UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 1-10660
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Berkshire Realty Company, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3086485
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue, Boston, Massachusetts 02210
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 423-2233
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Securities registered pursuant to Section 12(b) of the Act:
Title Name of Exchange on which Registered
----- ------------------------------------
Common Stock New York Stock Exchange
$.01 par value
Warrants to purchase common stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $411,289,000 as of March 2, 1998.
As of March 2, 1998 there were 36,656,925 shares of the registrant's common
stock outstanding.
Documents incorporated by reference: See Item 14 herein. The exhibit index is
located on pages 31 - 42. The total number of pages in this document is 123.
<PAGE>
PART I
ITEM 1. BUSINESS
Organization
Berkshire Realty Company, Inc. and Subsidiaries (the "Company") was formed
on April 26, 1990 and commenced operations on June 27, 1991, as an equity real
estate investment trust ("REIT"). The Company's several wholly-owned qualifying
REIT subsidiaries have been formed in connection with multifamily asset
acquisitions and financings.
On June 4, 1991 at a special meeting, the Unitholders of Krupp Cash
Plus-III Limited Partnership and Krupp Cash Plus-IV Limited Partnership
(collectively the "Participating Cash Plus Partnerships") voted in favor of and
agreed to participate in an exchange (the "Exchange") with the Company. On June
27, 1991, the Company, a Delaware corporation, exchanged 25,097,923 shares of
its common stock ("Shares") for the assets, subject to the liabilities, of the
Participating Cash Plus Partnerships. The Participating Cash Plus Partnerships
then distributed the Shares received in the Exchange to their respective
investors and the Participating Cash Plus Partnerships were then dissolved.
In 1995, the Company was restructured as an umbrella partnership real
estate investment trust ("UPREIT"). On May 1, 1995, the Company's assets,
subject to its liabilities, were transferred to a newly formed subsidiary
("Operating Partnership") of which the Company, in its capacity as the Special
Limited Partner and through its ownership of Berkshire Apartments, Inc. as the
general partner, holds 83.46% of the Operating Partnership interests as of
December 31, 1997. Upon transfer of its net assets, the Company was issued
25,392,452 units of the Operating Partnership ("Units") which was equal to the
number of Shares outstanding on May 1, 1995.
In connection with the organization of the Operating Partnership, on May 1,
1995 an affiliate of Berkshire Realty Advisors Limited Partnership ("Advisor"),
contributed $5,000 and River Oaks Apartments, subject to mortgage debt of $5.4
million, at a valuation of $10.5 million which was approved by the independent
members of the Board of Directors. The seller received 534,975 Units in the
Operating Partnership ("Minority Interest") in exchange for its interest in the
property. Under the agreement, the Company may not sell River Oaks Apartments
until May 1, 1998. The contribution was accounted for using the purchase method.
The River Oaks is a 17-story, 136-unit, multifamily complex located in the River
Oaks area of Houston, Texas.
On March 1, 1996 the Company acquired, via contribution, certain assets of
an entity affiliated with a director which provided advisory and development
services to the Company, in exchange for 1.3 million Units of the Operating
Partnership (the "Advisor Transaction"). The transaction was valued at $13
million (based on a $10.00 per share price) and has been recorded as the
acquisition of a workforce and other intangible assets. Additional Units, up to
a total of $7.2 million, may be issued during a six-year period if certain share
price benchmarks are achieved. During 1997, the $11.00 and $12.00 share price
benchmarks were achieved and an additional 209,091 Units were issued at a value
of $2.4 million. (See Note C to the Consolidated Financial Statements). The
Advisor Transaction enabled the Company to eliminate fees previously incurred
for asset management, acquisition and disposition functions. The Company
outsources with an affiliate of a director for office administration, investor
records, computer systems support, and legal services.
On February 26, 1997, the Board of Directors, acting on the recommendation
of a special committee comprised solely of outside directors, approved the
acquisition of the workforce and other assets of the multifamily property
manager affiliated with certain officers and directors which provided
multifamily property management services to the Company (the "Property
Manager"). The Property Manager was contributed on February 28, 1997 in exchange
for 1.7 million
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<PAGE>
Units with a value of approximately $17.6 million (the "Property Manager
Transaction").
At the time of the contribution, the Property Manager managed 57 apartment
communities, including the Company's 35 assets, and employed approximately 85
professionals, excluding site employees. As a result of this transaction, the
Company no longer pays management fees and reimbursements for the management
operations of its multifamily portfolio. In addition, the Company receives
management fees and reimbursements associated with 22 third-party management
contracts acquired. Those contracts are primarily with partnerships affiliated
with certain directors and officers of the Company.
The value of the transaction was allocated to intangible assets associated
with third-party management contracts and the workforce acquired. The Company
recorded intangible assets of $4.4 million based on discounted cash flows from
third-party property management contracts and $13.2 million based on the value
of intangible assets associated with the workforce acquired. (See Note D to the
Consolidated Financial Statements).
The Company has an infinite life, however the Company's Certificate of
Incorporation, as amended, requires the Company's Board of Directors (the
"Board") to prepare and submit a Plan of Liquidation to the shareholders on or
before December 31, 1998. The Plan of Liquidation would become effective if
approved by shareholders holding a majority of the shares then outstanding. The
Company is operating under the assumption it will remain a going concern
indefinitely.
Company Purpose
The purpose of the Company is to create value for shareholders through
skillful acquisition, renovation, rehabilitation, development and operation of
apartment communities. Providing residents a high quality living experience
through superior service-driven management is imperative to the Company's
success.
Business Strategy
The Company's primary objective is to maximize shareholder value through
increases in distributable cash flow per share and appreciation in the value of
its common stock. The Company seeks to grow by acquiring and developing luxury,
middle and moderate income apartment communities in selected targeted markets.
In particular, the Company seeks opportunities to add value through renovation
and major rehabilitation projects across a broad spectrum of apartment
communities. The Company's presence in 14 metropolitan areas located in Florida,
Texas and the Mid-Atlantic and Southeast regions of the United States gives its
portfolio geographic diversity while providing the Company with a competitive
advantage in identifying and competing for acquisition and development
opportunities in its target markets. The Company believes its management
infrastructure allows it to grow in both its existing markets and in selected
new markets without incurring substantial additional costs. The Company also
seeks to maximize profitability by increasing occupancies and rents while
decreasing operating costs by implementing the strategies described below.
Growth Strategy - Regional Partner
The Company believes that local expertise is important to the success of
its business. The Company, therefore, seeks to acquire the assets and operations
of skilled and proven apartment owners and developers and to establish such
companies as regional divisions of the Company, thereby enhancing the Company's
ability to acquire, develop and manage apartment communities in such regions.
This strategy offers private apartment owners and developers the opportunity to
contribute their direct ownership interests in such assets to the Company in
exchange for Units on a tax-deferred basis, and to have significant involvement
in the future management of the Company as the head of a regional division,
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responsible for acquisition, development and asset management activities within
such regions. These mergers should permit the Company to grow by combining each
regional division's acquisition and development skills with the Company's access
to capital and management expertise. The Company expects to realize economies of
scale through the integration of the property management operations of the
acquired portfolio into the Company's management infrastructure. Each regional
division is expected to be headed by a regional president who has operated a
successful apartment company in such region and has demonstrated the ability to
acquire, develop and operate assets which fit the Company's criteria. The
commitment of each regional president to the Company will be assured by virtue
of such person's significant investment in the Company as a result of having
contributed such person's portfolio for equity in the Company or the Operating
Partnership.
Financing Strategy
The Company has a policy to maintain leverage at or below 50% of the
reasonably estimated value of its assets. The Company believes that based upon
both its internally-generated estimated values and upon estimated values
calculated using valuation parameters consistent with the Company's credit
facilities, the Company is in compliance with such debt policy. The Company
believes that its access to capital through its credit facilities, sources of
private equity and debt financing, and utilization of Units as currency, as well
as its access to the public capital markets provide it with capital to fund its
acquisition, development and capital expenditure requirements as well as provide
a competitive advantage over certain competitive bidders who have less access to
capital.
Other Matters
The performance of the Company's real estate investments is subject to some
seasonal fluctuations resulting from changes in utility consumption and seasonal
maintenance expenditures. Future performance of the Company may be impacted by
unpredictable factors which include general and local economic and real estate
market conditions, variable interest rates, environmental concerns, energy
costs, government regulations and federal and state income tax laws. The
requirements for compliance with federal, state and local regulations to date
have not had an adverse effect on the Company's operations, and no adverse
effects are anticipated in the future.
The Company's strategic decision to divest of its retail portfolio over
time and reinvest the proceeds into multifamily assets has necessitated the
recognition of impairment losses on the Company's retail assets in accordance
with Statement of Financial Accounting Standards Opinion No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". The Company's share of provisions for losses recorded on its wholly-owned
and joint venture owned retail assets totaled $7.2 million and $12.0 million for
the years ended December 31, 1997 and 1996, respectively. The provisions for
losses represent the difference between carrying value and estimated fair value
less costs to sell. During 1997, the Company sold two wholly-owned retail assets
and one of its joint venture investments. Subsequent to December 31, 1997, the
Company's remaining retail assets were sold, including the remaining joint
venture investment.
Employees
At December 31, 1997, the Company had 956 employees.
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<PAGE>
ITEM 2. PROPERTY
As of December 31, 1997, the Company had investments in 68 properties in
eight states consisting of 65 apartment communities having in the aggregate
18,773 units and three retail centers with a total of 639,829 square feet of
leasable space. One of the retail centers is owned through a joint venture with
a limited partnership whose general partner is an affiliate of a director of the
Company. Subsequent to December 31, 1997, the three retail centers were sold. In
addition, the Company owns two development projects located in Greenville, South
Carolina totaling 296 units and Atlanta, Georgia totaling 444 units, and two
parcels of land for future development located in Greenville, South Carolina.
The Company has contracted to acquire three development properties from the
Questar Partner as a result of the transaction described in Note E to the
Consolidated Financial Statements. The Company also entered into a Development
Acquisition Agreement with an affiliate of the Questar Partner which granted the
Company an exclusive right to acquire all apartment projects developed in the
Mid-Atlantic Region by affiliates of the Questar Partner which meet the
Company's acquisition and development criteria. Schedule III and Notes E, F and
G to the Consolidated Financial Statements included in Appendix A to this report
contain additional detailed information with respect to individual assets.
Some of the Company's apartment communities and retail centers have been
pledged as collateral for various debt incurred by the Company. (See Notes K, L
and M to the Consolidated Financial Statements included in Appendix A).
The following table summarizes the Company's multifamily properties at
December 31, 1997 and also sets forth the aggregate number of apartment units by
geographic region. The table does not reflect the value of the Company's
investments.
Multifamily
------------------------
Region Properties Units
------ ---------- -----
Mid-Atlantic 26 6,074
Texas 16 5,662
Southeast 15 4,917
Florida 8 2,120
-- ------
65 18,773
== ======
The following table provides a more detailed description of the individual
properties in which the Company has an interest at December 31, 1997. The
occupancy rates presented below are based on physical occupancy, without
reference to whether leases in effect are at, below, or above market rates and
without reference to lease-up incentives or concessions.
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<PAGE>
<TABLE>
<CAPTION>
1997
Average Average
Average Unit Monthly Physical
Year Total Size Rental Rates Occupancy
Multifamily Location Acquired Units (sq. ft.) (dollars) (percent)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mid-Atlantic Region
Arborview Belcamp, MD 1997 288 1,023 753 81
Berkshire Towers (2) Silver Spring, MD 1996 1,119 873 835 94
Calvert's Walk Belair, MD 1997 276 896 737 95
The Channel Glen Burnie, MD 1997 120 952 695 98
Courtleigh Baltimore, MD 1997 280 1,050 669 91
The Cove Glen Burnie, MD 1997 181 971 689 98
Coventry Baltimore, MD 1997 122 1,050 643 87
Diamond Ridge Baltimore, MD 1997 92 912 723 87
The Estates Pikesville, MD 1997 208 883 785 95
Fairway Ridge Baltimore, MD 1997 274 999 556 86
Harper's Mill Millersville, MD 1997 144 968 751 98
Hazelcrest Baltimore, MD 1997 48 917 483 94
Heraldry Square Baltimore, MD 1997 270 1,052 631 93
Hilltop Baltimore, MD 1997 50 787 477 96
Jamestowne Baltimore, MD 1997 335 958 517 91
Kingswood I Baltimore, MD 1997 203 1,051 609 91
Kingswood II Baltimore, MD 1997 203 1,051 609 87
The Lighthouse Glen Burnie, MD 1997 168 1,027 724 98
Liriope Belcamp, MD 1997 84 1,038 815 90
Ridgeview Chase Westminster, MD 1997 204 916 776 92
Rolling Wind Baltimore, MD 1997 280 1,062 899 87
Stratton Meadows Baltimore, MD 1997 268 1,053 701 93
Warren Park Baltimore, MD 1997 200 723 546 96
Westchester West Silver Spring, MD 1997 345 1,003 720 99
Williston Baltimore, MD 1997 98 1,043 543 90
Southpointe at Massapequa (2) Massapequa, NY 1993 214 987 1,182 100
---------------=-------------------------------------------------
Total Units 6,074
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Texas Region
Benchmark (2) Irving, TX 1996 250 845 592 97
Golf Side (2) Haltom City, TX 1996 402 781 458 93
Hunters Glen (2) Plano, TX 1996 276 943 645 94
Huntington Brook Dallas, TX 1997 320 828 606 93
Huntington Lakes Dallas, TX 1997 405 786 650 95
Huntington Ridge Irving, TX 1997 232 833 630 98
Indigo on Forest (2) Dallas, TX 1994 1,217 789 586 94
Kings Crossing (2) Kingwood, TX 1994 404 838 614 96
Kingwood Lakes (2) Kingwood, TX 1994 390 940 614 96
Pleasant Woods (2) Dallas, TX 1996 208 887 566 95
Prescott Place (2) Mesquite, TX 1996 318 762 514 95
Prescott Place II (2) Mesquite, TX 1996 336 712 509 95
Providence (2) Dallas, TX 1996 244 794 510 93
River Oaks (2) Houston, TX 1995 136 1,520 1,977 93
Summer Place Addison, TX 1997 212 832 590 88
Sweetwater Ranch Richardson, TX 1997 312 889 800 96
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Total Units 5,662
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<PAGE>
1997
Average Average
Average Unit Monthly Physical
Year Total Size Rental Rates Occupancy
Multifamily Location Acquired Units (sq. ft.) (dollars) (percent)
- --------------------------------- -------------------------- -------------- ---------- --------------- --------------- -----------
Southeast Region
Brookfield Trace (2) (3) Mauldin, SC 1995 300 1,013 696 94
Brookwood Valley (2) Mauldin, SC 1995 226 970 621 92
Huntington Downs (2) Greenville, SC 1988 502 964 602 92
The Oaks (2) Mauldin, SC 1990 176 956 645 93
Roper Mountain (2) Greenville, SC 1988 248 797 520 92
Stoneledge (2) Greenville, SC 1988 320 794 535 93
Cumberland Cove (2) Raleigh, NC 1991 552 1,090 755 96
East Lake (2) Charlotte, NC 1993 214 1,200 665 93
The Timbers (2) Charlotte, NC 1993 343 753 582 94
Arbors at Breckenridge (2) Duluth, GA 1993 514 1,025 757 92
The Avalon on Abernathy (2) Atlanta, GA 1992 240 1,356 897 96
Huntington Chase (2) Norcross, GA 1993 467 746 672 92
British Woods (2) Nashville, TN 1995 264 1,082 656 94
Highland Ridge (2) Madison, TN 1995 280 1,050 541 93
Windover (2) Knoxville, TN 1995 271 1,013 599 93
-------------- ------- --------------- ------------ --------------
Total Units 4,917
-------------- ------- --------------- ------------ --------------
Florida
Altamonte Bay Club (2) Altamonte Springs, FL 1993 224 1,043 628 97
The Lakes at Jacaranda (2) Plantation, FL 1990 340 918 841 94
Newport (2) Tampa, FL 1993 320 721 530 95
Park Colony (2) Hollywood, FL 1994 316 764 773 91
Plantation Colony (2) Plantation, FL 1993 256 1,009 763 95
Berkshire West (2) Winter Garden, FL 1997 200 843 629 97
Sun Chase (2) Bradenton, FL 1997 168 802 600 96
Woodland Meadows (2) Tamarac, FL 1992 296 900 686 95
-------------- ------- --------------- ------------ --------------
Total Units 2,120
-------------- ------- --------------- ------------ --------------
Total Residential Portfolio 18,773
-------------- ------- --------------- ------------ --------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year 1997 Year End
Retail Location Acquired Square Feet Occupancy (%)
- --------------------------------------- ------------------------------ -------------- ---------------- -------------------
<S> <C> <C> <C> <C>
College Plaza (4) Fort Myers, Florida 1987 83,962 91
Tara Crossing (4) Jonesboro, Georgia 1987 235,181 89
Spring Valley Marketplace (1) (4) Spring Valley, New York 1988 320,686 95
-------------- ---------------- -------------------
Total Retail Portfolio 639,829
-------------- ---------------- -------------------
</TABLE>
(1) The Company holds a 50.1% joint venture interest in this property.
(2) These properties are pledged as collateral for outstanding debt. See
Notes K, L and M to the Consolidated Financial Statements included in
Appendix A to this report.
(3) The Company completed a 96-unit expansion of this apartment community
in February, 1997. The additional units were included in the totals
from the date of completion.
(4) These properties were sold subsequent to December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or to which its properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by the Annual Report on Form
10-K.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol BRI. The high and low prices of the Company's common
stock based on a composite average for each quarter during 1997 and 1996 and
dividends paid for such common stock are:
Dividends
Quarter Ended High Low Paid
------------- ---- --- ---------
December 31, 1997 12.31 10.88 $.2325
September 30, 1997 12.38 11.63 .2325
June 30, 1997 11.25 10.63 .2250
March 31, 1997 11.75 10.00 .2250
------
$.9150
======
December 31, 1996 10.25 9.38 $.2250
September 30, 1996 11.00 9.63 .2250
June 30, 1996 11.00 9.88 .2250
March 31, 1996 10.38 9.75 .2250
------
$.9000
======
The Company's common stock warrants are traded on the NYSE under the symbol
"BRI/WS". The warrants were admitted to trading on September 7, 1994. Upon
exercise, each stock warrant entitles the holder to the right to acquire one
share of common stock of the Company at an exercise price as of December 31,
1997 of $11.79. For further information see Note U to Notes to the Consolidated
Financial Statement included in Appendix A to this report. The high and low
prices of the Company's warrants based on a composite average for each quarter
during 1997 and 1996 are:
Quarter Ended High Low
------------- ---- ---
December 31, 1997 $ .88 $.50
September 30, 1997 .81 .44
June 30, 1997 .88 .50
March 31, 1997 1.00 .44
December 31,1996 $ .56 $.31
September 30, 1996 .69 .44
June 30, 1996 .75 .56
March 31, 1996 .69 .50
The Company's practice is to review and declare its dividend on a quarterly
basis, and to establish a dividend rate that is supportable by funds from
operations, after considering capital expenditures necessary for the maintenance
of the real estate investments. On February 12, 1998, the Board approved a
dividend of $.2425 per share payable on May 15, 1998 to the shareholders of
record on May 1, 1998. The Company intends to continue making its quarterly
dividend payments.
As of January 31, 1998 there were approximately 32,500 holders of the
Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the
Company's financial position. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto.
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<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars In Thousands,
Except Number of Apartment Units and Per Share Amounts)
<TABLE>
<CAPTION>
Operating Data: 1997 1996 1995 1994 1993
- -------------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Rental revenue $109,974 $89,451 $70,068 $63,222 $44,236
Total revenue 115,499 93,002 74,441 68,470 50,071
Property operating expenses,
including property
management fees 50,221 42,353 33,347 31,826 21,867
Depreciation and amortization 43,315 30,172 21,984 19,507 14,384
Provision for losses on
real estate assets (1) 1,850 7,500 - - -
Interest 24,006 20,501 15,618 10,794 3,858
Non-recurring charges (2)(3)(4) - (442) (1,728) (2,555) (1,225)
Income (loss) from operations
before joint venture income
(loss), gains on sales of
assets, gains on payoff of
mortgage loans, minority
interest and extraordinary
items (12,037) (12,612) (1,157) 510 5,365
Joint venture income (loss) (4,910) (3,009) 1,407 1,178 1,137
Gains on sales of real
estate assets 6,455 58 15,603 4,069 -
Minority interest in
Operating Partnership 2,154 1,403 (167) - -
Extraordinary items (5) (90) (149) (901) - -
Net income (loss) (8,429) (14,308) 14,786 5,757 6,503
Income allocated to
preferred shareholders (6) (1,659) - - - -
Net income (loss) allocated
to common shareholders (10,088) (14,308) 14,786 5,757 6,503
Per Share Data - Common (basic and diluted):
Net income (loss) $(.37) $(.56) $.58 $.23 $.26
Dividends paid $.92 $.90 $.89 $.86 $.80
Weighted average common
shares outstanding 27,099,522 25,393,147 25,392,621 25,391,478 25,391,426
Preferred shares outstanding 2,737,000 - - - -
Balance Sheet Data:
Total assets $846,420 $569,670 $486,968 $458,207 $412,516
Real estate, excluding
joint ventures, before
accumulated depreciation $880,652 $585,795 $465,846 $448,058 $373,055
Long-term fixed rate
obligations $362,762 $206,837 $155,201 $88,279 -
Shareholders' equity $368,195 $223,654 $260,788 $268,591 $283,027
Other Information:
Apartment units owned, end of year 18,773 12,435 9,433 9,385 7,554
</TABLE>
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<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(1) As reflected in Note F to the Consolidated Financial Statements, the
Company recorded provisions for losses on its wholly-owned retail assets
of $1,850,000 and $7,500,000 for the years ended December 31, 1997 and
1996, respectively, which represent the difference between carrying value
and estimated fair value less estimated costs to sell.
(2) Non-recurring charges in 1994 and 1993 relate to the settlement of
litigation. The non-recurring charge in 1994 primarily represents the
estimated value of the warrants issued and the non-recurring charge in
1993 was primarily due to the cash settlement payment.
(3) The non-recurring charge in 1995 is related to costs associated with the
restructuring of the Company as an umbrella partnership real estate
investment trust (UPREIT).
(4) The non-recurring charge in 1996 is related to litigation related to a
property disposition.
(5) The extraordinary items in 1997, 1996 and 1995 relate to costs associated
with the refinancing or retirement of debt.
(6) On September 25, 1997, the Company sold 2,737,000 shares of Series 1997-A
Cumulative Preferred Stock. The holders of preferred stock are entitled
to receive a 9% preferential cumulative dividend, when, as and if
declared by the Board. See Note U to the Consolidated Financial
Statements.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. Overview and Organization:
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Capitalized terms used herein and not otherwise defined have the meanings
ascribed to them in the Notes to the Consolidated Financial Statements.
The Company is a Real Estate Investment Trust ("REIT") whose operations
consist primarily of the acquisition, renovation, rehabilitation, development
and operation of apartment communities located in the Mid-Atlantic and Southeast
regions of the United States, Florida and Texas. As of December 31, 1997, the
Company owned 65 apartment communities consisting of 18,773 units and also had
investments in three retail centers, one of which was held in a joint venture
investment. The Company has approximately 740 multifamily units under
development and two parcels of land for future development. As a result of the
Questar Transaction, the Company has contracted to acquire three additional
development properties from an affiliate of the Questar Partner. (See Note E to
the Consolidated Financial Statements). The Company also entered into a
Development Acquisition Agreement with an affiliate of the Questar Partner which
grants the Company an exclusive right to acquire all apartment projects
developed in the Mid-Atlantic Region by affiliates of the Questar Partner which
meet the Company's acquisition and development criteria. Subsequent to December
31, 1997, the Company sold its three remaining retail properties. (See Note V to
the Consolidated Financial Statements).
UPREIT Reorganization:
The Company reorganized as an Umbrella Partnership ("UPREIT") on May 1,
1995 when the Company contributed substantially all of its assets subject to all
liabilities to BRI OP Limited Partnership ("Operating Partnership"). The
Company, in its capacity as the Special Limited Partner and through its
ownership of Berkshire Apartments, Inc. as General Partner, holds 83.46% of the
Operating Partnership interests as of December 31, 1997. To facilitate the
UPREIT formation, GN Limited Partnership, an affiliate of certain officers and
directors, contributed River Oaks Apartments to the Operating Partnership in
exchange for 534,975 units in the Operating Partnership ("Units"). Units are
redeemable, at any time after one year following their issuance, on a one for
one basis for shares of common stock of the Company or, at the Company's option,
for cash. The purpose of becoming an UPREIT was to allow the Company to offer
Units in the underlying Operating Partnership in exchange for assets from
tax-motivated sellers. Under certain circumstances, the exchange of Units for a
seller's assets will defer the tax liability associated with the sale. This
structure allows the Company to use Units instead of stock or cash to acquire
properties, which provides an advantage over non-UPREIT entities.
Advisor Transaction:
Until early 1996, the Company was advised by Berkshire Realty Advisors
("Advisor"), an affiliate of certain directors and officers of the Company. The
Board of Directors determined that it was in the best interest of the
shareholders to become self-advised. Therefore, on February 28, 1996, the Board,
acting on the recommendation of a Special Committee comprised of the Independent
Directors, approved the acquisition, via contribution of the workforce and other
assets of the Advisor, in exchange for 1.3 million Units which were valued at
$13 million (the "Advisor Transaction"). The acquisition price together with
related costs, was recorded as an intangible asset associated with the workforce
acquired. The contribution was completed on March 1, 1996. As of that date, all
charges and expenses associated with the Advisory Services Agreement ceased and
the Company became a self-administered REIT.
In conjunction with the Advisor Transaction, additional Units, up to a
total
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<PAGE>
of $7.2 million in value, may be issued to the former Advisor during a six year
period if certain share price benchmarks are achieved. As of December 31, 1997,
209,091 additional Units have been issued as a result of achieving the $11.00
and $12.00 share price benchmarks. (See Note C to the Consolidated Financial
Statements for additional details).
Property Manager Transaction:
On February 13, 1997, a Special Committee of the Board of Directors
comprised of the Independent Directors approved the acquisition of the workforce
and other assets of an affiliate which provided multifamily property management
services to the Company (the "Property Manager"). The Property Manager was
contributed on February 28, 1997 in exchange for 1.7 million Units or
approximately $17.6 million in consideration as of the pricing date.
On the date of the transaction, the Property Manager managed 57 apartment
communities, including the Company's 35 assets, and employed approximately 85
professionals, excluding site employees. As a result of this transaction, the
Company no longer pays management fees and reimbursements for the management
operations of its multifamily portfolio. In addition, the Company receives
management fees and reimbursements of certain expenses associated with 22
third-party management contracts primarily with partnerships affiliated with
certain directors and officers of the Company.
The value of the Units issued has been recorded on the balance sheet as an
intangible asset associated with the acquisition of a workforce and third-party
property management contracts. (See Note D to the Consolidated Financial
Statements for additional details).
Ownership:
Executive officers and directors and their affiliates own 2.3% of the
Company and 12.5% of the Operating Partnership as of December 31, 1997. The
Company had an 83.46% ownership in the Operating Partnership as of December 31,
1997.
B. Results of Operations:
Acquisition and disposition activity within the portfolio affects the
results of operations from period to period. The following discussion makes
comparisons as to same-store properties, communities sold and acquired during
the periods as well as development activities so as to explain the changes in
the Company's results of operations. The Company defines same-store properties
as those assets that were owned and operated in each of the two most recent
years.
Summary Overview
1997 to 1996
The Company reflected a net loss of $8.4 million in 1997 compared to a net
loss of $14.3 million in 1996. A principal factor affecting the Company's
results was provisions for losses of $7.2 million in 1997 and $12.0 million in
1996 recorded on the Company's wholly-owned and joint venture retail assets. The
Company has been in the process of liquidating its retail portfolio over the
past several years. This divestiture strategy has necessitated the valuation
adjustments recorded during 1997 and 1996 which represent the difference between
current market value and carrying value less estimated costs to sell (See Note F
to the Consolidated Financial Statements for additional details).
The Company also incurred amortization costs related to the Advisor and
Property Manager Transactions of $8.0 million in 1997 and $1.1 million in 1996.
In 1997, additional costs of $2.4 million were incurred as a result of the
issuance of 209,091 Units in connection with the Advisor Transaction (See Note C
and D to the Consolidated Financial Statements for additional details).
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<PAGE>
1996 to 1995
The Company reflected a net loss of $14.3 million in 1996 compared to net
income of $14.8 million in the prior year. In 1995, the Company recorded a $15.6
million gain on the sale of properties and the payoff of two mortgage loans. The
sales included seven multifamily properties or 1,717 apartment units. In
contrast, in 1996, the Company recorded $12.0 million in provisions for losses
on its wholly-owned and joint venture retail assets. In 1996, the Company
announced a plan that, over the next several years, it would liquidate its
retail portfolio and reinvest the proceeds into acquisitions or development of
multifamily assets.
Income and Expenses
Rental income and property operating expenses, including repairs and
maintenance and real estate taxes increased for both periods primarily due to
increased weighted average apartment units in the Company's portfolio. Rental
revenue for the year ended December 31, 1997 increased $20.5 million or 23% over
the prior year and the property operating expenses mentioned above increased
$7.0 million or 19.1% for the same period. The average number of apartment units
increased 26.3% from 1996 to 1997.
Rental revenue for the year ended December 31, 1996 increased $19.4 million
or 28% over the prior year and property operating expenses increased $6.8
million or 23% for the same period. Average apartment units increased 23.6% from
1995 to 1996. Details of the Company's apartment unit growth are set forth
below:
1997 1996 1995
---- ---- ----
Weighted Average Apartment Units:
Total 13,918 11,022 8,914
Percent Increase 26.3% 23.6% 7.1%
Apartment Units:
Beginning of period 12,435 9,433 9,385
Acquired 6,506 3,153 1,381
Sold (348) (223) (1,717)
Completed developments 180 72 384
------ ------ -------
End of period 18,773 12,435 9,433
====== ====== =======
Management fees and reimbursements increased $3.2 million in 1997 due to
revenue generated from third-party management contracts which were acquired in
March, 1997 as a result of the Property Manager Transaction. (See Note D to the
Consolidated Financial Statements for additional details).
Property management fees paid to an affiliate decreased $3.4 million in
1997 as a result of the Property Manager Transaction.
Property management operations increased $4.3 million in 1997 as a result
of the Property Manager Transaction. These costs were more than offset by the
decrease in property management fees paid to an affiliate and the increase in
management fees and reimbursements received from third-party management
contracts.
Depreciation and amortization increased $13.1 million from 1996 to 1997 and
$8.2 million from 1995 to 1996 due to an increased property asset base in both
periods. In addition, amortization of intangible assets associated with the
Advisor Transaction in 1996 and the Property Manager Transaction in 1997
accounted for $6.9 million of the increase from 1996 to 1997 and $1.1 million of
the increase from 1995 to 1996.
Costs associated with Advisor Transaction of $2.4 million were incurred in
1997 as the Company achieved certain share price benchmarks (See Note C to the
Consolidated Financial Statements) resulting in the issuance of 209,091 Units,
the cost of which was charged to operations in 1997.
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<PAGE>
General and administrative expenses increased in 1997 compared to 1996 due
to a full year of salary and benefit costs along with administrative and office
expenses associated with the workforce acquired through the Advisor Transaction
in 1997 compared to ten months in 1996. In addition, due to the growth of the
real estate portfolio and the expansion of the investor base, the Company
experienced increased audit, legal and transfer agent expenses in 1997. The
increase in 1996 compared to 1995 was a result of becoming self-administered on
March 1, 1996.
State and corporate franchise taxes in 1997 were comparable to 1996. State
and corporate franchise taxes in 1996 were higher than in 1995 due to a
reduction for taxes pertaining to 1994 which was reflected in 1995.
Interest expense increased in each of the last three years because the
Company has largely employed debt capital for acquisitions and development
activities. The following is an analysis of weighted average debt outstanding
and interest rates for each of the years presented (dollars in thousands):
1997 1996 1995
---- ---- ----
Weighted Average
Debt Outstanding
Fixed Rate $244,597 $185,616 $ 98,115
Variable Rate 65,368 78,577 89,957
-------- -------- --------
Total $309,965 $264,193 $188,072
======== ======== ========
Weighted Average
Interest Rates
Fixed Rate 7.74% 7.47% 8.39%
Variable Rate 6.62% 6.73% 7.49%
In 1997, average fixed rate debt increased approximately $59 million
primarily due to debt which was assumed in connection with the acquisitions of
apartment communities.
In 1996, average fixed rate debt increased approximately $88 million
primarily due to debt which was assumed in connection with the acquisitions of
three properties and the conversion of $13.3 million of debt from variable to
fixed interest rates.
The following represents total debt and weighted average cost of debt
(coupon interest rate plus amortization of financing costs) at December 31, 1997
(dollars in thousands):
Balance Weighted
Outstanding Average Cost
----------- ------------
Fixed Rate $362,762 8.04%
Variable Rate (1) 18,048 6.98%
--------
$380,810
========
(1) The Company entered into a five-year interest rate swap contract with a
bank in November 1995. The swap contract is for a $40 million notional
contract fixing variable rate exposure on that amount at 6.06%.
Asset management fees were eliminated effective March 1, 1996 in
conjunction with the Advisor Transaction. (See Overview).
Joint venture net loss was $4.9 million in 1997 compared to net loss of
$3.0 million in 1996. The loss was primarily due to the provisions for losses of
$10.7 million recorded by the joint ventures in 1997 which represent the
difference between carrying value and estimated fair value less costs to sell.
The Company's pro-rata share of this provision is $5.4 million.
Gain on sales of assets was $6.5 million in 1997 compared to $58,000 in
1996. In 1997, the Company sold one multifamily asset consisting of 348 units
which resulted in a gain of $6.5 million and two retail assets which were sold
at their
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<PAGE>
carrying values. The Company sold two assets in 1996 for a net gain of $58,000.
In 1995, the gains resulted from the sales of seven apartment complexes
consisting of 1,717 units and the early payoff of two mortgages that the Company
had previously purchased at a discount.
Non-recurring charges of $442,000 recorded in 1996 represent costs
associated with the settlement of litigation on an asset sold in January 1994.
In 1995, non-recurring charges of $1.7 million related to the costs associated
with reorganizing as an UPREIT.
Extraordinary items for 1997, 1996 and 1995 represents costs associated
with the refinancing or retirement of debt.
C. Funds from Operations (FFO) (adjusted for Operating Partnership Units)
Industry analysts generally consider Funds from Operations ("FFO"), to be
an appropriate measure of the performance of an equity REIT because, along with
cash flows from operating activities, financing activities and investing
activities, it provides investors with an understanding of the ability of the
Company to incur and service debt and make capital expenditures. However, FFO
should not be considered by the reader as a substitute to net income as an
indicator of the Company's operating performance or to cash flows as a measure
of liquidity. The Company believes that in order to facilitate a clear
understanding of the operating results of the Company, FFO should be analyzed in
conjunction with net income (loss) as presented in the Consolidated Financial
Statements and information presented elsewhere. FFO is determined in accordance
with a resolution adopted by the Board of Governors of the National Association
of Real Estate Investment Trusts ("NAREIT"), and is defined as net income (loss)
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization on real estate assets, and after adjustments for
unconsolidated partnerships and joint ventures. The methodology used by the
Company when calculating FFO may differ from that of other equity REIT's and,
therefore, may not be comparable to such other REIT's. In addition, FFO does not
represent amounts available for management's discretionary use for needed
capital replacement or expansion, debt service obligations or other commitments.
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<PAGE>
FFO per share is calculated using weighted average Shares and Operating
Partnership Units for the periods presented as follows (dollars in thousands,
except for Shares and Units):
Year Ended December 31,
-----------------------------------
1997 1996 1995
-------- -------- ------
Loss from operations before joint
venture income (loss),
gains on sales of assets,
gains on payoff of mortgage
loans, minority interest
and extraordinary items $(12,037) $(12,612) $ (1,157)
Joint venture net operating income 2,236 3,456 3,486
Amortization of intangible assets 8,043 1,121 -
Costs associated with
Advisor Transaction 2,400 - -
Depreciation 35,228 29,032 21,974
Provision for losses on
real estate investments 1,850 7,500 -
Non-recurring charges - 442 1,728
Income allocated to
preferred shareholders (1,659) - -
-------- -------- ------
Funds from Operations $ 36,061 $ 28,939 $ 26,031
======== ======== ========
Cash flows provided by (used for):
Operating activities $ 38,532 $ 27,505 $ 25,048
Investing activities $(96,495) $(36,393) $(25,068)
Financing activities $ 60,806 $ 4,761 $ 670
Weighted Average:
Shares 27,099,522 25,393,147 25,392,621
Units 5,922,173 2,520,959 359,093
---------- ---------- ----------
Total 33,021,695 27,914,106 25,751,714
========== ========== ==========
Overview
FFO increased from 1996 to 1997 and from 1995 to 1996 primarily due to
improved operations from the same-store apartment communities in addition to the
factors discussed previously in Results of Operations.
Same-Store Apartment Communities
The Company defines same-store apartment communities as those assets that
were owned and operated in each of the two most recent years. The Net Operating
Income ("NOI") of the 25 communities aggregating 8,467 units which are
considered same-store is summarized as follows (dollars in thousands):
Year Ended December 31,
----------------------------
1997 1996 Change
------ ------- ------
Revenue $66,050 $63,772 3.6%
Expenses 26,233 26,559 (1.2)%
------- -------
Net Operating Income $39,817 $37,213 7.0%
======= =======
Capital Expenditures(1) $ 3,069 $ 2,760
Average occupancy 94.0% 93.9%
Average monthly rent
per unit $685 $665
(1) Represents capital expenditures of a recurring nature which are
appropriately capitalizable.
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<PAGE>
Growth in same-store multifamily revenue was approximately 3.6% for the
twelve months ended December 31, 1997 when compared to the same period ended
December 31, 1996. Rent increases accounted for almost the entire increase.
Occupancy at December 31, 1997 was 95.4% for same-store assets.
Same-Store Retail Properties
NOI of the three retail properties (one of which is 50.1% held in a joint
venture investment) is summarized as follows (dollars in thousands):
Year Ended December 31,
-----------------------------------
1997 1996 Change
---- ---- ------
Revenue $ 5,787 $ 6,102 (5.2)%
Expenses 2,452 2,323 5.5%
------- -------
Net Operating Income $ 3,335 $ 3,779 (11.7)%
======= =======
Average economic
occupancy 92.4% 92.8%
Same-store NOI decreased 11.7% for the twelve months ended December 31,
1997 when compared to the same period ended December 31, 1996. This was due to a
property tax refund received in 1996 as well as a decline in occupancy at Spring
Valley Marketplace in 1997. In addition, Tara Crossing experienced reduced
revenues due to the retenanting of a significant portion of its leasable space
in 1997.
D. Liquidity and Capital Resources
The Company's net cash provided by operating activities increased $11.0
million in 1997 and $2.5 million in 1996 primarily due to increased property net
operating income as a result of an increased asset base. Net cash used in
investing activities increased $60.1 million in 1997 and $11.3 million in 1996.
The increase in 1997 was primarily due to increased spending on acquisitions of
real estate assets and apartment community development activity of $61.4
million, offset by increased proceeds from sales of properties and joint
ventures of $27 million. The increase in net cash used in investing activities
in 1996 over 1995 was primarily due to decreased proceeds from the sales of real
estate assets of $43.4 million and increased initial funding of real estate tax
and repair escrows of $5.1 million as required by certain debt agreements
assumed in conjunction with the acquisition of multifamily properties. This was
offset by less spending on acquisitions of real estate assets and community
development activity of $44.2 million in 1996. The Company's net cash provided
by financing activities increased $56 million in 1997 primarily due to net
proceeds received from the Company's preferred and common stock offerings of
$169 million, offset by net payments on the Company's borrowings of $77.8
million. Net cash provided by financing activities increased $4.1 million in
1996 primarily due to net borrowing activity.
Until 1997, operations, debt financing and sales of assets have been the
sources of liquidity employed by the Company. In 1997, the Company raised
additional capital through a private placement of preferred stock and a public
offering of common stock, the proceeds of which were used to acquire multifamily
properties and to paydown variable rate debt. Operating cash flows are earmarked
for the payment of dividends as well as capital expenditures of a recurring
nature. Debt financing and proceeds from asset sales have been used to finance
the acquisition, renovation, rehabilitation and development of apartment
communities.
In each of the previous three years, the Company has paid between 84% and
88% of FFO in dividends, retaining the rest for recurring capital expenditures
and working capital. The Company expects to increase both FFO and dividends in
the future but will strive to gradually reduce the payout ratio so as to utilize
some internally generated funds for growth. On February 12, 1998, the Board
approved
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a dividend of $.2425 per share payable on May 15, 1998 to the shareholders of
record on May 1, 1998.
The Company has a policy to maintain leverage at or below 50% of reasonably
estimated value of assets. By employing moderate leverage ratios, the Company
can continue to generate sufficient cash flows to operate its business as well
as sustain dividends to shareholders.
The following table represents the components of debt as of December 31,
1997, and 1996 (dollars in thousands):
December 31,
----------------------------------------------
1997 1996
-------------------- ---------------------
Amount Percent Amount Percent
Short-term variable (1) $ 18,048 4.7% $ 88,328 29.9%
Long-term fixed 362,762 95.3% 206,837 70.1%
-------- ----- -------- -----
$380,810 100% $295,165 100%
======== ===== ======== =====
(1) The Company entered into a five-year fixed interest rate swap
agreement with a bank in November, 1995 for a $40 million notional
contract thereby fixing variable rate exposure on that amount at
6.06%.
The Company conservatively manages both interest rate risk and maturity
risk. Through the use of a swap, the Company has hedged interest rate risk on
100% of its outstanding variable rate debt as of December 31, 1997.
Additionally, the Company has spread its maturities on long-term debt and has
weighted average maturities of 15.2 years.
In addition to the Units originally issued, the Operating Partnership has
granted 8,552,019 Units, of which 7,648,524 Units were issued and 903,495 Units
were deferred as to issuance as of December 31, 1997, and 7,199,661 Units
outstanding at December 31, 1997. As of December 31, 1997, 448,863 Units have
been converted to shares of the Company's common stock and 7,199,661 Units were
outstanding. Approximately 55% of these Units were issued for the acquisition of
29 multifamily communities. Through the use of Units for acquisitions, the
Company has raised approximately $60 million of private equity since becoming an
UPREIT. It is the Company's intention to continue to use Units as a form of
currency to grow the asset base of the Company.
The Company has also issued Units in connection with the Advisor
Transaction and the Property Manager Transaction.
Equity capital, whether publicly or privately raised, will be utilized when
the Company identifies the opportunities to invest the proceeds in assets that
would increase shareholder returns. The Company is not currently engaged in a
secondary or preferred stock offering.
The Company has adequate sources of liquidity to meet its current cash flow
requirements, including dividends and debt service. The Company currently has
sufficient unadvanced commitments under credit facilities to fund ongoing
renovation, rehabilitation and development activities.
E. Business Conditions/Litigation
The Company believes that favorable economic conditions exist in
substantially all of its real estate markets. For the Company's same-store
apartment communities, physical occupancy was 95.4% as of December 31, 1997
which generally represents current market occupancies. Occupancies for the total
multifamily portfolio, including recently acquired assets, was 94.9% at December
31, 1997. In addition, the Company has commanded competitive rental rates at its
properties. The Company expects its asset management will produce solid
performance from its real estate assets; however, no assurances can be made in
this regard.
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<PAGE>
During 1997, the Company, with certain affiliates of a director, began a
computer systems project to significantly upgrade its existing hardware and
software. The Company expects to realize operating efficiencies and also expects
to remedy the programming issues associated with the approach of the millennium.
Testing and conversion of the system was completed in February, 1998. The
Company incurred hardware costs as well as consulting and other expenses related
to infrastructure and facilities enhancements necessary to complete the upgrade
and prepare for the year 2000. The Company's share of the cost of the systems
conversion is estimated to be approximately $650,000 and will be capitalized and
depreciated over five years.
The Company is also involved in legal actions and claims in the ordinary
course of its business. It is the opinion of management and its legal counsel,
that such litigation and claims should be resolved without material effect on
the Company's financial position.
F. Forward-Looking Statements
The Company's Annual Report contains forward-looking statements, estimates
or plans within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). There are a number of factors that
could cause the Company's actual results to differ materially from those
indicated by such forward-looking statements. These factors include the matters
set forth under the caption "Risk Factors" in the Company's Registration
Statement on Form S-3, which was filed with the Securities and Exchange
Commission on December 5, 1997 and which is incorporated herein by reference.
Any statements contained in such filing shall be deemed to be superseded or
modified for purposes of the Annual Report to the extent that a statement
contained herein modifies or supersedes such statement. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
G. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 129 ("FAS 129")
"Disclosure of Information about Capital Structure" is effective for financial
statements issued for periods ending after December 31, 1997. FAS 129
establishes standards for disclosure of information about securities,
liquidation preference of preferred stock and redeemable stock.
Financial Accounting Standards Board Statement No. 130 ("FAS 130")
"Reporting Comprehensive Income" is effective for fiscal years beginning after
December 31, 1997, although earlier application is permitted. FAS 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements.
Financial Accounting Standards Board Statement No. 132 ("FAS 132")
"Employers' Capital Disclosures about Pensions and Other Postretirement
Benefits" is effective for fiscal years beginning after December 15, 1997,
although earlier application is encouraged. FAS 132 establishes standards
related to the disclosure requirements for pensions and other postretirement
benefits.
The Company does not believe that the implementation of FAS 129, FAS 130
or FAS 132 will have a material impact on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Response: None
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's organizational documents provide that the number of directors
constituting the Board shall be fixed by resolution duly adopted by the Board
and that the Board shall be divided into three classes as nearly equal in number
as possible. The term of the class one directors expires at the annual meeting
of shareholders of the Company to be held in 2000. The term of the class two
directors expires at the annual meeting of shareholders of the Company to be
held in 1998, and the term of the class three directors expires at the annual
meeting of shareholders of the Company to be held in 1999. The directors elected
at each annual meeting will serve for a term of three years and until their
successors are duly elected and qualified, with one class to be elected each
year at the annual meeting of shareholders. Holders of Preferred Stock, voting
as a separate class, are entitled to elect one director to the Board of
Directors. Such director will be a class three director whose term expires in
1999. The Board in nominating future directors will maintain a majority of
independent directors.
In conjunction with the acquisition of the property management operations
on February 28, 1997, the independent directors named David Marshall Chief
Executive Officer of the Company. Laurence Gerber resigned as Chief Executive
Officer on February 28, 1997 and from the Board on October 8, 1997. In addition,
Ridge Frew was named Executive Vice President of Property Operations and James
Jackson was named Vice President of Human Resources.
The directors and executive officers of the Company as of December 31, 1997
were as follows:
<TABLE>
<CAPTION>
Date Initially
Name and Age Class Offices Held Elected
------------ ----- ------------ --------------
<S> <C> <C> <C>
Douglas Krupp (51) 3 Chairman of the Board February 8, 1996
and Director
David Marshall (49) 1 President, Chief Executive
Officer and Director March 1, 1996
Laurence Gerber (41) 2 Chief Executive Officer
and Director April 30, 1990
* J. Paul Finnegan (73) 1 Director October 17, 1990
* Charles N. Goldberg (56) 3 Director October 17, 1990
* E. Robert Roskind (53) 2 Director October 17, 1990
* David M. deWilde (57) 1 Director March 8, 1993
* Terrance R. Ahern (42) 2 Director October 9, 1997
* Paul D. Kazilionis (40) 3 Director October 9, 1997
* Arthur P. Solomon (58) 2 Director October 9, 1997
Stephen M. Gorn (46) President Mid-Atlantic Region November 14, 1997
Ridge Frew (49) Executive Vice President February 28, 1997
Marianne Pritchard (48) Senior Vice President and
Chief Financial Officer August 15, 1991
David Olney (37) Senior Vice President March 1, 1996
Dennis Suarez (44) Senior Vice President March 1, 1996
James Jackson (63) Vice President February 28, 1997
Kenneth J. Richard (42) Vice President May 13, 1997
Scott D. Spelfogel (37) Secretary May 7, 1991
</TABLE>
*Independent Directors
Douglas Krupp co-founded and serves as Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real estate financial services firm
engaged in real estate acquisition and property management, mortgage banking,
health care facility ownership and financial management. Mr. Krupp is a Director
of Harborside Healthcare Corporation, a Trustee of Krupp Government Income Trust
and Krupp Government Income Trust II, and a member of the Board of Trustees at
Brigham & Women's Hospital. He is a graduate of Bryant College where he received
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<PAGE>
an honorary Doctor of Science in Business Administration in 1989 and was elected
trustee in 1990.
Laurence Gerber was the President and Chief Executive Officer of The
Berkshire Group until September 30, 1997, and was Chief Executive Officer of the
Company until February 28, 1997. Prior to becoming President and Chief Executive
Officer in 1991, Mr. Gerber held various positions with The Berkshire Group
which included overall responsibility at various times for: strategic planning
and product development, real estate acquisitions, corporate finance, mortgage
banking, syndication and marketing. Before joining The Berkshire Group in 1984,
he was a management consultant with Bain & Company, a national consulting firm
headquartered in Boston. Prior to that, he was a senior tax accountant with
Arthur Andersen & Co., an international accounting and consulting firm. Mr.
Gerber has a B.S. degree in Economics from the University of Pennsylvania,
Wharton School and an M.B.A. degree with high distinction from Harvard Business
School. He is a Certified Public Accountant. Mr. Gerber also serves as Director
of Harborside Healthcare Corporation.
David Marshall was elected President of the Company on March 1, 1996 and
Chief Executive Officer on February 28, 1997. He was previously President of
Berkshire Realty Affiliates, the former advisor to the Company and a member of
The Berkshire Group. Before joining The Berkshire Group in 1986, Mr. Marshall
was President of Resource Savings Association. Prior to that, Mr. Marshall
served as a Vice President of Citicorp Real Estate, Inc. He holds a B.S. degree
from Michigan State University and a M.B.A. degree from the University of
Michigan.
Terrance R. Ahern is a co-founder and principal of The Townsend Group, an
institutional real estate consulting firm which represents primarily tax-exempt
clients such as public and private pension plans, endowment, foundation and
multi-manager investments. Mr. Ahern is a member of the Board of Directors of
the Pension Real Estate Association (PREA). He was formerly a member of the
Board of Governors of the National Association of Real Estate Investment Trusts
(NAREIT). Prior to founding The Townsend Group, Mr. Ahern was a Vice President
of a New York based real estate investment firm and was engaged in the private
practice of law. Mr. Ahern received a B.A. and J.D. from Cleveland State
University.
E. Robert Roskind is the Chairman and Co-Chief Executive Officer of
Lexington Corporate Properties, a self-administered REIT, the shares of which
are listed on the NYSE. Mr. Roskind is also the Managing Partner of The LCP
Group, a real estate investment firm based in New York, the predecessor of which
he co-founded in 1974. He currently serves as a trustee of Krupp Government
Income Trust and Krupp Government Income Trust II. He holds a B.A. degree from
the University of Pennsylvania and a J.D. degree from Columbia Law School. He
has been a member of the New York Bar since 1970.
Arthur P. Solomon is a Managing Director of Lazard Freres & Co. LLC and
head of the firm's Real Estate Group. Previously, Mr. Solomon was a Partner and
head of real estate investment banking at Drexel Burnham Lambert. Before that,
he was Chief Executive Officer of the predecessor of The Berkshire Group during
1983 to 1985 and, from 1982 to 1983, Executive Vice President and Chief
Financial Officer of the Federal National Mortgage Association. Prior to that,
Mr. Solomon was Senior Vice President/Chief Planning Officer for Sears Roebuck &
Company. He also was a tenured faculty member at Massachusetts Institute of
Technology specializing in urban economics, housing and finance, and at the same
time served as the Executive Director of the Harvard-MIT Joint Center for Urban
Studies. He served on the President's Task Force on Domestic and
Intergovernmental Affairs during the Johnson Administration. He holds a B.A.
from Brown University, an M.A. from Trinity College and a Ph.D. in Economics
from Harvard University.
Charles N. Goldberg is of counsel to the law firm of Broocks, Baker &
Lange, L.L.P. Prior to joining Broocks, Baker & Lange, L.L.P., Mr. Goldberg was
a partner in the law firm of Hirsch & Westheimer from March of 1996 to December
of
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<PAGE>
1997. Prior to Hirsch & Westheimer, he was the Managing Partner of Goldberg
Brown, Attorneys at Law from 1980 to March of 1996. He currently serves as a
Trustee of Krupp Government Income Trust and Krupp Government Income Trust II.
He received a B.B.A. degree and a J.D. degree from the University of Texas. He
is a member of the State Bar of Texas and is admitted to practice before the
U.S. Court of Appeals, Fifth Circuit and U.S. District Court, Southern District
of Texas.
Paul D. Kazilionis is a managing principal and a co-founder of Westbrook
Partners, L.L.C., an investment advisor to institutional investors. Prior to co-
founding Westbrook, Mr. Kazilionis spent 12 years at Morgan Stanley ultimately
serving as Managing Director of Morgan Stanley Realty and President of the
general partner of the Morgan Stanley Real Estate Fund responsible for Morgan
Stanley principal investing in real estate. Mr. Kazilionis received a B.A.
degree from Colby College in 1979 and a M.B.A. degree from the Amos Tuck School
of Business Administration in 1982.
David M. deWilde has been a Managing Partner of LAI, an executive search
firm headquartered in New York City, since January 1998. Prior to that he was
Chief Executive Officer of Chartwell Partners International, Inc., an executive
search firm headquartered in San Francisco, which was founded by Mr. deWilde in
1989. Previously, Mr. deWilde was Managing Director of Boyden International,
Inc. Mr. deWilde is currently on the Board of Directors of Silicon Valley
Bancshares. Mr. deWilde was Executive Vice President for Policy and Planning of
the Federal National Mortgage Association from 1981 until 1983. His prior public
service roles included President of the Government National Mortgage
Association, Deputy Commissioner of the Federal Housing Administration and
Deputy Assistant Secretary of the Department of Housing and Urban Development.
Mr. deWilde's private sector background includes investment banking experience
both as Managing Director of Lepercq de Neuflize & Co. from 1977 until 1981, and
with Lehman Brothers, Inc., and legal experience. He holds an A.B. degree from
Dartmouth College, a L.L.B. degree from the University of Virginia and a M.S.
degree in Management from Stanford University. He is a member of the Bars of the
State of New York and Washington, D.C.
J. Paul Finnegan retired as a partner of Coopers & Lybrand, LLP in 1987.
Since then, he has been engaged in business as a consultant, a director and
arbitrator. Mr. Finnegan holds a B.A. degree from Harvard College, a J.D. degree
from Boston College Law School and an A.S.A. degree from Bentley College. Mr.
Finnegan currently serves as a Trustee of Krupp Government Income Trust and as a
Trustee of Krupp Government Income Trust II. He is also currently a Director at
Scituate Federal Savings Bank. Mr. Finnegan is a Certified Public Accountant and
an attorney.
Ridge B. Frew is the Executive Vice President and Chief Operating Officer for
the Company and is responsible for the management of the Company's multifamily
property portfolio located primarily in the Mid-Atlantic and Southeast regions
of the United States, Florida and Texas. Prior to that, he was a Divisional Vice
President with Berkshire Property Management. Before joining Berkshire Property
Management, Mr. Frew was President and Chief Executive Officer of McKinley
Properties, responsible for the management and disposition of over 14,000
residential units and five million square feet of commercial space located in 16
states. Prior to that, he served as Vice President of Olind Jenni Properties and
Director of Property Management for Nevada Savings and Loan. Mr. Frew received
his B.A. degree from the University of Nevada.
Marianne Pritchard is the Executive Vice President and Chief Financial
Officer of the Company. Prior to joining the Company, she was Senior Vice
President and Chief Financial Officer of Berkshire Realty Affiliates, the
advisor and property manager for the Company and several affiliated real estate
investment companies. Prior to that, she was Vice-President and Controller of
Liberty Real Estate Group, a subsidiary of Liberty Mutual Insurance Company from
July 1989 to August 1991. She received her B.B.A. degree in Accounting from the
University of Texas. She is a Certified Public Accountant.
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<PAGE>
David J. Olney is the Executive Vice President and Chief Investment Officer
with responsibility for all acquisitions, property sales, finance and other
asset management activities for the Company. Previously, he held a similar
position with The Berkshire Group and has held several positions within The
Berkshire Group since 1986. Mr. Olney received a B.S. degree from Bryant College
and a M.B.A. degree from Babson College.
Dennis Suarez has been Senior Vice President of Development since March 1,
1996. Prior to being elected to this position on March 1, 1996, he served in a
similar position with Berkshire Multifamily Development Corporation, a member of
The Berkshire Group, and was responsible for all development activities. Prior
to that, he was Vice President of Construction for Lane Management, Realty
Construction Corp. He earned Bachelor's degrees in Architecture and Building
Construction from the University of Florida, and a B.A. degree in Interior
Design from Southern College.
Stephen M. Gorn was elected President of the Mid-Atlantic Region of the
Company on November 14, 1997. He was previously President of The Questar and
Gorn Management Companies and is currently the President of Questar Builders,
Inc. and Questar Properties, Inc., developers, builders, owners and managers of
residential properties. Mr. Gorn has been a managing general partner of more
than 25 real estate partnerships owning various apartment communities and
commercial real estate. He holds a B.A. degree from the University of
Pennsylvania.
James Jackson has been the Vice President of Human Resources for the Company
since February 28, 1997. Prior to being elected to this position, he held a
similar position with The Berkshire Group since 1987. Prior to that, he held the
positions of Vice President of Human Resources for Helix Technology and GSX
Corporation. He received an A.B. degree from Brown University, a M.S. degree
from Union College, and a J.D. degree from Harvard University. He is admitted to
the bar in Illinois and Massachusetts.
Kenneth J. Richard is the Senior Vice President of Finance and Accounting
and Chief Accounting Officer for the Company. Prior to his joining the Company,
he was Vice President and Treasurer for The Beacon Companies, a developer, owner
and manager of commercial properties, from 1994 to 1997. Prior to joining The
Beacon Companies, Mr. Richard was Vice President and Chief Financial Officer of
The Codman Company, Inc., a real estate brokerage and management firm in Boston,
from 1991 to 1994. Mr. Richard holds a B.S. degree in Business Administration
from Northeastern University. Mr. Richard is a Certified Public Accountant.
Scott D. Spelfogel is the Secretary of the Company. He is also the Senior
Vice President and General Counsel to The Berkshire Group. Before joining The
Berkshire Group in November 1988, he was in private practice in Boston. He
received a B.S. degree in Business Administration from Boston University, a J.D.
degree from Syracuse University's College of Law, and a L.L.M. degree in
Taxation from Boston University Law School. He is admitted to the bar in
Massachusetts and New York.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table provides compensation information for the Company's Chief
Executive Officer and the top four Executive Officers whose salary and bonus
exceeded $100,000 for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Awards
--------------------- -----------
Other Securities
Name and Annual Underlying
Principal Position Year Salary($) Bonus($) Compensation(4) Options(#)
- ------------------ ---- --------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Laurence Gerber (1) 1997 16,666 0 0 0
Chief Executive
Officer and Director
David Marshall (1) 1997 325,000 198,120 (3) 104,221 (5) 0
President, Chief
Executive Officer
and Director
Ridge Frew (2)(6) 1997 152,290 55,500 1,740 60,000
Executive Vice
President of Property
Operations
Marianne Pritchard (6) 1997 160,804 81,000 (4) 1,000 21,000
Senior Vice President
and Chief Financial
Officer
David Olney (6) 1997 150,000 115,500 2,902 15,000
Senior Vice President
of Acquisitions
Dennis Suarez 1997 153,394 97,400 2,688 10,500
Senior Vice President
of Development
</TABLE>
(1) Mr. Marshall replaced Mr. Gerber as Chief Executive Officer on February 28,
1997.
(2) The Annual Compensation amounts for Mr. Frew reflect the period from March
1, 1997 through December 31, 1997 as Mr. Frew was an employee of the
Property Manager until the acquisition of the Property Manager on February
28, 1997.
(3) Includes $3,120 representing a bonus payment in lieu of payment of term
life insurance.
(4) Includes matching contributions made by the Company under its Supplemental
Executive Retirement Plan and 401(k) Plan.
(5) Includes $100,000 representing forgiveness of the principal amount of the
Stock Purchase Loan made to Mr. Marshall on February 28, 1997 and $596
representing the amount paid for split-dollar life insurance premiums. See
Note P to the Consolidated Financial Statements for additional details
related to the Stock Purchase Loan).
(6) As of January 1, 1998, the following officer's titles were changed to
reflect their promotions: Marianne Pritchard is Executive Vice President
and Chief Financial Officer, David Olney is Executive Vice President and
Chief Investment Officer, and Ridge Frew is Executive Vice President and
Chief Operating Officer.
The Company entered into employment agreements with David Marshall,
Laurence Gerber and Marianne Pritchard. Each agreement commenced on March 1,
1996 and continues until December 31, 1998. The agreements provide for an annual
base salary of $100,000 for Mr. Gerber and not less than $325,000 for Mr.
Marshall and $157,000 for Ms. Pritchard. Mr. Gerber's employment as an officer
terminated on February 28, 1997 upon his resignation. Such salaries may be
increased at the
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<PAGE>
sole discretion of the Board of Directors. Bonuses, if any, are also at the sole
discretion of the Board of Directors. If any of the employment agreements are
terminated by the Company other than for cause, the employee is entitled to
receive all accrued but unpaid salary. In addition, certain termination payments
are required. In the case of Mr. Marshall, the Company shall pay severance
compensation in eighteen monthly installments (nine months in the case of Ms.
Pritchard) at the same rate as the base salary in effect at the date of
termination. In the event of termination due to a change of control of ownership
of the Company, Ms. Pritchard's agreement provides for fifteen months of
severance payments at the same rate as the base salary in effect at the date of
the termination.
The Company entered into employment agreements with Ridge Frew, David Olney
and Dennis Suarez. The agreements with Mr. Frew, Mr. Olney and Mr. Suarez
commenced on March 1, 1997 and continue until December 31, 1998. The agreements
provide for an annual base salary of not less than $185,000 for Mr. Frew, and
$150,000 for both Mr. Olney and Mr. Suarez. Such salaries may be increased at
the sole discretion of the Board of Directors. Bonuses, if any, are also at the
sole discretion of the Board of Directors. If any of the employment agreements
are terminated by the Company other than for cause, the employee is entitled to
receive all accrued but unpaid salary. In addition, certain termination payments
are required. In each case, the Company shall pay severance compensation in nine
monthly installments at the same rate as the base salary in effect at the date
of termination. In the event of termination due to a change of control of
ownership of the Company, each agreement provides for fifteen months of
severance payments at the same rate as the base salary in effect at the date of
the termination.
The following table provides option information for the Company's Chief
Executive Officer and the top four Executive Officers as of December 31, 1997.
No options have been exercised by the Executive Officers as of December 31,
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized
Value at Expiration
Date at Assumed
Annual Rates of Stock
Price Appreciation(1)
Individual Grants (in thousands)
---------------------------------------------------- ----------------------
% of Total
Options
Number of Granted to
Securities Employees
Underlying in Fiscal Exercise Expiration
Name Options Year Price Date 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
David Marshall 0 N/A N/A N/A N/A N/A
Laurence Gerber (2) 0 N/A N/A N/A N/A N/A
Ridge Frew 60,000 11% 11.00 3-01-07 415 1,051
Marianne Pritchard 21,000 4% 11.00 3-01-07 145 368
David Olney 15,000 3% 11.00 3-01-07 104 263
Dennis Suarez 10,500 2% 11.00 3-01-07 73 184
</TABLE>
(1) Values calculated using 5% and 10% annual rates of appreciation of
exercise price over the option term less original exercise price.
(2) Mr. Gerber resigned as Chief Executive Officer as of February 28, 1997.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
Fiscal Year- Fiscal Year-
Shares Value End (#) End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Laurence Gerber (1) 0 0 200,000/0 450,000/0
David Marshall 0 0 200,000/0 450,000/0
Ridge Frew 0 0 24,000/36,000 24,000/36,000
Marianne Pritchard 0 0 40,000/21,000 90,000/21,000
David Olney 0 0 40,000/15,000 70,000/15,000
Dennis Suarez 0 0 40,000/10,500 70,000/10,500
</TABLE>
(1) Mr. Gerber resigned as Chief Executive Officer as of February 28, 1997.
Independent Directors shall be entitled to receive compensation from the
Company for serving as Directors at the rate of $25,000 per year, subject to
increase in future years with the prior approval of the Board of Directors.
During 1997, Directors deWilde, Roskind, Finnegan, and Goldberg, each received
$25,000 for their services. Directors Ahern, Kazilionis and Solomon received
$6,250 for their services as they were elected on October 9, 1997 and therefore,
did not serve a full year on the Board. During 1996, 1995, 1994 and 1993, each
independent director received $25,000 for his services, except for Mr. deWilde,
who was elected during 1993 and received $18,750 during 1993.
On August 14, 1997, the Shareholders approved the adoption of the Berkshire
Realty Company, Inc. Directors Retainer Fee Plan (the "Fee Plan") which allows
non-employee directors of the Company to elect to receive all or part of their
annual retainer in cash, or in shares of common stock, and to defer payments.
The maximum number of shares of common stock that can be issued pursuant to the
Fee Plan is 40,000. In 1997, all non-employee directors received their annual
retainer fee in cash on a quarterly basis.
Pursuant to the Berkshire Realty Company Inc. 1996 Stock Option Plan (the
"Original Plan") and continuing under the proposed Berkshire Realty Company,
Inc. Amended and Restated Stock Option Plan (the "Amended Stock Plan"), each
non-employee director receives initial and annual stock option grants in
recognition of their service as a director and if applicable, as the chair or a
member of a committee of the Board.
On May 13, 1997, Messrs. deWilde, Finnegan, Goldberg and Roskind were granted
stock options in share amounts of 5,000, 6,000, 4,000, and 5,000, respectively.
On November 13, 1997, Messrs. Ahern, Kazilionis and Solomon were granted stock
options in the share amounts of 6,000, 5,000, and 5,000, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1997, no person was known by the Company to be the
beneficial owner of more than five percent (5%) of the Company's outstanding
Shares.
The following table sets forth certain information with respect to the
beneficial ownership of certain voting securities of the Company by all persons
known by the Company to own beneficially more than 5% of the shares of any class
of the Company's stock, each of the Company's Directors, the named executive
officers and by all Directors and Executive Officers as a group, as of March 2,
1998:
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<PAGE>
<TABLE>
<CAPTION>
TITLE OF CLASS NAME OF AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER(1) BENEFICIAL INTEREST (2) OF CLASS(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Preferred Stock Cudd & Co. 188,552 Shares 6.9%
Preferred Stock Paul D. Kazilionis 2,337,000 Shares (4)(5) 85.4%
Preferred Stock Westbrook Berkshire 254,117 Shares 9.3%
Co-Holdings, L.L.C.
Preferred Stock Westbrook Berkshire 2,082,883 Shares (5) 76.1%
Holdings, L.L.C.
Preferred Stock All Directors and
Executive Officers
as a group 2,337,000 Shares 85.4%
COMMON STOCK
Common Stock Terrance Ahern 0 (6)
Common Stock David M. deWilde 16,800 Shares (7) (6)
Common Stock Paul Finnegan 16,000 Shares (8) (6)
Common Stock Ridge Frew 78,838 Shares (9) (6)
Common Stock Laurence Gerber 215,000 Shares (10) (6)
Common Stock Charles Goldberg 14,000 Shares (11) (6)
Common Stock Paul Kazilionis 0 (6)
Common Stock Douglas Krupp 5,682,319 Shares (12) 13.6%
Common Stock David Marshall 297,147 Shares (13) (6)
Common Stock David Olney 90,335 Shares (14) (6)
Common Stock Marianne Pritchard 91,228 Shares (15) (6)
Common Stock E. Robert Roskind 28,000 Shares (16) (6)
Common Stock Arthur Solomon 0 (6)
Common Stock Dennis Suarez 46,735 Shares (17) (6)
Common Stock All Directors and
Executive Officers
as a group 6,769,762 Shares (18) 15.9%
</TABLE>
(1) The address of each person, except as noted, is c/o Berkshire Realty
Company, Inc., 470 Atlantic Avenue, Boston, Massachusetts 02210.
(2) Information relating to beneficial ownership is based upon information
furnished by each person (except for Cudd & Co., Westbrook Berkshire Holdings,
L.L.C., and Westbrook Berkshire Co-Holdings, L.L.C) using "beneficial ownership"
concepts set forth in rules of the Securities and Exchange Commission (the
"SEC") under Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under those rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power" which includes
the power to vote or to direct the voting of such security, or "investment
power," which includes the power to dispose or to direct the disposition of such
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership (such as by
exercise of options) within 60 days. Under such rules, more than one person may
be deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may disclaim
any beneficial interest. Except as indicated in other notes to this table,
directors and executive officers possessed sole voting and investment power with
respect to all shares of Common Stock referred to in the table. Information with
respect to Cudd & Co., Westbrook Berkshire Holdings, L.L.C. and Westbrook
Berkshire Co-Holdings, L.L.C.is based on the Company's stock ledger records.
(3) Any Common Stock not outstanding which is subject to options or
conversion privileges which the beneficial owner had the right to exercise as of
March 2, 1998 or within 60 days thereof shall be deemed outstanding for purposes
of computing the percentage of Common Stock owned by such beneficial owner but
shall not be deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by any other beneficial owner.
However, for
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<PAGE>
purposes of determining the percentage of Common Stock owned by the Directors
and Executive Officers as a group, any Common Stock not outstanding which is
subject to options or conversion privileges which a member of the group had the
right to exercise as of March 2, 1998 or within 60 days thereafter shall be
deemed outstanding for purposes of computing the percentage of ownership of the
group.
(4) Mr. Kazilionis is an indirect beneficial owner of the 2,082,883 shares of
Preferred Stock held by Westbrook Berkshire Holdings, L.L.C. and the 254,117
shares of Preferred Stock held by Westbrook Berkshire Co-Holding, L.L.C., by
virtue of being the managing principal of Westbrook Real Estate Partners,
L.L.C., an affiliate of Westbrook Berkshire Holdings, L.L.C. and Westbrook
Berkshire Co-Holdings, L.L.C. Mr. Kazilionis has shared voting and investment
powers for these shares.
(5) As described above, holders of the Preferred Stock are entitled to vote
on an "as converted basis" together with the holders of the Common Stock,
(collectively, the "Voting Securities"). The following beneficial owners of
Preferred Stock held greater than 5% of the Voting Securities outstanding as of
March 2, 1998: Paul Kazilionis indirectly held 11.5% of the Voting Securities,
and Westbrook Berkshire Holdings, L.L.C. held 10.2% of the Voting Securities.
(6) The amount owned does not exceed one percent of the Common Stock of the
Company outstanding as of March 2, 1998.
(7) Mr. deWilde directly owns 2,800 shares of Common Stock. In addition, Mr.
deWilde has the right to acquire 14,000 shares of Common Stock pursuant to
Options.
(8) Mr. Finnegan directly owns 700 shares of Common Stock. He disclaims
beneficial ownership of 300 shares of Common Stock owned by his wife. In
addition, Mr. Finnegan has the right to acquire 15,000 shares of Common Stock
pursuant to Options.
(9) Mr. Frew directly owns 42,838 shares of Common Stock. In addition, Mr.
Frew has the right to acquire 36,000 shares of Common Stock pursuant to Options.
(10) Mr. Gerber resigned as the Chief Executive Officer as of February 28,
1997. He directly owns 15,000 shares of Common Stock and he has the right to
acquire 200,000 shares of Common Stock pursuant to Options.
(11) Mr. Goldberg owns no shares directly. Mr. Goldberg has the right to
acquire 14,000 shares of Common Stock pursuant to Options.
(12) Mr. Krupp directly owns 10,100 shares of Common Stock and is an indirect
beneficial owner of the 512,203 shares of Common Stock held by Berkshire Realty
Advisors Limited Partnership, the former advisor to the Company, by virtue of
being a director of BRF Corporation, the general partner of Berkshire Realty
Advisors Limited Partnership. Mr. Krupp disclaims beneficial ownership of 15,950
shares of Common Stock owned by various members of his family. Further, Mr.
Krupp, is an indirect beneficial owner of 5,344,066 units ("Operating
Partnership Units") in BRI OP Limited Partnership ("BRI OP"), the operating
partnership of which the Company is a special limited partner. Typically,
holders of Operating Partnership Units acquire conversion rights one year and
ten days from the date of issuance whereupon the Operating Partnership Units are
redeemable on a one-for-one basis for shares of Common Stock or at the Company's
election, for cash. Of the Operating Partnership Units referred to above,
5,144,066 have acquired conversion rights as of March 2, 1998 or will acquire
such rights within 60 days thereafter. In the case where Mr. Krupp is a
beneficial owner (but not a direct owner) of shares, he has shared voting and
investment powers.
(13) Mr. Marshall directly owns 90,804 shares of Common Stock. He disclaims
beneficial ownership of 6,343 shares of Common Stock owned by various members of
his family. In addition Mr. Marshall has the right to acquire 200,000 shares of
Common Stock pursuant to Options.
(14) Mr. Olney directly owns 45,335 shares of Common Stock. In addition, Mr.
Olney has the right to acquire 45,000 shares of Common Stock pursuant to
Options.
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<PAGE>
(15) Ms. Pritchard directly owns 44,228 shares of Common Stock. In addition,
Ms. Pritchard has the right to acquire 47,000 shares of Common Stock pursuant to
Options.
(16) Mr. Roskind directly owns 15,000 shares of Common Stock. In addition,
Mr. Roskind has the right to acquire 13,000 shares of Common Stock pursuant to
Options.
(17) Mr. Suarez directly owns 3,235 shares of Common Stock. In addition, Mr.
Suarez has the right to acquire 43,500 shares of Common Stock pursuant to
Options.
(18) All Directors and Executive Officers as a group directly or indirectly
own 944,196 shares of Common Stock. In addition, all Directors and Officers as a
group have the right to acquire shares of Common Stock pursuant to 681,500
Options. All Directors and Executive Officers as a group, directly or indirectly
own 5,344,066 Operating Partnership Units in BRI OP. Typically, holders of
Operating Partnership Units acquire conversion rights one year and ten days from
the date of issuance whereupon the Operating Partnership Units are redeemable on
a one-for-one basis for shares of Common Stock or at the Company's election, for
cash. 5,144,066 of these Operating Partnership Units have acquired conversion
rights as of March 2, 1998 or will acquire such rights within 60 days
thereafter.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires Directors and Executive Officers of the Company, and
persons who own more than 10% of the issued and outstanding shares of Common
Stock, to file reports of beneficial ownership with the Securities and Exchange
Commission (the "Commission"). Directors, Executive Officers and greater than
10% stockholders are required by Commission regulation to furnish the Company
copies of all Section 16(a) forms they file.
Based on a review of the copies of the forms furnished to the Company or
representations by reporting persons, all of the filing requirements applicable
to its Executive Officers, Directors and greater than 10% stockholders were met
for the year ended December 31, 1997 except for the late filing by the Company
of two Form 4 reports with respect to two transactions for David deWilde.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described in Item 1 and 7 herein, the Company became self-administered
on March 1, 1996 (see Note C and O to the Notes to the Consolidated Financial
Statements).
As described in Item 1 and 7, the Company became self-managed on February
28, 1997 (see Note D and O to the Notes to the Consolidated Financial
Statements).
Berkshire Property Management, an affiliate of the Company, provided
management services for the Company's multifamily properties, until February 28,
1997, and for the Company's retail properties, for the entire fiscal year. For a
summary of amounts paid to related parties for services rendered and for
reimbursements see Note O to the Consolidated Financial Statements included in
Appendix A.
As a result of the Questar Transaction, as described in Note E to the
Consolidated Financial Statements, the Company was issued a promissory note by
an affiliate of an officer of the Company. The Company also executed a five-year
lease with an affiliate of an officer of the Company. (See Note O to the Notes
to the Consolidated Financial Statements for additional details).
As described in Note P to the Consolidated Financial Statements, the
Company made a loan to the President of the Company.
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Additional information required by Item 402 and 404 of Regulation S-K is
incorporated by reference to the Proxy Statement dated March 31, 1998 filed with
the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Consolidated Financial
Statements, Schedules, and Summary Quarterly Financial Information
included under Item 8, Appendix A, on page F-2 of this report.
2. Financial Statement Schedule - Consolidated Financial Statement
Schedule to the Consolidated Financial Statements are included under
Item 8, Appendix A on pages F-37 through F-52. Certain other
schedules are omitted as they are not applicable or not required or
because the information is provided in the Consolidated Financial
Statements or the Notes thereto.
3. Separate Financial Statements - as required by Rule 3-09 of
Regulation S-X. The separate financial statements and schedule for
Spring Valley Partnership and Brookwood Village Joint Venture are
included under Item 8 (Appendix A) on pages F-54 to F-80 of this
report.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
(2.1) BRI River Oaks First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.1 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(2.2) BRI Newport First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.2 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(2.3) BRI Altamonte First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.3 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(2.4) BRI Huntington Chase First Amended and Restated
Agreement of Limited Partnership, dated May 1, 1995.
[Exhibit 2.4 to Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 1-10660)].*
(2.5) BRI Pointe West First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.5 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(2.6) BRI Timbers First Amended and Restated Agreement of
Limited Partnership, dated May 1, 1995. [Exhibit 2.6 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
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(2.7) BRI Plantation Colony First Amended and Restated
Agreement of Limited Partnership, dated May 1, 1995.
[Exhibit 2.7 to Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 1-10660)].*
(2.8) BRI Southwest Apartments First Amended and Restated
Agreement of Limited Partnership, dated May 1, 1995.
[Exhibit 2.8 to Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 1-10660)].*
(2.9) BRI Texas Apartments First Amended and Restated
Agreement of Limited Partnership, dated May 1, 1995.
[Exhibit 2.9 to Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 1-10660)].*
(2.10) BRI Park Colony - Woodland First Amended and Restated
Agreement of Limited Partnership, dated April 5, 1995.
[Exhibit 2.10 to Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No.
1-10660)].*
(2.11) Amended and Restated Agreement of Limited Partnership of
BRI OP Limited Partnership, dated May 1, 1995. [Exhibit
2.11 to Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-10660)].*
(2.12) Amendment No. 1 to BRI OP Limited Partnership Agreement
among Berkshire Realty Company, Inc. and GN Limited
Partnership, dated October 2, 1995. [Exhibit 2.12 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(2.13) Amendment No. 2 to BRI OP Limited Partnership Agreement
among Berkshire Realty Company, Inc. and GN Limited
Partnership, dated December 15, 1995. [Exhibit 2.13 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(3) Articles of Incorporation and By-Laws.
(3.1) Restated Certificate of Incorporation of the Company
[Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (File No. 33-37592)].*
(3.2) Certificate of Amendment to Restated Certificate of
Incorporation of the Company [Exhibit 3.11 to
Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-4 (File No.
33-37592)].*
(3.3) By-laws of the Company, as amended on February 4, 1993.
[Exhibit 3.3 to Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 10-10660)].*
(3.4) By-laws of Berkshire Realty Company, Inc., as amended on
February 28, 1996. [Exhibit 3.4 to Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(File No. 1-10660)].*
(4) Instruments defining the rights of security holders, including
indentures.
(4.1) Berkshire Realty Company, Inc. Certificate of Common
Stock. [Exhibit 4.1 to Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No.
10-10660)].*
(10) Material Contracts.
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(10.1) Exchange Agreement dated June 27, 1991 between Berkshire
Realty Company, Inc., a Delaware corporation and Krupp
Cash Plus-III Limited Partnership and Krupp Cash Plus-IV
Limited Partnership, each of which is a Massachusetts
limited partnership. [Exhibit 10.6 to Company's Annual
Report on Form 10-K for the year ended December 31, 1991
(File No. 1- 10660)].*
(10.2) Commercial Mortgage Loan and Real Property Purchase
Agreement by and between Resolution Trust Corporation as
conservator for Great American Federal Savings
Association (formerly Great American First Savings Bank)
(the "RTC"), and Berkshire Realty Company, Inc., dated
October 12, 1992. [Exhibit 10.1 to Company's Report on
Form 8-K dated October 14, 1992.(File No. 1-10660)].*
Property Management Agreements
(10.3) Form of Property Management Agreement between the
Company, as Owner, and Krupp Realty Company Limited
Partnership, now known as Berkshire Realty Enterprises
Limited Partnership ("BRE"), as Agent, for Residential
Property [Exhibit 10.1 to the Company's Registration
Statement on Form S-4 (File No. 33-37592)].*
(10.4) Form of Property Management Agreement between the
Company, as Owner, and BRE, as Agent, for Commercial
Property [Exhibit 10.2 to the Company's Registration
Statement on Form S-4 (File No. 33-37592)].*
Advisory Services Agreement
(10.5) Advisory Services Agreement dated October 22, 1990
between the Company and Krupp Realty Advisors Limited
Partnership, now known as Berkshire Realty Advisors
Limited Partnership (the "Advisor") [Exhibit 10.37 to
the Company's Registration Statement on Form S-4 (File
No. 33-37592)].*
(10.6) Amendment No. 1 to Advisory Services Agreement dated
December 10, 1990, between the Company and the Advisor
[Exhibit 10.40 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-4 (File No.
33-37592)].*
(10.7) Amendment No. 2 to the Advisory Services Agreement dated
January 31, 1991 between the Company and the Advisor.
[Exhibit 10.5 to Company's Annual Report on Form 10-K
for the year ended December 31, 1991 (File No.
1-10660)].*
(10.8) Amendment No. 3 to the Advisory Services Agreement dated
January 31, 1991 between the Company and the Advisor as
of May 4, 1994. [Exhibit 10.8 to Company's Annual Report
on Form 10-K for the year ended December 31, 1994 (File
No. 1-10660)].*
Credit Agreement
(10.9) 1992 Credit Agreement among the Company and The First
National Bank of Boston, NationsBank of Texas, N.A. and
Other Banks which may become parties to this Agreement
and The First National Bank of Boston, as Agent dated as
of December 30, 1992. [Exhibit 10.2 to Company's Annual
Report on form 10K for the year ended December 31, 1993.
(File No. 1-10660)].*
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<PAGE>
(10.10) Amendment No. 1 to 1992 Credit Agreement among the
Company and The First National Bank of Boston and
NationsBank of Texas, N.A. as of May 28, 1993. [Exhibit
10.10 to Company's Annual Report on Form 10-K for the
year ended December 31, 1993. (File No. 1-10660)].*
(10.11) Amendment No. 2 to 1992 Credit Agreement among the
Company and The First National Bank of Boston and
NationsBank of Texas, N.A. as of December 1, 1993.
[Exhibit 10.11 to Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (File No.
1-10660)].*
(10.12) Amendment No. 3 to 1992 Credit Agreement among the
Company and The First National Bank of Boston and
NationsBank of Texas, N.A. as of January 7, 1994.
[Exhibit 10.12 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
(10.13) Amendment No. 4 to 1992 Credit Agreement among the
Company and the First National Bank of Boston and
NationsBank of Texas, N.A. as of March 1, 1994. [Exhibit
10.13 to Company's Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-10660)].*
(10.14) Amendment No. 5 to 1992 Credit Agreement among the
Company and the First National Bank of Boston and
NationsBank of Texas, N.A. as of May 1, 1994. [Exhibit
10.14 to Company's Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-10660)].*
(10.15) Amendment No. 6 to 1992 Credit Agreement among The
Company and the First Nation Bank of Boston and
NationsBank of Texas, N.A. as of August 12, 1994.
[Exhibit 10.15 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
(10.16) Amendment No. 7 to 1992 Credit Agreement among The
Company and the First Nation Bank of Boston and
NationsBank of Texas, N.A. as of August 25, 1994.
[Exhibit 10.16 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
(10.17) Amended 1992 Credit Agreement among Berkshire Realty
Company, Inc., BRI OP Limited Partnership and The First
National Bank of Boston and NationsBank of Texas, NA as
of November 21, 1995. [Exhibit 10.17 to Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(File No. 1-10660)].*
(10.18) Master Credit Facility Agreement by and among BRI OP
Limited Partnership, Berkshire Realty Company, Inc., BRI
River Oaks Limited Partnership and Washington Mortgage
Financial Group, LTD., dated November 17, 1995. [Exhibit
10.18 to Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-10660)].*
(10.19) Exhibits to the Master Credit Facility Agreement among
BRI OP Limited Partnership, Berkshire Realty Company,
Inc., BRI River Oaks Limited Partnership and Washington
Mortgage Financial Group, LTD, dated November 17, 1995.
[Exhibit 10.19 to Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No.
1-10660)].*
(10.20) Amendment No. 1 of Amended and Rested 1992 Credit
Agreement among the Company and The First National Bank
of Boston and
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<PAGE>
NationsBank of Texas, N.A. as of March 1, 1996. [Exhibit
10.1 to Company's Form 10-Q for the quarter ended
September 30, 1996 (File No. 1-10660)].*
(10.21) Amendment No. 2 of Amended and Rested 1992 Credit
Agreement among the Company and The First National Bank
of Boston and NationsBank of Texas, N.A. as of March 1,
1996. [Exhibit 10.2 to Company's Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-10660)].*
(10.22) Amendment No. 3 of Amended and Restated 1992 Credit
Agreement among the Company and The First National Bank
of Boston and Mellon Bank, N.A. as of June 26, 1996.
[Exhibit 10.3 to Company's Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-10660)].*
(10.23) Amendment No. 4 of Amended and Restated 1992 Credit
Agreement among the Company and The First National Bank
of Boston and Mellon Bank, N.A. as of July 16, 1996.
[Exhibit 10.4 to Company's Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-10660)].*
(10.24) First Amendment to Master Credit Facility Agreement
among BRI OP L.P., BRI River Oaks L.P., BRI Texas
Apartments L.P. and Hidden Oaks Partnership and
Washington Mortgage Financial Group, LTD and Federal
National Mortgage Association as of March, 1996.
[Exhibit 10.5 to Company's Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-10660)].*
MORTGAGE NOTES PAYABLE:
Kidder Peabody Mortgage Capital Corporation
(10.25) Master Loan Agreement among BRI Huntington Chase, Inc.,
BRI Timbers, Inc., BRI Altamonte, Inc., BRI Newport,
Inc. and BRI Point West, Inc., collectively, as
Borrowers and Kidder Peabody Mortgage Capital
Corporation dated March 31, 1994. [Exhibit 10.17 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-10660)].*
(10.26) Mortgage Note among BRI Altamonte, Inc. and Kidder
Peabody Mortgage Capital Corporation date March 31,
1994. [Exhibit 10.18 to Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.27) Security Deed Note among BRI Huntington Chase, Inc. and
Kidder Peabody Mortgage Capital Corporation dated March
31, 1994. [Exhibit 10.19 to Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.28) Mortgage Note among BRI Newport, Inc. and Kidder Peabody
Mortgage Capital Corporation dated March 31, 1994.
[Exhibit 10.20 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
(10.29) Mortgage Note among BRI Point West, Inc. and Kidder
Peabody Mortgage Capital Corporation dated March 31,
1994.[Exhibit 10.21 to Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.30) Deed of Trust among BRI Timbers, Inc. and Kidder Peabody
Mortgage Capital Corporation dated March 31, 1994.
[Exhibit 10.22 to Company's Annual Report on Form 10-K
for the year
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<PAGE>
ended December 31, 1994 (File No. 1-10660)].*
FNMA
(10.31) Multi-Family Note Agreement among The Avalon on
Abernathy Apartments and Washington Capital DUS, Inc.,
dated May 11, 1994. [Exhibit 10.23 to Company's Annual
Report on Form 10-K for the year ended December 31, 1994
(File No. 1-10660)].*
(10.32) Multi-Family Note Agreement among Southpoint at
Massepequa Apartments and Washington Capital DUS, Inc.,
dated May 11, 1994. [Exhibit 10.24 to Company's Annual
Report on Form 10-K for the year ended December 31, 1994
(File No. 1-10660)].*
(10.33) Multi-Family Note Agreement among Eastlake Village
Apartments and Washington Capital DUS, Inc., dated May
11, 1994. [Exhibit 10.25 to Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.34) Multi-Family Note Agreement among Lakes of Jacaranda
Apartments and Washington Capital DUS, Inc., dated June
22, 1994. [Exhibit 10.26 to Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.35) Multi-Family Note Agreement among Huntington Downs
Apartments and Washington Capital DUS, Inc., dated June
22, 1994. [Exhibit 10.27 to Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.36) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Huntington Downs and Washington Capital
DUS, Inc., dated as of June 15, 1994. [Exhibit 10.28 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-10660)].*
(10.37) Multi-Family Deed of Trust, Assignment of Rents and
Security Agreement among Eastlake Village Apartments,
dated as of May 11, 1994. [Exhibit 10.29 to Company's
Annual Report on Form 10-K for the year ended December
31, 1994 (File No. 1- 10660)].*
(10.38) Multi-Family Deed to Secure Debt, Assignment of Rents
and Security Agreement among Avalon on Abernathy
Apartments and Washington Capital DUS, Inc., dated May
11, 1994. [Exhibit 10.30 to Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-10660)].*
(10.39) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Southpoint at Massepequa Apartments and
Washington Capital DUS, Inc., dated May 11, 1994.
[Exhibit 10.31 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
(10.40) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Lakes of Jacaranda Apartments and
Washington Capital DUS, Inc., dated May 15, 1994.
[Exhibit 10.32 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
Plantation Colony
(10.41) Multi-Family Note Agreement among Plantation Colony
Business Trust and Washington Capital DUS, Inc., dated
June 22, 1994. [Exhibit 10.33 to Company's Annual Report
on Form 10-K for the year ended December 31, 1994 (File
No. 1-10660)].*
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<PAGE>
(10.42) Financing Agreement by and among Florida Housing Finance
Agency, Washington Capital DUS, Inc., and Plantation
Colony Business Trust, date as of September 1, 1994.
[Exhibit 10.34 to Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No.
1-10660)].*
Park Colony
(10.43) Assumption Agreement and consent to sale of project
dated July 13, 1994 between Florida Housing Finance
Agency and SunBank, National Association and BRI Park
Colony, Inc. [Exhibit 10.35 to Company's Annual Report
on Form 10-K for the year ended December 31, 1994 (File
No. 1-10660)].*
(10.44) Multi-Family Mortgage, Assignment of Rents and Security
Agreement among Hollywood Associates and Florida Housing
Finance Agency, dated December 1, 1985. [Exhibit 10.36
to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10660)].*
(10.45) Loan Agreement between Florida Housing Finance Agency
and BRI Park Colony - Woodland Limited Partnership dated
April 1, 1995. [Exhibit 10.40 to Company's Annual Report
on Form 10-K for the year ended December 31, 1995 (File
No. 1- 10660)].*
(10.46) Reimbursement Agreement among BRI Park Colony - Woodland
Limited Partnership and Mellon Bank, N.A., dated April
1, 1995. [Exhibit 10.41 to Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No.
1-10660)].*
(10.47) First Amendment to Reimbursement Agreement among Park
Colony - Woodland Limited Partnership and Mellon Bank,
N.A., dated November 1, 1995. [Exhibit 10.42 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(10.48) First Supplemental to Loan Agreement between Florida
Housing Finance Agency and BRI Park Colony - Woodland
Limited Partnership dated October 1, 1995. [Exhibit
10.43 to Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-10660)].*
Kings Crossing
(10.49) Promissory Note Agreement among BRI Texas Apartments
Limited Partnership and Life Insurance Company of
Georgia, dated May 9, 1995. [Exhibit 10.44 to Company's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1- 10660)].*
(10.50) Deed of Trust and Security Agreement among BRI Texas
Apartments Limited Partnership and Life Insurance
Company of Georgia, dated May 9, 1995. [Exhibit 10.45 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(10.51) Assignment of Leases and Rents among BRI Texas
Apartments Limited Partnership and Life Insurance
Company of Georgia, dated May 9, 1995. [Exhibit 10.46 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
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<PAGE>
Kingwood Lakes
(10.52) Promissory Note Agreement among BRI Texas Apartments
Limited Partnership and Security Life of Denver
Insurance Company, dated May 9, 1995. [Exhibit 10.47 to
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660)].*
(10.53) Deed of Trust and Security Agreement among BRI Texas
Apartments Limited Partnership and Security Life of
Denver Insurance Company, dated May 9, 1995. [Exhibit
10.48 to Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-10660)].*
(10.54) Assignment of Leases and Rents among BRI Texas
Apartments and Security Life of Denver Insurance
Company, dated May 9, 1995. [Exhibit 10.49 to Company's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-10660)].*
Other Debt
(10.55) Master Repurchase Agreement; Annex I: Supplemental Terms
and Conditions; and Annex II: Names and Addresses; dated
January 9, 1992 between the Company, a Delaware
corporation and The First Boston Corporation. [Exhibit
10.7 to Company's Annual Report on Form 10-K for the
year ended December 31, 1991 (File No. 1-10660)].*
(10.56) Interest Rate Swap Master Agreement among BRI OP Limited
Partnership and The First National Bank of Boston, dated
October 31, 1995. [Exhibit 10.51 to Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(File No. 1-10660)].*
(10.57) Schedule to the Interest Rate Swap Master Agreement
among BRI OP Limited Partnership and The First National
Bank of Boston, dated October 31, 1995. [Exhibit 10.52
to Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-10660)].*
Financial Data Schedules
(27.1) Financial Data Schedule - December 31, 1997+
(27.2) Financial Data Schedule - December 31, 1996+
(27.3) Financial Data Schedule - December 31, 1995+
Reports on Form 8-K
(a) Exhibits
10.1 Contribution Agreement by and between Turtle Creek
Associates Limited Partnership and BRI OP Limited
Partnership, dated April 8, 1996. [Exhibit 10.1 to
Company's Report on Form 8-K/A dated July 29, 1996 (File
No. 1-10660)].*
10.2 BRI The Point Agreement of Limited Partnership by and
between BRI Texas Apartments Limited Partnership and BRI
OP Limited Partnership. [Exhibit 10.2 to Company's
Report on Form 8-K/A dated July 29, 1996 (File No.
1-10660)].*
10.3 First Amendment to BRI The Point Limited Partnership
Agreement by and between BRI Texas Apartments Limited
Partnership and BRI OP Limited Partnership, dated March
15, 1996. [Exhibit 10.3 to Company's Report on Form
8-K/A dated July 29, 1996 (File No. 1-10660)].*
10.4 Certificate of Limited Partnership of BRI The Point
Limited Partnership dated October 20, 1995. [Exhibit
10.4 to Company's Report on Form 8-K/A dated July 29,
1996 (File No. 1-10660)].*
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<PAGE>
10.5 Agreement of Release, Assumption of Deed of Trust Note,
Deed of Trust and Regulatory Agreement by and among
Turtle Creek Associates Limited Partnership, BRI The
Point Limited Partnership and Berkshire Mortgage Finance
Corporation, dated March 20, 1996. [Exhibit 10.5 to
Company's Report on Form 8-K/A dated July 29, 1996 (File
No. 1-10660)].*
10.6 Deed of Trust by and between Turtle Creek Associates
Limited Partnership and Berkshire Mortgage Finance
Corporation, dated March 14, 1994. [Exhibit 10.6 to
Company's Report on Form 8-K/A dated July 29, 1996 (File
No. 1-10660)].*
10.7 Deed of Trust Note by and between Turtle Creek
Associates Limited Partnership and Berkshire Mortgage
Finance Corporation, dated March 14, 1994. [Exhibit 10.7
to Company's Report on Form 8-K/A dated July 29, 1996
(File No. 1-10660)].*
10.8 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Third
Rolling Road Associates Limited Partnership (Third
Rolling Road/Coventry) and Questar Investment
Corporation dated as of August 25, 1997.*
10.9 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Williston
Associates and Questar Investment Corporation dated as
of August 25, 1997.*
10.10 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Ridgeview
Chase Associates Limited Partnership and Questar
Investment Corporation dated as of August 25, 1997.*
10.11 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Second
Kingswood Common Associates Limited Partnership and
Questar Investment Corporation dated as of August 25,
1997.*
10.12 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Frederick
Road Associates (Jamestown) and Questar Investment
Corporation dated as of August 25, 1997.*
10.13 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Gorn
Properties, Inc. (Hilltop) and Questar Investment
Corporation dated as of August 25, 1997.*
10.14 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Rolling
Road Associates (Heraldry Square) and Questar Investment
Corporation dated as of August 25, 1997.*
10.15 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Tremaine
Associates Limited Partnership (Henley/Rolling Wind) and
Questar Investment Corporation dated as of August 25,
1997.*
10.16 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of
Plainfield Associates (Hazelcrest) and Questar
Investment Corporation dated as of August 25, 1997.*
10.17 Contribution Agreement dated as of August 25, 1997 among
BRI
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<PAGE>
OP Limited Partnership and the partners of Fourth
Rolling Road Associates Limited Partnership (Fourth
Rolling Road/Courtleigh), 19 West Lexington Street
Limited Partnership and Questar Investment Corporation
dated as of August 25, 1997.*
10.18 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Purnell
Associates (Fairway Ridge) and Questar Investment
Corporation dated as of August 25, 1997.*
10.19 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Stratton
Associates Limited Partnership, Fairbrook Associates
Limited Partnership (Fairbrook/Stratton Meadows) and
Questar Investment Corporation dated as of August 25,
1997.*
10.20 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Diamond
Ridge Associates Limited Partnership and Questar
Investment Corporation dated as of August 25, 1997.*
10.21 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Citadel
Associates Limited Partnership, Calvert's Walk
Associates Limited Partnership and Questar Investment
Corporation dated as of August 25, 1997.*
10.22 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Caliber
Associates Limited Partnership, Arborview Associates
Limited Partnership and Questar Investment Corporation
dated as of August 25, 1997.*
10.23 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Estates
II Funding Corporation, The Estates Limited Partnership
and Questar Investment Corporation dated as of August
25, 1997.*
10.24 Contribution Agreement dated as of August 25, 1997 among
BRI OP Limited Partnership and the partners of Warren
Park Associates and Questar Investment Corporation dated
as of August 25, 1997.*
10.25 Agreement and Plan of Merger among Berkshire Realty
Company, Inc., Questar Property Management Corporation
and its Shareholders dated as of August 25, 1997.*
10.26 Agreement and Plan of Merger among Berkshire Realty
Company, Inc., Questar Management Company and its
Shareholders dated as of August 25, 1997.*
10.27 Agreement and Plan of Merger among Berkshire Realty
Company, Inc., Kingswood Management Company and its
Shareholders dated as of August 25, 1997.*
10.28 Agreement and Plan of Merger among Berkshire Realty
Company, Inc., Vector Property Management Company and
its Shareholders dated as of August 25, 1997.*
10.29 Agreement and Plan of Merger among Berkshire Realty
Company, Inc., Gorn Management Company and its
Shareholders dated as of August 25, 1997.*
10.30 Agreement and Plan of Merger among Berkshire Realty
Company,
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<PAGE>
Inc., Arborview Management Company and its Shareholders
dated as of August 25, 1997.*
10.31 Form of Development Acquisition Agreement among Questar
Properties, Inc., Stephen M. Gorn, John B. Colvin and
BRI OP Limited Partnership.*
10.32 Development Contribution Agreement (Avalon 1,3,4) among
Stephen Gorn, John B. Colvin and BRI OP Limited
Partnership dated as of August 25, 1997.*
10.33 Development Contribution Agreement (Liriope) among
Stephen Gorn, John B. Colvin and BRI OP Limited
Partnership dated as of August 25, 1997.*
10.34 Development Contribution Agreement (Granite Run) among
Stephen Gorn, John B. Colvin and BRI OP Limited
Partnership dated as of August 25, 1997.*
10.35 Development Contribution Agreement (Avalon 2) among
Stephen Gorn, John B. Colvin and BRI OP Limited
Partnership dated as of August 25, 1997.*
10.36 Form of Registration Rights Agreement among Berkshire
Realty Company, Inc. and certain partners of BRI OP
Limited Partnership.*
10.37 Loan Agreement between BRI OP Limited Partnership and
GGC, L.L.C. dated as of August 25, 1997.*
10.38 Consent of Coopers & Lybrand L.L.P. Independent
Accountants.*
10.39 Consent of KPMG Peat Marwick LLP, Independent
Accountants.*
10.40 Bylaws as amended of Berkshire Realty Company, Inc.*
10.41 Certificate of Designation designating 2,737,000 shares
of Preferred Stock of 2,737,000 shares of Series 1997-A
Convertible Preferred Stock (par value $0.01 per share)
dated September 30, 1997.*
10.42 Loan Agreement between BRI OP Limited Partnership and
GGC, L.L.C, dated as of August 25, 1997.*
10.43 Stock Purchase Agreement among Berkshire Realty Company,
Inc., Westbrook Real Estate Fund II, L.P. and Westbrook
Berkshire Holdings, L.L.C. dated as of September 19,
1997.*
10.44 Exchange and Amendment Agreement among Berkshire Realty
Company, Inc., Westbrook Berkshire Holdings, L.L.C. and
Morgan Stanley Asset Management, Inc., as attorney in
fact for certain clients, dated as of September 30,
1997.*
10.45 Registration Rights Agreement between Berkshire Realty
Company, Inc. And Westbrook Berkshire Holdings, L.L.C.*
10.46 Underwriting Agreement between Berkshire Realty Company,
Inc. And Lehman Brothers, Inc., as representative of the
Co-Managers dated November 4, 1997.*
10.47 Opinion of Peabody & Brown as to tax matters.*
10.48 Consent of Coopers & Lybrand LLP.*
-41-
<PAGE>
10.49 Consent of KPMG Peat Marwick LLP.*
10.50 Consent of M/PF Research, Inc.*
10.51 Consent of Peabody & Brown (included in Exhibit 8).*
* Incorporated by reference.
+ Filed herein.
(b) Reports on Form 8-K
Date Event Reported Financial Statements
---- -------------- --------------------
October 15, 1997 Changes in Control of Yes
Registrant
Acquisition of Assets
Other Events
October 15, 1997 Prospectus Supplement None
October 24, 1997 Earnings Release Yes
Reports on Form 8-K/A
Date Event Reported Financial Statements
---- -------------- --------------------
November 5, 1997 Property Acquisition None
November 5, 1997 Prospectus Supplement None
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1998.
BERKSHIRE REALTY COMPANY, INC.
By: /s/Douglas Krupp
----------------
Douglas Krupp, Chairman of the Board
and Director of Berkshire Realty
Company, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 30th day of March, 1998.
Signatures Title(s)
- ---------- --------
/s/ David Marshall President, Chief Executive Officer and
- ---------------------------- Director of Berkshire Realty Company, Inc.
David Marshall
/s/ Marianne Pritchard Executive Vice President and Chief Financial
- ---------------------------- Officer of Berkshire Realty Company, Inc.
Marianne Pritchard
/s/ J. Paul Finnegan Director of Berkshire Realty Company, Inc.
- ---------------------------
J. Paul Finnegan
/s/ Charles N. Goldberg Director of Berkshire Realty Company, Inc.
- ---------------------------
Charles N. Goldberg
/s/ E. Robert Roskind Director of Berkshire Realty Company, Inc.
- ---------------------------
E. Robert Roskind
/s/ David M. deWilde Director of Berkshire Realty Company, Inc.
- ---------------------------
David M. deWilde
/s/ Terrance R. Ahern Director of Berkshire Realty Company, Inc.
- ---------------------------
Terrance R. Ahern
/s/ Paul D. Kazilionis Director of Berkshire Realty Company, Inc.
- ---------------------------
Paul D. Kazilionis
/s/ Arthur P. Solomon Director of Berkshire Realty Company, Inc.
- ---------------------------
Arthur P. Solomon
-43-
<PAGE>
APPENDIX A
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
__________
CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND SUMMARY QUARTERLY
FINANCIAL INFORMATION
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1997
F-1
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND
SUMMARY QUARTERLY FINANCIAL INFORMATION
__________________
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-5 - F-6
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-7 - F-8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-9 - F-11
Notes to Consolidated Financial Statements F-12 - F-36
Schedule III - Real Estate and Accumulated Depreciation F-37 - F-52
Summary Quarterly Financial Information (Unaudited) F-53
Separate Financial Statements - Brookwood Village Joint Venture F-54 - F-67
- Spring Valley Marketplace F-68 - F-80
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the consolidated financial statements or the
notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Berkshire Realty Company, Inc. and Subsidiaries:
We have audited the consolidated financial statements and the financial
statement schedule of Berkshire Realty Company, Inc. and Subsidiaries (the
"Company") listed in the index on page F-2 of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Company's management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Berkshire
Realty Company, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects,
the information required to be included therein.
As discussed in Note F to the consolidated financial statements, the
Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", effective January 1, 1996.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 16, 1998, except
for Note V, for which the
date is February 27, 1998
F-3
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
------
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ --------
<S> <C> <C>
Real estate assets: (Note F)
Multifamily apartment complexes, net of
accumulated depreciation $715,696,151 $430,936,889
Retail centers, net of accumulated depreciation - 11,064,630
Investments in unconsolidated joint ventures
(Note G) 15,618,657 36,036,723
Mortgage loan receivable,
net of purchase discounts (Note H) 2,323,285 2,268,241
Land and construction-in-progress 15,185,969 4,035,820
Land held for future development 5,818,105 2,331,988
Retail centers held for sale, net of
accumulated depreciation 14,404,782 30,556,482
------------ ------------
Total real estate assets 769,046,949 517,230,773
Cash and cash equivalents 9,859,110 7,015,953
Mortgage-backed securities, net ("MBS") (Note J) 7,511,789 9,232,956
Notes receivable (Note I) 7,500,000 1,826,000
Escrows 15,088,587 11,096,213
Deferred charges and other assets 14,932,272 10,940,879
Workforce and other intangible assets,
net of accumulated amortization (Note C and D) 22,481,224 12,327,039
------------ ------------
Total assets $846,419,931 $569,669,813
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Credit agreements (Note K) $ 75,345,000 $136,060,000
Mortgage notes payable (Note L) 305,465,004 149,805,607
Repurchase agreement (Note M) - 9,300,000
Tenant security deposits and prepaid rents 4,888,022 2,443,716
Accrued real estate taxes, insurance, other
liabilities and accounts payable (Note Q) 17,389,965 11,797,967
------------ ------------
Total liabilities 403,087,991 309,407,290
------------ ------------
Minority interest in Operating
Partnership (Note N) 75,137,066 36,608,607
Commitments and contingencies (Notes E and Q) - -
Shareholders' equity:
Preferred stock ("Preferred Shares"),
$0.01 par value; 60,000,000 shares
authorized, 2,737,000 shares issued (Note U) 27,370 -
Common stock ("Shares"), $0.01 par value;
140,000,000 Shares authorized and
36,841,098 and 25,899,865 Shares issued,
respectively (Note U) 368,411 258,998
Additional paid-in capital 394,838,797 239,446,270
Accumulated deficit (24,396,629) (14,308,277)
Loan receivable - officer (Note P) (900,000) -
Less common stock in treasury at cost
(506,497 Shares) (1,743,075) (1,743,075)
------------ ------------
Total shareholders' equity 368,194,874 223,653,916
------------ ------------
Total liabilities and shareholders' equity $846,419,931 $569,669,813
============ ============
</TABLE>
The accompanying Notes are an integral
part of the Consolidated Financial Statements.
F-4
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- ---------
<S> <C> <C> <C>
Revenue:
Rental $109,973,608 $ 89,450,647 $70,068,230
Management fees and
reimbursements (Note D) 3,157,516 - -
Interest from mortgage loans and
notes receivable (Notes H and I) 608,825 1,876,519 2,162,890
Interest income from MBS 765,196 942,191 1,154,336
Other interest income 993,917 732,309 1,055,963
------------ ----------- -----------
Total revenue 115,499,062 93,001,666 74,441,419
------------ ------------ -----------
Expenses:
Property operating (Note O) 25,646,048 21,424,717 17,989,860
Repairs and maintenance 8,064,849 6,647,344 4,920,685
Real estate taxes 10,042,100 8,653,898 7,015,706
Property management fees to an
affiliate (Note D) 902,931 4,324,843 3,421,107
Property management operations 5,564,851 1,302,352 -
Depreciation and amortization 35,272,775 29,050,960 21,983,582
Amortization of workforce
acquired (Notes C and D) 8,042,554 1,120,640 -
Costs associated with
Advisor Transaction (Note C) 2,400,000 - -
Provision for losses on real
estate investments (Note F) 1,850,000 7,500,000 -
General and administrative
(Notes C and O) 5,065,015 3,632,078 1,083,948
Interest (Notes K, L and M) 24,005,605 20,500,533 15,618,224
State and corporate franchise taxes 334,003 367,563 11,993
Professional fees 345,234 254,000 259,891
Non-recurring charges - 441,783 1,727,768
Asset management fees to an
affiliate (Note C) - 392,636 1,565,546
------------ ------------ -----------
Total expenses 127,535,965 105,613,347 75,598,310
------------ ------------ -----------
Loss from operations before
joint venture income
(loss), gains on sales of
assets, gains on payoff of
mortgage loans, minority
interest and extraordinary items (12,036,903) (12,611,681) (1,156,891)
Joint venture income (loss) (4,910,021) (3,008,587) 1,407,025
Gains on sales of assets 6,454,717 58,263 14,428,338
Gains on payoff of mortgage loans - - 1,175,083
Minority interest in
Operating Partnership (Note N) 2,153,506 1,403,000 (166,587)
------------ ------------ -----------
Income (loss) before
extraordinary items (8,338,701) (14,159,005) 15,686,968
Extraordinary items, net of
minority interest (90,345) (149,272) (900,926)
------------ ------------ -----------
Net income (loss) (8,429,046) (14,308,277) 14,786,042
Income allocated to preferred
shareholders (1,659,306) - -
------------ ------------ -------
Net income (loss) allocated to
common shareholders $(10,088,352) $(14,308,277) $14,786,042
============ ============ ===========
</TABLE>
Continued
F-5
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Earnings per common share (basic and diluted)(Note R):
Income (loss) before
extraordinary item $ (.37) $ (.56) $ .62
====== ====== =====
Net income (loss) per
common share $ (.37) $ (.56) $ .58
====== ====== =====
Weighted average shares 27,099,522 25,393,147 25,392,621
========== ========== ==========
</TABLE>
F-6
<PAGE>
The accompanying Notes are an integral
part of the Consolidated Financial Statements.
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Series 1997-A Convertible Additional Accumulated
Preferred Stock at par Common Stock at par Paid-in Capital Deficit
---------------------- ------------------- --------------- -----------
Shares Amount Shares Amount
---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 - $ - 25,391,928 $258,984 $270,075,107 $ -
Net income - - - - - 14,786,042
Proceeds from the
exercise of
stock warrants - - 1,023 10 10,087 -
Dividends - - - - (7,813,496) (14,786,042)
--------- ------- ---------- -------- ------------ ------------
Balance,
December 31, 1995 - - 25,392,951 258,994 262,271,698 -
Net loss - - - - - (14,308,277)
Proceeds from the
exercise of
stock warrants - - 417 4 5,880 -
Stock option
grants - - - - 22,584 -
Dividends - - - - (22,853,892) -
--------- ------- ---------- -------- ------------ ---------
Balance,
December 31, 1996 - - 25,393,368 258,998 239,446,270 (14,308,277)
<CAPTION>
Loan
Receivable- Treasury
Officer Stock at cost Total
----------- ------------- -----
Balance,
December 31, 1994 $ - $(1,743,075) $268,591,016
Net income - - 14,786,042
Proceeds from the
exercise of
stock warrants - - 10,097
Dividends - - (22,599,538)
- --------- ----------- ------------
Balance,
December 31, 1995 - (1,743,075) 260,787,617
Net loss - - (14,308,277)
Proceeds from the
exercise of
stock warrants - - 5,884
Stock option
grants - - 22,584
Dividends - - (22,853,892)
- --------- ----------- ------------
Balance,
December 31, 1996 - (1,743,075) 223,653,916
</TABLE>
Continued
F-7
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(Continued)
<TABLE>
<CAPTION>
Series 1997-A Convertible Additional Accumulated
Preferred Stock at par Common Stock at par Paid-in Capital Deficit
---------------------- ------------------- --------------- -----------
Shares Amount Shares Amount
---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 - - 25,393,368 258,998 239,446,270 (14,308,277)
Net loss - - - - - (8,429,046)
Issuance of
Preferred Shares
(Note U) 2,737,000 27,370 - - 65,849,295 -
Preferred dividends (1,659,306)
Stock option
grants (Note P) - - - - 22,584 -
Issuance of Common
Shares (Note U) - - 10,490,875 104,909 108,704,101 -
Conversion of Units to
Common Shares (Note N) - - 448,863 4,489 4,246,715 -
Stock purchase
loan, net (Note P) - - - - - -
Proceeds from the
exercise of
stock warrants - - 1,495 15 17,611 -
Dividends - - - - (23,447,779) -
--------- ------- ---------- -------- ------------- -----------
Balance,
December 31, 1997 2,737,000 $27,370 36,334,601 $368,411 $394,838,797 $(24,396,629)
========= ======= ========== ======== ============ ============
<CAPTION>
Loan
Receivable- Treasury
Officer Stock at cost Total
----------- ------------- -----
<S> <C> <C> <C>
Balance,
December 31, 1996 - (1,743,075) 223,653,916
Net loss - - (8,429,046)
Issuance of
Preferred Shares
(Note U) - - 65,876,665
Preferred dividends (1,659,306)
Stock option
grants (Note P) - - 22,584
Issuance of Common
Shares (Note U) - - 108,809,010
Conversion of Units to
Common Shares (Note N) - - 4,251,204
Stock purchase
loan, net (Note P) (900,000) - (900,000)
Proceeds from the
exercise of
stock warrants - - 17,626
Dividends - - (23,447,779)
--------- ----------- ------------
Balance,
December 31, 1997 $(900,000) $(1,743,075) $368,194,874
========= =========== ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-8
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS For the Years Ended
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (8,429,046) $(14,308,277) $ 14,786,042
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 35,272,775 29,050,960 21,983,582
Amortization of intangible assets 8,042,554 1,120,640 -
Costs associated with Advisor
Transaction 2,400,000 - -
Provision for losses on real
estate investments 1,850,000 7,500,000 -
Joint venture (income) loss 4,910,021 3,008,587 (1,407,025)
Distributions received from
joint venture earnings - - 1,407,025
Gains on sales of assets (6,454,717) (58,263) (15,603,421)
Non-employee stock options 22,584 22,584 -
Stock purchase loan forgiveness 100,000 - -
Amortization of purchase discounts (144,558) (511,976) (535,401)
Costs associated with the
refinancing of debt - - 253,500
Minority interest in
Operating Partnership (2,153,506) (1,403,000) 166,587
Write-off of deferred financing
costs, net 24,828 149,272 647,426
Amortization of deferred
financing costs 1,427,429 1,052,283 1,446,242
(Increase) decrease in escrows
and other assets (4,242,387) (2,470,167) 2,550,889
Increase (decrease) in accrued
real estate taxes, other
liabilities and accounts payable 3,461,998 3,952,223 (298,263)
Increase (decrease) in tenant
security deposits and
prepaid rents 2,444,306 399,924 (348,768)
------------ ------------ ------------
Net cash provided by
operating activities 38,532,281 27,504,790 25,048,415
------------ ------------ ------------
Investing activities:
Costs to acquire properties (96,589,327) (37,894,563) (48,905,137)
Land acquisition and
construction-in-progress (16,207,482) (13,512,645) (18,618,220)
Proceeds from sales of properties 38,415,017 19,580,079 61,020,687
Recurring capital expenditures (4,569,573) (4,397,131) (3,166,208)
Rehabilitation and non-recurring
capital expenditures (15,642,973) (15,900,996) (8,389,316)
Notes receivable (7,500,000) - -
Distributions from the sale of
joint venture asset 7,945,667 - -
Distributions received from joint
ventures in excess of earnings 1,481,615 2,644,533 1,491,919
Contributions to joint venture (2,150,000) - -
Acquisition of mortgage loans - - (28,083,544)
Proceeds from the payoff of
mortgage loans - 15,324,802 17,296,112
Principal collections on MBS 1,733,674 2,360,929 1,761,562
Principal collections on mortgage loans 1,903,007 1,039,898 473,976
Escrows established at acquisition
of properties (4,755,629) (5,189,961) 49,758
Cost to acquire workforce and
intangible assets (559,239) (447,679) -
----------- ------------ ------------
Net cash used for
investing activities (96,495,243) (36,392,734) (25,068,411)
----------- ------------ ------------
Continued
F-9
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- ----------- -----------
Financing activities:
Proceeds from the issuance
of preferred stock, net of
discounts and offering costs 65,876,665 - -
Dividends paid and accrued to
preferred stockholders (1,659,306) - -
Proceeds from issuance of
common stock, net of discounts
and offering costs 103,109,010 - -
Dividends to common shareholders (23,447,779) (22,853,892) (22,599,538)
Advances under credit agreements 19,400,000 48,970,000 67,140,000
Payments on credit agreements (80,115,000) (8,050,000) (51,000,000)
Payment on repurchase agreement (9,300,000) (1,650,000) (1,200,000)
Proceeds from repurchase agreement - - 350,000
Payment of financing costs (501,934) (1,222,170) (3,044,443)
Proceeds from mortgage notes
payable - - 17,800,000
Principal payments on mortgage notes
payable (7,760,525) (8,591,947) (6,296,501)
Costs associated with the
refinancing of debt - - (253,500)
Proceeds from the exercise of stock
warrants 17,626 5,884 10,097
Distributions to minority interest (4,812,638) (1,846,688) (240,739)
Contribution from minority interest - - 5,000
----------- ----------- -----------
Net cash provided by
financing activities 60,806,119 4,761,187 670,376
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 2,843,157 (4,126,757) 650,380
Cash and cash equivalents, beginning
of year 7,015,953 11,142,710 10,492,330
----------- ----------- -----------
Cash and cash equivalents, end
of year $ 9,859,110 $ 7,015,953 $11,142,710
=========== =========== ===========
Supplemental cash flow disclosure:
Cash paid for interest during year $24,327,983 $20,143,571 $16,274,850
=========== =========== ===========
Interest capitalized during year $ 777,159 $ 514,258 $ 658,480
=========== =========== ===========
Continued
F-10
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)
For the Years Ended December 31, 1997, 1996 and 1995
Supplemental disclosure of non-cash financing and investing activities:
1997 1996 1995
------------ ------------ --------
Property acquisitions $(304,798,057) $(112,964,195) $ (59,405,137)
Debt assumed in property
acquisitions 165,549,922 53,196,934 5,417,735
Units issued for property
acquisitions (Notes E and F) 29,728,045 21,872,698 5,082,265
Shares issued for property
acquisitions (Note E) 4,700,000 0 0
Joint venture distribution
of property, net 8,230,763 0 0
------------ ------------ ------------
Cash to acquire property $(96,589,327) $(37,894,563) $(48,905,137)
============ ============ =============
Units issued for intangible
assets acquired (Notes C and D) $ 17,637,500 $ 13,000,000 $ -
============ ============ ============
Units issued for Advisor
benchmarks (Note C) $ 2,400,000 $ - $ -
============ ============ ============
Conversion of Units to Shares $ 4,251,204 $ - $ -
============ ============ ============
Reclassification of construction
in progress to multifamily
apartment complexes $ 1,571,216 $ 10,888,961 $ 22,003,156
============ ============ ============
</TABLE>
The accompanying Notes are an integral
part of the Consolidated Financial Statements.
F-11
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization
Berkshire Realty Company, Inc. and Subsidiaries (the "Company") was
formed on April 26, 1990 by filing a certificate of incorporation in the
State of Delaware. The Company commenced operations on June 27, 1991, as
an equity real estate investment trust ("REIT") when the Company
exchanged 25,097,923 of its shares for the assets, subject to the
liabilities of two publicly held limited partnerships.
The Company was restructured to an umbrella partnership real estate
investment trust ("UPREIT") on May 1, 1995, when the Company's assets,
subject to liabilities, were transferred to a newly formed subsidiary
("Operating Partnership") of which the Company is a Special Limited
Partner and owns 100% of the stock of Berkshire Apartments, Inc., the
general partner. Upon transfer of its net assets, the Company was issued
25,392,452 units of the Operating Partnership ("Units") which was equal
to the number of shares outstanding on May 1, 1995. The Company incurred
costs of $1,727,768 as a result of restructuring to an UPREIT which were
recorded as a non-recurring expense.
In connection with the organization of the Operating Partnership, on May
1, 1995, an affiliate of Berkshire Realty Advisors, the Company's former
Advisor, contributed $5,000 and River Oaks Apartments, subject to
mortgage debt of $5.4 million at a valuation of $10,500,000. The seller
received 534,975 Units in the Operating Partnership ("Minority Interest")
valued at $9.50 per Unit or $5.1 million, in exchange for its interest in
the property. Under the agreement, the Company may not sell the River
Oaks Apartments until May 1, 1998. The contribution was accounted for
using the purchase method. River Oaks is a 17-story, 136-unit,
multifamily apartment complex located in the River Oaks area of Houston,
Texas.
On March 1, 1996, the Company became self-administered when it acquired
the assembled workforce and other assets of an affiliate of a director of
the Company, which provided advisory and development services to the
Company (the "Advisor Transaction"). In exchange for the assets acquired
the Company issued 1.3 million Units of the Operating Partnership. The
transaction was valued at $13 million, which together with related costs,
was recorded as an intangible asset associated with the workforce
acquired. If certain share price benchmarks are achieved during a
six-year period, $7.2 million of additional Units may be issued. During
1997, the $11.00 and $12.00 share price benchmarks were achieved and an
additional 209,091 Units were issued at a value of $2.4 million. (See
Note C to the Consolidated Financial Statements).
Property management services for the Company's multifamily assets were
performed by an affiliate of certain directors and officers of the
Company until February 28, 1997 when the Company acquired the established
workforce and other assets of the affiliated company for 1.7 million
Units (the "Property Manager" or "Property Manager Transaction"). The
transaction was valued at $17.6 million (based on a $10.375 share price)
and was recorded on the balance sheet of the Company as an intangible
asset associated with the third-party property management contracts and
the acquisition of a workforce.
Continued
F-12
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
A. Organization - Continued
At the time of the acquisition, the Property Manager managed 57 apartment
communities, including the Company's 35 assets, and employed
approximately 85 professionals, excluding site employees. As a result of
this transaction, the Company no longer pays management fees and
reimbursements for the management operations of its multifamily
portfolio. In addition, the Company receives management fees and
reimbursements of certain expenses associated with 22 third-party
management contracts primarily with partnerships affiliated with certain
directors and officers of the Company. (See Note D to the Consolidated
Financial Statements).
In addition to the three transactions mentioned above, the Company has
utilized its UPREIT structure to acquire an additional 28 multifamily
communities since 1995. All UPREIT transactions have increased the
ownership of the Operating Partnership by minority limited partners to
16.54% at December 31, 1997 which includes a 12.5% ownership by companies
affiliated with a director and officers of the Company. The Company
directly or indirectly owns the remaining 83.46% of the Operating
Partnership. The Company has several wholly-owned qualifying REIT
subsidiaries which were formed in connection with the UPREIT transaction
or for financing purposes and are consolidated in the accompanying
financial statements.
The principal business of the Company is the acquisition, renovation,
rehabilitation, development and operation of multifamily apartment
communities located in the Mid-Atlantic and Southeast regions of the
United States and Florida and Texas. As of December 31, 1997, the Company
owns 65 apartment communities consisting of 18,773 units and also has
investments in three retail centers, which were sold subsequent to
December 31, 1997. The Company has approximately 740 multifamily units
under development and two parcels of land for future development. The
Company has contracted to acquire three development properties from an
affiliate of the Questar Partner as a result of the transaction described
in Note E. The Company also entered into a Development Acquisition
Agreement with an affiliate of the Questar Partner which granted the
Company an exclusive right to acquire all apartment projects developed in
the Mid-Atlantic Region by affiliates of the Questar Partner which meet
the Company's acquisition and development criteria.
The Company is authorized to issue up to 140,000,000 shares of common
stock, $0.01 par value per share ("Shares"). The Company is also
authorized to issue up to 60,000,000 shares of preferred stock, $0.01 par
value, which may be issued in multiple classes or series ("Preferred
Shares"). The Board is authorized to determine the rights, preferences
and privileges of the preferred stock including the number of shares
constituting any such series and the designation thereof, without any
further vote or action by the Shareholders. The Company's outstanding
shares are publicly traded on the New York Stock Exchange under the
symbol "BRI". The Company's outstanding common stock warrants are
publicly traded on the New York Stock Exchange under the symbol "BRI/WS".
The Company has an infinite life; however the Company's Certificate of
Incorporation, as amended, requires the Company's Board of Directors (the
"Board") to prepare and submit a Plan of Liquidation to the Shareholders
on or before December 31, 1998. The Plan of Liquidation will become
effective only if approved by shareholders holding a majority of the
shares then outstanding.
Continued
F-13
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies
The Company uses the following accounting policies for financial reporting
purposes, which may differ in certain respects from those used for federal
income tax purposes.
Basis of Presentation
The accompanying Consolidated Financial Statements include the consolidated
accounts of the Company, Operating Partnership and the subsidiaries of the
Operating Partnership.
All significant intercompany balances have been eliminated in
consolidation. The Consolidated Financial Statements of the Company have
been adjusted for the minority interest of unitholders in the Operating
Partnership.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
contingent assets and liabilities and revenues and expenses. Actual results
could differ from those estimates.
Cash and Cash Equivalents
The Company includes all short-term investments with maturities of three
months or less at the date of acquisition in cash and cash equivalents.
The carrying value of these investments approximated market at December
31, 1997 and 1996.
The Company invests its cash primarily in money market funds with
commercial banks. The Company has not experienced any losses to date on its
invested cash.
Escrows
Escrows include amounts established pursuant to certain debt agreements for
real estate tax, insurance and capital improvements.
Real Estate Assets and Depreciation
Expenditures related to the acquisition, improvement and development of
real estate assets are capitalized at cost. Upon acquisition of a real
estate asset, expenditures to remedy deferred maintenance and renovation
costs are capitalized. Ordinary repairs and maintenance are expensed as
incurred.
Depreciation
Depreciation is computed by using the straight-line method over the
estimated useful lives of the related assets as follows:
Buildings 25 years
Building improvements 5 to 25 years
Appliances, carpeting and equipment 3 to 8 years
Continued
F-14
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies - Continued
Interest Expense and Real Estate Tax Capitalization of Development Assets
Interest expense and real estate taxes incurred during the construction
period of assets under development are capitalized until buildings are
placed in service as evidenced by certificates of occupancy.
Amortization of Workforce and Other Intangible Assets
Amortization of the intangible assets acquired related to the Advisor
Transaction and Property Manager Transaction is calculated using the
straight-line basis over a period of three to four years.
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at depreciated cost. Pursuant
to Statement of Financial Accounting Standards Opinion No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", impairment losses are recorded on long-lived
assets used in operations on a property by property basis, when events
and circumstances indicate that the assets might be impaired and the
estimated undiscounted cash flows to be generated by those assets are
less than the carrying amount of those assets. Upon determination that an
impairment has occurred, those assets shall be reduced to fair value less
estimated costs to sell.
Investments in Unconsolidated Joint Ventures
Investments in Joint Ventures are accounted for using the equity method
of accounting as the respective Partnership Agreements require either a
majority vote (Brookwood) or two thirds majority (Spring Valley) for all
major decisions regarding the Joint Ventures. As such, the Company does
not have control of the operation of the underlying assets. Under the
equity method of accounting, the Company's share of income (loss) of the
Joint Ventures is included currently in the Company's net income (loss).
MBS
MBS are held for long-term investment and therefore are carried at
amortized cost. Premiums or discounts are amortized over the life of the
underlying securities using the effective yield method. The Company has
the intention and ability to hold these to maturity.
Mortgage Loans
Discounts on mortgage loans net of acquisition costs are amortized into
income over the remaining life of the related loans using the effective
yield method, based on management's estimate of the current facts and
circumstances and the ultimate ability to collect such loans.
Rental Revenue
Residential and commercial leases require the payment of base rent
monthly in advance. Rental revenues are recorded on the accrual basis.
Commercial leases generally contain provisions for additional rent based
on a percentage of tenant sales and other provisions which are also
recorded on the accrual basis, but are billed in arrears. Minimum rental
revenue from long-term commercial leases is recognized on a straight-line
basis over the life of the related lease.
Continued
F-15
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies - Continued
Deferred Expenses
Costs associated with debt financings are capitalized and amortized to
interest expense over the term of the related agreement using a method
which approximates the effective interest method. Upon refinancing or
retirement of debt, any unamortized costs are charged to earnings.
Interest Rate Swap Agreement
Swap receipts and payments under interest rate swap agreements
designated as a hedge are recognized as adjustments to interest expense
when earned and are reflected as operating activities in the
Consolidated Statement of Cash Flows. Settlement payments or receipts on
terminated interest rate swap agreements are deferred and amortized over
the remaining original period of the swap, as long as the hedged
borrowing is still outstanding. Settlement payments or receipts on
terminated interest rate swap agreements are reflected as financing
activities in the Consolidated Statement of Cash Flows.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, and believes it will continue to meet all such
qualifications. Accordingly, the Company will not be subject to federal
income taxes on amounts distributed to Shareholders provided that it
distributes annually at least 95% of its REIT taxable income and meets
certain other requirements for qualifying as a REIT. Therefore, no
provision for federal income taxes has been recorded in the Consolidated
Financial Statements. However, the Company is subject to certain state
income taxes and certain state net worth taxes which have been recorded
in the Consolidated Statements of Operations.
Earnings Per Share
Financial Accounting Standards Board Statement No. 128 ("FAS 128")
"Earnings Per Share" is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. The
Company has adopted the requirements of this pronouncement for all
periods presented in its financial statements for the three years ended
December 31, 1997. FAS 128 specifies the computation, presentation and
disclosure requirements for net income per share.
Reclassifications
Certain prior year balances have been reclassified to conform with
current year consolidated financial statement presentation.
C. The Advisor Transaction
On February 28, 1996, the Board of Directors, acting on the
recommendation of a Special Committee comprised of the Independent
Directors, approved the acquisition, via contribution, of the existing
workforce and other assets of the Advisor in exchange for 1.3 million
Units which had a value of $13 million. The total acquisition price,
including professional fees and expenses, has been recorded on the
Company's balance sheet as intangible assets associated with the
workforce acquired and is being amortized on a straight-line method over
a three-year period.
Continued
F-16
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
C. The Advisor Transaction - Continued
The Board's actions were initiated to increase cash flows and to align the
organization of the Company to be consistent with the structure preferred
by institutional investors, rating agencies and market analysts.
Additional Units, up to a total of $7.2 million, may be issued during a
six-year period if certain share price benchmarks are achieved. The
benchmarks will be satisfied if the share price of the Company's common
stock is equal to or greater than the benchmark for any fifteen days
during any twenty consecutive trading days. There are six share price
benchmarks beginning at $11.00 and increasing by $1.00 each up to a
maximum of $16.00. Upon satisfaction of each benchmark, Units equal to
$1.2 million will be issued. The Company achieved share price benchmarks
of $11.00 on March 19, 1997 and $12.00 on October 9, 1997 and issued
109,091 and 100,000 Units, respectively, on those dates. The value of
additional Units issued during 1997 was $2.4 million and was recorded as
an expense in the Consolidated Statements of Operations. As of December
31, 1997, 209,091 additional Units have been issued as a result of
achieving the share price benchmarks.
The contribution was completed on March 1, 1996. As of that date, all
charges and expenses associated with the Advisory Services Agreement
ceased and the Company became a "self-administered" REIT. The Company
began incurring general and administrative expenses for its acquired
management staff including salaries, benefits, and other overhead
expenses. The Company has outsourced with affiliated companies of a
director for specific administrative services such as shareholder
communications, computer systems and support and legal services. (See Note
O for additional details).
D. Property Manager Transaction
On February 26, 1997, the Board of Directors, acting on the recommendation
of a Special Committee comprised solely of Independent Directors, approved
the acquisition of the workforce and other assets of the Property Manager
which provided multifamily property management services to the Company
("Property Manager"). The Property Manager was contributed on February 28,
1997 in exchange for 1.7 million Units which had a value of approximately
$17.6 million.
At the time of the contribution, the Property Manager managed 57 apartment
communities, including the Company's 35 assets, and employed approximately
85 professionals, excluding site employees. As a result of this
transaction, the Company no longer pays management fees and reimbursements
for the management operations of its multifamily portfolio. In addition,
the Company receives management fees and reimbursements associated with 22
third-party management contracts acquired. Those contracts are primarily
with partnerships affiliated with a director of the Company. Throughout
1997, the Company engaged an affiliated company to manage its retail
assets. Subsequent to December 31, 1997, as a result of the sale of the
Company's remaining retail assets, the management contracts were
terminated. (See Notes O and V for additional details).
The Board's actions were initiated to reduce the costs associated with the
operations of the multifamily portfolio, to generate revenue from
third-party fee management contracts and to align the organization of the
Company to be consistent with the structure preferred by institutional
investors, rating agencies and market analysts.
Continued
F-17
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Property Manager Transaction - Continued
The value of the assets acquired was determined by evaluating the future
cash flows attributable to the third-party management contracts as well as
the immediate operating efficiencies obtained through the acquisition of a
cohesive assembled workforce. Accordingly, the value of the transaction
was allocated to intangible assets associated with third-party management
contracts and the workforce acquired. The Company recorded intangible
assets of $4.4 million based on discounted cash flows from third-party
property management contracts and $13.2 million based on the value of
intangible assets associated with the workforce acquired. The acquisition
price is being amortized on a straight-line method over a three to four
year period.
E. Questar Transaction
On November 14, 1997, the Company consummated a transaction with the
Questar Companies ("Questar" or "Questar Partner") whereby it acquired
eighteen apartment communities (3,699 units) (the "Questar Transaction").
The Company also contracted to purchase four apartment communities which
were under development at the time of the transaction. The total purchase
price of $171.4 million was funded through the assumption of $128.7
million in debt, the issuance of $19.9 million in Units, $4.7 million in
common stock and cash of $18.1 million, which was primarily used to pay
off debt. On the date of the transaction, the Company entered into a
Development Acquisition Agreement with Questar Builders, Inc. which gives
the Company the exclusive right to acquire all apartment communities
developed by Questar Builders, Inc. which meet the Company's acquisition
and development criteria.
This acquisition represents the first transaction completed under
Berkshire's regional partner strategy of merging in the assets and the
personnel of proven apartment operating companies and then establishing
them as regional divisions of Berkshire.
The apartment communities acquired are summarized as follows:
Number of
Property Name Location Apartments
------------- --------------- ----------
Arborview Belcamp, MD 288
Calvert's Walk Belair, MD 276
Courtleigh Baltimore, MD 280
Coventry Baltimore, MD 122
Diamond Ridge Baltimore, MD 92
The Estates Pikesville, MD 208
Fairway Ridge Baltimore, MD 274
Hazelcrest Baltimore, MD 48
Heraldry Square Baltimore, MD 270
Hilltop Baltimore, MD 50
Jamestowne Baltimore, MD 335
Kingswood I Baltimore, MD 203
Kingswood II Baltimore, MD 203
Ridgeview Chase Westminster, MD 204
Rolling Wind Baltimore, MD 280
Stratton Meadows Baltimore, MD 268
Warren Park Baltimore, MD 200
Williston Baltimore, MD 98
-----
3,699
=====
Continued
F-18
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F. Multifamily and Retail Property
As of December 31, 1997, the Company had investments in 68 properties in
eight states consisting of 65 multifamily communities having in the
aggregate 18,773 apartment units and three retail centers, including one
joint venture, with a total of 639,829 square feet of leasable space.
The following summarizes the carrying value of the Company's multifamily
apartment communities, retail centers and property held for sale (dollars
in thousands):
December 31,
------------------------
1997 1996
---- ----
Land $108,593 $ 76,525
Buildings and improvements 625,748 419,932
Appliances, carpeting and equipment 125,040 82,971
-------- --------
Total multifamily and retail property 859,381 579,428
Accumulated depreciation and
valuation provisions (129,280) (106,870)
-------- --------
$730,101 $472,558
======== ========
Acquisitions
On January 1, 1997, the Company acquired Westchester Apartments, a
345-unit apartment community located in Silver Spring, Maryland, for $16.1
million. The Company paid cash of $.9 million, assumed debt of
approximately $11.4 million and issued 388,333 Units with a value of
approximately $3.8 million. The debt agreement requires monthly principal
and interest payments based on an interest rate of 8.25% along with
monthly funding of real estate tax escrows.
On May 13, 1997, in conjunction with the exchange of Brookwood Village, a
retail asset held in joint venture, the Company acquired Berkshire West
Apartments and Sun Chase Apartments for an aggregate value of
approximately $13.9 million. Berkshire West is a 200-unit garden style
apartment community located in Winter Garden, Florida, a suburb of
Orlando. In conjunction with the acquisition of this asset, the Company
assumed $5.7 million in debt which matures in December, 2003. The debt
agreement requires monthly principal and interest payments at a rate of
7.45% along with monthly real estate tax escrow funding. Sun Chase is a
168-unit garden style apartment community located in Bradenton, Florida.
In the third quarter of 1997, the Company acquired four multifamily
apartment communities for approximately $29.5 million. The Company paid
cash of approximately $1 million, assumed debt of approximately $19.8
million and issued 582,921 Units and 189,332 Shares with a combined value
of approximately $8.7 million. The mortgage notes require monthly
installments of principal and interest and mature at various dates through
2023. Interest rates on the notes are at 7.5%. The apartment communities
acquired are summarized as follows:
Date of Number
Property Name Acquisition Location of Units
------------- ----------- ----------------- --------
The Cove 7/22/97 Glen Burnie, MD 181
The Channel 7/22/97 Glen Burnie, MD 120
Harper's Mill 7/22/97 Millersville, MD 144
The Lighthouse 9/22/97 Glen Burnie, MD 168
---
613
===
Continued
F-19
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F. Multifamily and Retail Property - Continued
On September 26, 1997, the Company acquired four multifamily apartment
communities for a cash purchase price of approximately $60.3 million.
The apartment communities which were acquired are summarized as follows:
Number
Property Name Location of Units
------------- -------- --------
Huntington Lakes Dallas, TX 405
Huntington Brook Dallas, TX 320
Huntington Ridge Irving, TX 232
Sweetwater Ranch Richardson, TX 312
-----
1,269
=====
On September 29, 1997, the Company acquired Summer Place Apartments for
a cash purchase price of $7 million. Summer Place is a 212-unit
apartment community located in Addison, Texas.
Development
In the first quarter of 1997, the Company completed the construction of
Berkshires at Brookfield, a 96-unit apartment complex which has been
combined with Brookfield Trace, an existing apartment community in
Mauldin (Greenville), South Carolina. The total cost of construction was
approximately $6.7 million. The values of the 24 apartment units
completed in 1997 and the 72 apartment units completed in 1996 were
transferred to multifamily assets on the Consolidated Balance Sheets as
of December 31, 1997 and 1996, respectively.
On December 15, 1997, the Company acquired Liriope Apartments, an
84-unit apartment community located in Belcamp, Maryland, for
approximately $7.6 million in cash. The property was purchased from an
affiliate of Questar Builders, Inc. as a result of the Questar
Transaction. (See Note E for additional details).
In the fourth quarter of 1996, the Company began construction of Crooked
Creek Apartments, a 296-unit apartment community in Durham, North
Carolina. The total cost of the project is currently estimated to be
approximately $20.2 million. Approximately $8.6 million of construction
costs had been incurred as of December 31, 1997. The estimated cost to
complete construction is approximately $11.6 million as of December 31,
1997.
In January, 1997, the Company purchased a parcel of land in Greenville,
South Carolina for approximately $3 million for the development of a
planned 500-unit apartment community.
In December, 1997, the Company purchased a 60-acre parcel of land in
Atlanta, Georgia for approximately $5.8 million for the planned initial
development of approximately 440 apartment units. Construction is
expected to begin in the third quarter of 1998.
The Company also owns two other parcels of land, one located in Dallas,
Texas, which is under contract for sale, and another located in
Greenville, South Carolina. Development plans are under consideration
for this site.
Continued
F-20
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F. Multifamily and Retail Property - Continued
As a result of the Questar Transaction, the Company has contracted to
acquire three additional properties from Questar Builders, Inc. which
were in various stages of development as of December 31, 1997. The
developments are summarized as follows:
Planned Estimated
Apartment Total
Property Location Units Investment
-------- -------- --------- ----------
(in thousands)
Granite Run Baltimore, MD 264 $25,500
Avalon I Pikesville, MD 258 25,900
Avalon II Pikesville, MD 147 15,400
--- -------
Total 669 $66,800
=== =======
On November 14, 1997, the Company entered into a Development Acquisition
Agreement with Questar Builders, Inc. which granted the Company an
exclusive right to acquire all apartment projects developed in the
Mid-Atlantic Region by Questar Builders, Inc. which meet the Company's
acquisition and development criteria.
Dispositions
On January 15, 1997, the Company sold Howell Commons Apartments, a
348-unit apartment community located in Greenville, South Carolina for
$13.0 million. The property had a depreciated cost basis of
approximately $6.5 million which, after closing costs, resulted in a
gain on sale of approximately $6.5 million.
On March 25, 1997, the Company sold Banks Crossing, a 243,660 square
foot retail center in Fayetteville, Georgia, for approximately $13.8
million which was its carrying value.
On May 13, 1997, as mentioned above, the Company and its joint venture
partner exchanged Brookwood Village in conjunction with the acquisition
of Berkshire West and Sun Chase. Brookwood Village Joint Venture
recognized a loss on the sale of approximately $722,000 of which
approximately $361,000 was the Company's pro-rata share.
On August 6, 1997, the Company sold Crossroads Shopping Center, a
211,186 square foot retail center located in Atlanta, Georgia, for
approximately $12 million which was its carrying value.
Impairment of Long-Lived Assets
The Company's strategic decision to divest of its retail portfolio over
time and reinvest proceeds into multifamily assets has necessitated the
recognition of impairment losses on the Company's retail assets in
accordance with Statement of Financial Accounting Standards Opinion No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". The Company has reclassified its
wholly-owned centers to assets held for sale and recorded provisions for
losses which represent the difference between carrying value and
estimated fair value less costs to sell. The Company's share of
provisions for losses recorded in its Consolidated Statements of
Operations related to its wholly-owned and joint venture owned retail
assets totaled $7.2 million and $12.0 million for the years ended
December 31, 1997 and 1996, respectively.
Continued
F-21
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets - Continued
The Company's share of valuation reserves recorded on its Consolidated
Balance Sheets related to its wholly-owned and joint venture retail
assets totaled $7.5 million and $12.0 million as of December 31, 1997
and 1996, respectively. During 1997, and subsequent to year end, the
Company sold its remaining retail assets, including the remaining joint
venture investments. (See Note V for additional details).
G. Investments in Unconsolidated Joint Ventures
As of December 31, 1996, the Company had a 50% interest in Brookwood
Village Joint Venture and a 50.1% interest in Spring Valley Partnership
(collectively, the "Joint Ventures"). On May 13, 1997, Brookwood Village
Joint Venture exchanged Brookwood Village for two multifamily properties
and cash. (See Note F for additional details).
Continued
F-22
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
G. Investments in Unconsolidated Joint Ventures - Continued
Condensed combined financial statements for the Joint Ventures are as
follows:
CONDENSED COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
------------ ---------
Property at cost $ 54,036,202 $114,358,875
Less accumulated depreciation (24,936,202) (40,173,598)
------------ ------------
Total real estate assets 29,100,000 74,185,277
Other assets 2,897,655 2,774,699
------------ ------------
Total assets $ 31,997,655 $ 76,959,976
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 711,270 $ 4,858,639
------------ ------------
Partners' equity:
The Company 15,618,657 36,036,723
Joint venture partner 15,667,728 36,064,614
------------ ------------
Total partners' equity 31,286,385 72,101,337
------------ ------------
Total liabilities and partners' equity $ 31,997,655 $ 76,959,976
============ ============
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Revenue $ 9,221,901 $ 13,118,356 $ 12,873,159
Property operating expenses (4,756,376) (6,214,033) (5,912,347)
Depreciation (2,798,220) (3,925,146) (4,150,399)
Provision for loss (10,749,529) (9,000,000) -
Loss on sale (721,760) - -
------------ ------------ ---------
Net income (loss) $ (9,803,984) $ (6,020,823) $ 2,810,413
============ ============ ============
Allocation of net income (loss):
The Company $ (4,910,021) $ (3,008,587) $ 1,407,025
Joint venture partner (4,893,963) (3,012,236) 1,403,388
------------ ------------ ------------
$ (9,803,984) $ (6,020,823) $ 2,810,413
============ ============ ============
</TABLE>
Pursuant to Statement of Financial Accounting Standards Opinion No. 121
"Accounting for the Improvement of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" impairment losses were recognized on the
Company's joint venture assets. In 1997, Brookwood Village and Spring
Valley recorded provisions for losses of $1,472,096 and $9,277,433,
respectively, which represented the difference between carrying value and
estimated fair value less costs to sell. In 1996, Brookwood Village
recorded a provision for loss of $9,000,000.
Continued
F-23
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
H. Mortgage Loan Receivable
The Company held a mortgage loan which had a carrying value of
approximately $2,323,000 and $2,268,000 as of December 31, 1997 and 1996,
respectively. The mortgage loan is collateralized by a 120-unit apartment
complex in Palm Bay, Florida and requires monthly principal and interest
payments of $23,518 based on a 23-year amortization and a 7% interest
rate. The mortgage loan matures January 27, 2002 when a balloon payment of
$2,552,673 will be due. The principal balance of the mortgage loan was
approximately $2,939,000 and $3,016,000 at December 31, 1997 and 1996,
respectively.
I. Notes Receivable
On November 14, 1997 ("Funding Date"), a promissory note in the amount of
$7,500,000 was issued by GGC, L.L.C. to the Company as a result of the
Questar Transaction. The note requires interest payments at an annual rate
of 11.39% commencing on December 1, 1997, and continuing until the
outstanding balance is paid in full. A principal payment in the amount of
$3,750,000, together with all accrued interest and other charges, will be
due and payable on the third anniversary of the Funding Date. The
remaining principal balance and accrued interest and other charges will be
due and payable on the fifth anniversary of the Funding Date. A portion of
the Units and Shares received by the borrowers as a result of the Questar
Transaction have been pledged as collateral for the promissory note. At
December 31, 1996, the Company also held a promissory note which had a
principal balance of approximately $1,826,000. During the third quarter of
1997, the outstanding principal balance of the promissory note was paid in
full.
J. Mortgage-Backed Securities (MBS)
At December 31, 1997, the Company's MBS portfolio had an approximate
market value of $8,012,000 with unrealized gains of $500,000. The market
value of the MBS portfolio at December 31, 1996 was approximately
$9,849,000 with unrealized gains of approximately $616,000. At December
31, 1997 and 1996, the MBS portfolio's cost basis was $7,511,789 and
$9,232,956 with a face value of $7,560,583 and $9,294,121, respectively.
The portfolio consists of Federal Home Loan Mortgage Corporation
securities with coupon rates ranging from 8.0% to 9.75% per annum maturing
in the years 2008 through 2021 and a Federal National Mortgage Association
security with a coupon rate of 9% per annum maturing in 2024. The Company
has the intention and ability to hold these to maturity.
K. Credit Agreements
At December 31, 1997, the Company had two lines of credit to provide
funding for future development, acquisitions and general business
activities. One credit agreement is a master credit facility ("Credit
Facility") with the Federal National Mortgage Association ("FNMA"). The
commitment under this interest only Credit Facility, which is
collateralized by multifamily assets, is for a maximum amount of $100
million, of which $63,345,000 has a fixed interest rate ("Base") and
$36,655,000 is a revolving component ("Revolver"), such Revolver expiring
in November, 2000. The Company can borrow up to the value of the assets
pledged as collateral.
As of December 31, 1997 and 1996, the Company has pledged thirteen
apartment communities as collateral under the Credit Facility which
provided a borrowing base of $92,310,000 as of those dates. The borrowings
under the Credit Facility at December 31, 1997 were as follows:
Continued
F-24
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
K. Credit Agreements - Continued
Maturity Interest
Borrowings Date Rate Amount
---------- -------- -------- -----------
Base - Fixed 11/20/05 7.00% $50,000,000
Base - Fixed 09/20/03 7.54% 13,345,000
-----------
$63,345,000
===========
The Company also had a credit agreement ("Credit Agreement") with two
commercial banks. The commitment of a maximum amount of $49.5 million had
an interest rate set at 150 basis points over LIBOR. The Company pledged
multifamily and retail assets as collateral under the Credit Agreement
which provided a borrowing base of $33,632,500 and $43,750,000 as of
December 31, 1997 and 1996, respectively. The Company's borrowings under
the Credit Agreement totaled $12.0 million at December 31, 1997 and had a
contract interest rate of 7.125%. The Credit Agreement expired on December
31, 1997. Subsequent to December 31, 1997, the Company obtained and closed
a commitment for a $130 million unsecured revolving line of credit which
replaced the Credit Agreement. (See Note V for additional details).
In November, 1995, the Company entered into a five-year interest rate swap
contract with a bank as counterparty in order to hedge against variable
interest rate debt. Pursuant to the swap contract, the Company will pay
6.06% on a $40 million notional amount and will receive LIBOR (based on 90
day contracts). The swap arrangement is intended to protect the Company
from significant interest rate exposure on its revolving facilities. The
current swap amount will cover anticipated borrowing levels under variable
rate borrowings in the near term. The Company plans to continually
reassess its interest rate exposure relative to its debt levels and will
execute additional interest rate protection as circumstances dictate to
the extent such protection is available on commercially reasonable terms.
The weighted average interest rate on the Company's variable rate debt was
6.62% for the year ended December 31, 1997.
The following summarizes the Company's Credit Facility and Credit
Agreement at December 31, 1997 and 1996.
As of December 31,
--------------------------------------------------------
1997 1996
-------------------------------------------------------
Outstanding Commitment Outstanding Commitment
----------- ------------ ----------- -------------
Credit Agreement $12,000,000 $ 49,450,000 $ 43,750,000 $ 49,450,000
Credit Facility 63,345,000 100,000,000 92,310,000 100,000,000
----------- ------------ ------------ ------------
$75,345,000 $149,450,000 $136,060,000 $149,450,000
=========== ============ ============ ============
Credit Facility and Credit Agreement borrowings averaged $51,651,397,
$122,168,671 and $74,039,637 during the years ended December 31, 1997,
1996 and 1995, respectively, and the maximum amount outstanding at any
month-end during fiscal years 1997, 1996 and 1995 was $144,110,000. The
weighted average interest rates of these borrowings were 6.84%, 6.87% and
8.10% during the years ended December 31, 1997, 1996 and 1995,
respectively.
Continued
F-25
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
K. Credit Agreements, Continued
The Credit Facility and Credit Agreement require the Company to be in
compliance with certain debt covenants. Two of the more restrictive
covenants include the requirement to maintain interest coverage ratios of
2 1/4 to 1 and total liability to total assets of not more than 50%. The
Company was in compliance with all covenants as of December 31, 1997 and
1996.
L. Mortgage Notes Payable
The following table sets forth certain information regarding the mortgage
notes payable at December 31, 1997:
<TABLE>
<CAPTION>
Principal
Apartment Interest Maturity Balance
Communities Location Rate Date As of 12/31/97
----------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
Conventional Fixed Rate
Altamonte Bay Club Altamonte Springs, FL 8.34% 4/1/2001 $ 4,024,551
Huntington Chase Norcross, GA 8.34% 4/1/2001 8,039,668
Newport Tampa, FL 8.34% 4/1/2001 3,650,175
The Timbers Charlotte, NC 8.34% 4/1/2001 6,458,001
Avalon on Abernathy Atlanta, GA 8.45% 6/1/2001 5,421,483
East Lake Charlotte, NC 8.45% 6/1/2001 2,853,412
Southpointe Massapequa, NY 8.45% 6/1/2001 5,041,028
Huntington Downs Greenville, SC 8.45% 7/1/2001 8,829,204
Lakes of Jacaranda Plantation, FL 8.45% 7/1/2001 7,886,279
Kings Crossing Kingwood, TX 8.45% 7/1/2005 8,793,213
Kingwood Lakes Kingwood, TX 8.45% 7/1/2005 8,406,698
Golf Side Fort Worth, TX 7.695% 11/1/2005 5,683,295
Berkshire Towers Silver Spring, MD 7.625% 4/1/2029 35,107,356
Westchester West Silver Spring, MD 8.25% 3/1/2001 11,158,070
Berkshire West Winter Garden, FL 7.45% 11/1/2005 5,634,136
The Cove Glen Burnie, MD 7.50% 7/1/2023 6,532,489
The Channel Glen Burnie, MD 7.50% 4/1/2018 2,292,430
The Lighthouse Glen Burnie, MD 7.50% 12/1/2022 5,276,360
Harper's Mill Millersville, MD 7.50% 1/1/2021 3,449,300
Stratton Meadows Baltimore, MD 7.54% 2/1/2030 12,412,791
The Estates Pikesville, MD 7.43% 11/1/2006 11,578,526
Arborview Belcamp, MD 7.84% 1/1/2034 16,613,595
Calvert's Walk Belair, MD 7.59% 4/1/2029 14,227,335
Rollingwind Baltimore, MD 7.72% 2/1/2035 18,270,474
Coventry Baltimore, MD 6.52% 4/1/2026 4,424,638
Courtleigh Baltimore, MD 6.37% 7/1/2028 11,806,895
Fairway Ridge Baltimore, MD 8.11% 12/1/2006 6,087,586
Kingswood I Baltimore, MD 8.04% 11/1/2006 5,922,959
Kingswood II Baltimore, MD 8.11% 11/1/2006 5,989,365
Warren Park Baltimore, MD 8.04% 11/1/2006 5,054,734
Hazelcrest Baltimore, MD 8.04% 11/1/2006 817,678
Heraldry Square Baltimore, MD 8.11% 11/1/2006 7,928,995
Jamestown Baltimore, MD 9.50% 11/1/2004 5,608,842
Williston Baltimore, MD 9.50% 11/1/2004 1,815,923
------------
$273,097,484
============
</TABLE>
Continued
F-26
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
L. Mortgage Notes Payable, Continued
<TABLE>
<CAPTION>
Principal
Apartment Interest Maturity Balance
Communities Location Rate Date as of 12/31/97
----------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
Tax Exempt
Prescott Place II Dallas, TX 5.95%(1) 12/5/2003 $ 6,048,461
Plantation Colony Plantation, FL 7.13% 9/1/2004 9,419,059
Park Colony and Hollywood, FL
Woodland Meadows Tamarac, FL 6.41% 4/1/2002 16,900,000
------------
$ 32,367,520
============
</TABLE>
(1) This interest rate is calculated at 70% of the prime rate as
published by the bank and in effect on June 15 and December 15 to be
effective for the six months thereafter.
The aggregate scheduled principal amounts of long-term borrowings due
during the five years 1998 through 2002 and thereafter are $3,642,260,
$3,974,260, $4,274,038, $64,514,471, $19,204,346 and $209,855,629,
respectively.
In the event of a mortgage prepayment, certain mortgage agreements may
require a prepayment penalty.
On September 30, 1997, the Company paid off a mortgage note collateralized
by Hunters Glen Apartments, a property currently owned by the Company,
which had a principal balance of $5.5 million on the payoff date. The
mortgage note had an interest rate of 9% and had a maturity date of March,
2000. The mortgage note required a prepayment premium and the payoff
resulted in a loss of $90,345, net of minority interest, which was
recorded as an extraordinary item in the Consolidated Statement of
Operations.
M. Repurchase Agreement
On January 9, 1992, the Company negotiated a Master Repurchase Agreement
with CS First Boston which allowed for short-term borrowings
collateralized by MBS. The balance outstanding at December 31, 1996 was
$9,300,000 at an interest rate of 5.70%. On November 14, 1997, the Company
paid off the then outstanding balance of $8,000,000.
Master Repurchase Agreement borrowings averaged $7,382,466, $10,201,644
and $11,534,795 during the years ended December 31, 1997, 1996 and 1995,
respectively, and the maximum amounts outstanding at any month-end during
fiscal 1997, 1996 and 1995 were $9,300,000, $10,950,000 and $11,800,000,
respectively. The weighted average interest rates of these agreements were
5.66%, 5.85% and 6.24% during the years ended December 31, 1997, 1996 and
1995, respectively.
Continued
F-27
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
N. Minority Interest
Holders of Units generally receive distributions per Unit equal to the
dividend per Share paid in respect of common stock of the Company.
Minority interest in the Operating Partnership consists of the following
at December 31, 1997 and 1996 (dollars in thousands):
1997 1996
---- ----
Balance, beginning of year $36,609 $ 5,000
Value of Units Issued to
Minority Unitholders:
Affiliated Parties 20,038 29,435
Unrelated Parties 29,728 5,438
Units Converted to Shares (4,252) -
Distribution to Unitholders (4,813) (1,846)
Minority interest loss allocation (2,173) (1,418)
------- -------
Balance, end of year $75,137 $36,609
======= =======
At the option of the Company, as specified in the Partnership Agreement,
Units may be either exchanged for an equal number of Shares of the
Company's common stock or redeemed for cash.
There were 7,199,661 and 3,413,778 Units in the Operating Partnership
outstanding as of December 31, 1997 and 1996, respectively.
O. Related Party Transactions
As a result of the acquisition of the Property Manager as described in
Note D, effective March 1, 1997, the Company no longer reimburses an
affiliate for services related to multifamily property operations.
Throughout 1997, the Company engaged an affiliated company to manage its
retail assets. Subsequent to December 31, 1997, as a result of the sale
of the Company's remaining retail assets, the management contracts were
terminated.
Prior to March 1, 1997, the Company contracted with an affiliate of
certain officers and directors for services as management agent to the
Company's properties. Such agreements provided for property management
fees payable monthly at the rate of 5% of the gross receipts from
residential properties and 6% of gross receipts for retail properties
under management. The affiliate was also entitled to reimbursements for
certain expenses incurred in connection with the operation of the
multifamily properties including accounting, computer support, risk
management, real estate tax services and administration.
The Company has an agreement with an affiliate of a director whereby the
affiliate and the Company have contracted to provide certain
administrative services on each other's behalf. Pursuant to the
agreement, the affiliate provides services related to computer systems
support, legal, investor records and office administration and the
Company provides human resources, insurance and real estate tax support.
The following is a summary of fees and reimbursements paid or accrued to
an affiliate for the years ended December 31:
1997 1996 1995
---- ---- ----
Cost reimbursements related
to the operation of the
Company's properties $ 254,615 $1,666,695 $1,315,960
Fees and reimbursements for
administrative services, net $1,324,263 $ 740,273 $ 629,270
Continued
F-28
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
O. Related Party Transactions - Continued
As a result of the Property Manager Transaction, the Company receives
property management fees and expense reimbursements associated with the
third-party management contracts acquired. These contracts are primarily
with partnerships affiliated with a director of the Company. The Company
earned approximately $2,763,000 related to affiliated third-party
management contracts for the year ended December 31, 1997.
As discussed in Note I, the Company has a promissory note receivable
with an affiliate of an officer of the Company. The Company recorded
interest income related to the promissory note receivable of
approximately $112,000 for the year ended December 31, 1997.
As a result of the Questar Transaction, the Company executed a five-year
lease with an affiliate of an officer of the Company for approximately
6,900 square feet of space at an annual gross rent of approximately
$140,000. The Company incurred rent expense related to the lease
agreement of approximately $18,000 for the year ended December 31, 1997.
As discussed in Note P, the Company granted a stock purchase plan to the
President of the Company. In accordance with the provisions of the loan,
$100,000 of the loan principal balance was forgiven during 1997. The
forgiven amount was recorded as an expense in the Consolidated
Statements of Operations. The unpaid principal balance of the loan was
$900,000 as of December 31, 1997.
P. Benefit Plans
Stock Option Plan
On February 8, 1996 the Board of Directors of the Company adopted the
1996 Stock Option Plan, (the "Plan"). The Plan provides for grants to
certain employees, non-employee directors and consultants of the
Company. Awards are administered by the Compensation Committee which is
comprised of at least two independent directors appointed by the Board
of the Directors. There are 1,500,000 shares of common stock authorized
for non-qualified and incentive stock option grants under the Plan. The
Plan will continue in effect until all shares of stock subject to
options have been acquired or until May 1, 2001, whichever is earlier.
However, unexercised options will continue in effect after the
termination of the Plan. Options currently granted have a 0-3 year
vesting period.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective for periods beginning after December 15, 1995.
SFAS 123 requires that companies either recognize compensation expense
for grants of stock, stock options, and other equity instruments based
on fair value, or provide pro-forma disclosure of net income and
earnings per share, adjusted to reflect the effect of compensation
expenses, in the notes to the financial statements. The Company adopted
the disclosure provisions of SFAS 123 in 1997 and 1996 and has applied
APB Opinion No. 25 and related Interpretations in accounting for the
Plan. Accordingly, compensation expense of approximately $22,000 was
recognized for the years ended December 31, 1997 and 1996 for the
options issued to a consultant of the Company. Had compensation expense
for the Plan been determined based on the fair value of all the options
calculated in accordance with SFAS 123, the Company's net loss and
earnings per share for the years ended December 31, 1997 and 1996 would
have been adjusted to the pro-forma amounts indicated below (unaudited):
Continued
F-29
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
P. Benefit Plans - Continued
1997 1996
---------------------------- -------------------------
Earnings Earnings
Net Loss Per Common Net Loss Per Common
Per Common Share Per Common Share
--------------- ------------ ------------- ----------
(Basic) (Basic) (Basic) (Basic)
As Reported ($10,088,352) $(.37) ($14,308,277) $(.56)
Pro-Forma* ($10,340,811) $(.38) ($14,745,759) $(.58)
* The pro-forma effect of compensation costs determined using the fair
value based method are not indicative of future amounts.
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted
average assumptions: for 1997 an expected life of 4.75 years, expected
volatility of 17.00%, a dividend yield of 8.1% and a risk free interest
rate of 6.36% and for 1996 an expected life of 3 years, expected
volatility of 20%, a dividend yield of 9.1% and a risk free interest
rate of 5.65%.
A summary of the status of the Plan and changes during the year are
presented below:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------------------- ---------------
1997 1996 1997 1996
--------- --------- ------- ------
<S> <C> <C> <C> <C>
Outstanding at beginning
of the year 624,000 - $ 9.90 -
Granted 536,300 624,000 10.99 $9.90
Exercised - - - -
Forfeited/Expired (25,800) - (10.73) -
--------- ------- ------ -----
Outstanding at end
of the year 1,134,500 624,000 $10.38 $9.90
========= ======= ====== =====
Options exercisable
at year-end 784,000 568,000 $10.15 $9.86
========= ======= ====== =====
Weighted average fair value
of options granted during
the year $.86 $.74
==== ====
</TABLE>
The following table summarizes information about options granted for the
following years:
<TABLE>
<CAPTION>
Remaining
Range of Options Contractual Weighted Average
Exercise Prices Granted Life Exercise Price
--------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
1997 $10.75-$11.00 536,300 9.3 years $10.99
1996 $ 9.75-$10.25 624,000 8.4 years $ 9.90
</TABLE>
Stock Purchase Loan
On February 28, 1997, the Board of Directors approved a $1 million Stock
Purchase Loan for the President and Chief Executive Officer of the
Company. On March 4, 1997, the loan proceeds were used to purchase
86,956 Shares of the Company's stock at $11.50 per Share.
The terms of the loan provide for, among other things, an interest rate
of 7.8% per year payable quarterly and an annual forgiveness feature of
5% of
Continued
F-30
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
P. Benefit Plans - Continued
the original principal so long as the President is employed. Additional
annual forgiveness of up to another 5% may be granted if certain Company
performance measures are met. The maximum forgiveness in any one year is
10%. If the President terminates his employment, the loan is due and
payable six months from the date of termination. However, in the event of
a change of control of the Company, as defined, any then outstanding
principal and interest due shall be forgiven.
Subsequent to December 31, 1997, the Board of Directors approved three
additional Stock Purchase Loans, each in the amount of $500,000, for three
senior executive officers of the Company. The loan proceeds were used to
purchase 126,984 Shares of the Company's stock. The terms of the loans are
similar to those of the President's stock purchase loan.
Employee Retirement Savings Plan
The Company implemented a defined contribution plan in 1996 pursuant to
Section 401(k) of the Internal Revenue Code which covers all employees'
contributions up to a maximum of 3% of each employee's compensation for
all employees with one year or greater service. Aggregate contributions of
approximately $489,000 and $195,000 were made for the years ended December
31, 1997 and 1996, respectively.
Q. Commitments and Contingencies
Litigation
The Company is involved in legal actions and claims in the ordinary course
of its business. It is the opinion of management and its legal counsel,
that such litigation and claims should be resolved without material effect
on the Company's financial position or results from operations.
Development
The estimated cost to complete the development project underway in Durham,
North Carolina was $11.6 million as of December 31, 1997. The Company has
a construction loan with two commercial banks to fund the development. The
commitment of $13,100,000 was collateralized by multifamily and retail
assets at December 31, 1997. The agreement requires monthly interest
payments at a variable rate set at 150 basis points over LIBOR (7.47% at
December 31, 1997). The outstanding principal balance will be due June 30,
1999. The outstanding balance of $316,786 at December 31, 1997 was
included in other liabilities. As discussed in Note F, the Company also
has contracts to acquire three properties from Questar Builders, Inc.
which were in various stages of development as of December 31, 1997.
Employment Agreements
The Company has employment agreements with certain officers which have
expiration dates which range from December, 1998 to November, 2002. In the
event any of the employment agreements are terminated, certain termination
and severance payments are required.
Continued
F-31
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
R. Earnings Per Share
In accordance with Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share", the Company has presented basic and diluted net
income per share on the Consolidated Statement of Operations. The net
income and weighted average shares used in the calculations are presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Earnings per common share (basic):
Net income (loss) allocated
to common shareholders
(Numerator) $(10,088,352) $(14,308,277) $14,786,042
============ ============ ===========
Weighted average shares
(Denominator) 27,099,522 25,393,147 25,392,621
========== ========== ===========
Earnings per common share (diluted):
Net income (loss) allocated
to common shareholders
(Numerator) $(10,088,352) $(14,308,277) $14,939,930
============ ============ ===========
Weighted average shares
(Denominator) 27,099,522 25,393,147 25,751,714
========== ========== ===========
</TABLE>
Options, warrants, preferred stock and Units of 1,134,500, 2,996,800,
2,737,000 and 7,199,661, respectively, were outstanding at December 31,
1997. Options, warrants, and Units of 624,000, 2,998,057 and 3,413,778,
respectively, were outstanding at December 31, 1996. These securities were
not included in the computation of diluted earnings per share for the
years ended December 31, 1997 and 1996 because the effects of these
securities were antidilutive in the computations.
Warrants and Units of 2,998,474 and 534,975, respectively, were
outstanding for the year ended December 31, 1995. The Units were included
in the computation of diluted earnings per share for the year ended
December 31, 1995 because the effects of these securities were dilutive.
The reconciliation of basic and diluted income and weighted average shares
used for the earnings per share calculation for the year ended December
31, 1995 is presented below:
1995
-----------
Income:
Net income $14,786,042
Effect of dilutive securities:
Minority interest in
Operating Partnership 153,888
-----------
Net income allocated to
common shareholders
(Numerator) $14,939,930
===========
Shares:
Weighted average shares 25,392,621
Effect of dilutive securities:
Units 359,093
-----------
Weighted average shares
(Denominator) 25,751,714
===========
Diluted earnings per share $ .58
=====
Continued
F-32
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
S. Fair Value of Financial Instruments
The Company uses the following methods and assumptions to estimate the
fair value of each class of financial instrument:
Cash and cash equivalents
The carrying amount approximates the fair value due to the short
maturity of those instruments.
MBS
The Company estimates the fair value of MBS based on quoted market
prices. (See Note I).
Mortgage loans and notes receivable
The Company estimates the fair value of its mortgage loans using the
market value of the properties which collateralize such loans, if
available. Otherwise, fair value is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and the same remaining
maturities. Based on this analysis, the Company has determined that the
fair value of the instruments approximates carrying value. The Company
estimates the fair value of mortgage loans and notes receivable to be
approximately $8,060,000 and $4,094,000 at December 31, 1997 and 1996,
respectively.
Credit agreements
At December 31, 1997, the Company had two separate lines of credit in
place. Due to the relatively short period of time between repricing
dates on the revolving components, the Company approximates the fair
value of those borrowings at the current carrying value. The Company
estimates the value of its interest-only fixed rate Credit Facility held
with the FNMA by discounting cash flows remaining to maturity using
comparable treasury interest rates plus current spreads. The Company
estimates the fair market value of fixed rate debt to be $37,656,000 and
$61,873,000 at December 31, 1997 and 1996, respectively.
Repurchase agreements
The carrying amount of the Company's repurchase agreement at December
31, 1996 approximated fair value due to the short maturity.
Interest rate swap agreement
The fair value of the Company's interest rate swap agreement is
estimated to be approximately ($156,000) and $150,000, as of December
31, 1997 and 1996, respectively, which is the amount the Company would
disburse or receive if the swap was terminated as of those dates.
Mortgage notes payable
Mortgage notes payable were valued by discounting cash flows remaining
to maturity using comparable treasury interest rates plus current
spreads. Based on this analysis, the Company has determined that the
fair value of these liabilities approximates carrying value.
Continued
F-33
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
T. Pro-Forma Results (Unaudited):
The following unaudited pro-forma operating results for the Company have
been prepared as if the 1997 and 1996 property acquisitions,
dispositions and equity offerings had occurred on January 1, 1996.
Unaudited pro-forma financial information is presented for informational
purposes only and may not be indicative of what the actual results of
operations of the Company would have been had the events occurred as of
January 1, 1996, nor does it purport to represent the results of
operations for future periods. (Dollars in thousands except per Share
amounts).
For the Twelve Months Ended
December 31, December 31,
1997 1996
----------- -----------
Revenue $150,147 $144,894
======== ========
Expenses including depreciation $159,848 $161,202
======== ========
Net loss $(12,670) $(17,799)
======== ========
Net loss per weighted
average share $(.34) $(.50)
===== =====
U. Shareholders' Equity
Preferred Stock
On September 25, 1997, the Company sold 2,737,000 shares of Series
1997-A Cumulative Preferred Stock (the "Preferred Shares"), $.01 par
value, to affiliates of Westbrook Partners, LLC at $25.00 per share.
Holders of Preferred Shares are entitled to receive, if declared by the
Board, preferential cumulative quarterly cash dividends, at the greater
of the rate of 9% per annum or the dividend payable on shares of common
stock. Each Preferred Share is convertible at the option of the holder
beginning September 19, 1998 into 2.0756 shares of common stock, based
on a conversion price of $12.04 per share of common stock, subject to
certain adjustments as defined in the agreement.
The terms of the Preferred Shares provide that it will rank prior to any
other series of preferred stock, prior to common stock and prior to any
other class or series of capital stock of the Company with respect to
the payment of dividends, the right to redemption and the distribution
preference in the event of a change in ownership or the liquidation,
dissolution or winding up of the Company.
The amount of cumulative preferred dividends accrued as of December 31,
1997 was $786,750.
Common Stock Offering
On November 10, 1997, the Company completed an offering of ten million
shares of common stock which provided net cash proceeds of approximately
$103.1 million. The Company used the proceeds to fund the Questar
Transaction, to repay variable rate debt and for general corporate
purposes. The Company filed a Registration Statement and Prospectus on
October 7, 1997 and a Prospectus Supplement dated November 4, 1997 which
provided additional details with respect to the offering.
Continued
F-34
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
U. Shareholders' Equity - Continued
Dividends to Shareholders
For federal income tax purposes, the following summarizes the tax
components
of dividends paid in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995
----------- ------------- ----------------
Per Share:
<S> <C> <C> <C> <C> <C> <C>
Ordinary income $.21 23.3% $.44 48.9% $.36 40.4%
Non-taxable distributions .71 76.7% .46 51.1% .53 59.6%
---- ----- ---- ----- ---- -----
Total $.92 100% $.90 100% $.89 100%
==== ===== ==== ===== ==== =====
</TABLE>
For federal income tax purposes, the Company is depreciating its
properties using the Modified Cost Recovery System. Also, non-recurring
charges associated with the issuance of warrants and recognition of
effective interest income on mortgage loans (see Note H) are recognized
for federal tax purposes when realized.
Warrants
On June 4, 1991 at a special meeting, the Unitholders of Krupp Cash
Plus-III Limited Partnership and Krupp Cash Plus-IV Limited Partnership
(collectively the "Participating Cash Plus Partnerships") voted in favor
of and agreed to participate in an exchange (the "Exchange") with the
Company. Subsequently, the Company was named in a consolidated lawsuit
filed as a class action representing those Unitholders related to the
Exchange transaction. On August 3, 1994, the court approved a settlement
which became effective on September 6, 1994.
The settlement agreement provided that the Company pay to the plaintiff
class $1.5 million and issue three million stock warrants. Upon
exercise, each warrant entitles the holder to the right to acquire one
share of common stock of the Company. The warrants are exercisable for a
period of four years ending on September 8, 1998. The number of shares
of common stock issuable upon exercise of a warrant is subject to
adjustment upon the occurrence of certain events described in the
warrant agreement. The current exercise price of $11.79 is effective
through September 8, 1998. As of December 31, 1997, 3,200 shares of
common stock were issued upon exercise of warrants and 2,996,800
warrants remained outstanding.
V. Subsequent Events
Subsequent to December 31, 1997, the Company acquired eight multifamily
apartment complexes totaling 2,760 units for approximately $111.2
million. The Company paid cash of approximately $10.5 million, issued
Units with an approximate value of $17.2 million and assumed
approximately $83.5 million of debt. In addition, the Company has
contracted to acquire two assets totaling 899 units for approximately
$17.6 million which are scheduled to close in the first quarter of 1998.
Subsequent to December 31, 1997, the Company sold Tara Crossing, a
235,181 square foot retail center located in Jonesboro, Georgia, for
approximately $9.5 million and College Plaza, a 83,962 square foot
retail center in Fort Myers, Florida, for approximately $6 million. The
Company and its joint venture partner also sold Spring Valley
Marketplace, a 320,686 square foot retail center in Spring Valley, New
York, for approximately $29.6 million. The Company's share of the gains
on the sales totaled approximately $1.3 million.
F-35
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
V. Subsequent Events - Continued
Subsequent to December 31, 1997, the Company obtained and closed a
commitment for a $130 million unsecured revolving line of credit,
generally at interest rates at 120 basis points over LIBOR, which
replaced the Credit Agreement.
F-36
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation
December 31, 1997
Costs
Capitalized
Initial Cost Subsequent to
to Partnership Acquisition
---------------------- -------------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
Residential
-----------
Altamonte Bay Club
Altamonte Springs, Florida $ 485,599 $ 4,370,388 $ 911,899
Arbors at Breckenridge
Duluth, Georgia 3,260,522 23,377,258 1,077,296
Arborview
Belcamp, Maryland 1,857,819 16,720,367 2,602
The Avalon on Abernathy
Atlanta, Georgia 2,013,424 5,177,377 5,165,865
Benchmark
Irving, Texas 1,589,125 6,493,913 1,292,156
Berkshires at Brookfield
Mauldin, South Carolina 620,879 5,944,128 22,482
Berkshire Towers
Silver Spring, Maryland 5,441,750 48,975,751 8,441,857
Berkshire West
Winter Garden, Florida 865,270 7,787,429 794,397
British Woods
Nashville, Tennessee 1,212,396 10,911,569 966,293
Brookfield Trace
Mauldin, South Carolina 1,058,227 9,626,293 216,495
Brookwood Valley
Mauldin, South Carolina 972,241 8,863,448 627,311
Calverts Walk
Belair, Maryland 1,538,897 13,850,073 18,092
The Channel
Glen Burnie, Maryland 1,191,251 4,717,731 637,197
Courtleigh
Baltimore, Maryland 1,390,708 12,516,376 21,575
The Cove
Glen Burnie, Maryland 1,345,305 5,910,923 641,633
Coventry
Baltimore, Maryland 600,380 5,403,428 4,823
Cumberland Cove
Raleigh, North Carolina 1,840,482 23,538,037 1,477,607
F-37
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Costs
Capitalized
Initial Cost Subsequent to
to Partnership Acquisition
---------------------- -------------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
Residential
-----------
Diamond Ridge
Baltimore, Maryland 476,124 4,285,111 2,596
East Lake Village
Charlotte, North Carolina 531,629 4,784,665 2,612,471
The Estates
Pikesville, Maryland 1,345,118 12,106,065 1,650
Fairway Ridge
Baltimore, Maryland 703,599 6,332,391 14,110
Golfside
Haltom City, Texas 1,444,530 6,988,219 1,070,982
Harpers Mill
Millersville, Maryland 1,225,560 6,842,645 605,007
Hazelcrest
Baltimore, Maryland 117,361 1,056,252 2,050
Heraldry Square
Baltimore, Maryland 999,268 8,993,412 29,904
Highland Ridge,
Nashville, Tennessee 720,695 6,486,261 1,482,031
Hilltop
Baltimore, Maryland 132,216 1,189,947 869
Hunters Glen
Plano, Texas 1,465,565 8,655,738 1,654,024
Huntington Brook
Dallas, Texas 2,263,094 9,819,628 229,757
Huntington Chase
Norcross, Georgia 1,423,792 7,862,948 2,009,459
Huntington Downs
Greenville, South Carolina 791,173 8,091,240 1,613,205
Huntington Lakes
Dallas, Texas 2,781,562 15,315,785 236,182
Huntington Ridge
Irving, Texas 1,517,733 8,057,870 45,825
Indigo on Forest
Dallas, Texas 10,951,649 26,256,230 5,631,199
F-38
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Costs
Capitalized
Initial Cost Subsequent to
to Partnership Acquisition
---------------------- -------------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
Residential
-----------
Jamestowne
Baltimore, Maryland 857,913 7,721,211 8,318
Kings Crossing
Houston, Texas 3,614,838 9,295,300 1,337,953
Kingwood Common I
Baltimore, Maryland 733,981 6,605,835 11,315
Kingwood Common II
Baltimore, Maryland 713,086 6,417,777 10,255
Kingwood Lake
Houston, Texas 3,106,935 9,320,806 1,714,520
Lakes of Jacaranda
Plantation, Florida 3,060,000 17,818,748 1,018,242
The Lighthouse
Glen Burnie, Maryland 1,085,769 5,542,856 555,837
Liriope
Belcamp, Maryland 762,396 6,861,560 0
Newport
Tampa, Florida 486,478 4,378,303 1,501,758
The Oaks
Mauldin, South Carolina 1,509,268 6,522,462 430,348
Park Colony
Hollywood, Florida 1,888,641 16,997,765 1,359,817
Plantation Colony
Plantation, Florida 1,341,571 12,074,143 942,318
Pleasant Woods
Dallas, Texas 1,714,157 4,336,521 1,002,504
Prescott Place
Mesquite, Texas 1,227,427 7,508,711 767,966
Prescott Place II
Mesquite, Texas 1,509,562 8,988,087 646,977
Providence
Dallas, Texas 1,240,238 5,525,927 1,211,511
Ridgeview Chase
Westminster, Maryland 1,218,042 10,962,377 2,274
F-39
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Costs
Capitalized
Initial Cost Subsequent to
to Partnership Acquisition
---------------------- -------------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
Residential
-----------
River Oaks
Houston, Texas 2,464,193 8,249,691 3,290,782
Rolling Wind
Baltimore, Maryland 1,983,454 17,851,088 2,150
Roper Mountain Woods
Greenville, South Carolina 667,352 6,006,172 1,128,003
Southpoint at Massapequa
Massapequa, New York 874,448 7,870,033 839,844
Stoneledge Plantation
Greenville, South Carolina 934,388 8,898,048 938,132
Stratton Meadow
Baltimore, Maryland 1,475,077 13,275,700 19,640
Summer Place
Addison, Texas 2,196,890 4,855,728 490,247
Sun Chase
Bradenton, Florida 530,292 4,772,626 602,577
Sweetwater Ranch
Richardson, Texas 3,391,089 17,311,531 30,275
The Timbers
Charlotte, North Carolina 965,823 8,692,408 932,302
Warren Park
Baltimore, Maryland 729,611 6,566,506 1,968
Westchester West
Silver Spring, Maryland 1,637,184 14,734,660 1,297,510
Williston
Baltimore, Maryland 274,712 2,472,406 659
Windover
Knoxville, Tennessee 890,613 8,015,515 3,150,535
Woodland Meadows
Tamarac, Florida 517,218 4,654,918 3,071,972
------------ ------------ -----------
Total Residential $101,777,589 $658,414,315 $67,879,410
------------ ------------ -----------
F-40
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Costs
Capitalized
Initial Cost Subsequent to
to Partnership Acquisition
---------------------- -------------
Buildings Buildings
and and
Description Land Improvements Improvements
----------- ---- ------------ ------------
Commercial
-----------
College Plaza
Fort Myers, Florida 3,187,958 6,510,079 739,563
Tara Crossing
Jonesboro, Georgia 4,097,159 16,045,810 729,557
----------- ------------ -----------
Total Commercial $ 7,285,117 $ 22,555,889 $ 1,469,120
----------- ------------ -----------
Developments in progress
and land held for investment
or future developments:
Berkshires at Crooked Creek
Durham, North Carolina 1,643,820 - 6,965,890
Berkshires at Deerfield
Atlanta, Georgia 5,818,105 - 0
Garlington Road Land
Greenville, South Carolina 1,412,952 - 383,857
Inglesby Land
Greenville, South Carolina 3,036,570 - 444,914
Indigo Land
Dallas, Texas 863,455 - 434,511
------------ ------------ -----------
Total Land $ 12,774,902 $ - $ 8,229,172
------------ ------------ -----------
Grand Total - All
Real Estate $121,837,608 $680,970,204 $77,577,702
============ ============ ===========
Continued
F-41
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Gross Amounts Carried at End of Year
-------------------------------------------
Buildings
and
Description Land Improvements Total
----------- ------------ ------------ ------------
Residential
-----------
Altamonte Bay Club
Altamonte Springs, Florida $ 485,599 $ 5,282,288 $ 5,767,887
Arbors at Breckenridge
Duluth, Georgia 3,260,522 24,454,554 27,715,076
Arborview
Belcamp, Maryland 1,857,819 16,722,969 18,580,788
The Avalon on Abernathy
Atlanta, Georgia 2,013,424 10,343,242 12,356,666
Benchmark
Irving, Texas 1,589,125 7,786,069 9,375,194
Berkshires at Brookfield
Mauldin, South Carolina 620,879 5,966,610 6,587,489
Berkshire Towers
Silver Spring, Maryland 5,441,750 57,417,608 62,859,358
Berkshire West
Winter Garden, Florida 865,270 8,581,826 9,447,096
British Woods
Nashville, Tennessee 1,212,396 11,877,862 13,090,258
Brookfield Trace
Mauldin, South Carolina 1,058,227 9,842,788 10,901,015
Brookwood Valley
Mauldin, South Carolina 972,241 9,490,759 10,463,000
Calvert's Walk
Belair, Maryland 1,538,897 13,868,165 15,407,062
The Channel
Glen Burnie, Maryland 1,191,251 5,354,928 6,546,179
Courtleigh
Baltimore, Maryland 1,390,708 12,537,951 13,928,659
The Cove
Glen Burnie, Maryland 1,345,305 6,552,556 7,897,861
Coventry
Baltimore, Maryland 600,380 5,408,251 6,008,631
Cumberland Cove
Raleigh, North Carolina 1,840,482 25,015,644 26,856,126
F-42
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Gross Amounts Carried at End of Year
-------------------------------------------
Buildings
and
Description Land Improvements Total
----------- ------------ ------------ ------------
Residential
-----------
Diamond Ridge
Baltimore, Maryland 476,124 4,287,707 4,763,831
East Lake Village
Charlotte, North Carolina 531,629 7,397,136 7,928,765
The Estates
Pikesville, Maryland 1,345,118 12,107,715 13,452,833
Fairway Ridge
Baltimore, Maryland 703,599 6,346,501 7,050,100
Golfside
Haltom City, Texas 1,444,530 8,059,201 9,503,731
Harpers Mill
Millersville, Maryland 1,225,560 7,447,652 8,673,212
Hazelcrest
Baltimore, Maryland 117,361 1,058,302 1,175,663
Heraldry Square
Baltimore, Maryland 999,268 9,023,316 10,022,584
Highland Ridge
Nashville, Tennessee 720,695 7,968,292 8,688,987
Hilltop
Baltimore, Maryland 132,216 1,190,816 1,323,032
Hunters Glen
Plano, Texas 1,465,565 10,309,762 11,775,327
Huntington Brook
Dallas, Texas 2,263,094 10,049,385 12,312,479
Huntington Chase
Norcross, Georgia 1,423,792 19,872,407 21,296,199
Huntington Downs
Greenville, South Carolina 791,173 19,704,444 20,495,617
Huntington Lakes
Dallas, Texas 2,781,562 15,551,967 18,333,529
Huntington Ridge
Irving, Texas 1,517,733 8,103,695 9,621,428
Indigo on Forest
Dallas, Texas 10,951,649 31,887,429 42,839,078
F-43
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Gross Amounts Carried at End of Year
-------------------------------------------
Buildings
and
Description Land Improvements Total
----------- ------------ ------------ ------------
Residential
-----------
Jamestowne
Baltimore, Maryland 857,913 7,729,529 8,587,442
Kings Crossing
Houston, Texas 3,614,838 10,633,253 14,248,091
Kingwood Common I
Baltimore, Maryland 733,981 6,617,150 7,351,131
Kingwood Common II
Baltimore, Maryland 713,086 6,428,032 7,141,118
Kingwood Lake
Houston, Texas 3,106,935 11,035,325 14,142,260
Lakes of Jacaranda
Plantation, Florida 3,060,000 18,836,990 21,896,990
The Lighthouse
Glen Burnie, Maryland 1,085,769 6,098,693 7,184,462
Liriope
Belcamp, Maryland 762,396 6,861,560 7,623,956
Newport
Tampa, Florida 486,478 5,880,063 6,366,541
The Oaks
Mauldin, South Carolina 1,509,268 6,952,810 8,462,078
Park Colony
Hollywood, Florida 1,888,641 18,357,582 20,246,223
Plantation Colony
Plantation, Florida 1,341,571 13,016,461 14,358,032
Pleasant Woods
Dallas, Texas 1,714,157 5,339,025 7,053,182
Prescott Place
Mesquite, Texas 1,227,427 8,276,676 9,504,103
Prescott Place II
Mesquite, Texas 1,509,562 9,635,064 11,144,626
Providence
Dallas, Texas 1,240,238 6,737,438 7,977,676
Ridgeview Chase
Westminster, Maryland 1,218,042 10,964,651 12,182,693
F-44
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Gross Amounts Carried at End of Year
-------------------------------------------
Buildings
and
Description Land Improvements Total
----------- ------------ ------------ ------------
Residential
-----------
River Oaks
Houston, Texas 2,464,193 11,540,473 14,004,666
Rolling Wind
Baltimore, Maryland 1,983,454 17,853,238 19,836,692
Roper Mountain Woods
Greenville, South Carolina 667,352 7,134,175 7,801,527
Southpoint at Massapequa
Massapequa, New York 874,448 8,709,877 9,584,325
Stoneledge Plantation
Greenville, South Carolina 934,388 9,836,180 10,770,568
Stratton Meadows
Baltimore, Maryland 1,475,077 13,295,340 14,770,417
Summer Place
Addison, Texas 2,196,890 5,345,975 7,542,865
Sun Chase
Bradenton, Florida 530,292 5,375,203 5,905,495
Sweetwater Ranch
Richardson, Texas 3,391,089 17,341,806 20,732,895
The Timbers
Charlotte, North Carolina 965,823 9,624,710 10,590,533
Warren Park
Baltimore, Maryland 729,611 6,568,474 7,298,085
Westchester West
Silver Spring, Maryland 1,637,184 16,032,170 17,669,354
Williston
Baltimore, Maryland 274,712 2,473,065 2,747,777
Windover
Knoxville, Tennessee 890,613 11,166,050 12,056,663
Woodland Meadows
Tamarac, Florida 517,218 7,726,890 8,244,108
------------ ------------ ------------
Total Residential $101,777,589 $726,293,725 $828,071,314
------------ ------------ ------------
F-45
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Gross Amounts Carried at End of Year
-------------------------------------------
Buildings
and
Description Land Improvements Total
----------- ------------ ------------ ------------
Commercial
-----------
College Plaza
Fort Myers, Florida 3,187,958 7,249,642 10,437,600
Tara Crossing
Jonesboro, Georgia 4,097,159 16,775,367 20,872,526
----------- ------------ ------------
Total Commercial $ 7,285,117 $ 24,025,009 $ 31,310,126
----------- ------------ ------------
Developments in progress
and land held for investment
or future developments:
----------------------------
Berkshires at Crooked Creek
Durham, North Carolina 1,643,820 6,965,890 8,609,709
Berkshires at Deerfield
Atlanta, Georgia 5,818,105 0 5,818,105
Garlington Road Land
Greenville, South Carolina 1,412,952 383,857 1,796,809
Inglesby Land
Greenville, South Carolina 3,036,570 444,914 3,481,484
Indigo Land
Dallas, Texas 863,455 434,511 1,297,967
------------ ------------ ------------
Total Land $ 12,774,902 $ 8,229,172 $ 21,004,074
------------ ------------ ------------
Grand Total - All
Real Estate $121,837,608 $758,547,906 $880,385,514
============ ============ ============
Continued
F-46
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
Residential
-----------
Altamonte Bay Club
Altamonte Springs, Florida $ 1,858,168 1984-1986 10/14/92
Arbors at Breckenridge
Duluth, Georgia 5,475,002 1986-1989/ 12/17/93
1995
Arborview
Belcamp, Maryland 138,681 1992 11/14/97
The Avalon on Abernathy
Atlanta, Georgia 2,861,719 1971 06/02/92
Benchmark
Irving, Texas 820,509 1982 06/27/96
Berkshires at Brookfield
Mauldin, South Carolina 402,274 1997 01/31/97
Berkshire Towers
Silver Spring, Maryland 6,000,676 1965-1969 05/14/96
Berkshire West
Winter Garden, Florida 351,061 1991 05/13/97
British Woods
Nashville, Tennessee 1,693,197 1984 11/01/95
Brookfield Trace
Mauldin, South Carolina 1,314,295 1995 11/01/95
Brookwood Valley
Mauldin, South Carolina 1,752,378 1992 04/13/95
Calverts Walk
Belair, Maryland 117,994 1988 11/14/97
The Channel
Glen Burnie, Maryland 170,091 1981 07/22/97
Courtleigh
Baltimore, Maryland 106,607 1988 11/14/97
The Cove
Glen Burnie, Maryland 201,188 1976 07/22/97
Coventry
Baltimore, Maryland 45,936 1986 11/14/97
Cumberland Cove
Raleigh, North Carolina 5,892,011 1985/1995 12/19/91
F-47
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
Residential
-----------
Diamond Ridge
Baltimore, Maryland 36,101 1991 11/14/97
East Lake Village
Charlotte, North Carolina 2,299,308 1972 10/19/93
The Estates
Pikesville, Maryland 100,362 1989 11/14/97
Fairway Ridge
Baltimore, Maryland 56,613 1966 11/14/97
Golfside
Haltom City, Texas 858,473 1980/1985 06/06/96
Harpers Mill
Millersville, Maryland 224,089 1978 07/22/97
Hazelcrest
Baltimore, Maryland 9,424 1965 11/14/97
Heraldry Square
Baltimore, Maryland 79,536 1974 11/14/97
Highland Ridge
Nashville, Tennessee 1,203,141 1972 11/01/95
Hilltop
Baltimore, Maryland 10,388 1965 11/14/97
Hunters Glen
Plano, Texas 978,496 1979 07/30/96
Huntington Brook
Dallas, Texas 171,499 1984 09/26/97
Huntington Chase
Norcross, Georgia 4,877,705 1987/1996 07/07/93
Huntington Downs
Greenville, South Carolina 10,206,249 1986-1987 01/15/88
Huntington Lake
Dallas, Texas 257,372 1984/1996 09/26/97
Huntington Ridge
Irving, Texas 134,697 1984 09/26/97
Indigo on Forest
Dallas, Texas 8,235,841 1984 08/31/94
Jamestowne
Baltimore, Maryland 68,005 1965 11/14/97
F-48
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
Residential
-----------
Kings Crossing
Houston, Texas 2,816,747 1983 03/23/93
Kingwood Common I
Baltimore, Maryland 57,282 1976 11/14/97
Kingwood Common II
Baltimore, Maryland 56,183 1979 11/14/97
Kingwood Lake
Houston, Texas 2,934,488 1980 03/23/93
Lakes of Jacaranda
Plantation, Florida 7,770,844 1988-1989 03/30/90
The Lighthouse
Glen Burnie, Maryland 128,036 1982 09/22/97
Liriope
Belcamp, Maryland 19,412 1997 12/15/97
Newport
Tampa, Florida 2,125,221 1985 10/14/92
The Oaks
Mauldin, South Carolina 2,858,493 1989 03/02/90
Park Colony
Hollywood, Florida 4,217,049 1987 07/13/94
Plantation Colony
Plantation, Florida 3,401,039 1984 12/01/93
Pleasant Woods
Dallas, Texas 609,885 1979 06/06/96
Prescott Place
Mesquite, Texas 884,980 1983 06/06/96
Prescott Place II
Mesquite, Texas 733,993 1984 11/12/96
Providence
Dallas, Texas 754,074 1980 06/26/96
Ridgeview Chase
Westminster, Maryland 91,211 1988 11/14/97
River Oaks
Houston, Texas 2,399,362 1966 05/01/95
Rolling Wind
Baltimore, Maryland 147,508 1995 11/14/97
F-49
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
Residential
-----------
Roper Mountain Woods
Greenville, South Carolina 3,702,228 1984 01/15/88
Southpoint at Massapequa
Massapequa, New York 3,092,403 1969 10/14/92
Stoneledge Plantation
Greenville, South Carolina 5,096,653 1986 01/15/88
Stratton Meadows
Baltimore, Maryland 111,829 1989 11/14/97
Summer Place
Addison, Texas 119,119 1980 09/26/97
Sun Chase
Bradenton, Florida 234,830 1987 05/13/97
Sweetwater Ranch
Richardson, Texas 282,989 1995 09/26/97
The Timbers
Charlotte, North Carolina 3,026,412 1989 03/22/93
Warren Park
Baltimore, Maryland 55,905 1964 11/14/97
Westchester West
Silver Spring, Maryland 1,027,244 1970-1972 01/01/97
Williston
Baltimore, Maryland 21,410 1967 11/14/97
Windover
Knoxville, Tennessee 1,797,886 1974 11/01/95
Woodland Meadows
Tamarac, Florida 2,791,362 1974 10/14/92
------------
Total Residential $112,375,163
------------
F-50
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - Real Estate and Accumulated Depreciation - Continued
December 31, 1997
Year
Accumulated Construction Date
Description Depreciation Completed Acquired
----------- ------------ --------- --------
Commercial
-----------
College Plaza
Fort Myers, Florida 5,247,818 1983 & 1985 04/30/87
Tara Crossing
Jonesboro, Georgia 11,657,526 1986 06/25/87
------------
Total Commercial $16,905,344
------------
Developments in progress and
land held for investment or
future developments:
Berkshires at Crooked Creek
Durham, North Carolina - N/A 08/25/95
Berkshires at Deerfield
Atlanta, Georgia - N/A 12/17/97
Garlington Road Land
Greenville, South Carolina - N/A 06/10/96
Inglesby Land
Greenville, South Carolina - N/A 01/10/97
Indigo Land
Dallas, Texas - N/A 08/31/94
------------
Total Land -
------------
$129,280,507
============
Notes: Brookfield Trace was combined with Berkshires at Brookfield
upon completion of the construction in 1997.
The depreciable life of a residential property is 3-25 years and
a commercial property is 3-25 years.
The aggregate cost of the Company's real estate for federal
income tax purposes is approximately $684,621,000 million, and
the aggregate accumulated depreciation for federal income tax
purposes is approximately $53,970,000 million.
Continued
F-51
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1997
Reconciliation of Real Estate and Accumulated Depreciation for each of the
three years ended December 31:
1997 1996 1995
------------ ------------ -----------
Real Estate
Balance, beginning of year $585,795,316 $465,846,375 $448,057,874
Acquisition and improvements 341,218,085 146,774,969 89,578,886
Sales and retirements (46,627,887) (26,826,028) (71,790,385)
------------ ------------ ------------
Balance at December 31, $880,385,514 $585,795,316 $465,846,375
============ ============ ============
Accumulated Depreciation
Balance, beginning of year $106,869,507 $ 77,641,555 $ 80,863,231
Depreciation expense 35,228,587 29,032,162 21,976,356
Provision for losses 1,850,000 7,500,000 -
Sales and retirements (14,667,587) (7,304,210) (25,198,032)
------------ ------------ ------------
Balance at December 31, $129,280,507 $106,869,507 $ 77,641,555
============ ============ ============
F-52
<PAGE>
SUMMARY QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
The consolidated results of operations of the Company for the quarters ended
March 31, June 30, September 30 and December 31, 1997 and 1996 are as follows:
(Dollars in thousands, except per Share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
------------------------------- ------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 25,403 $ 20,429 $ 26,685 $ 22,161
========== ========== ========== ==========
Income (loss) from operations (2,502) (226) (745) (728)
Joint venture income (loss) (351) 427 (157) 231
Gains (losses) on sales of
investments 6,433 - 71 -
Minority interest (685) (7) 206 27
Extraordinary items - - - -
---------- ---------- ---------- ----------
Net income (loss) $ 2,895 $ 194 $ (625) $ (470)
========== ========== ========== ==========
Income allocated to
preferred shareholders - - - -
---------- ---------- ---------- ----------
Net income (loss) allocated
to common shareholders 2,895 194 (625) (470)
========== ========== ========== ==========
Net income (loss) per
weighted average share $ .11 $ .01 $ (.02) $ (.02)
========== ========== ========== ==========
Dividends paid per share $ .2250 $ .2250 $ .2250 $ .2250
========== ========== ========== ==========
Weighted average shares
outstanding 25,420,444 25,392,952 25,480,709 25,392,962
========== ========== ========== ==========
September 30, December 31,
------------------------- -------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue $ 28,416 $ 25,334 $ 34,995 $ 25,078
========== ========== ========== ==========
Income (loss) from operations (5,078) (9,598) (3,712) (2,060)
Joint venture income (loss) 131 485 (4,533) (4,152)
Gains (losses) on sales of
investments 44 45 (93) 13
Minority interest 852 1,695 1,780 (313)
Extraordinary items (90) (149) - 2
---------- ---------- ---------- ----------
Net income (loss) $ (4,141) $ (7,522) $ (6,558) $ (6,510)
========== ========== ========== ==========
Income allocated to
preferred shareholders (85) - (1,574) -
---------- ---------- ---------- ----------
Net income (loss) allocated
to common shareholders (4,226) (7,522) (8,132) (6,510)
========== ========== ========== ==========
Net income (loss) per
weighted average share $ (.16) $ (.30) $ (.26) $ (.26)
========== ========== ========== ==========
Dividends paid per share $ .2325 $ .2250 $ .2325 $ .2250
========== ========== ========== ==========
Weighted average shares
outstanding 25,738,248 25,393,299 31,704,588 25,393,369
========== ========== ========== ==========
</TABLE>
F-53
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
FINANCIAL STATEMENTS AND SCHEDULE
For the Year Ended December 31, 1997
F-54
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-56
Balance Sheets at December 31, 1997 and December 31, 1996 F-57
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-58
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-59
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-60 - F-61
Notes to Financial Statements F-62 - F-65
Schedule III - Real Estate and Accumulated Depreciation F-66 - F-67
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the financial statements or the notes thereto.
F-55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Joint Venture Partners of
Brookwood Village Joint Venture:
We have audited the financial statements and financial statement schedule
of Brookwood Village Joint Venture (the "Joint Venture") listed in the index on
page F-21 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Joint Venture's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Joint Venture as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note C, the Joint Venture's only property was sold on May
13, 1997. As a result of the sale, the Joint Venture was liquidated in 1997.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
January 30, 1998
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
------------ --------
Real estate assets:
Land (Note C) $ - $ 15,895,139
Building and improvements (Note C) - 44,635,153
Less accumulated depreciation (Notes C and G) - (26,190,274)
------------ ------------
Total real estate assets - 34,340,018
Cash (Note C) - 166,919
Other assets (Note C) - 512,031
------------ ------------
Total assets $ - $ 35,018,968
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable $ - $ 44,762
Accrued expenses and other liabilities
(Note D) - 440,067
Due to affiliates (Note F) - 8,351
Accrued legal settlement (Note A) - 4,300,000
------------ ------------
Total liabilities - 4,793,180
Partners' equity (Note E) - 30,225,788
------------ ------------
Total liabilities and Partners' equity $ - $ 35,018,968
============ ============
Theaccompanying notes are an integral
part of the financial statements.
F-57
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -------
<S> <C> <C> <C>
Revenue:
Rental $ 2,388,205 $ 6,118,192 $ 6,243,206
Interest income 47,741 28,503 50,656
----------- ----------- -----------
Total revenue 2,435,946 6,146,695 6,293,862
----------- ----------- -----------
Expenses:
Operating (Note F) 784,889 1,586,415 1,689,116
Maintenance 226,703 631,241 590,110
Real estate taxes 133,320 373,856 335,475
Management fees (Note F) 140,197 375,192 376,424
Depreciation 731,909 2,026,131 2,309,755
Provisions for losses on real
estate (Note G) 1,472,096 9,000,000 -
----------- ----------- -----------
Total expenses 3,489,114 13,992,835 5,300,880
----------- ----------- -----------
Income (loss) before loss on
sale of property (1,053,168) (7,846,140) 992,982
Loss on sale of property (Note C) (721,760) - -
----------- ----------- -----------
Net income (loss) (Note H) $(1,774,928) $(7,846,140) $ 992,982
=========== =========== -----------
Allocation of net income (loss):
(Note E)
Krupp Cash Plus-II Limited
Partnership $ (887,464) $(3,923,070) $ 496,491
=========== =========== ===========
BRI Texas Apartments Limited
Partnership $ (887,464) $(3,923,070) $ 496,491
=========== =========== -----------
</TABLE>
Theaccompanying notes are an integral
part of the financial statements.
F-58
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
BRI
Krupp Texas
Cash Plus-II Apartments Total
Limited Limited Partners'
Partnership Partnership Equity
Balance at
December 31, 1994 $21,339,973 $21,339,973 $42,679,946
Net income 496,491 496,491 992,982
Distributions (1,425,000) (1,425,000) (2,850,000)
----------- ---------- -----------
Balance at
December 31, 1995 20,411,464 20,411,464 40,822,928
Net loss (3,923,070) (3,923,070) (7,846,140)
Distributions (1,375,500) (1,375,500) (2,751,000)
----------- ---------- -----------
Balance at
December 31, 1996 15,112,894 15,112,894 30,225,788
Capital contributions
(Note A) 2,150,000 2,150,000 4,300,000
Loss on sale of
property (Note C) (360,880) (360,880) (721,760)
Net loss (Note E) (526,584) (526,584) (1,053,168)
Distributions (Note E) (16,375,430) (16,375,430) (32,750,860)
----------- ----------- -----------
Balance at
December 31, 1997 $ - $ - $ -
=========== =========== ===========
Theaccompanying notes are an integral
part of the financial statements.
F-59
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
STATEMENTS OF CASH FLOWS For the
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(1,774,928) $(7,846,140) $ 992,982
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation 731,909 2,026,131 2,309,755
Provisions for losses
on real estate 1,472,096 9,000,000 -
Loss on sale of
property 721,760 - -
Changes in assets and
liabilities:
Decrease in other
assets 512,031 120,550 177,170
Increase (decrease)
in accounts
payable (44,762) 30,349 (14,741)
Increase (decrease)
in due to
affiliates (8,351) (4,217) 12,568
Increase (decrease)
in accrued
expenses and
other liabilities (440,067) 108,059 (432,851)
----------- ----------- -----------
Net cash provided
by operating
activities 1,169,688 3,434,732 3,044,883
----------- ----------- -----------
Investing activities:
Additions to fixed assets (144,803) (751,474) (580,348)
Decrease in accrued legal
settlement (4,300,000) - -
Net consideration received
from sale of property 31,559,056 - -
----------- ----------- --------
Net cash provided
by (used in)
investing
activities 27,114,253 (751,474) (580,348)
----------- ----------- -----------
Financing activities:
Distributions (32,750,860) (2,751,000) (2,850,000)
Capital contributions from
Joint Venture Partners 4,300,000 - -
----------- ----------- --------
Net cash used in
financing
activities (28,450,860) (2,751,000) (2,850,000)
----------- ----------- -----------
Net decrease in cash and cash
equivalents (166,919) (67,742) (385,465)
Cash and cash equivalents,
beginning of year 166,919 234,661 620,126
----------- ----------- -----------
Cash and cash equivalents,
end of year $ - $ 166,919 $ 234,661
=========== =========== ===========
Continued
F-60
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
STATEMENTS OF CASH FLOWS, Continued For
the Years Ended December 31, 1997, 1996 and 1995
Supplemental schedule of noncash investing and financing activities:
1997 1996 1995
------------ ----------- -----------
Adjustment to real estate
asset basis for release
of lien (Note A) $ - $ 4,300,000 $ -
============ =========== ===========
Accrued legal settlement
(Note A) $ - $(4,300,000) $ -
============ =========== ===========
</TABLE>
Theaccompanying notes are an integral
part of the financial statements.
F-61
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
A. Organization
On December 16, 1986, Brookwood Village Joint Venture (the "Joint
Venture") acquired Brookwood Village Mall and Convenience Center
("Brookwood Village"), a retail development located in Birmingham,
Alabama. Brookwood Village consisted of a covered mall, a covered
garage and a detached strip shopping center with an aggregate net
leasable square footage of 474,083. The Joint Venture was 50%
owned by Krupp Cash Plus-II Limited Partnership and BRI Texas
Apartments Limited Partnership (the "Joint Venture Partners"),
both with similar investment objectives. The express purpose of
entering into the Joint Venture was to purchase, own, manage and
operate Brookwood Village.
Under the original purchase and sale agreement entered into by the
Joint Venture, its affiliates and the seller, the seller retained
a lien on the premises related to the future sale of the property
or development of unimproved land at Brookwood Village. The lien
entitled the seller to receive $5,000,000 of the proceeds from the
sale of Brookwood Village and potentially additional amounts
related to expansion and development. The Joint Venture held title
to Brookwood Village free and clear from all other material liens
or encumbrances. On January 24, 1997, the previous owner filed
suit in the Circuit Court of Jefferson County, Alabama against the
Joint Venture Partners and Brookwood Village Joint Venture, among
others. In the suit, the plaintiff claimed that the defendants had
effectively sold Brookwood Village on June 27, 1991, when one of
the original Joint Venture Partners exchanged its assets for an
ownership interest in an affiliated real estate investment trust.
The defendants sought damages of approximately $7,200,000, which
included the $5,000,000 payment stipulated in the original
purchase and sale agreement and interest accrued thereon from the
date of the exchange. On February 28, 1997, the Joint Venture
Partners paid the discounted amount of $4,300,000 to the previous
owner to release the lien and settle the lawsuit. The payment was
funded by capital contributions of $2,150,000 from each of the
Joint Venture Partners. For financial reporting purposes, the
settlement payment of $4,300,000 related to the release of the
previous owner's lien was included in the asset basis of the
property.
On May 13, 1997, the Joint Venture Partners exchanged Brookwood
Village for cash and two multifamily properties. As a result of
the sale and in accordance with Joint Venture Agreement, the Joint
Venture Partners liquidated and distributed the remaining assets
of the Joint Venture and subsequently dissolved the Joint Venture
in the fourth quarter of 1997 (see Note C for further discussion
of this matter).
B. Significant Accounting Policies
The Joint Venture used the following accounting policies for
financial reporting purposes, which may differ in certain respects
from those used for federal income
tax purposes (see Note H):
Cash and Cash Equivalents
The Joint Venture included all short-term investments with
maturities of three months or less from the date of
acquisition in cash and cash equivalents.
Rental Revenues
Commercial leases require the payment of base rent monthly in
advance. Rental revenues were recorded on the accrual basis.
Commercial leases generally contain provisions for additional
rent based on a percentage of tenant sales and other
provisions which are recorded as income when received. Minimum
rental revenue from long-term commercial leases was recognized
on a straight-line basis over the life of the related lease.
Continued
F-62
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Depreciation
Depreciation of building and improvements was provided for by
the use of the straight-line method over estimated useful
lives of 3 to 25 years. Tenant improvements were depreciated
over the life of the lease.
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at depreciated
cost. Pursuant to Statement of Financial Accounting Standards
Opinion No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of",
impairment losses are recorded on long-lived assets used in
operations on a property by property basis, when events and
circumstances indicate that the assets might be impaired and
the estimated undiscounted cash flows to be generated by those
assets are less than the carrying amount of those assets. Upon
determination that an impairment has occurred, those assets
shall be reduced to fair value less estimated costs to sell
(see Note G).
Leasing Commissions
Leasing commissions were deferred and amortized over the life
of the related lease.
Income Taxes
The Joint Venture is not liable for federal or state income
taxes because Joint Venture income or loss is allocated to the
Joint Venture Partners for income tax purposes. In the event
the Joint Venture's tax returns are examined by the Internal
Revenue Service or state taxing authority and such an
examination results in a change in the Joint Venture taxable
income or loss, such change will be reported to the Joint
Venture Partners.
C. Disposition of Real Estate Asset and Dissolution of Joint Venture
Based upon the Joint Venture Partners' assessment of the current
and future market conditions, the capital improvements necessary
to remain competitive in its market, its capital resources and the
differing strategies of the Joint Venture Partners, the Joint
Venture Partners determined that its was in their best interests,
and that of their respective investors, to sell Brookwood Village.
On May 13, 1997, the Joint Venture Partners exchanged Brookwood
Village with an unaffiliated third party for net consideration
totaling $32,422,220 less prorations and closing costs of $863,164
which included two multifamily properties and cash. Each Joint
Venture Partner was allocated 50% of the net consideration
received. For financial reporting purposes, the Joint Venture
realized a loss of $721,760 on the exchange. The loss was
calculated as the difference between net consideration received
less net book value of the property and closing costs.
As a result of the sale of Brookwood Village, the Joint Venture
Partners liquidated the Joint Venture and distributed its
remaining assets in the fourth quarter of 1997. In accordance with
the Joint Venture Agreement, each Joint Venture Partner received
50% of the remaining net assets of $793,804. Subsequent to the
final distribution, the Joint Venture was dissolved.
Continued
F-63
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS, Continued
D. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following
at December 31, 1997 and 1996:
1997 1996
-------- ------
Accrued real estate taxes $ - $ 95,932
Tenant security deposits - 34,890
Other accrued expenses - 211,834
Prepaid rent - 97,411
-------- --------
$ - $440,067
======== ========
E. Partners' Equity
Under the terms of the Brookwood Village Joint Venture Agreement,
profits, losses and distributions are allocated 50% to each Joint
Venture Partner.
As of December 31, 1997, the following cumulative Joint Venture
Partner contributions and allocations have been made since
inception of the Joint Venture:
<TABLE>
<CAPTION>
BRI
Krupp Texas
Cash Plus-II Apartments Total
Limited Limited Partners'
Partnership Partnership Equity
<S> <C> <C> <C>
Capital contributions $ 25,993,095 $ 25,993,095 $ 51,986,190
Net income 650,362 650,362 1,300,724
Loss on sale of
property (360,880) (360,880) (721,760)
Distributions:
Operations (10,503,049) (10,503,049) (21,006,098)
Capital transaction (15,779,528) (15,779,528) (31,559,056)
------------ ------------ ------------
Total at
December 31, 1997 $ - $ - $ -
============ ============ ============
</TABLE>
F. Related Party Transactions
The Joint Venture paid property management fees to an affiliate of
the Joint Venture Partners for management services. Pursuant to
the management agreement, management fees were payable monthly at
a rate up to 6% of the gross receipts, net of leasing commissions.
The Joint Venture also reimbursed affiliates of the Joint Venture
Partners for certain expenses incurred in connection with the
operation of Brookwood Village including administrative expenses.
Amounts accrued or paid to affiliates of the Joint Venture
Partners during the years ended December 31, 1997, 1996 and 1995
were as follows:
1997 1996 1995
--------- -------- --------
Property management fees $ 140,197 $375,192 $376,424
Expense reimbursements 28,858 165,611 137,455
--------- -------- --------
Charged to operations $ 169,055 $540,803 $513,879
========= ======== ========
Due to affiliates consisted of expense reimbursements of $8,351
at December 31, 1996.
Continued
F-64
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS, Continued
G. Provisions for Losses on Real Estate
In accordance with Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", the Joint Venture recorded cumulative valuation provisions
for losses on its real estate assets of $10,472,096 and $9,000,000 as of
May 13, 1997, the date Brookwood Village was sold (see Note C), and
December 31, 1996, respectively, which represent the difference between
carrying value and estimated fair value less costs to sell.
H. Federal Income Taxes
The reconciliation of the net income (loss) for each year reported
in the accompanying Statement of Operations with the net income
reported in the Joint Venture's 1997, 1996 and 1995 federal income
tax return follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss) per Statement
of Operations $ (1,774,928) $(7,846,140) $ 992,982
Difference in book to tax
depreciation 347,845 1,011,716 1,299,910
Difference in book to tax
valuation provisions 1,472,096 9,000,000 -
Difference between book and
tax loss on sale of
property (16,434,937) - -
Rental adjustment required
by Generally Accepted
Accounting Principles 68,336 141,808 63,257
Difference in book to tax
bad debt (4,181) 15,534 -
------------ ----------- -----------
Net income (loss) for federal
income tax purposes $(16,325,769) $ 2,322,918 $ 2,356,149
============ =========== ===========
The allocation of the 1997 net loss for federal income tax purposes is as
follows:
Passive Portfolio
Loss Income Total
Krupp Cash Plus-II Limited
Partnership $ (5,974,042) $ 23,870 $ (5,950,172)
BRI Texas Apartments Limited
Partnership (10,399,467) 23,870 (10,375,597)
------------ ----------- ------------
$(16,373,509) $ 47,740 $(16,325,769)
============ =========== ============
</TABLE>
Passive loss differs due to individual Joint Venture Partner depreciation
elections.
The basis of the Joint Venture's assets for financial reporting purposes
was less than its tax basis by approximately $7,689,000 at December 31,
1996. The tax and book basis of the Joint Venture's liabilities were the
same.
F-65
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Costs to Joint Venture to Acquisition(a)
------------------------------ -----------------
Buildings Buildings
and and
Description Land Improvements Improvements Land
----------- ---- ------------ ------------ ----
<S> <C> <C> <C> <C>
Brookwood Village Mall
and Convenience Center
Birmingham, Alabama $14,569,321 $32,713,684 $ 12,066,272 $1,325,818
=========== =========== ============ ==========
Gross Amounts Carried at End of Year
-------------------------------------------------------------------------------
Disposition
Buildings of Buildings,
and Improvements
Land (a) Improvement (a) and Land (b) Total
-------- --------------- ------------ -----
(b)
Brookwood Village Mall
and Convenience Center
Birmingham, Alabama $15,895,139 $ 44,779,956 $ (60,675,095) $ -
=========== =============== ============= =======
Accumulated
Depreciation
and Year
Valuation Construction Date Depreciable
Provisions (b) Completed Acquired Life
Brookwood Village Mall
and Convenience Center
Birmingham, Alabama $ - 1973 12/16/86 3 to 25 Years
===============
</TABLE>
(a) For financial reporting purposes, the carrying value of the properties was
increased ($1,325,818 to land and $2,974,182 to buildings and
improvements), based on the settlement of the previous owner's lien for
$4,300,000 (see Note A).
(b) On May 13, 1997, Brookwood Village Mall and Convenience Center was sold
(see Note C).
Continued
F-66
<PAGE>
BROOKWOOD VILLAGE JOINT VENTURE
SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION - Continued
December 31, 1997
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 1997:
1997 1996 1995
------------ ----------- --------
Real Estate
Balance at beginning of year $ 60,530,292 $55,478,818 $54,898,470
Adjustment to basis based on
previous owner's lien - 4,300,000 -
Improvements 144,803 751,474 580,348
Sale of property (60,675,095) - -
------------ ----------- -----------
Balance at end of year $ - $60,530,292 $55,478,818
============ =========== ===========
1997 1996 1995
------------ ----------- -----------
Accumulated Depreciation
and Valuation Provisions
Balance at beginning of year $ 26,190,274 $15,164,143 $12,854,388
Depreciation expense 731,909 2,026,131 2,309,755
Provisions for losses on real
estate 1,472,096 9,000,000 -
Sale of property (28,394,279) - -
------------ ----------- -----------
Balance at end of year $ - $26,190,274 $15,164,143
============ =========== ===========
F-67
<PAGE>
SPRING VALLEY PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
For the Year Ended December 31, 1997
F-68
<PAGE>
SPRING VALLEY PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-70
Balance Sheets at December 31, 1997 and December 31, 1996 F-71
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-72
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-73
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-74
Notes to Financial Statements F-75 - F-79
Schedule III - Real Estate and Accumulated Depreciation F-80
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the financial statements or the notes thereto.
F-69
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Spring Valley Partnership:
We have audited the financial statements and financial statement schedule
of Spring Valley Partnership (the "Joint Venture") listed in the index on page
F-16 of these Financial Statements. These financial statements and the financial
statement schedule are the responsibility of the Joint Venture's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Spring Valley Partnership as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
As discussed in Note I, the Joint Venture's property was sold on January
30, 1998. As a result, the Joint Venture will be liquidated in 1998.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
January 30, 1998
<PAGE>
SPRING VALLEY PARTNERSHIP
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
------------ ------------
Real estate assets:
Land $ 10,403,471 $ 10,403,471
Building and improvements 43,632,731 43,425,111
------------ ------------
54,036,202 53,828,582
Less accumulated depreciation at
December 31, 1996 (Note G) (25,327,070) (13,983,325)
------------ ------------
Total real estate assets 28,709,132 39,845,257
Cash and cash equivalents 1,565,492 1,153,075
Other assets 1,392,739 1,099,725
------------ ------------
Total assets $ 31,667,363 $ 42,098,057
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued expenses and other
liabilities (Note C) $ 380,150 $ 185,163
Accounts payable - 30,044
Due to affiliates (Note F) 828 7,320
------------ ------------
Total liabilities 380,978 222,527
Partners' equity (Note D) 31,286,385 41,875,530
------------ ------------
Total liabilities and
Partners' equity $ 31,667,363 $ 42,098,057
============ ============
Theaccompanying notes are an integral
part of the financial statements.
F-71
<PAGE>
SPRING VALLEY PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- ---------- ----------
Revenue:
Rental (Note E) $ 6,734,019 $6,938,222 $6,544,064
Other income 51,936 33,438 35,233
----------- ---------- ----------
Total revenue 6,785,955 6,971,660 6,579,297
----------- ---------- ----------
Expenses:
Operating (Note F) 344,832 376,480 350,023
Maintenance 493,218 649,491 511,014
Management fees (Note F) 394,601 416,414 398,642
Real estate taxes 2,238,599 1,804,942 1,661,539
Depreciation 2,066,312 1,899,015 1,840,644
Provision for losses on real
estate (Note G) 9,277,433 - -
----------- ---------- ----------
Total expenses 14,814,995 5,146,342 4,761,862
----------- ---------- ----------
Net income (loss) (Note H) $(8,029,040) $1,825,318 $1,817,435
=========== ========== ==========
Allocation of net income (loss)
(Note D):
Cash Plus-V Limited
Partnership $(4,006,491) $ 910,834 $ 906,900
=========== ========== ==========
Berkshire Realty
Company, Inc. $(4,022,549) $ 914,484 $ 910,535
=========== ========== ==========
Theaccompanying notes are an integral
part of the financial statements.
F-72
<PAGE>
SPRING VALLEY PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS'
EQUITY For the Years Ended December 31, 1997, 1996, and 1995
Berkshire
Cash Plus-V Realty Total
Limited Company, Partners'
Partnership Inc. Equity
Balance at
December 31, 1994 $21,865,991 $21,841,786 $43,707,777
Distributions (1,468,058) (1,473,942) (2,942,000)
Net income 906,900 910,535 1,817,435
----------- ----------- -----------
Balance at
December 31, 1995 21,304,833 21,278,379 42,583,212
Distributions (1,263,967) (1,269,033) (2,533,000)
Net income 910,834 914,484 1,825,318
----------- ----------- -----------
Balance at
December 31, 1996 20,951,700 20,923,830 41,875,530
Distributions (Note D) (1,277,494) (1,282,611) (2,560,105)
Net loss (Note D) (4,006,491) (4,022,549) (8,029,040)
----------- ----------- -----------
Balance at
December 31, 1997 $15,667,715 $15,618,670 $31,286,385
=========== =========== ===========
Theaccompanying notes are an integral
part of the financial statements.
F-73
<PAGE>
SPRING VALLEY PARTNERSHIP
STATEMENTS OF CASH FLOWS For
the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(8,029,040) $ 1,825,318 $ 1,817,435
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 2,066,312 1,899,015 1,840,644
Provision for losses on real
estate 9,277,433 - -
Changes in assets and liabilities:
Increase in other assets (293,014) (183,554) (143,627)
Increase (decrease) in accounts
payable (23,044) (22,532) 37,044
Increase (decrease) in due to
affiliates (6,492) 4,598 2,722
Increase (decrease) in other
liabilities 194,987 (52) (9,839)
----------- ----------- ----------
Net cash provided by
operating activities 3,187,142 3,522,793 3,544,379
----------- ----------- -----------
Investing activities:
Increase (decrease) in accounts
payable related to fixed asset
additions (7,000) 7,000 -
Additions to fixed assets (207,620) (419,284) (279,315)
----------- ----------- -----------
Net cash used in
investing activities (214,620) (412,284) (279,315)
----------- ----------- -----------
Financing activity:
Distributions (2,560,105) (2,533,000) (2,942,000)
----------- ----------- -----------
Net increase in cash and cash equivalents 412,417 577,509 323,064
Cash and cash equivalents, beginning
of year 1,153,075 575,566 252,502
----------- ----------- -----------
Cash and cash equivalents, end
of year $ 1,565,492 $ 1,153,075 $ 575,566
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-74
<PAGE>
SPRING VALLEY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Spring Valley Partnership (the "Joint Venture") was formed on December 13,
1988 by filing a Business Certificate in the Commonwealth of Massachusetts.
The original General Partner interests were issued to Krupp Cash Plus-IV
Limited Partnership ("Cash Plus-IV"), at 50.1%; Krupp Cash Plus-V Limited
Partnership ("Cash Plus-V"), at .01%; and Krupp Realty Company Limited
Partnership ("Krupp Realty Company"), at 49.89%. Pursuant to the original
Partnership Agreement, Cash Plus-V purchased Krupp Realty Company's
interest in the Joint Venture and succeeded to its capital contributions
and its share of profit and loss allocations and distributions. On June 25,
1991, The Joint Venture executed an Amended and Restated Partnership
Agreement, whereby Cash Plus-IV assigned its rights, title and interest in
the Partnership to Berkshire Realty Company, Inc. ("Berkshire"), a Delaware
Corporation. Pursuant to the Assignment and First Amendment to Spring
Valley Partnership Amended and Restated Partnership Agreement dated May 1,
1995, Berkshire assigned 49.1% of its rights, title and interest in the
Partnership to BRI OP Limited Partnership ("BRI OP LP"), its majority owned
subsidiary. As of December 31, 1995, the Joint Venture Partners of Spring
Valley Partnership are BRI OP LP (49.1%) and Berkshire (1%), collectively,
"Berkshire Realty Company, Inc." (50.1%) and Cash Plus-V Limited
Partnership (49.9%). Profits and losses and distributions will continue to
be allocated to the Joint Venture Partners based on the percentage of their
respective capital contributions to total Partners' capital contributions.
On December 14, 1988, the Joint Venture acquired Spring Valley Marketplace
(the "Marketplace"), a 320,684 square foot shopping center located on 30
acres of land in Spring Valley, Rockland County, New York. The Joint
Venture acquired the Marketplace for $50,000,000 and incurred closing costs
of $359,408 related to the acquisition. Additionally, the Joint Venture
executed a Net Operating Income Guaranty Agreement ("NOI Guaranty
Agreement") with the seller, by which, the seller would reimburse the Joint
Venture if the net operating income from the Marketplace did not meet or
exceed $4.3 million annually. Per the NOI Guaranty Agreement, which expired
on December 13, 1990, the seller's obligation was limited to $1,000,000 on
a cumulative basis. As a result of the NOI Guaranty Agreement, the Joint
Venture has collected $1,000,000, the maximum obligation due from the
seller, and has therefore reduced the cost basis of the Marketplace by this
amount for financial reporting purposes. The Marketplace, built in 1987,
consists of one structure anchored by five major tenants and is connected
by five sections occupied by smaller tenants. The Joint Venture owns the
Marketplace free and clear from all material liens or encumbrances.
On December 2, 1997, Berkshire Realty Enterprise Limited Partnership, an
affiliate of the Joint Venture Partners, as agent for the Joint Venture,
entered into an Agreement of Sale to sell the Joint Venture's property,
Spring Valley Marketplace, to Kejack, Inc. and its permitted assigns, which
are unaffiliated third parties. Spring Valley Marketplace was included in a
package with thirteen other properties owned by affiliates of the Joint
Venture Partners. The transaction was consummated on January 30, 1998 (see
Note I).
The sale of the Marketplace is considered a cause for dissolution of the
Joint Venture as defined by the Partnership Agreement. Accordingly, the
Joint Venture Partners expect to liquidate and distribute the remaining
assets of the Joint Venture in 1998. All distributions of net cash proceeds
from the Terminating Capital Transaction shall be governed by Section 8.3
(b) of the Partnership Agreement.
Continued
F-75
<PAGE>
SPRING VALLEY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies
The Joint Venture uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used
for federal income tax purposes (see Note H):
Risks and Uncertainties
The Joint Venture invests its cash primarily in deposits and money
market funds with commercial banks. The Joint Venture has not
experienced any
losses to date on its invested cash.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Joint Venture includes all short-term investments with maturities
of three months or less from the date of acquisition in cash and cash
equivalents. Cash equivalents are recorded at cost, which approximates
current market value.
Rental Revenues
Commercial leases require the payment of base rent monthly in advance.
Rental revenues are recorded on the accrual basis. Leases generally
contain provisions for additional rent based on a percentage of tenant
sales and other provisions which are also recorded on the accrual
basis, but are billed in arrears. Minimum rental revenue for long term
commercial leases is recognized on a straight-line basis over the life
of the related lease.
Depreciation
Depreciation of building and improvements is provided for by the use of
the straight-line method over estimated useful lives of 3 to 25 years.
Tenant improvements are depreciated over the life of the lease.
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at depreciated cost.
Pursuant to Statement of Financial Accounting Standards Opinion No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", impairment losses are recorded on long-lived
assets used in operations on a property by property basis, when events
and circumstances indicate that the assets might be impaired and the
estimated undiscounted cash flows to be generated by those assets are
less than the carrying amount of those assets. Upon determination that
an impairment has occurred, those assets shall be reduced to fair value
less estimated costs to sell (see Note G).
Leasing Commissions
Leasing commissions are deferred and amortized over the life of the
related lease.
Continued
F-76
<PAGE>
SPRING VALLEY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Income Taxes
The Joint Venture is not liable for federal or state income taxes
because Joint Venture income or loss is allocated to the Partners
for income tax purposes. In the event the Joint Venture's tax
returns are examined by the Internal Revenue Service or state
taxing authority and such an examination results in a change in
Joint Venture taxable income or loss, such change will be reported
to the Partners.
C. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at
December 31, 1997 and 1996:
1997 1996
-------- --------
Prepaid rent $225,000 $ -
Accrued insurance 89,673 110,846
Tenant security deposits 65,185 71,614
Other accrued expenses 292 2,703
-------- --------
$380,150 $185,163
======== ========
D. Partners' Equity
Under the terms of the Partnership Agreement, profits, losses and
distributions are allocated 49.9% to Cash Plus-V Limited Partnership and
50.1% to Berkshire Realty Company, Inc.
Upon the occurrence of the sale by the Joint Venture of all or
substantially all of the Property and other assets owned by the Joint
Venture, the Joint Venture shall be dissolved. After payment of the debts
and allowances for the liabilities of the Joint Venture, the remaining
assets shall be distributed to the Joint Venture Partners on the basis of
the amount of each Partner's capital contribution in proportion to total
capital contributions.
As of December 31, 1997, the following cumulative Partner contributions and
allocations have been made since inception of the Joint Venture:
Berkshire
Cash Plus-V Realty Total
Limited Company, Partners'
Partnership Inc. Equity
Capital contributions $ 26,379,755 $ 26,373,641 $ 52,753,396
Net income 2,245,368 2,254,369 4,499,737
Distributions (12,957,408) (13,009,340) (25,966,748)
------------ ------------ ------------
Total at
December 31, 1997 $ 15,667,715 $ 15,618,670 $ 31,286,385
============ ============ ============
E. Future Base Rents Due Under Commercial Operating Leases
As a result of the sale of the Marketplace subsequent to year-end, all
commercial operating leases were assumed by the buyer (see Note I).
Continued
F-77
<PAGE>
SPRING VALLEY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
F. Related Party Transactions
Property management fees are paid monthly to an affiliate of the Joint
Venture Partners at the rate of up to 6% of rentals and other operating
income received by the Marketplace. The Joint Venture also reimburses
affiliates for certain expenses incurred in connection with operation of
the Joint Venture and its property including administrative expenses.
Amounts paid or accrued to affiliates of the Joint Venture Partners during
the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
-------- -------- ------
Property management fees $394,601 $416,414 $398,642
Expense reimbursements 42,841 87,766 58,284
-------- -------- --------
Charged to operations $437,442 $504,180 $456,926
======== ======== ========
Due to affiliates consisted of expense reimbursements of $828 and $7,320 at
December 31, 1997 and 1996, respectively.
G. Provision for Losses on Real Estate
In accordance with Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", the Joint Venture recorded a valuation provision for losses
on its real estate asset of $9,277,433 as of December 31, 1997, these
provisions represent the difference between carrying value and selling
price less estimated costs to sell as a result of the forthcoming sale of
the Joint Venture's property subsequent to year end (see Note I). As this
asset is held for sale, the Joint Venture has discontinued depreciation.
H. Federal Income Taxes
The reconciliation of the net income (loss) for each year reported in the
accompanying Statement of Operations with the net income reported in the
Joint Venture's federal income tax return is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -------
<S> <C> <C> <C>
Net income (loss) per
Statement of Operations $(8,029,040) $1,825,318 $1,817,435
Difference in book to tax
depreciation 784,586 624,845 573,232
Difference in book to tax
bad debt (21,428) 15,566 -
Difference in book to tax
fixed asset revaluation 8,886,565 - -
Rental adjustment required
by Generally Accepted
Accounting Principles 1,969 26,293 (18,176)
----------- ---------- ----------
Net income for federal
income tax purposes $ 1,622,652 $2,492,022 $2,372,491
=========== ========== ==========
</TABLE>
Continued
F-78
<PAGE>
SPRING VALLEY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
H. Federal Income Taxes, Continued
The allocation of the 1997 net income for federal income tax purposes is as
follows:
Passive Portfolio
Income Income Total
---------- --------- ----------
Cash Plus-V
Limited Partnership $ 763,862 $ 25,915 $ 789,777
Berkshire Realty Company,
Inc. 806,856 26,019 832,875
---------- ---------- ----------
$1,570,718 $ 51,934 $1,622,652
========== ========== ==========
The basis of the Joint Venture's assets for financial reporting purposes is
less than its tax basis by approximately $16,543,000 and $6,157,000 at
December 31, 1997 and 1996, respectively. The tax and book basis of the
Joint Venture's liabilities are the same.
I. Subsequent Event
The sale of the Joint Venture's property, as discussed in Note A, was
consummated on January 30, 1998. The total selling price of the fourteen
properties was $138,000,000, of which the Joint Venture Partners received
$29,571,700, less their share of the closing costs.
The sale is considered a cause for dissolution of the Joint Venture as
defined by the Partnership Agreement. Accordingly, the Joint Venture
Partners expect to liquidate and distribute the remaining assets of the
Joint Venture in 1998. All distributions of net cash proceeds from the sale
and dissolution of the Joint Venture shall be governed by Section IV,
Paragraph 17, of the Partnership Agreement, as discussed above in Note D.
F-79
<PAGE>
SPRING VALLEY PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
Costs
Capitalized
Subsequent to
Initial Cost to Joint Venture Acquisition
----------------------------- ---------------------------
Buildings & Buildings & Depreciable
Description Land Improvements Improvements Life
----------- ---- ------------ ------------ -------------
Spring Valley
Marketplace $10,403,471 $ 41,613,880 $ 2,018,851 3 to 25 years
=========== ============ ============
<TABLE>
<CAPTION>
Gross Amounts Carried at End of Year
---------------------------------------- Accumulated
Buildings Depreciation Year
and & Valuation Construction Year
Description Land Improvements Total(a) Provision Completed Acquired
- ------------- ---------- ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Spring Valley
Marketplace $10,403,471 $ 43,632,731 $54,036,202 $ 25,327,070 1987 1988
=========== ============ =========== ============
</TABLE>
Reconciliation of Real Estate and Accumulated Depreciation for each of the
three years in the period ended December 31, 1997:
Real Estate 1997 1996 1995
----------- ----------- ----------- -----------
Balance at
beginning of year $53,828,582 $53,409,298 $53,129,983
Improvements 207,620 419,284 279,315
----------- ----------- -----------
Balance at
end of year $54,036,202 $53,828,582 $53,409,298
=========== =========== ===========
Accumulated Depreciation
and Property Valuation 1997 1996 1995
------------------------ ----------- ----------- -----------
Balance at
beginning of year $13,983,325 $12,084,310 $10,243,666
Property valuation 9,277,433 - -
Depreciation expense 2,066,312 1,899,015 1,840,644
----------- ----------- -----------
Balance at end of year $25,327,070 $13,983,325 $12,084,310
=========== =========== ===========
(a) The aggregate cost of the Joint Venture's real estate for federal
income tax purposes was $53,170,799 and the aggregate accumulated
depreciation for federal income tax purposes was $8,242,176 for the year
ended December 31,
1997.
F-80
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BERKSHIRE
REALTY COMPANY, INC FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000869446
<NAME> BERKSHIRE REALTY CO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,859,110
<SECURITIES> 7,511,789<F1>
<RECEIVABLES> 60,002,083<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 769,046,949<F3>
<DEPRECIATION> 0
<TOTAL-ASSETS> 846,419,931
<CURRENT-LIABILITIES> 22,277,987
<BONDS> 380,810,004<F4>
0
27,370
<COMMON> 368,411
<OTHER-SE> 442,936,159<F5>
<TOTAL-LIABILITY-AND-EQUITY> 846,419,931
<SALES> 0
<TOTAL-REVENUES> 115,499,062<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 103,530,360<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,005,605
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,036,903)
<DISCONTINUED> 3,698,202<F8>
<EXTRAORDINARY> (90,345)<F9>
<CHANGES> 0
<NET-INCOME> (8,429,046)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
<FN>
<F1> Includes book value of Mortgage Backed Securities held.
<F2> Includes as follows: Note Receivable 7,500,000; Escrows 15,088,587; Deferred
charges and Other Assets 14,932,272; Workforce acquired and Intangible
assets 22,481,224;
<F3> Includes Real Estate Assets held less accumulated depreciation as follows:
Multifamily Apartments 715,696,151; Investment in Joint Venture 15,618,657;
Mortgage loan 2,323,285; Construction in Progress 15,185,969; Land held
for Development 5,818,105; Retail Centers held for sale 14,404,782;
<F4> Includes Credit Agreement 75,345,000 and Mortgage Payable 305,465,004;
<F5> Includes as follows: Minority Interest 75,137,066; Paid in Capital
394,838,797; Accumulated Deficit (24,396,629); Loan Receivable - Officer
(900,000); Common Stock in Treasury (1,743,075);
<F6> Includes Rental Income 109,973,608; Management fees and Reimbursement
3,157,516; Interest Income 2,367,938;
<F7> Includes all operating expenses and depreciation and amortization;
<F8> Includes Gain on Sales 6,454,717; Minority Interest in Operating
Partnership 2,153,506; Joint Venture loss (4,910,021);
<F9> Cost associated with the retirement of debt.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BERKSHIRE
REALTY COMPANY, INC FINANCIAL STAEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000869446
<NAME> BERKSHIRE REALTY CO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,015,953
<SECURITIES> 9,232,956<F1>
<RECEIVABLES> 36,190,131<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 517,230,773<F3>
<DEPRECIATION> 0
<TOTAL-ASSETS> 569,669,813
<CURRENT-LIABILITIES> 14,241,683
<BONDS> 295,165,607<F4>
0
0
<COMMON> 258,998
<OTHER-SE> 260,003,525<F5>
<TOTAL-LIABILITY-AND-EQUITY> 569,669,813
<SALES> 0
<TOTAL-REVENUES> 93,001,666<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 85,112,814<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,500,533
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,611,681)
<DISCONTINUED> (1,547,324)<F8>
<EXTRAORDINARY> (149,272)<F9>
<CHANGES> 0
<NET-INCOME> (14,308,277)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
<FN>
<F1> Includes book value of Mortgage Backed Securities held.
<F2> Includes as follows: Escrows 11,096,213; Deferred charges and Other Assets
10,940,879; Workforce acquired and Intangible assets 12,327,039; Note
Receivable 1,826,000;
<F3> Includes Real Estate Assets held less accumulated depreciation as follows:
Multifamily Apartments 430,936,889; Investment in Joint Venture 36,036,723;
Mortgage loan 2,268,241; Construction in Progress 4,035,820; Land held for
Development 2,331,988; Retail Centers held for sale 30,556,482; Retail
Centers 11,064,630;
<F4> Includes Credit Agreement 136,060,000 and Mortgage Payable 149,805,607;
Repurchase Agreement 9,300,000;
<F5> Includes as follows: Minority Interest 36,608,607; Paid in Capital
239,446,270; Accumulated Deficit (14,308,277); Common Stock in Treasury
(1,743,075);
<F6> Includes Rental Income 89,450,647; Interest Income 3,551,019;
<F7> Includes all operating expenses and depreciation and amortization;
<F8> Includes Gain on Sales 58,263; Minority Interest in Operating Partnership
1,403,000; Joint Venture loss (3,008,587);
<F9> Cost associated with the retirement of debt.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BERKSHIRE
REALTY COMPANY, INC FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000869446
<NAME> BERKSHIRE REALTY CO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,142,710
<SECURITIES> 11,576,326<F1>
<RECEIVABLES> 14,389,964<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 449,859,187<F3>
<DEPRECIATION> 0
<TOTAL-ASSETS> 486,968,187
<CURRENT-LIABILITIES> 9,889,536
<BONDS> 211,290,620<F4>
0
0
<COMMON> 258,994
<OTHER-SE> 265,529,037<F5>
<TOTAL-LIABILITY-AND-EQUITY> 486,968,187
<SALES> 0
<TOTAL-REVENUES> 74,441,419<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 59,980,086<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,618,224
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,156,891)
<DISCONTINUED> 16,843,859<F8>
<EXTRAORDINARY> (900,926)<F9>
<CHANGES> 0
<NET-INCOME> 14,786,042
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
<FN>
<F1> Includes book value of Mortgage Backed Securities held.
<F2> Includes as follows: Escrows 3,872,826; Deferred charges and Other Assets
10,517,138;
<F3> Includes Real Estate Assets held less accumulated depreciation as follows:
Multifamily Apartments 324,752,425; Investment in Joint Venture 41,689,843;
Mortgage loan 19,964,524; Construction in Progress 2,880,668; Land held for
Development 863,456; Retail Centers 59,708,271;
<F4> Includes Credit Agreement 95,140,000 and Mortgage Payable 105,200,620;
Repurchase Agreement 10,950,000;
<F5> Includes as follows: Minority Interest 5,000,414; Paid in Capital
262,271,698; Common Stock in Treasury (1,743,075);
<F6> Includes Rental Income 70,068,230; Interest Income 4,373,189;
<F7> Includes all operating expenses and depreciation and amortization;
<F8> Includes Gain on Sales 15,603,421; Minority Interest in Operating
Partnership (166,587); Joint Venture income 1,407,025;
<F9> Cost associated with the retirement of debt.
</FN>
</TABLE>
