UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-10660
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Berkshire Realty Company, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3086485
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue, Boston, Massachusetts 02210
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 423-2233
------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title Name of Exchange on which Registered
----- ------------------------------------
Common Stock New York Stock Exchange
$.01 par value
Warrants to purchase common stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K[ ].
Aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $244,838,298 as of December 31, 1996.
As of February 1, 1997 there were 25,393,369 shares of the registrant's common
stock outstanding.
Documents incorporated by reference: See Item 14 herein.
The exhibit index is located on pages 25-34.
The total number of pages in this document is 76.
<PAGE>
PART I
ITEM 1. BUSINESS
- -------
Organization
- ------------
Berkshire Realty Company, Inc. and Subsidiaries (the "Company") was formed
on April 26, 1990 and commenced operations on June 27, 1991, as an equity real
estate investment trust ("REIT"). The Company's several wholly-owned qualifying
REIT subsidiaries have been formed in connection with multi-family asset
acquisitions and financings. On June 4, 1991 at a special meeting, the
Unitholders of Krupp Cash Plus-III Limited Partnership and Krupp Cash Plus-IV
Limited Partnership (collectively the "Participating Cash Plus Partnerships")
voted in favor of and agreed to participate in an exchange (the "Exchange") with
the Company. On June 27, 1991, the Company, a Delaware corporation, exchanged
25,097,923 of its Shares for the assets, subject to the liabilities, of the
Participating Cash Plus Partnerships. The Participating Cash Plus Partnerships
then distributed the Shares received in the Exchange to their respective
investors and the Participating Cash Plus Partnerships were then dissolved.
In 1995, the Company was restructured to an umbrella partnership real
estate investment trust ("UPREIT"). On May 1, 1995, the Company's assets,
subject to its liabilities, were transferred to a newly formed subsidiary
("Operating Partnership") of which the Company is the general partner and
currently 88.15% owner. Upon transfer of its net assets, the Company was issued
25,392,452 units of the Operating Partnership ("Units") which was equal to the
number of Shares outstanding on May 1, 1995.
To permit the organization of the Operating Partnership, on May 1, 1995 an
affiliate of Berkshire Realty Advisor Limited Partnership ("Advisor"),
contributed $5,000 and The River Oaks Apartments subject to mortgage debt of
$5.4 million on May 1, 1995 at a valuation of $10,500,000 approved by the
independent members of the Board of Directors. The seller received 534,975
Units for its interest ("Minority Interest") in the Operating Partnership in
exchange for the property. Under the agreement, the Company may not sell the
River Oaks Apartments for a period of three years following the closing date.
The contribution was accounted for using the purchase method. The River Oaks is
a 17-story, 136-unit, multi-family complex located in the exclusive River Oaks
area of Houston, Texas.
On March 1, 1996 the Company acquired, via contribution, the advisory and
development services business (the "Advisor Transaction") of the Berkshire
Companies Limited Partnership, in exchange for 1,300,000 newly issued Units of
the Operating Partnership. Additional Units, up to a total of $7.2 million, may
be issued to the transferor during a six-year period if certain Share price
benchmarks are achieved. (See Note C to the Consolidated Financial Statements).
The Units are convertible only upon shareholder approval. This acquisition
enabled the Company to assume the existing Advisory Services agreement which
eliminated fees previously incurred by the Company for asset management,
acquisition and disposition functions. The Company outsourced with affiliates of
certain directors and officers for certain administrative services such as
shareholder relations, computer systems and support, and legal services.
Besides becoming self-administered, the Board of Directors and management
determined that the Company should become self-managed. Subsequent to year end,
on February 26, 1997, based on the recommendation of a Special Committee of the
Independent Directors, the Board approved the acquisition of the multifamily
property management business of an affiliate of certain officers and directors
for 1,700,000 Units in the Operating Partnership. The transaction was valued at
$17.6 million (based on a $10.375 per share price), closed on February 28,
1997, and will be recorded as intangible assets and goodwill.
The Company has an infinite life, however the Company's Certificate of
Incorporation, as amended, requires the Company's Board of Directors (the
"Board") to prepare and submit a Plan of Liquidation to the Shareholders on or
before December 31, 1998. The Plan of Liquidation would become effective if
approved by Shareholders holding a majority of the Shares then outstanding.
Based upon current market conditions, management does not believe that it is
likely the shareholders would liquidate the Company. The Company is operating
under the assumption it will remain a going concern indefinitely.
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<PAGE>
Company Purpose
- ---------------
The purpose of the Company is to create value for shareholders through
skillful acquisition, development, rehabilitation and operation of apartment
communities. Providing residents a high quality living experience through
superior service-driven management is imperative to the Company's success.
Business Strategy
- -----------------
The Company continues its focus as a growth oriented equity REIT
specializing in the ownership and operation of quality apartment communities.
The Company is committed to maintaining a balance between prudent geographic
diversification and specific market specialization by limiting operations to a
specific group of carefully selected markets. While the Company primarily
invests in equity interests in real estate, it has also invested in multi-family
mortgage loans with the potential for subsequent ownership of the underlying
property.
The Company targets five regions to operate its multi-family communities:
Georgia/Tennessee, the Carolinas, Florida, Texas and the Maryland/D.C. area.
The Company has regional offices in these regions in order to provide our
residents with quality service.
The Company's business plan objectives are to increase shareholder returns
by a) improving the profitability of the existing real estate portfolio by
maximizing cash flows through higher occupancies, rent increases, low tenant
turnover and control of operating expenses, b) providing high quality services
and a superior living experience to our residents which meets market
requirements and the needs of residents, c) prudently acquiring and developing
quality apartment communities which provide a solid current return with
potential for increased cash flow through growth in occupancy and rental rates,
and d) selling properties if their retention will no longer contribute to the
achievement of the above-mentioned goals. In addition, the Company may implement
programs of expansion and renovation of any property to increase cash flow
growth and appreciation potential.
While Berkshire's long term plan is to hold its properties and increase
earnings, there are four reasons management will recommend a sale: 1) when a
property with a low yield potential can be sold with the proceeds reinvested at
a significantly higher yield; 2) when profit margins of a property are judged
too low and can be replaced by another property with better operating leverage;
3) when a property is the only property owned in a market in which the Company
does not plan to expand, or 4) when a specific market is judged to be going into
decline.
Financing Strategy
- ------------------
The Company's policy is to limit debt (including debt under lines of
credit) to 50% of the estimated fair value of assets. This prudent level of
debt should insure that debt service requirements are adequately funded with
operating cash flows.
The Company may seek additional capital through additional equity
offerings, debt offerings or retention of cash flows, or a combination thereof.
The net proceeds of any capital offering will be contributed to the Operating
Partnership in exchange for Units in the Operating Partnership. The Company may
also issue senior securities such as preferred stock or debt securities, which
may be convertible to stock. Additionally, the Company will continue to finance,
when possible, the acquisition of apartment communities in exchange for
Operating Partnership Units.
Other Matters
- -------------
The Company's real estate investments are subject to some seasonal
fluctuations resulting from changes in utility consumption and seasonal
maintenance expenditures. Future performance of the Company may be impacted by
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<PAGE>
unpredictable factors which include general and local economic and real estate
market conditions, variable interest rates, environmental concerns, energy
costs, government regulations and federal and state income tax laws. The
requirements for compliance with federal, state and local regulations to date
have not had an adverse effect on the Company's operations, and no adverse
effects are anticipated in the future.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of". This Statement requires that
long-lived assets be held and used by an entity are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
As of December 31, 1996, the Company has recorded $12 million in provisions
for losses on the wholly-owned and joint venture retail assets as a result of
the Company's strategic decision to divest of its retail portfolio over time
and redeploy proceeds in multifamily assets. In the third quarter of 1996, the
Company began actively marketing four of its wholly-owned retail centers, one
of which was sold in December 1996. As a result of these efforts, the Company
has reclassified these centers to assets held for sale and has recorded a
provision for losses of $4.2 million which represents the difference between
carrying value and estimated fair value less cost to sell. Depreciation will no
longer be recorded on these assets.
A fifth retail center, which is not currently for sale had a significant
lease restructuring during the third quarter of 1996. As a result of this
situation, the Company has recorded a provision for a loss of $3.3 million
which represents the difference between carrying value and estimated fair
value. Depreciation will be calculated on the adjusted book value of this asset.
Finally, one of the Company's joint venture investments, Brookwood Village,
recorded a $9 million provision for loss, of which $4.5 million represents the
Company's pro-rata share of the provision.
Employees
- ---------
At December 31, 1996, the Company had 704 employees.
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<PAGE>
ITEM 2. PROPERTY
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As of December 31, 1996, the Company had investments in 41 properties in 9
states consisting of 35 apartment communities having in the aggregate 12,435
units and 6 retail centers with a total of 1,568,811 square feet of leasable
space. Two of the retail centers are owned through joint ventures with
affiliates of the Company. In addition, the Company owns a mortgage loan
collateralized by a multi-family apartment complex located in Florida, two
development projects located in Greenville, South Carolina and Mauldin, South
Carolina totaling 296 units and 96 units, respectively, and two parcels of land
for future development located in Durham, North Carolina, and Dallas, Texas.
Schedule III and IV and Notes D, E and F to the Consolidated Financial
Statements included in Appendix A to this report contain additional detailed
information with respect to individual assets.
The Company's apartment communities and three of the wholly-owned retail
centers have been pledged as collateral for various debt incurred by the
Company.
The following table summarizes the Company's real estate investments at
December 31, 1996 and also sets forth the aggregate number of apartment units
and the amount of current leasable commercial square footage by geographic
region. The table does not reflect the value of the Company's investments.
<TABLE>
<CAPTION>
Wholly-Owned Joint Venture
------------ -------------
Region Multi-family Retail Retail Mortgage Loans
- ------ ------------ ------ ------ --------------
Properties Units Properties Sq.Ft. Properties Sq.Ft. Properties Units
---------- ----- ---------- ------ ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carolinas 10 3,133 - - - -
Georgia/
Tennessee 6 2,036 3 690,027 - -
Florida 6 1,752 1 83,962 - - 1 120
Texas 11 4,181 - - - -
Maryland/DC 1 1,119
Other 1 214 - - 2 794,822(1)
-- ----- - ------- - -------
35 12,435 4 773,989 2 794,822 1 120
== ====== = ======= = ======= = ===
</TABLE>
(1) The Company owns a 50.1% joint venture interest and a 50% joint
venture interest in these properties.
The following table provides a more detailed description of the individual
properties in which the Company has an interest at December 31, 1996. The
occupancy rates presented below are based on physical occupancy, without
reference to whether leases in effect are at, below, or above market rates and
without reference to lease-up incentives or concessions.
<TABLE>
<CAPTION>
Avg. Rent
Apartment Year Avg.Occupancy Per Apart.
Communities Location Acquired Units 1996 1995 1996
- ----------- -------- -------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Carolinas Region
- ----------------
South Carolina
Brookfield Trace(1)(6) Mauldin (Greenville) 1995 204 92% 97% $967
Brookwood Valley(6) Mauldin (Greenville) 1995 226 94% 97% 624
Howell Commons(6) Greenville 1988 348 92% 96% 518
Huntington Downs(6) Greenville 1988 502 94% 96% 600
The Oaks(6) Mauldin (Greenville) 1990 176 93% 97% 644
Roper Mountain(6) Greenville 1988 248 95% 98% 514
Stoneledge(6) Greenville 1988 320 92% 97% 538
North Carolina
Cumberland Cove (1)(6) Raleigh 1991 552 96% 98% 753
East Lake(6) Charlotte 1993 214 95% 98% 650
The Timbers(6) Charlotte 1993 343 95% 96% 575
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Avg. Rent
Year Avg. Occupancy Per Apart.
Apartment Communities Location Acquired Units 1996 1995 1996
- --------------------- -------- -------- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Georgia/Tennessee Region
- ------------------------
Georgia
Arbors at
Breckenridge(1)(6) Duluth (Atlanta) 1993 514 94% 95% $750
Avalon on
Abernathy(6) Atlanta 1992 240 95% 95% 891
Huntington Chase(1)(6) Norcross (Atlanta) 1993 467 93% 96% 776
Tennessee
- ---------
British Woods(6) Nashville 1995 264 93% 96% 646
Highland Ridge(6) Madison (Nashville) 1995 280 92% 94% 531
Windover(6) Knoxville 1995 271 90% 93% 588
Florida Region
- --------------
Altamonte Bay Club(6) Altamonte 1992 224 95% 94% 610
Springs (Orlando)
Lakes at Jacaranda(6) Plantation (Broward County) 1990 340 94% 92% 824
Newport(6) Tampa 1992 320 96% 96% 513
Park Colony(6) Hollywood (Broward County) 1994 316 95% 95% 759
Plantation Colony(6) Plantation (Broward County) 1993 256 95% 96% 750
Woodland Meadows(6) Tamarac (Broward County) 1992 296 97% 93% 668
Texas Region
- ------------
Benchmark (6) Irving (Dallas) 1996 250 95% N/A 579
Golf Side (6) Halton City (Dallas) 1996 402 90% N/A 442
Hunters Glen (6) Plano (Dallas) 1996 276 96% N/A 625
Indigo on Forest(3)(6) Dallas 1994 1,217 93% 84% 589
Kings Crossing (2)(6) Kingwood (Houston) 1994 404 92% 91% 614
Kingwood Lakes (2)(6) Kingwood (Houston) 1994 390 94% 84% 607
Pleasant Woods (6) Dallas 1996 208 95% N/A 548
Prescott Place (6) Mesquite 1996 318 95% N/A 499
Prescott Place II (6) Mesquite 1996 336 95% N/A 497
Providence (6) Dallas 1996 244 83% N/A 494
River Oaks(6) Houston 1995 136 92% 98% 1,994
D.C. Area
- ---------
Berkshire Towers (6) Silver Spring, Maryland 1996 1,119 91% N/A 827
Other
- -----
New York
Southpointe at
Massapequa(6) Massapequa, New York 1992 214 99% 98% 1,164
------ --- ---
Total 12,435 93% 94%
====== === ===
</TABLE>
<TABLE>
<CAPTION>
Retail Year Year End Occupancy
Property Location Acquired Sq.Ft. 1996 1995
- -------- -------- -------- ------ ---- ----
<S> <C> <C> <C> <C> <C>
Georgia/Tennessee Region
- ------------------------
Banks Crossing(6) Fayetteville (Atlanta) 1987 243,660 98% 100%
Crossroads(6) Jonesboro (Atlanta) 1987 211,186 98% 98%
Tara Crossing Jonesboro (Atlanta) 1987 235,181 90% 92%
Florida Region
- --------------
College Plaza Fort Myers 1987 83,962 95% 94%
Other Region
- ------------
Alabama
Brookwood Village (4) Birmingham 1986 474,138 93% 94%
New York
Spring Valley (5) Spring Valley 1988 320,684 98% 98%
---------
Total 1,568,811
=========
</TABLE>
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<PAGE>
(1) Occupancy figures for 1995 do not include units which were
constructed in 1995.
(2) The properties suffered extensive flood damage late in 1994
which impacted 1995 occupancies.
(3) Indigo underwent a significant tenant repositioning and
rehabilitation in late 1994 and 1995 which impacted
occupancies.
(4) The Company holds a 50% joint venture interest in this
property.
(5) The Company holds a 50.1% joint venture interest in this
property.
(6) These properties are pledged as collateral to outstanding debt.
See Notes H and I to the Consolidated Financial Statements
which are included in Appendix A to this report.
ITEM 3. LEGAL PROCEEDINGS
- -------
There are no material pending legal proceedings to which the Company is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
None.
-7-
<PAGE>
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NYSE under the symbol BRI. The
high and low prices of the Company's common stock based on a composite average
for each quarter during 1996 and 1995 and dividends declared for such common
stock are:
Dividends
Quarter Ended High Low Paid
------------- ---- --- ---------
March 31, 1996 10 3/8 9 3/4 $.225
June 30, 1996 11 9 7/8 .225
September 30, 1996 11 9 5/8 .225
December 31, 1996 10 1/4 9 3/8 .225
-----
$.900
=====
March 31, 1995 10 9 $.215
June 30, 1995 10 1/4 9 1/4 .225
September 30, 1995 10 3/8 9 1/2 .225
December 31, 1995 10 1/8 9 1/4 .225
-----
$.890
=====
The Company's common stock warrants are traded on the NYSE under the symbol
"BRI/WS". The warrants were admitted to trading on September 7, 1994, as
discussed below. The high and low prices of the Company warrants based on a
composite average for each quarter during 1996 and 1995 are:
Quarter Ended High Low
------------- ---- ---
March 31, 1996 $.69 $.50
June 30, 1996 .75 .56
September 30, 1996 .69 .44
December 31, 1996 .56 .31
March 31, 1995 $.75 $.56
June 30, 1995 .69 .38
September 30, 1995 .50 .31
December 31,1995 .75 .41
In 1994, a court ordered settlement of a class action-suit related to the
Exchange provided that the Company issue three million stock warrants to the
plaintiff class. Upon exercise, each stock warrant entitles the holder to the
right to acquire one share of common stock of the Company. For further
information see Note T to Notes to the Consolidated Financial Statement included
in Appendix A to this report.
The Company's practice is to review and declare its dividend quarterly, and
to establish a dividend rate that is supportable by funds from operations, after
considering capital expenditures necessary for the maintenance of the real
estate investments. On February 6, 1997, the Board approved a dividend of $.225
per Share payable on May 15, 1997 to the Shareholders of record on May 1, 1997.
The Company is authorized to repurchase or otherwise acquire Shares in the
open market or in negotiated transactions if the Board determines such actions
are in the best interest of the Company and of the Shareholders. Through
December 31, 1992, the Company had purchased a total of 506,497 shares for
approximately $1,743,075, inclusive of brokerage commissions. No shares have
been repurchased since that time.
As of January 31, 1997 there were approximately 28,400 holders of the
Company's common stock.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------
The following table sets forth selected financial information regarding the
Company's financial position. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto.
-9-
<PAGE>
<TABLE>
<CAPTION>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Amounts)
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Operating Data:
- ---------------
Rental revenue $89,451 $70,068 $63,222 $44,236 $34,493
Total revenues 93,002 74,441 68,470 50,071 39,602
Property operating
expenses including property
management fees 42,353 33,347 31,826 21,867 17,283
Depreciation and amortization 30,171 21,984 19,507 14,384 12,414
Provision for losses on
real estate investments (5) 7,500 - - - -
Interest expense 20,501 15,618 10,794 3,858 334
Joint venture net income(loss) (3,009) 1,407 1,178 1,137 1,057
Income (loss) from operations (15,178) 1,978 4,244 7,728 7,462
Gains (losses) on sales of
investments 58 15,603 4,069 - (152)
Non-recurring charges (1)(2)(3) (442) (1,728) (2,555) (1,225) -
Minority interest 1,418 (154) - - -
Extraordinary items (4) (164) (914) - - -
Net income (loss) (14,308) 14,786 5,757 6,503 7,310
Per Share Data:
- ---------------
Net income (loss) $(.56) $.58 $.23 $.26 $.29
Dividends paid $.90 $.89 $.86 $.80 $1.15
Weighted average
Shares outstanding 25,393,147 25,392,621 25,391,478 25,391,426 25,467,044
Balance Sheet Data:
- -------------------
Total Assets $569,670 $486,968 $458,207 $412,516 $342,482
Real estate, excluding
joint ventures, before
accumulated depreciation $585,795 $465,846 $448,058 $373,055 $296,380
Long-term fixed rate $206,837 $155,201 $88,279 - -
obligations
Other Information:
- ------------------
Apartment units owned,
end of year 12,435 9,433 9,385 7,554 5,721
</TABLE>
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<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(1) Non-recurring charges in 1993 and 1994 relate to the settlement of
litigation. See Note N to the Consolidated Financial Statements.
(2) The non-recurring charge in 1995 is related to costs associated with the
restructuring of the Company. See Note N to the Consolidated Financial
Statements.
(3) The non-recurring charge in 1996 is related to costs associated with the
restructuring of the Company and litigation related to a property
disposition. See Note N to the Consolidated Financial Statements.
(4) The extraordinary items in 1996 and 1995 relate to costs associated with
the refinancing or retirement of debt.
(5) As reflected in the Notes to the Consolidated Financial Statements,
the Company recorded a $7,500,000 provision for losses on its retail
assets which represents the difference between carrying value and
estimated fair value less cost to sell.
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<PAGE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- OF OPERATIONS
A. Overview and Organization:
--------------------------
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
The Company is a Real Estate Investment Trust ("REIT") whose operations
consist primarily of the acquisition, development, rehabilitation and management
of apartment communities located in the Southeast and Texas. As of December 31,
1996, the Company owns 35 apartment communities consisting of 12,435 units and
also has investments in six retail centers, two of which are held in joint
venture investments. Over the next two to three years, the Company expects the
retail properties will be marketed for sale and subsequently replaced with
multi-family properties. The Company also has approximately 320 multifamily
units under development.
UPREIT Reorganization:
----------------------
The Company reorganized as an Umbrella Partnership ("UPREIT") on May 1,
1995 whereby the Company contributed substantially all of its assets subject to
all liabilities to BRI OP Limited Partnership ("Operating Partnership") in which
the Company is General Partner. In addition, on May 1, 1995, George and Douglas
Krupp and other minority investors in GN Limited Partnership contributed River
Oaks Apartments in exchange for 534,975 units ("Units") in the Operating
Partnership. The Units are convertible to shares only upon shareholder approval.
The purpose of becoming an UPREIT is to allow the Company to offer Units in the
underlying Operating Partnership in exchange for assets from tax-motivated
sellers. Under certain circumstances, the exchange of Operating Partnership
Units for a seller's assets will defer the tax liability associated with the
sale. Effectively, this allows the Company to use Operating Partnership Units
instead of stock or cash to acquire properties which provides an advantage over
non-UPREIT entities.
Advisor Transaction:
--------------------
Until early 1996, the Company was advised by Berkshire Realty Advisors
("Advisor"), an affiliate of certain directors and officers of the Company,
including George and Douglas Krupp. The Board of Directors determined that it
was in the best interest of the shareholders to become self-advised.
Therefore, on February 28, 1996, the Board, acting on the recommendation of a
Special Committee comprised of the Independent Directors, approved the
acquisition via contribution of the advisory and development services business
("Advisor Transaction") of the Advisor in exchange for 1,300,000 newly issued
Units of the Operating Partnership. The contribution was completed on March 1,
1996. As of that date, all charges and expenses associated with the Advisory
Services Agreement ceased and the Company became a self-administered REIT.
In conjunction with the Advisor Transaction, additional Units, up to a
total of $7.2 million in value, may be issued to the contributor during a six
year period if certain Share price benchmarks are achieved. (See Note C to
Consolidated Financial Statements.) As of December 31, 1996, no additional Units
have been issued.
The Advisor Transaction was accounted for under the purchase method. The
value of the transaction was based on 1,300,000 units at a share price of $10,
or $13 million, which was recorded as goodwill and is amortized on a
straight-line method over a 10-year period. Also, legal fees and professional
services expenses associated with the Advisor Transaction were capitalized and
are being amortized over the same 10-year period.
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<PAGE>
Property Management Transaction:
--------------------------------
Besides becoming self-administered, the Board of Directors and management
determined that the Company should become self-managed. On February 26, 1997,
based on the recommendation of a Special Committee of the Independent Directors,
the Board approved the acquisition of the multifamily property management
business of an affiliate of certain officers and directors for 1,700,000 Units
in the Operating Partnership. The transaction was valued at $17.6 million (based
on a $10.375 per share price) which closed on February 28, 1997, and will be
recorded as intangible assets and goodwill.
The acquired property manager manages 57 multifamily assets, 35 of which
are the Company's and the remainder are primarily owned by affiliated
partnerships of certain officers and directors. By becoming self-managed the
Company will no longer pay management fees and reimbursements for multifamily
assets and will receive fees and reimbursements for managing the assets of
others. In addition, the Company assumed approximately 85 non-site employees
engaged in the operation of the property manager. The transaction is expected to
add approximately $.05 per share to funds from operations ("FFO") on an
annualized basis and should impact 1997 FFO by approximately $0.04 per share.
Ownership:
----------
Certain officers and directors and their affiliates own the following
percentages of the Company and the Operating Partnership:
Related Party Ownership
-----------------------
BRI OP
--- --
As of December 31, 1996 2% 10%
As of March 1, 1997 2% 16%
As of December 31, 1996, the Company had a 1% General Partner and an 87%
limited partner interest in the Operating Partnership. As of March 1, 1997, this
had changed to a 1% General Partner interest and 80% limited partner interest in
the Operating Partnership.
B. Results of Operations:
----------------------
The results of operations from period to period are impacted by acquisition
and disposition activity within the portfolio. Comparisons will be made as to
constant properties, communities sold and acquired during the periods as well as
development activities so as to explain the changes in the Company's results of
operations.
Summary Overview
- ----------------
1996 to 1995
------------
The Company reflected a net loss of $14.3 million in 1996 compared to net
income of $14.8 million in the prior year. In 1995, the Company recorded a $15.6
million gain on the sale of properties and the payoff of two mortgage loans. The
sales included seven multifamily properties or 1,717 apartment units. Whereas in
1996, the Company recorded $12 million in provisions for losses on its
wholly-owned and joint venture retail investments. The Company has announced a
plan to liquidate the retail portfolio over the next several years and reinvest
the proceeds into acquisitions or development of multifamily assets. This
divesture strategy necessitated the valuation adjustments which represent the
differences between current market value of these assets and their carrying
value (See Note D to the Consolidated Financial Statements for additional
details).
-13-
<PAGE>
1995 to 1994
------------
From 1994 to 1995, net income increased approximately $9 million, primarily
because of gains of $15.6 million recognized on sales of assets in 1995 compared
to $4.1 million in gains recorded in 1994.
Income and Expenses
- -------------------
Rental income and property operating expenses, including repairs and
maintenance and real estate taxes increased for both periods primarily due to
increased weighted average apartment units. Rental revenues for the year ended
December 31, 1996 increased $18.6 million or 25% over the prior year and the
property operating expenses mentioned above increased $8.1 million or 27% for
the same periods. Average apartment units increased 23.6% between 1995 and 1996.
Revenues for 1995 increased over 1994 by $6.0 million or 8.7% and property
operating expenses increased by $1.2 million or 7.2%. Average apartment units
increased in 1995 over 1994 by 7%. Detail of the Company's apartment unit growth
is set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted Average Units:
Total 11,022 8,914 8,326
Increase 2,108 588 2,326
Percent Increase 23.6% 7.1% 39.5%
Apartment Units:
Beginning of period 9,433 9,385 7,554
Acquired 3,153 1,381 1,533
Sold (223) (1,717) (496)
Completed developments 72 384 -
Converted from loans to
real estate - - 794
------ ------ -----
End of period 12,435 9,433 9,385
====== ====== =====
</TABLE>
Depreciation and amortization increased $7.1 million from 1995 to 1996 and
$2.5 million from 1994 to 1995 due to an increased property asset base in both
periods. In addition, amortization of goodwill associated with the 1996 Advisor
Transaction accounted for $1.1 million of the increase from 1995 to 1996.
General and administrative expenses increased in 1996 compared to 1995 as a
result of becoming self-administered on March 1, 1996. These costs include
employee salaries and benefits, administrative and office related expenses. With
respect to 1994 compared to 1995, general and administrative expenses decreased
due to overall savings in legal, audit and transfer agent expenses.
State and corporate franchise taxes in 1996 are higher than in 1995 because
a one-time reduction for taxes pertaining to 1994 is reflected in 1995.
-14-
<PAGE>
Interest Expense
- ----------------
Interest expense has increased in each of the last three years because the
Company has largely employed debt capital for acquisitions and development
activities. The following is an analysis of weighted average debt outstanding
and interest rates for each of the years presented. (Dollars in thousands.)
1996 1995 1994
---- ---- ----
Weighted Average
Debt Outstanding
Fixed Rate $185,616 $ 98,115 $ 51,840
Variable Rate 78,577 89,957 88,586
-------- -------- --------
Total $264,193 $188,072 $140,426
======== ======== ========
Weighted Average
Interest Rates
Fixed Rate 7.47% 8.39% 8.15%
Variable Rate 6.73% 7.49% 6.51%
In 1996, average fixed rate debt increased approximately $88 million
primarily due to debt which was assumed with the acquisitions of three
properties and the conversion of $13.3 million from variable to fixed rate debt.
In 1995, average fixed rate debt increased by approximately $46 million
primarily because $61 million of fixed rate debt acquired in the second quarter
of 1994 was outstanding for all of 1995. In addition, the Company added $17.8
million of fixed rate debt by financing the two Kingwood, Texas assets in June
1995.
The following represents total debt and weighted average cost of debt
(coupon interest rate plus amortization of financing costs) at December 31,
1996:
(Dollars in thousands)
Balance Weighted
Outstanding Average Cost
----------- ------------
Fixed Rate $206,837 8.0%
Variable Rate (1) 88,329 7.1%
--------
$295,166
========
(1) The Company entered into a five-year interest rate swap contract with a
bank in November 1995. The swap contract is for a $40 million notional
contract fixing variable rate exposure on that amount at 6.06% plus the
spread paid to lenders under the revolving credit agreements.
Asset management fees were eliminated effective March 1, 1996 in
conjunction with the Advisor Transaction. (See Overview).
Joint venture net loss was $3 million in 1996 compared to net income of
$1.4 million in 1995. One joint venture recorded a provision for a loss of $9
million which represents the difference between carrying value and estimated
fair value less costs to sell. The Company's pro-rata share of this provision is
$4.5 million. As discussed above, this valuation adjustment is the result of the
Company's strategic decision to divest of its retail investments.
Gain on sales of properties and payoff of mortgage loans was $58,000 in
1996 compared to $15.6 million in 1995. In 1995, the gains were the result of
the sales of seven apartment complexes consisting of 1,717 units. The remainder
of the gain in 1995 was the result of the early payoff of two mortgages that the
Company had previously purchased at a discount. The Company sold two assets in
1996 for a net gain of $58,000. When comparing 1994 to 1995, the $11.5 million
increase was due to 1,717 apartment units being sold in 1995 compared to 496
apartment units sold in 1994.
-15-
<PAGE>
Non-recurring charges of $442,000 were recorded in 1996 and represent costs
associated with the settlement of litigation on an asset sold in January 1994.
In 1995, non-recurring charges of $1.7 million related to the costs associated
with reorganizing as an UPREIT. And in 1994, non-recurring charges of $2.6
million were the result of the settlement of a class action lawsuit. See Note N
and Note T to the Consolidated Financial Statements.
Extraordinary items in both 1996 and 1995 represents costs associated with
the refinancing or retirement of debt. See Note D Consolidated Financial
Statements.
C. Funds from Operations (fully adjusted for Operating Partnership Units)
Industry analysts generally consider Funds from Operations FFO to be an
appropriate measure of the performance of an equity REIT. However, FFO should
not be considered by the reader as a substitute to net income as an indicator of
the Company's operating performance or to cash flows as a measure of liquidity.
The Company believes that in order to facilitate a clear understanding of the
operating results of the Company, FFO should be analyzed in conjunction with net
income as presented in the Consolidated Financial Statements. FFO is determined
in accordance with a resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, and is defined as net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. FFO is
calculated for the periods presented as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $(14,308) $14,786 $ 5,757
Depreciation (including
depreciation related to
joint ventures) 30,996 24,053 21,463
Amortization of goodwill 1,121 - -
Minority interest (1,418) 154 -
Gains of sale of investments
and payoff of mortgage
loans receivable (58) (15,603) (4,069)
Non-recurring charges 442 1,728 2,556
Extraordinary items 164 913 -
Provision for losses (including
reserves recorded on joint
venture investments) 12,000 - -
------- ------- -------
Funds from operations $28,939 $26,031 $25,707
======= ======= =======
Weighted Average:
Shares 25,393,147 25,392,621 25,391,478
Units 2,520,959 359,093 -
---------- ---------- ----------
Total 27,914,106 25,751,714 25,391,478
========== ========== ==========
</TABLE>
Same-Store Apartment Communities:
- ---------------------------------
The Company defines same-store apartment communities as those that are
fully stabilized for the two most recent years. The operating performance of the
19 communities aggregating 6,763 units which are considered same-store is
summarized as follows: (Dollars in thousands)
-16-
<PAGE>
Year Ended December 31,
---------------------------------------
1996 1995 Change
---- ---- ------
Revenues $48,499 $45,566 6.44%
Expenses 23,042 22,207 3.76%
------- -------
Net Operating Income $25,457 $23,359 8.98%
======= =======
Average occupancy 95% 93%
Average monthly rent
per unit $ 632 $ 608
Capital Expenditures(1) $ 2,663 $ 1,722
(1) Represents capital expenditures of a recurring nature which are
appropriately capitalizable.
Growth in same-store multifamily revenues was approximately 6.4% for 1996
when compared to 1995. Rent increases accounted for 4.3% of the increase and
higher occupancies contributed to the remaining 2.3%. Occupancy at December 31,
1996 was 93.5% for same-store assets.
Same-Store Retail Properties
- ----------------------------
Net operating income ("NOI") of the six retail properties (two of which are
50.1% and 50% held in joint ventures) is summarized as follows: (Dollars in
thousands)
Year Ended December 31,
--------------------------------------------
1996 1995 Change
---- ---- ------
Revenues $12,663 $12,463 1.60%
Expenses 4,408 4,256 3.57%
------- -------
Net Operating Income $ 8,255 $ 8,207 0.58%
======= =======
Average economic
occupancy 95% 96%
Capital Expenditures (1) $ 1,228 $ 740
(1) Represents capital expenditures of a recurring nature which are
appropriately capitalizable.
Same-store NOI increased 0.6% for the twelve months ended December 31, 1996
when compared to 1995. Average occupancies have decreased as a result of tenant
losses in three retail assets and the closing of 10,000 square feet of
commercial office space at another property.
D. Liquidity and Capital Resources
-------------------------------
Historically, operations, debt financing and sales of assets have been the
sources of liquidity employed by the Company. Operating cash flows are earmarked
for the payment of dividends as well as capital expenditures of a recurring
nature. Debt financing and proceeds from asset sales have been used to finance
acquisitions, development and rehabilitation of apartment communities.
The Company's policy is to pay dividends to investors as a percentage of
FFO. For the past three years, the Company has paid between 85% and 88% of FFO
in dividends, retaining the rest for recurring capital expenditures and working
capital. The Company expects to increase both FFO and dividends in the future
but will strive to gradually reduce the payout ratio so as to utilize some
internally generated funds for growth. On February 13, 1997, the Board approved
-17-
<PAGE>
a dividend of $.225 per Share payable on May 15, 1997 to the Shareholders of
record on May 1, 1997.
The Company has a policy to maintain leverage at or below 50% of reasonably
estimated fair value of assets. By employing moderate leverage ratios, the
Company can continue to generate sufficient cash flows to operate its business
as well as sustain dividends to shareholders. Debt as a percentage of fair value
as estimated by management for each of the two years ended December 31, 1996 and
1995 were 45.2% and 42.6%, respectively.
The following table represents the components of debt as of December 31,
1996, and 1995.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1996 1995
------------------------ ----------------------
Amount Percent Amount Percent
(Dollar Amounts in millions)
<S> <C> <C> <C> <C>
Short-term variable $ 48.3 16% $ 16.1 8%
Long-term fixed (1) 246.9 84% 195.2 92%
------ ----- ------ -----
$295.2 100% $211.3 100%
====== ===== ====== =====
</TABLE>
(1) In 1996 and 1995, $40 million of variable rate debt has been included
as fixed because the Company entered into a five-year fixed interest rate
swap agreement with a bank for a $40 million notional contract thereby
fixing variable rate exposure on that amount at 6.06%.
The Company conservatively manages both interest rate risk and maturity
risk. Through the use of a swap, the Company has hedged interest rate risk on
approximately 45% of its variable rate debt and variable rate debt to total debt
was 16% at December 31, 1996. Additionally, the Company has spread its
maturities on long-term debt and has weighted average maturities of 11.1 years.
The Company has adequate sources of liquidity to meet its current cash flow
requirements including dividends, capital improvements as well as planned
acquisitions.
Since becoming an UPREIT in 1995, the Company has issued through December
31, 1996, 3,413,778 units in the Operating Partnership which, if converted on
December 31, 1996 at the then current share price of $9.875, represents $33.7
million in additional equity capital. Approximately 62% of these Operating
Partnership Units were issued for the acquisition of seven multifamily
communities, five of which were acquired from unrelated sellers.
In 1997, the Company issued additional Operating Partnership Units in
connection with the acquisition of the Property Manager as discussed above, as
well as for the acquisition of a multifamily asset from another unrelated
seller. It is the Company's intention to continue to use Operating Partnership
Units as a form of currency to grow the asset base of the Company.
Future capital offerings are also being considered, however, the Company is
not currently engaged in a secondary or preferred stock offering. Equity
capital, whether publicly or privately raised, will be utilized when the Company
sees the opportunity to invest the proceeds in assets that would increase
shareholder returns.
The Company currently has sufficient unadvanced commitments under debt
facilities to fund ongoing development and rehabilitation activities.
-18-
<PAGE>
E. Business conditions/risks:
--------------------------
The Company believes that favorable economic conditions exist in
substantially all of its real estate markets. For the Company's stabilized
apartment communities, physical occupancy was 93.5% as of December 31, 1996
which generally represents current market occupancies. In addition, the Company
continues to maintain competitive rental rates by providing superior services
combined with well-maintained assets which sets the Company apart from its
competition. Through intense asset management efforts, the Company expects to
realize solid performance from the real estate assets and to continue its
favorable rental results, however, no assurances can be made in this regard.
The Company is also involved in legal actions and claims in the ordinary
course of its business. It is the opinion of management and its legal counsel,
that such litigation and claims should be resolved without material effect on
the Company's financial position.
F. Forward-Looking Statements:
---------------------------
The Company's Annual Report contains forward-looking statements, estimates
or plans within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from results or plans expressed or implied by such forward-looking
statements. Such factors include, among other things, adverse changes in the
real estate markets, risk of default under the Company's outstanding
indebtedness due to increased borrowing; financial condition and bankruptcy of
tenants; environmental/safety requirements; adequacy of insurance coverage; and
general and local economic and business conditions. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included or incorporated by reference in this Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------
See Appendix A of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- FINANCIAL DISCLOSURE.
Response: None
-19-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------
The Company's organizational documents provide that the number of directors
constituting the Board shall be fixed by resolution duly adopted by the Board
and that the Board shall be divided into three classes as nearly equal in number
as possible. The term of the class one directors expires at the annual meeting
of Shareholders of the Company to be held in 1997. The term of the class two
directors expires at the annual meeting of Shareholders of the Company to be
held in 1998, and the term of the class three directors expires at the annual
meeting of Shareholders of the Company to be held in 1999. The directors elected
at each annual meeting will serve for a term of three years and until their
successors are duly elected and qualified, with one class to be elected each
year at the annual meeting of Shareholders. The Board in nominating future
Directors will maintain a majority of independent directors.
In conjunction with the acquisition of the property management operations
on February 28, 1997, the Independent Directors named David Marshall Chief
Executive Officer of the Company. Mr. Marshall replaces Laurence Gerber who will
continue to serve as a director of the Company. Mr. Gerber is the President
and Chief Executive Officer of The Berkshire Group. In addition, Ridge Frew was
named Executive Vice President of Property Operations and James Jackson was
named Vice President of Human Resources.
The directors and executive officers of the Company as of December 31,
1996 were as follows:
<TABLE>
<CAPTION>
Date Initially
Name and Age Class Offices Held Elected
------------ ----- ------------ -------
<S> <C> <C> <C>
Douglas Krupp (50) 3 Chairman of the Board February 8, 1996
and Director
Laurence Gerber (40) 2 Chief Executive Officer April 30, 1990
and Director
* J. Paul Finnegan (72) 1 Director October 17, 1990
* Charles N. Goldberg (55) 3 Director October 17, 1990
* E. Robert Roskind (52) 2 Director October 17, 1990
* David M. deWilde (56) 1 Director March 8, 1993
David Marshall (48) President March 1, 1996
Marianne Pritchard (47) Senior Vice President and
Chief Executive Officer August 15, 1991
David Olney (36) Senior Vice President March 1, 1996
Dennis Suarez (43) Senior Vice President March 1, 1996
Richard Willingham (42) Vice President March 1, 1996
Fred Lauro (32) Assistant Treasurer March 1, 1996
Scott D. Spelfogel (36) Secretary May 7, 1991
</TABLE>
- -----------------------
*Independent Directors
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm expanded
over the years within its areas of expertise including investment program
sponsorship, property and asset management, mortgage banking, healthcare
facility ownership and the management of the Company. Today, The Berkshire Group
is an integrated real estate financial services firm which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for the more than $3 billion under management for institutional and
individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he
received an honorary Doctor of Science in Business Administration from this
institution and was elected trustee in 1990. Mr. Krupp also serves as a Director
of Harborside Healthcare Corporation.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group and was Chief Executive Officer of the Company until February
28, 1997 (see above). Prior to becoming President and Chief Executive Officer in
1991, Mr. Gerber held various positions with The Berkshire Group which included
overall responsibility at various times for: strategic planning and product
development, real estate acquisitions, corporate
-20-
<PAGE>
finance, mortgage banking, syndication and marketing. Before joining The
Berkshire Group in 1984, he was a management consultant with Bain & Company, a
national consulting firm headquartered in Boston. Prior to that, he was a senior
tax accountant with Arthur Andersen & Co., an international accounting and
consulting firm. Mr. Gerber has a B.S. degree in Economics from the University
of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from
Harvard Business School. He is a Certified Public Accountant. Mr. Gerber also
serves as Director of Harborside Healthcare Corporation.
David Marshall was elected President of the Company on March 1, 1996 and
Chief Executive Officer and Director on February 28, 1997. He was previously
President of Berkshire Realty Affiliates since 1991. His duties at Berkshire
Realty Affiliates consisted of overall management of Berkshire's Realty
Companies. Prior to that, from July 1986, he served as President of Berkshire
Mortgage Finance where he was involved in the start-up phase and ongoing
operations of Berkshire's Mortgage Companies. Before joining The Berkshire Group
in July 1986, Mr. Marshall was President of Resource Savings Association from
June 1984 through June 1986, and prior to that Mr. Marshall served as a Vice
President of Citicorp Real Estate, Inc. He holds a B.S. degree from Michigan
State University and an M.B.A. degree from the University of Michigan.
J. Paul Finnegan is a retired partner of Coopers & Lybrand where he
specialized in tax matters. He retired in September 1987 and since then has been
engaged in business as a consultant, a director and an arbitrator for the
American Arbitration Association and the National Association of Securities
Dealers, Inc. Mr. Finnegan is a graduate of Harvard College and Boston College
Law School and is a Certified Public Accountant. Mr. Finnegan currently serves
as a Trustee of Krupp Government Income Trust and as a Trustee of Krupp
Government Income Trust II. He is also currently a director at Scituate Federal
Savings Bank.
Charles N. Goldberg (age 55) is a partner in the law firm of Hirsh &
Westheimer, P.C. Prior to joining Hirsch & Westheimer, P.C., Mr. Goldberg was
the Managing Partner of Goldberg Brown, Attorneys at Law from 1980 to March of
1997. He is a member of the State Bar of Texas and is admitted to practice
before the U.S. Court of Appeals, Fifth Circuit and U.S. District Court,
Southern District of Texas. He received a B.B.A. degree and J.D. degree from
the University of Texas.
E. Robert Roskind (age 52) is the Chairman and Co-Chief Executive Officer
of Lexington Corporate Properties, a self-administered REIT which owns 23
properties, each net leased to a single corporate tenant, and whose shares are
listed on the NYSE. Mr. Roskind is also the Managing Partner of The LCP Group,
a real estate investment firm based in New York, which has acquired on behalf
of the partnerships sponsored by the firm over 400 properties throughout the
United States. Most of such properties have been net leased to major U.S.
corporations. The LCP Group is the successor to Lepercq Capital Partners and
Lepercq Capital Corporation. Mr. Roskind in 1974 co-founded Lepercq Capital
Corporation and served as its Chairman. Mr. Roskind is also Chairman of Net
Lease Partners Realty Advisors, a registered pension fund advisor, which
advises pension funds with respect to the acquisition and subsequent management
of properties net leased to major corporations. He is a graduate of the
University of Pennsylvania and Columbia Law School and has been a member of the
New York Bar since 1970.
David M. deWilde has been Chief Executive Officer of Chartwell Partners
International Inc., an executive search firm headquartered in San Francisco,
since he founded it in 1989. Mr. deWilde entered the executive search field in
1984 as Managing Director of Boyden International, Inc., where he headed the San
Francisco office. His responsibilities in the executive search field have
included conducting a variety of senior level searches, primarily for clients in
financial services: investment banking, investment management, depositary
institutions, mortgage finance and real estate. Mr. deWilde is also currently on
the Board of Directors of Silicon Valley Bancshares. Mr. deWilde was Executive
Vice President for Policy and Planning of the Federal National Mortgage
Association from 1981 until 1983. His prior public service roles included
President of the Government National Mortgage Association, Deputy Commissioner
of the Federal Housing Administration and Deputy Assistant Secretary of the
Department of Housing and Urban Development. Mr. deWilde's private sector
background includes investment banking experience both as Managing Director of
-21-
<PAGE>
Lepercq de Neuflize & Co. from 1977 until 1981, and with Lehman Brothers, Inc.,
in addition to prior legal experience. He has been a member of the New York and
Washington, D.C. Bars since 1968 and 1972, respectively. He holds an A.B. from
Dartmouth College, a L.L.B. from the University of Virginia and a M.S. in
Management from Stanford University. He previously served as a director from
1985 until 1989 of Strategic Mortgage Investors, Glendale, California.
Marianne Pritchard is the Senior Vice President and Chief Financial Officer
of the Company. Prior to being elected, she was Senior Vice-President and Chief
Financial Officer of Berkshire Realty Affiliates. Prior to rejoining the The
Berkshire Group, she was Vice-President and Controller from July 1989 to August
1991 for Liberty Real Estate Group, a subsidiary of Liberty Mutual Insurance
Company. Prior to Liberty, Ms. Pritchard held the position of
Controller/Treasurer of Berkshire Mortgage Finance from April 1987 to July 1989.
Prior to that, Ms. Pritchard was Senior Audit Manager with Deloitte and Touche,
an international accounting and consulting firm. She is a Certified Public
Accountant and received her B.B.A. degree in Accounting from the University of
Texas.
David J. Olney is the Senior Vice President of Acquisitions with
responsibility for all acquisition, property sales, finance and other asset
management activities for the Company. He most recently held a similar position
with The Berkshire Group and has held several positions within The Berkshire
Group since joining the firm in 1986. Prior to joining The Berkshire Group, he
participated in a three-year financial management rotational program with
Sanders Associates in Nashua, New Hampshire. Mr. Olney received a B.S. from
Bryant College and an M.B.A. from Babson College.
Dennis Suarez is Senior Vice President of Development. Prior to being
elected on March 1, 1996 he served in a similar position with Berkshire
Multifamily Development Corporation, a member of The Berkshire Group, since
January 1994, with responsibility for all development activities. Prior to that
he was Vice President of Construction for Lane Management, Realty Construction
Corp. His work experience includes commercial high rise, multifamily and single
family construction. He earned Bachelor's Degrees in Architecture and Building
Construction from the University of Florida, and a Bachelor's of Arts in
Interior Design from Southern College.
Richard Willingham is Vice President in charge of the Company's
Atlanta-based acquisitions office, with responsibility for acquisitions,
property sales, finance and other asset management activities. He previously
served as a Vice President of Acquisitions for The Berkshire Group, since 1989.
Before joining The Berkshire Group in 1989, Mr. Willingham was Vice President,
Property Sales, for Balcor Company, a national real estate investment firm,
where he was responsible for the disposition of over $200 million of real estate
held in either debt or equity oriented investment vehicles. He holds a B.S. from
the University of Tennessee and an M.B.A. from Wake Forest University.
Fred Lauro is the Assistant Treasurer for the Company. He previously held
various positions with The Berkshire Group since he joined the firm in December
1987. Mr. Lauro received a B.S. in Business Administration from Stonehill
College.
Scott D. Spelfogel is the Senior Vice President and General Counsel to The
Berkshire Group. Before joining the firm in November 1988, he was a litigator
-22-
<PAGE>
in private practice in Boston. He received a Bachelor of Science degree in
Business Administration from Boston University, a Juris Doctor Degree from
Syracuse University's College of Law, and a Master of Laws degree in Taxation
from Boston University Law School. He is admitted to practice law in
Massachusetts and New York and is a licensed real estate broker in
Massachusetts.
ITEM 11. EXECUTIVE COMPENSATION
- --------
The following table provides compensation information for the Company's
Chief Executive Officer and the top four Executive Officers whose salary and
bonus exceeded $100,000 for the year ended December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation(1) Awards
---------------------- ------
Securities
Name and Underlying
Principal Position Year Salary($) Bonus($) Options(#)
- ------------------ ---- --------- -------- ----------
<S> <C> <C> <C> <C>
Laurence Gerber 1996 85,520 -- 200,000
Chief Executive
Officer and Director
David Marshall 1996 272,500 113,100 200,000
President
Marianne Pritchard 1996 131,623 46,158 40,000
Senior Vice President
and Chief Financial
Officer
David Olney 1996 125,685 83,260 40,000
Senior Vice President
of Acquisitions
Dennis Suarez 1996 123,276 55,750 40,000
Senior Vice President
of Development
</TABLE>
(1) The Annual Compensation amounts reflect ten months of compensation due to
the Company becoming self-administered on March 1, 1996 as discussed in
Item 1 and 7 herein.
The Company entered into employment agreements with Laurence Gerber, David
Marshall and Marianne Pritchard. Each agreement commenced on March 1, 1996 and
continues until December 31, 1998. The agreements provide for an annual base
salary of not less than $100,000 for Mr. Gerber, $325,000 for Mr. Marshall and
$157,000 for Ms. Pritchard. Such salaries may be increased at the sole
discretion of the Board of Directors. Bonuses, if any, are also at the sole
discretion of the Board of Directors. If any of the employment agreements are
terminated by the Company other than for cause, the employee is entitled to
receive all accrued but unpaid salary. In addition, certain termination
payments are required. In the case of Mr. Gerber, the Company shall pay
severance compensation in twelve monthly installments (eighteen and nine months
in the case of Mr. Marshall and Ms. Pritchard, respectively) at the same rate as
the base salary in effect at the date of termination.
The following table provides option information for the Company's Chief
Executive Officer and the top four Executive Officers as of December 31, 1996.
No options have been exercised by the Executive Officers as of December 31,
1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realized Value
at expiration date
at Assumed
Annual Rates
of Stock Price
Appreciation(1)
(in thousands)
--------------------
% of Total
Options
Number of Granted to
Securities Employees
Underlying in Fiscal Exercise Expiration
Name Options Year Price Date 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Laurence Gerber 200,000 32% 9.75 2-28-06 1,226 3,108
David Marshall 200,000 32% 9.75 2-28-06 1,226 3,108
Marianne Pritchard 40,000 6% 9.75 2-28-06 245 622
David Olney 40,000 6% 10.25 5-1-06 258 653
Dennis Suarez 40,000 6% 10.25 5-1-06 258 653
</TABLE>
(1) Values calculated using 5% and 10% annual rates of appreciation of
exercise price over the option term less original exercise price.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES
Number of
Securities Number of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
Fiscal Year- Fiscal Year-
Shares Value End (#) End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---- ------------ --- ------------- -------------
Laurence Gerber 0 0 0/200,000 0/25,000
David Marshall 0 0 0/200,000 0/25,000
Marianne Pritchard 0 0 0/ 40,000 0/ 5,000
David Olney 0 0 0/ 40,000 0/0
Dennis Suarez 0 0 0/ 40,000 0/0
Independent Directors shall be entitled to receive compensation from the
Company for serving as Directors at the rate of $25,000 per year, subject
to increase in future years with prior approval of the Board of Directors.
During 1996, 1995, 1994 and 1993, each independent director received
$25,000 for his services, except for Mr. deWilde, who was elected during
1993 and received $18,750 and $25,000 during 1993 and 1994, respectively.
-23-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------
As of December 31, 1996, no person was known by the Company to be the
beneficial owner of more than five percent (5%) of the Company's outstanding
Shares.
The following is a summary of the security ownership of management as of
December 31, 1996:
<TABLE>
<CAPTION>
Title of Name of Beneficial Amount and Nature of Percent
Class Owner Beneficial Interest of Class
----- ------------------ ------------------- --------
<S> <C> <C> <C>
Common Stock Laurence Gerber 517,203 Shares* 2.04%
Common Stock Douglas Krupp 538,253 Shares** 2.12%
Common Stock E. Robert Roskind 10,000 Direct ***
Common Stock Paul Finnegan 700 Direct ***
Common Stock David M. deWilde 300 Direct ***
Common Stock David Marshall 3,848 Direct
Common Stock Marianne Pritchard 1,000 Direct
Common Stock David Olney 2,552 Direct
Common Stock Dennis Suarez 1,261 Direct
Common Stock All Directors and
Officers 599,617 Shares 2.36%
</TABLE>
* Mr. Gerber is a beneficial owner of 512,203 Shares held by Berkshire Realty
Advisors Limited Partnership, the former Advisor to the Company, by virtue of
being a director of BRF Corporation, the general partner of Berkshire Realty
Advisors Limited Partnership. In such case where Mr. Gerber is a beneficial
owner of Shares he has shared voting and investment powers and such Shares are
also beneficially owned by Mr. Krupp.
** Mr. Krupp directly owns 10,100 Shares, is a beneficial owner of the 512,203
Shares held by Berkshire Realty Advisors Limited Partnership, the former Advisor
to the Company, by virtue of being a director of BRF Corporation, the general
partner of Berkshire Realty Advisors Limited Partnership. In such case where Mr.
Krupp is a beneficial owner of Shares he has shared voting and investment powers
and such Shares are also beneficially owned by Mr. Gerber. Mr. Krupp disclaims
beneficial ownership of 15,950 Shares owned by his immediate family.
*** Amount owned does not exceed one percent of the common stock of the Company
outstanding as of December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------
As described in Items 1 and 7 herein, the Company became self-administered
on March 1, 1996 (see Note C to the Notes to the Consolidated Financial
Statements).
Berkshire Property Management, an affiliate of the Company, provided
day-to-day on-site management services for the Company's properties. For a
summary of amounts paid to related parties for services rendered and for
reimbursements see Note L to the Consolidated Financial Statements included in
Appendix A.
As described in Item 7, the Company became self-managed on February 28,
1997 (see Note Q to the Notes to the Consolidated Financial Statements).
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
- --------
(a) 1. Financial Statements - see Index to Consolidated Financial
Statements, Schedules, and Summary Quarterly Financial Information
included under Item 8, Appendix A, on page F-2 of this report.
2. Financial Statement Schedule - Consolidated Financial Statement
Schedule to the Consolidated Financial Statements are included
under Item 8, Appendix A on pages F-30 through F-42. Certain other
schedules are omitted as they are not applicable or not required
or because the information is provided in the Consolidated
Financial Statements or the Notes thereto.
-24-
<PAGE>
(b) Exhibits:
---------
Number and Description
Under Regulation S-K
--------------------
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
(2.1) BRI River Oaks First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995.[Exhibit 2.1 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.2) BRI Newport First Amended and Restated Agreement of Limited
Partnership, dated May 1, 1995. [Exhibit 2.2 to Company's
Annual Report on Form 10-K for year ended December 31, 1995
(File No. 1-10660)]*
(2.3) BRI Altamonte First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.3 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.4) BRI Huntington Chase First Amended and Restated Agreement
of Limited Partnership, dated May 1, 1995. [Exhibit 2.4 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.5) BRI Pointe West First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.5 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.6) BRI Timbers First Amended and Restated Agreement of Limited
Partnership, dated May 1, 1995. [Exhibit 2.6 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.7) BRI Plantation Colony First Amended and Restated Agreement
of Limited Partnership, dated May 1, 1995. [Exhibit 2.7 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.8) BRI Southwest Apartments First Amended and Restated
Agreement of Limited Partnership, dated May 1, 1995.
[Exhibit 2.8 to Company's Annual Report on Form 10-K for
year ended December 31, 1995 (File No. 1-10660)]*
(2.9) BRI Texas Apartments First Amended and Restated Agreement
of Limited Partnership, dated May 1, 1995. [Exhibit 2.9 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.10) BRI Park Colony - Woodland First Amended and Restated
Agreement of Limited Partnership, dated April 5, 1995.
[Exhibit 2.10 to Company's Annual Report on Form 10-K for
year ended December 31, 1995 (File No. 1-10660)]*
(2.11) Amended and Restated Agreement of Limited Partnership of
BRI OP Limited Partnership, dated May 1, 1995.
[Exhibit 2.11 to Company's Annual Report on Form 10-K for
year ended December 31, 1995 (File No. 1-10660)]*
(2.12) Amendment No. 1 to BRI OP Limited Partnership Agreement
among Berkshire Realty Company, Inc. and GN Limited
Partnership, dated October 2, 1995. [Exhibit 2.12 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(2.13) Amendment No. 2 to BRI OP Limited Partnership Agreement
among Berkshire Realty Company, Inc. and GN Limited
Partnership, dated December 15, 1995. [Exhibit 2.13 to
Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(3) Articles of Incorporation and By-Laws.
(3.1) Restated Certificate of Incorporation of the Company
[Exhibit 3.1 to the Company's Registration Statement on Form
S-4 (File No. 33-37592)].*
(3.2) Certificate of Amendment to Restated Certificate of
Incorporation of the Company [Exhibit 3.11 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on
Form S-4 (File No. 33-37592)].*
-25-
<PAGE>
(3.3) By-laws of the Company, as amended on February 4, 1993.
[Exhibit 3.3 to Company's Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 10-10660)].*
(3.4) By-laws of Berkshire Realty Company, Inc., as amended on
February 28, 1996. [Exhibit 3.4 to Company's Annual Report
on Form 10-K for year ended December 31, 1995 (File No.
1-10660)]*
(4) Instruments defining the rights of security holders, including
indentures.
(4.1) Berkshire Realty Company, Inc. Certificate of Common Stock.
[Exhibit 4.1 to Company's Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 10-10660)].*
(10) Material Contracts.
(10.1) Exchange Agreement dated June 27, 1991 between Berkshire
Realty Company, Inc., a Delaware corporation and Krupp Cash
Plus-III Limited Partnership and Krupp Cash Plus-IV Limited
Partnership, each of which is a Massachusetts limited
partnership. [Exhibit 10.6 to Company's Annual Report on
Form 10-K for the year ended December 31, 1991 (File
No. 1-10660)].*
(10.2) Commercial Mortgage Loan and Real Property Purchase
Agreement by and between Resolution Trust Corporation as
conservator for Great American Federal Savings Association
(formerly Great American First Savings Bank) (the "RTC"),
and Berkshire Realty Company, Inc., dated October 12, 1992.
[Exhibit 10.1 to Company's Report on Form 8-K dated October
14, 1992.(File No. 1-10660)].*
Property Management Agreements
------------------------------
(10.3) Form of Property Management Agreement between the Company,
as Owner, and Krupp Realty Company Limited Partnership, now
known as Berkshire Realty Enterprises Limited Partnership
("BRE"), as Agent, for Residential Property [Exhibit 10.1 to
the Company's Registration Statement on Form S-4 (File No.
33-37592)].*
(10.4) Form of Property Management Agreement between the Company,
as Owner, and BRE, as Agent, for Commercial Property
[Exhibit 10.2 to the Company's Registration Statement on
Form S-4 (File No. 33-37592)].*
Advisory Services Agreement
---------------------------
(10.5) Advisory Services Agreement dated October 22, 1990 between
the Company and Krupp Realty Advisors Limited Partnership,
now known as Berkshire Realty Advisors Limited Partnership
(the "Advisor") [Exhibit 10.37 to the Company's Registration
Statement on Form S-4 (File No. 33-37592)].*
(10.6) Amendment No. 1 to Advisory Services Agreement dated
December 10, 1990, between the Company and the Advisor
[Exhibit 10.40 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-4 (File
No. 33-37592)].*
(10.7) Amendment No. 2 to the Advisory Services Agreement dated
January 31, 1991 between the Company and the Advisor.
[Exhibit 10.5 to Company's Annual Report on Form 10-K for
the year ended December 31, 1991 (File No. 1-10660)].*
-26-
<PAGE>
(10.8) Amendment No. 3 to the Advisory Services Agreement dated
January 31, 1991 between the Company and the Advisor as of
May 4, 1994. [Exhibit 10.8 to Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File
No. 1-10660)].*
Credit Agreement
----------------
(10.9) 1992 Credit Agreement among the Company and The First
National Bank of Boston, NationsBank of Texas, N.A. and
Other Banks which may become parties to this Agreement and
The First National Bank of Boston, as Agent dated as of
December 30, 1992. [Exhibit 10.2 to Company's Annual Report
on form 10K for the year ended December 31, 1993. (File No.
1-10660)].*
(10.10) Amendment No. 1 to 1992 Credit Agreement among the
Company and The First National Bank of Boston and
NationsBank of Texas, N.A. as of May 28, 1993. [Exhibit
10.10 to Company's Annual Report on Form 10-K for the year
ended December 31, 1993. (File No. 1-10660)].*
(10.11) Amendment No. 2 to 1992 Credit Agreement among the
Company and The First National Bank of Boston and
NationsBank of Texas, N.A. as of December 1, 1993. [Exhibit
10.11 to Company's Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 1-10660)].*
(10.12) Amendment No. 3 to 1992 Credit Agreement among the
Company and The First National Bank of Boston and
NationsBank of Texas, N.A. as of January 7, 1994. [Exhibit
10.12 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
(10.13) Amendment No. 4 to 1992 Credit Agreement among the
Company and the First National Bank of Boston and
NationsBank of Texas, N.A. as of March 1, 1994. [Exhibit
10.13 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
(10.14) Amendment No. 5 to 1992 Credit Agreement among the
Company and the First National Bank of Boston and
NationsBank of Texas, N.A. as of May 1, 1994. [Exhibit 10.14
to Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-10660)].*
(10.15) Amendment No. 6 to 1992 Credit Agreement among The
Company and the First Nation Bank of Boston and NationsBank
of Texas, N.A. as of August 12, 1994. [Exhibit 10.15 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-10660)].*
(10.16) Amendment No. 7 to 1992 Credit Agreement among The
Company and the First Nation Bank of Boston and NationsBank
of Texas, N.A. as of August 25, 1994. [Exhibit 10.16 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-10660)].*
(10.17) Amended 1992 Credit Agreement among Berkshire Realty
Company, Inc., BRI OP Limited Partnership and The First
National Bank of Boston and NationsBank of Texas, NA as of
November 21, 1995. [Exhibit 10.17 to Company's Annual
Report on Form 10-K for year ended December 31, 1995
(File No. 1-10660)]*
(10.18) Master Credit Facility Agreement by and among BRI OP
Limited Partnership, Berkshire Realty Company, Inc., BRI
River Oaks
-27-
<PAGE>
Limited Partnership and Washington Mortgage Financial Group,
LTD., dated November 17, 1995. [Exhibit 10.18 to Company's
Annual Report on Form 10-K for year ended December 31, 1995
(File No. 1-10660)]*
(10.19) Exhibits to the Master Credit Facility Agreement among
BRI OP Limited Partnership, Berkshire Realty Company, Inc.,
BRI River Oaks Limited Partnership and Washington Mortgage
Financial Group, LTD, dated November 17, 1995. [Exhibit
10.19 to Company's Annual Report on Form 10-K for year ended
December 31, 1995 (File No. 1-10660)]*
(10.20) Amendment No. 1 of Amended and Restated 1992 Credit
Agreement among the Company and The First National Bank of
Boston and NationsBank of Texas, N.A. as of March 1, 1996.
[Exhibit 10.1 to Company's Form 10-Q for the quarter ended
September 30, 1996. (File No. 1-10660)]*
(10.21) Amendment No. 2 of Amended and Restated 1992 Credit
Agreement among the Company and The First National Bank of
Boston and NationsBank of Texas, N.A. as of March 1, 1996.
[Exhibit 10.2 to Company's Form 10-Q for the quarter ended
September 30, 1996. (File No. 1-10660)]*
(10.22) Amendment No. 3 of Amended and Restated 1992 Credit
Agreement among the Company and The First National Bank of
Boston and Mellon Bank, N.A. as of June 26, 1996. [Exhibit
10.3 to Company's Form 10-Q for the quarter ended September
30, 1996. (File No. 1-10660)]*
(10.23) Amendment No. 4 of Amended and Restated 1992 Credit
Agreement among the Company and The First National Bank of
Boston and Mellon Bank, N.A. as of July 16, 1996. [Exhibit
10.4 to Company's Form 10-Q for the quarter ended September
30, 1996. (File No. 1-10660)]*
(10.24) First Amendment to Master Credit Facility Agreement among
BRI OP L.P., BRI River Oaks L.P., BRI Texas Apartments L.P.
and Hidden Oaks Partnership and Washington Mortgage
Financial Group, LTD and Federal National Mortgage
Association as of March, 1996. [Exhibit 10.5 to Company's
Form 10-Q for the quarter ended September 30, 1996. (File
No. 1-10660)]*
MORTGAGE NOTES PAYABLE:
-----------------------
Kidder Peabody Mortgage Capital Corporation
-------------------------------------------
(10.25) Master Loan Agreement among BRI Huntington Chase, Inc.,
BRI Timbers, Inc., BRI Altamonte, Inc., BRI Newport, Inc.
and BRI Point West, Inc., collectively, as Borrowers and
Kidder Peabody Mortgage Capital Corporation dated March 31,
1994. [Exhibit 10.17 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-10660)].*
(10.26) Mortgage Note among BRI Altamonte, Inc. and Kidder
Peabody Mortgage Capital Corporation date March 31, 1994.
[Exhibit 10.18 to Company's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-10660)].*
(10.27) Security Deed Note among BRI Huntington Chase, Inc. and
Kidder Peabody Mortgage Capital Corporation dated March 31,
1994. [Exhibit 10.19 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-10660)].*
(10.28) Mortgage Note among BRI Newport, Inc. and Kidder Peabody
Mortgage Capital Corporation dated March 31, 1994. [Exhibit
10.20 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
(10.29) Mortgage Note among BRI Point West, Inc. and Kidder
Peabody Mortgage Capital Corporation dated March 31,
1994.[Exhibit 10.21 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-10660)].*
(10.30) Deed of Trust among BRI Timbers, Inc. and Kidder Peabody
Mortgage Capital Corporation dated March 31, 1994. [Exhibit
10.22 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
FNMA
----
(10.31) Multi-Family Note Agreement among The Avalon on Abernathy
Apartments and Washington Capital DUS, Inc., dated May 11,
1994. [Exhibit 10.23 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-10660)].*
(10.32) Multi-Family Note Agreement among Southpoint at
Massepequa Apartments and Washington Capital DUS, Inc.,
dated May 11, 1994. [Exhibit 10.24 to Company's Annual
Report on Form 10-K for the year ended December 31, 1994
(File No. 1-10660)].*
(10.33) Multi-Family Note Agreement among Eastlake Village
Apartments and Washington Capital DUS, Inc., dated May 11,
1994. [Exhibit 10.25 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-10660)].*
(10.34) Multi-Family Note Agreement among Lakes of Jacaranda
Apartments and Washington Capital DUS, Inc., dated June 22,
-28-
<PAGE>
1994. [Exhibit 10.26 to Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.35) Multi-Family Note Agreement among Huntington Downs
Apartments and Washington Capital DUS, Inc., dated June 22,
1994. [Exhibit 10.27 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-10660)].*
(10.36) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Huntington Downs and Washington Capital DUS,
Inc., dated as of June 15, 1994. [Exhibit 10.28 to Company's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-10660)].*
(10.37) Multi-Family Deed of Trust, Assignment of Rents and
Security Agreement among Eastlake Village Apartments, H
dated as of May 11, 1994. [Exhibit 10.29 to Company's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1- 10660)].*
(10.38) Multi-Family Deed to Secure Debt, Assignment of Rents and
Security Agreement among Avalon on Abernathy Apartments and
Washington Capital DUS, Inc., dated May 11, 1994. [Exhibit
10.30 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
(10.39) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Southpoint at Massepequa Apartments and
Washington Capital DUS, Inc., dated May 11, 1994. [Exhibit
10.31 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
(10.40) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Lakes of Jacaranda Apartments and
Washington Capital DUS, Inc., dated May 15, 1994. [Exhibit
10.32 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
Plantation Colony
-----------------
(10.41) Multi-Family Note Agreement among Plantation Colony
Business Trust and Washington Capital DUS, Inc., dated June
22, 1994. [Exhibit 10.33 to Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.42) Financing Agreement by and among Florida Housing Finance
Agency, Washington Capital DUS, Inc., and Plantation Colony
Business Trust, date as of September 1, 1994. [Exhibit
10.34 to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
Park Colony
-----------
(10.43) Assumption Agreement and consent to sale of project dated
July 13, 1994 between Florida Housing Finance Agency and
SunBank, National Association and BRI Park Colony, Inc.
[Exhibit 10.35 to Company's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-10660)].*
(10.44) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Hollywood Associates and Florida Housing
Finance Agency, dated December 1, 1985. [Exhibit 10.36 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-10660)].*
-29-
<PAGE>
(10.45) Loan Agreement between Florida Housing Finance Agency and
BRI Park Colony - Woodland Limited Partnership dated April
1, 1995. [Exhibit 10.40 to Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No.
1-10660)]*
(10.46) Reimbursement Agreement among BRI Park Colony - Woodland
Limited Partnership and Mellon Bank, N.A., dated April 1,
1995. [Exhibit 10.41 to Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No.
1-10660)]*
(10.47) First Amendment to Reimbursement Agreement among Park
Colony - Woodland Limited Partnership and Mellon Bank,
N.A., dated November 1, 1995. [Exhibit 10.42 to Company's
Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-10660)]*
(10.48) First Supplemental to Loan Agreement between Florida
Housing Finance Agency and BRI Park Colony - Woodland
Limited Partnership dated October 1, 1995. [Exhibit 10.43
to Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)]*
Kings Crossing
--------------
(10.49) Promissory Note Agreement among BRI Texas Apartments
Limited Partnership and Life Insurance Company of Georgia,
dated May 9, 1995. [Exhibit 10.44 to Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(File No. 1-10660)]*
(10.50) Deed of Trust and Security Agreement among BRI Texas
Apartments Limited Partnership and Life Insurance Company
of Georgia, dated May 9, 1995. [Exhibit 10.45 to Company's
Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-10660)]*
(10.51) Assignment of Leases and Rents among BRI Texas Apartments
Limited Partnership and Life Insurance Company of Georgia,
dated May 9, 1995. [Exhibit 10.46 to Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(File No. 1-10660)]*
Kingwood Lakes
--------------
(10.52) Promissory Note Agreement among BRI Texas Apartments
Limited Partnership and Security Life of Denver Insurance
Company, dated May 9, 1995. [Exhibit 10.47 to Company's
Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-10660)]*
(10.53) Deed of Trust and Security Agreement among BRI Texas
Apartments Limited Partnership and Security Life of Denver
Insurance Company, dated May 9, 1995. [Exhibit 10.48 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)]*
(10.54) Assignment of Leases and Rents among BRI Texas Apartments
and Security Life of Denver Insurance Company, dated May 9,
1995. [Exhibit 10.49 to Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No.
1-10660)]*
Other Debt
----------
(10.55) Master Repurchase Agreement; Annex I: Supplemental Terms
and Conditions; and Annex II: Names and Addresses; dated
January 9, 1992 between the Company, a Delaware corporation
and The First Boston Corporation. [Exhibit 10.7 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-10660)].*
(10.56) Interest Rate Swap Master Agreement among BRI OP Limited
Partnership and The First National Bank of Boston, dated
October 31, 1995. [Exhibit 10.51 to Company's Annual Report
on Form 10-K for the year ended December 31, 1995 (File No.
1-10660)]*
(10.57) Schedule to the Interest Rate Swap Master Agreement among
BRI OP Limited Partnership and The First National Bank of
Boston, dated October 31, 1995. [Exhibit 10.52 to Company's
Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-10660)]*
* Incorporated by reference.
+ Filed herein.
(c) Reports on Form 8-K
-30-
<PAGE>
(a) Exhibits
10.1 Contribution Agreement by and between Turtle Creek Associates
Limited Partnership and BRI OP Limited Partnership, dated
April 8, 1996. [Exhibit 10.1 to Company's Report on Form
8-K/A dated July 29, 1996. (File No. 1-10660)].*
10.2 BRI The Point Agreement of Limited Partnership by and between
BRI Texas Apartments Limited Partnership and BRI OP Limited
Partnership. [Exhibit 10.2 to Company's Report on Form
8-K/A dated July 29, 1996. (File No. 1-10660)].*
10.3 First Amendment to BRI The Point Limited Partnership Agreement
by and between BRI Texas Apartments Limited Partnership and BRI
OP Limited Partnership, dated March 15, 1996. [Exhibit 10.3 to
Company's Report on Form 8-K/A dated July 29, 1996. (File No.
1-10660)].*
10.4 Certificate of Limited Partnership of BRI The Point Limited
Partnership dated October 20, 1995. [Exhibit 10.4 to Company's
Report on Form 8-K/A dated July 29, 1996. (File No. 1-10660)].*
10.5 Agreement of Release, Assumption of Deed of Trust Note, Deed of
Trust and Regulatory Agreement by and among Turtle Creek
Associates Limited Partnership, BRI The Point Limited
Partnership and Berkshire Mortgage Finance Corporation, dated
March 20, 1996. [Exhibit 10.5 to Company's Report on Form
8-K/A dated July 29, 1996. (File No. 1-10660)].*
10.6 Deed of Trust Note by and between Turtle Creek Associates
Limited Partnership and Berkshire Mortgage Finance Corporation,
dated March 14, 1994. [Exhibit 10.6 to Company's Report on Form
8-K/A dated July 29, 1996. (File No. 1-10660)].*
10.7 Deed of Trust Note by and between Turtle Creek Associates
Limited Partnership and Berkshire Mortgage Finance Corporation,
dated March 14, 1994. [Exhibit 10.7 to Company's Report on Form
8-K/A dated July 29, 1996. (File No. 1-10660)].*
(b) Reports on Form 8-K
Date Event Reported Financial Statements
---- -------------- --------------------
May 29, 1996 Property Acquisition None
Reports on Form 8-K/A
---------------------
Date Event Reported Financial Statements
---- -------------- --------------------
July 29, 1996 Property Acquisition Yes
-31-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 1997.
BERKSHIRE REALTY COMPANY, INC.
By: /s/Douglas Krupp
------------------------------------
Douglas Krupp, Chairman of the Board
and Director of Berkshire Realty
Company, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 26th day of March, 1997.
Signatures Title(s)
- ---------- --------
/s/ Laurence Gerber Chief Executive Officer and Director of
- --------------------------- Berkshire Realty Company, Inc.
Laurence Gerber
/s/ David Marshall President of Berkshire Realty Company, Inc.
- ---------------------------
David Marshall
/s/ Marianne Pritchard Senior Vice President and Chief Financial
- --------------------------- Officer of Berkshire Realty Company, Inc.
Marianne Pritchard
/s/ J. Paul Finnegan Director of Berkshire Realty Company, Inc.
- ---------------------------
J. Paul Finnegan
/s/ Charles N. Goldberg Director of Berkshire Realty Company, Inc.
- ---------------------------
Charles N. Goldberg
/s/ E. Robert Roskind Director of Berkshire Realty Company, Inc.
- ---------------------------
E. Robert Roskind
/s/ David M. deWilde Director of Berkshire Realty Company, Inc.
- ---------------------------
David M. deWilde
-32-
<PAGE>
APPENDIX A
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
---------------
CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND SUMMARY QUARTERLY
FINANCIAL INFORMATION
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1996
F-1
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND
SUMMARY QUARTERLY FINANCIAL INFORMATION
---------------
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31, 1996 and 1995 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 F-5 - F-6
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994 F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-29
Schedule III - Real Estate and Accumulated Depreciation F-30 - F-41
Summary Quarterly Financial Information (Unaudited) F-42
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the consolidated financial statements or the
notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Berkshire Realty Company, Inc. and Subsidiaries:
We have audited the consolidated financial statements and the financial
statement schedule of Berkshire Realty Company, Inc. and Subsidiaries (the
"Company") listed in the index on page F-2 of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Company's management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Berkshire
Realty Company, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects,
the information required to be included therein.
As discussed in Note D to the consolidated financial statements, the
Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", effective January 1, 1996.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 13, 1997, except
for Note Q, for which the
date is February 28, 1997
F-3
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
------------
<TABLE>
<CAPTION>
ASSETS
1996 1995
------------ ------------
<S> <C> <C>
Real estate assets: (Note D)
Multifamily apartment complexes, net of
accumulated depreciation $430,936,889 $324,752,425
Retail center, net of accumulated depreciation 11,064,630 59,708,271
Investments in unconsolidated joint ventures
(Note E) 36,036,723 41,689,843
Mortgage loans and other loans receivable,
net of purchase discounts (Note F) 4,094,241 19,964,524
Land and construction-in-progress 4,035,820 2,880,668
Land held for future development 2,331,988 863,456
Property held for sale, net of valuation
reserve (Note D) 30,556,482 -
------------ -----------
Total real estate assets 519,056,773 449,859,187
Cash and cash equivalents 7,015,953 11,142,710
Mortgage-backed securities, net ("MBS") (Note G) 9,232,956 11,576,326
Escrows 11,096,213 3,872,826
Deferred charges and other assets 10,940,879 10,517,138
Goodwill, net of amortization (Note C) 12,327,039 -
------------ ------------
Total assets $569,669,813 $486,968,187
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Credit agreements (Note H) $136,060,000 $ 95,140,000
Mortgage notes payable (Note I) 149,805,607 105,200,620
Repurchase agreements (Note J) 9,300,000 10,950,000
Tenant security deposits and prepaid rents 2,443,716 2,043,792
Accrued real estate taxes, insurance,
other liabilities and accounts payable 11,797,967 7,845,744
------------ ------------
Total liabilities 309,407,290 221,180,156
------------ ------------
Minority interest in operating
partnership (Notes A, C, D and K) 36,608,607 5,000,414
Commitments and Contingencies (Notes D and P) - -
Shareholders' equity:
Preferred stock, $0.01 par value; 60,000,000
shares authorized, none issued - -
Common stock ("Shares"), $0.01 par value;
140,000,000 Shares authorized and
25,899,866 and 25,899,449 Shares issued,
respectively 258,998 258,994
Additional paid-in capital 239,446,270 262,271,698
Retained earnings (deficit) (14,308,277) -
Less common stock in treasury at cost
(506,497 Shares) (1,743,075) (1,743,075)
------------ ------------
Total shareholders' equity 223,653,916 260,787,617
------------ ------------
Total liabilities and shareholders' equity $569,669,813 $486,968,187
============ ============
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
F-4
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Rental $ 89,450,647 $70,068,230 $63,221,799
Interest from mortgage
loans (Note F) 1,647,356 2,010,110 3,423,887
Interest income from MBS 942,191 1,154,336 1,433,599
Other interest income 961,472 1,208,743 391,043
------------ ---------- -----------
Total revenue 93,001,666 74,441,419 68,470,328
------------ ----------- -----------
Expenses:
Property operating (Note L) 22,727,069 17,989,860 16,729,088
Repairs and maintenance 6,647,344 4,920,685 5,626,176
Real estate taxes 8,653,898 7,015,706 6,400,764
Property management fees to an
affiliate (Note L) 4,324,843 3,421,107 3,069,506
Depreciation and amortization 29,050,960 21,983,582 19,506,878
Amortization of goodwill 1,120,640 - -
Provision for losses on real
estate investments 7,500,000 - -
General and administrative
(Notes C and L) 3,632,078 1,083,948 1,812,844
Interest (Notes H, I and J) 20,500,533 15,618,224 10,793,915
State and corporate franchise
taxes 367,563 11,993 -
Professional fees 254,000 259,891 230,711
Asset management fees to an
affiliate (Note C) 392,636 1,565,546 1,235,169
------------ ----------- -----------
Total expenses 105,171,564 73,870,542 65,405,051
------------ ----------- -----------
Joint venture net income (loss)
(Note E) (3,008,587) 1,407,025 1,178,272
------------- ----------- -----------
Income (loss) from operations (15,178,485) 1,977,902 4,243,549
Gains on payoff of
mortgage loans - 1,175,083 -
Gains on sales of
properties 58,263 14,428,338 4,068,526
------------ ----------- -----------
Income (loss) before non-
recurring charges, minority
interest and extraordinary
items (15,120,222) 17,581,323 8,312,075
Non-recurring charges (Note N) (441,783) (1,727,768) (2,554,796)
Minority interest 1,417,817 (153,888) -
------------ ----------- -----------
</TABLE>
Continued
F-5
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Net income (loss) before
extraordinary items (14,144,188) 15,699,667 5,757,279
Extraordinary items (Note D) (164,089) (913,625) -
------------ ---------- ----------
Net income (loss) $(14,308,277) $14,786,042 $5,757,279
============ =========== ==========
Per share:
Income (loss) before
extraordinary item $ (.56) $ .62 $ .23
============ =========== ==========
Net income (loss) $ (.56) $ .58 $ .23
============ =========== ==========
Weighted average Shares 25,393,147 25,392,621 25,391,478
============ =========== ==========
</TABLE>
The accompanying Notes are an integral
part of the Consolidated Financial Statements.
F-6
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Additional Retained Treasury
Stock Paid-in Earnings Stock
at Par Capital (Deficit) at Cost Total
------ ------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $258,979 $284,511,143 $ - $(1,743,075) $283,027,047
Net income - - 5,757,279 - 5,757,279
Stock warrants (Note T) - 1,638,000 - - 1,638,000
Proceeds from the
exercise of stock
warrants (Note T) 5 5,402 - - 5,407
Dividends - (16,079,438) (5,757,279) - (21,836,717)
-------- ------------- ----------- ----------- ------------
Balance at
December 31, 1994 258,984 270,075,107 - (1,743,075) 268,591,016
Net income - - 14,786,042 - 14,786,042
Proceeds from the
exercise of stock
warrants (Note T) 10 10,087 - - 10,097
Dividends - (7,813,496) (14,786,042) - (22,599,538)
-------- ------------ ----------- ----------- ------------
Balance at
December 31, 1995 258,994 262,271,698 - (1,743,075) 260,787,617
Net loss - - (14,308,277) - (14,308,277)
Proceeds from the
exercise of stock
warrants (Note T) 4 5,880 - - 5,884
Stock options grants
(Note M) - 22,584 - - 22,584
Dividends (22,853,892) (22,853,892)
-------- ------------ ------------ ----------- ------------
Balance at
December 31, 1996 $258,998 $239,446,270 $(14,308,277) $(1,743,075) $223,653,916
======== ============ ============ =========== ============
</TABLE>
The accompanying Notes are an integral
part of the Consolidated Financial Statements.
F-7
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income(loss) $(14,308,277) $14,786,042 $ 5,757,279
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 29,050,960 21,983,582 19,506,878
Amortization of goodwill 1,120,640 - -
Provision for losses on real
estate investments 7,500,000 - -
Joint venture net (income) loss 3,008,587 (1,407,025) (1,178,272)
Distributions received from
joint ventures - 1,407,025 1,178,272
Non-employee stock option plan 22,584 - -
Issuance of stock warrants - - 1,638,000
Gains on sales of investments (58,263) (15,603,421) (4,068,526)
Minority interest in operations
of operating partnership (1,417,817) 153,888 -
Discount amortization (511,976) (535,401) (1,467,737)
Costs associated with the
refinancing of debt - 253,500 -
Write-off of deferred financing
costs 164,089 660,125 -
Amortization of deferred
financing costs 1,052,283 1,446,242 1,096,969
Decrease (increase) in operating
escrows and other assets (2,470,167) 2,550,889 (879,332)
Increase (decrease) in accrued
real estate taxes, insurance
and other liabilities 3,952,223 (298,263) 1,258,692
Increase (decrease) in tenant
security deposits prepaid
rents and escrows held 399,924 (348,768) (410,723)
------------ ----------- ------------
Net cash provided by
operating activities 27,504,790 25,048,415 22,431,500
------------ ----------- ------------
Investing activities:
Costs to acquire properties (37,894,563) (48,905,137) (59,694,010)
Land and construction-in-progress (13,512,645) (18,618,220) ( 5,400,697)
Rehabilitation and non-recurring
capital expenditures (15,900,996) ( 8,389,316) ( 7,893,337)
Recurring capital expenditures (4,397,131) ( 3,166,208) ( 2,159,437)
Proceeds from sales of properties 19,580,079 61,020,687 19,158,879
Distributions received from joint
ventures in excess of earnings 2,644,533 1,491,919 1,304,389
Acquisition of mortgage loans - (28,083,544) -
Proceeds from the payoff of
mortgage loans 15,324,802 17,296,112 -
Principal collections on MBS 2,360,929 1,761,562 7,159,930
Principal collections on mortgage
loans 1,039,898 473,976 163,002
Initial funding of escrows (5,189,961) 49,758 (6,422,280)
Cost to acquire advisory services
business (447,679) - -
------------ ----------- -------------
Net cash used for
investing activities (36,392,734) (25,068,411) (53,783,561)
------------ ----------- ------------
</TABLE>
Continued
F-8
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Financing activities:
Payment of financing costs (1,222,170) (3,044,443) (3,612,952)
Proceeds from repurchase agreement - 350,000 -
Payment on repurchase agreement (1,650,000) (1,200,000) (8,300,000)
Proceeds from credit agreement 48,970,000 67,140,000 36,000,000
Repayment of credit agreement (8,050,000) (51,000,000) (56,700,000)
Proceeds from mortgage notes
payable - 17,800,000 88,689,919
Costs associated with the
refinancing of debt - (253,500) -
Principal payments on mortgage notes
payable (8,591,947) (6,296,501) (410,533)
Proceeds from the exercise of stock
warrants 5,884 10,097 5,407
Dividends (22,853,892) (22,599,538) (21,836,717)
Distribution to minority interest (1,846,688) (240,739) -
Contribution from minority interest - 5,000 -
Net cash provided by ----------- ----------- -----------
financing activities 4,761,187 670,376 33,835,124
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (4,126,757) 650,380 2,483,063
Cash and cash equivalents, beginning
of year 11,142,710 10,492,330 8,009,267
------------ ----------- -----------
Cash and cash equivalents, end of
year $ 7,015,953 $11,142,710 $10,492,330
============ =========== ===========
Supplemental cash flow disclosure:
Cash paid for interest during
year $ 20,143,571 $16,274,850 $11,085,742
============ =========== ===========
Interest capitalized during year $ 514,258 $ 658,480 $ 380,928
============ =========== ===========
Supplemental disclosure of non-cash financing
and investing activities:
Property contributed by minority
interests $ 90,895,512 $10,500,000 -
Cash to minority contributors (21,381,175) - -
Debt assumed from minority
contributors (47,641,639) (5,417,735) -
------------ ----------- -----------
Increase in minority interest $ 21,872,698 $5,082,265 -
============ =========== ===========
Debt assumed in conjunction with
property acquisition $ 5,555,295 - -
============ =========== ===========
Advisory services business
contributed by minority interest $ 13,000,000 - -
============ =========== ===========
Reclassification of construction
in progress to multifamily
apartment complexes $ 10,888,961 $22,003,156 -
============ =========== ===========
</TABLE>
The accompanying Notes are an integral
part of the Consolidated Financial Statements.
F-9
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
A. Organization
------------
Berkshire Realty Company, Inc. and Subsidiaries (the "Company") was
formed on April 26, 1990 by filing a certificate of incorporation in the
State of Delaware. The Company commenced operations on June 27, 1991, as
an equity real estate investment trust ("REIT") when the Company
exchanged 25,097,923 of its shares for the assets, subject to the
liabilities of two publicly held limited partnerships.
In 1995, the Company was restructured to an umbrella partnership real
estate investment trust ("UPREIT"). On May 1, 1995, the Company's assets,
subject to liabilities, were transferred to a newly formed subsidiary
("Operating Partnership") of which the Company is the general partner and
a significant limited partner. Upon transfer of its net assets, the
Company was issued 25,392,452 units of the Operating Partnership
("Units") which was equal to the number of Shares outstanding on May 1,
1995.
To permit the organization of the Operating Partnership, on May 1, 1995,
an affiliate of Berkshire Realty Advisors, the Company's former Advisor,
contributed $5,000 and River Oaks Apartments subject to mortgage debt of
$5.4 million at a valuation of $10,500,000. The seller received 534,975
Units for its interest ("Minority Interest") in the Operating Partnership
in exchange for the property. Under the agreement, the Company may not
sell the River Oaks Apartments for a period of three years following the
closing date. The contribution was accounted for using the purchase
method. River Oaks is a 17-story, 136-unit, multi-family complex located
in the exclusive River Oaks area of Houston, Texas.
On March 1, 1996 the Company acquired, via contribution, the advisory and
development services business (the "Advisor Transaction") of the
Berkshire Companies Limited Partnership, the Advisor to the Company, in
exchange for 1,300,000 newly issued Units of the Operating Partnership.
Additional Units, up to a total of $7.2 million, may be issued to the
transferor during a six-year period if certain Share price benchmarks are
achieved. (See Note C to the Consolidated Financial Statements). The
Units are convertible only upon shareholder approval. This acquisition
enabled the Company to assume the existing Advisory Services agreement
which eliminated fees previously incurred by the Company for asset
management, acquisition and disposition functions. The Company outsources
with affiliates of certain directors and officers for certain
administrative services such as shareholder relations, computer systems
and support, and legal services.
In addition to the two UPREIT transactions mentioned above, the Company
has grown by utilizing the UPREIT structure by acquiring six other
multifamily communities in 1996. These UPREIT transactions have increased
the ownership of the Operating Partnership by minority limited partners
to 11.85% which includes a 10.04% ownership by companies affiliated with
Douglas Krupp, George Krupp and Laurence Gerber. The Company owns the
remaining 88.15% of the Operating Partnership.
Property management services were performed by an affiliate of certain
directors and officers until February 28, 1997 when the Company acquired
the multifamily property management business of the affiliated company
for $1.7 million in Operating Partnership Units. The transaction was
valued at $17.6 million (based on a $10.375 share price) which will be
recorded as intangible assets and goodwill.
Continued
F-10
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
A. Organization - Continued
------------
The property manager currently manages 57 multifamily apartment
communities, including the Company's 35 assets. The Company has acquired
the management contracts for the remaining 22 multifamily communities and
will provide property management services to those owners, generally for
a 5% management fee.
The property manager employs approximately 85 professionals, excluding
site employees. The Company will continue to contract with an affiliate
of certain officers and directors for property management of the retail
portfolio.
The Company has several wholly-owned qualifying REIT subsidiaries which
formed in connection with the UPREIT transaction or for financing
purposes and are consolidated in the accompanying financial statements.
The principal business of the Company is the ownership and operation of
apartment communities located in the Southeast and Texas. In addition,
the Company has investments in six community and regional shopping
centers, two of which are held in joint venture.
The Company has an infinite life, however the Company's Certificate of
Incorporation, as amended, requires the Company's Board of Directors (the
"Board") to prepare and submit a Plan of Liquidation to the Shareholders
on or before December 31, 1998. The Plan of Liquidation will become
effective only if approved by Shareholders holding a majority of the
Shares then outstanding.
The Company is authorized to issue up to 140,000,000 shares of common
stock, $0.01 par value per share ("Shares"). The Company is also
authorized to issue up to 60,000,000 shares of preferred stock, $0.01 par
value, which may be issued in multiple classes or series. The Board is
authorized to determine the rights, preferences and privileges of the
preferred stock including the number of shares constituting any such
series and the designation thereof, without any further vote or action by
the Shareholders. The Company's outstanding Shares are publicly traded on
the New York Stock Exchange under the symbol "BRI".
B. Significant Accounting Policies
-------------------------------
The Company uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used
for federal income tax purposes.
Basis of Presentation
---------------------
For the period after the UPREIT restructuring, the accompanying
Consolidated Financial Statements include the consolidated accounts of
the Company, Operating Partnership and the subsidiaries of the Operating
Partnership. For the period prior to the UPREIT restructuring, the
accompanying financial statements reflect the consolidated accounts of
the Company and its wholly-owned qualifying REIT subsidiaries.
Continued
F-11
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
B. Significant Accounting Policies - Continued
-------------------------------
All significant intercompany balances have been eliminated in
consolidation. The Consolidated Financial Statements of the Company after
the UPREIT restructuring have been adjusted for the minority interest of
unitholders in the Operating Partnership.
Estimates and Assumptions
-------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
contingent assets and liabilities and revenues and expenses. Actual
results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company includes all short-term investments with maturities of three
months or less at the date of acquisition in cash and cash equivalents.
The carrying value of these investments approximated market at December
31, 1996.
The Company invests its cash primarily in money market funds with
commercial banks. The Company has not experienced any losses to date on
its invested cash.
Escrows
-------
The Company generally includes real estate tax, insurance and repair
balances required by certain debt agreements in escrows.
Real Estate Assets and Depreciation
-----------------------------------
Expenditures related to the acquisition, improvement and development of
real estate assets are capitalized at cost. Upon acquisition of a real
estate asset, deferred maintenance and renovation costs are capitalized
at cost. Ordinary repairs and maintenance are expensed as incurred.
Depreciation is computed by using the straight-line method over the
estimated useful lives of the related assets as follows:
Buildings 25 years
Building improvements 5 to 25 years
Appliances, carpeting and equipment 3 to 8 years
Impairment of Long-Lived Assets
-------------------------------
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The investments in
properties are carried at cost less accumulated depreciation unless the
Company believes there is a permanent impairment in value, in which case
a provision to write down investments in properties to fair value will
be charged against income. (See Note D).
Continued
F-12
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
B. Significant Accounting Policies - Continued
-------------------------------
Investments in Unconsolidated Joint Ventures
--------------------------------------------
The Company has a 50% interest in Brookwood Village Joint Venture and a
50.1% interest in Spring Valley Partnership (collectively, the "Joint
Ventures"). These investments are accounted for using the equity method
of accounting as the respective Partnership Agreements require either a
majority vote (Brookwood) or two thirds majority (Spring Valley) for all
major decisions regarding the Joint Ventures. As such, the Company does
not have control of the operation of the underlying assets. Under the
equity method of accounting, the Company's share of net income (loss) of
the Joint Ventures is included currently in the Company's net income
(loss).
MBS
---
MBS are held for long-term investment and therefore are carried at
amortized cost. Premiums or discounts are amortized over the life of the
underlying securities using the effective yield method.
Mortgage Loans
--------------
Discounts on mortgage loans net of acquisition costs are amortized into
income over the remaining life of the related loans using the effective
yield method, based on management's estimate of the current facts and
circumstances and the ultimate ability to collect such loans.
Rental Revenues
---------------
Residential and commercial leases require the payment of base rent
monthly in advance. Rental revenues are recorded on the accrual basis.
Commercial leases generally contain provisions for additional rent based
on a percentage of tenant sales and other provisions which are also
recorded on the accrual basis, but are billed in arrears. Minimum rental
revenue from long-term commercial leases is recognized on a straight-line
basis over the life of the related lease.
Interest Expense and Real Estate Tax Capitalization of Development Assets
-------------------------------------------------------------------------
Interest expense and real estate taxes incurred during the construction
period of assets under development are capitalized until a building is
placed in service as evidenced by a certificate of occupancy.
Deferred Expenses
-----------------
Costs associated with debt financings are capitalized and amortized to
interest expense over the term of the related agreement using a method
which approximates the effective interest method. Upon refinancing or
retirement of debt, any unamortized costs are charged to earnings.
Continued
F-13
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
B. Significant Accounting Policies - Continued
-------------------------------
Interest Rate Swap Agreement
----------------------------
Swap receipts and payments under interest rate swap agreements designated
as a hedge are recognized as adjustments to interest expense when earned
and are reflected as operating activities in the Consolidated Statement
of Cash Flows. Settlement payments or receipts on terminated interest
rate swap agreements are deferred and amortized over the remaining
original period of the swap, as long as the hedged borrowing is still
outstanding. Settlement payments or receipts on terminated interest rate
swap agreements are reflected as financing activities in the Consolidated
Statement of Cash Flows.
Income Taxes
------------
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, and believes it will continue to meet all such
qualifications. Accordingly, the Company will not be subject to federal
income taxes on amounts distributed to Shareholders provided that it
distributes annually at least 95% of its REIT taxable income and meets
certain other requirements for qualifying as a REIT. Therefore, no
provision for federal income taxes has been recorded in the Consolidated
Financial Statements. However, the Company is subject to certain state
income taxes and certain state net worth taxes which are not significant.
Earnings per Share
------------------
Earnings per share is calculated based on the weighted average Shares
outstanding during the years presented. The weighted average Shares
outstanding during the years ended December 31, 1996, 1995 and 1994 were
25,393,147, 25,392,621 and 25,391,478, respectively. Upon the exercise of
certain stock warrants, the Company issued 417 Shares in 1996, 1,023
Shares in 1995 and 503 shares in 1994. Annual dividends paid per share
were $.90 in 1996, $.89 in 1995 and $.86 in 1994.
Reclassifications
-----------------
Certain prior year balances have been reclassified to conform with
current year consolidated financial statement presentation.
C. Acquisition of Advisory Services Business
-----------------------------------------
On February 28, 1996, the Board of Directors, acting on the
recommendation of a Special Committee comprised of the Independent
Directors, approved the acquisition via contribution of the advisory and
development services business ("Advisor Transaction") of The Berkshire
Companies Limited Partnership in exchange for 1,300,000 newly issued
Units of the Operating Partnership.
The contribution was completed on March 1, 1996. As of that date, all
charges and expenses associated with the Advisory Services Agreement
ceased and the Company became a "self-administered" REIT. The Company
began incurring general and administrative expenses for its acquired
management staff including salaries, benefits, and other overhead
expenses. The Company has outsourced with affiliated companies of certain
directors and officers for certain administrative services such as
shareholder relations, computer systems and support and legal services.
Property management services were performed by Berkshire Property
Management, an affiliated company of certain directors and officers. (See
Note L).
Continued
F-14
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
C. Acquisition of Advisory Services Business - Continued
-----------------------------------------
In conjunction with the Advisor Transaction, additional Units, up to a
total $7.2 million in value, may be issued to the contributor during a
six-year period if certain Share price benchmarks are achieved. The
benchmarks are achieved if the share price is equal to or greater than
the benchmarks for any fifteen days during any twenty consecutive trading
days. There are six Share price benchmarks beginning at $11.00 and
increasing every $1.00 up to a maximum of $16.00. Upon satisfaction of
each benchmark, the contributor will receive Units equal to $1.2 million
based on the benchmark price. As of December 31, 1996, no additional
units have been issued.
The Advisor Transaction was accounted for under the purchase method of
accounting. The value of the transaction was based on 1,300,000 units at
a share price of $10, or $13,000,000 which was recorded as goodwill and
is being amortized on a straight-line method over a 10-year period. Also,
legal fees and professional services expenses associated with the Advisor
Transaction have been capitalized and will be amortized over the same 10-
year period. Accumulated amortization at December 31, 1996 was
$1,120,640.
D. Multi-family and Retail Property
--------------------------------
As of December 31, 1996, the Company had investments in 41 properties in
9 states consisting of 35 apartment communities having in the aggregate
12,435 units and 6 retail centers, including the two joint ventures, with
a total of 1,171,720 square feet of leasable space.
The following summarizes the carrying value of the Company's multifamily
apartment complexes and retail centers, excluding joint ventures (in
thousands):
December 31,
------------------------
1996 1995
---- ----
Land $ 76,525 $ 67,976
Buildings and improvements 419,932 337,790
Appliances, carpeting and equipment 82,971 56,336
-------- --------
Total multi-family and retail property 579,428 462,102
Accumulated depreciation (106,870) (77,641)
-------- --------
$472,558 $384,461
======== ========
Acquisitions
------------
On May 14, 1996, the Company acquired Berkshire Towers (formerly The
Point Apartments), a 1,119-unit high-rise apartment community located in
Silver Spring, Maryland, an asset formerly majority-owned by certain
directors and officers of the Company. The Company acquired the property
for $52.3 million in exchange for 1.6 million of Operating Partnership
Units to be issued over three years and the assumption of $35.5 million
of non-recourse indebtedness on the property. The debt has a fixed rate
of 7 5/8% and matures in 2029. Under the terms of the contribution
agreement, the Company may not sell Berkshire Towers for a period of five
years following the closing date.
Continued
F-15
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
D. Multi-family and Retail Property - Continued
--------------------------------
Acquisitions
------------
In the second quarter or 1996, the Company completed the acquisition of
five multi-family communities for a total of 1,422 apartment units. The
properties are located in Dallas and Fort Worth, Texas. One asset (318
units) was purchased with cash from an unrelated seller for a purchase
price of $8.7 million. The four remaining assets (1,104 units) were
acquired as a package from another unrelated seller for a purchase price
of $28.7 million. The purchase price included the assumption of $5.8
million in debt, the issuance of $4.1 million in Operating Partnership
Units and the remainder was paid in cash. For these four assets, the
contribution agreement restricts the Company from selling the assets for
a period of three years following the closing date. The debt bears
interest at 7.695% and matures in 2005.
On July 30, 1996, the Company acquired Hunter's Glen Apartments, a 276-
unit apartment community located in Plano, Texas. The purchase price was
$10 million which included the assumption of $5.5 million in mortgage
debt. The mortgage requires interest at a rate of 9% and matures March 1,
2000.
On November 12, 1996, the Company acquired Prescott Place II Apartments
(formerly Merit Ridge Apartments), a 336-unit apartment community located
in Mesquite, Texas. The purchase price was $10.2 million which included
the assumption of $6.3 million in debt, the issuance of $1.3 million in
Operating Partnership Units and the remainder was paid in cash.
With respect to the debt assumed in conjunction with the acquisitions
mentioned above, the debt agreements require monthly principal and
interest payments along with monthly funding of real estate tax and
insurance escrows. In addition, certain agreements require monthly
funding of mortgage insurance and replacement reserve escrows.
Information on the eight apartment communities acquired in 1996 is as
follows:
<TABLE>
<CAPTION>
Number of
Name Location Units
---- -------- -----
<S> <C> <C>
Golf Side Apartments Haltom City (Fort Worth), Texas 402
Benchmark Apartments Irving, Texas 250
Pleasant Wood Apartments Dallas, Texas 208
Providence Apartments Dallas, Texas 244
Prescott Place Apartments Mesquite (Dallas), Texas 318
Hunters Glen Apartments Plano (Dallas), Texas 276
Berkshire Towers Apartments Silver Spring (D.C.), Maryland 1,119
Prescott Place II Apartments Mesquite(Dallas),Texas 336
-----
3,153
=====
</TABLE>
Continued
F-16
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
D. Multi-family and Retail Property - Continued
--------------------------------
Development
-----------
The Company substantially completed the construction of Huntington Chase
II, a 72-unit additional phase to an existing property owned by the
Company in Norcross, Georgia. The project is expected to cost
approximately $4.7 million of which $4.6 million has been recorded at
December 31, 1996.
The Company is also building 96-units as an additional phase to
Brookfield Trace, an existing community in Mauldin (Greenville), South
Carolina. As of December 31, 1996, 72 units have been completed and
lease-up is underway. The remaining 24 units were completed in February
1997. The project is expected to cost approximately $7 million when
completed. As of December 31, 1996, the project has incurred $6.3 million
of construction costs.
In the fourth quarter of 1996 the Company began construction of a
296-unit apartment community in Durham, North Carolina. The project,
Berkshires at Crooked Creek, is currently estimated to cost approximately
$20.2 million and construction of the 13-building apartment community is
expected to be completed in the third quarter of 1998. As of December 31,
1996, costs of $2.5 million, which included the cost of land, have been
incurred.
The Company also owns two parcels of land located in Dallas, Texas and
Greenville, South Carolina. Development plans are under consideration for
these two sites.
Dispositions
------------
On September 12, 1996, the Company sold Pointe West Apartments, a
223-unit apartment community located in Des Moines, Iowa for a sales
price of $11,225,000. The property had a depreciated cost basis of
$10,125,418 and resulted in a gain on the sale of $947,326. Proceeds from
the sale were used to payoff debt of $6.6 million and necessitated the
write-off of deferred costs of $164,089. An additional $664,000 of
proceeds were used to pay down a portion of the debt collateralized by
four separate multifamily communities which the Company owns. With the
sale of Pointe West, the Company completed its plans to exit the Midwest.
On December 19, 1996, the Company sold Greentree Plaza, a 110,077 square
feet retail center in Marlton, New Jersey, for a sales price of
$9,250,000 resulting in a loss on the sale of $889,063. The sale of
Greentree Plaza is consistent with the Company's plan to sell its retail
properties and focus on multifamily communities. The proceeds from the
sale will be used to fund the development of Berkshires at Crooked Creek.
Impairment of Long-Lived Assets
-------------------------------
Effective January 1, 1996, the Company has adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". This Statement
requires that long-lived assets held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Continued
F-17
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Multifamily and Retail Property - Continued
-------------------------------
Impairment of Long-Lived Assets
-------------------------------
As of December 31, 1996, the Company has recorded $12 million in
provisions for losses on the wholly-owned and joint venture retail assets
as a result of the Company's strategic decision to divest of its retail
portfolio over time and redeploy proceeds in multifamily assets. In the
third quarter of 1996, the Company began actively marketing four of its
wholly-owned retail centers. As a result of these efforts, the Company
has reclassified these centers to assets held for sale and has recorded a
provision for losses of $4.2 million which represents the difference
between carrying value and estimated fair value less cost to sell.
Depreciation will no longer be recorded on these assets.
A fifth retail center, which is not currently for sale had a significant
lease restructuring during the third quarter. As a result of this
situation, the Company has recorded a provision for a loss of $3.3
million which represents the difference between carrying value and
estimated fair value. Depreciation will be calculated on the adjusted
book value on this asset.
Finally, one of the Company's joint venture investments, Brookwood
Village Joint Venture, recorded a $9 million provision for losses of
which $4.5 million represents the Company's pro-rata share of the
provision.
Rental Income
-------------
Future base rents receivable under non-cancelable commercial operating
leases for the four remaining wholly-owned properties for the years 1997
through 2001 and thereafter are as follows:
1997 $ 4,982,600
1998 $ 4,719,500
1999 $ 4,161,200
2000 $ 3,784,600
2001 $ 3,395,500
Thereafter $24,223,200
Continued
F-18
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------------
E. Investments in Unconsolidated Joint Ventures
--------------------------------------------
Condensed combined financial statements for the Joint Ventures are as
follows:
<TABLE>
<CAPTION>
CONDENSED COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
------------ ------------
<S> <C> <C>
Property at cost $110,058,875 $108,888,115
Less accumulated depreciation (40,173,598) (27,248,453)
------------ ------------
69,885,277 81,639,662
Other assets 2,774,699 2,034,197
------------ ------------
Total assets $ 72,659,976 $ 83,673,859
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 558,639 $ 267,707
------------ -----------
Partners' equity:
The Company 36,036,723 41,689,843
Joint venture partner 36,064,614 41,716,309
------------ -----------
Total partners' equity 72,101,337 83,406,152
------------ -----------
Total liabilities and partners' equity $ 72,659,976 $83,673,859
============ ===========
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $13,118,356 $12,873,159 $12,150,491
Property operating expenses (6,214,033) (5,912,347) (5,888,029)
Depreciation (3,925,146) (4,150,399) (3,908,620)
Provision for loss (9,000,000) - -
----------- ----------- -----------
Net income/(loss) $(6,020,823) $ 2,810,413 $ 2,353,842
=========== =========== ===========
Allocation of net income (loss):
The Company $(3,008,587) $ 1,407,025 $ 1,178,272
Joint venture partner (3,012,236) 1,403,388 1,175,570
------------ ----------- -----------
$(6,020,823) $ 2,810,413 $ 2,353,842
=========== =========== ===========
</TABLE>
In 1996, one of the joint venture investments, Brookwood Village,
recorded a $9,000,000 provision for loss which represents the difference
between carrying value and estimated fair value of the retail center less
costs to sell.
Continued
F-19
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
F. Mortgage and other loans receivable
-----------------------------------
As of December 31, 1996, the Company held a mortgage loan with a carrying
value of approximately $2,268,000 and a promissory note with a principal
balance of approximately $1,826,000. The mortgage loan is collateralized
by a 120-unit apartment complex in Palm Bay, Florida. The mortgage loan
requires principal payments based on a 23-year amortization along with an
interest rate of 7%. The mortgage loan matures January 27, 2002 when a
balloon payment of $2,552,673 will be due. The principal balance of the
mortgage loan is approximately $3,016,000. The promissory note requires
monthly interest payments of 10% and matures April 13, 1998.
In May 1996, a mortgage loan receivable was paid off for $7,016,547 which
was the principal balance as of the payoff date. The loan was
collateralized by a 185-unit apartment complex in Miami, Florida. In
addition, in November 1996, a separate mortgage loan receivable was paid
off for $8,308,255 which was the principal balance as of the payoff date.
The loan was collateralized by a 212-unit apartment complex in Miami,
Florida.
G. MBS
---
At December 31, 1996, the Company's MBS portfolio had an approximate
market value of $9,849,000 with unrealized gains of $616,000. The market
value of the MBS portfolio at December 31, 1995 was approximately
$12,372,000 with unrealized gains of $796,000. At December 31, 1996 and
1995, the MBS portfolio's cost basis was $9,232,956 and $11,576,326 with
a face value of $9,294,121 and $11,655,051, respectively. The portfolio
consists of Federal Home Loan Mortgage Corporation securities with coupon
rates ranging from 8.0% to 9.75% per annum maturing in the years 2008
through 2021 and a Federal National Mortgage Association security with
coupon rate of 9% per annum maturing in 2024.
H. Credit Agreements
-----------------
At December 31, 1996, the Company has in place two lines of credit to
provide for future development, acquisitions and general business
activities. One credit agreement is a Master Credit Facility ("Facility")
with the Federal National Mortgage Association ("FNMA"). The commitment
under this interest only facility, which is collateralized by multifamily
assets, is for $100,000,000 of which $63,345,000 is fixed rate ("Base")
and $36,655,000 is a revolving component ("Revolver") expiring in
November 2000.
As of December 31, 1996, the Company has pledged fourteen apartment
communities as collateral under the Facility. At that time, $92,310,000
was advanced on the available collateral. Future advances under the
commitment are dependent on the delivery of additional collateral. The
borrowings under the Credit Facility at December 31, 1996 were as
follows:
Contract Contract
Start End Interest
Borrowings Date Date Rate Amount
---------- ---- ---- ---- ------
Credit Facility - Fixed 11/22/95 11/20/05 6.997% $50,000,000
Credit Facility - Fixed 09/20/96 09/20/03 7.54% 13,345,000
Credit Facility - Revolver 12/03/96 03/03/97 5.976% 28,965,000
-----------
$92,310,000
===========
Continued
F-20
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
H. Credit Agreements, Continued
------------------
Simultaneous with the closing of the Facility mentioned above, the
Company significantly amended the terms of the other Credit Agreement
("Credit Agreement") with the Bank of Boston and Mellon Bank. The
commitment of $49.5 million has an interest rate set at 175 basis points
over LIBOR (5.5%) as of December 31, 1996. Multifamily and retail assets
are pledged as collateral under the Credit Agreement. The terms of the
amended facility expires December 31, 1997. The borrowings under the
Credit Agreement at December 31, 1996 were as follows:
Contract Contract
Start End Interest
Borrowings Date Date Rate Amount
---------- ---- ---- ---- ------
LIBOR borrowings 12/30/96 01/28/97* 7.4375% $ 1,250,000
LIBOR borrowings 12/30/96 01/28/97* 7.2500% 17,000,000
LIBOR borrowings 11/25/96 03/26/97 7.3125% 16,500,000
LIBOR borrowings 12/30/96 03/31/97 7.3125% 9,000,000
-----------
$43,750,000
===========
*On January 28, 1997, the Company paid down these contracts by $8,250,000
and repriced the new contracts at the then current interest rate of
7.3125%.
As an interest rate hedge against variable rate debt, in November 1995
the Company entered into a five-year interest rate swap contract with a
bank as counterparty. Under the swap arrangement, the Company will pay
6.06% on a $40 million notional amount and will receive LIBOR (based on
90 day contracts). The swap arrangement is intended to protect the
Company from significant interest rate exposure on its anticipated
revolving facilities. The current swap amount will cover anticipated
borrowing levels under revolvers in the near term. The Company will
continually reassess its rate exposure relative to debt levels and will
execute additional interest rate protection as circumstances dictate.
The following summarizes the Company's Credit Facility and Credit
Agreement at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
As of December 31,
1996 1995
--------------------------- --------------------------
Outstanding Commitment Outstanding Commitment
<S> <C> <C> <C> <C>
Credit Agreement $ 43,750,000 $ 49,450,000 $37,000,000 $ 48,000,000
Master Credit Facility 92,310,000 92,310,000 58,140,000 58,140,000
------------ ------------ ----------- ------------
$136,060,000 $141,760,000 $95,140,000 $106,140,000
============ ============ =========== ============
</TABLE>
Credit Facility and Credit Agreement borrowings averaged $122,168,671,
$74,039,637 and $75,004,167 during the years ended December 31, 1996,
1995 and 1994, respectively, and the maximum amount outstanding at any
month-end during fiscal years 1996, 1995 and 1994 was $144,110,000. The
weighted average interest rates of these borrowings were 6.87%, 8.10% and
6.88% during the years ended December 31, 1996, 1995 and 1994,
respectively.
The Credit Facility and Credit Agreement requires the Company to be in
compliance with certain debt covenants. Two of the more restrictive
covenants include: the Company is required to maintain interest coverage
ratios of 2 1/4 to one along with a total liability to net worth ratio of
not more than 50%. As of December 31, 1996 the Company was in compliance
with all covenants.
Continued
F-21
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
I. Mortgage Notes Payable
----------------------
The following table sets forth certain information regarding the mortgage
notes payable at December 31, 1996:
Principal
Apartment Interest Maturity Balance
Communities Location Rate Date As of 12/31/96
----------- -------- ---- ---- --------------
Conventional Fixed Rate
-----------------------
Altamonte Altamonte Springs, FL 8.34% 4/1/2001 $ 4,077,409
Huntington Chase Norcross, GA 8.34% 4/1/2001 8,145,258
Newport Tampa, FL 8.34% 4/1/2001 3,698,115
Timbers Charlotte, NC 8.34% 4/1/2001 6,542,818
Avalon Atlanta, GA 8.45% 6/1/2001 5,507,837
East Lake Charlotte, NC 8.45% 6/1/2001 2,898,861
Southpointe Massapequa, NY 8.45% 6/1/2001 5,121,322
Huntington Downs Greenville, SC 8.45% 7/1/2001 8,968,660
Lakes of Jacaranda Plantation, FL 8.45% 7/1/2001 8,010,842
Kings Crossing Kingwood, TX 8.45% 7/1/2005 8,919,943
Kingwood Lakes Kingwood, TX 8.45% 7/1/2005 8,527,858
Golf Side Fort Worth, TX 7.695% 11/1/2005 5,739,577
Hunter's Glen Plano, TX 9.000% 3/1/2000 5,529,629
Berkshire Towers Silver Spring, MD 7.625% 4/1/2029 35,370,790
------------
$117,058,919
============
Tax Exempt
Prescott Place II Dallas, TX 5.775% 12/5/2003 $ 6,313,480
Plantation Colony Plantation, FL 7.13% 9/1/2004 9,533,208
Park Colony and Hollywood, FL
Woodland Meadows Tamarac, FL 6.41% 4/1/2002 16,900,000
------------
$ 32,746,688
============
The aggregate scheduled principal amounts of long-term borrowings due
during the five years 1997 through 2001 and thereafter are $1,769,009,
$1,896,709, $2,035,287, $7,462,851, $50,672,917 and $85,968,929,
respectively.
In the event of a mortgage prepayment, certain mortgage agreements may
require a prepayment penalty.
J. Master Repurchase Agreement
---------------------------
On January 9, 1992, the Company negotiated a Master Repurchase Agreement
with CS First Boston which allowed for short-term borrowings collateralized
by the Company's investments in MBS. The balance outstanding at December
31, 1996 is $9,300,000 at a rate of 5.70%. Subsequent to December 31, 1996,
this borrowing was paid down by $500,000 and the remaining principal
balance of $8,800,000 was rolled over to a new maturity of May 19, 1997. On
May 19, 1997, all or a majority of the borrowings outstanding will be
repriced at the then current interest rates.
Continued
F-22
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
J. Master Repurchase Agreement - Continued
---------------------------------------
Master Repurchase Agreement borrowings averaged $10,201,644, $11,534,795
and $13,582,222 during the years ended December 31, 1996, 1995 and 1994,
respectively, and the maximum amounts outstanding at any month-end during
fiscal 1996, 1995 and 1994 were $10,950,000, $11,800,000 and $14,100,000,
respectively. The weighted average interest rates of these agreements were
5.85%, 6.24%, and 4.46% during the years ended December 31, 1996, 1995 and
1994, respectively.
K. Minority Interest
-----------------
Minority interest in the Operating Partnership consists of the following at
December 31, 1996 and 1995 (in thousands):
1996 1995
---- ----
Balance, beginning of year $ 5,000 $ -
Value of Units Issued to
Minority Unitholders:
Affiliated Parties 29,435 5,082
Unrelated Parties 5,438 -
Initial cash contribution - 5
Distribution to Unitholders (1,846) (241)
Minority income(loss) allocation (1,418) 154
------- ------
Balance, end of year $36,609 $5,000
======= ======
L. Related Party Transactions
--------------------------
For the three years ended December 31, 1996, the Company contracted with
an affiliate of certain officers and directors for services as management
agent to the Company's properties. Such agreements provide for Property
Management fees payable monthly at the rate of 5% of the gross receipts
from residential properties and 6% of gross receipts for retail
properties under management.
The affiliate was also entitled to reimbursements for certain expenses
incurred in connection with the operation of the properties including
accounting, computer support, risk management, real estate tax services
and administration.
The following is a summary of fees and reimbursements to an affiliate for
the years ended December 31:
1996 1995 1994
---- ---- ----
Costs reimbursements related
to the operation of the
Company's properties $1,666,695 $1,315,960 $1,625,604
Fees and reimbursements for
administrative services $ 740,273 $ 629,270 $ 677,604
As a result of the acquisition of the property manager as described in Note
Q, the Company will no longer reimburse an affiliate for services related to
multifamily property operations.
Continued
F-23
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
M. Benefit Plans
-------------
Stock Option Plan
-----------------
On February 8, 1996 the Board of Directors of the Company adopted the 1996
Stock Option Plan, (the "Plan"). The Plan provides for grants to certain
employees, non-employee directors and consultants of the Company. Awards
will be administered by the Compensation Committee which is comprised of
two independent directors appointed by the Board of the Directors. There
are 1,500,000 shares of common stock authorized for non-qualified and
incentive stock option grants under the Plan. The plan will continue in
effect until all shares of stock subject to options have been acquired or
until May 1, 2001, whichever is earlier. However, unexercised options will
continue in effect after the termination of the Plan. Options currently
granted have a 0-1 year vesting period.
In October 1995, the FASB issued Statement of Financial Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," effective for
periods beginning after December 15, 1995. SFAS 123 requires that
companies either recognize compensation expense for grants of stock, stock
options, and other equity instruments based on fair value, or provide
pro-forma disclosure of net income and earnings per share in the notes to
the financial statements. The Company adopted the disclosure provisions of
SFAS 123 in 1996 and has applied APB Opinion No. 25 and related
Interpretations in accounting for the Plan. Accordingly, compensation
expense was only recognized for 24,000 options issued to a consultant of
the Company, which had a fair value of approximately $22,000. Had
compensation cost for the Plan been determined based on the fair value
of all the options calculated in accordance with SFAS 123, the Company's
net income and earnings per share for the year ended December 31, 1996
would have been reduced to the pro-forma amounts indicated below:
Net Income Earnings Per Share
---------- ------------------
As Reported ($14,308,277) $(.56)
Pro-Forma* ($14,745,759) $(.58)
*The pro-forma effect of compensation costs determined using the fair value
based method are not indicative of future amounts when the new method will
apply to all outstanding vested and nonvested awards.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: an expected life 3 years, expected volatility of 20%, a
dividend yield of 9.1% and a risk free interest rate of 5.65%.
A summary of the status of the Plan as of December 31, 1996 and changes
during the year then ended is presented below:
Weighted Avg.
Shares Exercise Price
------ --------------
Outstanding at beginning
of the year - -
Granted 623,964 $9.90
Exercised - -
Forfeited/Expired - -
Outstanding at end of the year 623,964
=======
Options exercisable at year-end 567,964
Weighted average fair value of
options granted during the year. $.74
Continued
F-24
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
M. Benefit Plans, Continued
-------------
The following table summarizes information about options outstanding at
December 31, 1996:
Options Outstanding
Weighted Average
Remaining
Range of Number Contractual Weighted Average
Exercise Prices Outstanding Life Exercise Price
--------------- ----------- ---- --------------
$9.75-$10.25 623,964 9.4 years $9.90
Options Exercisable
Number Weighted Average
Exercisable Exercise Price
----------- --------------
567,964 $9.86
Profit Sharing Plans
--------------------
Beginning in 1996, the Company has a defined contribution plan pursuant to
Section 401(k) of the Internal Revenue Code which covers all employees'
contributions up to a maximum of 3% of each employee's compensation.
Contributions, if any, are allocated to each participant based on the
relative compensation of the participant to the compensation of all
participants. Aggregate contributions of approximately $76,000 were made
for the year ended December 31, 1996.
N. Non-Recurring Charges
---------------------
Non-recurring charges in 1996 relate primarily to the settlement of a
lawsuit related to the sale of an apartment asset, Carrollwood Gables
Apartments, which was sold to an unaffiliated buyer in January, 1994. Prior
to the sale, the buyer engaged a third party to report on the physical
condition of the property. The physical inspection estimated outstanding
repairs of approximately $20,000 which was satisfactory to the buyer.
Subsequent to the sale, the buyer claimed there was significant roof and
window leakage and brought suit against the Company, claiming that the
Company concealed evidence of the leaks and misrepresented to the buyer
that no roof leaks existed at the property.
On September 5, 1996, the two counts brought against the Company were
dismissed by the court. However, the buyer still had a number of options,
including appealing the order. On September 18, 1996, the litigation was
settled in mediation with the Company agreeing to pay a cash settlement of
$150,000 to the buyer. Although the Company is confident there was no wrong
doing on its part and believes there was no basis for litigation, the
Company believed a settlement at this time was a better option given the
alternatives, which could have meant a reversal of the dismissal and an
expensive trial in the future, and in any event the incurrence of
additional costs of defense.
In addition to the cash settlement, the Company has incurred legal fees and
costs which are recorded as a non-recurring charge on the Consolidated
Statement of Operations.
Continued
F-25
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In 1995, the non-recurring charges relate to costs associated with the
restructuring of the company to an UPREIT as discussed in Note A. The
non-recurring charges in 1994 relate to the settlement of a class action
lawsuit brought against the Company at its inception by investors in the
two publicly held limited partnerships which were combined to form
Berkshire Realty Company, Inc. (See Note T).
O. Dividends to Shareholders
For federal income tax purposes, the following summarizes the tax
components of dividends paid in 1996, 1995 and 1994:
Year Ended December 31,
1996 1995 1994
---- ----- -----
Per Share:
Ordinary income $.44 $.36 $.48
Non-taxable distributions .46 .53 .38
---- ---- ----
Total $.90 $.89 $.86
==== ==== ====
For federal income tax purposes, the Company is depreciating its properties
using the Modified Cost Recovery System. Also, non-recurring charges
associated with the issuance of warrants (see Note T) and recognition of
effective interest income on mortgage loans (see Note F) are recognized for
federal tax purposes when realized.
P. Commitments and Contingencies
-----------------------------
Litigation
----------
The Company is involved in legal actions and claims in the ordinary course
of its business. It is the opinion of management and its legal counsel,
that such litigation and claims should be resolved without material effect
on the Company's financial position or results from operations.
Development
-----------
The estimated cost to complete the development project underway in Durham,
North Carolina is $20.2 million.
Q. Subsequent Events
-----------------
Property Acquisition
--------------------
Subsequent to December 31, 1996, the Company acquired Westchester
Apartments, a 345-unit apartment community located in Silver Spring,
Maryland. The purchase price was $16.1 million which included the
assumption of $11.4 million in debt and the issuance of 388,333 Operating
Partnership Units based on a share price of $10. The remainder was paid in
cash.
Property Disposition
--------------------
Subsequent to December 31, 1996, the Company sold Howell Commons
Apartments, a 348-unit apartment community located in Greenville, South
Carolina for a sale price of $13 million which resulted in a gain of
approximately $6.4 million.
Continued
F-26
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Q. Subsequent Events - Continued
-----------------
Acquisition of the Management Company
-------------------------------------
On February 13, 1997, a Special Committee of the Board of Directors
comprised of the Independent Directors, approved the acquisition of the
multifamily property management business ("Property Manager") of an
affiliated property management company owned by certain officers and
directors of the Company. The Property Manager was contributed on February
28, 1997 in exchange for 1.7 million Operating Partnership Units or
approximately $17.6 million in consideration as of the pricing date.
The Property Manager manages 57 apartment communities, including the
Company's 35 assets, and employs approximately 85 professionals, excluding
site employees. As a result of this transaction, the Company will no longer
pay management fees and reimbursements for the management operations of its
multifamily portfolio. In addition, the Company will receive management
fees and reimbursements of certain expenses associated with 22 third-party
management contracts primarily with partnerships affiliated with certain
directors and officers of the Company. The Company will continue to engage
an affiliated company to manage its six retail assets.
The value of the Operating Partnership Units issued will be recorded on the
balance sheet and reflected as intangible assets related to the third-party
contracts and goodwill. These recorded amounts will be amortized over the
expected periods to be benefitted.
R. Fair Value of Financial Instruments
-----------------------------------
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instrument:
Cash and cash equivalents
-------------------------
The carrying amount approximates the fair value due to the short maturity
of those instruments.
MBS
---
The Company estimates the fair value of MBS based on quoted market prices.
(See Note G).
Mortgage loans and other loans receivable
The Company estimates the fair value of its mortgage loans using the market
value of the properties which collaterize such loans, if available.
Otherwise, fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and the same remaining maturities. Based on
this analysis, the Company has determined that the fair value of the
instruments approximates carrying value.
Credit agreements
At December 31, 1996, the Company has two separate lines of credit in
place. Due to the relatively short period of time between repricing dates
on the revolving components, the Company approximates the fair value of
those borrowings at the current carrying value. The Company estimates the
value
Continued
F-27
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
R. Fair Value of Financial Instruments - Continued
-----------------------------------
Credit agreements - Continued
-----------------
of its interest-only fixed rate credit facility held with the FNMA by
discounting cash flows remaining to maturity using comparable treasury
interest rates plus current spreads. The Company estimates the fair market
value fixed rate portion at December 31, 1996 and 1995 to be $61,873,000
and $50,000,000, respectively.
Repurchase agreements
---------------------
The carrying amount of the Company's repurchase agreement approximates fair
value due to the short maturity.
Interest rate swap agreement
----------------------------
The fair value of the Company's interest rate swap agreement is estimated
to be $150,000 which is the amount the Company would receive if the swap
was terminated on December 31, 1996. If the swap agreement was terminated
on December 31, 1995, the Company estimated it would owe $945,000, if the
contract was terminated.
Mortgage Notes Payable
----------------------
Mortgage notes payable were valued by discounting cash flows remaining to
maturity using comparable treasury interest rates plus current spreads.
Based on this analysis, the Company has determined that the fair value of
these liabilities approximates carrying value.
S. Pro-Forma Results (Unaudited):
-----------------
The following unaudited pro-forma operating results for the Company have
been prepared as if the 1996 property acquisitions had occurred on January
1, 1996. Unaudited pro-forma financial information is presented for
informational purposes only and may not be indicative of what the actual
results of operations of the Company would have been had the events
occurred as of January 1, 1996, nor does it purport to represent the
results of operations for future periods. Comparisons are not made to 1995
since the Company became an umbrella partnership real estate investment
trust ("UPREIT") May 1, 1995.
For the Twelve Months Ended
December 31, 1996
---------------------------
Revenues $102,822,224
============
Expenses including depreciation $115,747,161
============
Net loss $(14,636,894)
============
Net loss per weighted average share $ (.58)
============
T. Issuance of Warrants
--------------------
On June 4, 1991 at a special meeting, the Unitholders of Krupp Cash
Plus-III Limited Partnership and Krupp Cash Plus-IV Limited Partnership
(collectively the "Participating Cash Plus Partnerships") voted in favor of
and agreed to
Continued
F-28
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
T. Issuance of Warrants - Continued
--------------------
participate in an exchange (the "Exchange") with the Company. Subsequently,
the Company was named in a consolidated lawsuit filed as a class action
representing those Unitholders related to the Exchange transaction. On
August 3, 1994, the court approved a settlement which became effective on
September 6, 1994.
The settlement agreement provided that the Company pay to the plaintiff
class $1.5 million and issue three million stock warrants. Upon exercise,
each warrant entitles the holder to the right to acquire one share of
common stock of the Company. The warrants are exercisable for a period of
four years ending on September 8, 1998. The number of shares of common
stock issuable upon exercise of a warrant is subject to adjustment upon the
occurrence of certain events described in the warrant agreement. The
exercise price was $10.75 from September 7, 1994 through September 6, 1995
and $11.79 from September 7, 1995 through September 8, 1998. As of December
31, 1996, 1,943 shares of common stock were issued upon exercise of
warrants.
F-29
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
-----------------
Subsequent to
Initial cost to Partnership Acquisition
--------------------------- -----------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
<S> <C> <C> <C>
Residential
- -----------
Altamonte Bay Club
Altamonte Springs, Florida $ 485,599 $ 4,370,388 $ 775,346
Arbors at Breckenridge
Duluth, Georgia 3,260,522 23,355,675 912,714
The Avalon on Abernathy
Atlanta, Georgia 2,013,424 5,177,377 5,043,002
Benchmark
Irving, Texas 808,417 7,275,757 1,011,623
Berkshire Towers
Silver Spring, Maryland 5,439,135 48,952,217 3,770,605
British Woods
Nashville, Tennessee 1,212,396 10,911,569 692,159
Brookfield Trace
Mauldin, South Carolina 1,529,428 13,435,004 459,270
Brookwood Valley
Mauldin, South Carolina 972,241 8,750,174 573,199
Cumberland Cove
Raleigh, North Carolina 1,840,482 23,524,150 1,269,301
East Lake Village
Charlotte, North Carolina 531,629 4,784,665 2,275,107
Golfside
Haltom City, Texas 1,444,530 6,988,219 654,689
Highland Ridge,
Nashville, Tennessee 720,695 6,486,261 1,097,598
Howell Commons
Greenville, South Carolina 1,050,352 9,453,164 921,813
Hunters Glen
Plano, Texas 1,012,130 9,109,173 530,205
Huntington Chase
Norcross, Georgia 1,423,792 17,840,204 1,441,657
Huntington Downs
Greenville, South Carolina 791,173 18,091,240 1,414,593
</TABLE>
F-30
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
-----------------
Subsequent to
Initial cost to Partnership Acquisition
--------------------------- -----------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
<S> <C> <C> <C>
Residential
Indigo on Forest
Dallas, Texas 10,951,649 26,256,230 5,294,329
Kings Crossing
Houston, Texas 3,614,838 9,295,300 1,246,220
Kingwood Lake
Houston, Texas 3,106,935 9,320,806 1,542,496
Lakes of Jacaranda
Plantation, Florida 3,060,000 17,818,748 838,407
</TABLE>
<TABLE>
<CAPTION>
Gross Amounts Carried at End of Year
------------------------------------
Buildings
and
Description Land Improvements Total
----------- ---- ------------ ------------
<S> <C> <C> <C>
Residential
Altamonte Bay Club
Altamonte Springs, Florida $ 485,599 $ 5,145,734 $ 5,631,333
Arbors at Breckenridge
Duluth, Georgia 3,260,522 24,268,389 27,528,911
The Avalon on Abernathy
Atlanta, Georgia 2,013,424 10,220,379 12,233,803
Benchmark
Irving, Texas 808,417 8,287,380 9,095,797
Berkshire Towers
Silver Spring, Maryland 5,439,135 52,722,822 58,161,957
British Woods
Nashville, Tennessee 1,212,396 11,603,728 12,816,124
Brookfield Trace
Mauldin, South Carolina 1,529,428 13,894,274 15,423,702
Brookwood Valley
Mauldin, South Carolina 972,241 9,323,373 10,295,614
Cumberland Cove
Raleigh, North Carolina 1,840,482 24,793,451 26,633,933
</TABLE>
F-31
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Gross Amounts Carried at End of Year
------------------------------------
Buildings
and
Description Land Improvements Total
----------- ---- ------------ ------------
<S> <C> <C> <C>
Residential
- -----------
East Lake Village
Charlotte, North Carolina 531,629 7,059,772 7,591,401
Golfside
Haltom City, Texas 1,444,530 7,642,908 9,087,438
Highland Ridge
Nashville, Tennessee 720,695 7,583,859 8,304,554
Howell Commons
Greenville, South Carolina 1,050,352 10,374,977 11,425,329
Hunters Glen
Plano, Texas 1,012,130 9,639,378 10,651,508
Huntington Chase
Norcross, Georgia 1,423,792 19,281,861 20,705,653
Huntington Downs
Greenville, South Carolina 791,173 19,505,833 20,297,006
Indigo on Forest
Dallas, Texas 10,951,649 31,550,559 42,502,208
Kings Crossing
Houston, Texas 3,614,838 10,541,520 14,156,358
Kingwood Lake
Houston, Texas 3,106,935 10,863,302 13,970,237
Lakes of Jacaranda
Plantation, Florida 3,060,000 18,657,155 21,717,155
</TABLE>
F-32
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
<S> <C> <C> <C>
Residential
- -----------
Altamonte Bay Club
Altamonte Springs, Florida $ 1,467,802 1984-1986 10/14/92
Arbors at Breckenridge
Duluth, Georgia 3,962,160 1986-1989/ 12/17/93
1995
The Avalon on Abernathy
Atlanta, Georgia 2,344,205 1971 06/02/92
Benchmark
Irving, Texas 290,312 1982 06/27/96
Berkshire Towers
Silver Spring, Maryland 2,177,953 1965-1969 05/14/96
British Woods
Nashville, Tennessee 851,954 1984 11/01/95
Brookfield Trace
Mauldin, South Carolina 730,676 1995 11/01/95
Brookwood Valley
Mauldin, South Carolina 1,065,755 1992 04/13/95
Cumberland Cove
Raleigh, North Carolina 4,434,653 1985/1995 12/19/91
East Lake Village
Charlotte, North Carolina 1,665,593 1972 10/19/93
Golfside
Haltom City, Texas 290,428 1980/1985 06/06/96
Highland Ridge
Nashville, Tennessee 568,114 1972 11/01/95
Howell Commons
Greenville, South Carolina 4,999,067 1985-1986 01/15/88
Hunters Glen
Plano, Texas 284,513 1979 07/30/96
Huntington Chase
Norcross, Georgia 3,595,753 1987/1996 07/07/93
Huntington Downs
Greenville, South Carolina 9,228,213 1986-1987 01/15/88
Indigo on Forest
Dallas, Texas 5,539,722 1984 08/31/94
</TABLE>
F-33
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
<S> <C> <C> <C>
Residential
- -----------
Kings Crossing
Houston, Texas 2,038,800 1983 03/23/93
Kingwood Lake
Houston, Texas 2,102,008 1980 03/23/93
Lakes of Jacaranda
Plantation, Florida 6,848,611 1988-1989 03/30/90
</TABLE>
F-34
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
-----------------
Subsequent to
Initial cost to Partnership Acquisition
--------------------------- -----------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
<S> <C> <C> <C>
Residential
- -----------
Newport
Tampa, Florida $ 486,478 $ 4,378,303 $ 1,151,420
The Oaks
Mauldin, South Carolina 1,509,268 6,434,249 343,327
Park Colony
Hollywood, Florida 1,888,641 16,997,765 1,242,739
Plantation Colony
Plantation, Florida 1,341,571 12,074,143 809,087
Pleasant Woods
Dallas, Texas 605,068 5,445,610 799,503
Prescott Place
Mesquite, Texas 873,614 7,862,525 568,354
Prescott Place II
Mesquite, Texas 1,501,725 8,941,424 299,108
Providence
Dallas, Texas 676,617 6,089,549 928,489
River Oaks
Houston, Texas 2,464,193 8,249,691 3,117,089
Roper Mountain Woods
Greenville, South Carolina 667,352 6,006,172 898,555
Southpoint at Massapequa
Massapequa, New York 874,448 7,870,033 755,592
Stoneledge Plantation
Greenville, South Carolina 988,672 8,898,048 799,953
The Timbers
Charlotte, North Carolina 965,823 8,692,408 837,266
Windover
Knoxville, Tennessee 890,613 8,015,515 2,861,945
Woodland Meadows
Tamarac, Florida 517,212 4,654,918 2,710,034
----------- ------------ -----------
Total Residential $61,520,662 $401,806,674 $49,886,794
----------- ------------ -----------
</TABLE>
F-35
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Gross Amounts Carried at End of Year
------------------------------------
Buildings
and
Description Land Improvements Total
----------- ---- ------------ -----
<S> <C> <C> <C>
Residential
- -----------
Newport
Tampa, Florida $ 486,478 5,529,723 6,016,201
The Oaks
Mauldin, South Carolina 1,509,268 6,777,576 8,286,844
Park Colony
Hollywood, Florida 1,888,641 18,240,504 20,129,145
Plantation Colony
Plantation, Florida 1,341,571 12,883,230 14,224,801
Pleasant Woods
Dallas, Texas 605,068 6,245,113 6,850,181
Prescott Place
Mesquite, Texas 873,614 8,430,879 9,304,493
Prescott Place II
Mesquite, Texas 1,501,725 9,240,532 10,742,257
Providence
Dallas, Texas 676,617 7,018,038 7,694,655
River Oaks
Houston, Texas 2,464,193 11,366,780 13,830,973
Roper Mountain Woods
Greenville, South Carolina 667,352 6,904,727 7,572,079
Southpoint at Massapequa
Massapequa, New York 874,448 8,625,625 9,500,073
Stoneledge Plantation
Greenville, South Carolina 988,672 9,698,001 10,686,673
The Timbers
Charlotte, North Carolina 965,823 9,529,674 10,495,497
Windover
Knoxville, Tennessee 890,613 10,877,460 11,768,073
Woodland Meadows
Tamarac, Florida 517,212 7,364,952 7,882,164
----------- ------------ ------------
Total Residential $61,520,662 $451,693,468 $513,214,130
----------- ------------ ------------
</TABLE>
F-36
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
Residential
- -----------
Newport
Tampa, Florida $ 1,666,434 1985 10/14/92
The Oaks
Mauldin, South Carolina 2,501,825 1989 03/02/90
Park Colony
Hollywood, Florida 2,963,630 1987 07/13/94
Plantation Colony
Plantation, Florida 2,597,333 1984 12/01/93
Pleasant Woods
Dallas, Texas 247,735 1979 06/06/96
Prescott Place
Mesquite, Texas 321,172 1983 06/06/96
Prescott Place II
Mesquite, Texas 99,128 1984 11/12/96
Providence
Dallas, Texas 261,858 1980 06/26/96
River Oaks
Houston, Texas 1,377,606 1966 05/01/95
Roper Mountain Woods
Greenville, South Carolina 3,339,913 1984 01/15/88
Southpoint at Massapequa
Massapequa, New York 2,525,959 1969 10/14/92
Stoneledge Plantation
Greenville, South Carolina 4,623,807 1986 01/15/88
The Timbers
Charlotte, North Carolina 2,410,560 1989 03/22/93
Windover
Knoxville, Tennessee 806,430 1974 11/01/95
Woodland Meadows
Tamarac, Florida 2,047,559 1974 10/14/92
-----------
Total Residential $82,277,241
===========
F-37
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
-----------------
Subsequent to
Initial cost to Partnership Acquisition
--------------------------- -----------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
<S> <C> <C> <C>
Commercial
- ----------
Banks Crossing Shopping Ctr
Fayetteville, Georgia $ 3,991,003 $ 14,451,711 $ 350,436
College Plaza
Fort Myers, Florida 3,187,958 6,510,077 628,183
Crossroads South Shopping Ctr
Jonesboro, Georgia 3,727,876 12,177,275 429,372
Tara Crossing
Jonesboro, Georgia 4,097,159 16,045,810 616,518
----------- ------------ -----------
Total Commercial $15,003,996 $ 49,184,873 $ 2,024,509
----------- ------------ -----------
Developments in progress
and land held for investment or further developments:
- ------------------------------------------------------------------------------
Berkshires at Brookfield
Development
Mauldin, South Carolina $ 149,680 - $ 1,421,344
Berkshires at Crooked Creek
Durham, North Carolina 1,261,970 - 1,202,633
Garlington Road
Greenville, South Carolina 1,193,883 - 274,843
Indigo Land
Dallas, Texas 863,455 - 0
----------- ------------ -----------
Total Land $ 3,468,988 $ - $ 2,898,820
----------- ------------ -----------
Grand Total-All Real Estate $79,993,646 $450,991,547 $54,810,123
=========== ============ ===========
</TABLE>
Continued
F-38
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Gross Amounts Carried at End of Year
------------------------------------
Buildings
and
Description Land Improvements Total
----------- ---- ------------ -----
<S> <C> <C> <C>
Commercial
- ----------
Banks Crossing Shopping Ctr
Fayetteville, Georgia $ 3,991,003 $ 14,802,147 $ 18,793,150
College Plaza
Fort Myers, Florida 3,187,958 7,138,260 10,326,218
Crossroads South Shopping Ctr
Jonesboro, Georgia 3,727,876 12,606,647 16,334,523
Tara Crossing
Jonesboro, Georgia 4,097,159 16,662,328 20,759,487
----------- ------------ ------------
Total Commercial $15,003,996 $ 51,209,382 $ 66,213,378
----------- ------------ ------------
Developments in progress
and land held for investment or further developments:
- ------------------------------------------------------------------------------
Berkshires at Brookfield
Development
Mauldin, South Carolina $ 149,680 $ 1,421,344 $ 1,571,024
Berkshires at Crooked Creek
Durham, North Carolina 1,261,970 1,202,633 2,464,603
Garlington Road
Greenville, South Carolina 1,193,883 274,843 1,468,726
Indigo Land
Dallas, Texas 863,455 0 863,455
----------- ------------ ------------
Total Land $ 3,468,988 $ 2,898,820 $ 6,367,808
----------- ------------ ------------
Grand Total-All Real Estate $79,993,646 $505,801,670 $585,795,316
=========== ============ ============
</TABLE>
Continued
F-39
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1996
<TABLE>
<CAPTION>
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
<S> <C> <C> <C>
Commercial
- ----------
Banks Crossing Shopping Ctr
Fayetteville, Georgia $ 5,942,130 1986 & 1987 12/16/87
College Plaza
Fort Myers, Florida 4,198,355 1983 & 1985 04/30/87
Crossroads South Shopping Ctr
Jonesboro, Georgia 4,756,926 1986 - 1987 12/31/87
Tara Crossing
Jonesboro, Georgia 9,694,855 1986 06/25/87
-----------
Total Commercial $24,592,266
===========
Developments in progress and land held for investment or further developments:
- ------------------------------------------------------------------------------
Berkshires at Brookfield
Development
Mauldin, South Carolina -- N/A 11/01/95
Berkshires at Crooked Creek
Durham, North Carolina -- N/A 08/25/95
Garlington Land
Greenville, South Carolina -- N/A 06/10/96
Indigo Land
Dallas, Texas -- N/A 08/31/94
------------
Total Land --
------------
$106,869,507
============
</TABLE>
Notes: Brookfield Trace includes portion of Berkshires at Brookfield
Development which is completed.
The depreciable life of a residential property is 3-25 years, and a
commercial property is 3-25 years.
The aggregate cost of the Company's real estate for federal income tax
purposes is approximately $569,304,045 million. and the aggregate
accumulated depreciation for federal income tax purposes is
approximately $85,195,257 million.
Continued
F-40
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1996
Reconciliation of Real Estate and Accumulated Depreciation for each of the
three years ended December 31:
1996 1995 1994
------------ ------------ -------
Real Estate
Balance, beginning of year $465,846,375 $448,057,874 $373,054,511
Acquisition and improvements 146,774,969 89,578,886 96,707,447
Sales and retirements (26,826,028) (71,790,385) (21,704,084)
------------ ------------ ------------
Balance at December 31, $585,795,316 $465,846,375 $448,057,874
============ ============ ============
Accumulated Depreciation
Balance, beginning of year $ 77,641,555 $ 80,863,231 $ 67,970,084
Depreciation expense 29,032,162 21,976,356 19,506,878
Provision for losses 7,500,000 - -
Sales and retirements (7,304,210) (25,198,032) (6,613,731)
------------ ------------ ------------
Balance at December 31, $106,869,507 $ 77,641,555 $ 80,863,231
============ ============ ============
F-41
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
Summary Quarterly Financial Information (Unaudited)
The consolidated results of operations of the Company for the quarters ended
March 31, June 30, September 30 and December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per Share amounts)
March 31, June 30, September 30, December 31,
------------------------ ----------------------- ------------------------ -------------------------
1995 1996 1995 1996 1995 1996 1995 1996
----------- ----------- ----------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 18,212 $ 20,429 $ 18,173 22,161 $ 18,592 $ 25,334 $ 19,464 $ 25,078
=========== =========== =========== ========== =========== =========== =========== ============
Income (loss) from
Operations $ 621 $ 201 $ 693 (497) $ 442 $ (8,825)(a) $ 223 $ (6,057)(a)
Joint venture
income (loss) 414 427 389 231 358 486 (b) 246 (4,152)(b)
Gains (losses) on
sales of investment 5,190 -- 4,147 -- 5,842 1,084 424 (1,026)
Non-recurring
charge (a) -- -- (1,728) -- -- (287) -- (155)
Minority interest -- (7) (60) 27 (90) 670 (4) 728
Extraordinary items -- -- (253) -- -- (164) (661) --
----------- ----------- ----------- ---------- ----------- ----------- ----------- ------------
Net income (loss) $ 5,811 $ 194 $ 2,799 (470) $ 6,194 $ (7,522) $ (18) $ (6,510)(b)
=========== =========== =========== ========== =========== =========== =========== ============
Net income
per weighted
average Share $ .23 $ .01 $ .11 (.02) $ .24 $ (.30) $ .00 $ (.25)
=========== =========== =========== ========== =========== =========== =========== ============
Dividends paid
per Share $ .215 $ .225 $ .225 .225 $ .225 $ .225 $ .225 $ .225
=========== =========== =========== ========== =========== =========== =========== ============
Weighted Average
Shares Outstanding 25,392,273 25,392,952 25,392,486 25,392,962 25,392,774 25,393,299 25,392,943 25,393,369
=========== =========== =========== ========== =========== =========== =========== ============
</TABLE>
(a) Items represent the costs of legal settlements, which includes the legal
costs associated with such settlements. See additional information in
Footnotes N and T to Consolidated Financial Statements.
(b) Consolidated results of operations include charges for the impairment in
carrying value of retail assets. See additional information in Footnote D
to Consolidated Financial Statements.
F-42
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 7,015,953
<SECURITIES> 9,232,956
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 519,056,773<F1>
<PP&E> 34,364,131<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 569,669,813
<CURRENT-LIABILITIES> 14,241,683
<BONDS> 295,165,607<F3>
0
0
<COMMON> 223,653,916<F4>
<OTHER-SE> 36,608,607<F5>
<TOTAL-LIABILITY-AND-EQUITY> 569,669,813
<SALES> 0
<TOTAL-REVENUES> 93,001,666
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 80,179,618<F6>
<LOSS-PROVISION> 7,500,000<F7>
<INTEREST-EXPENSE> 20,500,533
<INCOME-PRETAX> (15,178,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,178,485)
<DISCONTINUED> 58,263<F8>
<EXTRAORDINARY> (605,872)<F9>
<CHANGES> 1,417,817<F10>
<NET-INCOME> (14,308,277)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> 0
<FN>
<F1>-INCLUDES COST OF APARTMENT COMPLEXES AND RETAIL CENTERS LESS ACCUMULATED
DEPRECIATION AS WELL AS INVESTMENT IN JOINT VENTURES, MORTGAGE LOANS
RECEIVABLE AND LAND AND CONSTRUCTION IN PROGRESS.
<F2>-INCLUDES ESCROWS, GOODWILL, DEFERRED CHARGES AND OTHER ASSETS.
<F3>-INCLUDES CREDIT AGREEMENTS, MORTGAGE NOTES AND REPURCHASE AGREEMENTS.
<F4>-INCLUDES PAR VALUE OF COMMON STOCK, PAID IN CAPITAL, RETAINED EARNINGS LESS
COMMON STOCK IN TREASURY.
<F5>-REPRESENTS MINORITY INTEREST.
<F6>-INCLUDES JOINT VENTURE NET LOSS OF $3,008,587.
<F7>-REPRESENTS PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS.
<F8>-REPRESENTS GAIN ON SALE OF PROPERTIES.
<F9>-INCLUDES $441,783 IN NON-RECURRING EXPENSE RELATED TO LITIGATION AND
$164,089 IN EXPENSES DUE TO REFINANCING.
<F10>-REPRESENTS MINORITY INTEREST'S SHARE OF NET LOSS.
</FN>
</TABLE>
