As filed with the Securities and Exchange Commission on December 5, 1997
Registration Statement No. 333-34201
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BERKSHIRE REALTY COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3086485
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
470 Atlantic Avenue
Boston, Massachusetts 02210
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Scott D. Spelfogel
Berkshire Realty Company, Inc.
470 Atlantic Avenue
Boston, Massachusetts 02210
(617) 423-2233
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Alexander J. Jordan, Jr.
Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110-1832
(617) 345-1103
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X].
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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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 WITHOUT THE DELIVERY OF A FINAL PROSPECTUS.
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.
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SUBJECT TO COMPLETION, DATED DECEMBER 5, 1997
PROSPECTUS
2,891,475 Shares
BERKSHIRE REALTY COMPANY, INC.
COMMON STOCK
Berkshire Realty Company, Inc. (the "Company"), is a self-administered and
self-managed real estate investment trust ("REIT") which acquires, renovates,
rehabilitates, develops and operates apartment communities. Founded in 1991 with
15 apartment communities containing approximately 4,200 units, as of November
14, 1997 the Company owned 64 apartment communities containing approximately
18,700 units located in Florida, Texas and the Mid-Atlantic and Southeastern
United States. On that date, the Company also owned three retail centers with a
total of approximately 640,000 square feet of leasable space, one of which is
owned through a joint venture with an affiliate of the Company (together with
the Company's apartment communities, the "Properties"). The Company is a
Delaware corporation, and its shares of common stock, $.01 par value per share
(the "Common Stock"), are listed on the New York Stock Exchange ("NYSE") under
the symbol "BRI." The shares of Common Stock are subject to certain restrictions
on ownership designed to preserve the Company's status as a REIT for federal
income tax purposes. See "Description of the Capital Stock of the Company --
Restrictions on the Ownership and Transfer of Excess Shares."
This Prospectus relates to the possible issuance by the Company of up to
2,891,475 shares of Common Stock (the "Redemption Shares"), if and to the extent
that certain holders (the "Unitholders") of 2,891,475 units of limited
partnership interest ("Units") in BRI OP Limited Partnership (the "Operating
Partnership") exchange such Units for Redemption Shares. Of such 2,891,475
Units, 1,300,000 Units were issued to The Berkshire Companies Limited
Partnership in connection with the contribution to the Company of the advisory
and development service assets of such partnership on March 1, 1996; 1,056,500
Units were issued to Turtle Creek Associates in connection with the acquisition
by the Company of a 1,119-unit apartment complex known as Berkshire Towers
(formerly The Point Apartments) on May 14, 1996; and 534,975 were issued to GN
Limited Partnership in connection with the contribution to the Company of a
136-unit apartment complex known as River Oaks Apartments on May 1, 1995. The
Units received by the Unitholders can be tendered to the Company for redemption
at any time after August 14, 1997, the date on which the grant of conversion
rights to such Units and the issuance of Common Stock upon the tender by the
Unitholders of such Units in exchange for Redemption Shares received the
necessary approval of the shareholders of the Company.
Pursuant to the Amended and Restated Agreement of the Operating Partnership
(the "Partnership Agreement"), a Unitholder may tender all or a portion of its
Units to the Operating Partnership for redemption for the cash equivalent of an
equivalent number of shares of Common Stock; provided, however, that the Company
may, in its sole and absolute discretion, acquire any Units so tendered for an
equivalent number of shares of Common Stock or for the cash equivalent of an
equivalent number of shares of Common Stock.
The Company anticipates that it generally will elect to acquire directly
Units tendered for redemption and to issue Common Stock pursuant to this
Prospectus in exchange for them rather than paying cash. As a result, the
Company may from time to time issue up to 2,891,475 Redemption Shares upon the
acquisition of Units tendered to the Operating Partnership for redemption.
Accordingly, the Company is registering the Redemption Shares to provide
Unitholders with freely tradable securities upon redemption.
The Company will not receive any proceeds from the issuance of any
Redemption Shares, but will acquire Units tendered to the Operating Partnership
for redemption for which it elects to issue Redemption Shares. With each such
acquisition, the Company's interest in the Operating Partnership will increase.
The Unitholders and any agents, dealers or underwriters that participate
with the Unitholders in the distribution of the shares of Common Stock may be
deemed to be "underwriters" within the meaning of the
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Securities Act of 1933, as amended (the "Securities Act"), in which case any
commissions received by such agents, dealers or underwriters and any profit on
the resale of the shares of Common Stock purchased by them may be deemed
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for indemnification arrangements between the Company and the
Unitholders.
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See "Risk Factors" beginning on page 2 for certain factors relevant to an
investment in the Common Stock.
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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.
The date of this Prospectus is ___________, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"), pursuant to the
Exchange Act. Such reports, proxy statements and other information filed by the
Company may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and are also
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, NY 10048 and at 500 West
Madison Street, Suite 1400, Chicago, IL 60661-2511. The Commission maintains a
Web site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. In addition, the Common Stock of
the Company is listed on the New York Stock Exchange, and similar information
concerning the Company can also be inspected and copied at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549, a Registration Statement on Form S-3 under the Securities
Act and the rules and regulations promulgated thereunder, with respect to the
securities offered pursuant to this Prospectus. This Prospectus, which is part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and financial schedules thereto.
For further information concerning the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith, which may be examined without charge at, or copies
obtained upon payment of prescribed fees from, the Commission at its regional
offices at the locations listed above. 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-10660) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996
and amendment to such Annual Report on Form 10-K/A;
(b) Quarterly Reports on Form 10-Q for the three-, six- and
nine-month periods ended March 31, June 30 and September 30,
1997, respectively, and respective amendments to such Quarterly
Reports on Form 10-Q/A;
(c) Current Reports on Forms 8-K, each filed October 15, 1997,
respectively and respective amendments to such Current Reports
on Forms 8-K/A, each filed November 5, 1997; and
(d) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed November 19,
1990 pursuant to the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
Redemption Shares offered hereby have been sold or which deregisters all
Redemption Shares then remaining unsold shall be incorporated by reference in
this Prospectus and made a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement
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contained herein or in any other document subsequently filed with the Commission
which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Request for such copies should be
directed to: Berkshire Realty Company, Inc., 470 Atlantic Avenue, Boston,
Massachusetts 02210, Attention: Marianne Pritchard, Senior Vice President and
Chief Financial Officer, telephone (888) 867-0100.
The following is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere and incorporated by reference in this Prospectus. Unless the context
requires otherwise, as used herein, the term "Company" includes Berkshire Realty
Company, Inc., and those entities in which the Company holds a majority of the
economic interests, including BRI OP Limited Partnership (the "Operating
Partnership"), and Berkshire Apartments, Inc., the sole general partner of the
Operating Partnership (the "General Partner"). This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below in "Risk Factors."
RISK FACTORS
An investment in the Common Stock involves various risks. Unitholders
and other prospective investors should carefully consider the following
information in conjunction with the other information contained in this
Prospectus before making an investment decision regarding the Redemption Shares.
Tax Consequences to Unitholders of Exchange of Units
Tax Consequences of Exchange of Units. In the event that the Company
exercises its rights to acquire Units tendered for redemption in exchange for
cash or Redemption Shares, the Company's acquisition of such Units will be
treated for tax purposes as a sale of the Units. Such a sale will be fully
taxable to the Unitholder and the Unitholder will be treated as realizing for
tax purposes an amount equal to the sum of the cash received or the value of the
Redemption Shares received in the exchange plus the amount of any Operating
Partnership liabilities allocable to the exchanged Units at the time of the
redemption or exchange. It is possible that the amount of gain recognized or
even the tax liability resulting from such gain could exceed the amount of cash
and the value of the Redemption Shares received upon such disposition. See
"Description of Units and Redemption of Units -- Tax Consequences of
Redemption." In addition, the ability of the Unitholder to sell a substantial
number of Redemption Shares in order to raise cash to pay tax liabilities
associated with the redemption of Units may be limited as a result of
fluctuations in the market price of the Common Stock, and the price the
Unitholder receives for such shares may not equal the value of the Units at the
time of redemption or exchange.
Potential Change in Investment Upon Redemption of Units. If a
Unitholder exercises its right to require the redemption of all or a portion of
its Units, the Unitholder may receive Redemption Shares in exchange for its
Units or, at the option of the Company, cash. If the Unitholder receives
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cash from either the Operating Partnership or the Company, the Unitholder will
not have any interest in the Company or the Operating Partnership (except to the
extent that it retains Units) and will not benefit from any subsequent increases
in the value of Common Stock and will not receive any future distributions from
the Company or the Operating Partnership (unless the Unitholder retains or
acquires in the future additional Common Stock or Units). If the Unitholder
receives Common Stock, the Unitholder will become a shareholder of the Company
rather than a holder of Units in the Operating Partnership. See "Description of
Units and Redemption of Units -- Comparison of Ownership of Units and Common
Stock."
Development and Acquisition Risks
Acquisition Risks. The Company is evaluating many potential
acquisitions, the process of which involves costs which are non-recoverable.
There can be no assurance that properties which are acquired will perform in
accordance with expectations or that cost estimates for improvements to the
acquired properties in order to bring them up to the Company's standards will be
accurate. In connection with acquisitions in which the sellers received Units,
the Company has agreed to certain restrictions on its ability to sell (subject
to like-kind exchanges), refinance or pay down indebtedness (subject to
refinancing on terms which would not affect the tax basis of such Unit
recipient(s)) on such properties for various periods of time extending beyond a
year. These restrictions may impair the ability of the Company to take actions
during the period such restrictions apply that would otherwise be in the best
interests of the Company's shareholders and therefore, may have an adverse
effect on the Company's results of operations, financial condition and ability
to make expected distributions to shareholders. The Company anticipates that it
may agree to similar restrictions in connection with future acquisitions.
Development Risks. The Company also intends to continue the development
and expansion of apartment communities in accordance with the Company's
development and underwriting policies as opportunities arise in the future.
Risks associated with such development and construction activities include the
following: the Company may abandon development opportunities after expending
resources to determine a project's feasibility; construction costs of a project
may exceed original estimates; occupancy rates and rents at a newly completed
property may not be sufficient to make the properties profitable; financing may
not be available on favorable terms for development of a property; and
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations. If any of the foregoing
occurs, the Company's results of operations, financial condition and ability to
make expected distributions to shareholders could be adversely affected. In
addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention.
Further, the Company anticipates that future development will be
financed, in whole or in part, through additional equity offerings or through
the Company's lines of credit or other forms of secured or unsecured
construction financing that will result in the risk that, upon completion of
construction, permanent financing for newly developed properties may not be
available or may be available only on disadvantageous terms.
Risks Associated with Growth. The Company is currently experiencing a
period of rapid growth. During the period from January 1, 1997 through November
14, 1997 the Company acquired approximately 30 apartment communities containing
an aggregate of approximately 6,500 units. The integration of the recent
acquisitions into existing management and operating structures presents a
management challenge. Although the Company believes it has sufficient management
depth to lead the
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Company through this period of rapid growth, there can be no assurance that the
Company will be able to assimilate these recent acquisitions or any further
acquisitions into its portfolio without certain operating disruptions and
unanticipated costs. The failure to successfully integrate acquisitions could
have an adverse effect on the Company's results of operations, financial
conditions and its ability to pay expected distributions to shareholders.
Vote Regarding Continuation of the Company
In 1991, when the Company commenced operations, the Company granted the
shareholders the right to vote on its continued existence after a period of
approximately seven and one-half years of operations. Therefore, the Restated
Certificate of Incorporation of the Company, as amended (the "Certificate")
requires that the Board of Directors of the Company prepare and submit to the
shareholders on or before December 31, 1998 a proposal to liquidate the
Company's assets and distribute the net proceeds of such liquidation. The
liquidation proposal will become effective only if approved by shareholders
holding a majority of the shares then outstanding. If the Company were
liquidated, there would be no assurance that the proceeds of the liquidation per
share would equal the price paid by a shareholder or the market value of such a
share at any particular time. In the event the Company solicits such shareholder
vote, the Company will incur costs associated with the appraisal of the
Company's real estate assets and the shareholder solicitation regardless of the
outcome of such vote.
General Real Estate Risks
The ownership of real estate presents a variety of risks, including
those risks described below:
General. The Company's investments generally consist of investments in
apartment communities and as such will be subject to varying degrees of risk
generally incident to the ownership and development of real property. The
underlying value of the Company's real estate investments and the Company's
financial condition and ability to make expected distributions to its
shareholders will be dependent upon its ability to operate and develop its
properties in a manner sufficient to maintain or increase revenues and to
generate sufficient income in excess of operating expenses. Income from the
properties may be adversely affected by changes in national and local economic
conditions such as oversupply of apartment units or a reduction in demand for
apartment units in the Company's markets, the attractiveness of the properties
to tenants, changes in interest rates and in the availability, cost and terms of
mortgage financings, the ongoing need for capital improvements, particularly in
older structures, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, adverse changes in
zoning laws, civil unrest, acts of God, including natural disasters (which may
result in uninsured losses), acts of war and other factors which are beyond the
control of the Company. If the Company were unable to promptly renew or relet
the leases for a significant number of apartment units, or, if the rental rates
upon such renewal or reletting were significantly lower than expected rates, the
Company's results of operations, financial condition and ability to make
expected distributions to shareholders may be adversely affected. In addition,
certain expenditures associated with each apartment community (such as real
estate taxes and maintenance costs) are generally not reduced when circumstances
cause a reduction in income from such property.
Dependence on Primary Markets. Substantially all of the communities
owned by the Company are located in the Florida, Texas and the Mid-Atlantic and
Southeastern United States and, therefore, the Company's results of operations,
financial condition and ability to make expected distributions to shareholders
will be linked to the economic conditions in these markets as well as the market
for apartment communities generally. To the extent that these conditions affect
the market for apartment
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communities, they could have an adverse effect on the Company's results of
operations, financial condition and ability to make expected distributions to
shareholders.
Regulatory Risks. Real estate is governed by a wide variety of federal,
state and local zoning, subdivision, planning, building, environmental and other
land use laws and regulations. Such laws may place significant restrictions on
the Company's ability to develop real estate or to improve real estate which it
owns, and even unintentional violations of such laws and regulations by the
Company or its tenants may result in forced corrective action and substantial
monetary penalties. In addition, as to multifamily residential apartment
properties, various federal, state and local laws and regulations may restrict
the amount and process by which rents may increase, as well as the Company's
right to convert a property to other uses, such as condominiums or cooperatives.
Further, increases in real estate taxes and income, service or other taxes
generally are not passed through to tenants under the Company's leases and may
adversely affect the Company's results of operations, financial condition and
ability to make expected distributions to shareholders.
Risks of Liability and Loss. The development and ownership of real
estate may result in liability to third parties, due to conditions existing on a
property which result in injury. Such liability may be uninsurable in some
circumstances or may exceed the limits of insurance maintained at typical
amounts for the type and condition of such property. In addition, real estate
may suffer a loss in value due to casualties such as fire or hurricane. Such
loss may be uninsurable in some circumstances or may exceed the limits of
insurance maintained at typical amounts for the type and condition of the
property. Real estate may also be taken, in whole or in part, by public
authorities for public purposes in eminent domain proceedings. Awards resulting
from such proceedings may not adequately compensate the Company for the value
lost.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If the
Company must sell an investment, there can be no assurance that it will be able
to dispose of the investment in the time period it desires or that the sales
price of the investment will recoup or exceed the amount of the Company's cost
for the investment. In addition, provisions of the Internal Revenue Code of
1986, as amended (the "Code"), limit the Company's ability to sell properties
held for fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting returns to holders of Common Stock.
Further, if the Company were to sell such properties, such sales might adversely
affect the Company's ability to maintain its qualification as a REIT under the
Code.
Potential Adverse Effect on Results of Operations Due to Operating
Risks. The Company's properties are subject to operating risks common to real
estate in general, any and all of which may adversely affect occupancy or rental
rates. The Company's properties are subject to increases in operating expenses
such as cleaning, electricity, heating, ventilation and air conditioning,
elevator repair and maintenance; insurance and administrative costs; and other
general costs associated with security, landscaping, repairs and maintenance.
The Company's tenants in its retail properties generally are obligated to pay
these escalating costs, although there can be no assurance that tenants will
agree to pay such costs upon renewal or that new tenants will agree to pay such
costs. In the case of apartment communities, the Company must bear such
increased expenses. If operating expenses increase, the local rental market may
limit the extent to which rents may be increased to meet such increased expenses
without decreasing occupancy rates. While the Company implements cost-saving
incentive measures at each of its properties, if any of the foregoing occurs,
the Company's results of operations, financial condition and its ability to pay
distributions to shareholders could be adversely affected.
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Competition. All of the Company's properties are located in developed
areas that include other multifamily residential properties. The number of
competitive properties in a particular area could have a material effect on the
Company's ability to lease apartment units at its current or newly acquired
properties and on the rents charged at the such properties. The Company may be
competing with other entities that have greater resources than the Company and
whose managers have more experience than the Company's officers and directors.
In addition, other forms of housing, including manufactured housing community
properties and single-family housing provide alternatives to potential residents
of multifamily residential properties.
Cost of Compliance with Americans with Disabilities Act. All of the
Company's properties are subject to the Americans with Disabilities Act (the
"ADA"). The ADA sets forth compliance requirements for "public accommodations"
and "commercial facilities." The ADA requires that facilities, including leasing
offices, open to the general public be made accessible to people with
disabilities. Individual apartment units are not considered "public
accommodations" for purposes of the ADA. Compliance with the ADA requirements
could require removal of access barriers and other capital improvements to the
public areas of the Company's properties. Noncompliance could result in
imposition of fines by the U.S. government or an award of damages to private
litigants. The Company does not believe that any material changes to the
properties are currently required by the ADA. If changes are subsequently
required involving material expenditures, the Company's results of operation,
financial condition and ability to make expected distributions to shareholders
could be adversely affected.
Uninsured Loss. The Company maintains comprehensive liability, fire,
flood (where appropriate), extended coverage and rental loss insurance with
respect to the Company's properties with policy specifications, limits and
deductibles customarily carried for similar properties. Certain types of losses,
however, may be either uninsurable or not economically insurable, such as losses
due to earthquakes, riots or acts of war. Should an uninsured loss occur, the
Company could lose both its investment in and anticipated profits and cash flow
from a property.
Affordable Housing Laws. Certain of the apartment communities owned by
the Company may be in the future, subject to Federal, state and local statutes
or other restrictions requiring that a percentage of apartments be made
available to residents satisfying certain income requirements. These laws and
obligations, as well as any changes thereto making it more difficult to meet
such requirements, or a reduction in or elimination of certain financing
advantages available in some instances to persons satisfying such requirements
could adversely affect the Company's profitability and its development and
acquisition projects in the future.
Risks of Joint Ventures. One property is owned by a joint venture
partnership between the Company and an investment partnership sponsored by an
affiliate of the Company. The investment by the Company in a joint venture
partnership which owns properties, instead of investing directly in the
properties itself, may, under certain circumstances, involve risks which would
not otherwise be present. For example, the Company's joint venture partner may
experience financial difficulties and such partner may at any time have economic
or business interests or goals which are inconsistent with the business
interests and goals of the Company or contrary to the Company's policies or
objectives. Actions by (or litigation involving) such a partner might have the
result of subjecting the property owned by the joint venture to liabilities in
excess of those contemplated by the terms of the joint venture agreement. In
addition, there is a risk of impasse between the parties since either party may
disagree with a proposed transaction involving the property owned by the joint
venture and impede any proposed action. The Company may own additional
properties through joint venture partnerships between the Company and the
sellers of the properties or other third party partners.
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Risk of Adverse Effect on Company from Debt Servicing and Refinancing, Financial
Covenants, Absence of Limitations on Debt, and Increases in Interest Rates
General. If the Company were unable to refinance its indebtedness on
acceptable terms, or at all, the Company might be forced to dispose of one or
more of its properties on disadvantageous terms, which might result in losses to
the Company and might adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
If interest rates or other factors at the time of the refinancing result in
higher interest rates upon refinancing, the Company's interest expense would
increase, which would adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
Furthermore, if a property is mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgagee could foreclose
upon the property, appoint a receiver and receive an assignment of rents and
leases or pursue other remedies, all with a consequent loss of income and asset
value to the Company. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby reducing the Company's cash available for
distribution and hindering the Company's ability to meet the REIT distribution
requirements of the Code. The Company is subject to risks normally associated
with debt financing including the possibility that the Company will have
insufficient cash flow to meet required principal and interest payments, be
unable to satisfy financial covenants in its debt financing agreements, existing
indebtedness (which in most cases will not be fully amortized at maturity), or
secure favorable refinancing terms. Additionally, in connection with the
acquisition of certain properties in exchange for Units, the Company has agreed
to maintain certain levels of non-recourse debt on the properties in order to
minimize the tax consequences of these acquisitions to the Unit recipients.
Absence of Debt Limitation. The Company currently has a policy of
incurring debt only if upon such incurrence the ratio of the Company's debt to
the value of its assets would be 50% or less. Although the Company has adopted
this policy, the Organizational Documents (as defined herein) do not contain any
limitation on the amount of indebtedness the Company may incur. Accordingly, the
Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary in order for the Company to continue to qualify as
a REIT.
Debt Servicing and Financing. The Company anticipates that only a small
portion of the principal of the Company's mortgage indebtedness will be repaid
prior to maturity. However, if the Company does not have funds sufficient to
repay such indebtedness at maturity, the Company may need to refinance
indebtedness through additional debt financing or equity offerings. If the
Company is unable to refinance this indebtedness on acceptable terms, the
Company may be forced to dispose of properties upon disadvantageous terms, which
could result in losses to the Company and adversely affect the amount of cash
available for distribution to shareholders. If prevailing interest rates or
general economic conditions result in higher interest rates at a time when the
Company must refinance its indebtedness, the Company's interest expense would
increase, which would adversely affect the Company's results of operations,
financial condition and its ability to pay expected distributions to
shareholders. Further, if any of the Company's properties are mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the mortgagee could foreclose or otherwise transfer the property, with
a consequent loss of income and asset value to the Company. Even with respect to
nonrecourse indebtedness, the lender may have the right to recover deficiencies
from the Company in certain circumstances, including fraud and environmental
liabilities.
Increase in Market Interest Rates on Variable Interest Rates.
Outstanding advances under the Company's credit facilities bear interest at a
variable rate. The Company may incur additional variable rate indebtedness in
the future. Accordingly, increases in interest rates could increase the
Company's interest expense, which could adversely affect the Company's results
of operations, financial condition
7
<PAGE>
and its ability to pay expected distributions to shareholders. An increase in
interest expense could also cause the Company to be in default under certain
covenants of the credit facilities.
Potential Environmental Liability
Under various Federal, state and local environmental laws, ordinances
and regulations, an owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain third parties may
seek recovery from owners or operators of such properties or persons who
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, are potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
All of the properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. These environmental
assessments have not revealed any environmental liability that would have a
material adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to shareholders, and the
Company is not aware of any such environmental liability.
Dilution
The interest of the Company's shareholders may be subject to dilution
in the future since the Company has the ability to raise additional equity by
offering shares for sale. The authorized but unissued capital stock of the
Company (including additional authorized preferred stock, senior to the Common
Stock) may be issued for any corporate purpose, including acquisitions of other
entities which invest in or hold real estate investments, issuances of
additional Common Stock pursuant to the Company's Stock Option Plan and
issuances which would make more difficult, and therefore less likely, changes in
control of the Company. Any such issuance of additional stock could have the
effect of diluting the earnings per share, book value per share, voting power of
existing shares of Common Stock and ownership of persons seeking to obtain
control of the Company. See "-- Anti-Takeover Provisions." The issue by the
Operating Partnership of additional Units redeemable for shares of Common Stock
in exchange for real property or other assets may also have a substantially
similar dilutive effect.
The Company also has two types of outstanding securities convertible
into Common Stock, Warrants ("Warrants") and Series 1997-A Convertible Preferred
Stock ("Series 1997-A Preferred"). The conversion price of the Series 1997-A
Preferred is subject to adjustment in certain events to provide anti-dilution
protection to the holders of such stock. See "Description of the Capital Stock
of the Company -- Preferred Stock." During the term of the Warrants, the holders
thereof are given an opportunity to profit from a rise in the market price of
the Common Stock, with a resulting dilution of the interest of the existing
shareholders. Thus, the terms upon which the Company may obtain additional
financing during that period may be adversely affected. The holders of Warrants
might be expected to exercise their rights to acquire Common Stock at a time
when the Company would, in all likelihood, be able to obtain needed capital
through a new offering of securities on terms more favorable than those provided
by these outstanding securities. In the event that such holders exercise
8
<PAGE>
these rights to acquire shares of Common Stock at such time, the net tangible
book value per share of the Common Stock might be subject to dilution. See
"Description of the Capital Stock of the Company -- Warrants."
Anti-Takeover Provisions
In order to facilitate compliance with REIT requirements for tax
purposes, the Company's Certificate and By-Laws, as amended (collectively, the
"Organizational Documents") place restrictions on the accumulation of shares in
excess of 9.8% of the number of outstanding shares of Common Stock, subject to
certain exceptions permitted with the approval of the Board of Directors to
allow (i) underwritten offerings, or (ii) the sale of equity securities in
circumstances where the Board of Directors determines the Company's REIT federal
tax status will not be jeopardized. The ten million shares of Common Stock
issued in an underwritten public offering on November 10, 1997 and the Series
1997-A Preferred were issued respectively pursuant to such exceptions. Certain
additional provisions restrict the shareholders' ability to nominate candidates
for election as Directors and to alter, amend and adopt provisions inconsistent
with, or to repeal certain provisions of, the Organizational Documents.
The Company's Organizational Documents contain certain provisions which
may discourage a change in control of the Company. In particular, under the
Company's Certificate, the election of Directors is staggered such that
approximately one-third of the Directors are elected to three-year terms each
year and a supermajority vote is required in order to amend those portions of
the Organizational Documents which concern (1) the definition of
"supermajority"; (2) the requirements for amending the Organizational Documents;
(3) the requirements regarding Excess Share ownership (i.e., ownership of shares
in excess of 9.8% of the outstanding shares of Common Stock as described below);
(4) the actions which require a supermajority vote; and (5) the requirements
regarding business combinations. The Company is subject to Section 203 of the
Delaware General Corporation Law, which restricts business combinations between
the Company and its shareholders. The foregoing restrictions on ownership and
transferability may have the effect of delaying, deferring or preventing a
transaction or change in control of the Company that might involve a premium
price for the shares of Common Stock or that otherwise might be in the best
interest of the Company's shareholders.
The Company has an authorized class of 60,000,000 shares of preferred
stock. Currently the Company has approximately 2.7 million shares of its 1997
Series-A Preferred outstanding. The remaining 57.3 million shares may be issued
by the Board of Directors on such terms and with such rights, preferences and
designations as the Board may determine. Issuance of such preferred stock,
depending on the rights, preferences, and designations thereof, may have the
effect of delaying, deterring, or preventing a change in control of the Company.
Tax Risks
Risk of Termination of REIT Status. The Company was organized and
intends to continue to conduct its operations to enable it to qualify as a REIT
under the Code. To maintain its status as a REIT, the Company must continually
meet certain criteria concerning, among other things, its Common Stock
ownership, the nature of its assets, the sources of its income, and the amount
of its distributions to shareholders. If the Company fails to qualify, the
Company would be taxed on its income at regular corporate tax rates. The payment
of such tax by the Company would substantially reduce the funds available for
distribution to shareholders or for reinvestment and, to the extent that
distributions had been made in anticipation of the Company's qualification as a
REIT, the Company might be required to borrow additional funds or to liquidate
certain of its investments in order to pay the applicable tax. Moreover, should
the Company's election to be taxed as a REIT be terminated, the
9
<PAGE>
Company may not be able to elect to be treated as a REIT for the following
five-year period. The Company also might be required to borrow funds or to
liquidate certain of its investments to maintain REIT status. See "Federal
Income Tax Considerations."
REIT Minimum Distribution Requirements; Possible Incurrence of
Additional Debt. In order to qualify as a REIT, the Company generally will be
required each year to distribute to its shareholders at least 95% of its net
taxable income (excluding any net capital gain). In addition, the Company will
be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital
gain net income for that year, and (iii) 100% of its undistributed taxable
income from prior years.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its shareholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company could require the Company, through the Operating Partnership, to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. The requirement to distribute a substantial
portion of the Company's net taxable income could cause the Company to
distribute amounts that otherwise would be spent on future acquisitions,
unanticipated capital expenditures or repayment of debt, which would require the
Company to borrow funds or to sell assets to fund the costs of such items.
Failure of the Operating Partnership to be Classified as a Partnership
for Federal Income Tax Purposes; Negative Impact on REIT Status. The Company has
not requested, and does not expect to request, a ruling from the Internal
Revenue Service ("IRS") that the Operating Partnership (and each of its
noncorporate Operating Subsidiaries (as hereinafter defined)) will be classified
as partnerships for federal income tax purposes. If the IRS were to successfully
challenge the tax status of the Operating Partnership (or any noncorporate
Operating Subsidiary) as a partnership for federal income tax purposes, the
Operating Partnership (or the noncorporate Subsidiary) would be taxed as a
corporation. In such event, the Company would likely cease to qualify as a REIT
for a variety of reasons. Furthermore, the imposition of a corporate income tax
on the Operating Partnership would reduce substantially the amount of cash
available for distribution from the Operating Partnership to the Company and its
shareholders. See "Federal Income Tax Considerations -- Other Tax Consequences -
Effect of Tax Status of the Operating Partnership on REIT Qualification."
Shareholders are Taxed on Reinvested Dividends. Shareholders (other
than tax-exempt entities) who participate in the Company's Dividend Reinvestment
Plan will be taxed on income attributable to reinvested dividends, without
receiving corresponding cash to pay the resulting tax liability.
Investment by Qualified Plans Poses Additional Risks. The fiduciary of
a qualified profit-sharing, pension or other retirement plan should take into
consideration certain fiduciary responsibilities and the definition of "plan
assets" under ERISA and applicable Department of Labor regulations.
Possible Changes in Tax Law. Prospective investors should recognize
that the present federal income tax treatment of an investment in the Company
may be modified, prospectively or retroactively, by legislative, judicial or
administrative action at any time. In addition to any direct effects which such
changes might have, such changes might also indirectly affect the market value
of all real estate
10
<PAGE>
investments, including those of the Company and, consequently, the ability of
the Company to realize its business objectives.
Dependence on Key Personnel
The Company is dependent on the efforts of its senior executive
officers. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have a temporary adverse effect
on the operations of the Company. As of November 14, 1997, the President and
Chief Executive Officer, Executive Vice President for Property Operations,
Senior Vice President and Chief Financial Officer, Senior Vice Presidents for
Acquisitions and Development and President of the Mid-Atlantic Region had
entered into employment agreements with the Company.
Risks of Mortgage Acquisitions
The Company may acquire real estate through the acquisition of
distressed mortgage loans. In such a case, the Company would succeed to the
position of the mortgage lender with the expectation of foreclosing on the
mortgaged property and taking title to it. The Company may encounter certain
legal and regulatory obstacles to foreclosure which could delay or impede the
taking of title to the property by the Company. During the time prior to
foreclosure, it is possible that the borrower of the mortgage loan may make no
mortgage payments to the Company.
Possible Adverse Impact of Market Conditions on Market Price
The market value of the Common Stock could be substantially affected by
general market conditions, including changes in interest rates, government
regulatory action and changes in tax laws. An increase in market interest rates
may lead purchasers of the Common Stock to demand a higher annual dividend yield
on the Common Stock, which could adversely affect the market price of the Common
Stock. Moreover, numerous other factors, such as government regulatory action
and changes in tax laws, could have a significant impact on the future market
price of the Common Stock or other securities.
THE COMPANY
General
The Company is a self-administered and self-managed REIT which
acquires, renovates, rehabilitates, develops and operates apartment communities.
Founded in 1991 with 15 apartment communities containing approximately 4,200
units, as of November 14, 1997 the Company owned 64 apartment communities
containing approximately 18,700 units located in Florida, Texas and the
Mid-Atlantic and Southeastern United States. On that date, the Company also
owned three retail centers with a total of approximately 640,000 square feet of
leasable space, one of which is owned through a joint venture with an affiliate
of the Company.
The operations of the Company are conducted primarily through the
Operating Partnership and through their other subsidiaries (the "Operating
Subsidiaries"). As of November 14, 1997, the Company held approximately 82.6% of
the partnership interests in the Operating Partnership in its capacity as a
special limited partner and through its 100% ownership of the General Partner.
The remaining approximately 17.4% of the partnership interests in the Operating
Partnership was owned by affiliated and unaffiliated third parties. Units are
redeemable on a one-for-one basis for shares of Common Stock or, at the
Company's election, for cash, and holders of Units generally receive
distributions per Unit equal to the dividend per share paid in respect of the
Common Stock.
11
<PAGE>
The Company's principal executive offices are located at 470 Atlantic
Avenue, Boston, Massachusetts 02210 and its telephone number is (888) 867-0100.
The Company's property management and development offices are located in
Atlanta, Georgia. In addition, the Company operates six regional offices in
Atlanta, Georgia; Baltimore and Columbia, Maryland; Greenville, South Carolina;
Dallas, Texas; and Chicago, Illinois. The Company has approximately 930
employees.
The Properties
The Company operates in the four regions defined by the Company as: (i)
Mid-Atlantic (Pennsylvania, Maryland, Delaware, Virginia and Washington, D.C.);
(ii) Southeast (North Carolina, South Carolina, Georgia and Tennessee); (iii)
Florida, and (iv) Texas.
The following table sets forth certain data regarding the Company's
apartment portfolio:
<TABLE>
<CAPTION>
Avg. Monthly Rent
Average Occupancy(1) Per Apartment Unit(1)(2)
-------------------- ------------------------
Six Six
Months Year Months Year
Month/ Ended Ended Ended Ended
Year Apartment June 30, December 31, June 30, December 31,
Apartment Community Location Acquired Units 1997 1996 1997 1996
------------------- -------- -------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic Region(3)
Arborview (4) Belcamp, MD Nov. 97 288 89% 94% $ 709 $ 695
Berkshires by the Chesapeake Millersville, MD Jul. 97 144 94 92 738 731
Berkshire Towers........... Silver Spring, MD May 96 1,119 90 91 824 827
Calvert's Walk(4).......... Belair, MD Nov. 97 276 94 96 692 680
Courtleigh(4).............. Baltimore, MD Nov. 97 280 95 95 642 627
The Cove................... Glen Burnie, MD Jul. 97 181 93 93 675 668
Coventry(4)................ Baltimore, MD Nov. 97 122 94 94 624 606
Diamond Ridge(4)........... Baltimore, MD Nov. 97 92 92 95 693 686
The Estates(4) ............ Pikesville, MD Nov. 97 208 94 95 768 749
Fairway Ridge(4) .......... Baltimore, MD Nov. 97 274 92 95 512 516
Hazelcrest(4) ............. Baltimore, MD Nov. 97 48 92 95 486 478
Heraldry Square(4) ........ Baltimore, MD Nov. 97 270 95 96 602 592
Hilltop(4) ................ Baltimore, MD Nov. 97 50 97 96 474 473
Jamestown(4) .............. Baltimore, MD Nov. 97 335 95 93 512 502
Kingswood I(4) ............ Baltimore, MD Nov. 97 203 95 97 595 583
Kingswood 11(4) ........... Baltimore, MD Nov. 97 203 94 95 585 571
Lamplighter................ Baltimore, MD Sep. 97 168 93 90 703 695
Lighthouse................. Glen Burnie, MD Jul. 97 120 94 95 661 652
Ridgeview Chase(4) ........ Westminster, MD Nov. 97 204 97 96 734 726
Rolling Wind(4) ........... Baltimore, MD Nov. 97 280 96 96 801 783
Stratton Meadows(4) ....... Baltimore, MD Nov. 97 268 94 94 682 662
Warren park(4) ............ Baltimore, MD Nov. 97 200 95 95 537 537
Westchester West........... Silver Spring, MD Jan. 97 345 96 95 711 691
Williston(4) .............. Baltimore, MD Nov. 97 98 96 93 536 525
Southpointe at Massapequa.. Massapequa, NY Aug. 93 214 100 99 1,174 1,164
--- --- -- ----- -----
Subtotal/Weighted Average.............................. 5,990 94 94 701 692
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Avg. Monthly Rent
Average Occupancy(1) Per Apartment Unit(1)(2)
-------------------- ------------------------
Six Six
Months Year Months Year
Month/ Ended Ended Ended Ended
Year Apartment June 30, December 31, June 30, December 31,
Apartment Community Location Acquired Units 1997 1996 1997 1996
------------------- -------- -------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Southeast Region
Brookfield Trace(5) ....... Mauldin, SC Nov. 95 300 92 92 660 659
Brookwood Valley........... Mauldin, SC Apr. 95 226 89 94 620 624
Huntington Downs (6) ...... Greenville, SC Jan. 88 502 93 94 600 600
The Oaks (6) .............. Mauldin, SC Mar. 90 176 90 93 642 644
Roper Mountain (6) ........ Greenville, SC Jan. 88 248 92 95 517 514
Stoneledge (6) ............ Greenville, SC Jan. 88 320 91 92 532 538
Cumberland Cove............ Raleigh, NC Dec. 91 552 95 96 755 753
East Lake.................. Charlotte, NC Oct. 93 214 92 95 655 650
The Timbers................ Charlotte, NC Mar. 93 343 92 95 578 575
Arbors at Breckenridge..... Duluth, GA Dec. 93 514 88 94 750 750
The Avalon on Abernathy.... Atlanta, GA Jun. 92 240 94 95 892 891
Huntington Chase........... Norcross, GA Jun. 93 467 90 93 667 659
British Woods.............. Nashville, TN Nov. 95 264 93 93 650 646
Highland Ridge............. Madison, TN Nov. 95 280 91 91 534 531
Windover................... Knoxville, TN Nov. 95 271 92 90 590 588
--- -- -- --- ---
Subtotal/Weighted Average.............................. 4,917 92 94 650 649
Florida
Altamonte Bay Club......... Altamonte Springs, FL Feb. 93 224 97% 95% $ 622 $ 610
The Lakes at Jacaranda (6) Plantation, FL Mar. 90 340 94 94 836 824
Newport.................... Tampa, FL Feb. 93 320 94 96 526 513
Park Colony................ Hollywood, FL Jul. 94 316 93 95 769 759
Plantation Colony.......... Plantation, FL Dec. 93 256 96 95 756 750
Berkshires West............ Winter Garden, FL May 97 200 99 98 626 605
Sun Chase.................. Bradenton, FL May 97 168 93 90 605 601
Woodland Meadows........... Tamarac, FL Oct. 92 296 96 96 678 668
--- -- -- --- ---
Subtotal/Weighted Average.............................. 2,120 95 95 687 676
Texas
Benchmark.................. Irving, TX Jun. 96 250 96 95 583 579
Golf Side.................. Haltom City, TX Jun. 96 402 94 90 448 442
Hunters Glen............... Plano, TX Jun. 96 276 92 96 633 625
Huntington Brook........... Dallas, TX Oct. 97 320 97 96 584 520
Huntington Lake............ Dallas, TX Oct. 97 405 97 - 627 -
Huntington Ridge........... Irving, TX Oct. 97 232 97 96 595 531
Indigo on Forest........... Dallas, TX Aug. 94 1,217 93 93 580 589
Kings Crossing............. Kingwood, TX Jun. 94 404 95 92 608 614
Kingwood Lakes............. Kingwood, TX Jun. 94 390 96 94 610 607
Pleasant Woods............. Dallas, TX Jun. 96 208 95 95 555 548
Prescott Place............. Mesquite, TX Jun. 96 318 95 95 504 499
Prescott Place II.......... Mesquite, TX Nov. 96 336 95 95 499 497
Providence................. Dallas, TX Jun. 96 244 91 83 503 494
River Oaks................. Houston, TX May 95 136 87 92 1,994 1,957
Summer Place............... Addison, TX Oct. 97 212 95 96 589 554
Sweetwater................. Richardson, TX Oct. 97 312 98 96 792 737
--- -- -- --- ---
Subtotal/Weighted Average.............................. 5,662 95 93 614 601
----- -- -- --- ---
Total Portfolio/Weighted Average............................ 18,689 94 94 670 652
====== == == === ===
</TABLE>
- ------------------------
(1) The statistical information presented under Average Occupancy and
Average Monthly Rent Per Apartment Unit for the periods prior to the
Company's ownership thereof was provided by the previous owner of each
applicable property. Such
13
<PAGE>
information may not have been calculated in accordance with the
methodology used by the Company in calculating such statistics. The
Company has not independently verified such information. However, the
Company has no reason to believe such information is not accurate.
Where the Company did not own an applicable property for the entire
period presented, the information presented is the weighted average of
the information compiled by the Company and the information supplied by
the previous owner.
(2) Amount represents the average monthly rental rate for communities
stabilized for the entire period for each period presented. Average
monthly rental rate is defined as the gross actual rental rate for
leased units and the anticipated rental rate for unoccupied units.
(3) Includes apartment units located in New York, which the Company does
not consider part of its Mid-Atlantic Region.
(4) Average Occupancy and Average Monthly Rent Per Unit was calculated by
previous owner.
(5) The Company completed a 96-unit expansion in February 1997. Such
additional apartment units were excluded from the calculation of
Average Occupancy and Average Monthly Rent Per Apartment Unit.
(6) Acquired by the Company's predecessors.
The following table sets forth certain data regarding the Company's
development pipeline:
<TABLE>
<CAPTION>
Estimated
Total
Planned Investment Estimated
Apartment (in Completion
Property Location Units thousands) Date Status
-------- -------- ----- ---------- ---- ------
<S> <C> <C> <C> <C> <C>
Developments in Progress:
Liriope ..................... Belcamp, MD 84 $ 7,600(1) Fourth Quarter 1997 Under construction
Granite Run ................. Baltimore, MD 264 25,500(1) Fourth Quarter 1998 Under construction
Berkshires at Crooked Creek.. Durham, NC 296 20,200 Fourth Quarter 1998 Under construction
Indigo land.................. Dallas, TX 120 9,000 First Quarter 1999 In design
Avalon I .................... Pikesville, MD 258 25,900(1) Fourth Quarter 1999 In design
Avalon II ................... Pikesville, MD 147 15,400(1) Fourth Quarter 1999 In design
Inglesby land................ Greenville, SC 500 35,000 First Quarter 2000 In design
Land Held for Development:
Garlington Road land......... Greenville, SC
Total................................... 1,669 $138,600
===== ========
</TABLE>
- ------------------------
(1) The Estimated Total Investment is based on the Company's current estimates
under development contribution agreements for such projects.
The following data sets forth certain data regarding the Company's
retail assets:
<TABLE>
<CAPTION>
Year Occupancy as of
Retail Property Location Acquired Sq. Ft. June 30, 1997 December 31, 1996
--------------- -------- -------- ------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
College Plaza Fort Myers, FL 1991 83,962 90% 95%
Spring Valley (1) Spring Valley, NY 1991 320,684 97 98
Tara Crossing (2) Jonesboro, GA 1991 235,181 88 90
Total................................................ 639,827
=======
</TABLE>
- ------------------------
(1) The Company holds a 50.1% joint venture interest in this property.
(2) The Company has executed a contract for sale with respect to this property.
14
<PAGE>
Recent Developments - Financing Activities
Public Offering of Common Stock. On November 10, 1997, the Company
completed a public offering (the "Offering") of ten million shares of Common
Stock for $104 million (net of underwriting discounts and commissions and before
deducting expenses incurred by the Company in connection with the Offering). The
Company used approximately $32.1 million of the net proceeds from the Offering
to acquire 18 existing apartment communities and the management operations
thereof (which included the management operations of certain third-party
properties) and four development projects in the greater Baltimore area together
with the exclusive right to acquire all apartment projects developed by Questar
Builders, Inc., a company owned by Stephen M. Gorn, which meet the Company's
acquisition and development criteria. The Company used the remaining net
proceeds from the Offering to repay approximately $26.0 million outstanding
under its $50.0 million secured revolving credit agreement with BankBoston, NA
and Mellon Bank, NA (the "BankBoston Facility"), approximately $29.0 million
outstanding under its credit facility with the Federal National Mortgage
Association (the "FNMA Facility"), approximately $8.0 million of indebtedness
under the Company's Master Repurchase Agreement with CS First Boston, and the
remainder for general corporate purposes.
Private Placement of Preferred Stock. On September 25, 1997, the
Company issued approximately 2.7 million shares of its Series 1997-A Preferred
in a private placement to Westbrook Real Estate Fund II, L.P. ("Westbrook") and
Morgan Stanley Asset Management, Inc. ("Morgan Stanley") resulting in gross
proceeds of approximately $68.4 million. These proceeds were used to acquire
five unleveraged apartment communities containing approximately 1,500 units in
Dallas, Texas. The Series 1997-A Preferred will pay a preferred dividend of 9%
based on the purchase price of $25.00 per share and is convertible in the
aggregate into approximately 5.6 million shares of Common Stock. Holders of the
Series 1997-A Preferred are entitled to vote on an as converted basis, together
with the holders of Common Stock, as one class, on all matters on which the
holders of Common Stock are entitled to vote. Upon completion of the Offering,
the holders of the Series 1997-A Preferred have approximately 13.5% of the
voting rights with respect to matters upon which the Series 1997-A Preferred and
Common Stock vote as a class. Further, the holders of the Series 1997-A
Preferred are entitled to elect one director to the Board of Directors of the
Company. Paul D. Kazilionis, a managing principal and co-founder of Westbrook
Real Estate Partners, L.L.C, the general partner of Westbrook, has been elected
to the Company's Board of Directors by direction of the holders of the Series
1997-A Preferred.
UPREIT Restructuring. In February 1997, the Company completed its
transition to a self-advised and self-managed UPREIT. The first step of this
transition was completed in May 1995 when the Company restructured itself into
an UPREIT. On March 1, 1996, the Company became self-administered when the
Operating Partnership acquired the advisory and development services assets from
Berkshire Companies Limited Partnership ("BCLP") which had provided such
services to the Company in exchange for approximately 1.3 million Units (the
"Advisor Transaction"). BCLP is owned by parties affiliated with the Chairman of
the Board. Additional Units (up to a total value of $7.2 million) may be issued
to BCLP during a six-year period if certain share price benchmarks ranging from
$11.00 per share to $16.00 per share are achieved. Approximately 209,000
additional Units have been issued to date when the $11.00 and $12.00 benchmarks
were achieved. By becoming self-administered, the Company positioned itself to
eliminate fees previously incurred by the Company for management, acquisition
and disposition services. On February 28, 1997, the Company acquired the
multifamily property management services assets of BCLP for approximately 1.7
million Units (the "Property Manager Transaction"). As a result of this
transaction, the Company eliminated management fees and reimbursements
previously incurred by the Company for the management of its apartment portfolio
by assuming the direct management of such properties, as well as the management
of 22 third-party properties for which it received management fees.
15
<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 140,000,000
shares of Common Stock and 60,000,000 shares of Preferred Stock.
Common Stock
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
shares of Common Stock are entitled to one vote per share on all matters to be
voted on by shareholders and are entitled to receive ratably such dividends as
may be declared in respect of the Common Stock by the Board of Directors in its
discretion from funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of all debts
and other liabilities and any liquidation preference of the holders of Preferred
Stock. Holders of Common Stock have no subscription, conversion or redemption
rights. Matters submitted for shareholder approval generally require a majority
vote of the shares present and voting thereon; certain matters, however, require
a supermajority vote. See "-- Charter and By-Law Provisions - Voting
Requirements." The outstanding shares of Common Stock are fully paid and
nonassessable.
Preferred Stock
General. The Board of Directors is empowered by the Company's
Certificate to designate and issue from time to time one or more classes or
series of Preferred Stock without shareholder approval. The Board of Directors
may fix the relative rights, limitations, preferences and privileges of each
class or series of Preferred Stock so issued. Because the Board of Directors has
the power to establish the preferences and rights of each class or series of
Preferred Stock, it may afford the holders in any series or class of Preferred
Stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of Common Stock.
Series 1997-A Preferred Stock. The Company has designated and issued
approximately 2.7 million shares of the Series 1997-A Preferred pursuant to the
authority granted by the Certificate. As of the date hereof, approximately 2.3
million shares of Series 1997-A Preferred are owned by Westbrook Berkshire
Holdings, L.L.C., an affiliate of Westbrook, and the balance is owned by six
clients of Morgan Stanley. The outstanding shares of Series 1997-A Preferred are
fully paid and nonassessable.
Holders of shares of Series 1997-A Preferred are entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the payment of dividends, preferential cumulative quarterly cash
dividends equal to the greater of (i) 2.25% of $25.00 per share (the price per
share paid upon issuance of the Series 1997-A Preferred) (such $25.00, the
"Stated Value") and (ii) the dollar amount of the dividend paid per share of
Common Stock multiplied by the number of shares of Common Stock into which each
share of Series 1997-A Preferred is then entitled to be converted. Such
dividends accrue whether or not the Company has earnings or surplus and are
payable before any dividends or distributions are paid on, or the Company makes
any redemptions or purchases of, shares of Common Stock.
Holders of shares of Series 1997-A Preferred are entitled to vote,
together with the holders of Common Stock as one class, on all matters on which
the holders of Common Stock are entitled to vote. Each share of Series 1997-A
Preferred is entitled to the number of votes as equal the number of shares
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of Common Stock into which a share of Series 1997-A Preferred is then entitled
to be converted. The affirmative vote of a majority of the Series 1997-A
Preferred is required to (i) issue additional shares of Series 1997-A Preferred
or increase the number of authorized shares of Series 1997-A Preferred, (ii)
authorize any reclassification of the Series 1997-A Preferred, (iii) require the
exchange of Series 1997-A Preferred, (iv) amend, alter or repeal any provisions
of the By-Laws of the Company in a manner that would adversely affect the
holders of Series 1997-A Preferred or (v) amend, alter or repeal any provisions
of the Certificate of the Company, the terms of the Series 1997-A Preferred or
any other pertinent organizational document in a manner that would adversely
affect the rights and preferences of the Series 1997-A Preferred.
In addition, for so long as there is outstanding at least 793,730
shares of Series 1997-A Preferred, the affirmative vote of a majority of the
Series 1997-A Preferred is required for the following actions: (i) the transfer
by the Company of the ownership of any interest in the General Partner of the
Operating Partnership, the transfer by the General Partner to a third party of
the right to exercise all or a portion of its rights as the General Partner of
the Operating Partnership or the transfer by the Company in a single transaction
or series of transactions of assets owned directly or indirectly by the Company
having a value in excess of 10% of the fully-diluted market capitalization of
the Company within any 90-day period or 20% of such market capitalization within
any 360-day period, (ii) the Company's termination as a REIT, (iii) the
alteration of the Company's business such that real estate assets owned directly
or indirectly by the Company are, on a square foot basis, less than 90% invested
in multifamily residential properties or (iv) the transfer, on or before
September 19, 1998, of more than 30% of the Common Stock or Units held directly
or indirectly by either Douglas Krupp or David F. Marshall.
Holders of Series 1997-A Preferred are entitled to elect one Director
to the Board of Directors of the Company. In addition, if four consecutive
Series 1997-A Preferred quarterly dividends are in arrears, then the number of
directors of the Company will be increased by the smallest number representing a
majority of the number of Directors of the Company, and the holders of Series
1997-A Preferred will be entitled to elect such number of Directors.
Upon (i) the transfer of substantially all the assets owned directly or
indirectly by the Company, (ii) the merger or consolidation of the Company or
the Operating Partnership with a third party (other than a merger of the Company
and a wholly-owned subsidiary of the Company in which the fully-diluted market
capitalization of the Company is unchanged), (iii) any recapitalization of the
Company, the Operating Partnership and subsidiaries of the Company, considered
as a whole, in a single transaction or series of transactions, aggregating 50%
or more of the fully-diluted market capitalization of the Company or (iv) a
"Change of Control" (as defined below), holders of Series 1997-A Preferred will
be entitled to receive at their option either (i) out of the assets of the
Company available for distribution to shareholders and before any payment to
holders of Common Stock, an amount per share equal to 115% of the sum of the
Stated Value and all accrued and unpaid dividends or (ii) Common Stock on
conversion of their Series 1997-A Preferred.
A Change of Control will be deemed to have occurred if any of the
following occur (or, in the case of any proposal, if any of the following could
occur as a result thereof): (i) the Company takes or fails to take any action
such that it ceases to be required to file reports under Section 13 of the
Exchange Act or any successor to that Section; (ii) any "person" (as defined in
Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either
(A) 20% or more of the outstanding shares of Common Stock, or (B) 20% (by right
to vote or grant or withhold any approval) of the outstanding securities of any
other class or classes which individually or together have the power to elect a
majority of the members of the Board; (iii) the Board determines to recommend,
or fails to determine to recommend,
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the acceptance of any proposal set forth in a tender offer statement or proxy
statement filed by any person with the Commission which indicates the intention
on the part of that person to acquire, or acceptance of which would otherwise
have the effect of that person acquiring, either (A) 20% or more of the
outstanding shares of the Common Stock, or (B) 20% (by right to vote or grant or
withhold any approval) of the outstanding securities of any other class or
classes which individually or together have the power to elect a majority of the
members of the Board; (iv) other than as a result of the death or disability of
one or more of the directors within a three-month period, and other than by
reason of the holders of Series 1997-A Preferred exercising their rights to
elect directors in the event of a failure to pay dividends, a majority of the
members of the Board for any period of three consecutive months are not persons
who (A) had been directors of the Company for at least the preceding 24
consecutive months or (B) when they initially were elected to the Board, (x)
were nominated (if they were elected by the shareholders) or elected (if they
were elected by the directors) with the affirmative concurrence of 66-2/3% of
the directors who were Continuing Directors at the time of the nomination or
election by the Board and (y) were not elected as a result of an actual or
threatened solicitation of proxies or consents by a person other than the Board
or an agreement intended to avoid or settle such a proxy solicitation (the
directors described in clauses (A) and (B) of this subsection (iv) being
"Continuing Directors"); (v) the Company or a subsidiary of the Company ceases
to be the sole General Partner of the Operating Partnership or grants or sells
to any person, or consents to any amendment to the Partnership Agreement of the
Operating Partnership, or the organizational documents of the other
subsidiaries, which has the effect of transferring, the power to control or
direct the actions of the Operating Partnership or such other subsidiaries as if
such person (A) is a general partner of the Operating Partnership or (B) is a
limited partner of the Operating Partnership with consent or approval rights
greater than the consent or approval rights held by the limited partners of the
Operating Partnership on the date hereof; or (vi) the Operating Partnership is a
party to any entity conversion or any merger or consolidation in which the
Operating Partnership is not surviving entity in such merger or consolidation or
in which the effect is of the nature set forth in the next preceding clause (v).
Upon liquidation, dissolution or winding-up of the Company, holders of
Series 1997-A Preferred will be entitled to receive at their option either (i)
out of the assets of the Company available for distribution to shareholders and
before any payment to holders of Common Stock, an amount per share equal to 115%
of the sum of the Stated Value and all accrued and unpaid dividends if such
event occurs before September 25, 2002, 110% of such sum if such event occurs on
or after September 25, 2002 but before September 25, 2003, 105% of such sum if
such event occurs on or after September 25, 2003 but before September 25, 2004
and 100% of such sum if such event occurs on or after September 25, 2004 or (ii)
Common Stock on conversion of their Series 1997-A Preferred. Notwithstanding the
foregoing, if such event occurs as a result of the adoption and implementation
of a plan of liquidation pursuant to rights granted to shareholders in the
Company's Certificate (see "-- Termination"), then holders of Series 1997-A
Preferred who voted in favor of the adoption of such plan will be entitled to
receive at their option either (i) an amount per share equal to the 100% of the
sum of the Stated Value and all accrued and unpaid dividends or (ii) Common
Stock on conversion of their Series 1997-A Preferred.
Each share of Series 1997-A Preferred is convertible at the option of
the holder beginning September 19, 1998 into 2.0619 shares of Common Stock,
based on a conversion price of $12.125 per share of Common Stock. The conversion
price is subject to adjustment in certain events. Based on the sale price of
$11.00 per share of Common Stock in connection with the Offering, the conversion
price has been adjusted to $11.8848 per share of Common Stock or 2.1035 shares
of Common Stock for each share of Series 1997-A Preferred. Further, the
conversion price in effect from time to time will be reduced to 50% of such
price in the event of the Company's failure to comply with certain of the terms
of the Series 1997-A Preferred. After September 25, 2002, the Company has the
right to convert at any time and from time to time not less than 500,000 shares
of Series 1997-A Preferred on not less
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than 90 nor more than 120 days' notice into a number of shares of Common Stock
equal to the product of (i) the number of shares of Series 1997-A Preferred to
be converted and (ii) the sum of the Stated Value and all accrued and unpaid
dividends divided by the conversion price then in effect. Such mandatory
conversion is permitted only if the Common Stock has traded above the conversion
price for 20 of the 30 consecutive trading days immediately prior to both the
notice date and the mandatory conversion date, including the date immediately
prior to both the notice date and the mandatory conversion date. Notwithstanding
the Company's mandatory conversion right, each holder of Series 1997-A Preferred
will have the right upon receipt of a mandatory conversion notice to require the
Company to redeem any or all of such holder's shares of Series 1997-A Preferred
at a redemption price per share equal to 110% of the sum of the Stated Value and
all accrued and unpaid dividends. The Company in turn may elect to deliver to
each holder of Series 1997-A Preferred who has elected such cash payment option
such number of shares of Common Stock as equals the quotient of (i) the product
of 104%, the redemption price and the number of shares of Series 1997-A
Preferred noticed for redemption and (ii) the current market price of the
Company's Common Stock.
In the event of the Company's termination as a REIT, each holder of
Series 1997-A Preferred will have the right to require the Company to redeem any
or all of such holder's shares of Series 1997-A Preferred at a redemption price
per share equal to 115% of the sum of the Stated Value and all accrued and
unpaid dividends.
The terms of the Series 1997-A Preferred provide that it will rank
prior to any other series of Preferred Stock, prior to Common Stock and prior to
any other class or series of capital stock of the Company with respect to the
payment of dividends, the right to redemption and the distribution preference in
the event of a change in ownership or the liquidation, dissolution or winding-up
of the Company. Except as otherwise agreed to in the Stock Purchase Agreement
among the Company, Westbrook and Westbrook Berkshire Holdings, L.L.C., pursuant
to which the shares of Series 1997-A Preferred were issued and sold, holders of
Series 1997-A Preferred have no preemptive rights.
Warrants
Three million warrants were admitted to trading on the NYSE on
September 7, 1994. Upon exercise, each warrant entitles the holder to the right
to acquire one share of Common Stock. The warrants are exercisable until
September 8, 1998. The exercise price was $10.75 until September 7, 1995, and
$11.79 thereafter. As of October 30, 1997, 2,969 shares of Common Stock had been
issued upon exercise of warrants, and 2,997,031 warrants remained outstanding.
Charter and By-Law Provisions
General. Shareholders' rights and related matters are governed by the
Delaware General Corporation Law and the Company's Organizational Documents.
Certain provisions of the Organizational Documents, which are summarized below,
may make it more difficult to change the composition of the Board of Directors
and may discourage or make more difficult any attempt by a person or group to
obtain control of the Company.
Voting Requirements. Holders of shares of Common Stock of the Company
and Series 1997-A Preferred (voting on an as converted basis with the holders of
shares of Common Stock although part of the same class), by a majority or
supermajority vote, may take certain actions, including approving amendments to
the Company's Certificate. Any such change, if approved by the holders of the
requisite number of shares, would be binding on all nonconsenting shareholders.
Under the Organizational Documents, a supermajority vote is required in order to
amend those portions of the Organizational Documents which concern: (1) the
definition of "supermajority"; (2) the requirements
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for amending the Organizational Documents; (3) the requirements regarding Excess
Share ownership (see "-- Restrictions on the Ownership and Transfer of Excess
Shares"); (4) the actions which require a supermajority vote; (5) the
requirements regarding business combinations (see "-- Business Combinations");
(6) the staggering of the terms of the Directors; (7) the limitation of the
liability of Directors; and (8) the perpetual life of the Company. A
"supermajority" vote is defined to mean the vote or consent of shareholders
owning at least 66-2/3% of the outstanding shares of capital stock entitled at
the time to vote on the election of Directors. In addition, holders of shares of
Series 1997-A Preferred have the special voting rights described under
"Preferred Stock -- Series 1997-A Preferred Stock." Shareholders may not take
action by written consent without a meeting.
Special Meetings. Special meetings may be called, to address specific
Company matters, by the Chairman of the Board, the President of the Company or a
majority of the Directors or independent Directors. Holders of shares of Common
Stock may not call a special meeting.
Staggered Board of Directors. The Certificate classifies the Directors,
concerning the term of their respective directorships, into three classes, one
of which is elected annually.
Advance Notice of Shareholder Proposals and Nominations of Directors.
The By-Laws of the Company provide that no matter proposed by a shareholder will
be considered at any annual meeting or special meeting of shareholders unless
notice of such matter is provided to the Company not less than 50 days, nor more
than 150 days, before the scheduled meeting. If, however, less than 70 days'
notice of the scheduled meeting is given, the Company must receive notice of
shareholder proposals by the close of business on the fifteenth day following
the day such notice was mailed. Furthermore, subject to the special rights of
holders of Series 1997-A Preferred with respect to the election of directors,
shareholders are not permitted to nominate individuals to serve as Directors
unless notice of such nomination is given to the Company not less than 60 days,
nor more than 150 days, before a scheduled annual meeting. If, however, on the
day notice is given to shareholders of such annual meeting less than 70 days
remain until such meeting, the Company must receive notice of a shareholder
nomination within 10 days of such day.
The provisions for a classified Board, together with related provisions
designed to strengthen the position of the Board by (i) providing for
limitations on the removal of Directors and the filling of vacancies on the
Board, (ii) requiring that shareholder action be taken only at an annual meeting
or a special meeting and limiting the ability of shareholders to call special
meetings, (iii) prescribing procedures for the advance notice of shareholder
proposals and nominations of Directors by the shareholders and (iv) requiring a
supermajority vote to effect changes in certain provisions, have the overall
effect of making it more difficult to acquire and exercise control of the
Company and to remove incumbent officers and Directors, providing such officers
and Directors with enhanced ability to retain their positions. Such provisions
may also limit shareholder participation in certain types of transactions that
might be proposed whether or not such transactions were favored by a majority of
shareholders.
Business Combinations
The Organizational Documents affirmatively adopt Section 203 of the
Delaware General Corporation Law, which prohibits Interested Shareholders (as
defined below) from engaging in a Business Combination with the Company.
Accordingly, the Organizational Documents provide that the Company shall not
engage in any Business Combination (as defined below) with any Interested
Shareholder for a period of three years following the time that such shareholder
became an Interested Shareholder, unless: (a) prior to such time, the Board
approved either the Business Combination or the transaction which resulted in
the shareholder becoming an Interested Shareholder; or (b) upon consummation of
the transaction which resulted in the shareholder becoming an Interested
Shareholder,
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the Interested Shareholder owned at least 85% of the shares of the voting shares
of the Company then outstanding, excluding shares held by Directors who are also
officers of the Company and employees' stock plans in which employees do not
have the right to determine confidentially whether shares held by the plan will
be tendered in a tender or exchange offer; or (c) at or subsequent to such time,
the Business Combination is approved by the Board and authorized by a
supermajority vote, excluding the shares owned by the Interested Shareholder.
The term "Business Combination" is defined to include, among other things, a
merger or consolidation of the Company with, or caused by, an Interested
Shareholder and other specified transactions which would have the effect of the
Interested Shareholder gaining control of the Company. An "Interested
Shareholder" includes, among others, any person owning 15% or more of the
outstanding voting shares of the Company; provided, however that the term
"Interested Shareholder" does not include any person whose ownership of shares
in excess of 15% is the result of action taken solely by the Company. In that
event, such person would be considered an Interested Shareholder if he
thereafter acquired additional voting shares of the Company, except as a result
of further Company action not caused by such Interested Shareholder.
The provisions of the Organizational Documents concerning Business
Combinations and the restriction on the transfer of shares which are described
above cannot be changed except by amendment to the Organizational Documents by a
supermajority vote.
Pursuant to the Delaware General Corporation Law, the Company cannot
merge with or sell all or substantially all of the assets of the Company, except
pursuant to a resolution approved by the affirmative vote of a majority of the
outstanding shares entitled to vote on the resolution. In addition, the
Partnership Agreement requires that any merger or sale of all or substantially
all of the assets of or dissolution of the Operating Partnership be approved by
the affirmative vote of a majority of the outstanding Units.
Shareholder Rights Plan
It is possible that the Board may adopt a Shareholder Rights Plan (a
plan intended to force the initiator of a hostile takeover to negotiate by
granting the shareholders rights to buy shares at a bargain price). Such a Plan
(i) may have the effect of discouraging changes of control of the Company, and
(ii) may limit the opportunity of a shareholder to receive a premium for his or
her shares in the event an investor is making purchases to assemble a block of
shares.
Restrictions on the Ownership and Transfer of Excess Shares
For the Company to qualify as a REIT under the Code, not more than 50%
of its outstanding shares may be owned by five or fewer individuals during the
last half of the year, and the shares of Common Stock must be owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Furthermore, the Company cannot
own, directly or by attribution, 10% or more of any tenant of a property or a
property securing a mortgage loan investment from which the Company is entitled
to receive an additional equity return. The Organizational Documents (1) provide
that if any person or group of affiliated persons directly or indirectly
acquires ownership, in the aggregate, of more than 9.8% of the then outstanding
shares of capital stock ("Excess Shares") such Excess Shares shall be deprived
of voting rights, shall not be included in any quorum count and any dividends
and distributions on such shares shall be paid into an escrow account payable to
the holder of the Excess Shares at the time they cease to be Excess Shares, and
(2) empower the Board (i) to refuse to permit any transfer of shares of capital
stock which, in its sole discretion, would jeopardize the status of the Company
as a REIT and (ii) to repurchase any Excess Shares to maintain or bring the
ownership of shares into conformity with such 9.8% limit. The
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9.8% limitation on ownership of shares of Common Stock encompasses shares held
directly or indirectly as a result of options, warrants or other convertible
securities.
The Company may require each proposed transferee of shares of capital
stock to deliver a statement or affidavit setting forth the number of shares, if
any, already owned, directly, indirectly or by attribution by such transferee
and may refuse to permit any transfer of shares which would cause an
accumulation of shares that would jeopardize the status of the Company as a
REIT. A shareholder who knowingly holds Excess Shares is required to indemnify
the Company for any losses the Company may suffer as a result of such holdings.
Excess Shares shall be deemed to be offered for sale to the Company or
its designees. The purchase price will be the average closing sales price as
reported by the NYSE during the 30-day period ending on the business day prior
to the purchase date. The Organizational Documents further provide that the
purchase price may be paid in the form of a promissory note of the Company.
However, if the person from whom the Excess Shares were purchased sells a like
number of his or her remaining shares within 30 days of the purchase date, then
the Company shall rescind the purchase of the Excess Shares unless counsel to
the Company is of the opinion that such rescission would jeopardize the
Company's tax status as a REIT. In that event, in lieu of rescission, the
Company shall make immediate payment for the shares.
Such provisions do not apply to the acquisition of shares by an
underwriter in a public offering by the Company or to any transaction involving
the issuance of shares by the Company when its qualification as a REIT would not
be jeopardized. Such provisions did not apply to the issuance and sale of the
Series 1997-A Preferred or to the Offering.
The provisions of the Organizational Documents concerning Excess Shares
cannot be changed except by amendment of the Organizational Documents by a
supermajority vote.
Termination
The Company may be dissolved at any time by supermajority vote and,
otherwise, pursuant to the procedure set forth in the Delaware General
Corporation Law. In 1991 when it commenced operations as a REIT, the Company
granted the shareholders the right to vote on its continued existence after a
period of approximately seven and one-half years of operations. Therefore, the
Certificate requires the Company's Board of Directors to prepare and submit to
the shareholders on or before December 31, 1998 a proposal to liquidate the
Company's assets and distribute the net proceeds of such liquidation. The
liquidation proposal will become effective only if approved by shareholders
holding a majority of voting shares then outstanding.
Limitation of Directors' Liability
The Company's Certificate provides for indemnification of its officers
and Directors to the fullest extent permitted by Sections 145 and 102(b)(7) of
the Delaware General Corporation Law and relieves the Directors of certain
monetary liabilities to the Company and its shareholders. In general, Delaware
law permits the Company to indemnify its officers and Directors so long as they
act in good faith and in a manner reasonably believed by them to be in, or not
opposed to, the best interests of the Company. Subject to the provisions of
Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the Company
intends to indemnify its officers and Directors against losses, liabilities and
expenses (including attorneys' fees) incurred by them that are related to their
being officers or Directors of the Company.
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Transfer Agent
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company.
DESCRIPTION OF UNITS AND REDEMPTION OF UNITS
General
Unitholders may, subject to certain limitations, require the Operating
Partnership to convert all or a portion of their Units (the "Redemption Right").
This Redemption Right shall be exercised pursuant to an exercise notice
delivered to the Operating Partnership specifying the Units to be converted by
such Unitholder (the "Exercise Notice"). Upon receipt of the Exercise Notice,
the Company will, in its discretion, convert each Unit specified in the Exercise
Notice into a share of Common Stock (subject to certain adjustments in the event
of stock dividends and stock splits), or redeem each such Unit for cash in an
amount equal to the Market Value (as defined below) of a share of Common Stock
(subject to the same adjustments); provided, however, that if the Unitholder has
registration rights for shares received upon conversion of Units in accordance
with a Registration Rights Agreement, the Unitholder may indicate in his
Exercise Notice that the conversion of his Units into shares shall be
conditioned upon the effectiveness of the registration of such shares under the
securities laws. The "Market Value" of the Common Stock for purposes of
conversion of Units will be equal to the average of the closing trading price of
the Common Stock for the five trading days prior to the day on which the
Exercise Notice was received by the Operating Partnership.
The Company anticipates that it generally will elect to acquire any
Units specified in an Exercise Notice by the issuance of a like number of shares
of Common Stock (the "redemption shares"). Such an acquisition by the Company
will be treated as a sale of the Units to the Company for federal income tax
purposes. See "-- Tax Consequences of Redemption." Upon a redemption for cash, a
Unitholder's right to receive distributions with respect to the Units redeemed
will cease. Upon the receipt of redemption shares, a Unitholder will have rights
as a shareholder of the Company, including the right to receive dividends from
the time of its acquisition of the redemption shares.
In no event may a Unitholder notify the Company of its desire to
require the Operating Partnership to redeem Units that were issued less than one
year before the date of the Exercise Notice. No redemption can occur if the
delivery of redemption shares would be prohibited under the provisions of the
Company's Organizational Documents to protect the Company's qualification as a
REIT.
Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Unitholder should he or she exercise
his or her right to redeem his Units.
Tax Treatment of Exchange or Redemption of Units. If the Company elects
to purchase Units tendered for redemption, such transaction will be treated as a
sale fully taxable to the Unitholder, and the Unitholder will be treated as
realizing for tax purposes an amount equal to the sum of the cash value or the
value of the Common Stock received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the redeemed Units at the time of
the redemption. The determination of the amount of gain or loss is discussed
more fully below. If the Company elects to redeem a Unitholder's Units for cash
and the Operating Partnership redeems such Units for cash that the Company
contributes to the Operating Partnership to effect such redemption, the
redemption likely also would be treated for tax purposes as a sale of such Units
to the Company in a fully taxable transaction,
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although such a result is not certain. In that event, the Unitholder would be
treated as realizing an amount equal to the sum of the cash received in the
exchange plus the amount of any Operating Partnership liabilities allocable to
the redeemed Units at the time of the redemption. The determination of the
amount and character of gain or loss in the event of such a sale is discussed
more fully below. See "- Tax Treatment of Disposition of Units by a Unitholder
Generally."
If the Company does not elect to purchase Units tendered for redemption
and the Operating Partnership redeems a Unitholder's Units for cash that is not
contributed by the Company to effect the redemption, the tax consequences would
be the same as described in the previous paragraph, except that, if the
Operating Partnership redeems less than all of a Unitholder's Units, the
Unitholder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash,
plus the amount of any Operating Partnership liabilities allocable to the
redeemed Units, exceeded the Unitholder's adjusted basis in all of its Units
immediately before the redemption.
If the Company contributes cash to the Operating Partnership to effect
a redemption, and in the event that the redemption transaction is treated as the
redemption of a Unitholder's Units by the Operating Partnership rather than a
sale of Units to the Company, the income tax consequences to the Unitholder
would be as described in the preceding paragraph.
Tax Treatment of Disposition of Units by a Unitholder Generally. If a
Unit is disposed of in a manner that is treated as a sale of the Unit, or a
Unitholder otherwise disposes of a Unit, the determination of gain or loss from
the sale or other disposition will be based on the difference between the amount
considered realized for tax purposes and the adjusted tax basis in such Unit.
See "- Basis of Units." Upon the sale of a Unit, the "amount realized" will be
measured by the sum of the cash and fair market value of other property (i.e.,
redemption shares) received plus the amount of any Operating Partnership
liabilities allocable to the Units sold. To the extent that the amount of cash
or property received plus the allocable share of any Operating Partnership
liabilities exceeds the limited partner's adjusted tax basis in the Units
disposed of, such Unitholder will recognize gain. It is possible that the amount
of gain recognized or even the tax liability resulting from such gain could
exceed the amount of cash and/or the value of any other property (i.e.,
redemption shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a Unitholder's share of "unrealized
receivables" of the Operating Partnership (as defined in Section 751 of the
Code) exceeds the basis attributed to those assets, such excess will be treated
as ordinary income. Unrealized receivables include, to the extent not previously
included in Operating Partnership income, any rights to payment for services
rendered or to be rendered. Unrealized receivables also include amounts that
would be subject to recapture as ordinary income if the Operating Partnership
had sold its assets at their fair market value at the time of the transfer of a
Unit.
Basis of Units. In general, a Unitholder who acquired his or her Units
by contribution of property and/or money to the Operating Partnership had an
initial tax basis in his Units ("Initial Basis") equal to the sum of (i) the
amount of money contributed (or deemed contributed as described below) and (ii)
his adjusted tax basis in any other property contributed in exchange for such
Units, and less the amount of any money distributed (or deemed distributed, as
described below) in connection with the acquisition of the Units. The Initial
Basis of Units acquired by other means would have been determined under the
general rules of the Code, including the partnership provisions, governing the
determination of tax basis. Other rules, including the "disguised sale" rules
discussed below, also may affect Initial Basis, and Unitholders are urged to
consult their own tax advisors regarding their Initial
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Basis. Generally, a Unitholder's Initial Basis in his Units is increased by (i)
such Unitholder's share of Operating Partnership taxable and tax-exempt income
and (ii) increases in such Unitholder's allocable share of liabilities of the
Operating Partnership. Conversely, a Unitholder's basis in his Units is
decreased (but not below zero) by (a) such Unitholder's share of Operating
Partnership distributions, (b) decreases in such Unitholder's allocable share of
liabilities of the Operating Partnership, (c) such Unitholder's share of losses
of the Operating Partnership, and (d) such Unitholder's share of nondeductible
expenditures of the Operating Partnership that are not chargeable to his capital
account.
Potential Application of the Disguised Sale Regulations to a Redemption
of Units. There is a risk that a redemption by the Operating Partnership of
Units issued in exchange for a contribution of property to the Operating
Partnership may cause the original transfer of property to the Operating
Partnership in exchange for Units to be treated as a "disguised sale" of
property. Section 707 of the Code and the Treasury Regulations thereunder (the
"Disguised Sale Regulations") generally provide that, unless one of the
prescribed exceptions is applicable, a partner's contribution of property to a
partnership and a simultaneous or subsequent transfer of money or other
consideration (which may include the assumption of or taking subject to a
liability) from the partnership to the partner will be presumed to be a sale, in
whole or in part, of such property by the partner to the partnership. Further,
the Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property, the transaction is presumed to be a sale of the contributed property
unless the facts and circumstances clearly establish that the transfer did not
constitute a sale. The Disguised Sale Regulations also provide that if two years
have passed between the transfer of money or other consideration and the
contribution of property, the transaction will be presumed not to be a sale
unless the facts and circumstances clearly establish that the transfer
constitutes a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership from a
Unitholder who holds Units that were issued in exchange for a contribution of
property to the Operating Partnership, the IRS could contend that the Disguised
Sale Regulations apply because the Unitholder will thus receive cash subsequent
to a previous contribution of property to the Operating Partnership. In that
event, the IRS could contend that the contribution was taxable as a disguised
sale under the Disguised Sale Regulations. Any gain recognized thereby may be
eligible for installment reporting under Section 453 of the Code, subject to
certain limitations. In addition, in such event, the Disguised Sale Regulations
might apply to cause a portion of the proceeds received by a redeeming
Unitholder to be characterized as original issue discount on a deferred
obligation which would be taxable as interest income in accordance with the
provisions of Section 1272 of the Code. Each Unitholder is advised to consult
its own tax advisors to determine whether redemption of its Units could be
subject to the Disguised Sale Regulations.
Comparison of Ownership of Units and Common Stock
The nature of an investment in Common Stock of the Company is generally
economically equivalent to an investment in Units in the Operating Partnership.
There are, however, some differences between ownership of Units and ownership of
Common Stock, some of which may be material to investors. The information below
highlights a number of significant differences between the Operating Partnership
and the Company relating to, among other things, form of organization, permitted
investments, policies and restrictions, management structure, compensation and
fees, investor rights and federal income taxation and compares certain legal
rights associated with the ownership of Units and Common Stock, respectively.
These comparisons are intended to assist Unitholders in understanding how their
investment will be changed if their Units are acquired for Common Stock. This
discussion is summary in nature and does not constitute a complete discussion of
these matters,
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and investors should carefully review the balance of this Prospectus and the
Registration Statement of which this Prospectus is a part for additional
important information about the Company.
Form of Organization and Assets Owned. The Operating Partnership is
organized as a Delaware limited partnership. A substantial amount of the
Company's operations are conducted through the Operating Partnership which,
directly or through subsidiaries, owns the Properties.
The Company is organized under the laws of the State of Delaware. The
Company maintains both a special limited partner interest and, through its
wholly owned direct subsidiary, the General Partner, a general partner interest
in the Operating Partnership, which gives the Company an indirect investment in
the Properties and other assets owned by the Operating Partnership. As of
November 14, 1997, the Company held approximately 82.6% of the partnership
interests in the Operating Partnership. Such interest may increase as Units are
redeemed for cash or acquired by the Company or decrease as additional assets
are acquired in exchange for Units in the Operating Partnership.
Term of the Operating Partnership. The Operating Partnership has a
stated termination date of December 31, 2095, although it may be terminated
earlier under certain circumstances. The Company has a perpetual term and,
unless the shareholders vote to liquidate, intends to continue its operations
for an indefinite time period. See "Description of the Capital Stock of the
Company - Termination."
Purpose and Permitted Investments. The purpose of the Operating
Partnership as stated in its Partnership Agreement may be summarized as the
acquisition, sale, operation, development, financing, mortgaging and leasing of
real estate and interests in real estate including the Properties. The
Partnership Agreement requires the business of the Operating Partnership to be
conducted in such a manner that will permit the Company to be classified as a
REIT for federal income tax purposes. The Operating Partnership may, subject to
the foregoing limitation, invest or enter into partnerships, joint ventures or
similar arrangements and may own interests in any other entity.
Under its Certificate, the Company may engage in any lawful activity
permitted under the Delaware General Corporation Law. Under the Partnership
Agreement, the General Partner of the Operating Partnership is responsible for
the management of the Operating Partnership's business and affairs and has full
and complete power, authority and discretion to take such action on behalf of
the Operating Partnership as it deems necessary or appropriate in order to carry
out the purposes of the Operating Partnership. However, the General Partner may
not do any act in contravention of the Partnership Agreement or applicable law
nor may the General Partner possess any Operating Partnership property or assign
any rights in such property for other than Operating Partnership purposes. The
Company agrees that all of its activities and business operations shall be
conducted directly or indirectly through the Operating Partnership.
Additional Equity. The Operating Partnership is authorized to issue
Units and other partnership interests to its partners or to other persons for
such consideration and on such terms and conditions as the General Partner, in
its sole discretion, may deem appropriate.
The Board of Directors of the Company may authorize the issuance of
shares of capital stock of any class, whether now or hereafter authorized, or
securities or rights, convertible into shares of capital stock, for such
consideration as the Board of Directors may deem advisable, subject to such
restrictions or limitations as may be set forth in the Company's Organizational
Documents. The proceeds from the issue of equity capital by the Company will be
contributed to the Operating Partnership in exchange for Units or other
interests in the Operating Partnership.
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Borrowing Policies. The Partnership Agreement imposes no restrictions
on the Operating Partnership on borrowings, and the General Partner has full
power and authority to borrow money on behalf of the Operating Partnership.
The Company is not restricted under its governing instruments from
incurring borrowings. The Company has, however, adopted a policy that limits
Company debt to 50% of the value of its assets. See "Risk Factors." The
foregoing reflects the Company's general policy over time and is not intended to
operate in a manner that inappropriately restricts the Company's ability to
raise additional capital, including additional debt, to implement its planned
growth, to pursue attractive acquisition opportunities that may arise or to
otherwise act in a manner that the Board of Directors believes to be in the best
interests of the Company and its shareholders. The Board of Directors, with the
assistance of management of the Company, may re-evaluate from time to time its
debt and other capitalization policies in light of then current economic
conditions, including the relative costs of debt and equity capital, the market
value of its properties, growth and acquisition opportunities, and the market
value of its equity securities in relation to the Company's view of the market
value of its properties, and may modify its debt policy. Such modification may
include increasing or decreasing its ratio of debt to value or substituting
another measuring standard.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions upon the
Operating Partnership's authority to enter into certain transactions, including,
among others, making investments, lending Operating Partnership funds, or
reinvesting the Operating Partnership's cash flow and net sale or refinancing
proceeds.
The Company's Organizational Documents do not impose any restrictions
upon the types of investments that may be made by the Company.
Management Control. All management powers over the business and affairs
of the Operating Partnership are vested in the General Partner, and no limited
partner of the Operating Partnership has any right to participate in or exercise
control or management power over the business and affairs of the Operating
Partnership. The General Partner may not be removed by the limited partners
(other than by the Company as special limited partner) with or without cause.
The Board of Directors has exclusive control over the Company's
business and affairs subject only to the restrictions in the Organizational
Documents. The Board of Directors is divided into three classes. At each annual
meeting of the shareholders, the successors of the class of directors whose
terms expire at that meeting will be elected. The policies adopted by the Board
of Directors may be altered or eliminated without advice of the shareholders.
Accordingly, except for their vote in the elections of directors, shareholders
have no control over the ordinary business policies of the Company.
Management Liability and Indemnification. The Partnership Agreement
generally provides that the General Partner will incur no liability to the
Operating Partnership or any limited partner for losses sustained or liabilities
incurred as a result of any act or omission if the General Partner or its
affiliates, directors, officers, shareholders and such other persons acting in
its or their behalf acted in good faith and in the belief that such conduct was
in, or not opposed to, the best interests of the Operating Partnership. The
Partnership Agreement also provides for indemnification of the General Partner,
the Company, the directors, officers and shareholders of the General Partner and
the Company, and such other persons acting on its or their behalf, against
expenses, judgments, fines and amounts paid in settlement arising from any
threatened, pending or completed actions, suits or proceedings that relate to
the operations of the Operating Partnership in which such person may be
involved.
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The Company's Organizational Documents provide certain limitations on
the liability of the Company's directors and officers for monetary damages to
the Company. The Organizational Documents obligate the Company to indemnify its
Directors and officers, and permit the Company to indemnify its employees and
other agents, against certain liabilities incurred in connection with their
service in such capacities. These provisions could reduce the legal remedies
available to the Company and the shareholders against these individuals.
The Company's By-Laws require it to indemnify its officers, directors
and certain other parties to the fullest extent permitted from time to time by
Delaware law. The Delaware General Corporation Law permits a corporation to
indemnify any present or former director, officer, employee or agent who has
been successful on the merits or otherwise in the defense of any action, suit or
proceeding or in defense of any claim, issue or matter therein, to which he or
she was made a party by reason of his or her service in that capacity, against
reasonable expenses incurred by him or her in connection therewith provided it
is established that (i) he or she acted in good faith and in a manner which he
or she reasonably believed to be in, or not opposed to, the best interests of
the Company; or (ii) in the case of a criminal proceeding, he or she had no
reasonable cause to believe that his or her conduct was unlawful. The Delaware
General Corporation Law also permits the Company to provide indemnification and
advance expenses to a present or former Director or officer who served a
predecessor of the Company in such capacity, and to any employer or agent of the
Company or a predecessor of the Company. The Company has purchased director and
officer liability insurance for the purpose of providing a source of funds to
help pay for any indemnification expenses it may incur. It is the position of
the SEC that indemnification of directors and officers for liabilities under the
Securities Act is against public policy and unenforceable pursuant to Section 14
of the Securities Act.
Anti-takeover Provisions. The General Partner has exclusive management
power over the business and affairs of the Operating Partnership, and the
Partnership Agreement makes no provision for the removal of the General Partner
by the limited partners (other than the special limited partner).
The Organizational Documents of the Company and Delaware law contain a
number of provisions that may have the effect of delaying or discouraging an
unsolicited proposal for the acquisition of the Company or the removal of
incumbent management.
Voting Rights. Under the Partnership Agreement, the limited partners do
not have voting rights relating to the operation and management of the Operating
Partnership except in connection with certain amendments to the Partnership
Agreement.
Shareholders of the Company have the right to vote, among other things,
on a merger or sale of substantially all of the asserts of the Company, certain
amendments to the Certificate and dissolution of the Company. The Company is
managed and controlled by a Board of Directors consisting of three classes
having staggered terms of office. Each class is to be elected by the
shareholders at annual meetings of the Company. Each share of Common Stock has
one vote, and the Certificate permits the Board of Directors to classify and
issue Preferred Stock in one or more series having voting power which may differ
from that of the Common Stock.
Amendment of the Partnership Agreement or the Company's Certificate.
Amendments to the Partnership Agreement may be proposed by the General Partner
and generally require approval of limited partners (including the special
limited partner) holding a majority of the outstanding limited partner
interests. Certain amendments that would, among other things, reduce any limited
partner's interest in the Operating Partnership or his, her or its share of
distributions, create any obligations or
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impair any right of a limited partner must be approved by the General Partner,
and each limited partner that would be adversely affected by any such amendment.
Amendments to the Company's Certificate, its term, certain changes to
its capital stock provisions, changes to the powers of the Board of Directors,
removal of a director, the excess shares and REIT qualification provisions, the
business combinations provision, shareholder action, the staggered board,
limitation on liability, standards for evaluation of tender, merger and purchase
offers, and amendment of the By-Laws must be approved by the Board of Directors
and by affirmative vote of the holders of not less than two-thirds of all votes
entitled to be cast on the matter. Other matters require an affirmative vote by
a majority of the shareholders.
Vote Required to Dissolve the Operating Partnership or the Company.
Under Delaware limited partnership law, the Operating Partnership may be
dissolved, other than in accordance with the terms of the Partnership Agreement,
only upon the written consent of all of the partners, the withdrawal of the
general partner without replacement or judicial decree. Under Delaware
corporation law, the Board of Directors must obtain the approval of holders of
not less than a majority of all outstanding shares of capital stock of the
Company in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
the limited partners of the Operating Partnership do not have voting rights with
respect to the sale, exchange, transfer or other disposition of all or
substantially all of its assets, including by way of merger or consolidation or
other combination of the Operating Partnership.
Under Delaware law and the Company's Certificate, the sale of all or
substantially all of the assets of the Company or any merger or consolidation or
dissolution requires the approval of the Board of Directors and the affirmative
vote of a majority of all the votes entitled to be cast on the matter. No
approval of the shareholders is required for the sale of less than all or
substantially all of the Company's assets.
Compensation, Fees and Distributions. The General Partner does not
receive any compensation for its services as general partner of the Operating
Partnership. As a partner in the Operating Partnership, however, the General
Partner and the Company have the same right to allocations and distributions as
other partners of the Operating Partnership. In addition, the Operating
Partnership will reimburse the General Partner and the Company for all expenses
incurred relating to the ownership and operation of, or for the benefit of, the
Operating Partnership.
The directors and officers of the Company receive compensation for
their services.
Liability of Investors. Under the Partnership Agreement and applicable
Delaware law, limited partners generally are not liable for the debts and
obligations of the Operating Partnership unless they are also a general partner
or participate in the control of the business.
Under Delaware law, shareholders generally are not liable for the debts
or obligations of the Company. See "Description of the Capital Stock of the
Company."
Nature of Investment. The Units constitute equity interests entitling
holders thereof to their pro rata share of cash distributions made to the
limited partners of the Operating Partnership. The Company and the General
Partner are entitled to receive their respective pro rata shares of
distributions made by the Operating Partnership with respect to their interests
in the Operating Partnership.
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Shares of Common Stock constitute equity interests in the Company. Each
shareholder will be entitled to his pro rata share of any dividends or
distributions paid with respect to Common Stock. The dividends payable to the
shareholders are not fixed in amount and are paid only if, when and as declared
by the Board of Directors.
Potential Dilution of Rights. The General Partner is authorized, in its
sole discretion and without limited partner approval, to cause the Operating
Partnership to issue additional limited partnership interests and other equity
securities for any partnership purpose at any time to the limited partners or to
other persons on terms established by the General Partner.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and has the authority to issue from the
authorized capital stock a variety of other equity securities of the Company
with such powers, preferences and rights as the Board of Directors may designate
at the time. The issuance of additional shares of Common Stock or other similar
equity securities may result in the dilution of interests of the shareholders.
Liquidity. Subject to certain limitations and exceptions, after any
applicable lock-out period, the Unitholders may transfer Units with or without
the consent of the General Partner. However, the General Partner, in its sole
and absolute discretion, may or may not consent to the admission as substituted
limited partner of any transferee of such Units. If the General Partner does not
consent to the admission of a transferee as a substituted limited partner, the
transferee shall be considered an assignee of an economic interest in the
Operating Partnership but will not be a holder of Units for any other purpose;
accordingly, the assignee will not be permitted to vote on any affairs or issues
on which a limited partner may vote.
The Common Stock is listed on the NYSE. The breadth and strength of
this market will depend, among other things, upon the number of shares
outstanding, the Company's financial results and prospects, the general interest
in the Company's real estate investments and the Company's dividend yield
compared to that of other debt and equity securities.
REGISTRATION RIGHTS
The registration of the Redemption Shares pursuant to this Registration
Statement of which this Prospectus is a part will discharge the Company's
obligations with respect to such Redemption Shares to the Unitholders under the
terms of a Registration Rights Agreement (the "Registration Rights Agreement")
which the Company entered into in connection with the issuance of the Units. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the Registration Rights Agreement.
Under the Registration Rights Agreement, at any time after the Units
can be tendered to the Company for redemption and until the earlier of the date
on which all the Redemption Shares issued to the Unitholders have become
eligible for sale pursuant to (a) a registration statement effectively
registering the Redemption Shares under the Securities Act, or (b) Rule 144
promulgated under the Securities Act, the Unitholders may request that the
Company cause to be filed a "shelf registration statement" (a "Shelf
Registration") covering the Redemption Shares; provided, however, that the
Company shall not be required to provide a registration statement with respect
to Redemption Shares if (i) an effective Shelf Registration has been filed with
respect to said shares and has been kept effective for at least ninety (90)
days, (ii) said shares have been sold pursuant to either the Shelf Registration
or Rule 144 under the Securities Act, or (iii) said shares are capable of being
sold pursuant to Rule 144. The Company shall not be obligated to file a Shelf
Registration Statement pursuant to the terms of the Registration Rights
Agreement more often than once during any 12-month period. This Registration
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Statement of which this Prospectus is a part was filed on the initiative of the
Company to accommodate the Unitholders and it is the present intention of the
Company to maintain its effectiveness for two years, although the Company
reserves the right to suspend the issue of Redemption Shares pursuant to it at
its discretion or to terminate its effectiveness. As long as the Registration
Statement of which this Prospectus is a part remains effective, the Redemption
Shares held by the Unitholders when issued by the Company pursuant to this
Prospectus will not require the benefits of the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company has agreed
to pay all expenses incurred in the registration of the Redemption Shares (other
than selling commissions and discounts, brokerage fees and transfer taxes or any
legal, accounting and other expenses incurred by the Unitholders thereunder).
The Company also has agreed to indemnify the Unitholders under the Shelf
Registration and its officers, directors and other affiliated persons and any
person who controls the Unitholders against any and all losses, claims, damages
and expenses arising under the securities laws in connection with the
Registration Statement or this Prospectus, subject to certain limitations. In
addition, the Unitholders have agreed to indemnify the Company and its
Directors, officers and any person who controls the Company against all losses,
claims, damages and expenses arising under the securities laws insofar as such
loss, claim, damage or expense relates to written information furnished to the
Company by the Unitholders for use in the Shelf Registration or Prospectus or an
amendment or supplement thereto. The Company is not required to indemnify the
Unitholders for the failure by the Unitholders to deliver or cause to be
delivered the Prospectus or any amendment or supplement hereto to any purchaser
from the Unitholders of shares covered by the Shelf Registration.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following summary of material federal income tax considerations
that may be relevant to a holder of Common Stock is based on current law, and is
not intended as tax advice. The following discussion, which is not exhaustive of
all possible tax considerations, does not include a detailed discussion of any
state, local or foreign tax considerations. Nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER
OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
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Taxation of the Company
General. The Company has elected to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ended December 31,
1991. The Company believes that it has been organized and operated in a manner
so as to qualify for taxation as a REIT under the Code, and the Company intends
to continue to operate in such a manner. No assurance, however, can be given
that the Company has operated in a manner so as to qualify as a REIT or will
continue to operate in a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon the Company's ability to meet,
on a continuing basis, through actual annual operating results, distribution
levels, diversity of stock ownership, and the various other qualification tests
imposed under the Code on REITs, some of which are summarized below. While the
Company intends to operate so that it will qualify as a REIT, given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations and the possibility of future changes in circumstances of the
Company, no assurance can be given that the Company will so qualify for any
particular year. See "-- Failure to Qualify."
In the opinion of Peabody & Brown, counsel to the Company ("Counsel"),
commencing with its taxable year ended December 31, 1991, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT under the Code and the proposed method of operation of the Company and
the Operating Partnership will enable the Company to continue to meet the
requirements for qualification and taxation as a REIT. It must be emphasized
that Counsel's opinion is based on various assumptions and is conditioned upon
certain representations made by the Company, the Operating Partnership and the
Operating Subsidiaries as to factual matters. In addition, Counsel's opinion is
based upon factual representations of the Company concerning its business and
properties, and the business and properties of the Operating Partnership and the
Operating Subsidiaries. Unlike a tax ruling, an opinion of counsel is not
binding upon the IRS and no assurance can be given that the IRS will not
challenge the status of the Company as a REIT. Moreover, such qualification and
taxation as a REIT depend upon the Company's ability to meet, through actual
annual operating results, distribution levels, diversity of stock ownership and
various other qualification tests imposed under the Code discussed below, the
results of which will not be reviewed by Counsel. Accordingly, no assurance can
be given that the actual results of the Company's operation for any one taxable
year will satisfy such requirements. See "-- Failure to Qualify."
The following is a general summary of the Code provisions that govern
the federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on net income that it distributes
currently to its shareholders. This treatment substantially eliminates the
"double taxation" (taxation at both the corporate and shareholder levels) that
generally results from an investment in a corporation. However, the Company will
be subject to federal income or excise tax as follows: (i) the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains; (ii) under certain circumstances, the Company
may be subject to the "alternative minimum tax" on its items of tax preference,
if any; (iii) if the Company has (1) by reason of a foreclosure or otherwise on
default of a loan secured by the property) that is held primarily for sale to
customers in the ordinary course of business or (2) other nonqualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income; (iv) if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than dispositions of foreclosure property, and,
as a result of the Taxpayer Relief Act of 1997, enacted August 5, 1997 (the
"Taxpayer Relief
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Act"), effective for the Company's taxable year ending December 31, 1998,
dispositions of property that occur due to involuntary conversion) held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax; (v) if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability; (vi) if the Company should fail to distribute with respect to
each calendar year at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain net income for such year, and (3)
any undistributed taxable income from prior years, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed; (vii) if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation and the Company subsequently recognizes gain on the
disposition of such asset during the 10-year period (the "Recognition Period")
beginning on the date on which the asset was acquired by the Company (or the
Company first qualified as a REIT), then the excess of (1) the fair market value
of the asset as of the beginning of the applicable Recognition Period, over (2)
the REIT's adjusted basis in such asset as of the beginning of such Recognition
Period will be subject to tax at the highest regular corporate rate (pursuant to
Treasury Regulations issued by the IRS which have not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
Common Stock, or by transferable certificates of beneficial interest; (iii) that
would be taxable as a domestic corporation but for Sections 856 through 859 of
the Code; (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) that has the calendar year as its
taxable year; (vi) the beneficial ownership of which is held by 100 or more
persons; (vii) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities);
and (viii) that meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
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. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. The Company believes that it currently
satisfies conditions (vi) and (vii). In addition, the Company's Organizational
Documents include restrictions regarding the transfer of the Company's Common
Stock that are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (vi) and (vii) above. See "Description of
the Capital Stock of the Company -- Restrictions on the Ownership and Transfer
of Excess Shares." In addition, the Company intends to continue to comply with
the Treasury Regulations requiring it to ascertain the actual ownership of its
shares. The Taxpayer Relief Act eliminates the rule that a failure to comply
with these regulations will result in a loss of REIT status. Instead, a failure
to comply with these regulations will result in a fine. This provision will be
effective for the Company's taxable year ending December 31, 1998.
The Company has several "qualified REIT subsidiaries." A corporation
that is a "qualified REIT subsidiary" is not treated as a separate corporation
for federal income tax purposes, and all assets, liabilities and items of
income, deduction and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities and items of the REIT. In applying the requirements
described herein, any "qualified REIT subsidiary" of the Company will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiary will be treated as assets, liabilities and items of the
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Company. Any "qualified REIT subsidiary" of the Company is therefore not be
subject to federal corporate income taxation, although it may be subject to
state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership are treated as assets, liabilities and items of income of
the Company for purposes of applying the requirements described herein, provided
that the Operating Partnership is treated as a partnership for federal income
tax purposes. See "Other Tax Considerations -- Effect of Tax Status of the
Operating Partnership on REIT Qualification."
Income Tests. In order to qualify as a REIT, there are three gross
income requirements that must be satisfied annually. First, at least 75% of the
REIT'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" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% gross income test,
and from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. The
Taxpayer Relief Act repeals the 30% gross income test for taxable years
beginning after its enactment. Thus, the 30% gross income test will no longer
apply after the Company's taxable year ending December 31, 1997.
Rents received by a REIT 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 term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or in direct owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased 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, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the Company derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." The Taxpayer Relief Act provides a de minimis rule
for non-customary services which is effective for taxable years beginning after
August 5, 1997. If the value of the non-customary service income with respect to
a property (valued at no less than 150% of the Company's direct costs of
performing such services) is 1% or less of the total income derived from the
property, then all rental income except the non-customary service income will
quality as "rents from
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real property." This provision will be effective for the Company's taxable year
ending December 31, 1998.
The Company does not anticipate charging rent that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a fixed percentage or percentages of receipts of sales consistent with the
rule described above). The Company does not anticipate receiving more than a de
minimis amount of rents from any Related Party Tenants. The Company does not
anticipate deriving rent attributable to personal property leased in connection
with real property that exceeds 15% of the total rents.
The Company provides certain services with respect to the Properties
through the Operating Partnership, which is not an "independent contractor."
However, the Company believes that all of such services are considered "usually
or customarily rendered" in connection with the rental of space for occupancy
only, so that the provision of such services do not jeopardize the qualification
of rent from the Properties as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ "independent contractors" to provide such services.
If the Company fails to satisfy one or both of the 75% or the 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 generally will be available if the Company's failure to
meet any 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 the 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, even if these relief provisions
were to apply, a tax would be imposed on certain excess net 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: (i) at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company has an interest and (ii) stock or debt
instruments purchased with the proceeds of a stock offering on long-term (at
least five years) debt offering of the Company and held for not more than one
year following the receipt by the Company of such proceeds), cash, cash items
and government securities; (ii) not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class; and
(iii) of the investments included in the 25% asset class, the value of any one
issuer's securities (other than an interest in a partnership or shares of a
"qualified REIT subsidiary" or 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 (other than an
interest in a partnership or securities of a "qualified REIT subsidiary" or
another REIT).
After initially meeting the asset tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests and plans to take such
other action within 30 days after the close of any quarter as may be required to
cure any noncompliance. However, there can be no assurance that such other
action will always be successful.
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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 (i) the sum of (A) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT'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
noncash income (including, as a result of the Taxpayer Relief Act of 1997, inter
alia, cancellation of indebtedness and original issue discount income). Such
distributions must be paid during the taxable year to which they relate (or
during the following taxable year, if declared before the Company timely files
its tax return for the preceding year and 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 "REIT taxable income," as adjusted, it will be subject to tax
on the undistributed amount at regular corporate capital gains rates and
ordinary income tax rates. Furthermore, if the Company fails to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income of such year, (ii) 95% of its REIT capital gain income for such year and
(iii) any undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such amounts over the amounts
actually distributed. In addition, if the Company disposes of any asset subject
to the Built-In Gain Rule during its Recognition Period, the Company will be
required to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, it is expected that the
Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating Partnership
authorizes the General Partner to take such steps as may be necessary to cause
the Operating Partnership to make distributions to its partners of amounts
sufficient to permit the Company to meet these distribution requirements. It is
possible, however, 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 the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at REIT taxable income of the Company, or due to an excess
of nondeductible expenses such as principal amortization or capital expenditures
over noncash deductions such as depreciation. In the event that such
circumstances do occur, then in order to meet the 95% distribution requirement,
the Company may cause the Operating Partnership to arrange for short-term, or
possibly long-term, borrowings to permit the payment of required 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 that 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 would be required to pay to the IRS 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 special 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 as a REIT will not be deductible, 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 in the Code,
corporate distributees may be eligible for the "dividends received deduction."
Unless entitled to relief under specific statutory provisions, the Company also
will 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.
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Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate shareholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as gains from the sale or
exchange of a capital asset held for more than one year (to the extent they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held its stock. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. The Taxpayer Relief Act provides that,
beginning with the Company's taxable year ending December 31, 1998, if the
Company elects to retain and pay income tax on any net long-term capital gain,
domestic shareholders of the Company would include in their income as long-term
capital gain their proportionate share of such net long-term capital gain. A
domestic shareholder would also receive a refundable tax credit for such
shareholder's proportionate share of the tax paid by the Company on such
retained capital gains and an increase in its basis in the stock of the Company
in an amount equal to the difference between the undistributed long-term capital
gains and the amount of tax paid by the Company. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a shareholder's Common Stock, they will be included in income as capital gain,
assuming the Common Stock is a capital asset in the hands of the shareholder. In
addition, any dividend declared by the Company in October, November or December
of any year and payable to a shareholder of record on a specific 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 during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of Common Stock equal to the difference between (i) the amount
of cash and the fair market value of any property received on such disposition,
and (ii) the shareholder's adjusted basis of such Common Stock. For dispositions
after July 28, 1997, the Taxpayer Relief Act provides that such gain or loss
will generally constitute either short-term, mid-term, or long-term capital gain
or loss depending on the length of time the shareholder has held such shares.
Under the Taxpayer Relief Act, an individual, trust or estate that holds shares
of Common Stock for more than 18 months will generally be subject to a maximum
tax of 20% on gains from the sale or disposition of such shares. See "-- Recent
Legislation." Loss upon a sale or exchange of Common Stock by a shareholder who
has held such Common Stock 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 from the Company required to be treated by such shareholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
shareholders and the IRS the amount of dividends paid during each calendar year
and the amount of tax withheld, if any, with respect thereto. 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 (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number and
certifies as to no loss of exemption, and otherwise complies with the applicable
requirements of the backup withholdings rules. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
The United States
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Treasury has recently issued proposed regulations regarding the withholding and
information reporting rules discussed above. In general, the proposed
regulations do not alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
and modify reliance standards. If finalized in their current form, the proposed
regulations would generally be effective for payments made after December 31,
1997, subject to certain transition rules.
In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders which fail to certify their
non foreign status to the Company. See "- Taxation of Foreign Shareholders."
Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt entity.
Based on that ruling, the dividend income from the Common Stock will not be UBTI
to a tax-exempt shareholder, provided that the tax-exempt shareholder has not
held its shares of Common Stock as "debt financed property" within the meaning
of the Code and such shares are not otherwise used in a trade or business.
Similarly, income from the sale of Common Stock 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.
Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401 (a) of the Code and is tax-exempt under Section 501(a) of the
Code (a "qualified trust") and which holds more than 10% (by value) of the
interests in the REIT. A REIT is a "pension held REIT" if (i) it would not have
qualified as a REIT but for the application of a "look-through" exception to the
"not closely held" requirement applicable to qualified trusts, and (ii) either
(A) at least one such qualified trust holds more than 25% (by value) of the
interests in the REIT, or (B) one or more such qualified trusts, each of which
owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the gross
income (less direct expenses related thereto) of the REIT from unrelated trades
or businesses (determined as if the REIT were a qualified trust) to (ii) the
total gross income (less direct expenses related thereto) of the REIT. A de
minimis exception applies where this percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to qualified trusts. As a result of certain limitations on transfer and
ownership of Common Stock contained in the Organizational Documents, the Company
does not expect to be classified as a "pension held REIT."
Taxation of Foreign Shareholders. The rules governing United States
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 summary of such rules. Prospective Non-U.S. Shareholders should consult
with their own tax advisors to determine the impact of federal, state, and local
income tax laws with regard to an investment in shares, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws.
In general, Non-U.S. Shareholders will be subject to regular United
States federal income taxation with respect to their investment in shares of
Common Stock in the same manner as a U.S. Shareholder (i.e., at graduated rate
on a net basis, after allowance of deductions) if such investment is
"effectively connected" with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States. A Non-U.S. Shareholder that is a corporation
and that receives income with respect to its investment in shares of Common
Stock that is (or is treated as) "effectively connected" with the
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conduct of a trade or business in the United States may also be subject to the
30% branch profits tax imposed under Section 884 of the Code, which is payable
in addition to the regular United State corporate income tax. The following
discussion addresses only the federal income taxation of Non-U.S. Shareholders
whose investment in shares of Common Stock is not "effectively connected" with
the conduct of trade or business in the United States. Prospective investors
whose investment in shares of Common Stock may be "effectively connected" with
the conduct of a United States trade or business should consult their own tax
advisors as to the tax consequences thereof.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gains dividends will be treated as dividends or ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. 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 availability of reduced tax treaty rate. Under proposed Treasury
Regulations, not currently in effect, however, a Non-U.S. Shareholder who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
certain certification and other requirements. Distributions made by the Company
in excess of its current and accumulate earnings and profits will not be taxable
to a shareholder to the extent they do not exceed the adjusted basis of the
shareholder's shares, but rather will reduce the adjusted basis of such shares
(but not below zero). To the extent that such distributions exceed the adjusted
basis of the Non-U.S. Shareholder's shares, they will give rise to tax liability
if the Non-U.S. Shareholder would otherwise be subject to tax on any gain from
the sale or disposition of his shares in the Company, as described below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that the Company does not do so any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%. 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 or accumulated earnings and
profits of the Company, and the amount withheld exceeded the Non-U.S.
Shareholder's United States tax liability, if any, with respect to the
distribution.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sale or exchanges by the Company of United
States 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
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with the conduct of a
United States trade or business. Non-U.S. Shareholders would thus be taxed at
the normal capital gain rate applicable to U.S. Shareholders (subject to
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals), without regard as to whether such
distributions are designated by the Company as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profit tax in the
hands of a foreign corporate shareholder not entitled to treaty exemption. The
Company is required by Treasury Regulations to withhold 35% of any distribution
to a Non-U.S. Shareholder that could be designated by the Company as a capital
gain dividend. This amount is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
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Gain recognized by the Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during
specified testing period less than 50% in value of its stock was held directly
or indirectly by foreign persons. The Company believes that it will be a
domestically controlled REIT and therefore, that the sale of its shares will not
be subject to taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will continue to so
qualify.
Notwithstanding the foregoing, gain from the sale or exchange of shares
of Company stock not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
If the Company does not qualify as or ceases to be a
"domestically-controlled REIT," whether gain arising from the sale or exchange
by a Non-U.S. Shareholder of shares of Common Stock would be subject to U.S.
taxation under FIRPTA will depend on whether the shares are "regularly traded"
(as defined in applicable Treasury Regulations) on an established securities
market (such as the NYSE on which the Common Stock is traded) and on the size of
the selling Non-U.S. Shareholder's interest in the Company. 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 a domestic shareholder with respect to
such gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the shares would be required to withhold and
remit to the IRS 10% of the purchase price.
Other Tax Considerations
Effect of Tax Status of the Operating Partnership on REIT
Qualification. The Company believes that the Operating Partnership is properly
treated as a partnership for tax purposes (and not as an association taxable as
a corporation). If, however, the Operating Partnership is treated as an
association taxable as a corporation, the Company would cease to qualify as a
REIT. Furthermore, in such a situation, the Operating Partnership would be
subject to corporate income taxes and the Company would not be able to deduct
its share of any losses generated by the Operating Partnership in computing its
taxable income.
Tax Allocations with Respect to the Properties. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Properties). When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as a "Book-Tax Difference"). The Partnership Agreement
of the Operating Partnership requires allocations of income, gain, loss and
deduction with respect to contributed property to be made in a manner consistent
with the special rules in Section 704(c) of the Code, and the regulations
thereunder, which tend to eliminate the Book-Tax Differences with respect to the
contributed properties over the life of the Operating Partnership. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed properties in the hands of the
Operating Partnership could cause the Company to be allocated lower amounts of
depreciation and other deductions for tax purposes
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or increased gain on a sale or disposition of a Property by the Company than
would be allocated to the Company if all properties were to have a tax basis
equal to their fair market value at the time of acquisition. The foregoing
principles also apply in determining the earnings and profits of the Company for
purposes of determining the portion of distributions taxable as dividend income.
The application of these rules over time may result in a higher portion of
distributions being taxed as dividends than would have occurred had the Company
purchased its interests in the properties at their agreed value.
State and Local Taxes. 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
should consult with their own tax advisors regarding the effect of state, local
and other tax laws of any investment in the Common Stock of the Company.
In particular, the State of Texas imposes a franchise tax upon
corporations and limited liability companies that do business in Texas,
including REITs that are organized as corporations. The Texas franchise tax
imposed on a corporation doing business in Texas is generally equal to the
greater of (i) .25% of "taxable capital" (generally, financial accounting net
worth with certain adjustments) apportioned to Texas; or (ii) 4.5% of "taxable
earned surplus" (generally, federal taxable income with certain adjustments)
apportioned to Texas. A corporation's taxable capital and taxable earned surplus
are apportioned to Texas based upon a fraction, the numerator of which is the
corporation's gross receipts from business transacted in Texas and the
denominator of which is the corporation's gross receipts from all sources. The
office of the Texas State Comptroller of Public Accounts (the "Comptroller"),
the agency that administers the Texas franchise tax, has issued a regulation
providing that a corporation is not considered to be doing business in Texas for
Texas franchise tax purposes merely because the corporation owns an interest as
a limited partner in a limited partnership that does business in Texas. The same
regulation provides, however, that a corporation is considered to be doing
business in Texas if it owns an interest as a general partner in a partnership
that does business in Texas. This regulation applies for purposes of the net
taxable capital component of the Texas franchise tax. The Comptroller has not
made a similar public determination with regard to the earned surplus component.
The Comptroller has also expressed, although not in a formal regulation, that a
corporation is not considered to be doing business in Texas for Texas franchise
tax purposes merely because the corporation owns stock in another corporation
that does business in Texas.
The Company, organized as a Delaware corporation, is a limited partner
in the Operating Partnership and is not otherwise doing business in Texas.
Accordingly, the Company should not be subject to Texas franchise tax. However,
the General Partner, organized as a corporation, is the general partner of a
partnership doing business in Texas (i.e., the Operating Partnership) and has
registered in the State of Texas as a foreign corporation qualified to transact
business in Texas. Accordingly, the General Partner is subject to Texas
franchise tax. The Operating Subsidiaries, to the extent those organizations are
corporations deemed to be doing business in Texas, will be subject to the Texas
franchise tax.
There is no assurance that the Comptroller will not contend that the
Company will be doing business in Texas for Texas franchise tax purposes. First,
no assurance exists that the Comptroller will not revoke the pronouncements
described above and contend that the activities of the Company constitute the
doing of business in Texas. Second, as noted above, it is not clear whether the
Comptroller considers these pronouncements equally applicable to the tax on net
taxable earned surplus. Third, no assurance exists that the Comptroller will not
contend that in light of the overall structure of the Company, the Operating
Partnership, and the Operating Subsidiaries, the
41
<PAGE>
pronouncements are otherwise inapplicable. If any of the preceding were to
occur, the Company may be subject to Texas franchise tax on income earned from
its limited partnership interest in the Operating Partnership.
The Operating Partnership itself will not be subject to the Texas
franchise tax under the laws in existence at the time of this Prospectus. There
is no assurance, however, that the Texas legislature will not expand the scope
of the franchise tax to apply to limited partnerships such as the Operating
Partnership.
Recent Legislation
In addition to changes to the requirements for qualification and
taxation as a REIT discussed above, the Taxpayer Relief Act also contains
significant changes to the taxation of capital gains of individuals, trusts and
estates. For gains realized after July 28, 1997, and subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets held for more than 18
months has been reduced to 20%, and the maximum rate is reduced to 18% for
assets acquired after December 31, 2000 and held for more than five years. The
maximum rate for long-term capital gains attributable to the sale of depreciable
real property held for more than 18 months is 25% to the extent of the
deductions for depreciation with respect to such property. Long-term capital
gain allocated to a shareholder by the Company will be subject to the 25% rate
to the extent that the gain does not exceed depreciation on real property sold
by the Company. The maximum rate of capital gains tax for capital assets held
for more than one year but not more than 18 months remains at 28%. The taxation
of capital gains of corporations was not changed by the Taxpayer Relief Act.
Unitholders are urged to consult their own tax advisors with respect to
the appropriateness of an investment in the Common Stock and with respect to the
tax consequences arising under the federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences arising
from such Unitholder's own tax characteristics. In particular, foreign investors
should consult their own tax advisors concerning the tax consequences of an
investment in the Company including the possibility of United States income tax
withholding on Company distributions.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the issuance of any
Redemption Shares, but will acquire Units tendered to the Operating Partnership
for redemption for which it elects to issue Redemption Shares. The shares of
Common Stock offered hereby may be sold from time to time on the NYSE on terms
to be determined at the time of such sales.
The shares of Common Stock offered hereby may be sold from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at varying prices determined at the time of sale or at negotiated prices.
The Company will pay substantially all the expenses incurred by the
Unitholders and the Company incident to the offering, but excluding any selling
commissions or discounts, brokerage fees, transfer taxes or the fees or expenses
of any counsel, accountants or other representatives retained by the
Unitholders.
The Company has agreed to indemnify the Unitholders against certain
liabilities, including liabilities under the Securities Act.
42
<PAGE>
EXPERTS
The consolidated financial statements of Berkshire Realty Company, Inc.
and its subsidiaries, included in the report on Form 10-K/A of the Company for
the fiscal year ended December 31, 1996 referred to above have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
dated February 13, 1997, except for Note Q, for which the date is February 28,
1997, accompanying such financial statements, and are incorporated herein by
reference in reliance upon the report of such firm, which report is given upon
their authority as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by
reference in the Registration Statement of which this Prospectus is a part that
have been audited and are the subject of a report by independent accountants
will be so incorporated by reference in reliance upon such reports and upon the
authority of such firms as experts in accounting and auditing to the extent
covered by consents filed with the Commission.
LEGAL MATTERS
The validity of the issuance of the Redemption Shares will be passed
upon for the Company by Peabody & Brown, Boston, Massachusetts.
43
<PAGE>
================================================================================
No dealer, salesperson or any other individual has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create an implication that there
has been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
------------------------
TABLE OF CONTENTS
Page
----
Available Information....................... 1
Incorporation of Certain Documents
by Reference............................. 1
Risk Factors................................ 2
The Company................................. 11
Description of the Capital Stock
of the Company........................... 16
Description of Units and
Redemption of Units...................... 23
Registration Rights......................... 30
Federal Income Tax Considerations........... 31
Plan of Distribution........................ 42
Experts..................................... 43
Legal Matters............................... 43
2,891,475 Shares
BERKSHIRE REALTY
COMPANY, INC.
Common Stock
----------------
PROSPECTUS
_______ __, 1997
------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Registration fee to the SEC .......................... $ 9,600
Printing expense...................................... 2,000
Accounting fees and expenses.......................... 2,000
Legal fees and expenses............................... 10,000
Miscellaneous expenses................................ 1,000
-------
Total.............................................. $24,666
=======
All fees and expenses are estimates except for the registration fee
to the SEC.
Item 15. Indemnification of Directors and Officers.
The Company's Certificate provides for indemnification of the
Company's officers and Directors to the fullest extent permitted by Sections 145
and 102(b)(7) of the Delaware General Corporation Law and relieves the Directors
of certain monetary liabilities to the Company and its shareholders. In general,
Delaware law permits the Company to indemnify its officers and Directors so long
as they act in good faith and in a manner reasonably believed by them to be in,
or not opposed to, the best interests of the Company. Subject to the provisions
of Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the
Company intends to indemnify its officers and Directors against losses,
liabilities and expenses (including attorneys' fees) incurred by them that are
related to their being officers or Directors of the Company.
The Company has purchased director and officer liability insurance for
the purpose of providing a source of funds to help pay for any indemnification
expenses it may incur.
Item 16. Exhibits
Exhibit
Numbers Description
------- -----------
**4.1 Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibits 3.1 to the
Company's Registration Statement on Form S-4 and Exhibit 3.11
to Post-Effective Amendment No. 1 thereto (File No. 33-37592).
**4.2 Certificate of Designation designating 2,737,000 shares of
Series 1997-A Convertible Preferred Stock, incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated October 14, 1997, as amended by Form 8-K/A
dated November 5, 1997 (File No. 1-10660).
**4.3 By-Laws of the Company, as amended, incorporated by reference
to Exhibit 3(ii) to the Company's Current Report on Form 8-K,
dated October 14, 1997 as amended by Form 8-K/A dated November
5, 1997 (File No. 1-10660).
<PAGE>
**4.4 Form of Common Stock Certificate, incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on Form
S-4 (No. 33-37592), dated November 2, 1990, as amended.
**5.1 Opinion regarding legality.
**8.1 Opinion regarding certain tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Peabody & Brown (included in Exhibit 5.1 hereto).
**24.1 Power of Attorney (included on signature page hereto).
- ---------------------------
* To be filed by post-effective amendment or by a current report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as appropriate.
** Previously filed.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
most recent post-effective amendment thereof) which,
individually, or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement
<PAGE>
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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, 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
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant for expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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 whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirement 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-3 and has duly caused its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Boston, Massachusetts, on December 4, 1997.
BERKSHIRE REALTY COMPANY, INC.
By: /s/ David F. Marshall
------------------------------------------
David F. Marshall, President,
Chief Executive Officer and
Director of Berkshire Realty Company, Inc.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint David F. Marshall and Marianne
Pritchard jointly, and each of them severally, his/her true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, for
him/her and in his/her name, place and stead, in any and all capacities, to
execute and sign the Registration Statement filed herewith and any or all
amendments or post-effective amendments to this Registration Statement (or any
registration statement for the same offering that is to be effective upon filing
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 each of such attorneys-in-fact
and agents full power and authority to do and person each and every act and
thing requisite and necessary in connection with such matters as fully to all
intents and purposes as he/she might or could do in person, hereby ratifying and
confirming all that each such agent or attorney-in-fact and his/her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Douglas Krupp* Chairman of the Board and Director of Berkshire December 4, 1997
- ------------------------------- Realty Company, Inc.
Douglas Krupp
/s/ David F. Marshall President, Chief Executive Officer and Director December 4, 1997
- ------------------------------- of Berkshire Realty Company, Inc.
David F. Marshall
<PAGE>
/s/ Marianne Pritchard* Senior Vice President and Chief Financial December 4, 1997
- ------------------------------- Officer of Berkshire Realty Company, Inc.
Marianne Pritchard
/s/ Terrance R. Ahern* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
Terrance R. Ahern
/s/ David M. deWilde* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
David M. deWilde
/s/ J. Paul Finnegan* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
J. Paul Finnegan
/s/ Charles N. Goldberg* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
Charles N. Goldberg
/s/ Paul D. Kazilionis* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
Paul D. Kazilionis
/s/ E. Robert Roskind* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
E. Robert Roskind
/s/ Arthur P. Solomon* Director of Berkshire Realty Company, Inc. December 4, 1997
- -------------------------------
Arthur P. Solomon
*By: /s/ David F. Marshall
- -------------------------------
David F. Marshall
Attorney-in-fact
</TABLE>
<PAGE>
Exhibit Index to Registration Statement on Form S-3
---------------------------------------------------
The following exhibits are filed as part of this Registration Statement on Form
S-3.
Exhibit
Numbers Description
- ------- -----------
**4.1 Restated Certificate of Incorporation of the Company, as amended,
incorporated by reference to Exhibits 3.1 to the Company's Registration
Statement on Form S-4 and Exhibit 3.11 to Post-Effective Amendment No.
1 thereto (File No. 33-37592).
**4.2 Certificate of Designation designating 2,737,000 shares of Series
1997-A Convertible Preferred Stock, incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated October
14, 1997, as amended by Form 8-K/A dated November 5, 1997 (File No.
1-10660).
**4.3 By-Laws of the Company, as amended, incorporated by reference to
Exhibit 3(ii) to the Company's Current Report on Form 8-K dated October
14, 1997, as amended by Form 8-K/A dated November 5, 1997 (File No.
1-10660).
**4.4 Form of Common Stock Certificate, incorporated by reference to Exhibit
4.5 to the Company's registration statement on Form S-4 (No. 33-37592),
dated November 2, 1990, as amended.
**5.1 Opinion regarding legality.
**8.1 Opinion regarding certain tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Peabody & Brown (included in Exhibit 5.1 hereto).
**24.1 Power of Attorney (included on the signature page hereto).
- ---------------------------
* To be filed by post-effective amendment or by a current report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as appropriate.
** Previously filed.
EXHIBIT 23.1
[Coopers & Lybrand Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement on Form S-3 of our report dated February 13, 1997, except for Note Q,
for which the date is February 28, 1997, on our audit of the consolidated
financial statements and financial statement schedule of the Berkshire Realty
Company, Inc. and its subsidiaries. We also consent to the references to our
firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 4, 1997
