As filed with the Securities and Exchange Commission on April 15, 1998
Registration Statement No. 333-___________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BERKSHIRE REALTY COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3086485
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
470 Atlantic Avenue
Boston, Massachusetts 02210
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Scott D. Spelfogel
Berkshire Realty Company, Inc.
470 Atlantic Avenue
Boston, Massachusetts 02210
(617) 423-2233
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Alexander J. Jordan, Jr.
Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110-1832
(617) 345-1103
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------- -------------------- -------------------- ------------------- ------------------
Proposed Proposed
Title of Each Class of Securities Maximum Maximum Amount of
to be Registered Amount to be Offering Price Aggregate Registration
Registered Per Unit(1) Offering Price Fee
- ------------------------------------- -------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par value 593,251 $ 12.072 $ 7,161,726.07 $ 2,112.71
===================================== ==================== ==================== =================== ==================
</TABLE>
(1)Calculated pursuant to Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED ________________, 1998
PROSPECTUS
593,251 Shares
BERKSHIRE REALTY COMPANY, INC.
COMMON STOCK
This Prospectus relates to the offer and sale by certain selling
stockholders (the "Selling Stockholders") of up to 593,251 shares of common
stock, par value $.01 per share (the "Common Stock") of Berkshire Realty
Company, Inc., a Delaware corporation (the "Company"), as described herein under
"Selling Stockholders."
The Common Stock is listed and traded on the New York Stock Exchange (the
"NYSE") under the symbol "BRI." On ______________ __, 1998, the last reported
sale price of the Common Stock on the NYSE was $______ per share.
The Selling Stockholders will sell the Common Stock offered hereby from
time to time on the NYSE or such other national securities exchange or automated
interdealer quotation system on which shares of Common Stock are then listed,
through negotiated transactions or otherwise at market prices prevailing at the
time of the sale or at negotiated prices. See "Plan of Distribution."
-------------------
See "Risk Factors" beginning on page 2 for certain factors relevant to an
investment in the Common Stock.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"), pursuant to the
Exchange Act. Such reports, proxy statements and other information filed by the
Company may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and are also
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, NY 10048 and at 500 West
Madison Street, Suite 1400, Chicago, IL 60661-2511. The Commission maintains a
Web site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. In addition, the Common Stock of
the Company is listed on the New York Stock Exchange, and similar information
concerning the Company can also be inspected and copied at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549, a Registration Statement on Form S-3 under the Securities
Act and the rules and regulations promulgated thereunder, with respect to the
securities offered pursuant to this Prospectus. This Prospectus, which is part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and financial schedules thereto.
For further information concerning the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith, which may be examined without charge at, or copies
obtained upon payment of prescribed fees from, the Commission at its regional
offices at the locations listed above. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-10660) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31,
1997 and amendment to such Annual Report on Form 10-K/A;
(b) Current Report on Form 8-K filed February 13, 1998 and
amendment to such Current Report on Form 8-K/A filed March 31,
1998; and
(c) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed November
19, 1990 pursuant to the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
shares of Common Stock offered hereby have been sold or which deregisters all
such shares of Common Stock then remaining unsold shall be incorporated by
reference in this Prospectus and made a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other document subsequently filed with the Commission
which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified
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or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Request for such copies should be
directed to: Berkshire Realty Company, Inc., 470 Atlantic Avenue, Boston,
Massachusetts 02210, Attention: Marianne Pritchard, Executive Vice President and
Chief Financial Officer, telephone (888) 867-0100.
The following is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere and incorporated by reference in this Prospectus. Unless the context
requires otherwise, as used herein, the term "Company" includes Berkshire Realty
Company, Inc., and those entities in which the Company holds a majority of the
economic interests, including BRI OP Limited Partnership (the "Operating
Partnership"), and Berkshire Apartments, Inc., the sole general partner of the
Operating Partnership (the "General Partner"). This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below in "Risk Factors."
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making an
investment decision regarding the Common Stock.
Development and Acquisition Risks
Acquisition Risks. The Company is evaluating many potential
acquisitions, the process of which involves costs which are non-recoverable.
There can be no assurance that properties which are acquired will perform in
accordance with expectations or that cost estimates for improvements to the
acquired properties in order to bring them up to the Company's standards will be
accurate. In connection with acquisitions in which the sellers received units of
limited partnership interest in the Operating Partnership, which are
exchangeable on a one-for-one basis for shares of Common Stock, or at the option
of the Company for cash (the "Units"), the Company has agreed to certain
restrictions on its ability to sell (subject to like-kind exchanges), refinance
or pay down indebtedness (subject to refinancing on terms which would not affect
the tax basis of such Unit recipient(s)) on such properties for various periods
of time extending beyond a year. These restrictions may impair the ability of
the Company to take actions during the period such restrictions apply that would
otherwise be in the best interests of the Company's shareholders and therefore,
may have an adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to shareholders. The
Company anticipates that it may agree to similar restrictions in connection with
future acquisitions.
Development Risks. The Company also intends to continue the development
and expansion of apartment communities in accordance with the Company's
development and underwriting policies as opportunities arise in the future.
Risks associated with such development and construction activities include the
following: the Company may abandon development opportunities after expending
resources to determine a project's feasibility; construction costs of a project
may exceed original estimates; occupancy rates and rents at a newly completed
property may not be sufficient to make the properties
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profitable; financing may not be available on favorable terms for development of
a property; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy, and
other required governmental permits and authorizations. If any of the foregoing
occurs, the Company's results of operations, financial condition and ability to
make expected distributions to shareholders could be adversely affected. In
addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention.
Further, the Company anticipates that future development will be
financed, in whole or in part, through additional equity offerings or through
the Company's lines of credit or other forms of secured or unsecured
construction financing that will result in the risk that, upon completion of
construction, permanent financing for newly developed properties may not be
available or may be available only on disadvantageous terms.
Risks Associated with Growth. The Company is currently experiencing a
period of rapid growth. During the period from January 1, 1997 through December
31, 1997 the Company acquired approximately 31 apartment communities containing
an aggregate of approximately 6,600 units. The integration of the recent
acquisitions into existing management and operating structures presents a
management challenge. Although the Company believes it has sufficient management
depth to lead the Company through this period of rapid growth, there can be no
assurance that the Company will be able to assimilate these recent acquisitions
or any further acquisitions into its portfolio without certain operating
disruptions and unanticipated costs. The failure to successfully integrate
acquisitions could have an adverse effect on the Company's results of
operations, financial conditions and its ability to pay expected distributions
to shareholders.
Vote Regarding Continuation of the Company
In 1991, when the Company commenced operations, the Company granted the
shareholders the right to vote on its continued existence after a period of
approximately seven and one-half years of operations. Therefore, the Restated
Certificate of Incorporation of the Company, as amended (the "Certificate")
requires that the Board of Directors of the Company prepare and submit to the
shareholders on or before December 31, 1998 a proposal to liquidate the
Company's assets and distribute the net proceeds of such liquidation. The
liquidation proposal will become effective only if approved by shareholders
holding a majority of the shares then outstanding. If the Company were
liquidated, there would be no assurance that the proceeds of the liquidation per
share would equal the price paid by a shareholder or the market value of such a
share at any particular time. In the event the Company solicits such shareholder
vote, the Company will incur costs associated with the appraisal of the
Company's real estate assets and the shareholder solicitation regardless of the
outcome of such vote.
General Real Estate Risks
The ownership of real estate presents a variety of risks, including
those risks described below:
General. The Company's investments generally consist of investments in
apartment communities and as such will be subject to varying degrees of risk
generally incident to the ownership and development of real property. The
underlying value of the Company's real estate investments and the Company's
financial condition and ability to make expected distributions to its
shareholders will be dependent upon its ability to operate and develop its
properties in a manner sufficient to maintain or increase revenues and to
generate sufficient income in excess of operating expenses. Income from the
properties may be adversely affected by changes in national and local economic
conditions such as
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oversupply of apartment units or a reduction in demand for apartment units in
the Company's markets, the attractiveness of the properties to tenants, changes
in interest rates and in the availability, cost and terms of mortgage
financings, the ongoing need for capital improvements, particularly in older
structures, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, adverse changes in
zoning laws, civil unrest, acts of God, including natural disasters (which may
result in uninsured losses), acts of war and other factors which are beyond the
control of the Company. If the Company were unable to promptly renew or relet
the leases for a significant number of apartment units, or, if the rental rates
upon such renewal or reletting were significantly lower than expected rates, the
Company's results of operations, financial condition and ability to make
expected distributions to shareholders may be adversely affected. In addition,
certain expenditures associated with each apartment community (such as real
estate taxes and maintenance costs) are generally not reduced when circumstances
cause a reduction in income from such property.
Dependence on Primary Markets. Substantially all of the communities
owned by the Company are located in the Florida, Texas and the Mid-Atlantic and
Southeastern United States and, therefore, the Company's results of operations,
financial condition and ability to make expected distributions to shareholders
will be linked to the economic conditions in these markets as well as the market
for apartment communities generally. To the extent that these conditions affect
the market for apartment communities, they could have an adverse effect on the
Company's results of operations, financial condition and ability to make
expected distributions to shareholders.
Regulatory Risks. Real estate is governed by a wide variety of federal,
state and local zoning, subdivision, planning, building, environmental and other
land use laws and regulations. Such laws may place significant restrictions on
the Company's ability to develop real estate or to improve real estate which it
owns, and even unintentional violations of such laws and regulations by the
Company or its tenants may result in forced corrective action and substantial
monetary penalties. In addition, as to multifamily residential apartment
properties, various federal, state and local laws and regulations may restrict
the amount and process by which rents may increase, as well as the Company's
right to convert a property to other uses, such as condominiums or cooperatives.
Further, increases in real estate taxes and income, service or other taxes
generally are not passed through to tenants under the Company's leases and may
adversely affect the Company's results of operations, financial condition and
ability to make expected distributions to shareholders.
Risks of Liability and Loss. The development and ownership of real
estate may result in liability to third parties, due to conditions existing on a
property which result in injury. Such liability may be uninsurable in some
circumstances or may exceed the limits of insurance maintained at typical
amounts for the type and condition of such property. In addition, real estate
may suffer a loss in value due to casualties such as fire or hurricane. Such
loss may be uninsurable in some circumstances or may exceed the limits of
insurance maintained at typical amounts for the type and condition of the
property. Real estate may also be taken, in whole or in part, by public
authorities for public purposes in eminent domain proceedings. Awards resulting
from such proceedings may not adequately compensate the Company for the value
lost.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If the
Company must sell an investment, there can be no assurance that it will be able
to dispose of the investment in the time period it desires or that the sales
price of the investment will recoup or exceed the amount of the Company's cost
for the investment. In addition, provisions of the Internal Revenue Code of
1986, as amended (the "Code"), limit the Company's ability to sell properties
held for fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting returns to holders of Common Stock.
Further, if the Company were to sell such
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properties, such sales might adversely affect the Company's ability to maintain
its qualification as a REIT under the Code.
Potential Adverse Effect on Results of Operations Due to Operating
Risks. The Company's properties are subject to operating risks common to real
estate in general, any and all of which may adversely affect occupancy or rental
rates. The Company's properties are subject to increases in operating expenses
such as cleaning, electricity, heating, ventilation and air conditioning,
elevator repair and maintenance; insurance and administrative costs; and other
general costs associated with security, landscaping, repairs and maintenance.
The Company's tenants in its retail properties generally are obligated to pay
these escalating costs, although there can be no assurance that tenants will
agree to pay such costs upon renewal or that new tenants will agree to pay such
costs. In the case of apartment communities, the Company must bear such
increased expenses. If operating expenses increase, the local rental market may
limit the extent to which rents may be increased to meet such increased expenses
without decreasing occupancy rates. While the Company implements cost-saving
incentive measures at each of its properties, if any of the foregoing occurs,
the Company's results of operations, financial condition and its ability to pay
distributions to shareholders could be adversely affected.
Competition. All of the Company's properties are located in developed
areas that include other multifamily residential properties. The number of
competitive properties in a particular area could have a material effect on the
Company's ability to lease apartment units at its current or newly acquired
properties and on the rents charged at the such properties. The Company may be
competing with other entities that have greater resources than the Company and
whose executives have more experience than the Company's officers and directors.
In addition, other forms of housing, including manufactured housing community
properties and single-family housing provide alternatives to potential residents
of multifamily residential properties.
Cost of Compliance with Americans with Disabilities Act. All of the
Company's properties are subject to the Americans with Disabilities Act (the
"ADA"). The ADA sets forth compliance requirements for "public accommodations"
and "commercial facilities." The ADA requires that facilities, including leasing
offices, open to the general public be made accessible to people with
disabilities. Individual apartment units are not considered "public
accommodations" for purposes of the ADA. Compliance with the ADA requirements
could require removal of access barriers and other capital improvements to the
public areas of the Company's properties. Noncompliance could result in
imposition of fines by the U.S. government or an award of damages to private
litigants. The Company does not believe that any material changes to the
properties are currently required by the ADA. If changes are subsequently
required involving material expenditures, the Company's results of operation,
financial condition and ability to make expected distributions to shareholders
could be adversely affected.
Uninsured Loss. The Company maintains comprehensive liability, fire,
flood (where appropriate), extended coverage and rental loss insurance with
respect to the Company's properties with policy specifications, limits and
deductibles customarily carried for similar properties. Certain types of losses,
however, may be either uninsurable or not economically insurable, such as losses
due to earthquakes, riots or acts of war. Should an uninsured loss occur, the
Company could lose both its investment in and anticipated profits and cash flow
from a property.
Affordable Housing Laws. Certain of the apartment communities owned by
the Company may be in the future, subject to Federal, state and local statutes
or other restrictions requiring that a percentage of apartments be made
available to residents satisfying certain income requirements. These laws and
obligations, as well as any changes thereto making it more difficult to meet
such requirements, or a reduction in or elimination of certain financing
advantages available in some instances to persons
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satisfying such requirements could adversely affect the Company's profitability
and its development and acquisition projects in the future.
Risks of Joint Ventures. The investment by the Company in a joint
venture partnership which owns properties, instead of investing directly in the
properties itself, may, under certain circumstances, involve risks which would
not otherwise be present. For example, the Company's joint venture partner may
experience financial difficulties and such partner may at any time have economic
or business interests or goals which are inconsistent with the business
interests and goals of the Company or contrary to the Company's policies or
objectives. Actions by (or litigation involving) such a partner might have the
result of subjecting the property owned by the joint venture to liabilities in
excess of those contemplated by the terms of the joint venture agreement. In
addition, there is a risk of impasse between the parties since either party may
disagree with a proposed transaction involving the property owned by the joint
venture and impede any proposed action. The Company may own additional
properties through joint venture partnerships between the Company and the
sellers of the properties or other third party partners.
Risk of Adverse Effect on Company from Debt Servicing and Refinancing, Financial
Covenants, Absence of Limitations on Debt, and Increases in Interest Rates
General. If the Company were unable to refinance its indebtedness on
acceptable terms, or at all, the Company might be forced to dispose of one or
more of its properties on disadvantageous terms, which might result in losses to
the Company and might adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
If interest rates or other factors at the time of the refinancing result in
higher interest rates upon refinancing, the Company's interest expense would
increase, which would adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
Furthermore, if a property is mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgagee could foreclose
upon the property, appoint a receiver and receive an assignment of rents and
leases or pursue other remedies, all with a consequent loss of income and asset
value to the Company. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby reducing the Company's cash available for
distribution and hindering the Company's ability to meet the REIT distribution
requirements of the Code. The Company is subject to risks normally associated
with debt financing including the possibility that the Company will have
insufficient cash flow to meet required principal and interest payments, be
unable to satisfy financial covenants in its debt financing agreements, existing
indebtedness (which in most cases will not be fully amortized at maturity), or
secure favorable refinancing terms. Additionally, in connection with the
acquisition of certain properties in exchange for Units, the Company has agreed
to maintain certain levels of non-recourse debt on the properties in order to
minimize the tax consequences of these acquisitions to the Unit recipients.
Absence of Debt Limitation. The Company currently has a policy of
incurring debt only if upon such incurrence the ratio of the Company's debt to
the value of its assets would be 50% or less. Although the Company has adopted
this policy, the Organizational Documents (as defined herein) do not contain any
limitation on the amount of indebtedness the Company may incur. Accordingly, the
Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary in order for the Company to continue to qualify as
a REIT.
Debt Servicing and Financing. The Company anticipates that only a small
portion of the principal of the Company's mortgage indebtedness will be repaid
prior to maturity. However, if the Company does not have funds sufficient to
repay such indebtedness at maturity, the Company may need to refinance
indebtedness through additional debt financing or equity offerings. If the
Company is
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unable to refinance this indebtedness on acceptable terms, the Company may be
forced to dispose of properties upon disadvantageous terms, which could result
in losses to the Company and adversely affect the amount of cash available for
distribution to shareholders. If prevailing interest rates or general economic
conditions result in higher interest rates at a time when the Company must
refinance its indebtedness, the Company's interest expense would increase, which
would adversely affect the Company's results of operations, financial condition
and its ability to pay expected distributions to shareholders. Further, if any
of the Company's properties are mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgagee could foreclose
or otherwise transfer the property, with a consequent loss of income and asset
value to the Company. Even with respect to nonrecourse indebtedness, the lender
may have the right to recover deficiencies from the Company in certain
circumstances, including fraud and environmental liabilities.
Increase in Market Interest Rates on Variable Interest Rates.
Outstanding advances under the Company's credit facilities bear interest at a
variable rate. The Company may incur additional variable rate indebtedness in
the future. Accordingly, increases in interest rates could increase the
Company's interest expense, which could adversely affect the Company's results
of operations, financial condition and its ability to pay expected distributions
to shareholders. An increase in interest expense could also cause the Company to
be in default under certain covenants of the credit facilities.
Potential Environmental Liability
Under various Federal, state and local environmental laws, ordinances
and regulations, an owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain third parties may
seek recovery from owners or operators of such properties or persons who
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, are potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
All of the properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. These environmental
assessments have not revealed any environmental liability that would have a
material adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to shareholders, and the
Company is not aware of any such environmental liability.
Dilution
The interest of the Company's shareholders may be subject to dilution
in the future since the Company has the ability to raise additional equity by
offering shares for sale. The authorized but unissued capital stock of the
Company (including additional authorized preferred stock, senior to the Common
Stock) may be issued for any corporate purpose, including acquisitions of other
entities which invest in or hold real estate investments, issuances of
additional Common Stock pursuant to the Company's Stock Option Plan and
issuances which would make more difficult, and therefore less likely, changes in
control of the Company. Any such issuance of additional stock could have the
effect of
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diluting the earnings per share, book value per share, voting power of existing
shares of Common Stock and ownership of persons seeking to obtain control of the
Company. See "-- Anti-Takeover Provisions." The issue by the Operating
Partnership of additional Units redeemable for shares of Common Stock in
exchange for real property or other assets may also have a substantially similar
dilutive effect.
The Company also has two types of outstanding securities convertible
into Common Stock, Warrants ("Warrants") and Series 1997-A Convertible Preferred
Stock ("Series 1997-A Preferred"). The conversion price of the Series 1997-A
Preferred is subject to adjustment in certain events to provide anti-dilution
protection to the holders of such stock. See "Description of the Capital Stock
of the Company -- Preferred Stock." During the term of the Warrants, the holders
thereof are given an opportunity to profit from a rise in the market price of
the Common Stock, with a resulting dilution of the interest of the existing
shareholders. Thus, the terms upon which the Company may obtain additional
financing during that period may be adversely affected. The holders of Warrants
might be expected to exercise their rights to acquire Common Stock at a time
when the Company would, in all likelihood, be able to obtain needed capital
through a new offering of securities on terms more favorable than those provided
by these outstanding securities. In the event that such holders exercise these
rights to acquire shares of Common Stock at such time, the net tangible book
value per share of the Common Stock might be subject to dilution. See
"Description of the Capital Stock of the Company -- Warrants."
Anti-Takeover Provisions
In order to facilitate compliance with REIT requirements for tax
purposes, the Company's Certificate and By-Laws, as amended (collectively, the
"Organizational Documents") place restrictions on the accumulation of shares in
excess of 9.8% of the number of outstanding shares of Common Stock, subject to
certain exceptions permitted with the approval of the Board of Directors to
allow (i) underwritten offerings, or (ii) the sale of equity securities in
circumstances where the Board of Directors determines the Company's REIT federal
tax status will not be jeopardized. The ten million shares of Common Stock
issued in an underwritten public offering on November 10, 1997 and the Series
1997-A Preferred were issued respectively pursuant to such exceptions. Certain
additional provisions restrict the shareholders' ability to nominate candidates
for election as Directors and to alter, amend and adopt provisions inconsistent
with, or to repeal certain provisions of, the Organizational Documents.
The Company's Organizational Documents contain certain provisions which
may discourage a change in control of the Company. In particular, under the
Company's Certificate, the election of Directors is staggered such that
approximately one-third of the Directors are elected to three-year terms each
year and a supermajority vote is required in order to amend those portions of
the Organizational Documents which concern (1) the definition of
"supermajority"; (2) the requirements for amending the Organizational Documents;
(3) the requirements regarding Excess Share ownership (i.e., ownership of shares
in excess of 9.8% of the outstanding shares of Common Stock as described below);
(4) the actions which require a supermajority vote; and (5) the requirements
regarding business combinations. The Company is subject to Section 203 of the
Delaware General Corporation Law, which restricts business combinations between
the Company and its shareholders. The foregoing restrictions on ownership and
transferability may have the effect of delaying, deferring or preventing a
transaction or change in control of the Company that might involve a premium
price for the shares of Common Stock or that otherwise might be in the best
interest of the Company's shareholders.
The Company has an authorized class of 60,000,000 shares of preferred
stock. Currently the Company has approximately 2.7 million shares of its 1997
Series-A Preferred outstanding. The remaining 57.3 million shares may be issued
by the Board of Directors on such terms and with such rights, preferences and
designations as the Board may determine. Issuance of such preferred stock,
8
<PAGE>
depending on the rights, preferences, and designations thereof, may have the
effect of delaying, deterring, or preventing a change in control of the Company.
Tax Risks
Risk of Termination of REIT Status. The Company was organized and
intends to continue to conduct its operations to enable it to qualify as a REIT
under the Code. To maintain its status as a REIT, the Company must continually
meet certain criteria concerning, among other things, its Common Stock
ownership, the nature of its assets, the sources of its income, and the amount
of its distributions to shareholders. If the Company fails to qualify, the
Company would be taxed on its income at regular corporate tax rates. The payment
of such tax by the Company would substantially reduce the funds available for
distribution to shareholders or for reinvestment and, to the extent that
distributions had been made in anticipation of the Company's qualification as a
REIT, the Company might be required to borrow additional funds or to liquidate
certain of its investments in order to pay the applicable tax. Moreover, should
the Company's election to be taxed as a REIT be terminated, the Company may not
be able to elect to be treated as a REIT for the following five-year period. The
Company also might be required to borrow funds or to liquidate certain of its
investments to maintain REIT status. See "Federal Income Tax Considerations."
REIT Minimum Distribution Requirements; Possible Incurrence of
Additional Debt. In order to qualify as a REIT, the Company generally will be
required each year to distribute to its shareholders at least 95% of its net
taxable income (excluding any net capital gain). In addition, the Company will
be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital
gain net income for that year, and (iii) 100% of its undistributed taxable
income from prior years.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its shareholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company could require the Company, through the Operating Partnership, to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. The requirement to distribute a substantial
portion of the Company's net taxable income could cause the Company to
distribute amounts that otherwise would be spent on future acquisitions,
unanticipated capital expenditures or repayment of debt, which would require the
Company to borrow funds or to sell assets to fund the costs of such items.
Failure of the Operating Partnership to be Classified as a Partnership
for Federal Income Tax Purposes; Negative Impact on REIT Status. The Company has
not requested, and does not expect to request, a ruling from the Internal
Revenue Service ("IRS") that the Operating Partnership (and each of its
noncorporate Operating Subsidiaries (as hereinafter defined)) will be classified
as partnerships for federal income tax purposes. If the IRS were to successfully
challenge the tax status of the Operating Partnership (or any noncorporate
Operating Subsidiary) as a partnership for federal income tax purposes, the
Operating Partnership (or the noncorporate Subsidiary) would be taxed as a
corporation. In such event, the Company would likely cease to qualify as a REIT
for a variety of reasons. Furthermore, the imposition of a corporate income tax
on the Operating Partnership would reduce substantially the amount of cash
available for distribution from the Operating Partnership to the Company and its
shareholders.
9
<PAGE>
See "Federal Income Tax Considerations -- Other Tax Consequences - Effect of Tax
Status of the Operating Partnership on REIT Qualification."
Investment by Qualified Plans Poses Additional Risks. The fiduciary of
a qualified profit-sharing, pension or other retirement plan should take into
consideration certain fiduciary responsibilities and the definition of "plan
assets" under ERISA and applicable Department of Labor regulations.
Possible Changes in Tax Law. Prospective investors should recognize
that the present federal income tax treatment of an investment in the Company
may be modified, prospectively or retroactively, by legislative, judicial or
administrative action at any time. In addition to any direct effects which such
changes might have, such changes might also indirectly affect the market value
of all real estate investments, including those of the Company and,
consequently, the ability of the Company to realize its business objectives.
Dependence on Key Personnel
The Company is dependent on the efforts of its senior executive
officers. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have a temporary adverse effect
on the operations of the Company. As of January 31, 1998, the President and
Chief Executive Officer, Executive Vice President and Chief Operating Officer,
Executive Vice President and Chief Financial Officer, Executive Vice President
for Acquisitions and Chief Investment Officer, Senior Vice President of
Development and President of the Mid-Atlantic Region had entered into employment
agreements with the Company.
Risks of Mortgage Acquisitions
The Company may acquire real estate through the acquisition of
distressed mortgage loans. In such a case, the Company would succeed to the
position of the mortgage lender with the expectation of foreclosing on the
mortgaged property and taking title to it. The Company may encounter certain
legal and regulatory obstacles to foreclosure which could delay or impede the
taking of title to the property by the Company. During the time prior to
foreclosure, it is possible that the borrower of the mortgage loan may make no
mortgage payments to the Company.
Possible Adverse Impact of Market Conditions on Market Price
The market value of the Common Stock could be substantially affected by
general market conditions, including changes in interest rates, government
regulatory action and changes in tax laws. An increase in market interest rates
may lead purchasers of the Common Stock to demand a higher annual dividend yield
on the Common Stock, which could adversely affect the market price of the Common
Stock. Moreover, numerous other factors, such as government regulatory action
and changes in tax laws, could have a significant impact on the future market
price of the Common Stock or other securities.
THE COMPANY
General
The Company is a self-administered and self-managed REIT which
acquires, renovates, rehabilitates, develops and operates apartment communities.
Founded in 1991 with 15 apartment communities containing approximately 4,200
units, as of February 28, 1998 the Company owned 72 apartment communities
containing approximately 20,750 units located in Florida, Texas and the
Mid-Atlantic and Southeastern United States.
10
<PAGE>
The operations of the Company are conducted primarily through the
Operating Partnership and through their other subsidiaries (the "Operating
Subsidiaries"). As of December 31, 1997, the Company held approximately 83.5% of
the partnership interests in the Operating Partnership in its capacity as a
special limited partner and through its 100% ownership of the General Partner.
The remaining approximately 16.5% of the partnership interests in the Operating
Partnership was owned by affiliated and unaffiliated third parties. Units are
redeemable on a one-for-one basis for shares of Common Stock or, at the
Company's election, for cash, and holders of Units generally receive
distributions per Unit equal to the dividend per share paid in respect of the
Common Stock.
The Company's principal executive offices are located at 470 Atlantic
Avenue, Boston, Massachusetts 02210 and its telephone number is (888) 867-0100.
The Company's property management and development offices are located in
Atlanta, Georgia. In addition, the Company operates five regional offices in
Atlanta, Georgia; Baltimore and Columbia, Maryland; Greenville, South Carolina;
and Dallas, Texas. The Company has approximately 956 employees.
The Properties
The Company operates in the four regions defined by the Company as: (i)
Mid-Atlantic (Pennsylvania, Maryland, Delaware, Virginia and Washington, D.C.);
(ii) Southeast (North Carolina, South Carolina, Georgia and Tennessee); (iii)
Florida, and (iv) Texas.
The following table sets forth certain data regarding the Company's
apartment portfolio as of December 31, 1997:
<TABLE>
<CAPTION>
Average Avg. Monthly Rent
Occupancy(1) Per Apartment Unit(1)(2)
Month/ Year Year
Year Apartment Ended Ended
Apartment Community Location Acquired Units December 31, 1997 December 31, 1997
- -------------------------- ------------------- --------- ---------- ---------------- ------------------
Mid-Atlantic Region(3)
<S> <C> <C> <C> <C> <C>
Arborview ................. Belcamp, MD Nov. 97 288 81% $ 753
Berkshire Towers........... Silver Spring, MD May 96 1,119 94 835
Calvert's Walk............. Belair, MD Nov. 97 276 95 737
The Channel................ Glen Burnie, MD Jul. 97 120 98 695
Courtleigh................. Baltimore, MD Nov. 97 280 91 669
The Cove................... Glen Burnie, MD Jul. 97 181 98 689
Coventry................... Baltimore, MD Nov. 97 122 87 643
Diamond Ridge.............. Baltimore, MD Nov. 97 92 87 723
The Estates................ Pikesville, MD Nov. 97 208 95 785
Fairway Ridge.............. Baltimore, MD Nov. 97 274 86 556
Harper's Mill.............. Millersville, MD Jul. 97 144 98 751
Hazelcrest................. Baltimore, MD Nov. 97 48 94 483
Heraldry Square ........... Baltimore, MD Nov. 97 270 93 631
Hilltop ................... Baltimore, MD Nov. 97 50 96 477
Jamestown ................. Baltimore, MD Nov. 97 335 91 517
Kingswood I ............... Baltimore, MD Nov. 97 203 91 609
Kingswood II .............. Baltimore, MD Nov. 97 203 87 609
The Lighthouse............. Glen Burnie, MD Sep. 97 168 98 724
Lirope(4) ................. Belcamp, MD Dec. 97 84 90 815
Ridgeview Chase ........... Westminster, MD Nov. 97 204 92 776
Rolling Wind .............. Baltimore, MD Nov. 97 280 87 899
Stratton Meadows .......... Baltimore, MD Nov. 97 268 93 701
Warren Park ............... Baltimore, MD Nov. 97 200 96 546
Westchester West........... Silver Spring, MD Jan. 97 345 99 720
Williston ................. Baltimore, MD Nov. 97 98 90 543
Southpointe at Massapequa.. Massapequa, NY Aug. 93 214 100 1,182
---
Subtotal............................................... 6,074
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Southeast Region
Brookfield Trace (5)....... Mauldin, SC Nov. 95 300 94 696
Brookwood Valley........... Mauldin, SC Apr. 95 226 92 621
Huntington Downs (6) ...... Greenville, SC Jan. 88 502 92 602
The Oaks (6) .............. Mauldin, SC Mar. 90 176 93 645
Roper Mountain (6) ........ Greenville, SC Jan. 88 248 92 520
Stoneledge (6) ............ Greenville, SC Jan. 88 320 93 535
Cumberland Cove............ Raleigh, NC Dec. 91 552 96 755
East Lake.................. Charlotte, NC Oct. 93 214 93 665
The Timbers................ Charlotte, NC Mar. 93 343 94 582
Arbors at Breckenridge..... Duluth, GA Dec. 93 514 92 757
The Avalon on Abernathy.... Atlanta, GA Jun. 92 240 96 897
Huntington Chase........... Norcross, GA Jun. 93 467 92 672
British Woods.............. Nashville, TN Nov. 95 264 94 656
Highland Ridge............. Madison, TN Nov. 95 280 93 541
Windover................... Knoxville, TN Nov. 95 271 93 599
---
Subtotal............................................... 4,917
Florida
Altamonte Bay Club......... Altamonte Springs, FL Feb. 93 224 97 628
Berkshire West............. Winter Garden, FL May 97 200 97 629
The Lakes at Jacaranda(6) . Plantation, FL Mar. 90 340 94 841
Newport.................... Tampa, FL Feb. 93 320 95 530
Park Colony................ Hollywood, FL Jul. 94 316 91 773
Plantation Colony.......... Plantation, FL Dec. 93 256 96 763
Sun Chase.................. Bradenton, FL May 97 168 96 600
Woodland Meadows........... Tamarac, FL Oct. 92 296 95 686
---
Subtotal............................................... 2,120
Texas
Benchmark.................. Irving, TX Jun. 96 250 97 592
Golf Side.................. Haltom City, TX Jun. 96 402 93 458
Hunters Glen............... Plano, TX Jun. 96 276 94 645
Huntington Brook........... Dallas, TX Oct. 97 320 93 606
Huntington Lake............ Dallas, TX Oct. 97 405 95 650
Huntington Ridge........... Irving, TX Oct. 97 232 98 630
Indigo on Forest........... Dallas, TX Aug. 94 1,217 94 586
Kings Crossing............. Kingwood, TX Jun. 94 404 96 614
Kingwood Lakes............. Kingwood, TX Jun. 94 390 96 614
Pleasant Woods............. Dallas, TX Jun. 96 208 95 566
Prescott Place............. Mesquite, TX Jun. 96 318 95 514
Prescott Place II.......... Mesquite, TX Nov. 96 336 95 509
Providence................. Dallas, TX Jun. 96 244 93 510
River Oaks................. Houston, TX May 95 136 93 1,977
Summer Place............... Addison, TX Oct. 97 212 88 590
Sweetwater Ranch........... Richardson, TX Oct. 97 312 96 800
--- --
Subtotal/Weighted Average.............................. 5,662
-----
Total Portfolio/Weighted Average............................ 18,773 94%
====== ===
</TABLE>
- ------------------------
(1) The statistical information presented under Average Occupancy and Average
Monthly Rent Per Apartment Unit for the periods prior to the Company's
ownership thereof was provided by the previous owner of each applicable
property. Such information may not have been calculated in accordance with
the methodology used by the Company in calculating such statistics. Where
the Company did not own an applicable property for the entire period
presented, the information presented is the weighted average of the
information compiled by the Company and the information supplied by the
previous owner.
12
<PAGE>
(2) Amount represents the average monthly rental rate for communities
stabilized for the entire period for each period presented. Average monthly
rental rate is defined as the gross actual rental rate for leased units and
the anticipated rental rate for unoccupied units.
(3) Includes apartment units located in New York, which the Company does not
consider part of its Mid-Atlantic Region.
(4) Newly developed property. Average Occupancy and Average Monthly Rent were
computed from the date of completion of each property.
(5) The Company completed a 96-unit expansion of this apartment community in
February 1997. Such additional apartment units were included in the
calculation of Average Occupancy and Average Monthly Rent from the date of
completion of the expansion.
(6) Acquired by the Company's predecessors.
The following table sets forth certain data regarding the Company's
development pipeline:
<TABLE>
<CAPTION>
Estimated
Total
Planned Investment Estimated
Apartment (in Completion
Property Location Units thousands) Date Status
--------- -------- --------- ---------- ----------- -------
Developments in Progress:
<S> <C> <C> <C> <C> <C>
Granite Run ................. Baltimore, MD 264 25,500(1) Fourth Quarter 1998 Under construction
Berkshires at Crooked Creek.. Durham, NC 296 20,200 Fourth Quarter 1998 Under construction
Berkshires at Deerfield ..... Atlanta, GA 444 32,100 Third Quarter 1999 In design
Avalon I .................... Pikesville, MD 258 25,900(1) Fourth Quarter 1999 In design
Avalon II ................... Pikesville, MD 147 15,400(1) Fourth Quarter 1999 In design
Land Held for Development:
Garlington Road Land......... Greenville, SC
Indigo Land(2)............... Dallas, TX
Inglesby Land................ Greenville, SC
Total................................... 1,409 $119,100
===== ========
</TABLE>
- ------------------------
(1) The Estimated Total Investment is based on the Company's current estimates
under development contribution agreements for such projects.
(2) In December 1997, government authorities submitted an offer to purchase this
property.
Recent Developments - Acquisition/Divestiture Activities
Recent Acquisitions. From January 1, 1998 through March 31, 1998, the
Company acquired eight apartment communities containing approximately 2,760
units for a total investment of approximately $109.7 million. In January 1998,
the Company acquired Countrywood Apartments, a 208-unit apartment community
located in Dallas, Texas. In February 1998, the Company acquired an additional
four apartment communities containing 1,367 units in the Texas region from a
single seller. The Company also contracted with such seller to purchase two
additional apartment communities containing approximately 899 units in Houston,
Texas. Also in February 1998, the Company acquired Olde Forge, a 144-unit
apartment community in Maryland, and Seven Winds, a 232-unit apartment community
in Florida. In March 1998, the Company acquired an apartment community
containing 809 units located in St. Petersburgh, Florida known as Lynn Lake.
Divestiture of Retail Assets. In January 1998, the Company completed
the divestiture of its remaining retail portfolio. On January 5, 1998, the
Company sold Tara Crossing, a shopping center located in Jonesboro, Georgia for
approximately $9.5 million. On January 30, 1998, the Company sold a shopping
center known as College Plaza, located in Fort Myers, Florida, for approximately
$6.0
13
<PAGE>
million and its joint venture interest in Spring Valley Marketplace, a shopping
center located in Spring Valley, New York for approximately $14.8 million. The
sale of these retail assets completed the Company's, plan announced in late
1996, to liquidate its retail portfolio and reinvest the proceeds in apartment
community acquisitions or developments.
Recent Developments - Financing Activities
Restructuring of BankBoston Line of Credit. On January 30, 1998, the
Company acquired a $130 million unsecured revolving demand line of credit from
BankBoston, NA (the "BankBoston Facility"), replacing its $49.5 million secured
line of credit from BankBoston and Mellon Bank, NA which matured on December 31,
1997. In addition to increasing the facility and converting it to unsecured, the
Company lowered the interest rate on current borrowings from 150 basis points
over LIBOR to generally 120 basis points over LIBOR. The BankBoston Facility
matures on January 29, 2000, but may be extended for an additional year at the
option of the Company.
Public Offering of Common Stock. On November 10, 1997, the Company
completed a public offering (the "Offering") of ten million shares of Common
Stock for $104 million (net of underwriting discounts and commissions and before
deducting expenses incurred by the Company in connection with the Offering). The
Company used approximately $25.6 million of the net proceeds from the Offering
along with approximately 1.7 million Units and the assumption of approximately
$128.7 of debt to acquire 18 existing apartment communities and four development
projects in the greater Baltimore area together with the exclusive right to
acquire all apartment projects developed by Questar Builders, Inc., a company
owned by Stephen M. Gorn, which meet the Company's acquisition and development
criteria. The management operations relating to the 18 apartment communities and
the management operations of certain third-party properties were acquired at the
same time from Mr. Gorn, Morton Gorn, John B. Colvin and Karen Colvin for a
total of 403,919 shares of Common Stock. The Company used the remaining net
proceeds from the Offering to repay approximately $26.0 million outstanding
under its $50.0 million secured revolving credit agreement with BankBoston, NA
and Mellon Bank, NA (the "BankBoston Facility"), approximately $29.0 million
outstanding under its credit facility with the Federal National Mortgage
Association (the "FNMA Facility"), approximately $8.0 million of indebtedness
under the Company's Master Repurchase Agreement with CS First Boston, and the
remainder for general corporate purposes.
Private Placement of Preferred Stock. On September 25, 1997, the
Company issued approximately 2.7 million shares of its Series 1997-A Preferred
in a private placement to Westbrook Real Estate Fund II, L.P. ("Westbrook") and
Morgan Stanley Asset Management, Inc. ("Morgan Stanley") resulting in gross
proceeds of approximately $68.4 million. These proceeds were used to acquire
five unleveraged apartment communities containing approximately 1,500 units in
Dallas, Texas. The Series 1997-A Preferred will pay a cumulative preferred
dividend of 9% based on the purchase price of $25.00 per share and is
convertible in the aggregate into approximately 5.7 million shares of Common
Stock. The conversion price of the Series 1997-A Preferred is subject to
adjustment if the Company issues any Common Stock (with certain exceptions) for
a consideration per share less than the conversion price then in effect minus
$0.125. However, no adjustment is required unless it would result in a change of
at least 1% in the conversion price.
Holders of the Series 1997-A Preferred are entitled to vote on an as
converted basis, together with the holders of Common Stock, as one class, on all
matters on which the holders of Common Stock are entitled to vote. The holders
of the Series 1997-A Preferred have approximately 13.5% of the voting rights
with respect to matters upon which the Series 1997-A Preferred and Common Stock
vote as a class. Further, the holders of the Series 1997-A Preferred are
entitled to elect one director to the Board of Directors of the Company. Paul D.
Kazilionis, a managing principal and co-founder of Westbrook
14
<PAGE>
Real Estate Partners, L.L.C, the general partner of Westbrook, has been elected
to the Company's Board of Directors by direction of the holders of the Series
1997-A Preferred. Subject to certain exceptions, until September 19, 2002, an
affiliate of Westbrook has a preemptive right to purchase all or a part of its
pro rata share of any issue of Common Stock or securities convertible into
Common Stock by the Company.
USE OF PROCEEDS
The Selling Stockholders (as defined below) will receive all of the net
proceeds from the sale of shares of Common Stock offered hereby.
SELLING STOCKHOLDERS
This Prospectus relates to periodic offers and sales of up to 593,251
shares of Common Stock by the selling stockholders named below (collectively,
the "Selling Stockholders").
<TABLE>
<CAPTION>
Shares Owned Shares
Selling Stockholder Prior to Offering Offered Hereby
------------------- ----------------- --------------
<S> <C> <C>
Karen and John B. Colvin 758 758
John B. Colvin 96,588 96,588
Karen Colvin 14,833 14,833
Morton Gorn 152,780 152,780
Stephen M. Gorn 138,960 138,960
-------------- --------------
Subtotal 403,919 403,919
Gregory Andrew Berman Trust 11,137 11,137
Meade J. Berman Trust 11,137 11,137
Michele G. Berman 72,392 72,392
Leslie C. Shapiro 94,666 94,666
-------------- --------------
Subtotal 189,332 189,332
Total 593,251 593,251
</TABLE>
Since November 14, 1997, Mr. Stephen M. Gorn, formerly President and
Chief Executive Officer of Questar Companies, has served as President of the
Mid-Atlantic Division of the Company, Mr. John B. Colvin has served as Regional
Executive Vice President-Acquisitions and Asset Management for the Mid-Atlantic
Division, and Morton Gorn has served as Consultant to the President of the
Mid-Atlantic Division.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by the
Selling Stockholders of up to 593,251 shares of Common Stock. Such sales may be
made on the NYSE or such other national securities exchange or automated
interdealer quotation system on which shares of Common Stock are then listed,
through negotiated transactions or otherwise at market prices prevailing at the
time of the sale
15
<PAGE>
or at negotiated prices. Some or all of the shares of Common Stock may be sold
through brokers acting on behalf of the Selling Stockholders or to dealers for
resale by such dealers. In connection with such sales, such brokers and dealers
may receive compensation in the form of discounts or commissions from the
Selling Stockholders and may receive commissions from the purchasers of such
shares for whom they act as broker or agent (which discounts and commissions are
not anticipated to exceed those customary in the types of transactions
involved). If necessary, a supplemental Prospectus will describe the method of
sale in greater detail. In effecting sales, brokers or dealers engaged by the
Selling Stockholders and/or purchasers of the Common Stock may arrange for other
brokers or dealers to participate.
The Company has agreed to pay all fees and expenses in connection with
the registration and listing on the NYSE of the shares of Common Stock being
offered hereby; however, the Company shall not pay the cost and expenses of any
Selling Stockholder relating to selling discounts or commissions or brokerage
fees payable to brokers or dealers, transfer taxes, or the fees or expenses of
any counsel, accountants or other representatives retained by the Selling
Stockholders, individually or in the aggregate.
The Selling Stockholders and any underwriter, broker or dealer who acts
in connection with the sale of the Common Stock hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any compensation received by them and any profit on any resale of the Common
Stock as principals may be deemed to be underwriting discounts and commissions
under the Securities Act.
In order to comply with the securities laws of certain jurisdictions,
the securities offered hereby will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers.
Pursuant to Registration Rights Agreements among the Company and the
Selling Stockholders, the Company has agreed to indemnify the Selling
Stockholders, each of their respective officers and directors and any person who
controls such Selling Stockholders, against certain liabilities and expenses
arising out of or based upon the information set forth or incorporated by
reference in this Prospectus, and the Registration Statement of which this
Prospectus is a part, including liabilities under the Securities Act.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following summary of material federal income tax considerations
that may be relevant to a holder of Common Stock is based on current law, and is
not intended as tax advice. The following discussion, which is not exhaustive of
all possible tax considerations, does not include a detailed discussion of any
state, local or foreign tax considerations. Nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any
16
<PAGE>
statements in this Prospectus with respect to transactions entered into or
contemplated prior to the effective date of such changes.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER
OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
General. The Company has elected to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ended December 31,
1991. The Company believes that it has been organized and operated in a manner
so as to qualify for taxation as a REIT under the Code, and the Company intends
to continue to operate in such a manner. No assurance, however, can be given
that the Company has operated in a manner so as to qualify as a REIT or will
continue to operate in a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon the Company's ability to meet,
on a continuing basis, through actual annual operating results, distribution
levels, diversity of stock ownership, and the various other qualification tests
imposed under the Code on REITs, some of which are summarized below. While the
Company intends to operate so that it will qualify as a REIT, given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations and the possibility of future changes in circumstances of the
Company, no assurance can be given that the Company will so qualify for any
particular year. See "-- Failure to Qualify."
In the opinion of Peabody & Brown, counsel to the Company ("Counsel"),
commencing with its taxable year ended December 31, 1991, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT under the Code and the proposed method of operation of the Company and
the Operating Partnership will enable the Company to continue to meet the
requirements for qualification and taxation as a REIT. It must be emphasized
that Counsel's opinion is based on various assumptions and is conditioned upon
certain representations made by the Company, the Operating Partnership and the
Operating Subsidiaries as to factual matters. In addition, Counsel's opinion is
based upon factual representations of the Company concerning its business and
properties, and the business and properties of the Operating Partnership and the
Operating Subsidiaries. Unlike a tax ruling, an opinion of counsel is not
binding upon the IRS and no assurance can be given that the IRS will not
challenge the status of the Company as a REIT. Moreover, such qualification and
taxation as a REIT depend upon the Company's ability to meet, through actual
annual operating results, distribution levels, diversity of stock ownership and
various other qualification tests imposed under the Code discussed below, the
results of which will not be reviewed by Counsel. Accordingly, no assurance can
be given that the actual results of the Company's operation for any one taxable
year will satisfy such requirements. See "-- Failure to Qualify."
The following is a general summary of the Code provisions that govern
the federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on net income that it distributes
currently to its shareholders. This treatment substantially eliminates the
"double taxation" (taxation at both the corporate and shareholder levels) that
generally results from an investment in a corporation. However, the Company will
be subject to federal
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income or excise tax as follows: (i) the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income and undistributed net
capital gains; (ii) under certain circumstances, the Company may be subject to
the "alternative minimum tax" on its items of tax preference, if any; (iii) if
the Company has (1) by reason of a foreclosure or otherwise on default of a loan
secured by the property) that is held primarily for sale to customers in the
ordinary course of business or (2) other nonqualifying net income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income; (iv) if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than dispositions of foreclosure property, and, as a result of the Taxpayer
Relief Act of 1997, enacted August 5, 1997 (the "Taxpayer Relief Act"),
effective for the Company's taxable year ending December 31, 1998, dispositions
of property that occur due to involuntary conversion) held primarily for sale to
customers in the ordinary course of business), such income will be subject to a
100% tax; (v) if the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has nonetheless maintained
its qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the Company fails the 75% or 95% test, multiplied by a
fraction intended to reflect the Company's profitability; (vi) if the Company
should fail to distribute with respect to each calendar year at least the sum of
(1) 85% of its REIT ordinary income for such year, (2) 95% of its REIT capital
gain net income for such year, and (3) any undistributed taxable income from
prior years, the Company would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed; (vii) if the
Company acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the Company's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation and the Company
subsequently recognizes gain on the disposition of such asset during the 10-year
period (the "Recognition Period") beginning on the date on which the asset was
acquired by the Company (or the Company first qualified as a REIT), then the
excess of (1) the fair market value of the asset as of the beginning of the
applicable Recognition Period, over (2) the REIT's adjusted basis in such asset
as of the beginning of such Recognition Period will be subject to tax at the
highest regular corporate rate (pursuant to Treasury Regulations issued by the
IRS which have not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
Common Stock, or by transferable certificates of beneficial interest; (iii) that
would be taxable as a domestic corporation but for Sections 856 through 859 of
the Code; (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) that has the calendar year as its
taxable year; (vi) the beneficial ownership of which is held by 100 or more
persons; (vii) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities);
and (viii) that meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. The Company believes that it currently
satisfies conditions (vi) and (vii). In addition, the Company's Organizational
Documents include restrictions regarding the transfer of the Company's Common
Stock that are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (vi) and (vii) above. See "Description of
the Capital Stock of the Company -- Restrictions on the Ownership and Transfer
of Excess Shares." In addition, the Company intends to continue to comply with
the Treasury Regulations requiring it to ascertain the actual ownership of its
shares. The Taxpayer Relief Act eliminates the rule that a failure to comply
with these regulations will
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result in a loss of REIT status. Instead, a failure to comply with these
regulations will result in a fine. This provision will be effective for the
Company's taxable year ending December 31, 1998.
The Company has several "qualified REIT subsidiaries." A corporation
that is a "qualified REIT subsidiary" is not treated as a separate corporation
for federal income tax purposes, and all assets, liabilities and items of
income, deduction and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities and items of the REIT. In applying the requirements
described herein, any "qualified REIT subsidiary" of the Company will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiary will be treated as assets, liabilities and items of the
Company. Any "qualified REIT subsidiary" of the Company is therefore not be
subject to federal corporate income taxation, although it may be subject to
state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership are treated as assets, liabilities and items of income of
the Company for purposes of applying the requirements described herein, provided
that the Operating Partnership is treated as a partnership for federal income
tax purposes. See "Other Tax Considerations -- Effect of Tax Status of the
Operating Partnership on REIT Qualification."
Income Tests. In order to qualify as a REIT, there are three gross
income requirements that must be satisfied annually. First, at least 75% of the
REIT's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% gross income test,
and from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. The
Taxpayer Relief Act repeals the 30% gross income test for taxable years
beginning after its enactment. Thus, the 30% gross income test will no longer
apply after the Company's taxable year ending December 31, 1997.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or in direct owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the
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Company derives no income. The "independent contractor" requirement, however,
does not apply to the extent the services provided by the REIT are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." The Taxpayer Relief
Act provides a de minimis rule for non-customary services which is effective for
taxable years beginning after August 5, 1997. If the value of the non-customary
service income with respect to a property (valued at no less than 150% of the
Company's direct costs of performing such services) is 1% or less of the total
income derived from the property, then all rental income except the
non-customary service income will quality as "rents from real property." This
provision will be effective for the Company's taxable year ending December 31,
1998.
The Company does not anticipate charging rent that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a fixed percentage or percentages of receipts of sales consistent with the
rule described above). The Company does not anticipate receiving more than a de
minimis amount of rents from any Related Party Tenants. The Company does not
anticipate deriving rent attributable to personal property leased in connection
with real property that exceeds 15% of the total rents.
The Company provides certain services with respect to the Properties
through the Operating Partnership, which is not an "independent contractor."
However, the Company believes that all of such services are considered "usually
or customarily rendered" in connection with the rental of space for occupancy
only, so that the provision of such services do not jeopardize the qualification
of rent from the Properties as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ "independent contractors" to provide such services.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Company's failure to
meet any such tests was due to reasonable cause and not due to willful neglect,
the Company attaches a schedule of the sources of its income to its federal
income tax return and any incorrect information on the schedule was not due to
fraud with the intent to evade tax. It is not possible, however, to state
whether in all circumstances the Company would be entitled to the benefit of
these relief provisions. As discussed above, even if these relief provisions
were to apply, a tax would be imposed on certain excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable
year must also satisfy three tests relating to the nature of its assets: (i) at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company has an interest and (ii) stock or debt
instruments purchased with the proceeds of a stock offering on long-term (at
least five years) debt offering of the Company and held for not more than one
year following the receipt by the Company of such proceeds), cash, cash items
and government securities; (ii) not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class; and
(iii) of the investments included in the 25% asset class, the value of any one
issuer's securities (other than an interest in a partnership or shares of a
"qualified REIT subsidiary" or another REIT) owned by the Company may not exceed
5% of the value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities (other than an
interest in a partnership or securities of a "qualified REIT subsidiary" or
another REIT).
After initially meeting the asset tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of
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changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests and plans to
take such other action within 30 days after the close of any quarter as may be
required to cure any noncompliance. However, there can be no assurance that such
other action will always be successful.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (A) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (B) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income (including, as a result of the Taxpayer Relief Act of 1997, inter
alia, cancellation of indebtedness and original issue discount income). Such
distributions must be paid during the taxable year to which they relate (or
during the following taxable year, if declared before the Company timely files
its tax return for the preceding year and paid on or before the first regular
dividend payment after such declaration). To the extent that the Company does
not distribute all of its net capital gain or distributes at least 95%, but less
than 100% of its "REIT taxable income," as adjusted, it will be subject to tax
on the undistributed amount at regular corporate capital gains rates and
ordinary income tax rates. Furthermore, if the Company fails to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income of such year, (ii) 95% of its REIT capital gain income for such year and
(iii) any undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such amounts over the amounts
actually distributed. In addition, if the Company disposes of any asset subject
to the Built-In Gain Rule during its Recognition Period, the Company will be
required to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, it is expected that the
Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating Partnership
authorizes the General Partner to take such steps as may be necessary to cause
the Operating Partnership to make distributions to its partners of amounts
sufficient to permit the Company to meet these distribution requirements. It is
possible, however, that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at REIT taxable income of the Company, or due to an excess
of nondeductible expenses such as principal amortization or capital expenditures
over noncash deductions such as depreciation. In the event that such
circumstances do occur, then in order to meet the 95% distribution requirement,
the Company may cause the Operating Partnership to arrange for short-term, or
possibly long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year that may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. However,
the Company would be required to pay to the IRS interest based upon the amount
of any deduction taken for deficiency dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year and special relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders
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in any year in which the Company fails to qualify as a REIT will not be
deductible, nor will they be required to be made. In such event, to the extent
of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
"dividends received deduction." Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate shareholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as gains from the sale or
exchange of a capital asset held for more than one year (to the extent they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held its stock. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. The Taxpayer Relief Act provides that,
beginning with the Company's taxable year ending December 31, 1998, if the
Company elects to retain and pay income tax on any net long-term capital gain,
domestic shareholders of the Company would include in their income as long-term
capital gain their proportionate share of such net long-term capital gain. A
domestic shareholder would also receive a refundable tax credit for such
shareholder's proportionate share of the tax paid by the Company on such
retained capital gains and an increase in its basis in the stock of the Company
in an amount equal to the difference between the undistributed long-term capital
gains and the amount of tax paid by the Company. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a shareholder's Common Stock, they will be included in income as capital gain,
assuming the Common Stock is a capital asset in the hands of the shareholder. In
addition, any dividend declared by the Company in October, November or December
of any year and payable to a shareholder of record on a specific date in any
such month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of Common Stock equal to the difference between (i) the amount
of cash and the fair market value of any property received on such disposition,
and (ii) the shareholder's adjusted basis of such Common Stock. For dispositions
after July 28, 1997, the Taxpayer Relief Act provides that such gain or loss
will generally constitute either short-term, mid-term, or long-term capital gain
or loss depending on the length of time the shareholder has held such shares.
Under the Taxpayer Relief Act, an individual, trust or estate that holds shares
of Common Stock for more than 18 months will generally be subject to a maximum
tax of 20% on gains from the sale or disposition of such shares. See "-- Recent
Legislation." Loss upon a sale or exchange of Common Stock by a shareholder who
has held such Common Stock for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss to the extent
of distributions from the Company required to be treated by such shareholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
shareholders and the IRS the amount of dividends paid during each calendar year
and the amount of tax withheld, if any, with respect
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thereto. Under the backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (ii) provides a taxpayer
identification number and certifies as to no loss of exemption, and otherwise
complies with the applicable requirements of the backup withholdings rules. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. The United States Treasury has recently issued proposed
regulations regarding the withholding and information reporting rules discussed
above. In general, the proposed regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards. If
finalized in their current form, the proposed regulations would generally be
effective for payments made after December 31, 1997, subject to certain
transition rules.
In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders which fail to certify their
non foreign status to the Company. See "-- Taxation of Foreign Shareholders."
Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt entity.
Based on that ruling, the dividend income from the Common Stock will not be UBTI
to a tax-exempt shareholder, provided that the tax-exempt shareholder has not
held its shares of Common Stock as "debt financed property" within the meaning
of the Code and such shares are not otherwise used in a trade or business.
Similarly, income from the sale of Common Stock will not constitute UBTI unless
such tax-exempt shareholder has held such shares as "debt financed property"
within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401 (a) of the Code and is tax-exempt under Section 501(a) of the
Code (a "qualified trust") and which holds more than 10% (by value) of the
interests in the REIT. A REIT is a "pension held REIT" if (i) it would not have
qualified as a REIT but for the application of a "look-through" exception to the
"not closely held" requirement applicable to qualified trusts, and (ii) either
(A) at least one such qualified trust holds more than 25% (by value) of the
interests in the REIT, or (B) one or more such qualified trusts, each of which
owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the gross
income (less direct expenses related thereto) of the REIT from unrelated trades
or businesses (determined as if the REIT were a qualified trust) to (ii) the
total gross income (less direct expenses related thereto) of the REIT. A de
minimis exception applies where this percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to qualified trusts. As a result of certain limitations on transfer and
ownership of Common Stock contained in the Organizational Documents, the Company
does not expect to be classified as a "pension held REIT."
Taxation of Foreign Shareholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Shareholders should consult
with their own tax advisors to determine the impact of federal, state, and local
income tax laws with regard to an investment in shares, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws.
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In general, Non-U.S. Shareholders will be subject to regular United
States federal income taxation with respect to their investment in shares of
Common Stock in the same manner as a U.S. Shareholder (i.e., at graduated rate
on a net basis, after allowance of deductions) if such investment is
"effectively connected" with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States. A Non-U.S. Shareholder that is a corporation
and that receives income with respect to its investment in shares of Common
Stock that is (or is treated as) "effectively connected" with the conduct of a
trade or business in the United States may also be subject to the 30% branch
profits tax imposed under Section 884 of the Code, which is payable in addition
to the regular United State corporate income tax. The following discussion
addresses only the federal income taxation of Non-U.S. Shareholders whose
investment in shares of Common Stock is not "effectively connected" with the
conduct of trade or business in the United States. Prospective investors whose
investment in shares of Common Stock may be "effectively connected" with the
conduct of a United States trade or business should consult their own tax
advisors as to the tax consequences thereof.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gains dividends will be treated as dividends or ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. Pursuant to current
Treasury Regulations, dividends paid to an address in a country outside the
United States are generally presumed to be paid to a resident of such country
for purposes of determining the applicability of withholding discussed above and
the availability of reduced tax treaty rate. Under proposed Treasury
Regulations, not currently in effect, however, a Non-U.S. Shareholder who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
certain certification and other requirements. Distributions made by the Company
in excess of its current and accumulate earnings and profits will not be taxable
to a shareholder to the extent they do not exceed the adjusted basis of the
shareholder's shares, but rather will reduce the adjusted basis of such shares
(but not below zero). To the extent that such distributions exceed the adjusted
basis of the Non-U.S. Shareholder's shares, they will give rise to tax liability
if the Non-U.S. Shareholder would otherwise be subject to tax on any gain from
the sale or disposition of his shares in the Company, as described below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that the Company does not do so any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%. However, the Non-U.S. Shareholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company, and the amount withheld exceeded the Non-U.S.
Shareholder's United States tax liability, if any, with respect to the
distribution.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sale or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with the conduct of a
United States trade or business. Non-U.S. Shareholders would thus be taxed at
the normal capital gain rate applicable to U.S. Shareholders (subject to
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals), without regard as to whether such
distributions are designated by the Company as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profit tax in the
hands of a foreign corporate shareholder not entitled to treaty exemption. The
Company is required by
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Treasury Regulations to withhold 35% of any distribution to a Non-U.S.
Shareholder that could be designated by the Company as a capital gain dividend.
This amount is creditable against the Non-U.S. Shareholder's FIRPTA tax
liability.
Gain recognized by the Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during
specified testing period less than 50% in value of its stock was held directly
or indirectly by foreign persons. The Company believes that it will be a
domestically controlled REIT and therefore, that the sale of its shares will not
be subject to taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will continue to so
qualify.
Notwithstanding the foregoing, gain from the sale or exchange of shares
of Company stock not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
If the Company does not qualify as or ceases to be a
"domestically-controlled REIT," whether gain arising from the sale or exchange
by a Non-U.S. Shareholder of shares of Common Stock would be subject to U.S.
taxation under FIRPTA will depend on whether the shares are "regularly traded"
(as defined in applicable Treasury Regulations) on an established securities
market (such as the NYSE on which the Common Stock is traded) and on the size of
the selling Non-U.S. Shareholder's interest in the Company. If the gain on the
sale of shares were to be subject to tax under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as a domestic shareholder with respect to
such gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the shares would be required to withhold and
remit to the IRS 10% of the purchase price.
Other Tax Considerations
Effect of Tax Status of the Operating Partnership on REIT
Qualification. The Company believes that the Operating Partnership is properly
treated as a partnership for tax purposes (and not as an association taxable as
a corporation). If, however, the Operating Partnership is treated as an
association taxable as a corporation, the Company would cease to qualify as a
REIT. Furthermore, in such a situation, the Operating Partnership would be
subject to corporate income taxes and the Company would not be able to deduct
its share of any losses generated by the Operating Partnership in computing its
taxable income.
Tax Allocations with Respect to the Properties. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Properties). When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as a "Book-Tax Difference"). The Partnership Agreement
of the Operating Partnership requires allocations of income, gain, loss and
deduction with respect to contributed property to be made in a manner consistent
with the special rules in Section 704(c) of the Code, and the regulations
thereunder, which tend to eliminate the Book-Tax Differences with respect to the
contributed properties over the life of the Operating Partnership. However,
because of certain
25
<PAGE>
technical limitations, the special allocation rules of Section 704(c) may not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed properties in the hands of the Operating Partnership
could cause the Company to be allocated lower amounts of depreciation and other
deductions for tax purposes or increased gain on a sale or disposition of a
Property by the Company than would be allocated to the Company if all properties
were to have a tax basis equal to their fair market value at the time of
acquisition. The foregoing principles also apply in determining the earnings and
profits of the Company for purposes of determining the portion of distributions
taxable as dividend income. The application of these rules over time may result
in a higher portion of distributions being taxed as dividends than would have
occurred had the Company purchased its interests in the properties at their
agreed value.
State and Local Taxes. The Company and its shareholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its shareholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective shareholders
should consult with their own tax advisors regarding the effect of state, local
and other tax laws of any investment in the Common Stock of the Company.
In particular, the State of Texas imposes a franchise tax upon
corporations and limited liability companies that do business in Texas,
including REITs that are organized as corporations. The Texas franchise tax
imposed on a corporation doing business in Texas is generally equal to the
greater of (i) .25% of "taxable capital" (generally, financial accounting net
worth with certain adjustments) apportioned to Texas; or (ii) 4.5% of "taxable
earned surplus" (generally, federal taxable income with certain adjustments)
apportioned to Texas. A corporation's taxable capital and taxable earned surplus
are apportioned to Texas based upon a fraction, the numerator of which is the
corporation's gross receipts from business transacted in Texas and the
denominator of which is the corporation's gross receipts from all sources. The
office of the Texas State Comptroller of Public Accounts (the "Comptroller"),
the agency that administers the Texas franchise tax, has issued a regulation
providing that a corporation is not considered to be doing business in Texas for
Texas franchise tax purposes merely because the corporation owns an interest as
a limited partner in a limited partnership that does business in Texas. The same
regulation provides, however, that a corporation is considered to be doing
business in Texas if it owns an interest as a general partner in a partnership
that does business in Texas. This regulation applies for purposes of the net
taxable capital component of the Texas franchise tax. The Comptroller has not
made a similar public determination with regard to the earned surplus component.
The Comptroller has also expressed, although not in a formal regulation, that a
corporation is not considered to be doing business in Texas for Texas franchise
tax purposes merely because the corporation owns stock in another corporation
that does business in Texas.
The Company, organized as a Delaware corporation, is a limited partner
in the Operating Partnership and is not otherwise doing business in Texas.
Accordingly, the Company should not be subject to Texas franchise tax. However,
the General Partner, organized as a corporation, is the general partner of a
partnership doing business in Texas (i.e., the Operating Partnership) and has
registered in the State of Texas as a foreign corporation qualified to transact
business in Texas. Accordingly, the General Partner is subject to Texas
franchise tax. The Operating Subsidiaries, to the extent those organizations are
corporations deemed to be doing business in Texas, will be subject to the Texas
franchise tax.
There is no assurance that the Comptroller will not contend that the
Company will be doing business in Texas for Texas franchise tax purposes. First,
no assurance exists that the Comptroller will not revoke the pronouncements
described above and contend that the activities of the Company constitute the
doing of business in Texas. Second, as noted above, it is not clear whether the
Comptroller
26
<PAGE>
considers these pronouncements equally applicable to the tax on net taxable
earned surplus. Third, no assurance exists that the Comptroller will not contend
that in light of the overall structure of the Company, the Operating
Partnership, and the Operating Subsidiaries, the pronouncements are otherwise
inapplicable. If any of the preceding were to occur, the Company may be subject
to Texas franchise tax on income earned from its limited partnership interest in
the Operating Partnership.
The Operating Partnership itself will not be subject to the Texas
franchise tax under the laws in existence at the time of this Prospectus. There
is no assurance, however, that the Texas legislature will not expand the scope
of the franchise tax to apply to limited partnerships such as the Operating
Partnership.
Recent Legislation
In addition to changes to the requirements for qualification and
taxation as a REIT discussed above, the Taxpayer Relief Act also contains
significant changes to the taxation of capital gains of individuals, trusts and
estates. For gains realized after July 28, 1997, and subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets held for more than 18
months has been reduced to 20%, and the maximum rate is reduced to 18% for
assets acquired after December 31, 2000 and held for more than five years. The
maximum rate for long-term capital gains attributable to the sale of depreciable
real property held for more than 18 months is 25% to the extent of the
deductions for depreciation with respect to such property. Long-term capital
gain allocated to a shareholder by the Company will be subject to the 25% rate
to the extent that the gain does not exceed depreciation on real property sold
by the Company. The maximum rate of capital gains tax for capital assets held
for more than one year but not more than 18 months remains at 28%. The taxation
of capital gains of corporations was not changed by the Taxpayer Relief Act.
Unitholders are urged to consult their own tax advisors with respect to
the appropriateness of an investment in the Common Stock and with respect to the
tax consequences arising under the federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences arising
from such Unitholder's own tax characteristics. In particular, foreign investors
should consult their own tax advisors concerning the tax consequences of an
investment in the Company including the possibility of United States income tax
withholding on Company distributions.
EXPERTS
The consolidated financial statements of Berkshire Realty Company, Inc.
and its subsidiaries, included in the report on Form 10-K of the Company for the
fiscal year ended December 31, 1997 referred to above have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
dated January 16, 1998, except for Note V, for which the date is February 27,
1998, accompanying such financial statements, and are incorporated herein by
reference in reliance upon the report of such firm, which report is given upon
their authority as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by
reference in the Registration Statement of which this Prospectus is a part that
have been audited and are the subject of a report by independent accountants
will be so incorporated by reference in reliance upon such reports and upon the
authority of such firms as experts in accounting and auditing to the extent
covered by consents filed with the Commission.
27
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Peabody & Brown, Boston,
Massachusetts.
28
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
No dealer, salesperson or any other
individual has been authorized to give
any information, or to make any
representations, other than those 593,251 Shares
contained in this Prospectus in
connection with the offer made by this
Prospectus and, if given or made, such
information or representations must not
be relied upon as having been authorized BERKSHIRE REALTY
by the Company. Neither the delivery of COMPANY, INC.
this Prospectus nor any sale made
hereunder shall under any circumstances
create an implication that there has been
no change in the affairs of the Company Common Stock
since the date hereof. This Prospectus
does not constitute an offer or
solicitation by anyone in any
jurisdiction in which such offer or
solicitation is not authorized or in
which the person making such offer or
solicitation is not qualified to do so or
to any person to whom it is unlawful to
make such offer or solicitation.
------------------
------------------------ PROSPECTUS
________ __, 1998
__________________
TABLE OF CONTENTS
Page
Available Information....................... 1
Incorporation of Certain Documents
by Reference............................. 1
Risk Factors................................ 2
The Company................................. 10
Use of Proceeds............................. 15
Selling Stockholders........................ 15
Plan of Distribution........................ 15
Federal Income Tax Considerations........... 16
Experts..................................... 27
Legal Matters............................... 28
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Registration fee to the SEC ................................ $ 2,112.71
Printing expense............................................ 2,000
Accounting fees and expenses................................ 2,000
Legal fees and expenses..................................... 6,000
Miscellaneous expenses...................................... 1,000
-------
Total.................................................... $13,112.71
=======
All fees and expenses are estimates except for the registration fee
to the SEC.
Item 15. Indemnification of Directors and Officers.
The Company's Certificate provides for indemnification of the
Company's officers and Directors to the fullest extent permitted by Sections 145
and 102(b)(7) of the Delaware General Corporation Law and relieves the Directors
of certain monetary liabilities to the Company and its shareholders. In general,
Delaware law permits the Company to indemnify its officers and Directors so long
as they act in good faith and in a manner reasonably believed by them to be in,
or not opposed to, the best interests of the Company. Subject to the provisions
of Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the
Company intends to indemnify its officers and Directors against losses,
liabilities and expenses (including attorneys' fees) incurred by them that are
related to their being officers or Directors of the Company.
The Company has purchased director and officer liability insurance for
the purpose of providing a source of funds to help pay for any indemnification
expenses it may incur.
Item 16. Exhibits
Exhibit
Numbers Description
------ -----------
5.1 Opinion regarding legality.
8.1 Opinion regarding certain tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Peabody & Brown (included in Exhibit 5.1 hereto).
24.1 Power of Attorney (included on signature page hereto).
<PAGE>
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
most recent post-effective amendment thereof) which,
individually, or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant for expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
<PAGE>
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Boston, Massachusetts, on April 9, 1998.
BERKSHIRE REALTY COMPANY, INC.
By: /s/ David F. Marshall
-----------------------------
David F. Marshall, President,
Chief Executive Officer and
Director of Berkshire Realty Company, Inc.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint David F. Marshall and Marianne
Pritchard jointly, and each of them severally, his/her true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, for
him/her and in his/her name, place and stead, in any and all capacities, to
execute and sign the Registration Statement filed herewith and any or all
amendments or post-effective amendments to this Registration Statement (or any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same,
with all exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto each of such attorneys-in-fact
and agents full power and authority to do and person each and every act and
thing requisite and necessary in connection with such matters as fully to all
intents and purposes as he/she might or could do in person, hereby ratifying and
confirming all that each such agent or attorney-in-fact and his/her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Douglas Krupp Chairman of the Board and January 12, 1998
- ------------------------------- Director of Berkshire
Douglas Krupp Realty Company, Inc.
/s/ David F. Marshall President, Chief Executive
- ------------------------------- Officer and Director of
David F. Marshall BerkshireRealty Company, Inc. April 9, 1998
<PAGE>
/s/ Marianne Pritchard Executive Vice President and April 9, 1998
- ------------------------------- Chief Financial Officer of
Marianne Pritchard Berkshire Realty Company, Inc.
/s/ Kenneth J. Richard Senior Vice President of April 9, 1998
- ------------------------------- Finance and Accounting
Kenneth J. Richard and Chief Accounting Officer
/s/ Terrance R. Ahern Director of Berkshire January 11, 1998
- ------------------------------- Realty Company, Inc.
Terrance R. Ahern
/s/ David M. deWilde Director of Berkshire January 12, 1998
- ------------------------------- Realty Company, Inc
David M. deWilde
/s/ J. Paul Finnegan Director of Berkshire January 9, 1998
- ------------------------------- Realty Company, Inc.
J. Paul Finnegan
/s/ Charles N. Goldberg Director of Berkshire January 12, 1998
- ------------------------------- Realty Company, Inc.
Charles N. Goldberg
/s/ Paul D. Kazilionis Director of Berkshire January 12, 1998
- ------------------------------- Realty Company, Inc.
Paul D. Kazilionis
/s/ E. Robert Roskind Director of Berkshire January 9, 1998
- ------------------------------- Realty Company, Inc.
E. Robert Roskind
/s/ Arthur P. Solomon Director of Berkshire January 12, 1998
- ------------------------------- Realty Company, Inc.
Arthur P. Solomon
<PAGE>
Exhibit Index to Registration Statement on Form S-3
The following exhibits are filed as part of this Registration Statement on Form
S-3.
Exhibit
Numbers Description
------- ------------
5.1 Opinion regarding legality.
8.1 Opinion regarding certain tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Peabody & Brown (included in Exhibit 5.1 hereto).
24.1 Power of Attorney (included on the signature page hereto).
EXHIBIT 5.1
[PEABODY & BROWN LETTERHEAD OMITTED]
April 13, 1998
Berkshire Realty Company, Inc.
470 Atlantic Avenue
Boston, MA 02210
Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed under the Securities
Act of 1933, as amended (the "Securities Act"), for the purpose of registering
593,251 shares (the "Resale Shares") of common stock, par value $.01 (the
"Common Stock"), to be sold by certain stockholders of Berkshire Realty Company,
Inc., a Delaware corporation (the "Company"), from time to time as described in
the Registration Statement.
We have acted as counsel for the Company in connection with the
preparation of the Registration Statement and various corporate documents
related thereto. We have examined and relied upon the following documents and
instruments for the purpose of giving this opinion which, to our knowledge and
in our judgment, are all of the documents and instruments that are necessary for
us to examine for such purpose:
1. the Registration Statement and the prospectus filed therewith and all
exhibits thereto;
2. a copy of the Company's Restated Certificate of Incorporation, as
amended to date;
3. a copy of the Company's Bylaws, as amended to date;
4. a copy of a Registration Rights Agreement between the Company and
certain stockholders dated as of November 14, 1997;
5. a copy of an Action by Written Consent of the Board of Directors of
the Company adopted January 16, 1998;
6. a copy of a Written Consent of Directors of the Company in Lieu of a
Special Meeting adopted as of January 20, 1998; and
7. such other documents as we have deemed necessary or appropriate for
purposes of this opinion.
<PAGE>
Berkshire Realty Company, Inc. PEABODY & BROWN
April 13, 1998
Page 2
In examining all documents, we have assumed the genuineness of all
signatures thereon, the accuracy of all statements contained therein, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents furnished to us as certified or photographic
copies and the completeness of all documents furnished to us. We have also
assumed the legal capacity (as distinct from authority) and competency of any
individual who has signed any instrument referred to herein. With respect to the
latter assumption, nothing has come to our attention giving us reasonable
grounds to question the correctness of such assumption.
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that the Resale Shares have been
legally issued and are fully paid and nonassessable.
The foregoing assumes that all requisite steps have been taken to comply
with the requirements of the Securities Act and applicable requirements of state
laws regulating the offer and sale of securities.
Our opinion is subject to the following qualifications and limitations:
i. We express no opinion as to the laws of any state or jurisdiction
other than the federal laws of the United States, the laws of The Commonwealth
of Massachusetts and the General Corporation Law of the State of Delaware.
ii. The opinions set forth herein are expressed as of the date hereof,
and we disclaim any undertaking to advise you of any changes which may
subsequently be brought to our attention in the facts and the law upon which
such opinions are based.
This opinion is furnished by us solely for your benefit and is intended
to be used as an exhibit to the Registration Statement filed with the Securities
and Exchange Commission. Except for such use, neither this opinion nor copies
hereof may be relied upon by, delivered to or quoted in whole or in part by any
person without our prior written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations promulgated thereunder by the Securities and
Exchange Commission.
Very truly yours,
/s/ PEABODY & BROWN
PEABODY & BROWN
BOS2: 104510_2
(26382-10)
[PEABODY & BROWN LETTERHEAD OMITTED]
EXHIBIT 8.1
April 13, 1998
Berkshire Realty Company, Inc.
470 Atlantic Avenue
Boston, MA 02210
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to Berkshire Realty Company, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") for the
purpose of registering 593,251 shares of the Company's Common Stock, par value
$.01 per share, to be sold by certain stockholders of the Company from time to
time as described in the Registration Statement.
The Company has requested our opinion as to the Company's qualification
for federal income tax purposes as a real estate investment trust (a "REIT")
pursuant to sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the accuracy of the statements in the Registration
Statement set forth under the caption FEDERAL INCOME TAX CONSIDERATIONS.
In connection with the opinions rendered below, we have examined the
following documents:
1. the Registration Statement and the prospectus filed therewith and all
exhibits thereto;
2. a copy of the Company's Restated Certificate of Incorporation, as
amended to date;
3. a copy of the Company's Bylaws, as amended to date; and
4. such other documents as we have deemed necessary or appropriate for
purposes of this opinion.
<PAGE>
Berkshire Realty Company, Inc.
April 13, 1998
Page 2
We have reviewed the Registration Statement and the descriptions set
forth therein of the Company and its investments and activities. We have relied
upon the representations of the Company and its affiliates and certain officers
thereof (including, without limitation, representations contained in a
representation letter dated as of March 11, 1998) regarding the manner in which
the Company has been and will continue to be owned and operated. We have neither
independently investigated nor verified such representations, and we assume that
such representations are, as of this date, true, correct and complete and that
all representations made "to the best of the knowledge and belief" of any
person(s) or party(ies) are and will be true, correct and complete as if made
without such qualification. We assume that the Company has been and will be
operated in accordance with applicable laws and the terms and conditions of
applicable documents, and that the descriptions of the Company and its
investments and the proposed investments, activities, operations and governance
of the Company set forth in the Registration Statement continue to be true. In
addition, we have relied on certain additional facts and assumptions described
below.
In examining all documents, we have assumed the genuineness of all
signatures thereon, the accuracy of all statements contained therein, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents furnished to us as certified or photographic
copies and the completeness of all documents furnished to us. We have also
assumed the legal capacity (as distinct from authority) and competency of any
individual who has signed any instrument referred to herein. With respect to the
latter assumption, nothing has come to our attention giving us reasonable
grounds to question the correctness of such assumption.
The discussion and conclusions set forth below are based upon the Code,
the Income Tax Regulations and Procedure and Administration Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all of which are subject to change. No assurance can therefore be given
that the federal income tax consequences described below will not be altered in
the future.
Based upon and subject to the foregoing, and provided that the Company
continues to meet the applicable asset composition, source of income,
shareholder diversification, distribution, recordkeeping and other requirements
of the Code necessary for a corporation to qualify as a REIT, we are of the
opinion that:
1. The Company is organized in conformity with the requirements for
qualification as a REIT under the Code and its method of operation, as described
in the representations referred to above, will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code.
<PAGE>
Berkshire Realty Company, Inc.
April 13, 1998
Page 3
2. The statements in the Registration Statement set forth under the
caption FEDERAL INCOME TAX CONSIDERATIONS, to the extent such information
constitutes matters of law, summaries of legal matters or legal conclusions,
have been reviewed by us and are accurate in all material respects.
We express no opinion with respect to the transactions described in the
Registration Statement other than those expressly set forth herein. You should
recognize that our opinions are not binding on the Internal Revenue Service and
that the Internal Revenue Service may disagree with the opinions contained
herein. Although we believe that our opinions will be sustained if challenged,
there can be no assurance that this will be the case. Except as specifically
discussed above, the opinions expressed herein are based upon the law as it
currently exists. Consequently, future changes in the law may cause the federal
income tax treatment of the Company as a REIT to be materially and adversely
different from that under current law.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement. In giving such consent, we do not admit that we are in the category
of persons whose consent is required by Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
The foregoing opinions are limited to the federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or to any issues arising under the tax laws of any state,
locality or foreign country. We undertake no obligation to update the opinions
expressed herein after the date of this letter. This opinion letter is solely
for the information and use of the addressee and may not be relied upon for any
purpose by any other person without our express written consent.
Very truly yours,
/s/ PEABODY & BROWN
PEABODY & BROWN
BOS2: 104518_2
(26382-10)
EX-23.1
Consent of Expert
[Coopers & Lybrand Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement on Form S-3 of our report dated January 16, 1998, except for Note V,
for which the date is February 27, 1998, on our audits of the consolidated
financial statements and financial statement schedule of Berkshire Realty
Company, Inc. and its subsidiaries. We also consent to the references to our
firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
Coopers & Lybrand LLP
Boston, Massachusetts
April 9, 1998
