As filed with the Securities and Exchange Commission on October 23, 1998
Registration No. 333-64631
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BERKSHIRE REALTY COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3086485
(State or Other Jurisdiction (I.R.S. Employer Identification
Incorporation or Organization) No.)
470 Atlantic Avenue
Boston, Massachusetts 02210
(888) 867-0100
(Address, Including Zip Code, and Telephone Number Including Area Code,
of Registrant's Principal Executive Offices)
Scott D. Spelfogel, Esq.
Berkshire Realty Company, Inc.
470 Atlantic Avenue
Boston, Massachusetts 02210
(617) 423-2233
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
David E. Redlick, Esq.
Kenneth A. Hoxsie, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(617) 526-6000
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ].
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ].
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ].
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If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ].
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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SUBJECT TO COMPLETION, DATED OCTOBER 23, 1998
PROSPECTUS
582,919 Shares
BERKSHIRE REALTY COMPANY, INC.
COMMON STOCK
Berkshire Realty Company, Inc. (the "Company"), is a self-administered
and self-managed real estate investment trust ("REIT") which acquires,
renovates, rehabilitates, develops and operates apartment communities. Founded
in 1991 with 15 apartment communities containing approximately 4,200 units, as
of September 30, 1998 the Company owned 80 apartment communities containing
approximately 23,800 units located in Florida, Texas and the Mid-Atlantic and
Southeastern United States (the "Properties"). The Company is a Delaware
corporation, and its shares of common stock, $.01 par value per share (the
"Common Stock"), are listed on the New York Stock Exchange ("NYSE") under the
symbol "BRI." The shares of Common Stock are subject to certain restrictions on
ownership designed to preserve the Company's status as a REIT for federal income
tax purposes. See "Risk Factors -- Anti-Takeover Provisions" and "Description of
the Capital Stock of the Company -- Restrictions on the Ownership and Transfer
of Excess Shares." The closing sales price of the Common Stock as reported by
the NYSE on October 22, 1998 was $9.25 per share.
This Prospectus relates to the possible sale of up to 582,919 shares of
Common Stock (the "Redemption Shares") as follows: (i) the possible issuance of
up to 95,620 Redemption Shares by the Company if and to the extent that certain
holders (the "Unitholders") of 95,620 units of limited partnership interest
("Units") in BRI OP Limited Partnership (the "Operating Partnership") exchange
such Units for Redemption Shares; and (ii) the offer and sale from time to time
of up to 487,299 Redemption Shares by the holders (the "Selling Stockholders")
thereof following the issuance of the Redemption Shares to the Selling
Stockholders upon the exchange of up to 487,299 Units, if and to the extent such
Selling Stockholders exchange Units for the Redemption Shares. See "Selling
Stockholders."
Of the 582,919 Units, (i) 210,658 Units were issued to the Selling
Stockholders in their capacity as partners in Heritage Hill Limited Partnership
in connection with the acquisition by the Operating Partnership of a 120-unit
apartment complex known as Heritage Hill on July 22, 1997; (ii) 276,641 Units
were issued to the Selling Stockholders in their capacity as partners in
Harper's Mill Limited Partnership in connection with the acquisition by the
Operating Partnership of a 144-unit apartment complex known as Harper's Mill on
July 22, 1997; and (iii) 95,620 Units were issued to the Unitholders in their
capacity as partners in Lamplighter Ridge Limited Partnership in connection with
the acquisition by the Operating Partnership of a 168-unit apartment complex
known as Lamplighter Ridge on September 23, 1997. The Company is registering the
Redemption Shares in order to discharge its
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obligations to the Unitholders and the Selling Stockholders with respect to such
Redemption Shares under the terms of a registration rights agreement, dated as
of May 1, 1995 (the "Registration Rights Agreement"), which the Company entered
into with the Unitholders and the Selling Stockholders in connection with the
issuance of the Units.
Pursuant to the Amended and Restated Agreement of the Operating
Partnership (the "Partnership Agreement"), a Unitholder has the right,
exercisable at any time after the first anniversary of the issuance of Units to
him or her, to convert all or a portion of the Units so issued into shares of
Common Stock or cash, as determined by the Company. Upon receipt of a notice
that a Unitholder is exercising this right, the Company, at the direction of the
Operating Partnership, will either (i) convert the tendered Units into an
equivalent number of shares of Common Stock, or (ii) pay the Unitholder cash for
each such Unit in an amount equal to the market value of a share of Common
Stock. See "Description of Units and Conversion of Units -- General."
The Company anticipates that generally the Operating Partnership will
direct the Company to issue Common Stock pursuant to this Prospectus in exchange
for Units rather than paying cash. As a result, the Company may from time to
time issue up to 95,620 Redemption Shares upon the acquisition of Units for
which Unitholders have exercised their conversion rights. Accordingly, the
Company is registering the Redemption Shares to provide Unitholders with freely
tradable securities upon conversion.
The Selling Stockholders or their pledgees, donees, transferees or
other successors in interest may from time to time offer and sell all or a
portion of the Redemption Shares in transactions on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Stock is listed or traded, in negotiated transactions or otherwise, at
prices then prevailing or related to the then-current market price or at
negotiated prices. The Selling Stockholders or their pledgees, donees,
transferees or other successors in interest may sell their Redemption Shares
directly or through agents or broker-dealers acting as principal or agent, or in
block trades or pursuant to a distribution by one or more underwriters on a firm
commitment or best-efforts basis. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in this
Prospectus under the caption "Plan of Distribution" or an accompanying
Prospectus Supplement. Each of the Selling Stockholders and their pledgees,
donees, transferees or other successors in interest reserves the right to accept
or reject, in whole or in part, any proposed purchase of the Redemption Shares
to be made directly or through agents. See "Plan of Distribution."
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The Unitholders, the Selling Stockholders, any agents, dealers or
underwriters that participate with the Unitholders or the Selling Stockholders
in the resale of the shares of Common Stock and the pledgees, donees,
transferees or other successors in interest of the Unitholders or the Selling
Stockholders may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in which case any
commissions received by such agents, dealers or underwriters and any profit on
the resale of the shares of Common Stock purchased by them may be deemed
underwriting commissions or discounts under the Securities Act. See
"Registration Rights" for indemnification arrangements between the Company and
the Unitholders and the Selling Stockholders.
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 9.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October __, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material may also be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the Company is required to file electronic
versions of these documents through the Commission's Electronic Data Gathering
Analysis and Retrieval system (EDGAR). The Commission maintains a World Wide Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The Common Stock of the Company is listed on the New York
Stock Exchange, and similar information concerning the Company can also be
inspected and copied at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments, supplements, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act, with respect to
the securities offered pursuant to this Prospectus. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, as certain items are omitted in accordance
with the rules and regulations of the Commission. For further information
concerning the Company and the securities offered hereby, reference is made to
the Registration Statement, which may be examined without charge at, or copies
obtained upon payment of prescribed fees from, the Commission at the locations
listed above. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-10660) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31,
1997 as filed on March 31, 1998, as amended by Form 10-K/A as
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filed on April 7, 1998 and by Form 10-K/A as filed on May 26,
1998;
(b) Current Report on Form 8-K as filed on February 13, 1998, as
amended by Form 8-K/A as filed on March 31, 1998;
(c) Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 as filed on May 15, 1998;
(d) Current Report on Form 8-K as filed on May 27, 1998;
(e) Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 as filed on August 14, 1998; and
(f) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A as filed on November 19,
1990, including any amendments or reports filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
Redemption Shares offered hereby have been sold or which deregisters all
Redemption Shares then remaining unsold shall be deemed to be incorporated by
reference into this Prospectus and made a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other document subsequently filed with the Commission
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to: Berkshire Realty Company, Inc., 470 Atlantic Avenue, Boston,
Massachusetts 02210, Attention: Investor Communications Department, telephone
(888) 867-0100.
The following is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere and incorporated by reference in this Prospectus. Unless the context
requires otherwise, as used herein, the term "Company" includes Berkshire Realty
Company, Inc., and
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those entities in which the Company holds a majority of the economic interests,
including the Operating Partnership and Berkshire Apartments, Inc., the sole
general partner of the Operating Partnership (the "General Partner").
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy to any
person in any jurisdiction in which such offer or solicitation of an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
offer or sale hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the
information contained herein is correct as of any date hereof.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "may," "anticipates," "plans," "expects,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements. These factors include those set forth in "Risk Factors" herein.
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RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
purchasers of Redemption Shares and the Unitholders should carefully consider
the following information in conjunction with the other information set forth or
incorporated by reference in this Prospectus before making an investment
decision regarding the Redemption Shares.
Tax Consequences to Unitholders of Exchange of Units
Tax Consequences of Exchange of Units. In the event that a Unitholder
exercises his or her rights to convert Units into cash or Redemption Shares, the
Company's acquisition of such Units will be treated for tax purposes as a sale
of the Units. Such a sale will be fully taxable to the Unitholder and the
Unitholder will be treated as realizing for tax purposes an amount equal to the
sum of the cash received or the value of the Redemption Shares received, as the
case may be, plus the amount of any Operating Partnership liabilities allocable
to such Units at the time of disposition. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed the
amount of cash or the value of the Redemption Shares received upon such
disposition. See "Description of Units and Redemption of Units -- Tax
Consequences of Conversion." In addition, the ability of the Unitholder to sell
a substantial number of Redemption Shares in order to raise cash to pay tax
liabilities associated with the conversion of Units may be limited as a result
of fluctuations in the market price of the Common Stock, and the price the
Unitholder receives for such shares may not equal the value of the Units at the
time of the election to convert.
Potential Change in Investment Upon Redemption of Units. If a
Unitholder exercises his or her right to require the conversion of all or a
portion of his or her Units, the Unitholder may receive, at the discretion of
the Operating Partnership, Redemption Shares or cash. If the Unitholder receives
cash, the Unitholder will not have any interest in the Company or the Operating
Partnership (except to the extent that he or she has not elected to convert
Units) and will not benefit from any subsequent increases in the value of Common
Stock and will not receive any future distributions from the Company or the
Operating Partnership (unless the Unitholder retains or acquires in the future
additional Common Stock or Units). If the Unitholder receives Common Stock, the
Unitholder will become a shareholder of the Company rather than a holder of
Units in the Operating Partnership. See "Description of Units and Conversion of
Units -- Comparison of Ownership of Units and Common Stock."
Development and Acquisition Risks
Acquisition Risks. The Company regularly evaluates many potential
acquisitions, the process of which involves costs which are non-recoverable.
There
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can be no assurance that properties which are acquired will perform in
accordance with expectations or that cost estimates for improvements to the
acquired properties in order to bring them up to the Company's standards will be
accurate. In connection with acquisitions in which the sellers received Units,
the Company has agreed to certain restrictions on its ability to sell (subject
to like-kind exchanges), refinance or pay down indebtedness (subject to
refinancing on terms which would not affect the tax basis of such Unit
recipient(s)) on such properties for various periods of time extending beyond a
year. These restrictions may impair the ability of the Company to take actions
during the period such restrictions apply that would otherwise be in the best
interests of the Company's shareholders and, therefore, may have an adverse
effect on the Company's results of operations, financial condition and ability
to make expected distributions to shareholders. The Company anticipates that it
may agree to similar restrictions in connection with future acquisitions.
Development Risks. The Company also intends to continue the development
and expansion of apartment communities in accordance with the Company's
development and underwriting policies as opportunities arise in the future.
Risks associated with such development and construction activities include the
following: (i) the Company may abandon development opportunities after expending
resources to determine a project's feasibility; (ii) construction costs of a
project may exceed original estimates; (iii) occupancy rates and rents at a
newly completed property may not be sufficient to make the property profitable;
(iv) financing may not be available on favorable terms for development of a
property; and (v) construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental permits and authorizations. If any of the foregoing
occurs, the Company's results of operations, financial condition and ability to
make expected distributions to shareholders could be adversely affected. In
addition, new development activities, regardless of whether they are ultimately
successful, typically require a substantial portion of management's time and
attention.
The Company anticipates that future development will be financed, in
whole or in part, through additional equity offerings or through the Company's
lines of credit or other forms of secured or unsecured construction financing
that will result in the risk that, upon completion of construction, permanent
financing for newly developed properties may not be available or may be
available only on disadvantageous terms.
Risks Associated with Growth. The Company is currently experiencing a
period of rapid growth. During 1997 and the first six months of 1998, the
Company acquired 46 apartment communities containing an aggregate of
approximately 11,600 units. The integration of the recent acquisitions into
existing management and operating structures presents a management challenge.
Although the Company believes it has sufficient management depth to lead the
Company through this period
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of rapid growth, there can be no assurance that the Company will be able to
assimilate these recent acquisitions or any further acquisitions into its
portfolio without certain operating disruptions and unanticipated costs. The
failure to successfully integrate acquisitions could have an adverse effect on
the Company's results of operations, financial condition and ability to pay
expected distributions to shareholders.
Vote Regarding Continuation of the Company
The Restated Certificate of Incorporation of the Company, as amended
(the "Certificate"), requires that the Board of Directors of the Company prepare
and submit to the shareholders, on or before December 31, 1998, a proposal to
liquidate the Company's assets and distribute the net proceeds of such
liquidation. The liquidation proposal will become effective only if approved by
shareholders holding a majority of the shares then outstanding. If the Company
were liquidated, there would be no assurance that the proceeds of the
liquidation per share of Common Stock would equal the value of a Redemption
Share at the time of a Unitholder's election to convert his or her Units or the
market value of such a Redemption Share at any particular time. In the event the
Company solicits such shareholder vote, the Company will incur costs associated
with the appraisal of the Company's real estate assets and the shareholder
solicitation regardless of the outcome of such vote.
General Real Estate Risks
The ownership of real estate presents a variety of risks, including the
risks described below:
General. The Company invests in apartment communities and as such will
be subject to varying degrees of risk generally incident to the ownership and
development of real property. The underlying value of the Company's real estate
investments and the Company's financial condition and ability to make expected
distributions to its shareholders will be dependent upon its ability to operate
and develop its properties in a manner that will maintain or increase revenues
and to generate sufficient income in excess of operating expenses. Income from
the properties may be adversely affected by changes in national and local
economic conditions such as oversupply of apartment units or a reduction in
demand for apartment units in the Company's markets, the attractiveness of the
properties to tenants, changes in interest rates and in the availability, cost
and terms of mortgage financings, the ongoing need for capital improvements,
particularly in older structures, changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
adverse changes in zoning laws, civil unrest, acts of God, including natural
disasters (which may result in uninsured losses), acts of war and other factors
which are beyond the control of the Company. If the Company were unable to
promptly renew or relet the leases for a significant number of apartment units,
or, if the rental rates upon such renewal or reletting were
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significantly lower than expected rates, the Company's results of operations,
financial condition and ability to make expected distributions to shareholders
might be adversely affected. In addition, certain expenditures associated with
each apartment community (such as real estate taxes and maintenance costs) are
generally not reduced when circumstances cause a reduction in income from such
property.
Dependence on Primary Markets. Substantially all of the communities
owned by the Company are located in Florida, Texas and the Mid-Atlantic and
Southeastern United States and, therefore, the Company's results of operations,
financial condition and ability to make expected distributions to shareholders
will be linked to the economic conditions in these markets as well as the market
for apartment communities generally. To the extent that these conditions affect
the market for apartment communities, they could have an adverse effect on the
Company's results of operations, financial condition and ability to make
expected distributions to shareholders.
Regulatory Risks. Real estate is governed by a wide variety of federal,
state and local zoning, subdivision, planning, building, environmental and other
land use laws and regulations. Such laws may place significant restrictions on
the Company's ability to develop real estate or to improve real estate which it
owns, and even unintentional violations of such laws and regulations by the
Company or its tenants may result in forced corrective action and substantial
monetary penalties. In addition, as to multifamily residential apartment
properties, various federal, state and local laws and regulations may restrict
the amount and process by which rents may increase, as well as the Company's
right to convert a property to other uses, such as condominiums or cooperatives.
Further, increases in real estate taxes and income, service or other taxes
generally are not passed through to tenants under the Company's leases and may
adversely affect the Company's results of operations, financial condition and
ability to make expected distributions to shareholders.
Risks of Liability and Loss. The development and ownership of real
estate may result in liability to third parties, due to conditions existing on a
property which result in injury. Such liability may be uninsurable in some
circumstances or may exceed the limits of insurance maintained at typical
amounts for the type and condition of such property. In addition, real estate
may suffer a loss in value due to casualties such as fire or hurricane. Such
loss may be uninsurable in some circumstances or may exceed the limits of
insurance maintained at typical amounts for the type and condition of the
property. Real estate may also be taken, in whole or in part, by public
authorities for public purposes in eminent domain proceedings. Awards resulting
from such proceedings may not adequately compensate the Company for the value
lost.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If the
Company must sell an
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investment, there can be no assurance that it will be able to dispose of the
investment in the time period it desires or that the sales price of the
investment will recoup or exceed the amount of the Company's cost for the
investment.
Potential Adverse Effect on Results of Operations Due to Operating
Risks. The Company's properties are subject to operating risks common to real
estate in general, any and all of which may adversely affect occupancy or rental
rates. The Company's properties are subject to increases in operating expenses
such as cleaning, electricity, heating, ventilation and air conditioning,
elevator repair and maintenance; insurance and administrative costs; and other
general costs associated with security, landscaping, repairs and maintenance. If
operating expenses increase, the local rental market may limit the extent to
which rents may be increased to meet such increased expenses without decreasing
occupancy rates. While the Company implements cost-saving incentive measures at
each of its properties, if such expenses increase faster than rental rates, the
Company's results of operations, financial condition and ability to pay
distributions to shareholders could be adversely affected.
Competition. All of the Company's properties are located in developed
areas that include other multifamily residential properties. The number of
competitive properties in a particular area could have a material adverse effect
on the Company's ability to lease apartment units or the rents charged for such
units. The Company may be competing with other entities that have greater
resources than the Company and whose executives have more experience than the
Company's officers and directors. In addition, other forms of housing, including
manufactured housing community properties and single-family housing provide
alternatives to potential residents of multifamily residential properties.
Cost of Compliance with Fair Housing Amendments Act and Americans with
Disabilities Act. The Fair Housing Amendments Act (the "FHA") imposes certain
requirements related to access by physically handicapped persons on multifamily
properties first occupied after March 13, 1991 or for which construction permits
were obtained after June 15, 1990. Noncompliance with the FHA could result in
the imposition of fines or the award of damages to private litigants. The
Company believes that its properties that are subject to the FHA are in
compliance with such law.
All of the Company's properties must comply with the Americans with
Disabilities Act (the "ADA") to the extent such properties are "public
accommodations" or "commercial facilities," as defined by the ADA. The ADA
requires that facilities, including leasing offices, open to the general public
be made accessible to people with disabilities. Individual apartment units are
not considered "public accommodations" for purposes of the ADA. Compliance with
the ADA requirements could require removal of access barriers and other capital
improvements to the public areas of the Company's properties. Noncompliance
could result in imposition of fines by the U.S. government or an award of
damages to
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private litigants. The Company does not believe that any material changes to the
properties are currently required by the ADA. If changes are subsequently
required involving material expenditures, the Company's results of operation,
financial condition and ability to make expected distributions to shareholders
could be adversely affected.
Uninsured Loss. The Company maintains comprehensive liability, fire,
flood (where appropriate), extended coverage and rental loss insurance with
respect to the Company's properties with policy specifications, limits and
deductibles customarily carried for similar properties. Certain types of losses,
however, may be either uninsurable or not economically insurable, such as losses
due to earthquakes, riots or acts of war. Should an uninsured loss occur, the
Company could lose both its investment in and anticipated profits and cash flow
from a property.
Risks of Joint Ventures. The investment by the Company in a joint
venture partnership which owns property, instead of investing directly in the
property itself, may, under certain circumstances, involve risks which would not
otherwise be present. For example, the Company's joint venture partner may
experience financial difficulties and such partner may at any time have economic
or business interests or goals which are inconsistent with the business
interests and goals of the Company or contrary to the Company's policies or
objectives. Actions by (or litigation involving) such a partner might have the
result of subjecting the property owned by the joint venture to liabilities in
excess of those contemplated by the terms of the joint venture agreement. In
addition, there is a risk of impasse between the parties since either party may
disagree with a proposed transaction involving the property owned by the joint
venture and impede any proposed action. The Company may own additional
properties through joint venture partnerships between the Company and the
sellers of the properties or other third party partners.
Risk of Adverse Effect on Company from Debt Servicing and Refinancing,
Financial Covenants, Absence of Limitations on Debt and Increases in Interest
Rates
General. If the Company were unable to refinance its indebtedness on
acceptable terms, or at all, the Company might be forced to dispose of one or
more of its properties on disadvantageous terms, which might result in losses to
the Company and might adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
If interest rates or other factors at the time of the refinancing result in
higher interest rates upon refinancing, the Company's interest expense would
increase, which would adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
Furthermore, if a property is mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgagee could foreclose
upon the property, appoint a receiver and receive an assignment of rents and
leases or pursue other remedies, all with a consequent loss of
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income and asset value to the Company. Even with respect to nonrecourse
indebtedness, the lender may have the right to recover deficiencies from the
Company in certain circumstances, including fraud and environmental liabilities.
Foreclosures could also create taxable income without accompanying cash
proceeds, thereby reducing the Company's cash available for distribution and
hindering the Company's ability to meet the REIT distribution requirements of
the Internal Revenue Code of 1986, as amended (the "Code"). The Company is
subject to risks normally associated with debt financing including the
possibility that the Company will have insufficient cash flow to meet required
principal and interest payments, be unable to satisfy financial covenants in its
debt financing agreements, existing indebtedness (which in most cases will not
be fully amortized at maturity) or secure favorable refinancing terms.
Additionally, in connection with the acquisition of certain properties in
exchange for Units, the Company has agreed to maintain certain levels of
non-recourse debt on the properties in order to minimize the tax consequences of
these acquisitions to the Unit recipients.
Absence of Debt Limitation. The Company currently has a policy of
incurring debt only if upon such incurrence the ratio of the Company's debt to
the value of its assets would be 50% or less. Although the Company has adopted
this policy, the Certificate and the Company's By-Laws, as amended
(collectively, the "Organizational Documents"), do not contain any limitation on
the amount of indebtedness the Company may incur. Accordingly, the Board of
Directors could alter or eliminate this policy and would do so, for example, if
it were necessary in order for the Company to continue to qualify as a REIT.
Increase in Market Interest Rates on Variable Interest Rates.
Outstanding advances under certain of the Company's credit facilities bear
interest at a variable rate. The Company may incur additional variable rate
indebtedness in the future. Accordingly, increases in interest rates could
increase the Company's interest expense, which could adversely affect the
Company's results of operations, financial condition and ability to pay expected
distributions to shareholders. An increase in interest expense could also cause
the Company to be in default under certain covenants of the credit facilities.
Potential Environmental Liability
Under various Federal, state and local environmental laws, ordinances
and regulations, an owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the
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costs of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain third parties may seek recovery from owners or operators of such
properties or persons who arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, are potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property.
All of the properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. These environmental
assessments have not revealed any environmental liability that would have a
material adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to shareholders, and the
Company is not aware of any such environmental liability.
Dilution
The interest of the Company's shareholders may be subject to dilution
in the future since the Company has the ability to raise additional equity by
offering shares for sale. The authorized but unissued capital stock of the
Company (including additional authorized preferred stock, senior to the Common
Stock) may be issued for any corporate purpose, including acquisitions of other
entities which invest in or hold real estate investments, issuances of
additional Common Stock pursuant to the Company's Amended and Restated Stock
Option Plan and issuances which would make more difficult, and therefore less
likely, changes in control of the Company. Any such issuance of additional stock
could have the effect of diluting the earnings per share, book value per share,
voting power of existing shares of Common Stock and ownership of persons seeking
to obtain control of the Company. See "-- Anti-Takeover Provisions." The
issuance by the Operating Partnership of additional Units convertible into
shares of Common Stock in exchange for real property or other assets may also
have a substantially similar dilutive effect.
The Company also has an outstanding security convertible into Common
Stock, Series 1997-A Convertible Preferred Stock ("Series 1997-A Preferred").
The conversion price of the Series 1997-A Preferred is subject to adjustment in
certain events to provide anti-dilution protection to the holders of such stock.
See "Description of the Capital Stock of the Company -- Preferred Stock."
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Anti-Takeover Provisions
In order to facilitate compliance with REIT requirements for tax
purposes, the Organizational Documents place restrictions on the accumulation of
shares in excess of 9.8% of the number of outstanding shares of Common Stock,
subject to certain exceptions permitted with the approval of the Board of
Directors to allow (i) underwritten offerings, or (ii) the sale of equity
securities in circumstances where the Board of Directors determines the
Company's REIT federal tax status will not be jeopardized. This ownership
limitation may discourage a change in control of the Company and may also (i)
deter tender offers for the Common Stock, which offers may be advantageous to
shareholders and (ii) limit the opportunity for shareholders to receive a
premium for their shares of Common Stock that might otherwise exist if an
investor were attempting to assemble a block of Common Stock in excess of 9.8%
of the outstanding shares of Common Stock or otherwise to effect a change in
control of the Company.
The Company's Organizational Documents contain certain provisions which
may discourage a change in control of the Company. In particular, under the
Company's Certificate, the election of Directors is staggered such that
approximately one-third of the Directors are elected to three-year terms each
year and a supermajority vote is required in order to amend those portions of
the Organizational Documents which concern (1) the definition of
"supermajority"; (2) the requirements for amending the Organizational Documents;
(3) the requirements regarding Excess Share ownership (i.e., ownership of shares
in excess of 9.8% of the outstanding shares of Common Stock as described above);
(4) the actions which require a supermajority vote; and (5) the requirements
regarding business combinations. Certain additional provisions restrict the
shareholders' ability to nominate candidates for election as Directors and to
alter, amend and adopt provisions inconsistent with, or to repeal certain
provisions of, the Organizational Documents. In addition, the Company is subject
to Section 203 of the Delaware General Corporation Law, which restricts business
combinations between the Company and its shareholders. The foregoing provisions
may have the effect of delaying, deferring or preventing a transaction or change
in control of the Company that might involve a premium price for the shares of
Common Stock or that otherwise might be in the best interest of the Company's
shareholders.
The Company has an authorized class of 60,000,000 shares of preferred
stock. Currently the Company has approximately 2.7 million shares of its 1997
Series-A Preferred outstanding. The remaining 57.3 million shares may be issued
by the Board of Directors on such terms and with such rights, preferences and
designations as the Board may determine. Issuance of such preferred stock,
depending on the rights, preferences, and designations thereof, may have the
effect of delaying, deterring, or preventing a change in control of the Company.
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Tax Risks
Risk of Termination of REIT Status. The Company was organized and
intends to continue to conduct its operations to enable it to qualify as a REIT
under the Code. To maintain its status as a REIT, the Company must continually
meet certain criteria concerning, among other things, its Common Stock
ownership, the nature of its assets, the sources of its income, and the amount
of its distributions to shareholders. If the Company fails to qualify, the
Company would be taxed on its income at regular corporate tax rates. The payment
of such tax by the Company would substantially reduce the funds available for
distribution to shareholders or for reinvestment and, to the extent that
distributions had been made in anticipation of the Company's qualification as a
REIT, the Company might be required to borrow additional funds or to liquidate
certain of its investments in order to pay the applicable tax. Moreover, should
the Company's election to be taxed as a REIT be terminated, the Company may not
be able to elect to be treated as a REIT for the following five-year period. The
Company also might be required to borrow funds or to liquidate certain of its
investments to maintain REIT status. See "Certain Federal Income Tax
Considerations."
REIT Minimum Distribution Requirements; Possible Incurrence of
Additional Debt. In order to qualify as a REIT, the Company generally will be
required each year to distribute to its shareholders at least 95% of its taxable
income (excluding any net capital gain). In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year, and (iii) 100% of its undistributed taxable income
from prior years.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The. Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its shareholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company could require the Company, through the Operating Partnership, to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. The requirement to distribute a substantial
portion of the Company's net taxable income could cause the Company to
distribute amounts that otherwise would be spent on future acquisitions, capital
expenditures or repayment of debt, which would require the Company to borrow
funds or to sell assets to fund the costs of such items.
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Failure of the Operating Partnership to be Classified as a Partnership
for Federal Income Tax Purposes; Negative Impact on REIT Status. The Company has
not requested, and does not expect to request, a ruling from the Internal
Revenue Service ("IRS") that the Operating Partnership (and each of its
noncorporate Operating Subsidiaries (as hereinafter defined) will be classified
as partnerships for federal income tax purposes. If the IRS were to successfully
challenge the tax status of the Operating Partnership (or any noncorporate
Operating Subsidiary) as a partnership for federal income tax purposes, the
Operating Partnership (or the noncorporate Subsidiary) would be taxed as a
corporation. In such event, the Company would likely cease to qualify as a REIT
for a variety of reasons. Furthermore, the imposition of a corporate income tax
on the Operating Partnership would reduce substantially the amount of cash
available for distribution from the Operating Partnership to the Company and its
shareholders. See "Certain Federal Income Tax Considerations -- Other Tax
Consequences -- Effect of Tax Status of the Operating Partnership on REIT
Qualification."
Investment by Qualified Plans Poses Additional Risks. The fiduciary of
a qualified profit-sharing, pension or other retirement plan should take into
consideration certain fiduciary responsibilities and the definition of "plan
assets" under ERISA and applicable Department of Labor regulations.
Possible Changes in Tax Law. Prospective investors should recognize
that the present federal income tax treatment of an investment in the Company
may be modified, prospectively or retroactively, by legislative, judicial or
administrative action at any time. In addition to any direct effects which such
changes might have, such changes might also indirectly affect the market value
of all real estate investments, including those of the Company and,
consequently, the ability of the Company to realize its business objectives.
Dependence on Key Personnel
The Company is dependent on the efforts of its senior executive
officers. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have a temporary adverse effect
on the operations of the Company. As of January 31, 1998, the President and
Chief Executive Officer, Executive Vice President and Chief Operating Officer,
Executive Vice President and Chief Financial Officer, Executive Vice President
for Acquisitions and Chief Investment Officer, Senior Vice President of
Development and President of the Mid-Atlantic Region had entered into employment
agreements with the Company.
Risks of Mortgage Acquisitions
The Company may acquire real estate through the acquisition of
distressed mortgage loans. In such a case, the Company would succeed to the
position of the mortgage lender with the expectation of foreclosing on the
mortgaged property and
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taking title to it. The Company may encounter certain legal and regulatory
obstacles to foreclosure which could delay or impede the taking of title to the
property by the Company. During the time prior to foreclosure, it is possible
that the borrower of the mortgage loan may make no mortgage payments to the
Company.
Possible Adverse Impact of Market Conditions on Market Price
The market value of the Common Stock could be substantially affected by
general market conditions, including changes in interest rates, government
regulatory action and changes in tax laws. An increase in market interest rates
may lead purchasers of the Common Stock to demand a higher annual dividend yield
on the Common Stock, which could adversely affect the market price of the Common
Stock. Moreover, numerous other factors, such as government regulatory action
and changes in tax laws, could have a significant impact on the future market
price of the Common Stock or other securities.
THE COMPANY
General
The Company is a self-administered and self-managed REIT which
acquires, renovates, rehabilitates, develops and operates apartment communities.
Founded in 1991 with 15 apartment communities containing approximately 4,200
units, as of July 31, 1998 the Company owned 80 apartment communities containing
approximately 23,800 units located in Florida, Texas and the Mid-Atlantic and
Southeastern United States.
The operations of the Company are conducted primarily through the
Operating Partnership and through their other subsidiaries (the "Operating
Subsidiaries"). As of June 30, 1998, the Company held approximately 80.4% of the
partnership interests in the Operating Partnership in its capacity as a special
limited partner and through its 100% ownership of the General Partner. The
remaining approximately 19.6% of the partnership interests in the Operating
Partnership was owned by affiliated and unaffiliated third parties. Units are
convertible on a one-for-one basis into shares of Common Stock or, at the
Company's election, for cash, and holders of Units generally receive
distributions per Unit equal to the dividend per share paid in respect of the
Common Stock. The Company has agreed to select the type of currency of
conversion as directed by the Operating Partnership.
The Company's principal executive offices are located at 470 Atlantic
Avenue, Boston, Massachusetts 02210 and its telephone number is (888) 867-0100.
The Company's property management and development offices are located in
Atlanta, Georgia. In addition, the Company operates six regional offices in
Atlanta, Georgia; Baltimore and Columbia, Maryland; Greenville, South Carolina;
Dallas and Houston, Texas. The Company has approximately 1,100 employees.
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Recent Acquisitions
On January 21, 1998, the Company acquired Countrywood Apartments, a
208-unit apartment community located in Dallas, Texas, for approximately $6.8
million. The Company paid cash of $2.0 million, assumed debt of $4.0 million and
issued $720,000 of Units. The debt agreement requires monthly principal and
interest payments based on an interest rate of 7.875% per annum along with
monthly funding of real estate tax escrows.
On February 4, and April 9, 1998, the Company acquired six apartment
communities for approximately $81.2 million. The Company paid cash of
approximately $58.9 million, issued $6.8 million of Units and assumed debt of
$14.3 million. The debt agreements require monthly principal and interest
payments based on an interest rate of 8.51% per annum along with monthly funding
of real estate tax escrows. The apartment communities acquired are summarized as
follows:
<TABLE>
<CAPTION>
Property Name Location Number of Units
- ------------- -------- ---------------
<S> <C> <C>
The Bluffs Austin, TX 382
Pinto Ridge Austin, TX 238
Carlyle Place San Antonio, TX 184
6200 Gessner Houston, TX 659
The Lodge Houston, TX 240
------
2,266
======
</TABLE>
On February 12, 1998, the Company acquired Old Forge, a 144-unit
townhome community located in Baltimore, Maryland, for $7.3 million. The Company
assumed debt of approximately $5.8 million and issued $1.5 million of Units. The
debt agreement requires monthly principal and interest payments based on an
interest rate of 7.055% per annum along with monthly funding of real estate tax
escrows.
On February 26, 1998, the Company acquired Seven Winds Apartments, a
232-unit garden style apartment community located in Tamarac, Florida, for $9.6
million. The Company paid cash of $7.8 million and issued $1.8 million of Units.
On March 14, 1998, the Company acquired Lynn Lake Apartments, an
809-unit apartment property located in St. Petersburg, Florida which consists of
688 garden-style apartments and 121 townhomes, for $23.0 million. The Company
paid cash of $2.4 million, assumed tax-exempt bond debt of $14.4 million and
issued $6.2 million of Units. The bond agreements require monthly principal and
interest payments based on an interest rate of 7.062% per annum along with
monthly funding of real estate tax escrows.
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<PAGE>
On June 18, 1998, the Company acquired Oaks of Marymount, a 319-unit
apartment community located in San Antonio, Texas, for $11.4 million in cash.
On July 8, 1998, the Company acquired four apartment communities
located in metropolitan Atlanta for approximately $59.7 million. The Company
paid cash of $19.3 million and assumed the related mortgage debt of $40.4
million. The mortgage agreements require monthly payments of principal and
interest at interest rates ranging from 8.04% to 8.60% per annum along with
funding of real estate tax escrows. The apartment communities acquired are
summarized as follows:
<TABLE>
<CAPTION>
Property Name Number of Units
- ------------- ---------------
<S> <C>
Essex House 120
Highlands at Briarcliff 140
Pines at Dunwoody 389
River Parkway 427
-----
1,076
</TABLE>
Recent Dispositions
On January 5, 1998, the Company sold Tara Crossing, a 235,781 square
foot retail center located in Jonesboro, Georgia, for approximately $9.5
million. The property had a depreciated cost basis of approximately $9.2 million
which, after closing costs, resulted in a loss on sale of approximately $9,000.
On January 30, 1998, the Company sold College Plaza, an 83,962 square
foot retail center in Fort Myers, Florida, for approximately $6.0 million. The
property had a depreciated cost basis of approximately $5.2 million which, after
closing costs, resulted in a gain on sale of approximately $522,000. Also on
January 30, 1998, the Company and its joint venture partner sold Spring Valley
Marketplace, a 320,686 square foot retail center located in Spring Valley, New
York, for approximately $29.6 million. The Company's share of the gain on the
sale totaled approximately $50,000.
On May 13, 1998, the Company sold a parcel of land located in Dallas,
Texas, for approximately $2.0 million which resulted in a gain of approximately
$564,000.
There were no material relationships between the entities from whom the
assets were acquired or to whom the assets were sold and the Company or any of
its affiliates, any director or officer of the Company, or any associate of any
such director or officer.
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USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the
Redemption Shares nor from any sales of Redemption Shares by the Selling
Stockholders. The Company will, however, acquire Units for which the Company is
required to issue Redemption Shares. With each such acquisition, the Company's
interest in the Operating Partnership will increase.
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 140,000,000
shares of Common Stock and 60,000,000 shares of Preferred Stock.
Common Stock
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
shares of Common Stock are entitled to one vote per share on all matters to be
voted on by shareholders and are entitled to receive ratably such dividends as
may be declared in respect of the Common Stock by the Board of Directors in its
discretion from funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of all debts
and other liabilities and any liquidation preference of the holders of Preferred
Stock. Holders of Common Stock have no subscription, conversion or redemption
rights. Matters submitted for shareholder approval generally require a majority
vote of the shares present and voting thereon; certain matters, however, require
a supermajority vote. See " -- Charter and By-Law Provisions -- Voting
Requirements." The outstanding shares of Common Stock are fully paid and
nonassessable.
Preferred Stock
General. The Board of Directors is empowered by the Company's
Certificate to designate and issue from time to time one or more classes or
series of Preferred Stock without shareholder approval. The Board of Directors
may fix the relative rights, limitations, preferences and privileges of each
class or series of Preferred Stock so issued. Because the Board of Directors has
the power to establish the preferences and rights of each class or series of
Preferred Stock, it may afford the holders in any series or class of Preferred
Stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of Common Stock.
Series 1997-A Preferred Stock. The Company has designated and issued
approximately 2.7 million shares of the Series 1997-A Preferred pursuant to the
authority granted by the Certificate. As of the date hereof, approximately 2.3
million shares of Series 1997-A Preferred are owned by affiliates of Westbrook
Partners, L.L.C. ("Westbrook"), and the balance is owned by six clients of
Morgan Stanley,
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Dean Witter, Discover & Co. The outstanding shares of Series 1997-A Preferred
are fully paid and nonassessable. The Certificate of Designation for the Series
1997-A Preferred sets forth the preferences, powers and rights of the holders of
shares of such stock including, but not limited to, the following:
Holders of shares of Series 1997-A Preferred are entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the payment of dividends, preferential cumulative quarterly cash
dividends equal to the greater of (i) 2.25% of $25.00 per share (the price per
share paid upon issuance of the Series 1997-A Preferred) (such $25.00, the
"Stated Value") and (ii) the dollar amount of the dividend paid per share of
Common Stock multiplied by the number of shares of Common Stock into which each
share of Series 1997-A Preferred is then entitled to be converted. Such
dividends accrue whether or not the Company has earnings or surplus and are
payable before any dividends or distributions are paid on, or the Company makes
any redemptions or purchases of, shares of Common Stock.
Holders of shares of Series 1997-A Preferred are entitled to vote,
together with the holders of Common Stock as one class, on all matters on which
the holders of Common Stock are entitled to vote. Each share of Series 1997-A
Preferred is entitled to the number of votes as equal the number of shares of
Common Stock into which a share of Series 1997-A Preferred is then entitled to
be converted. The affirmative vote of a majority of the Series 1997-A Preferred
is required to (i) issue additional shares of Series 1997-A Preferred or
increase the number of authorized shares of Series 1997-A Preferred, (ii)
authorize any reclassification of the Series 1997-A Preferred, (iii) require the
exchange of Series 1997-A Preferred, (iv) amend, alter or repeal any provisions
of the By-Laws of the Company in a manner that would adversely affect the
holders of Series 1997-A Preferred or (v) amend, alter or repeal any provisions
of the Certificate of the Company, the terms of the Series 1997-A Preferred or
any other pertinent organizational document in a manner that would adversely
affect the rights and preferences of the Series 1997-A Preferred.
In addition, for so long as there is outstanding at least 793,730
shares of Series 1997-A Preferred, the affirmative vote of a majority of the
Series 1997-A Preferred is required for the following actions: (i) the transfer
by the Company of the ownership of any interest in the General Partner of the
Operating Partnership, the transfer by the General Partner to a third party of
the right to exercise all or a portion of its rights as the General Partner of
the Operating Partnership or the transfer by the Company in a single transaction
or series of transactions of assets owned directly or indirectly by the Company
having a value in excess of 10% of the fully-diluted market capitalization of
the Company within any 90-day period or 20% of such market capitalization within
any 360-day period, (ii) the Company's termination as a REIT, (iii) the
alteration of the Company's business such that real estate assets owned directly
or indirectly by the Company are, on a square foot basis, less than 90% invested
in multifamily residential properties or (iv) the transfer, on or before
September 19, 1998, of more than 30% of the Common Stock or Units held directly
or
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<PAGE>
indirectly by either Douglas Krupp, the Chairman of the Board, or David F.
Marshall, the President and Chief Executive Officer.
Holders of Series 1997-A Preferred are entitled to elect one Director
to the Board of Directors of the Company. In addition, if four consecutive
Series 1997-A Preferred quarterly dividends are in arrears, then the number of
directors of the Company will be increased by the smallest number representing a
majority of the number of Directors of the Company, and the holders of Series
1997-A Preferred will be entitled to elect such number of Directors.
Upon (i) the transfer of substantially all the assets owned directly or
indirectly by the Company, (ii) the merger or consolidation of the Company or
the Operating Partnership with a third party (other than a merger of the Company
and a wholly-owned subsidiary of the Company in which the fully-diluted market
capitalization of the Company is unchanged), (iii) any recapitalization of the
Company, the Operating Partnership and subsidiaries of the Company, considered
as a whole, in a single transaction or series of transactions, aggregating 50%
or more of the fully-diluted market capitalization of the Company or (iv) a
change of control of the Company or the Operating Partnership, holders of Series
1997-A Preferred will be entitled to receive at their option either (i) out of
the assets of the Company available for distribution to shareholders and before
any payment to holders of Common Stock, an amount per share equal to 115% of the
sum of the Stated Value and all accrued and unpaid dividends or (ii) Common
Stock on conversion of their Series 1997-A Preferred.
Upon liquidation, dissolution or winding-up of the Company, holders of
Series 1997-A Preferred will be entitled to receive at their option either (i)
out of the assets of the Company available for distribution to shareholders and
before any payment to holders of Common Stock, an amount per share equal to 115%
of the sum of the Stated Value and all accrued and unpaid dividends if such
event occurs before September 25, 2002, 110% of such sum if such event occurs on
or after September 25, 2002 but before September 25, 2003, 105% of such sum if
such event occurs on or after September 25, 2003 but before September 25, 2004
and 100% of such sum if such event occurs on or after September 25, 2004 or (ii)
Common Stock on conversion of their Series 1997-A Preferred. Notwithstanding the
foregoing, if such event occurs as a result of the adoption and implementation
of a plan of liquidation pursuant to rights granted to shareholders in the
Company's Certificate (see "-- Termination"), then holders of Series 1997-A
Preferred who voted in favor of the adoption of such plan will be entitled to
receive at their option either (i) an amount per share equal to 100% of the sum
of the Stated Value and all accrued and unpaid dividends or (ii) Common Stock on
conversion of their Series 1997-A Preferred.
Each share of Series 1997-A Preferred is convertible at the option of
the holder beginning September 19, 1998 into 2.0756 shares of Common Stock,
based on a
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<PAGE>
conversion price of $12.045 per share of Common Stock. The conversion price is
subject to adjustment in certain events.
In the event of the Company's termination as a REIT, each holder of
Series 1997-A Preferred will have the right to require the Company to redeem any
or all of such holder's shares of Series 1997-A Preferred at a redemption price
per share equal to 115% of the sum of the Stated Value and all accrued and
unpaid dividends.
The terms of the Series 1997-A Preferred provide that it will rank
prior to any other series of Preferred Stock, prior to Common Stock and prior to
any other class or series of capital stock of the Company with respect to the
payment of dividends, the right to redemption and the distribution preference in
the event of a change in ownership or the liquidation, dissolution or winding-up
of the Company. Except as otherwise agreed to in the Stock Purchase Agreement
among the Company, Westbrook and Westbrook Berkshire Holdings, L.L.C., pursuant
to which the shares of Series 1997-A Preferred were issued and sold, holders of
Series 1997-A Preferred have no preemptive rights.
Charter and By-Law Provisions
General. Shareholders' rights and related matters are governed by the
Delaware General Corporation Law and the Company's Organizational Documents.
Certain provisions of the Organizational Documents, which are summarized below,
may make it more difficult to change the composition of the Board of Directors
and may discourage or make more difficult any attempt by a person or group to
obtain control of the Company.
Voting Requirements. Holders of shares of Common Stock of the Company
and Series 1997-A Preferred (voting on an as converted basis with the holders of
shares of Common Stock although part of the same class), by a majority or
supermajority vote, may take certain actions, including approving amendments to
the Company's Certificate. Any such change, if approved by the holders of the
requisite number of shares, would be binding on all nonconsenting shareholders.
Under the Organizational Documents, a supermajority vote is required in order to
amend those portions of the Organizational Documents which concern: (1) the
definition of "supermajority"; (2) the requirements for amending the
Organizational Documents; (3) the requirements regarding Excess Share ownership
(see " -- Restrictions on the Ownership and Transfer of Excess Shares"); (4) the
actions which require a supermajority vote; (5) the requirements regarding
business combinations (see " -- Business Combinations"); (6) the staggering of
the terms of the Directors; (7) the limitation of the liability of Directors;
and (8) the perpetual life of the Company. A "supermajority" vote is defined to
mean the vote or consent of shareholders owning at least 66-2/3% of the
outstanding shares of capital stock entitled at the time to vote on the election
of Directors. In addition, holders of shares of Series 1997-A Preferred have the
special voting rights described under " -- Preferred Stock -- Series 1997-A
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Preferred Stock." Shareholders may not take action by written consent without a
meeting.
Special Meetings. Special meetings may be called, to address specific
Company matters, by the Chairman of the Board, the President of the Company or a
majority of the Directors or independent Directors. Shareholders may not call a
special meeting.
Staggered Board of Directors. The Certificate classifies the Directors,
concerning the term of their respective directorships, into three classes, one
of which is elected annually.
The provisions for a classified Board, together with related provisions
designed to strengthen the position of the Board by (i) providing for
limitations on the removal of Directors and the filling of vacancies on the
Board, (ii) requiring that shareholder action be taken only at an annual meeting
or a special meeting and limiting the ability of shareholders to call special
meetings, (iii) prescribing procedures for the advance notice of shareholder
proposals and nominations of Directors by the shareholders and (iv) requiring a
supermajority vote to effect changes in certain provisions, have the overall
effect of making it more difficult to acquire and exercise control of the
Company and to remove incumbent officers and Directors, providing such officers
and Directors with enhanced ability to retain their positions. Such provisions
may also limit shareholder participation in certain types of transactions that
might be proposed whether or not such transactions were favored by a majority of
shareholders.
Business Combinations
The Organizational Documents affirmatively adopt Section 203 of the
Delaware General Corporation Law, which prohibits Interested Shareholders (as
defined below) from engaging in a Business Combination with the Company.
Accordingly, the Organizational Documents provide that the Company shall not
engage in any Business Combination (as defined below) with any Interested
Shareholder for a period of three years following the time that such shareholder
became an Interested Shareholder, unless: (a) prior to such time, the Board
approved either the Business Combination or the transaction which resulted in
the shareholder becoming an Interested Shareholder; or (b) upon consummation of
the transaction which resulted in the shareholder becoming an Interested
Shareholder, the Interested Shareholder owned at least 85% of the shares of the
voting shares of the Company then outstanding, excluding shares held by
Directors who are also officers of the Company and employees' stock plans in
which employees do not have the right to determine confidentially whether shares
held by the plan will be tendered in a tender or exchange offer; or (c) at or
subsequent to such time, the Business Combination is approved by the Board and
authorized by a supermajority vote, excluding the shares owned by the Interested
Shareholder. The term "Business Combination" is defined to
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include, among other things, a merger or consolidation of the Company with, or
caused by, an Interested Shareholder and other specified transactions which
would have the effect of the Interested Shareholder gaining control of the
Company. An "Interested Shareholder" includes, among others, any person owning
15% or more of the outstanding voting shares of the Company; provided, however
that the term "Interested Shareholder" does not include any person whose
ownership of shares in excess of 15% is the result of action taken solely by the
Company. In that event, such person would be considered an Interested
Shareholder if he thereafter acquired additional voting shares of the Company,
except as a result of further Company action not caused by such Interested
Shareholder.
The provisions of the Organizational Documents concerning Business
Combinations and the restriction on the transfer of shares which are described
above cannot be changed except by amendment to the Organizational Documents by a
supermajority vote.
Pursuant to the Delaware General Corporation Law, the Company cannot
merge with or sell all or substantially all of the assets of the Company, except
pursuant to a resolution approved by the affirmative vote of a majority of the
outstanding shares entitled to vote on the resolution. In addition, the
Partnership Agreement requires that any merger or sale of all or substantially
all of the assets of or dissolution of the Operating Partnership be approved by
the affirmative vote of a majority of the outstanding Units.
Shareholder Rights Plan
The Company may adopt a Shareholder Rights Plan (a plan intended to
force the initiator of a hostile takeover to negotiate by granting the
shareholders rights to buy shares at a bargain price). Such a Plan (i) may have
the effect of discouraging changes of control of the Company, and (ii) may limit
the opportunity of a shareholder to receive a premium for his or her shares in
the event an investor is making purchases to assemble a block of shares.
Restrictions on the Ownership and Transfer of Excess Shares
For the Company to qualify as a REIT under the Code, not more than 50%
of its outstanding shares may be owned by five or fewer individuals during the
last half of the year, and the shares of Common Stock must be owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Furthermore, the Company cannot
own, directly or by attribution, 10% or more of any tenant of a property or a
property securing a mortgage loan investment from which the Company is entitled
to receive an additional equity return. The Organizational Documents (1) provide
that if any person or group of affiliated persons directly or indirectly
acquires ownership, in the aggregate, of more than 9.8% of the then outstanding
shares of capital stock ("Excess
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Shares") such Excess Shares shall be deprived of voting rights, shall not be
included in any quorum count and any dividends and distributions on such shares
shall be paid into an escrow account payable to the holder of the Excess Shares
at the time they cease to be Excess Shares, and (2) empower the Board (i) to
refuse to permit any transfer of shares of capital stock which, in its sole
discretion, would jeopardize the status of the Company as a REIT and (ii) to
repurchase any Excess Shares to maintain or bring the ownership of shares into
conformity with such 9.8% limit. The 9.8% limitation on ownership of shares of
Common Stock encompasses shares held directly or indirectly as a result of
options, warrants or other convertible securities.
The Company may require each proposed transferee of shares of capital
stock to deliver a statement or affidavit setting forth the number of shares, if
any, already owned, directly, indirectly or by attribution by such transferee
and may refuse to permit any transfer of shares which would cause an
accumulation of shares that would jeopardize the status of the Company as a
REIT. A shareholder who knowingly holds Excess Shares is required to indemnify
the Company for any losses the Company may suffer as a result of such holdings.
Excess Shares shall be deemed to be offered for sale to the Company or
its designees. The purchase price will be the average closing sales price as
reported by the NYSE during the 30-day period ending on the business day prior
to the purchase date. The Organizational Documents further provide that the
purchase price may be paid in the form of a promissory note of the Company.
However, if the person from whom the Excess Shares were purchased sells a like
number of his or her remaining shares within 30 days of the purchase date, then
the Company shall rescind the purchase of the Excess Shares unless counsel to
the Company is of the opinion that such rescission would jeopardize the
Company's tax status as a REIT. In that event, in lieu of rescission, the
Company shall make immediate payment for the shares.
Such provisions do not apply to the acquisition of shares by an
underwriter in a public offering by the Company or to any transaction involving
the issuance of shares by the Company when its qualification as a REIT would not
be jeopardized. Such provisions did not apply to the issuance and sale of the
Series 1997-A Preferred or to the Offering.
The provisions of the Organizational Documents concerning Excess Shares
cannot be changed except by amendment of the Organizational Documents by a
supermajority vote.
Dissolution
The Company may be dissolved at any time by supermajority vote and,
otherwise, pursuant to the procedure set forth in the Delaware General
Corporation Law. The Certificate requires the Company's Board of Directors to
prepare and submit to the shareholders on or before December 31, 1998 a proposal
to liquidate the
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Company's assets and distribute the net proceeds of such liquidation. The
liquidation proposal will become effective only if approved by shareholders
holding a majority of voting shares then outstanding.
Limitation of Directors' Liability
The Company's Certificate provides for indemnification of its officers
and Directors to the fullest extent permitted by Sections 145 and 102(b)(7) of
the Delaware General Corporation Law and relieves the Directors of certain
monetary liabilities to the Company and its shareholders. In general, Delaware
law permits the Company to indemnify its officers and Directors so long as they
act in good faith and in a manner reasonably believed by them to be in, or not
opposed to, the best interests of the Company. Subject to the provisions of
Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the Company
intends to indemnify its officers and Directors against losses, liabilities and
expenses (including attorneys' fees) incurred by them that are related to their
being officers or Directors of the Company.
Transfer Agent
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company.
DESCRIPTION OF UNITS AND CONVERSION OF UNITS
General. Unitholders may, subject to certain limitations, require the
Company to convert all or a portion of their Units (the "Redemption Right").
This Redemption Right must be exercised pursuant to written notice delivered to
the Company specifying the Units to be converted by such Unitholder (the
"Exercise Notice"). Upon receipt of the Exercise Notice, the Company will, at
the direction of the Operating Partnership, convert each Unit specified in the
Exercise Notice into a share of Common Stock (subject to certain adjustments in
the event of stock dividends and stock splits), or purchase each such Unit for
cash in an amount equal to the Market Value (as defined below) of a share of
Common Stock (subject to the same adjustments); provided, however, that if the
Unitholder has registration rights for shares received upon conversion of Units
in accordance with a Registration Rights Agreement, the Unitholder may indicate
in his or her Exercise Notice that the conversion of his or her Units into
shares will be conditioned upon the effectiveness of the registration of such
shares under the securities laws. The "Market Value" of the Common Stock for
purposes of conversion of Units for cash will be equal to the average of the
closing trading price of the Common Stock for the five trading days prior to the
day on which the Exercise Notice was received by the Company.
The Company anticipates that it generally will be required to acquire
any Units specified in an Exercise Notice by the issuance of a like number of
shares of Common Stock. Such an acquisition by the Company will be treated as a
sale of the
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Units to the Company for federal income tax purposes. See " -- Tax Consequences
of Conversion." Upon the receipt of Redemption Shares, a Unitholder will have
rights as a shareholder of the Company, including the right to receive dividends
from the time of such Unitholder's acquisition of the Redemption Shares.
A Unitholder may notify the Company of his or her desire to exercise
the Redemption Right with respect to Units that were issued one year or more
before the date of the Exercise Notice. A Redemption Right may not be exercised
to the extent delivery of Redemption Shares would be prohibited under the
provisions of the Company's Organizational Documents to protect the Company's
qualification as a REIT.
Tax Consequences of Conversion
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Unitholder should he or she exercise
his or her right to redeem Units.
Tax Treatment of Conversion of Units. If the Company purchases Units
tendered for conversion, such transaction will be treated as a sale fully
taxable to the Unitholder, and the Unitholder will be treated as realizing for
tax purposes an amount equal to the sum of the cash or the value of the Common
Stock received in the exchange plus the amount of any Operating Partnership
liabilities allocable to the converted Units at the time of the conversion. The
determination of the amount of gain or loss is discussed more fully below. If
the Company elects to redeem a Unitholder's Units for cash and the Operating
Partnership redeems such Units for cash that the Company contributes to the
Operating Partnership to effect such redemption, the redemption likely also
would be treated for tax purposes as a sale of such Units to the Company in a
fully taxable transaction, although such a result is not certain. In that event,
the Unitholder would be treated as realizing an amount equal to the sum of the
cash received in the exchange plus the amount of any Operating Partnership
liabilities allocable to the redeemed Units at the time of the redemption. The
determination of the amount and character of gain or loss in the event of such a
sale is discussed more fully below. See "-- Tax Treatment of Disposition of
Units by a Unitholder Generally."
If the Company does not elect to purchase Units tendered for redemption
and the Operating Partnership redeems a Unitholder's Units for cash that is not
contributed by the Company to effect the redemption, the tax consequences would
be the same as described in the previous paragraph, except that, if the
Operating Partnership redeems less than all of a Unitholder's Units, the
Unitholder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash
exceeded the Unitholder's adjusted basis in all of its Units immediately before
the redemption.
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If the Company contributes cash to the Operating Partnership to effect
a redemption, and in the event that the redemption transaction is treated as the
redemption of a Unitholder's Units by the Operating Partnership rather than a
sale of Units to the Company, the income tax consequences to the Unitholder
would be as described in the preceding paragraph.
Tax Treatment of Disposition of Units by a Unitholder Generally. If a
Unit is disposed of in a manner that is treated as a sale of the Unit, the
determination of gain or loss from the sale or other disposition will be based
on the difference between the amount considered realized for tax purposes and
the adjusted tax basis in such Unit. See "-- Basis of Units." Upon the sale of a
Unit, the "amount realized" will be measured by the sum of the cash and fair
market value of other property (e.g., Redemption Shares) received plus the
amount of any Operating Partnership liabilities allocable to the Units sold. To
the extent that the amount of cash or property received plus the allocable share
of any Operating Partnership liabilities exceeds the limited partner's adjusted
tax basis in the Units disposed of, such Unitholder will recognize gain. It is
possible that the amount of gain recognized or even the tax liability resulting
from such gain could exceed the amount of cash and/or the value of any other
property (e.g., Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a Unitholder's share of "unrealized
receivables" or "inventory" of the Operating Partnership (as defined in Section
751 of the Code) exceeds the basis attributed to those assets, such excess will
be treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a Unitholder who acquired his or her Units
by contribution of property and/or money to the Operating Partnership had an
initial tax basis in his Units ("Initial Basis") equal to the sum of (i) the
amount of money contributed (or deemed contributed as described below) and (ii)
his adjusted tax basis in any other property contributed in exchange for such
Units, and less the amount of any money distributed (or deemed distributed, as
described below) in connection with the acquisition of the Units. The Initial
Basis of Units acquired by other means would have been determined under the
general rules of the Code, including the partnership provisions, governing the
determination of tax basis. Other rules, including the "disguised sale" rules
discussed below, also may affect Initial Basis, and Unitholders are urged to
consult their own tax advisors regarding their Initial Basis. Generally, a
Unitholder's Initial Basis in his Units is increased by (i) such Unitholder's
share of Operating Partnership taxable and tax-exempt income and (ii) increases
in
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such Unitholder's allocable share of liabilities of the Operating Partnership.
Conversely, a Unitholder's basis in his Units is decreased (but not below zero)
by (a) such Unitholder's share of Operating Partnership distributions, (b)
decreases in such Unitholder's allocable share of liabilities of the Operating
Partnership, (c) such Unitholder's share of losses of the Operating Partnership,
and (d) such Unitholder's share of nondeductible expenditures of the Operating
Partnership that are not chargeable to his capital account.
Potential Application of the Disguised Sale Regulations to a Redemption
of Units. There is a risk that a redemption by the Operating Partnership of
Units issued in exchange for a contribution of property to the Operating
Partnership may cause the original transfer of property to the Operating
Partnership in exchange for Units to be treated as a "disguised sale" of
property. Section 707(a)(2)(B) of the Code and the Treasury Regulations
thereunder (the "Disguised Sale Regulations") generally provide that, unless one
of the prescribed exceptions is applicable, a partner's contribution of property
to a partnership and a simultaneous or subsequent transfer of money or other
consideration (which may include the assumption of or taking subject to a
liability) from the partnership to the partner will be presumed to be a sale, in
whole or in part, of such property by the partner to the partnership. Further,
the Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property, the transaction is presumed to be a sale of the contributed property
unless the facts and circumstances clearly establish that the transfer did not
constitute a sale. The Disguised Sale Regulations also provide that if two years
have passed between the transfer of money or other consideration and the
contribution of property, the transaction will be presumed not to be a sale
unless the facts and circumstances clearly establish that the transfer
constitutes a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership from a
Unitholder who holds Units that were issued in exchange for a contribution of
property to the Operating Partnership, the IRS could contend that the Disguised
Sale Regulations apply because the Unitholder will thus receive cash subsequent
to a previous contribution of property to the Operating Partnership. In that
event, the IRS could contend that the contribution was taxable as a disguised
sale under the Disguised Sale Regulations. Any gain recognized thereby may be
eligible for installment reporting under Section 453 of the Code, subject to
certain limitations. In addition, in such event, the Disguised Sale Regulations
might apply to cause a portion of the proceeds received by a redeeming
Unitholder to be characterized as original issue discount on a deferred
obligation which would be taxable as interest income in accordance with the
provisions of Section 1272 of the Code. Each Unitholder is advised to consult
its own tax advisors to determine whether redemption of his or her Units could
be subject to the Disguised Sale Regulations.
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Comparison of Ownership of Units and Common Stock
The nature of an investment in Common Stock of the Company is generally
economically equivalent to an investment in Units in the Operating Partnership.
There are, however, some differences between ownership of Units and ownership of
Common Stock, some of which may be material to investors. The information below
highlights a number of significant differences between the Operating Partnership
and the Company relating to, among other things, form of organization, permitted
investments, policies and restrictions, management structure, compensation and
fees, investor rights and federal income taxation and compares certain legal
rights associated with the ownership of Units and Common Stock, respectively.
These comparisons are intended to assist Unitholders in understanding how their
investment will be changed if their Units are converted into Common Stock. This
discussion is summary in nature and does not constitute a complete discussion of
these matters, and investors should carefully review the balance of this
Prospectus, including the documents incorporated by reference herein, and the
Registration Statement of which this Prospectus is a part for additional
important information about the Company.
Form of Organization and Assets Owned. The Operating Partnership is
organized as a Delaware limited partnership. A substantial amount of the
Company's operations are conducted through the Operating Partnership which,
directly or through subsidiaries, owns the Properties.
The Company is organized under the laws of the State of Delaware. The
Company maintains both a special limited partner interest and, through its
wholly owned direct subsidiary, the General Partner, a general partner interest
in the Operating Partnership, which gives the Company an indirect investment in
the Properties and other assets owned by the Operating Partnership. As of June
30, 1998, the Company held approximately 80.4% of the partnership interests in
the Operating Partnership. Such interest may increase as Units are acquired by
the Company or decrease as additional assets are acquired in exchange for Units
in the Operating Partnership.
Term. The Operating Partnership has a stated termination date of
December 31, 2095, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and, unless the shareholders
vote to liquidate the Company's assets and distribute the net proceeds of such
liquidation, intends to continue its operations for an indefinite time period.
See "Risk Factors -- Vote Regarding Continuation of the Company."
Purpose and Permitted Investments. The purpose of the Operating
Partnership as stated in its Partnership Agreement may be summarized as the
acquisition, sale, operation, development, financing, mortgaging and leasing of
real estate and interests in real estate, including the Properties. The
Partnership
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Agreement requires the business of the Operating Partnership to be conducted in
such a manner that will permit the Company to be classified as a REIT for
federal income tax purposes. The Operating Partnership may, subject to the
foregoing limitation, invest or enter into partnerships, joint ventures or
similar arrangements and may own interests in any other entity.
Under its Certificate, the Company may engage in any lawful activity
permitted under the Delaware General Corporation Law. Under the Partnership
Agreement, the General Partner of the Operating Partnership is responsible for
the management of the Operating Partnership's business and affairs and has full
and complete power, authority and discretion to take such action on behalf of
the Operating Partnership as it deems necessary or appropriate in order to carry
out the purposes of the Operating Partnership. However, the General Partner may
not do any act in contravention of the Partnership Agreement or applicable law
nor may the General Partner possess any Operating Partnership property or assign
any rights in such property for other than Operating Partnership purposes. The
Company agrees that all of its activities and business operations will be
conducted directly or indirectly through the Operating Partnership.
Additional Equity. The Operating Partnership is authorized to issue
Units and other partnership interests to its partners or to other persons for
such consideration and on such terms and conditions as the General Partner, in
its sole discretion, may deem appropriate.
The Board of Directors of the Company may authorize the issuance of
shares of capital stock of any class, whether now or hereafter authorized, or
securities or rights, convertible into shares of capital stock, for such
consideration as the Board of Directors may deem advisable, subject to such
restrictions or limitations as may be set forth in the Company's Organizational
Documents. The proceeds from the issue of equity capital by the Company will be
loaned or contributed to the Operating Partnership in exchange for Units or
other interests in the Operating Partnership.
Borrowing Policies. The Partnership Agreement imposes no restrictions
on the Operating Partnership on borrowings, and the General Partner has full
power and authority to borrow money on behalf of the Operating Partnership.
The Company is not restricted under its Organizational Documents from
incurring borrowings. The Company has, however, adopted a policy that limits
Company debt to 50% of the value of its assets. See "Risk Factors -- Absence of
Debt Limitation." The foregoing reflects the Company's general policy over time
and is not intended to operate in a manner that inappropriately restricts the
Company's ability to raise additional capital, including additional debt, to
implement its planned growth, to pursue attractive acquisition opportunities
that may arise or to otherwise act in a manner that the Board of Directors
believes to be in the best interests of the Company and its shareholders. The
Board of Directors, with the assistance of
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management of the Company, may re-evaluate from time to time its debt and other
capitalization policies in light of then current economic conditions, including
the relative costs of debt and equity capital, the market value of its
properties, growth and acquisition opportunities, and the market value of its
equity securities in relation to the Company's view of the market value of its
properties, and may modify its debt policy. Such modification may include
increasing or decreasing its ratio of debt to value or substituting another
measuring standard.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, the Partnership Agreement imposes no
restrictions upon the Operating Partnership's authority to enter into certain
transactions, including, among others, making investments, lending Operating
Partnership funds, or reinvesting the Operating Partnership's cash flow and net
sale or refinancing proceeds.
The Company's Organizational Documents do not impose any restrictions
upon the types of investments that may be made by the Company.
Management Control. All management powers over the business and affairs
of the Operating Partnership are vested in the General Partner, and no limited
partner of the Operating Partnership has any right to participate in or exercise
control or management power over the business and affairs of the Operating
Partnership. The General Partner may not be removed by the limited partners
(other than by the Company as special limited partner) with or without cause.
The Board of Directors has exclusive control over the Company's
business and affairs subject only to the restrictions set forth in the
Organizational Documents. The Board of Directors is divided into three classes.
At each annual meeting of the shareholders, the successors of the class of
directors whose terms expire at that meeting will be elected. The policies
adopted by the Board of Directors may be altered or eliminated without advice of
the shareholders. Accordingly, except for their vote in the elections of
directors, shareholders have no control over the day-to-day business policies of
the Company.
Management Liability and Indemnification. The Partnership Agreement
generally provides that the General Partner will incur no liability to the
Operating Partnership or any limited partner for losses sustained or liabilities
incurred as a result of any act or omission if the General Partner or its
affiliates, directors, officers, shareholders and such other persons acting in
its or their behalf acted in good faith and in the belief that such conduct was
in, or not opposed to, the best interests of the Operating Partnership. The
Partnership Agreement also provides for indemnification of the General Partner,
the Company, the directors, officers and shareholders of the General Partner and
the Company, and such other persons acting on its or their behalf, against
expenses, judgments, fines and amounts paid in settlement arising
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from any threatened, pending or completed actions, suits or proceedings that
relate to the operations of the Operating Partnership in which such person may
be involved.
The Company's Organizational Documents provide certain limitations on
the liability of the Company's directors and officers for monetary damages to
the Company. The Organizational Documents obligate the Company to indemnify its
Directors and officers, and permit the Company to indemnify its employees and
other agents, against certain liabilities incurred in connection with their
service in such capacities. These provisions could reduce the legal remedies
available to the Company and the shareholders against these individuals.
The Company's By-Laws require it to indemnify its officers, directors
and certain other parties to the fullest extent permitted from time to time by
Delaware law. The Delaware General Corporation Law permits a corporation to
indemnify any present or former director, officer, employee or agent who has
been successful on the merits or otherwise in the defense of any action, suit or
proceeding or in defense of any claim, issue or matter therein, to which he or
she was made a party by reason of his or her service in that capacity, against
reasonable expenses incurred by him or her in connection therewith provided it
is established that (i) he or she acted in good faith and in a manner which he
or she reasonably believed to be in, or not opposed to, the best interests of
the Company; or (ii) in the case of a criminal proceeding, he or she had no
reasonable cause to believe that his or her conduct was unlawful. The Delaware
General Corporation Law also permits the Company to provide indemnification and
advance expenses to a present or former Director or officer who served a
predecessor of the Company in such capacity, and to any employer or agent of the
Company or a predecessor of the Company The Company has purchased director and
officer liability insurance for the purpose of providing a source of funds to
help pay for any indemnification expenses it may incur. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Anti-takeover Provisions. The General Partner has exclusive management
power over the business and affairs of the Operating Partnership, and the
Partnership Agreement makes no provision for the removal of the General Partner
by the limited partners (other than the special limited partner).
The Organizational Documents of the Company and Delaware law contain a
number of provisions that may have the effect of delaying or discouraging an
unsolicited proposal for the acquisition of the Company or the removal of
incumbent management. See "Risk Factors -- Anti-Takeover Provisions."
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Voting Rights. Under the Partnership Agreement, the limited partners do
not have voting rights relating to the operation and management of the Operating
Partnership except in connection with certain amendments to the Partnership
Agreement.
Shareholders of the Company have the right to vote, among other things,
on a merger or sale of substantially all of the assets of the Company, certain
amendments to the Certificate and dissolution of the Company. The Company is
managed and controlled by a Board of Directors consisting of three classes
having staggered terms of office. Each class is to be elected by the
shareholders at annual meetings of the Company. Each share of Common Stock has
one vote, and the Certificate permits the Board of Directors to classify and
issue Preferred Stock in one or more series having voting power which may differ
from that of the Common Stock.
Amendment of the Partnership Agreement or the Company's Certificate.
Amendments to the Partnership Agreement may be proposed by the General Partner
and generally require approval of limited partners (including the special
limited partner) holding a majority of the outstanding limited partner
interests. Certain amendments that would, among other things, reduce any limited
partner's interest in the Operating Partnership or his, her or its share of
distributions, create any obligations or impair any right of a limited partner
must be approved by the General Partner, and each limited partner that would be
adversely affected by any such amendment.
Amendments to the Company's Certificate, its term, certain changes to
its capital stock provisions, changes to the powers of the Board of Directors,
removal of a director, the excess shares and REIT qualification provisions, the
business combinations provision, shareholder action, the staggered board,
limitation on liability, standards for evaluation of tender, merger and purchase
offers, and amendment of the By-Laws must be approved by the Board of Directors
and by affirmative vote of the holders of not less than two-thirds of all votes
entitled to be cast on the matter. Other matters require an affirmative vote by
a majority of the shareholders.
Vote Required to Dissolve the Operating Partnership or the Company.
Under Delaware limited partnership law, the Operating Partnership may be
dissolved, other than in accordance with the terms of the Partnership Agreement,
only upon the written consent of all of the partners, the withdrawal of the
general partner without replacement or judicial decree. Under Delaware
corporation law, the Board of Directors must obtain the approval of holders of
not less than a majority of all outstanding shares of capital stock of the
Company in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
the limited partners of the Operating Partnership do not have voting rights with
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respect to the sale, exchange, transfer or other disposition of all or
substantially all of its assets, including by way of merger or consolidation or
other combination of the Operating Partnership.
Under Delaware law and the Company's Certificate, the sale of all or
substantially all of the assets of the Company or any merger or consolidation or
dissolution requires the approval of the Board of Directors and the affirmative
vote of a majority of all the votes entitled to be cast on the matter. No
approval of the shareholders is required for the sale of less than all or
substantially all of the Company's assets.
Compensation, Fees and Distributions. The General Partner does not
receive any compensation for its services as general partner of the Operating
Partnership. As a partner in the Operating Partnership, however, the General
Partner and the Company have the same right to allocations and distributions as
other partners of the Operating Partnership. In addition, the Operating
Partnership will reimburse the General Partner and the Company for all expenses
incurred relating to the ownership and operation of, or for the benefit of, the
Operating Partnership.
The directors and officers of the Company receive compensation for
their services.
Liability of Investors. Under the Partnership Agreement and applicable
Delaware law, limited partners generally are not liable for the debts and
obligations of the Operating Partnership unless they are also a general partner
or participate in the control of the business.
Under Delaware law, shareholders generally are not liable for the debts
or obligations of the Company.
Nature of Investment. The Units constitute equity interests entitling
holders thereof to their pro rata share of cash distributions made to the
limited partners of the Operating Partnership. The Company and the General
Partner are entitled to receive their respective pro rata shares of
distributions made by the Operating Partnership with respect to their interests
in the Operating Partnership.
Shares of Common Stock constitute equity interests in the Company. Each
shareholder will be entitled to his pro rata share of any dividends or
distributions paid with respect to Common Stock. The dividends payable to the
shareholders are not fixed in amount and are paid only if, when and as declared
by the Board of Directors.
Potential Dilution of Rights. The General Partner is authorized, in its
sole discretion and without limited partner approval, to cause the Operating
Partnership to issue additional limited partnership interests and other equity
securities for any
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partnership purpose at any time to the limited partners or to other persons on
terms established by the General Partner.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and has the authority to issue from the
authorized capital stock a variety of other equity securities of the Company
with such powers, preferences and rights as the Board of Directors may designate
at the time. The issuance of additional shares of Common Stock or other similar
equity securities may result in the dilution of interests of the shareholders.
Liquidity. Subject to certain exceptions, the Unitholders may not
transfer or pledge Units without the consent of the General Partner, which may
be withheld in its sole and absolute discretion.
The Common Stock is listed on the NYSE. The breadth and strength of
this market will depend, among other things, upon the number of shares
outstanding, the Company's financial results and prospects, the general interest
in the Company's real estate investments and the Company's dividend yield
compared to that of other debt and equity securities.
REGISTRATION RIGHTS
The registration of the Redemption Shares pursuant to the Registration
Statement of which this Prospectus is a part will discharge the Company's
obligations with respect to such Redemption Shares to the Unitholders and the
Selling Stockholders under the terms of the Registration Rights Agreement which
the Company entered into in connection with the issuance of the 582,919 Units.
The following summary does not purport to be complete and is qualified in its
entirety by reference to the Registration Rights Agreement.
Under the Registration Rights Agreement, at any time until the earlier
of the date on which all the Redemption Shares issued to the Unitholders or the
Selling Stockholders, as the case may be, have become eligible for sale pursuant
to (a) a registration statement effectively registering the Redemption Shares
under the Securities Act, or (b) Rule 144 promulgated under the Securities Act
("Rule 144"), the Unitholders or the Selling Stockholders, as the case may be,
may request that the Company cause to be filed a "shelf registration statement"
(a "Shelf Registration") covering the Redemption Shares; provided, however, that
the Company shall not be required to provide a registration statement with
respect to Redemption Shares if (i) an effective Shelf Registration has been
filed with respect to said shares and has been kept effective for at least
ninety (90) days, (ii) said shares have been sold pursuant to either the Shelf
Registration or Rule 144, or (iii) said shares are capable of being sold
pursuant to Rule 144. The Company is not obligated to file a Shelf Registration
Statement pursuant to the terms of the Registration Rights Agreement more often
than once during any 12-month period. The Registration
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Statement of which this Prospectus is a part was filed on the initiative of the
Company to accommodate the Unitholders and the Selling Stockholders and it is
the present intention of the Company to maintain its effectiveness for two
years, although the Company reserves the right to suspend the issue of
Redemption Shares pursuant to it at its discretion or to terminate its
effectiveness. As long as the Registration Statement of which this Prospectus is
a part remains effective, neither the Redemption Shares held by the Unitholders
when issued by the Company pursuant to this Prospectus nor any Redemption Shares
acquired by the Selling Stockholders in exchange for their Units will require
the benefits of the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company has agreed
to pay all expenses incurred in the registration of the Redemption Shares (other
than selling commissions and discounts, brokerage fees and transfer taxes or any
legal, accounting and other expenses incurred by the Unitholders or the Selling
Stockholders thereunder). The Company also has agreed to indemnify the
Unitholders and the Selling Stockholders under the Registration Rights Agreement
and its officers, directors and other affiliated persons and any person who
controls the Unitholders or the Selling Stockholders against any and all losses,
claims, damages and expenses arising under the securities laws in connection
with the Registration Statement or this Prospectus, subject to certain
limitations. In addition, the Unitholders or the Selling Stockholders have
agreed to indemnify the Company and its directors, officers and any person who
controls the Company against all losses, claims, damages and expenses arising
under the securities laws insofar as such loss, claim, damage or expense relates
to written information furnished to the Company by the Unitholders or the
Selling Stockholders for use in the Shelf Registration or Prospectus or an
amendment or supplement thereto. The Company is not required to indemnify the
Unitholders or the Selling Stockholders for the failure by the Unitholders or
the Selling Stockholders to deliver or cause to be delivered the Prospectus or
any amendment or supplement hereto to any purchaser from the Unitholders or the
Selling Stockholders of shares covered by the Shelf Registration.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations relating to a holder of Common Stock. The following discussion,
which is not exhaustive of all possible tax considerations, does not give a
detailed description of any state, local, or foreign tax considerations. Nor
does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective shareholder in light of his or her particular
circumstances or to certain types of shareholders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under federal income tax laws. The
information in this section is based on the Code, including the provisions of
the Taxpayer Relief Act of 1997 (the "1997 Act") and the IRS Restructuring and
Reform
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Act of 1998 (the "1998 Act"), current, temporary and proposed Treasury
Regulations thereunder, the legislative history of the Code, current
administrative interpretations and practices of the IRS (including its practices
and policies as endorsed in private letter rulings, which are not binding on the
IRS except with respect to the taxpayer that receives such a ruling), and court
decisions, all as of the date hereof. No assurance can be given that future
legislation, Treasury Regulations, administrative interpretations and court
decisions will not significantly change current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. The Company has not requested and
does not plan to request any rulings from the IRS concerning the tax treatment
of the Company or the Operating Partnership. Thus, no assurance can be provided
that the statements set forth herein (which do not bind the IRS or the courts)
will not be challenged by the IRS or will be sustained by a court if so
challenged.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT HIS OR
HER TAX ADVISOR REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION,
OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND
OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ended December 31,
1991. The Company believes that it has been organized and operated in a manner
so as to qualify as a REIT, and the Company intends to continue to operate in
such a manner. So long as the Company qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on net income
that it distributes currently to shareholders. However, the Company will be
subject to federal income tax in certain circumstances, including the following:
First, the Company will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by foreclosure or otherwise on default of a lease or
a loan secured by the property) which is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should
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fall to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods, it
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if the Company acquires or has
acquired any asset from a C corporation (i.e., a corporation generally subject
to full corporate-level tax) in a transaction in which the basis of the asset in
the acquiror's hands is determined by reference to the basis of the asset (or
any other asset) in the hands of the C corporation and the acquiror recognizes
gain on the disposition of such asset during the 10-year period beginning on the
date on which such asset was acquired by it, then to the extent of such asset's
"Built-in Gain" (i.e., the excess of (a) the fair market value of such asset at
the time of the acquisition by the Company over (b) the adjusted basis in such
asset, determined at the time of such acquisition), such gain will be subject to
tax at the highest regular corporate rate applicable, pursuant to anticipated
Treasury Regulations that have yet to be promulgated. The results described
above with respect to the recognition of Built-In Gain assume that the Company
will make an election pursuant to Notice 88-19 with respect to any such
acquisition.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (1) that is managed by one or more trustees or
directors, (2) the beneficial ownership of which is evidenced by transferable
shares of stock, or by transferable certificates of beneficial interest, (3)
that would be taxable as a domestic corporation, but for Sections 856 through
859 of the Code, (4) that is neither a financial institution nor an insurance
company subject to certain provisions of the Code, (5) the beneficial ownership
of which is held by 100 or more persons, (6) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities), and (7) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (1) through (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months.
The Company's Organizational Documents contain restrictions regarding
the transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in conditions
(5) and (6). See "Description of the Capital Stock of the Company --
Restrictions on the Ownership and Transfer of Excess Shares." Moreover, pursuant
to the 1997 Act, for the Company's taxable years commencing on or after January
1, 1998, if the Company
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complies with regulatory rules pursuant to which it is required to send annual
letters to holders of its capital stock requesting information regarding the
actual ownership of the capital stock, and the Company does not know, or
exercising reasonable diligence would not have known, whether it failed to meet
requirement (6) above, the Company will be treated as having met the
requirement.
Income Tests. In order to maintain qualification as a REIT, the Company
must satisfy certain gross income requirements, which are applied on an annual
basis. First, at least 75% of the Company's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from the same items which
qualify under the 75% income test, and from dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of the
foregoing.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" if the Company, or an
owner of 10% or more of the Company, directly or constructively owns 10% or more
of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents to qualify as "rents from real property," the
Company generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" that is
adequately compensated and from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant."
Pursuant to the 1997 Act, for the Company's taxable years commencing on
or after January 1, 1998, rents received generally will qualify as rents from
real property even if the Company were to provide services that are not
permissible services so long as the amount received for such services meets a de
minimis standard. The amount received for "impermissible services" with respect
to a property (or, if services are available only to certain tenants, possibly
with respect to such tenants)
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cannot exceed 1% of all amounts received, directly or indirectly, by the Company
with respect to such property (or, if services are available only to certain
tenants, possibly with respect to such tenants). In computing any such amounts,
the amount that the Company would be deemed to have received for performing
"impermissible services" will be the greater of the actual amount so received or
150% of the direct cost to the Company of providing those services.
The Company provides certain services with respect to the Properties
through the Operating Partnership, which is not an "independent contractor."
However, the Company believes that all of such services are considered "usually
or customarily rendered" in connection with the rental of space for occupancy
only, so that the provision of such services do not jeopardize the qualification
of rent from the Properties as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ "independent contractors" to provide such services.
The Company provides certain services with respect to the Properties
through the Operating Partnership, which is not an "independent contractor."
However, the Company believes that all of such services are considered "usually
or customarily rendered" in connection with the rental of space for occupancy
only, so that the provision of such services do not jeopardize the qualification
of rent from the Properties as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ "independent contractors" to provide such services.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a 100% tax would be imposed with
respect to the "excess net income" attributable to the failure to satisfy the
75% and 95% gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable
year must also satisfy three tests relating to the nature of its assets: (i) at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company has an interest and (ii) stock or debt
instruments purchased with the proceeds of a stock offering on long-term (at
least five years) debt offering of the Company and held for not more than one
year following the receipt by the Company of such proceeds), cash, cash items
and government securities; (ii) not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class; and
(iii) of the investments included in the 25% asset class, the value of any one
issuer's securities (other than an interest in a partnership or shares of a
"qualified REIT subsidiary" or another REIT) owned by the Company may not exceed
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5% of the value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities (other than an
interest in a partnership or securities of a "qualified REIT subsidiary" or
another REIT).
After initially meeting the asset tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests and plans to take such
other action within 30 days after the close of any quarter as may be required to
cure any noncompliance. However, there can be no assurance that such other
action will always be successful.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of non-cash income. In addition, if the Company disposes of any Built-In
Gain Asset during the 10-year period beginning on the date the Company acquired
that asset, the Company will be required, pursuant to Treasury Regulations which
have not yet been promulgated, to distribute at least 95% of the Built-In Gain
(after tax), if any, recognized on the disposition of such asset. See
"--General" above for a discussion of "Built-In Gain Assets." Such distributions
must be paid in the taxable year to which they relate, or in the following
taxable year if declared before the Company timely files its tax return for such
year and if paid on or before the first regular dividend payment date after such
declaration.
To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. The Company may elect to require
the shareholders to include the Company's undistributed net capital gains in
their income by designating, in a written notice to shareholders, those amounts
as undistributed capital gains in respect of its shareholders' shares. If the
Company makes such an election, the shareholders will (i) include in their
income as capital gains their proportionate share of such undistributed capital
gains and (ii) be deemed to have paid their proportionate share of the tax paid
by the Company on such undistributed capital gains and thereby receive a credit
or refund for such amount. A shareholder will increase the basis in its Common
Shares by the difference between the amount of capital gain included in its
income and the amount of the tax that the Company is deemed to have paid on the
shareholder's behalf. The earnings and profits of the Company will be adjusted
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appropriately. For a more detailed description of the tax consequences to a
shareholder of such a designation, see "--Taxation of U.S. Shareholders Holding
Common Stock."
In addition, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the sum of
amounts actually distributed during the calendar year by the REIT and the
amount, if any, on which the REIT paid income tax for such year.
The Company intends to make timely distributions sufficient to satisfy
its annual distribution requirements. It is expected that the Company's REIT
taxable income will be less than its cash flow due to the allowance of
depreciation and other non-cash charges in computing REIT taxable income.
Accordingly, the Company anticipates that it will generally have sufficient cash
or liquid assets to enable it to satisfy the distribution requirements described
above. It is possible, however, that the Company, from time to time, may not
have sufficient cash or other liquid assets to meet these distribution
requirements due to timing differences between (i) the actual receipt of income
and actual payment of deductible expenses and (ii) the inclusion of such income
and deduction of such expenses in arriving at taxable income of the Company, or
due to the need to make nondeductible payments, such as principal payments on
any indebtedness it may have. If such circumstances occur, in order to meet the
distribution requirements, the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
Failure of the Company to Qualify as a REIT. For any taxable year that
the Company fails to qualify as a REIT, the Company would be taxed at the usual
corporate rates on all of its taxable income. Those taxes would reduce the
amount of cash available to the Company for distribution to its shareholders.
Distributions to shareholders in any year in which the Company fails to qualify
as a REIT will not be deductible and will not be required to be made. In
addition, if the Company fails to qualify as a REIT, all distributions to
shareholders will be taxed as ordinary income, to the extent of the Company's
current and accumulated earnings and profits, and,
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subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction.
Unless certain relief provisions apply, the Company's election to be
treated as a REIT will terminate automatically if the Company fails to meet the
qualification requirements described above and the Company will not be eligible
to elect REIT status again until the fifth taxable year that begins after the
first year for which the Company's election was terminated (or revoked). If the
Company loses its REIT status, but later qualifies and elects to be taxed as a
REIT again, the Company may face significant adverse tax consequences.
Taxation of U.S. Shareholders
As used herein, the term "U.S. Shareholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) is an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) is a trust the administration of which is subject to the primary
supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the
trust. Notwithstanding the preceding sentence, to the extent provided in
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to continue to be treated as
United States persons, shall also be considered U.S. Shareholders.
Distributions by the Company. As long as the Company qualifies as a
REIT, distributions made to the Company's taxable U.S. Shareholders (and not
designated as capital gain dividends) will generally be taxable to such
Shareholders as ordinary income to the extent of the Company's current or
accumulated earnings and profits. For purposes of determining whether
distributions on shares of Common Stock are out of current or accumulated
earnings and profits, the earnings and profits of the Company will be allocated
first to shares of preferred stock and second to shares of Common Stock. There
can be no assurance that the Company will have sufficient earnings and profits
to cover distributions on any shares of preferred stock. Such distributions will
not be eligible for the dividends received deductions in the case of
Shareholders that are corporations. Dividends declared during the last quarter
of a calendar year and actually paid during January of the immediately following
calendar year generally are treated as if received by the Shareholders on
December 31 of the calendar year during which they were declared.
Distributions designated by the Company as capital gain dividends
generally will be taxed as gain from the sale or exchange of a capital asset
held for more than one year (to the extent that the distributions do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period for which the
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shareholder has held its stock. Corporate Shareholders however, may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against future income
(subject to certain limitations). Distributions made by the Company and gain
arising from the sale or exchange by a holder of Common Stock will not be
treated as passive activity income, and, as a result, holders of Common Stock
generally will not be able to apply any "passive losses" against such income or
gain. Future regulations may require that Shareholders take into account, for
purposes of computing their individual alternative minimum tax liability,
certain tax preference items of the Company.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the shareholder's shares of Common Stock, but rather will
reduce the adjusted basis of such shares of Common Stock. To the extent that
such distributions exceed the adjusted basis of a U.S. Shareholder's shares of
Common Stock, they will be included in income as capital gains, assuming the
shares of Common Stock are a capital asset in the hands of the U.S. Shareholder.
Pursuant to the 1997 Act, for the Company's taxable years commencing on
or after January 1, 1998, the Company may elect to require the holders of Common
Stock to include the Company's undistributed net long-term capital gains in
their income. If the Company makes such an election, the holders of Common Stock
will (i) include in their income as long-term capital gains their proportionate
share of such undistributed capital gains and (ii) be deemed to have paid their
proportionate share of the tax paid by the Company on such undistributed capital
gains and thereby receive a credit or refund for such amount. A holder of Common
Stock will increase the basis in its Common Stock by the difference between the
amount of capital gain included in its income and the amount of the tax it is
deemed to have paid. The earnings and profits of the Company will be adjusted
appropriately. As described below in "--Recent Legislation," with respect to
such long-term capital gain of a taxable domestic shareholder that is an
individual or an estate or trust, the IRS has authority to issue regulations
that could apply the special tax rate applicable to sales of depreciable real
property by an individual or an estate or trust to the portion of the long-term
capital gains of an individual or an estate or trust attributable to deductions
for depreciation taken with respect to depreciable real property.
Sales of Shares. In general, a U.S. Shareholder will realize capital
gain or loss on the disposition of shares of Common Stock equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such disposition and (ii) the shareholder's adjusted basis
of such shares of Common Stock. In the case of a taxable U.S. Shareholder who is
an individual or an estate or trust, such gain or loss will be long-term capital
gain or loss, subject to a 20% tax rate, if
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such shares have been held for more than one year. In the case of a taxable U.S.
Shareholder that is a corporation, such gain or loss will be long-term capital
gain or loss if such shares have been held for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a shareholder who has held such
shares of Common Stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
1997 Act Changes to Capital Gain Taxation. As described below in
"--Recent Legislation," each of the 1997 Act and the 1998 Act changed
significantly the taxation of capital gains by taxpayers who are individuals,
estates, or trusts. On November 10, 1997, the IRS issued IRS Notice 97-64, which
provides generally that the Company may classify portions of its designated
capital-gain dividend as (i) a 20% rate gain distribution (which would be taxed
as long-term capital gain in the 20% group), (ii) an unrecaptured Section 1250
gain distribution (which would be taxed as long-term capital gain in the 25%
group), or (iii) a 28% rate gain distribution (which was repealed by the 1998
Act). IRS Notice 97-64 provides that a REIT must determine the maximum amounts
that it may designate as 20% and 25% rate capital gain dividends by performing
the computation required by the Code as if the REIT were an individual whose
ordinary income were subject to a marginal tax rate of at least 28%. The Notice
further provides that designations made by the REIT will only be effective to
the extent that they comply with Revenue Ruling 89-81, which requires that
distributions made to different classes of shares be composed proportionately of
dividends of a particular type.
Backup Withholding. The Company will report to its domestic
shareholders and the IRS the amount of dividends paid during each calendar year,
and the amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption from backup withholding. Amounts withheld
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the Company. See "--Taxation of Non-U.S.
Shareholders" below.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts
distributed to a tax-exempt entity by a corporation do not constitute "unrelated
business taxable income" ("UBTI"), and thus distributions by the Company to a
stockholder that is a tax-exempt entity generally should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares of Common Stock with "acquisition indebtedness" within the meaning of the
Code and the shares of Common Stock are not otherwise used in an unrelated trade
or business of the
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tax-exempt entity. However, distributions by a REIT to a tax-exempt employee's
pension trust that owns more than 10% of the REIT will be treated as UBTI in an
amount equal to the percentage of gross income of the REIT that is derived from
an "unrelated trade or business" (determined as if the REIT were a pension
trust) divided by the gross income of the REIT for the year in which the
dividends are paid. This rule only applies, however, if (i) the percentage of
gross income of the REIT that is derived from an unrelated trade or business for
the year in which the dividends are paid is at least 5%, (ii) the REIT qualifies
as a REIT only because the pension trust is not treated as a single individual
for purposes of the "five-or-fewer rule" (see "--Taxation of the
Company--Requirements for Qualification" above), and (iii) (A) one pension trust
owns more than 25 percent of the value of the REIT or, (B) a group of pension
trusts individually holding more than 10 percent of the value of the REIT
collectively own more than 50 percent of the value of the REIT. The Company
currently does not expect that this rule will apply.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of non-U.S.
Shareholders are complex, and the following discussion is intended only as a
summary of such rules. Prospective non-U.S. Shareholders should consult with
their tax advisors to determine the impact of U.S. federal, state, and local
income tax laws on an investment in the Company, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws including any reporting requirements.
Distributions by the Company. Distributions to a non-U.S. Shareholder
that are not attributable to gain from sales or exchanges by the Company of U.S.
real property interests and not designated by the Company as capital gain
dividends will generally be subject to tax as ordinary income to the extent of
the Company's current or accumulated earnings and profits as determined for U.S.
federal income tax purposes. Such distributions will generally be subject to a
withholding tax equal to 30% of the gross amount of the distribution, unless
reduced by an applicable tax treaty or unless such dividends are treated as
effectively connected with a United States trade or business. If the amount
distributed exceeds a non-U.S. Shareholder's allocable share of such earnings
and profits, the excess will be treated as a tax-free return of capital to the
extent of such non-U.S. Shareholder's adjusted basis in the Common Stock. To the
extent that such distributions exceed the adjusted basis of a non-U.S.
Shareholder's Common Stock, such distributions will generally be subject to tax
if such non-U.S. Shareholder would otherwise be subject to tax on any gain from
the sale or disposition of its Common Stock, as described below.
For withholding tax purposes, the Company currently is required to
treat all distributions as if made out of its current or accumulated earnings
and profits and thus intends to withhold at the rate of 30% (or a reduced treaty
rate if applicable) on the amount of any distribution (other than distributions
designated as capital gain
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dividends) made to a non-U.S. Shareholder. Under regulations generally effective
for distributions on or after January 1, 1999, the Company would not be required
to withhold at the 30% rate on distributions it reasonably estimates to be in
excess of the Company's current and accumulated earnings and profits. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
ordinary dividends. As a result of a legislative change made by the Small
Business Job Protection Act of 1996, under current law, it appears that the
Company will be required to withhold 10% of any distribution to a non-U.S.
Shareholder in excess of the Company's current and accumulated earnings and
profits. Consequently, although the Company intends to withhold at a rate of 30%
on the entire amount of any distribution to a non-U.S. Shareholder (or lower
applicable treaty rate), to the extent the Company does not do so, any portion
of such a distribution not subject to withholding at a rate of 30% (or lower
applicable treaty rate) will be subject to withholding at a rate of 10%.
However, the non-U.S. Shareholder may seek a refund of such amounts from the IRS
if it subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company, and the amount
withheld exceeded the non-U.S. Shareholder's United States tax liability, if
any, with respect to the distribution.
Distributions to a non-U.S. Shareholder that are designated by the
Company at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) the investment in the Common Stock is effectively connected with the
non-U.S. Shareholder's United States trade or business, in which case the
non-U.S. Shareholder will be subject to the same treatment as U.S. Shareholders
with respect to such gain (except that a shareholder that is a foreign
corporation may also be subject to the 30% branch profits tax) or (ii) the
non-U.S. Shareholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and certain other
requirements are met, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. Shareholder that are attributable to gain from sales
or exchanges by the Company of United States real property interests (whether or
not designated as a capital gain dividend) will be taxed to a non-U.S.
Shareholder at the normal capital gains rates applicable to domestic
shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a non-U.S. Shareholder that
is a corporation and that is not entitled to treaty relief or exemption. The
Company is required by applicable FIRPTA Treasury Regulations to withhold 35% of
any such distribution that is or could be designated
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by the Company as a capital gain dividend. That amount is creditable against the
non-U.S. Shareholder's United States FIRPTA tax liability.
Amounts designated by the Company pursuant to the 1997 Act as
undistributed capital gains in respect of shares of Common Stock (see "Taxation
of Taxable Domestic Holders of Common Stock" above) would be treated with
respect to non-U.S. Shareholders in the manner outlined in the preceding
paragraph for actual distributions by the Company of capital gain dividends.
Under that approach, the non-U.S. Shareholders would be able to offset as a
credit against their United States federal income tax liability resulting
therefrom their proportionate share of the tax paid by the Company on such
undistributed capital gains (and to receive from the IRS a refund to the extent
their proportionate share of such tax paid by the Company were to exceed their
actual United States federal income tax liability).
Sale of Common Stock. Gain recognized by a non-U.S. Shareholder upon a
sale of its Common Stock will generally not be subject to tax under FIRPTA if
the Company is a "domestically controlled REIT," which is defined generally as a
REIT in which at all times during a specified testing period less than 50% in
value of its shares were held directly or indirectly by non-U.S. persons.
Because only a minority of the shareholders are expected to be non-U.S.
Shareholders, the Company expects to qualify as a "domestically controlled
REIT." Accordingly, a non-U.S. Shareholder should not be subject to U.S. tax on
gains recognized upon disposition of the Common Stock, provided that such gain
is not effectively connected with the conduct of a United States trade or
business and, in the case of an individual shareholder, such holder is not
present in the United States for 183 days or more during the year of sale and
certain other requirements are met.
Backup Withholding Tax and Information Reporting. Backup withholding
tax (which generally is a withholding tax imposed at a rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends, or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Stock by a foreign office of a
broker that (a) is a United States person, (b) derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States or (c) is a "controlled foreign corporation" (generally a foreign
corporation controlled by United States shareholders) for United States tax
purposes, unless the broker has documentary evidence in its records that the
holder is a non-U.S. Shareholder and certain other conditions are met, or the
shareholder otherwise
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establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of a sale of Common Stock is subject to both backup
withholding and information reporting unless the shareholder certifies under
penalty of perjury that the shareholder is a non-U.S. Shareholder, or otherwise
establishes an exemption. A non-U.S. Shareholder may obtain a refund of any
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the IRS.
The United States Treasury Department has recently finalized
regulations regarding the withholding and information reporting rules discussed
above. In general, these regulations do not alter the substantive withholding
and information reporting requirements but unify certification procedures and
forms and clarify and modify reliance standards. These regulations generally are
effective for payments made after December 31, 1999, subject to certain
transition rules. A non-U.S. Shareholder should consult its advisor regarding
the effect of the new Treasury Regulations.
Recent Legislation
As described above, the 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. In addition, the 1997
Act and the 1998 Act also contain certain changes to the taxation of capital
gains of individuals, trusts and estates.
Capital Gain Rates. As a result of the 1997 Act and the 1998 Act,
individuals, trusts and estates that hold certain investments for more than 12
months may be taxed at a maximum long-term capital gain rate of 20% on gain from
the sale or exchange of those investments. However, a maximum rate of 25%
applies for "unrecaptured section 1250 gain" for individuals, trusts and estates
and special rules exist for "qualified 5-year gain" and certain other special
types of gain. The 1997 Act directed the IRS to prescribe regulations on how the
new capital gain rates will apply to sales of capital assets by "pass-through
entities," including REITs and to sales of interests in "pass-through entities."
Currently no such regulations have been promulgated or proposed. For a
discussion of new rules under the 1997 Act that apply to the taxation of
distributions by the Company to shareholders that are designated by the Company
as "capital gain dividends," see "--Taxation of U.S. Shareholders Holding Common
Stock--Distributions by the Company." Shareholders are urged to consult with
their tax advisors with respect to the new rules contained in the 1997 Act and
the 1998 Act.
REIT Provisions. In addition to the provisions discussed above, the
1997 Act contained a number of technical provisions that either (i) reduce the
risk that the Company will inadvertently cease to qualify as a REIT, or (ii)
provide additional flexibility with which the Company can meet the REIT
qualification requirements. These provisions are effective for the Company's
taxable years commencing on or after January 1, 1998.
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Recent Tax Proposal
Current legislative proposals under consideration by Congress include a
proposal to amend the REIT asset tests with respect to non-qualified REIT
subsidiaries. The proposal would require a REIT to own no more than 10% of the
vote or value of the outstanding stock of any non-qualified REIT subsidiary.
Existing non-qualified REIT subsidiaries would be grandfathered, and therefore
subject to the existing 5% asset test and 10% voting securities test (see "--Tax
Treatment of the Company"), except that such grandfathered status would
terminate if the non-qualified REIT subsidiary engaged in a new trade or
business or acquired substantial new assets on or after the effective date of
the proposal. The proposal, if enacted, could materially impede the Company's
ability to engage in other activities through non-qualified REIT subsidiaries
without jeopardizing the Company's REIT status.
Tax Aspects of the Company's Ownership of Interests in the Operating Partnership
General. A significant portion of the Company's investments will be
held indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities that are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
on those items, without regard to whether the partners receive a distribution
from the partnership. In the case of a REIT which is a partner in a partnership,
Treasury Regulations provide that for purposes of applying the REIT gross income
and gross asset tests, the REIT will be deemed to own its proportionate share of
the assets of the partnership and will be deemed to be entitled to the income of
the partnership attributable to that share, in each case based on its "capital
interest" in the partnership. In addition, the character of the gross income and
assets of the partnership shall retain the same character in the hands of the
REIT for purposes of Section 856 of the Code which includes the gross income and
asset tests described above. The Company will have indirect control of the
Operating Partnership and intends to operate it consistent with the requirements
for qualification as a REIT. The Company will include in its income its
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and will take into account its distributive share of
partnership items in the computation of its REIT taxable income. Moreover, for
purposes of the REIT asset tests, the Company will include its proportionate
share of assets held through the Operating Partnership.
Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would be
subject to an entity level tax on its income. In such a situation, the character
of the Company's assets and items of gross income would change and would
preclude the Company from qualifying as a REIT. The same result could occur if
any subsidiary partnership failed to qualify for treatment as a partnership.
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Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of interests.
Under final Treasury Regulations that became effective January 1, 1997,
the four factor test has been eliminated and an entity formed as a partnership
or as a limited liability company will be taxed as a partnership for federal
income tax purposes unless it specifically elects otherwise. The Treasury
Regulations provide that the IRS will not challenge the classification of an
existing partnership or limited liability company for tax periods prior to
January 1, 1997 so long as (1) the entity had a reasonable basis for its claimed
classification, (2) the entity and all its members recognized the federal income
tax consequences of any changes in the entity's classification within the 60
months prior to January 1, 1997, and (3) neither the entity nor any member of
the entity had been notified in writing on or before May 8, 1996, that the
classification of the entity was under examination by the IRS.
The Company believes that the Operating Partnership will be treated as
a partnership for federal income tax purposes (and not as an association taxable
as a corporation).
Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and loss among partners, those
allocations will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the related Treasury Regulations.
Generally, those provisions require that partnership allocations reflect the
economic arrangement of the partners. The allocations of taxable income and loss
provided for in the Operating Partnership Agreement are intended to comply with
the requirements of Section 704(b) of the Code and the related Treasury
Regulations. If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to that item.
Tax Allocations with Respect to the Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner so that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of the unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of the
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property at that time (a "Book-Tax Difference"). These allocations are solely
for federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. Similar rules can apply
in the case of appreciated or depreciated properties held by a partnership at
the time of new contributions to the partnership.
In general, the partners of the Operating Partnership who contributed
assets will be allocated differing depreciation deductions than if they had
retained the contributed property. In addition, on the disposition of any
contributed asset that has a Book-Tax Difference, the income or loss
attributable to the Book-Tax Difference generally will be allocated to the
contributing partner. These allocations will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the Operating Partnership may cause the Company to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of the contributed assets in excess of the economic or book
income allocated to it as a result of that sale. Such an allocation might cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements.
Treasury Regulations under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including the "traditional method" or the election of certain
methods that would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company will
determine with respect to each contribution to the Operating Partnership which
method to use.
State and Local Taxes
The tax treatment of the Company and the shareholders in states having
taxing jurisdiction over them may differ from the federal income tax treatment.
Accordingly, no discussion of state taxation of the Company and the shareholders
is provided nor is any representation made as to the tax status of the Company
in such states. All investors should consult their tax advisors as to the
treatment of the Company under the respective state tax laws applicable to them.
Any financial statements and schedules hereafter incorporated by
reference in the Registration Statement of which this Prospectus is a part that
have been audited and are the subject of a report by independent accountants
will be so incorporated by reference in reliance upon such reports and upon the
authority of such firms as
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experts in accounting and auditing to the extent covered by consents filed with
the Commission.
SELLING STOCKHOLDERS
As described elsewhere herein, the "Selling Stockholders" are holders
of OP Units that were issued in exchange for the contribution of certain
properties to the Company. The following table provides the names of each
Selling Stockholder and, as of the date hereof, the number of shares of Common
Stock to be owned upon exchange of OP Units by each Selling Stockholder.
The Redemption Shares offered by this Prospectus will be offered from
time to time by the Selling Stockholders named below, or by pledgees, donees,
transferees or other successors in interest thereto.
<TABLE>
<CAPTION>
Number of Number of Percentage of
Shares of Maximum Shares of Shares of
Common Number of Common Common
Stock Shares of Stock Stock
Beneficially Common Beneficially Beneficially
Owned Prior Stock Offered Owned after Owned after
Name of Selling Stockholder to Offering(1) Hereby Offering(1)(2) Offering(1)(2)
- --------------------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
W and B Investors, Inc. 13,531 13,531 0 0%
Leonard A. Shapiro and Leslie C.
Shapiro, as tenants by the entirety 138,110 138,110 0 0%
Leslie C. Shapiro 155,451 60,785 94,666 *
Allan J. Berman and Michele G.
Berman, as tenants by the
entirety(3) 160,384 138,110 22,274 *
Michele G. Berman(3) 155,451 60,785 94,666 *
Marilyn S. Cohen 37,990 37,990 0 0%
Irving Berman Revocable Trust 18,994 18,994 0 0%
Betty Berman Revocable Trust 18,994 18,994 0 0%
</TABLE>
- ---------------
* Less than one percent of the number of shares of Common Stock
outstanding.
(1) The number of shares of Common Stock beneficially owned is determined
under rules promulgated by the Commission and the information is not
necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares of Common
Stock as to which the individual or entity has sole or shared voting
power or investment power and also any shares of Common Stock which the
individual or entity has the right to acquire within 60 days after
September 30, 1998 through the
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exercise of any stock option or other right. The inclusion herein of
such shares of Common Stock, however, does not constitute an admission
that the Selling Stockholders are direct or indirect beneficial owners
of such shares of Common Stock. Unless otherwise disclosed, the Selling
Stockholders have sole voting power and investment power with respect
to all shares of Common Stock listed as owned by the Selling
Stockholders.
(2) It is unknown if, when or in what amounts a Selling Stockholder may
offer Redemption Shares for sale and there can be no assurance that the
Selling Stockholders will sell any or all of the Redemption Shares
offered hereby. Because the Selling Stockholders may offer all or some
of the Redemption Shares pursuant to this offering, and because there
are currently no agreements, arrangements or understandings with
respect to the sale of any of the Redemption Shares that will be held
by the Selling Stockholders after completion of the offering, no
estimate can be given as to the amount of the Redemption Shares that
will be held by the Selling Stockholders after completion of the
offering.
(3) Includes 11,137 shares of Common Stock held by The Gregory Andrew
Berman Trust and 11,137 shares of Common Stock held by The Meade J.
Berman Trust, of which Allan J. Berman and Michele G. Berman disclaim
beneficial ownership.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the issuance of the
Redemption Shares nor from any sales of Redemption Shares by the Selling
Stockholders. The Company will, however, acquire Units converted into Redemption
Shares.
The Selling Stockholders or their pledgees, donees, transferees or
other successors in interest may from time to time, in one or more transactions,
sell all or a portion of the Redemption Shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Stock is listed or traded, in negotiated transactions, in underwritten
transactions or otherwise, at prices then prevailing or related to the
then-current market price or at negotiated prices. The offering price of the
Redemption Shares from time to time will be determined by the Selling
Stockholders or by their pledgees, donees, transferees or other successors in
interest and, at the time of such determination, may be higher or lower than the
market price of the Common Stock on the NYSE. In connection with an underwritten
offering, underwriters or agents may receive compensation in the form of
discounts, concessions or commissions from a Selling Stockholder or their
pledgees, donees, transferees or other successors in interest or from purchasers
of Redemption Shares for whom they may act as agents, and underwriters may sell
Redemption Shares to or through dealers, and such dealers may receive
compensation in the form or
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discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Under agreements that may
be entered into by the Company, underwriters, dealers and agents who participate
in the distribution of Redemption Shares may be entitled to indemnification by
the Company against certain liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which such
underwriters, dealers or agents may be required to make in respect thereof. The
Selling Stockholders or their pledgees, donees, transferees or other successors
in interest may sell their Redemption Shares directly or through agents or
broker-dealers acting as principal or agent, or pursuant to a distribution by
one or more underwriters on a firm commitment or best-efforts basis. The methods
by which the Redemption Shares may be sold include (i) a block trade in which
the broker-dealer so engaged will attempt to sell the Redemption Shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (ii) purchases by a broker-dealer as principal and resale by
such broker-dealer for its account pursuant to this Prospectus; (iii) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(iv) an exchange distribution in accordance with the rules of the NYSE; (v)
privately-negotiated transactions; and (vi) underwritten transactions.
The Selling Stockholders or their pledgees, donees, transferees or
other successors in interest and any underwriters, dealers or agents
participating in the distribution of the Redemption Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the Redemption Shares by the Selling Stockholders or their pledgees,
donees, transferees or other successors in interest and any commissions received
by such broker-dealers may be deemed to be underwriting commissions under the
Securities Act.
When a Selling Stockholder elects to make a particular offer of
Redemption Shares, a Prospectus Supplement, if required, will be distributed
that will identify any underwriters, dealers or agents and any discounts,
commissions and other terms constituting compensation from such Selling
Stockholder and any other required information.
In order to comply with the securities laws of certain states, if
applicable, the Redemption Shares may be sold only through registered or
licensed brokers or dealers.
There is no assurance that the Selling Stockholders will sell any or
all of the Redemption Shares.
Pursuant to the Registration Rights Agreement, the Company has agreed
to pay all expenses incurred in the registration of the Redemption Shares (other
than selling commissions and discounts, brokerage fees and transfer taxes or any
legal, accounting and other expenses incurred by the Unitholders or the Selling
Stockholders thereunder). The Company also has agreed to indemnify the
-60-
<PAGE>
Unitholders and the Selling Stockholders under the Registration Rights Agreement
and its officers, directors and other affiliated persons and any person who
controls the Unitholders or the Selling Stockholders against any and all losses,
claims, damages and expenses arising under the securities laws in connection
with the Registration Statement or this Prospectus, subject to certain
limitations. In addition, the Unitholders and the Selling Stockholders have
agreed to indemnify the Company and its directors, officers and any person who
controls the Company against all losses, claims, damages and expenses arising
under the securities laws insofar as such loss, claim, damage or expense relates
to written information furnished to the Company by the Unitholders or the
Selling Stockholders for use in the Shelf Registration or Prospectus or an
amendment or supplement thereto. The Company is not required to indemnify the
Unitholders or the Selling Stockholders for the failure by the Unitholders or
the Selling Stockholders to deliver or cause to be delivered the Prospectus or
any amendment or supplement hereto to any purchaser from the Unitholders or the
Selling Stockholders of shares covered by the Shelf Registration.
EXPERTS
The combined statements of revenue over certain operating expenses of
the Intercapital and Cooper Portfolios for the year ended December 31, 1997
included in this Prospectus and the Registration Statement of which the
Prospectus is a part and the consolidated financial statements and financial
statement schedule of Berkshire Realty Company, Inc. and its Subsidiaries,
included in the Report on Form 10-K, as amended by filings on Form 10K/A, of the
Company for the fiscal year ended December 31, 1997, incorporated herein by
reference, have been audited by PricewaterhouseCoopers LLP, as indicated in
their reports with respect thereto, and are included and incorporated herein in
reliance upon the reports of such firm, which reports are given upon their
authority as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by
reference in the Registration Statement of which this Prospectus is a part that
have been audited and are the subject of a report by independent accountants
will be so incorporated by reference in reliance upon such reports and upon the
authority of such firms as experts in accounting and auditing to the extent
covered by consents filed with the Commission.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Hale and Dorr LLP, a limited liability partnership including
professional corporations, 60 State Street, Boston, Massachusetts 02109.
-61-
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
1998 Acquisitions:
- -----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Intercapital Portfolio Combined Statement of Revenue Over Certain Operating
Expenses for the Year Ended December 31, 1997 F-2
Cooper Portfolio Combined Statement of Revenue Over Certain Operating
Expenses for the Year Ended December 31, 1997 and for the Six Months Ended
June 30, 1998 (unaudited) F-7
Pro Forma Financial Statements:
- ------------------------------
Pro Forma Condensed Consolidating Balance Sheet as of June 30, 1998
(unaudited) F-14
Notes to Pro Forma Condensed Consolidating Balance Sheet as of June 30,
1998 (unaudited) F-15
Pro Forma Condensed Consolidating Statement of Operations for the Year
Ended December 31, 1997 (unaudited) F-16
Notes to Pro Forma Condensed Consolidating Statement of Operations for the
Year Ended December 31, 1997 (unaudited) F-18
Pro Forma Condensed Consolidating Statement of Operations for the Six Month
Period Ended June 30, 1998 (unaudited) F-21
Notes to Pro Forma Condensed Consolidating Statement of Operations for the
Six Month Period Ended June 30, 1998 (unaudited) F-22
</TABLE>
F-1
<PAGE>
INTERCAPITAL PORTFOLIO
COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
for the year ended December 31, 1997
F-2
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Berkshire Realty Company, Inc.:
We have audited the accompanying combined statement of revenue over certain
operating expenses of the Intercapital Portfolio (the "Properties") for the year
ended December 31, 1997. This financial statement is the responsibility of the
Properties' management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue over certain operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. 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 audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operation of the
Properties after acquisition by Berkshire Realty Company, Inc. The accompanying
financial statement was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and is not intended to be
a complete presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue over certain operating expenses (as described
in Note 2) of the Intercapital Portfolio for the year ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
August 28, 1998
F-3
<PAGE>
INTERCAPITAL PORTFOLIO
COMBINED STATEMENT OF REVENUE OVER
CERTAIN OPERATING EXPENSES
for the year ended December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Rental $ 13,657
Other 585
-----------------
14,242
-----------------
Certain Operating Expenses (Notes 2 and 3):
Real estate taxes and insurance 2,057
General and administrative 1,777
Repairs and maintenance 1,749
Interest 1,228
Utilities 1,211
-----------------
8,022
-----------------
Excess of Revenue over Certain Operating Expenses $ 6,220
=================
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
INTERCAPITAL PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
1. Description of Portfolio
------------------------
The accompanying statement of revenue over certain operating expenses
(the "Statement") includes the combined operations of six multi-family
properties (collectively, the "Intercapital Portfolio") which were
acquired by Berkshire Realty Company, Inc. ("Berkshire") from an
unrelated third-party. The apartment communities in the Intercapital
Portfolio are summarized as follows:
<TABLE>
<CAPTION>
Property Name Location Number of Units
------------- ----------------------- --------------------
<S> <C> <C>
Yorktown Apartments Houston, TX 563
The Bluffs Apartments Austin, TX 382
Carlyle Place Apartments San Antonio, TX 184
Pinto Ridge Apartments Austin, TX 238
Lodge Apartments Houston, TX 240
6200 Gessner Apartments Houston, TX 659
</TABLE>
2. Basis of Accounting:
-------------------
The accompanying Statement has been prepared on the accrual basis of
accounting. This Statement has been prepared in accordance with Rule
3-14 of Regulation S-X of the Securities and Exchange Commission for
real estate properties acquired. Accordingly, this statement excludes
certain historical expenses not comparable to the operations of the
property after acquisition, such as amortization, depreciation,
property management fees, certain interest costs, corporate expenses
and other costs not directly related to the future operations of the
Intercapital Portfolio. Costs incurred in connection with residential
turnover such as unit cleaning, painting, carpet cleaning or
replacement and appliance replacement are included.
3. Significant Accounting Policies
-------------------------------
Rental Revenue
--------------
Rental income attributable to residential rental agreements is recorded
on the accrual method as earned. Apartment units are generally rented
under lease agreements with terms of one year or less.
Repairs and Maintenance
-----------------------
Costs incurred with residential turnover such as unit cleaning and
carpet cleaning are expensed. Significant betterments and improvements
are capitalized.
F-5
<PAGE>
INTERCAPITAL PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
($ in thousands)
3. Significant Accounting Policies, continued
------------------------------------------
Risks and Uncertainties
-----------------------
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
4. Debt Assumption
---------------
In connection with the acquisitions, the mortgage debt (the "Notes")
encumbering Lodge Apartments and 6200 Gessner Apartments totaling
$14,385 at December 31, 1997 was assumed. The interest expense
reflected relates to the Notes assumed. The Notes bear interest at
8.51% and mature on June 1, 2001.
Principal payments due on the Notes during the next five years are
approximately as follows:
<TABLE>
<S> <C>
1998 $ 125
1999 136
2000 148
2001 13,977
</TABLE>
F-6
<PAGE>
COOPER PORTFOLIO
COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
for the year ended December 31, 1997
F-7
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Berkshire Realty Company, Inc.:
We have audited the accompanying statement of revenue over certain operating
expenses of the Cooper Portfolio (the "Properties") for the year ended December
31, 1997. This financial statement is the responsibility of the Properties'
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue over certain operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. 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 audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operation of the
Properties after acquisition by Berkshire Realty Company, Inc. The accompanying
financial statement was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and is not intended to be
a complete presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue over certain operating expenses (as described
in Note 2) of the Cooper Portfolio for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
September 11, 1998
F-8
<PAGE>
COOPER PORTFOLIO
COMBINED STATEMENT OF REVENUE OVER
CERTAIN OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year For the Six Months
Ended Ended
December 31, 1997 June 30, 1998
----------------- -------------
(Unaudited)
<S> <C> <C>
Revenue:
Rental $ 8,348 $ 4,262
Other 230 185
--------------- ---------------
8,578 4,447
Certain Operating Expenses (Notes 2 and 3):
Real estate taxes and insurance 772 379
General and administrative 891 394
Repair and maintenance 1,336 616
Interest 3,482 1,719
Utilities 574 326
--------------- ---------------
7,055 3,434
--------------- ---------------
Excess of Revenue over Certain Operating Expenses $ 1,523 $ 1,013
=============== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
COOPER PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
1. Description of Portfolio
------------------------
The accompanying statement of revenue over certain operating expenses
(the "Statement") includes the combined operations of four multi-family
properties (collectively, the "Cooper Portfolio") which were acquired
by Berkshire Realty Company, Inc. ("Berkshire") from an unrelated
third-party. The apartment communities in the Cooper Portfolio are
summarized as follows:
<TABLE>
<CAPTION>
Property Name Location Number of Units
------------- -------- ---------------
<S> <C> <C>
Essex House Apartments Atlanta, GA 120
River Parkway Apartments Atlanta, GA 427
Pines at Dunwoody Apartments Atlanta, GA 389
Highlands at Briarcliff Apartments Atlanta, GA 140
</TABLE>
2. Basis of Accounting
-------------------
The accompanying Statement has been prepared on the accrual basis of
accounting. This Statement has been prepared in accordance with Rule
3-14 of Regulation S-X of the Securities and Exchange Commission for
real estate properties acquired. Accordingly, this statement excludes
certain historical expenses not comparable to the operations of the
property after acquisition, such as amortization, depreciation,
property management fees, corporate expenses and other costs not
directly related to the future operations of the Cooper Portfolio.
3. Significant Accounting Policies
-------------------------------
Rental Revenue
--------------
Rental income attributable to residential rental agreements is recorded
on the accrual method as earned. Apartment units are generally rented
under lease agreements with terms of one year or less.
F-10
<PAGE>
COOPER PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
3. Significant Accounting Policies, continued
------------------------------------------
Repairs and Maintenance
-----------------------
Cost incurred with residential turnover such as unit cleaning and
carpet cleaning are expensed. Significant betterments and improvements
are capitalized.
Risks and Uncertainties
-----------------------
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Unaudited Interim Information
-----------------------------
The statement of revenue over certain operating expenses for the six
months ended June 30, 1998 is unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such statement
have been included. The results of operations for the period are not
necessarily indicative of future operations.
F-11
<PAGE>
COOPER PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
4. Debt Assumption
---------------
In connection with the acquisition, mortgage notes payable (the
"Notes") encumbering the Cooper Properties of approximately $40,342 at
December 31, 1997 were assumed. The interest expense reflected relates
to the Notes assumed. The Notes require monthly payments of principal
and interest and mature at various dates through 2027. The interest
rates on the Notes range from 8.04% to 8.60%. Certain notes are subject
to prepayment penalties of varying amounts in the event of early
principal repayment.
Principal payments due on the Notes during the next five years are
approximately as follows:
<TABLE>
<S> <C>
1998 $ 443
1999 480
2000 521
2001 566
2002 614
</TABLE>
F-12
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INFORMATION
(Unaudited)
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet of
Berkshire Realty Company, Inc. (the "Company") at June 30, 1998 is presented as
if the acquisition of the Cooper Portfolio, acquired subsequent to June 30,
1998, had occurred as of June 30, 1998.
The accompanying unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 1998 and for the year ended
December 31, 1997 are presented as if all significant activity related to the
following transactions had occurred on January 1, 1997: (i) the consummation of
the 1997 public offering and issuance of 2.7 million shares of preferred stock,
(ii) the acquisition of the previously completed 1997 acquisitions reported on
Form 8-K previously filed with the Securities and Exchange Commission (the "1997
Acquisitions") (iii) the significant acquisitions, (as defined in SEC Rule
"3-14") consummated in 1998 and detailed below (the "1998 Acquisitions"), (iv)
the drawdown in the unsecured line of credit as a result of such acquisitions,
and (v) the disposition of real estate properties which occurred between January
1, 1997 and June 30, 1998 previously filed on Forms 8-K.
The unaudited pro forma condensed consolidated financial information should be
read in conjunction with historical financial statements and notes thereto of
the Company reported on Form 10-Q for the six months ended June 30, 1998 and
Form 10-K/A for the year ended December 31, 1997.
The unaudited pro forma condensed consolidated financial information prepared by
Berkshire Realty Company, Inc. is not necessarily indicative of what the actual
results of operations would have been for the six months ended June 30, 1998 or
for the year ended December 31, 1997, had the previously described transactions
actually occurred on January 1, 1997 and the effect thereof carried forward
through the six month period ended June 30, 1998, nor do they purport to present
the future results of operations or financial position of the Company.
1998 Acquisitions included in the pro forma financial statements:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Acquisition Location Apartment Units Date of Acquisition(s)
-------------------- -------- --------------- ----------------------
- ---------------------------------------------------------------------------------------------------------------
Intercapital Portfolio Houston, Austin 2,266 1/98 - 4/98
& San Antonio, TX
- ---------------------------------------------------------------------------------------------------------------
Cooper Portfolio Atlanta, GA 1,076 7/98
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Berkshire
Realty Cooper
Company Inc. Portfolio
Historical Acquisition Pro Forma
------------ ----------- ----------
<S> <C> <C> <C>
ASSETS
Multifamily apartment complexes,
net of accumulated depreciation $853,610 $59,266(a) $ 912,876
Other real estate assets 25,424 - 25,424
-------- -------- ---------
Total real estate assets 879,034 59,266 938,300
Cash 13,878 - 13,878
Other assets 47,912 - 47,912
Workforce and intangible assets -
net of accumulated amortization 15,965 - 15,965
-------- -------- ---------
Total assets $956,789 $ 59,266 $1,016,055
======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $324,646 $ 40,420(b) $ 365,066
Credit agreements and variable
rate debt 167,096 18,846(a) 185,942
Other liabilities 28,064 - 28,064
-------- ------- ---------
Total liabilities 519,806 59,266 579,072
Minority interest in Operating
Partnership 87,757 - 87,757
Shareholders' equity 349,226 - 349,226
-------- -------- ---------
Total liabilities and
shareholders' equity $956,789 $ 59,266 $1,016,055
======== ======== ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
F-14
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1998
(Unaudited)
(Dollars in thousands)
(a) Represents the purchase price, including closing costs of the accquisition
of the Cooper Portfolio. The acquisition was funded by the drawdown from
unsecured line of credit of $18,846 and the assumption of mortgage notes
payable of $40,420.
(b) Mortgage notes payable assumed in conjunction with the acquisition of
the Cooper Portfolio detailed as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity
Property Balance Rate Date
-------- ------- ---- ----
<S> <C> <C> <C>
Essex House $ 5,071 8.04% 4/2027
Highlands at Briarcliff 5,311 8.04% 4/2022
Pines at Dunwoody 12,838 8.04% 4/2025
River Parkway 17,200 8.60% 8/2006
-------
$40,420
=======
</TABLE>
F-15
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Berkshire 1998 Acquisitions
Realty -----------------
Company Inc. 1997 Intercapital Cooper
Historical Dispositions Acquisitions Portfolio Portfolio
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenue: (a) (b) (b) (b)
Rental $109,974 $ (967) $ 32,770 $ 13,657 $ 8,348
Other income 5,525 (68) 1,498 585 230
-------- -------- -------- -------- ------
Total revenue 115,499 (1,035) 34,268 14,242 8,578
-------- -------- -------- -------- ------
Expenses:
Property operating 33,710 (173) 8,442 5,041 2,964
Real estate taxes 10,042 (92) 4,089 1,753 609
Property management fees 903 (60) - - -
Property management operations 5,565 - 3,264 - -
General and administrative 5,744 - - - -
Interest 24,006 - 10,054 1,228 3,482
Amortization of workforce acquired 8,043 - - - -
Costs assoc. with Advisor Transaction 2,400 - - - -
Provision for loss 1,850 - - - -
Depreciation and amortization 35,273 - 11,986 3,893(f) 2,822(f)
-------- ------- ------ ------ ------
Total expenses 127,536 (325) 37,835 11,915 9,877
-------- ---- ------ ------ ------
Income (loss) from operations before
Joint venture income (loss), minority
interest and gains on sale of assets (12,037) (710) (3,567) 2,327 (1,299)
Joint venture income (loss) (4,910) 4,910 - - -
Minority interest in Operating
Partnership 2,154 - - - -
-------- ------- -------- ------ ------
Income (loss) before gains on
sales and extraordinary items (14,793) 4,200 (3,567) 2,327 (1,299)
Income allocated to preferred shareholders (1,659) - - - -
--------- ------- ------- ------ ------
Income (loss) allocated to common
shareholders before gains on
sales and extraordinary items (16,452) 4,200 (3,567) 2,327 (1,299)
Income (loss) per common share
before gains on sales and
extraordinary items
(basic and diluted) (.61)
Weighted average shares 27,099,522
</TABLE>
See accompanying notes to pro forma condensed consolidated
statement of operations.
F-16
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Other
Adjustments Pro Forma
----------- ---------
<S> <C> <C>
Revenue:
Rental $ - $ 163,782
Other income 637(c) 8,407
------- -------
Total revenue 637 172,189
-------
Expenses:
Property operating - 49,984
Real estate taxes - 16,401
Property management fees - 843
Property management operations 250(d) 9,079
General and administrative - 5,744
Interest 4,167(e) 42,937
Amortization of workforce
acquired - 8,043
Costs assoc. with Advisor Transaction - 2,400
Provision for loss - 1,850
Depreciation and amortization - 53,974
------- -------
Total expenses 4,417 191,255
------- -------
Income (loss) from operations before
Joint venture net income (loss), minority
interest and gains on sale of assets (3,780) (19,066)
Joint venture net income (loss) - -
Minority interest from Operating
Partnership 2,782(g) 4,936
------- ------
Income (loss) before gains on
sales and extraordinary items (998) (14,130)
Income (loss) allocated to preferred shareholders (4,499)(h) (6,158)
------- ------
Income (loss) allocated to common shareholders
before gains on sales and extraordinary items (5,497) (20,288)
Income (loss) per common share before gains on
sales and extraordinary items
(basic and diluted) (.54)
Weighted average shares 37,252,211
</TABLE>
See accompanying notes to pro forma condensed consolidated
statement of operations.
F-17
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands)
(a) Results of operations, for the following properties sold in 1997 and 1998,
for the year ended December 31, 1997 are detailed below:
<TABLE>
<CAPTION>
Brookwood Spring College Total
Village Valley Plaza Dispositions
--------- ------ ------- ------------
<S> <C> <C> <C> <C>
Revenue:
Rental $ - $ - $ (967) $ (967)
Other income - - (68) (68)
------- ------- -------- --------
Total revenue - - (1,035) (1,035)
------- ------- ------- ---------
Expenses:
Property operating - - (173) (173)
Real estate taxes - - (92) (92)
Property management fees - - (60) (60)
Property management operations - - - -
General and administrative - - - -
Interest - - - -
Amortization of intangibles - - - -
Non-recurring charges - - - -
Provision for loss - - - -
Depreciation and amortization - - - -
------- -------- ------- -------
Total expenses - - (325) (325)
------- -------- ------- -------
(Income) loss from
operations - - (710) (710)
Joint venture net (income)
loss 726 4,184 - 4,910
------ ------ ------- ------
(Income) loss before gains
on sales and extraordinary items 726 4,184 (710) 4,200
====== ====== ======= =========
</TABLE>
(b) Approximates the historical results of operations for the period prior to
acquisition, as adjusted for depreciation, for the 1998 Acquisitions and
1997 Acquisitions (detailed below) for the year ended December 31, 1997:
<TABLE>
<CAPTION>
SunChase & Emerald Citibank Questar Total 1997
Polos West Portfolio Portfolio Portfolio Acquisitions
---------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Rental $ 974 $ 2,813 $ 6,777 $ 22,206 $32,770
Other income - 7 282 1,209 1,498
------ ------- ------- ------ -------
Total revenue 974 2,820 7,059 23,415 34,268
------ ------- ------- ------ -------
Expenses:
Property operating 278 1,155 1,740 5,269 8,442
Real estate taxes 105 148 938 2,898 4,089
Property management fees - - - - -
Property management operations - - - 3,264 3,264
General and administrative - - - - -
Interest 157 831 - 9,066 10,054
Amortization of intangibles - - - - -
Non-recurring charges - - - - -
Provision for loss - - - - -
Depreciation and amortization(f) 286 873 2,460 8,367 11,986
---- ------ ------- ------ -------
Total expenses 826 3,007 5,138 28,864 37,835
------ ------ ------- ------- --------
Income (loss) from operations $ 148 $ (187) $ 1,921 $ (5,449) $(3,567)
====== ======= ======= ========= ========
</TABLE>
F-18
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands)
(c) Interest income of $637 on the $7,500 loan to be made pursuant to the
Questar Transaction at 9.7% per annum for the period prior to acquisition.
(d) Additional property management operations of $250 attributable to the
increased asset base.
(e) Pro forma effect of increase in interest expense related to the 1997
Acquisitions and the 1998 Acquisitions of the Cooper and Intercapital
Portfolios.
<TABLE>
<CAPTION>
Average
Historical
Interest Pro forma Historical
Pro forma Rate at Interest Interest
Balance 12/31/97 Expense Expense Adjustment
<S> <C> <C> <C> <C> <C>
Variable rate
credit facility $91,000 7.00% $6,370 $1,879 $ 4,491
Historical interest expense related to certain Questar mortgages totaling
$9,891 which were refinanced subsequent to acquisition (824)
Pro forma interest expense on refinanced mortgage loans using a principal
balance of $7,381 with interest at 7.75% 500
------
Total adjustment $ 4,167
======
</TABLE>
F-19
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands)
(f) Detail of pro forma depreciation adjustment is presented as follows:
<TABLE>
<CAPTION>
Estimated
Lives of
Property Basis Assets (Yrs.) Depreciation
-------- ----- ------------- ------------
<S> <C> <C> <C>
1997 Acquisitions
-----------------
Polos West and Sunchase 13,950 3 to 25 286
Emerald Portfolio 27,360 3 to 25 873
Citibank Portfolio 60,300 3 to 25 2,460
Questar Portfolio 174,935 3 to 25 8,367
-------
11,986
1998 Acquisitions
-----------------
Intercapital Portfolio 81,757 3 to 25 3,893
Cooper Portfolio 59,266 3 to 25 2,822
-------
Pro forma depreciation adjustment $18,701
=======
</TABLE>
(g) Pro forma minority interest (19.57%) in Operating Partnership.
(h) Preferred dividends on 2.7 million preferred shares issued at $25.00 per
share with a dividend rate of 9%.
<TABLE>
<CAPTION>
Pro forma dividends Historical dividends Adjustment
------------------- -------------------- ----------
<S> <C> <C>
$6,158 $1,659 $4,499
</TABLE>
F-20
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Berkshire
Realty 1998 Acquisitions(b)
Co., Inc. Intercapital Cooper Other
Historical Dispositions Portfolio Portfolio Adjustments Pro Forma
---------- ------------ ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue: (a)
Rental $ 81,633 $ (24) $ 1,837 $ 4,262 $ 87,708
Other income 3,494 (13) 79 185 - 3,745
----------- --------- ------- ------- ------- -------
Total revenue 85,127 (37) 1,916 4,447 - 91,453
----------- --------- ------- ------- ------- -------
Expenses:
Property operating 23,776 (18) 727 1,405 - 25,890
Real estate taxes 8,112 (7) 213 310 - 8,628
Property management fees 15 (5) - - - 10
Property management operations 3,908 - - - 125(f) 4,033
General and administrative 3,365 - - - - 3,365
Interest 17,167 - 307 1,719 1,930(c) 21,123
Costs associated with Advisor
Transaction - - - - - -
Amortization of acquired
workforce 6,516 - - - - 6,516
Depreciation and amortization 26,127 - 462(d) 1,411(d) - 28,000
--------- -------- ------ ------- ------- -------
Total expenses 88,986 (30) 1,709 4,845 2,055 97,565
-------- -------- ------- ------- ------- -------
Income (loss) from operations before joint
venture net income (loss), minority interest
and gains on sale of assets (3,859) (7) 207 (398) (2,055) (6,112)
Joint venture net income (loss) 132 (132) - - - -
Minority Interest in Operating
Partnership 1,023 - - - 779 (e) 1,802
-------- -------- ------ ------- ------- -------
Income (loss) before gains on
sales and extraordinary items $ (2,704) $ (139) $ 207 $ (398) $(1,276) $ (4,310)
Income allocated to preferred shareholders (3,096) - - - - (3,096)
-------- ------- ------- ------- ------- -------
Income (loss) allocated to
common shareholders before
gains on sales and extraordinary
items $ (5,800) $ (139) $ 207 $ (398) $(1,276) $ (7,406)
Income (loss) per common share
before gains on sales and extraordinary
items (basic and diluted) (.16) (.20)
Weighted average shares 36,677,369 37,252,211
</TABLE>
See accompanying notes to pro forma condensed
consolidated statement of operations.
F-21
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
(Dollars in thousands)
(a) Historical results of operations, for the following properties sold in
1998, for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
College Spring Total
Plaza Valley Dispositions
------- ------ ------------
<S> <C> <C> <C>
Revenue:
Rental $ (24) $ - $ (24)
Other income (13) - (13)
------- ------ --------
Total revenue (37) - (37)
------- ------ --------
Expenses:
Property operating (18) - (18)
Real estate taxes (7) - (7)
Property management fees (5) - (5)
Property management operations - - -
General and administrative - - -
Interest - - -
Amortization of intangibles - - -
Non-recurring charges - - -
Provision from losses - - -
Depreciation and amortization - - -
------- ------ ------
Total expenses (30) - (30)
------- ------ -------
(Income) loss from
operations (7) - (7)
Joint venture net (income)
loss - (132) (132)
------- ------ -------
(Income) loss before gains
on sales and extraordinary items $(7) $(132) $ (139)
======= ====== =======
</TABLE>
(b) Approximates the historical results of operations for period prior to
acquisition, for the 1998 Acquisitions for the six months ended June 30,
1998.
(c) Pro forma effect of increase in interest expense related to the 1998
acquisitions of the Cooper and Intercapital Portfolios.
<TABLE>
<CAPTION>
Average
Historical
Interest Pro forma Historical
Pro forma Rate at Interest Interest
Balance 6/30/98 Expense Expense Adjustment
<S> <C> <C> <C> <C> <C>
Variable rate
credit facility $ 115,000 6.9% $ 3,968 $ 2,038 $ 1,930
</TABLE>
F-22
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
(Dollars in thousands)
(d) Detail of pro forma depreciation adjustment is presented as follows:
<TABLE>
<CAPTION>
Estimated
Lives of
Property Basis Assets (Yrs.) Depreciation
-------- ----- ------------- ------------
<S> <C> <C> <C>
1998 Acquisitions
-----------------
Intercapital Portfolio $81,757 3 to 25 $ 462
Cooper Portfolio 59,266 3 to 25 1,411
------
Pro forma depreciation adjustment $1,873
======
</TABLE>
(e) Pro forma minority interest (19.57%) in Operating Partnership.
(f) Additional property management operations of $125 attributable to the
increased asset base.
F-23
<PAGE>
================================================================================
No dealer, salesperson or any other individual has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create an implication that there
has been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information........................................................6
Incorporation of Certain Documents by Reference..............................6
Special Note Regarding Forward-looking Information...........................8
Risk Factors.................................................................9
The Company.................................................................20
Use of Proceeds.............................................................23
Description of the Capital Stock of the Company.............................23
Description of Units and Conversion of Units................................30
Registration Rights.........................................................40
Certain Federal Income Tax Considerations...................................41
Selling Stockholders........................................................58
Plan of Distribution........................................................59
Experts.....................................................................61
Legal Matters...............................................................61
Index to Financial Statements..............................................F-1
</TABLE>
582,919 Shares
BERKSHIRE REALTY
COMPANY, INC.
Common Stock
-----------------------
PROSPECTUS
October __, 1998
-----------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
Registration fee to the SEC...................................... $ 1,752.00
Printing expense................................................. 2,000.00
Accounting fees and expenses..................................... 2,000.00
Legal fees and expenses.......................................... 25,000.00
Miscellaneous expenses........................................... 1,248.00
----------
Total................................................... $32,000.00
</TABLE>
All fees and expenses are estimates except for the registration fee to
the SEC.
Item 15. Indemnification of Directors and Officers.
The Company's Certificate provides for indemnification of the Company's
officers and Directors to the fullest extent permitted by Sections 145 and
102(b)(7) of the Delaware General Corporation Law and relieves the Directors of
certain monetary liabilities to the Company and its shareholders. In general,
Delaware law permits the Company to indemnify its officers and Directors so long
as they act in good faith and in a manner reasonably believed by them to be in,
or not opposed to, the best interests of the Company. Subject to the provisions
of Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the
Company intends to indemnify its officers and Directors against losses,
liabilities and expenses (including attorneys' fees) incurred by them that are
related to their being officers or Directors of the Company.
The Company has purchased director and officer liability insurance for
the purpose of providing a source of funds to help pay for any indemnification
expenses it may incur.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit Numbers Description
- --------------- -----------
<S> <C>
4.1(1) Restated Certificate of Incorporation, as amended.
4.2(2) By-Laws, as amended.
5.1* Opinion regarding legality.
8.1* Opinion regarding certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1 hereto).
24.1* Power of Attorney (included on signature page hereto).
99.1* Registration Rights Agreement, dated as of May 1, 1995,
among Berkshire Realty Company, Inc. and certain limited
partners of BRI OP Limited Partnership.
</TABLE>
- -------------------
* Previously filed.
(1) Incorporated herein by reference to Exhibit 3.3 filed with the
Registrant's Registration Statement on Form S-4 (File No.
33-37592), Exhibit 3.11 filed with the Registrant's Post-
Effective Amendment No. 1 to the Registration Statement on
Form S-4 (File No. 33-37592) and Exhibit 4.1 filed with the
Registrant's Amendment No. 1 to Current Report on Form 8-K/A,
dated October 14, 1997.
(2) Incorporated herein by reference to Exhibit 3(ii) filed with
the Registrant's Amendment No. 1 to Current Report on Form
8-K/A, dated October 14, 1997.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by
Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) to reflect in the Prospectus any facts or
events arising after the effective date of
the Registration Statement (or most recent
post-effective amendment thereof) which,
individually, or in the aggregate, represent
a fundamental change in the information set
forth in the Registration Statement.
Notwithstanding the foregoing, any increase
or decrease in the volume of securities
offered (if the total dollar value of
securities offered would not exceed that
II-2
<PAGE>
which was registered) and any deviation from
the low or high of the estimated maximum
offering range may be reflected in the form
of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price
represent no more than a 20 percent change
in the maximum aggregate offering price set
forth in the "Calculation of Registration
Fee" table in the Registration Statement;
and
(iii) to include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event
II-3
<PAGE>
that a claim for indemnification against such liabilities (other than the
payment by the Registrant for expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Boston, Massachusetts, on October 22, 1998.
BERKSHIRE REALTY COMPANY, INC.
By: /s/ David F. Marshall
------------------------------------------
David F. Marshall, President,
Chief Executive Officer and
Director of Berkshire Realty Company, Inc.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Douglas Krupp* Chairman of the October 22, 1998
- --------------------------------------- Board and Director of
Douglas Krupp Berkshire Realty
Company, Inc.
/s/ David F. Marshall President, Chief October 22, 1998
- --------------------------------------- Executive Officer and
David F. Marshall Director of Berkshire
Realty Company, Inc.
(Principal Executive
Officer)
/s/ Marianne Pritchard* Executive Vice October 22, 1998
- --------------------------------------- President and Chief
Marianne Pritchard Financial Officer of
Berkshire Realty
Company, Inc.
(Principal Financial
Officer)
/s/ Kenneth J. Richard* Senior Vice President October 22, 1998
- --------------------------------------- and Chief Accounting
Kenneth J. Richard Officer of Berkshire
Realty Company, Inc.
(Principal Accounting
Officer)
/s/ Terrance R. Ahern* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
Terrance R. Ahern
/s/ David M. deWilde* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
David M. deWilde
/s/ J. Paul Finnegan* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
J. Paul Finnegan
/s/ Charles N. Goldberg* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
Charles N. Goldberg
/s/ Paul D. Kazilionis* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
Paul D. Kazilionis
II-5
<PAGE>
/s/ E. Robert Roskind* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
E. Robert Roskind
/s/ Arthur P. Solomon* Director of Berkshire October 22, 1998
- --------------------------------------- Realty Company, Inc.
Arthur P. Solomon
By: /s/ David F. Marshall
- ---------------------------------------
David F. Marshall
Attorney-In-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement on Form
S-3.
<TABLE>
<CAPTION>
Exhibit Numbers Description
- --------------- -----------
<S> <C>
4.1(1) Restated Certificate of Incorporation, as amended.
4.2(2) By-Laws, as amended.
5.1* Opinion regarding legality.
8.1* Opinion regarding certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1
hereto).
24.1* Power of Attorney (included on signature page hereto).
99.1* Registration Rights Agreement, dated as of May 1, 1995,
among Berkshire Realty Company, Inc. and certain limited
partners in Berkshire OP Limited Partnership
</TABLE>
- ---------------
* Previously filed.
(1) Incorporated herein by reference to Exhibit 3.3 filed with
the Registrant's Registration Statement on Form S-4 (File
No. 33-37592), Exhibit 3.11 filed with the Registrant's
Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 33-37592) and Exhibit 4.1
filed with the Registrant's Amendment No. 1 to Current
Report on Form 8-K/A, dated October 14, 1997.
(2) Incorporated herein by reference to Exhibit 3(ii) filed with
the Registrant's Amendment No. 1 to Current Report on Form
8-K/A, dated October 14, 1997.
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Pre-Effective Amendment No.
1 to registration statement on Form S-3 (File No. 333-64631) of our report dated
August 28, 1998 on our audit of the statement of revenues over certain operating
expenses of the Intercapital Portfolio and our report dated September 11, 1998
on our audit of the statement of revenue over certain operating expenses of the
Cooper Portfolio and to the incorporation by reference in this Pre-Effective
Amendment No. 1 to registration statement on Form S-3 (File No. 333-64631) of
our report dated January 16, 1998, except for Note V, for which the date is
February 27, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Berkshire Realty Company, Inc. and its
Subsidiaries as of December 31, 1997 and 1996 and for the years ended December
31, 1997, 1996, and 1995. We also consent to the reference to our firm under the
caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 23, 1998
