FL
Osceola Hall............ 10,535,385 146,842 159 1966 1997
Tallahassee, FL
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD DECEMBER
31, 1997
COSTS ---------------------------
CAPITALIZED
INITIAL COST SUBSEQUENT
----------------------------- TO BUILDING AND
LOCATION UNIVERSITY ENCUMBRANCES LAND BUILDING ACQUISITION LAND IMPROVEMENTS
- ------------------------ ------------ --------------- -------------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Orlando (2)............. University -- 2,724,944 -- -- 2,724,944 --
Orlando, FL of
Central
Florida
The Enclave............. Texas A&M 11,447,984(3) 2,576,008 14,597,378 -- 2,576,008 14,597,378
College Station, TX University
The Ridge............... Texas A&M 8,150,239(3) 1,588,538 9,001,716 -- 1,588,538 9,001,716
College Station, TX University
The Landings............ University 29,068,199(3) 6,440,020 36,493,445 -- 6,440,020 36,493,445
Austin, TX of
Texas
Rams Point.............. Colorado 14,485,457(3) 3,005,343 17,030,274 -- 3,005,343 17,030,274
Fort Collins, CO State
University
Nittany Crossing........ Pennsylvania 12,842,810(3) 2,908,485 16,481,413 -- 2,908,485 16,481,413
State College, PA State
University
--------------- -------------- ------------- ------------ ----------- --------------
$ 270,146,486 $ 52,582,998 $ 276,264,445 $17,529,479 $53,369,379 $293,007,543
--------------- -------------- ------------- ------------ ----------- --------------
--------------- -------------- ------------- ------------ ----------- --------------
<CAPTION>
ACCUMULATED
TOTAL BALANCE DEPRECIATION
AT DECEMBER AT DECEMBER NUMBER OF DATE OF DATE OF
LOCATION 31, 1997 31, 1997 UNITS CONSTRUCTION ACQUISITION
- ------------------------ -------------- -------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Orlando (2)............. 2,724,944 -- -- -- 1997
Orlando, FL
The Enclave............. 17,173,386 -- 340 1994 1997
College Station, TX
The Ridge............... 10,590,254 -- 192 1994 1997
College Station, TX
The Landings............ 42,933,465 -- 522 1996 1997
Austin, TX
Rams Point.............. 20,035,617 -- 192 1997 1997
Fort Collins, CO
Nittany Crossing........ 19,389,898 -- 204 1996 1997
State College, PA
-------------- -------------- -----
$346,376,922 $ 6,529,822 6,047
-------------- -------------- -----
-------------- -------------- -----
</TABLE>
- ------------------------
(1) The initial cost of this property and related debt were contributed by
affiliates of the Predecessor Partnerships.
(2) This property is currently under development.
(3) Mortgage notes payable approximating $75,994,000 were assumed relating to
the acquisition of these properties.
F-25
<PAGE>
PREDECESSOR PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
A summary of activity for land, buildings and improvements and related
accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Balance at beginning of period........................................................... $ 99,869 $ 81,422
Acquisitions........................................................................... 229,546 17,879
Improvements........................................................................... 16,962 568
----------- ---------
Balance at end of period................................................................. $ 346,377 $ 99,869
----------- ---------
----------- ---------
Accumulated depreciation:
Balance at beginning of period......................................................... $ 2,157 $ 102
Depreciation expense................................................................. 4,373 2,055
----------- ---------
Balance at end of period............................................................... $ 6,530 $ 2,157
----------- ---------
----------- ---------
</TABLE>
The aggregate cost for land, building and improvements for federal income
tax purposes at December 31, 1997 approximates its cost basis in the financial
statements.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners and Members of the
Predecessor Partnerships
We have audited the accompanying combined statement of revenue and certain
expenses of the WHNML-S Acquired Properties (the "Properties") for the year
ended December 31, 1996. The combined statement of revenue and certain expenses
is the responsibility of the management of the Properties. Our responsibility is
to express an opinion on the combined statement of revenue and certain expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
statement of revenue and certain expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the combined statement of revenue and
certain expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined statement of revenue and certain expenses of the
Properties was prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Registration Statement on Form S-11 of College Park Communities Trust. Certain
expenses (described in Note 1) that would not be comparable to those resulting
from the proposed future operations of the Properties are excluded and the
statement is not intended to be a complete presentation of the revenue and
expenses of the Properties.
In our opinion, the combined statement of revenue and certain expenses
referred to above presents fairly, in all material respects, the combined
revenue and certain expenses of the Properties for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 3, 1997
F-27
<PAGE>
WHNML-S ACQUIRED PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenue:
Rental income................................................... $ 22,930
Food............................................................ 13,262
Other........................................................... 1,810
---------
38,002
Certain expenses:
Rental.......................................................... 15,637
Food............................................................ 8,052
Real estate taxes............................................... 1,325
---------
25,014
---------
Revenue in excess of certain expenses............................. $ 12,988
---------
---------
</TABLE>
See accompanying notes to combined statement of revenue and certain expenses.
F-28
<PAGE>
WHNML-S ACQUIRED PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined statement of revenue and certain expenses include
the combined operations of fourteen properties acquired by the Predecessor
Partnerships, as defined elsewhere in the Prospectus, from nonaffiliated third
parties. Ten properties were acquired from The Northwestern Mutual Life
Insurance Company on April 9, 1997 and four properties were acquired from Allen
& O'Hara, Inc. on May 15, 1997 (collectively the "WHNML-S Acquired Properties").
BASIS OF PRESENTATION
The accompanying statement was prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Registration Statement on Form S-11 of College Park Communities Trust. The
accompanying statement was prepared on a combined basis as the acquired
properties were managed by the same property management company.
The accompanying statement is not representative of the actual operations
for the periods presented, as certain expenses that may not be comparable to the
expenses expected to be incurred in the future operations of the properties have
been excluded. Excluded expenses consist of interest, depreciation and
amortization, management fees and property general and administrative expenses
not directly related to the future operations of the properties. Management is
not aware of any material factors relating to the properties that would cause
the reported financial information not to be indicative of future operating
results.
REVENUE RECOGNITION
Rental income attributable to residential leases is recorded when due from
residents. Generally, leases are for a term of either nine or twelve months.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
W9/JP-M Real Estate Limited Partnership:
We have audited the accompanying combined statement of revenues and certain
expenses of the JPI Acquired Properties (the "Properties") described in Note 1
for the twelve months ended August 31, 1997. This combined statement is the
responsibility of the management of the Properties. Our responsibility is to
express an opinion on the combined statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the combined
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined statement was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 of College
Park Communities Trust as described in Note 2. The presentation is not intended
to be a complete presentation of the combined revenues and expenses of the
Properties.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the combined revenues and certain expenses of the JPI
Acquired Properties described in Note 1 for the twelve months ended August 31,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
December 19, 1997
F-30
<PAGE>
JPI ACQUIRED PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues:
Rental income.................................................................... $ 9,435
Other............................................................................ 545
-----------
9,980
-----------
Certain expenses:
Personnel........................................................................ 961
Utilities........................................................................ 447
Repairs and maintenance.......................................................... 376
Real estate taxes................................................................ 1,051
Advertising...................................................................... 154
Insurance........................................................................ 75
Interest expense on debt assumed (Note 4)........................................ 3,034
Administrative................................................................... 139
Other............................................................................ 60
-----------
6,297
-----------
Revenues in excess of certain expenses............................................. $ 3,683
-----------
-----------
</TABLE>
See accompanying notes to combined statement of revenues and certain expenses.
F-31
<PAGE>
JPI ACQUIRED PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1997
1. OPERATING PROPERTIES
The Combined Statement of Revenues and Certain Expenses for the JPI Acquired
Properties (the "Properties") for the twelve months ended August 31, 1997
relates to the operations of the following student housing properties, which
have been acquired by W9/JP-M Real Estate Limited Partnership ("W9/JP-M") from
an unaffiliated party:
<TABLE>
<CAPTION>
NUMBER OF AUGUST 31, 1997
STUDENT HOUSING PROPERTY LOCATION APARTMENTS YEAR BUILT OCCUPANCY
- ---------------------------------- --------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C>
(FORMER PROPERTY NAME)
Jefferson Ridge ("Waterford") College 192 1994 (A) 96%
Apartments Station,
Texas
Jefferson Commons ("State State College, 204 1996 (A) 100%
College") Apartments Pennsylvania
Jefferson Commons ("UT Phase I") Austin, Texas 252 1996 (A) 99%
Apartments
Jefferson Commons ("UT Phase II") Austin, Texas 270 1997 (B) 100%
Apartments
Jefferson Commons ("Fort Collins") Fort Collins, 192 1997 (B) 96%
Apartments Colorado
The Enclave at Holleman College 340 1995 (A) 99%
("Enclave") Station,
Texas
</TABLE>
- ------------------------
(A) These properties were fully operational for the twelve month period
presented.
(B) Construction of these properties was completed in August 1997 and there was
minimal operating activity prior to August 31, 1997.
2. BASIS OF PRESENTATION
The accompanying combined statement has been prepared on the accrual basis
of accounting. The combined statement has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 to be filed
by College Park Communities Trust. The combined statement is not intended to be
a complete presentation of the combined revenues and expenses of the JPI
Acquired Properties for the twelve months ended August 31, 1997.
The combined statement excludes certain amounts which would not be
comparable to the proposed future operations of the Properties as follows:
(a) depreciation of buildings and improvements;
(b) interest expense related to debt not assumed;
(c) amortization of deferred costs;
(d) management fees paid to an affiliate of the prior owner;
(e) interest income;
(f) income taxes; and
(g) other income and expense items unique to the prior owner.
F-32
<PAGE>
JPI ACQUIRED PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
Rental income from leasing activities consists of lease payments earned from
tenants under lease agreements with terms of one year or less.
(b) Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
(c) Use of Estimates
The preparation of the combined statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumption that affect the amounts reported in the combined statement and
accompanying notes. Actual results could differ from those estimates.
4. DEBT ASSUMPTION
In connection with the acquisition of the Properties described in Note 1,
W9/JP-M will assume the following existing debt:
<TABLE>
<CAPTION>
MONTHLY
PAYMENT APPROXIMATE
STUDENT HOUSING LOAN ORIGINATION (PRINCIPAL AND PRINCIPAL AT
PROPERTY DATE MATURITY DATE INTEREST RATE INTEREST) ACQUISITION DATE
- ------------------------ ---------------- ------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
(FORMER PROPERTY NAME)
December 1,
Waterford December 1996 2003 8.50% $ 66,432 $ 8,150,000
December 1,
State College December 1996 2003 8.50% 104,680 12,843,000
December 1,
UT Phase I December 1996 2003 8.50% 110,719 13,584,000
December 1,
UT Phase II November 1997 2003 8.29% 122,624 15,484,000
December 1,
Fort Collins November 1997 2003 8.29% 114,713 14,485,000
Enclave June 1996 June 1, 2003 7.88% 84,109 11,448,000
----------------
$ 75,994,000
----------------
----------------
</TABLE>
The assumed debt for Waterford, State College, and UT Phase I consists of
mortgage notes payable which are cross collateralized by first liens on each of
the three properties. The assumed debt for UT Phase II and Fort Collins consists
of mortgage notes payable which are cross collateralized by first liens on each
of these respective properties. The assumed note for Enclave is secured by a
first lien on the property.
The accompanying combined statement includes interest expense relating to
assumed debt only, from the later of (a) September 1, 1996 or (b) the loan
origination date, through August 31, 1997.
F-33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. iv
Forward-Looking Statements............ iv
Prospectus Summary.................... 1
Risk Factors.......................... 16
The Company........................... 28
The Student Housing Market............ 33
Use of Proceeds....................... 37
Distributions......................... 38
Capitalization........................ 39
Dilution.............................. 40
Selected Financial Information........ 41
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 43
Business of the Company and its
Properties.......................... 49
Mortgage Debt and Credit Facility..... 74
Policies and Objectives in Respect of
Certain Activities.................. 75
Management............................ 79
Conflicts of Interest................. 86
The Formation Transactions............ 88
Relationship between Food Service
Operator and the Company After the
Formation Transactions.............. 91
Certain Relationships and
Transactions........................ 92
The Operating Partnership............. 94
Principal Shareholders of the
Company............................. 97
Description of Shares of Beneficial
Interest............................ 98
Provisions of Maryland Law and of the
Company's Declaration of Trust and
Bylaws.............................. 102
Shares Available for Future Sale...... 104
Federal Income Tax Considerations..... 106
Underwriting.......................... 116
Experts............................... 117
Validity of the Shares................ 117
Glossary.............................. 118
Index to Financial Statements......... F-1
</TABLE>
--------------------------
UNTIL , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
COLLEGE PARK
COMMUNITIES
TRUST
COMMON SHARES OF BENEFICIAL
INTEREST
(PAR VALUE $.01 PER SHARE)
--------------------------
[LOGO]
---------------------
GOLDMAN, SACHS & CO.
[CO-MANAGERS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the estimated expenses incurred by the
Registrant in connection with the offering of the Shares being registered. All
of the amounts shown are estimates (other than the SEC registration fee and the
NASD filing fee).
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
SEC registration fee............................................................. $
NASD filing fee.................................................................. *
New York Stock Exchange listing fee.............................................. *
Printing and engraving expenses.................................................. *
Legal fees and expenses (other than Blue Sky).................................... *
Accounting fees and expenses..................................................... *
Blue Sky fees and expenses (including fees of counsel)........................... *
Other miscellaneous expenses (including expenses related to the Formation
Transactions).................................................................. *
-----------
Total............................................................................ *$
-----------
-----------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
None.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
On March 18, 1998, the Company sold - Shares to the limited partners of
W9/GLM Real Estate Limited Partnership in exchange for all of their limited
partnership interests therein. This transaction was exempt from the registration
requirements of the Securities Act of 1933 by reason of Section 4(2) thereof, as
a transaction not involving a public offering.
ITEM 34. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Maryland REIT Law permits a Maryland corporation to include in its
declaration of trust a provision limiting the liability of its directors and
officers to the corporation and its Shareholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Registrant's
declaration of trust contains such a provision which eliminates such liability
to the maximum extent permitted by the Maryland REIT Law.
The Registrant's declaration of trust authorizes the Registrant to obligate
itself, to the maximum extent permitted by Maryland law in effect from time to
time, indemnify and pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any individual who is a present or former
trustee or officer of the Registrant or (b) any individual who, while a trustee
or officer of the Registrant and at the request of the Registrant, serves or has
served another real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a trustee,
director, officer or partner of such real estate investment trust corporation,
partnership, joint venture, employee benefit plan or other enterprise from and
against any claim or liability to which such person may become subject or which
such person may incur by reason of his or her status as a present or former
trustee or
II-1
<PAGE>
officer of the Registrant. The Bylaws of the Registrant obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
trustee or officer of the Registrant and at the request of the Registrant,
serves or has served another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer, shareholder or partner of such real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made a party to the proceeding by
reason of his service in that capacity, against any claim or liability to which
he may become subject by reason of such status. The Declaration of Trust and
Bylaws also permit the Registrant to indemnify and advance expenses to any
person who served a predecessor of the Registrant in any of the capacities
described above and to any employee or agent of the Registrant or a predecessor
of the Registrant. The Bylaws require the Registrant to indemnify a trustee or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that
capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors, officers, employees
and agents of a Maryland corporation. The MGCL requires a corporation (unless
its charter provides otherwise, which the Registrant's declaration of trust does
not) to indemnify a director or officer, among others, who has been successful,
on the merits or otherwise, in the defense of any proceeding to which he or she
is made a party by reason of his or her service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on behalf
of the director or officer to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met.
The Registrant has entered into indemnity agreements with each of its
officers and trustees which provide for reimbursement of all expenses and
liabilities of such officer or trustee, arising out of any lawsuit or claim
against such officer or trustee due to the fact that he or she was or is serving
as an officer or trustee, except for such liabilities and expenses (a) the
payment of which is judicially determined to be unlawful, (b) relating to claims
under Section 16(b) of the Exchange Act or (c) relating to judicially determined
criminal violations.
The form of Underwriting Agreement filed as an exhibit to this Registration
Statement provides for the reciprocal indemnifications by the Underwriters of
the Registrant, and its trustees, officers and controlling persons, and by the
Registrant of the Underwriters, and their respective directors, officers and
controlling persons, against certain liabilities under the Securities Act.
II-2
<PAGE>
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
The consideration to be received by the Registrant for the Shares registered
will be credited to the appropriate capital account.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
See Index to Financial Statements and Index to Exhibits.
ITEM 37. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Wayne, Commonwealth of Pennsylvania on the 20th day
of March, 1998.
<TABLE>
<S> <C> <C>
COLLEGE PARK COMMUNITIES TRUST
By: /s/ GARY M. HOLLOWAY
-----------------------------------------
Gary M. Holloway
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary M. Holloway and Bruce F. Robinson his or her
true and lawful attorneys-in-fact and agents, each acting alone, with full
powers of substitution and resubstitution, for him or her, and in his or her
name, place and stead, in any and all capacities, to sign any or all amendments
to this Registration Statement, including post-effective amendments, or any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, and hereby ratifies and confirms all his or her said attorneys-in-fact
and agents, each acting alone, or his or her substitute or substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ GARY M. HOLLOWAY Chairman Of the Board of
- ------------------------------ Trustees and Chief March 20, 1998
Gary M. Holloway Executive Officer
Chief Financial
/s/ BRUCE F. ROBINSON Officer(Principal
- ------------------------------ Financial and Accounting March 20, 1998
Bruce F. Robinson Officer)
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
1* Form of Underwriting Agreement among College Park Communities Trust (the "Company") and Goldman, Sachs
& Co., as representatives of the several underwriters named therein
2.1* Form of Agreement and Plan of Merger among the Operating Partnership and the Predecessor Partnerships
3.1 Declaration of Trust of the Company
3.2 Bylaws of the Company
3.3* Form of Amended and Restated Declaration of Trust of the Company
4.1* Form of share certificate for common shares of beneficial interest of the Company (the "Shares")
5.1* Opinion of Sullivan & Cromwell as to the legality of the Shares being registered
5.2* Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to the legality of the Shares being registered
8* Opinion of Sullivan & Cromwell as to certain tax matters
10.1* Form of Partnership Agreement of College Park Communities, L.P.
10.2* Form of Registration Rights Agreement
10.3* Form of Credit Agreement
10.4* Form of Indemnification Agreement to be entered into between the Company and each of its officers and
trustees
10.5* Food Service Space Lease with Food Service Operator
10.6* Share Option Program
10.7* Share Purchase Program
10.8* Restricted Share Program
10.9* Annual Incentive Program
10.10* Employment Agreement of Gary M. Holloway
10.11* Employment Agreement of Bruce F. Robinson
10.12* Employment Agreement Joseph Coyle
21* Subsidiaries of the Company
23.1* Consent of Sullivan & Cromwell (included in Exhibits 5.1 and 8)
23.2* Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit 5.2)
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG Peat Marwick LLP
24 Power of Attorney pursuant to which amendments to this Registration Statement may be filed (included on
the signature page)
27 Financial Data Schedule
99.1* Consent of - to be named as a future trustee
99.2* Consent of - to be named as a future trustee
99.3* Consent of - to be named as a future trustee
99.4* Consent of - to be named as a future trustee
99.5* Consent of - to be named as a future trustee
99.6* Consent of - to be named as a future trustee
</TABLE>
- ------------------------
* To be filed by amendment.
II-5
<PAGE>
EXHIBIT 3.1
COLLEGE PARK COMMUNITIES TRUST
DECLARATION OF TRUST
Dated December 9, 1997
This DECLARATION OF TRUST is made as of the date set forth above by
the undersigned Trustee (as defined herein).
ARTICLE I
FORMATION
The Trust is a real estate investment trust within the meaning of
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland, as amended from time to time ("Title 8"). The Trust shall not be
deemed to be a general partnership, limited partnership, joint venture, joint
stock company or a corporation (but nothing herein shall preclude the Trust from
being treated for tax purposes as an association under the Internal Revenue Code
of 1986, as amended from time to time (the "Code")).
ARTICLE II
NAME
The name of the Trust is:
College Park Communities Trust
Under circumstances in which the Board of Trustees of the Trust (the
"Board of Trustees" or "Board") determines that the use of the name of the Trust
is not practicable, the Trust may use any other designation or name for the
Trust.
ARTICLE III
PURPOSES AND POWERS
Section 1. Purposes. The purposes for which the Trust is formed are
to invest in and to acquire, hold, manage, administer, control and dispose of
property, including, without limitation or obligation, engaging in business as a
real estate investment trust under the Code.
Section 2. Powers. The Trust shall have all of the powers granted to
real estate investment trusts by Title 8 and all other powers which are not
inconsistent with law and are
<PAGE>
appropriate to promote and attain the purposes set forth in the Declaration of
Trust.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland
is James J. Hanks, Jr., whose post office address is c/o Ballard Spahr Andrews
& Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202. The resident
agent is a citizen of and resides in the State of Maryland. The Trust may have
such offices or places of business within or outside the State of Maryland as
the Board of Trustees may from time to time determine.
ARTICLE V
BOARD OF TRUSTEES
Section 1. Powers. Subject to any express limitations contained in
the Declaration of Trust or in the Bylaws, (a) the business and affairs of the
Trust shall be managed under the direction of the Board of Trustees and (b) the
Board shall have full, exclusive and absolute power, control and authority over
any and all property of the Trust. The Board may take any action as in its sole
judgment and discretion is necessary or appropriate to conduct the business and
affairs of the Trust. The Declaration of Trust shall be construed with the
presumption in favor of the grant of power and authority to the Board. Any
construction of the Declaration of Trust or determination made in good faith by
the Board concerning its powers and authority hereunder shall be conclusive.
The enumeration and definition of particular powers of the Board of Trustees
included in the Declaration of Trust or in the Bylaws shall in no way be limited
or restricted by reference to or inference from the terms of this or any other
provision of the Declaration of Trust or the Bylaws or construed or deemed by
inference or otherwise in any manner to exclude or limit the powers conferred
upon the Board or the trustees of the Trust (collectively, the "Trustees" and,
individually, a "Trustee") under the general laws of the State of Maryland or
any other applicable laws.
The Board, without any action by the shareholders of the Trust
(collectively, the "Shareholders" and, individually, a "Shareholder"), shall
have and may exercise, on behalf of the Trust, without limitation, the power to
terminate the status of the Trust as a real estate investment trust under the
Code; to adopt, amend and repeal Bylaws; to elect officers in the manner
prescribed in the Bylaws; to solicit proxies
2
<PAGE>
from holders of shares of beneficial interest of the Trust; and to do any other
acts and deliver any other documents necessary or appropriate to the foregoing
powers.
Section 2. Number. The number of Trustees initially shall be one,
which number may thereafter be increased or decreased by the Trustees then in
office from time to time; however, the total number of Trustees shall be not
less than one and not more than 15. No reduction in the number of Trustees
shall cause the removal of any Trustee from office prior to the expiration of
his term.
Section 3. Initial Board. The name and address of the Trustee who
shall serve until the earlier of the first annual meeting and until his
successor is duly elected and qualifies is:
Name Address
Gary M. Holloway 353 West Lancaster Avenue
Suite 310
Wayne, PA 19087
Section 4. Term. The Trustees shall be elected at each annual
meeting of the Shareholders and shall serve until the next annual meeting of the
Shareholders and until their successors are duly elected and qualify.
Section 5. Removal. A Trustee may be removed, at any time, with or
without cause, by the affirmative vote of the holders of a majority of the
Shares then outstanding and entitled to vote generally in the election of
Trustees.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
The beneficial interest in the Trust shall be divided into shares of
beneficial interest ("Shares"). The total number of Shares which the Trust has
authority to issue is 1,000 Common Shares, $.01 par value per share. The Board
of Trustees may classify or reclassify any unissued Shares from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption of the Shares.
The Board of Trustees may authorize the issuance from time to time of
Shares of any class or series, whether
3
<PAGE>
now or hereafter authorized, or securities or rights convertible into Shares of
any class or series, whether now or hereafter authorized, for such consideration
(whether in cash, property, past or future services, obligation for future
payment or otherwise) as the Board of Trustees may deem advisable (or without
consideration in the case of a Share split or Share dividend), subject to such
restrictions or limitations, if any, as may be set forth in the Declaration of
Trust or the Bylaws of the Trust.
ARTICLE VII
SHAREHOLDERS
There shall be an annual meeting of the Shareholders, to be held after
delivery of the annual report and on proper notice to the Shareholders, at such
time and place as shall be determined by resolution of the Board of Trustees.
ARTICLE VIII
LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
Section 1. Limitation of Shareholder Liability. No Shareholder shall
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the property or affairs
of the Trust.
Section 2. Limitation of Trustee and Officer Liability. To the
maximum extent that Maryland law in effect from time to time permits limitation
of the liability of trustees and officers of a real estate investment trust, no
Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholder for money damages. Neither the amendment nor repeal of this
Section, nor the adoption or amendment of any other provision of this
Declaration of Trust inconsistent with this Section, shall apply to or affect in
any respect the applicability of the preceding sentence with respect to any act
or failure to act which occurred prior to such amendment, repeal or adoption.
Section 3. Express Exculpatory Clauses in Instruments. Neither the
Shareholders nor the Trustees, officers, employees or agents of the Trust shall
be liable under any written instrument creating an obligation of the
4
<PAGE>
Trust, and all persons shall look solely to the property of the Trust for the
payment of any claim under or for the performance of that instrument. The
omission of the foregoing exculpatory language from any instrument shall not
affect the validity or enforceability of such instrument and shall not render
any Shareholder, Trustee, officer, employee or agent liable thereunder to any
third party, nor shall the Trustees or any officer, employee or agent of the
Trust be liable to anyone for such omission.
Section 4. Indemnification. The Trust shall have the power, to the
maximum extent permitted by Maryland law, to obligate itself to indemnify, and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, each Shareholder Trustee or officer (including any person who,
while a Trustee of the Trust, is or was serving at the request of the Trust as a
director, officer, real estate investment trust, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan) from all claims and
liabilities to which such person may become subject by reason of his being or
having been a Shareholder, Trustee, officer, employee or agent.
Section 5. Transactions Between the Trust and its Trustees, Officers,
Employees and Agents. Subject to any express restrictions in this Declaration
of Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust
may enter into any contract or transaction of any kind (including, without
limitation, for the purchase or sale of property or for any type of services,
including those in connection with underwriting or the offer or sale of
Securities of the Trust) with any person, including any Trustee, officer,
employee or agent of the Trust or any person affiliated with a Trustee, officer,
employee or agent of the Trust, whether or not any of them has a financial
interest in such transaction.
ARTICLE IX
AMENDMENT
Section 1. General. This Declaration of Trust may not be amended
except as provided in this Article IX.
Section 2. By Trustees. The Trustees, by a two-thirds vote, may
amend any provision of this Declaration of Trust from time to time to enable the
Trust to qualify as a real estate investment trust under the Code or under Title
8.
Section 3. By Shareholders. Except as provided in Section 2 of this
Article IX, this Declaration of Trust may be
5
<PAGE>
amended only by the affirmative vote of the holders of not less than a majority
of the Shares then outstanding and entitled to vote thereon.
ARTICLE X
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8.
ARTICLE XI
MISCELLANEOUS
This Declaration of Trust is executed by the Trustee and delivered in the
State of Maryland with reference to the laws thereof, and the rights of all
parties and the validity, construction and effect of every provision hereof
shall be subject to and construed according to the laws of the State of Maryland
without regard to conflicts of laws provisions thereof.
IN WITNESS WHEREOF, this Declaration of Trust has been executed on this 9th
day of December, 1997 by the undersigned Trustee, who acknowledges that this
document is his act, that to the best of his knowledge, information, and belief,
the matters and facts set forth herein are true in all material respects and
that this statement is made under the penalties for perjury.
/s/ Gary M. Holloway
----------------------------------
Gary M. Holloway
6
<PAGE>
Exhibit 3.2
COLLEGE PARK COMMUNITIES TRUST
BYLAWS
(As of December 9, 1998)
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at
such places as the Board of Trustees may from time to time determine or the
business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for the
election of Trustees and the transaction of any business within the powers of
the Trust shall be held during the second quarter of each year or as the Board
of Trustees otherwise determines, to the extent permitted by Title 8, after the
delivery of the annual report, referred to in Section 12 of this Article II, at
a convenient location and on proper notice, on a date and at the time set by the
Trustees, beginning with the year 1999. Failure to hold an annual meeting does
not invalidate the Trust's existence or affect any otherwise valid acts of the
Trust.
Section 3. SPECIAL MEETINGS. The chairman of the board or the president
or one-third of the Trustees may call special meetings of the shareholders.
Special meetings of shareholders shall also be called by the secretary upon the
written request of the holders of shares entitled to cast not less than a
majority of all the votes entitled to be cast at such meeting. Such request
shall state the purpose of such meeting and the matters proposed to be acted on
at such meeting. The secretary shall inform such shareholders of the reasonably
estimated cost of preparing and mailing notice of the meeting and, upon payment
by such shareholders to the Trust of such costs, the secretary shall give notice
to each shareholder entitled to notice of the meeting. Unless requested by
shareholders entitled to cast a majority of all the votes entitled to be cast at
such meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any meeting of the
shareholders held during the preceding twelve months.
<PAGE>
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of shareholders, the secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such shareholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
shareholder at his post office address as it appears on the records of the
Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be transacted
at an annual meeting of shareholders without being specifically designated in
the notice, except such business as is required by any statute to be stated in
such notice. No business shall be transacted at a special meeting of
shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders, the
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in his absence, an assistant secretary, or in the absence of both
the Secretary and assistant secretaries, a person appointed by the Chairman
shall act as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the presence in person
or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such
quorum shall not be present at any meeting of the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have the
power to adjourn the meeting from time to time to a date not more than 120 days
after the original record date without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share may be voted for as many individuals as there are
Trustees to be elected and for whose election the share is entitled to be voted.
A majority of the votes cast at a meeting of shareholders duly called and at
which a quorum is present shall be sufficient to approve any other matter which
may properly come
2
<PAGE>
before the meeting, unless more than a majority of the votes cast is required
herein or by statute or by the Declaration of Trust. Unless otherwise provided
in the Declaration of Trust, each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Section 9. PROXIES. A shareholder may cast the votes entitled to be cast
by the shares owned of record by him either in person or by proxy executed in
writing by the shareholder or by his duly authorized agent. Such proxy shall be
filed with the secretary of the Trust before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a shareholder may
certify in writing to the Trust that any shares registered in the name of the
shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Trustees consider necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the Declaration
of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated
3
<PAGE>
Code of Maryland (or any successor statute) shall not apply to any acquisition
by any person of shares of beneficial interest of the Trust. This section may
be repealed, in whole or in part, at any time, whether before or after an
acquisition of control shares and, upon such repeal, may, to the extent provided
by any successor bylaw, apply to any prior or subsequent control share
acquisition.
Section 11. INSPECTORS. At any meeting of shareholders, the chairman of
the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
Section 12. REPORTS TO SHAREHOLDERS.
The Trustees shall submit to the shareholders at or before the annual
meeting of shareholders a report of the business and operations of the Trust
during such fiscal year, containing a balance sheet and a statement of income
and surplus of the Trust, accompanied by the certification of an independent
certified public accountant, and such further information as the Trustees elect
or as they may determine is required pursuant to any law or regulation to which
the Trust is subject. Within the earlier of 20 days after the annual meeting of
shareholders or 120 days after the end of the fiscal year of the Trust, the
Trustees shall place the annual report on file at the principal office of the
Trust and with any governmental agencies as may be required by law and as the
Trustees may deem appropriate.
Section 13. NOMINATIONS AND PROPOSALS BY SHAREHOLDERS.
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (i)
pursuant to the Trust's notice of meeting, (ii) by or at the direction of the
Trustees or (iii) by any shareholder of the Trust who was a shareholder of
record both at the time of giving of notice provided for in this Section 13(a)
and at the time of the annual meeting, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in this Section 13(a).
4
<PAGE>
(2) For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a) (1)
of this Section 13, the shareholder must have given timely notice thereof in
writing to the secretary of the Trust and such other business must otherwise be
a proper matter for action by shareholders. To be timely, a shareholder's
notice shall be delivered to the secretary at the principal executive offices of
the Trust not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date or if the Trust has not previously held
an annual meeting, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the Trust. In no
event shall the public announcement of a postponement or adjournment of an
annual meeting to a later date or time commence a new time period for the giving
of a shareholder's notice as described above. Such shareholder's notice shall
set forth (i) as to each person whom the shareholder proposes to nominate for
election or reelection as a Trustee all information relating to such person that
is required to be disclosed in solicitations of proxies for election of Trustees
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to
any other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such shareholder, as they appear on the
Trust's books, and of such beneficial owner and (y) the number of each class of
shares of the Trust which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)
(2) of this Section 13 to the contrary, in the event that the number of Trustees
to be elected to the Board of Trustees is increased and there is no public
announcement by the Trust naming all of the nominees for Trustee or specifying
the size of the increased Board of Trustees at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by this Section 13(a) shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the secretary at the principal executive offices of the Trust
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the Trust.
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(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record both at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 13(b). In the event the Trust calls a special meeting of shareholders
for the purpose of electing one or more Trustees to the Board of Trustees, any
such shareholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Trust's notice of meeting, if the
shareholder's notice containing the information required by paragraph (a) (2) of
this Section 13 shall be delivered to the secretary at the principal executive
offices of the Trust not earlier than the close of business on the 90th day
prior to such special meeting and not later than the close of business on the
later of the 60th day prior to such special meeting or the tenth day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Trustees to be elected at such
meeting. In no event shall the public announcement of a postponement or
adjournment of a special meeting to a later date or time commence a new time
period for the giving of a shareholder's notice as described above.
(c) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 13 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 13 and, if any proposed
nomination or business is not in compliance with this Section 13, to declare
that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 13, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the Trust
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 13, a
shareholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 13. Nothing in this Section 13 shall be
deemed to affect any rights of shareholders to request inclusion
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of proposals in, nor the right of the Trust to omit a proposal from, the Trust's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by
shareholders entitled to cast a sufficient number of votes to approve the
matter, as required by statute, the Declaration of Trust of the Trust or these
Bylaws, and such consent is filed with the minutes of proceedings of the
shareholders.
Section 15. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age
who is not under legal disability. In case of failure to elect Trustees at an
annual meeting of the shareholders, the Trustees holding over shall continue to
direct the management of the business and affairs of the Trust until their
successors are elected and qualify.
Section 2. NUMBER. At any regular meeting or at any special meeting
called for that purpose, a majority of the entire Board of Trustees may
establish, increase or decrease the number of Trustees.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Trustees
shall be held immediately after and at the same place as the annual meeting of
shareholders, no notice other than this Bylaw being necessary. The Trustees may
provide, by resolution, the time and place, either within or without the State
of Maryland, for the holding of regular meetings of the Trustees without other
notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the chairman of the board or the president or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
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Section 5. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed, communicated by telephone
call, facsimile-transmitted or mailed to each Trustee at his business or
residence address. Personally delivered or telegraphed notices shall be given at
least two days prior to the meeting. Notice by mail shall be given at least
five days prior to the meeting. Telephone or facsimile-transmission notice
shall be given at least 24 hours prior to the meeting. If mailed, such notice
shall be deemed to be given when deposited in the United States mail properly
addressed, with postage thereon prepaid. If given by telegram, such notice
shall be deemed to be given when the telegram is delivered to the telegraph
company. Telephone notice shall be deemed given when the Trustee is personally
given such notice in a telephone call to which he is a party.
Facsimile-transmission notice shall be deemed given upon completion of the
transmission of the message to the number given to the Trust by the Trustee and
receipt of a completed answer-back indicating receipt. Neither the business to
be transacted at, nor the purpose of, any annual, regular or special meeting of
the Trustees need be stated in the notice, unless specifically required by
statute or these Bylaws.
Section 6. QUORUM. A majority of the entire Board of Trustees shall
constitute a quorum for transaction of business at any meeting of the Trustees,
provided that, if less than a majority of such Trustees are present at said
meeting, a majority of the Trustees present may adjourn the meeting from time to
time without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a majority
of such group.
The Trustees present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Trustees to leave less than a quorum.
Section 7. VOTING. The action of the majority of the Trustees present at
a meeting at which a quorum is present shall be the action of the Trustees,
unless the concurrence of a greater proportion is required for such action by
applicable statute.
Section 8. TELEPHONE MEETINGS. Trustees may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY TRUSTEES. Any action required or permitted
to be taken at any meeting of the Trustees may be taken without a meeting, if a
consent in writing to such action is signed by each Trustee and such written
consent is filed with the minutes of proceedings of the Trustees.
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Section 10. VACANCIES. If for any reason any or all the Trustees cease to
be Trustees, such event shall not terminate the Trust or affect these Bylaws or
the powers of the remaining Trustees hereunder (even if fewer than three
Trustees remain). Any vacancy (including a vacancy created by an increase in the
number of Trustees or the removal of a Trustee) may be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
Trustees. Any individual so elected as Trustee shall hold office until the next
annual meeting of shareholders and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation or removal.
Section 11. COMPENSATION; FINANCIAL ASSISTANCE.
(a) Compensation. Trustees shall not receive any stated salary for their
services as Trustees but, by resolution of the Trustees, may receive
compensation per year and/or per meeting and/or per visit to real property owned
or to be acquired by the Trust and for any service or activity they performed or
engaged in as Trustees. Trustees may be reimbursed for expenses of attendance,
if any, at each annual, regular or special meeting of the Trustees or of any
committee thereof; and for their expenses, if any, in connection with each
property visit and any other service or activity performed or engaged in as
Trustees; but nothing herein contained shall be construed to preclude any
Trustees from serving the Trust in any other capacity and receiving compensation
therefor.
(b) Financial Assistance to Trustees. The Trust may lend money to,
guarantee an obligation of or otherwise assist a Trustee or a trustee of its
direct or indirect subsidiary. The loan, guarantee or other assistance may be
with or without interest, unsecured, or secured in any manner that the Board of
Trustees approves consistent with the terms of these Bylaws, including a pledge
of Shares.
Section 12. REMOVAL OF TRUSTEES. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 13. LOSS OF DEPOSITS. No Trustee shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or shares have been
deposited.
Section 14. SURETY BONDS. Unless required by law, no Trustee shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 15. RELIANCE. Each Trustee, officer, employee and agent of the
Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or
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employees or by the adviser, accountants, appraisers or other experts or
consultants selected by the Trustees or officers of the Trust, regardless of
whether such counsel or expert may also be a Trustee.
Section 16. CERTAIN TRANSACTIONS.
(a) Section 2-419 of the Maryland General Corporation Law (the "MGCL")
shall be available for and apply to any contract or other transaction between
the Trust and any of its Trustees or between the Trust and any other trust,
corporation, firm or other entity in which any of its Trustees is a trustee or
director or has a material financial interest.
(b) Without the approval of the Board of Trustees, including a majority of
the Trustees that are independent for the purposes of complying with the
requirements of the New York Stock Exchange, the Trust will not (a) acquire from
or sell to any trustee, officer or employee of the Trust, or a member of such
person's immediate family or any entity in which a trustee, officer or employee
of the Trust or a member of such person's immediate family beneficially owns
more than a 5% equity interest, or acquire from or sell to any affiliate of any
of the foregoing, assets or other property of the Trust with a fair market value
greater than $50,000, (b) make any loan to or borrow from any of the foregoing
persons or (c) engage in any other transaction with any of the foregoing
persons, other than the transactions entered into by the Trust in connection
with its initial public offering.
Section 17. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. The Trustees shall have no responsibility to devote their full time to
the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust (other than a full-time officer, employee or agent of the Trust), in his
personal capacity or in a capacity as an affiliate, employee, or agent of any
other person, or otherwise, may have business interests and engage in business
activities similar or in addition to those of or relating to the Trust.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Trustees may appoint
from among its members an Executive Committee, an Audit Committee, a
Compensation Committee and other committees, composed of one or more Trustees,
to serve at the pleasure of the Trustees.
Section 2. POWERS. The Trustees may delegate to committees appointed
under Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
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Section 3. MEETINGS. In the absence of any member of any such committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint another Trustee to act in the place of such absent member.
Notice of committee meetings shall be given in the same manner as notice for
special meetings of the Board of Trustees.
One-third, but not less than one, of the members of any committee shall be
present in person at any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting, and the act of a
majority present shall be the act of such committee. The Board of Trustees may
designate a chairman of any committee, and such chairman or any member of any
committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of such absent or disqualified
members.
Each committee shall keep minutes of its proceedings and shall report the
same to the Board of Trustees at the next succeeding meeting, and any action by
the committee shall be subject to revision and alteration by the Board of
Trustees, provided that no rights of third persons shall be affected by any such
revision or alteration.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Trustees may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Trustees shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent, disqualified or removed member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust shall include a
president, a secretary and a treasurer and may include a chairman of the board,
a vice chairman of
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the board, a chief executive officer, a chief operating officer, a chief
financial officer, one or more vice presidents, one or more assistant
secretaries and one or more assistant treasurers. In addition, the Trustees may
from time to time appoint such other officers with such powers and duties as
they shall deem necessary or desirable. The officers of the Trust shall be
elected annually by the Trustees at the first meeting of the Trustees held after
each annual meeting of shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualifies or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except president and vice president may be
held by the same person. In their discretion, the Trustees may leave unfilled
any office except that of president and secretary. Election of an officer or
agent shall not of itself create contract rights between the Trust and such
officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust may
be removed by the Trustees if in their judgment the best interests of the Trust
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Any officer of the Trust may
resign at any time by giving written notice of his resignation to the Trustees,
the chairman of the board, the president or the secretary. Any resignation
shall take effect at any time subsequent to the time specified therein or, if
the time when it shall become effective is not specified therein, immediately
upon its receipt. The acceptance of a resignation shall not be necessary to
make it effective unless otherwise stated in the resignation. Such resignation
shall be without prejudice to the contract rights, if any, of the Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a chief
executive officer from among the elected officers. The chief executive officer
shall have responsibility for implementation of the policies of the Trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of both the chairman and vice chairman of the
board, the chief executive officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
Section 5. CHIEF OPERATING OFFICER. The Trustees may designate a chief
operating officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a chief
financial officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
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Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of the
board shall preside over the meetings of the Trustees and of the shareholders at
which he shall be present and shall in general oversee all of the business and
affairs of the Trust. In the absence of the chairman of the board, the vice
chairman of the board shall preside at such meetings at which he shall be
present. The chairman and the vice chairman of the board may execute any deed,
mortgage, bond, contract or other instrument, except in cases where the
execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed. The chairman of the board and the vice chairman of
the board shall perform such other duties as may be assigned to him or them by
the Trustees.
Section 8. PRESIDENT. In the absence of the chairman, the vice chairman
of the board and the chief executive officer, the president shall preside over
the meetings of the Trustees and of the shareholders at which he shall be
present. In the absence of a designation of a chief executive officer by the
Trustees, the president shall be the chief executive officer and shall be ex
officio a member of all committees that may, from time to time, be constituted
by the Trustees. The president may execute any deed, mortgage, bond, contract
or other instrument, except in cases where the execution thereof shall be
expressly delegated by the Trustees or by these Bylaws to some other officer or
agent of the Trust or shall be required by law to be otherwise executed; and in
general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the Trustees from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Trustees. The Trustees may designate
one or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the trust records and of the seal of the Trust; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the secretary by such shareholder; (e) have general charge of the share
transfer books of the Trust; and (f) in general perform such other duties as
from time to time may be assigned to him by the chief executive officer, the
president or by the Trustees.
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Section 11. TREASURER. The treasurer shall have the custody of the funds
and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
The treasurer shall disburse the funds of the Trust as may be ordered by
the Trustees, taking proper vouchers for such disbursements, and shall render to
the president and Trustees, at the regular meetings of the Trustees or whenever
they may require it, an account of all his transactions as treasurer and of the
financial condition of the Trust.
If required by the Trustees, the treasurer shall give the Trust a bond in
such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his office and for the
restoration to the Trust, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, moneys and other property
of whatever kind in his possession or under his control belonging to the Trust.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or treasurer, respectively, or by the
president or the Trustees. The assistant treasurers shall, if required by the
Trustees, give bonds for the faithful performance of their duties in such sums
and with such surety or sureties as shall be satisfactory to the Trustees.
Section 13. SALARIES. The salaries and other compensation of the officers
shall be fixed from time to time by the Trustees and no officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or agent to
enter into any contract or to execute and deliver any instrument in the name of
and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Trust shall be signed by such officer or agent of the Trust in such manner
as shall from time to time be determined by the Trustees.
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Section 3. DEPOSITS. All funds of the Trust not otherwise employed shall
be deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the chairman of the board, the president or a
vice president and countersigned by the secretary or an assistant secretary or
the treasurer or an assistant treasurer and may be sealed with the seal, if any,
of the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the Trust,
shall have a statement of such restriction, limitation, preference or redemption
provision, or a summary thereof, plainly stated on the certificate. In lieu of
such statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable and
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a Maryland stock corporation. Upon
surrender to the Trust or the transfer agent of the Trust of a share certificate
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Trust shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
The Trust shall be entitled to treat the holder of record of any share or
shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of beneficial interest
of the Trust will be subject in all respects to the Declaration of Trust and all
of the terms and conditions contained therein.
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Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, an officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require and/or to give bond, with
sufficient surety, to the Trust to indemnify it against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of shareholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed for
the determination of shareholders, (a) the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of shareholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the Trustees, declaring
the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
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Section 5. STOCK LEDGER. The Trust shall maintain at its principal office
or at the office of its counsel, accountants or transfer agent, an original or
duplicate share ledger containing the name and address of each shareholder and
the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may issue
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Trustees shall have the power, from time to time, to fix the fiscal
year of the Trust by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
shares of beneficial interest of the Trust may be authorized and declared by the
Trustees, subject to the provisions of law and the Declaration of Trust.
Dividends and other distributions may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration of Trust.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any funds of the Trust available
for dividends or other distributions such sum or sums as the Trustees may from
time to time, in their absolute discretion, think proper as a reserve fund for
contingencies, for equalizing dividends or other distributions, for repairing or
maintaining any property of the Trust, for investment or for such other purpose
as the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE X
INVESTMENT POLICY
17
<PAGE>
Subject to the provisions of the Declaration of Trust, the Board of
Trustees may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Trust as it shall deem appropriate
in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal by the
Trust. The seal shall have inscribed thereon the name of the Trust and the year
of its formation. The Trustees may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is permitted or required to
affix its seal to a document, it shall be sufficient to meet the requirements of
any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Trust.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust shall indemnify (a) any Trustee, officer or shareholder or any
former Trustee, officer or shareholder (including among the foregoing, for all
purposes of this Article XII and without limitation, any individual who, while a
Trustee, officer or shareholder and at the express request of the Trust, serves
or has served another real estate investment trust, corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, shareholder, partner or trustee of such real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) who has been successful, on the merits or
otherwise, in the defense of a proceeding to which he was made a party by reason
of service in such capacity, against reasonable expenses incurred by him in
connection with the proceeding, (b) any Trustee or officer or any former Trustee
or officer against any claim or liability to which he may become subject by
reason of such status unless it is established that (i) his act or omission was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty, (ii) he actually
received an improper personal benefit in money, property or services or (iii) in
the case of a criminal proceeding, he had reasonable cause to believe that his
act or omission was unlawful and (c) each shareholder or former shareholder
against any claim or liability to which he may become subject by reason of such
status. In addition, the Trust shall, without requiring a preliminary
determination of the ultimate entitlement to indemnification, pay or reimburse,
in advance of final disposition of a proceeding, reasonable expenses incurred by
a Trustee, officer or shareholder or former Trustee, officer or shareholder made
a party to a proceeding by reason such status, provided that, in the case of a
Trustee or officer, the Trust shall have received
18
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(i) a written affirmation by the Trustee or officer of his good faith belief
that he has met the applicable standard of conduct necessary for indemnification
by the Trust as authorized by these Bylaws and (ii) a written undertaking by or
on his behalf to repay the amount paid or reimbursed by the Trust if it shall
ultimately be determined that the applicable standard of conduct was not met.
The Trust may, with the approval of its Trustees, provide such indemnification
or payment or reimbursement of expenses to any Trustee, officer or shareholder
or any former Trustee, officer or shareholder who served a predecessor of the
Trust and to any employee or agent of the Trust or a predecessor of the Trust.
Neither the amendment nor repeal of this Article, nor the adoption or amendment
of any other provision of the Declaration of Trust or these Bylaws inconsistent
with this Article, shall apply to or affect in any respect the applicability of
this Article with respect to any act or failure to act which occurred prior to
such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses permitted
by these Bylaws shall be furnished in accordance with the procedures provided
for indemnification or payment or reimbursement of expenses, as the case may be,
under Section 2-418 of the MGCL for directors of Maryland corporations. The
Trust may provide to Trustees, officers and shareholders such other and further
indemnification or payment or reimbursement of expenses, as the case may be, to
the fullest extent permitted by the MGCL, as in effect from time to time, for
directors of Maryland corporations.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Declaration of
Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any meeting
need be set forth in the waiver of notice, unless specifically required by
statute. The attendance of any person at any meeting shall constitute a waiver
of notice of such meeting, except where such person attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter, amend or
repeal any provision of these Bylaws and to make new Bylaws.
ARTICLE XV
MISCELLANEOUS
19
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All references to the Declaration of Trust shall include any amendments
thereto.
20
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Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report on College Park Communities Trust dated March 19, 1998,
our report on the Predecessor Partnerships dated February 20, 1998, and our
report on the WHNML-S Acquired Properties dated November 3, 1997, in the
Registration Statement (Form S-11 No. 333- ) and related Prospectus
of College Park Communities Trust dated March 20, 1998.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 19, 1998
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
The Partners
W9/JP-M Real Estate Limited Partnership:
We consent to the inclusion of our report dated December 19, 1997, with respect
to the combined statement of revenues and certain expenses of the JPI Acquired
Properties described in note 1 to the combined statement for the twelve months
ended August 31, 1997, which report appears in the Form S-11 filed by College
Park Communities Trust and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
March 20, 1998
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