UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10660
----------------------
Berkshire Realty Company, Inc.
- --------------------------------------------------------------------------------
Delaware 04-3086485
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 423-2233
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------------
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
(Unaudited)
Real estate assets: (Note 2)
Multifamily apartment complexes, net of
accumulated depreciation $821,205,408 $715,696,151
Investments in unconsolidated joint ventures 252,206 15,618,657
Mortgage loans, net of purchase discounts 2,336,887 2,323,285
Land and construction-in-progress 25,560,283 15,185,969
Land held for future development -- 5,818,105
Retail centers held for sale, net of
accumulated depreciation -- 14,404,782
------------ ------------
Total real estate assets 849,354,784 769,046,949
Cash and cash equivalents 11,296,651 9,859,110
Mortgage-backed securities, net ("MBS") 6,964,385 7,511,789
Note receivable 7,500,000 7,500,000
Escrows 14,223,897 15,088,587
Deferred charges and other assets 16,032,970 14,932,272
Workforce and other intangible assets,
net of accumulated amortization 19,223,175 22,481,224
------------ ------------
Total assets $924,595,862 $846,419,931
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Credit agreements (Note 3) $124,345,000 $ 75,345,000
Construction loan (Note 3) 3,305,306 316,786
Mortgage notes payable 328,733,770 305,465,004
Tenant security deposits and prepaid rents 5,682,124 4,888,022
Accrued real estate taxes, insurance, other
liabilities and accounts payable 13,389,149 17,073,179
------------ ------------
Total liabilities 475,455,349 403,087,991
------------ ------------
Minority interest in operating partnership 89,309,987 75,137,066
Commitments and contingencies (Note 2)
Shareholders' equity:
Preferred stock ("Preferred Shares"),
$0.01 par value; 60,000,000 shares
authorized, 2,737,000 shares issued 27,370 27,370
Common stock ("Shares"), $0.01 par value;
140,000,000 Shares authorized and 37,194,531
and 36,841,098 Shares issued, respectively 371,945 368,411
Additional paid-in capital 390,102,778 394,838,797
Accumulated deficit (26,564,742) (24,396,629)
Loans receivable - officers (Note 4) (2,363,750) (900,000)
Less common stock in treasury, at cost
(506,497 Shares) (1,743,075) (1,743,075)
------------ ------------
Total shareholders' equity 359,830,526 368,194,874
------------ ------------
Total liabilities and shareholders' equity $924,595,862 $846,419,931
============ ============
</TABLE>
The accompanying notes are an integral
part of the Consolidated Financial Statements.
2
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Rental $39,218,665 $24,555,019
Interest from mortgage loan and
note receivable 294,799 84,672
Interest income from MBS 166,055 207,138
Management fees and reimbursements (Note 9) 951,804 333,466
Other interest income 383,575 222,273
----------- -----------
Total revenue 41,014,898 25,402,568
----------- -----------
Expenses:
Property operating 9,152,843 6,026,513
Repairs and maintenance 2,183,270 1,644,522
Real estate taxes 3,851,003 2,345,772
Property management fees to an
affiliate 10,291 768,860
Property management operations 2,036,638 663,837
General and administrative 1,436,225 1,072,402
State and corporate franchise taxes 69,000 84,501
Professional fees 174,660 46,400
Interest (Note 3) 8,011,390 5,834,396
Costs associated with advisor
transaction - 1,200,000
Amortization of acquired workforce
and intangible assets 3,258,049 548,162
Depreciation and amortization 12,495,534 7,668,931
----------- -----------
Total expenses 42,678,903 27,904,296
----------- -----------
Loss from operations before joint venture
income (loss), gains on sales of assets
and minority interest (1,664,005) (2,501,728)
Joint venture income (loss) 51,948 (350,556)
Gains on sales of assets 512,732 6,432,040
Minority interest in operating partnership 470,775 (684,733)
----------- ----------
Net income (loss) (628,550) 2,895,023
Income allocated to preferred shareholders (1,539,563) --
----------- ---------
Net income (loss) allocated to common
shareholders $(2,168,113) $2,895,023
=========== ==========
Earnings per common share (basic and diluted):
Net income (loss) per common share $ (.06) $ .11
=========== ==========
Weighted average shares 36,615,474 25,420,444
=========== ==========
</TABLE>
The accompanying notes are an integral
part of the Consolidated Financial Statements.
3
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Series 1997-A Convertible
Preferred Stock at par Common Stock at par Additional
------------------------ ----------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
-------- -------- -------- -------- ----------- -----------
Balance,
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 2,737,000 $27,370 36,334,601 $368,411 $394,838,797 $(24,396,629)
Net Loss -- -- -- -- -- (628,550)
Stock issuance costs -- -- -- -- (226,980) --
Preferred dividends -- -- -- -- -- (1,539,563)
Issuance of Common
Shares -- -- 126,984 1,270 1,498,730 --
Conversion of Units
to Common Shares -- -- 36,521 365 379,118 --
Shares issued in satis-
faction of note payable -- -- 189,332 1,893 2,128,107 --
Stock purchase loans
(Note 6) -- -- -- -- -- --
Stock purchase loans -
forgiveness -- -- -- -- -- --
Proceeds from the
exercise of stock
warrants -- -- 596 6 6,396 --
Dividends -- -- -- -- (8,521,390) --
--------- ------- ---------- -------- ------------ ------------
Balance,
March 31, 1998 2,737,000 $27,370 36,688,034 $371,945 $390,102,778 $(26,564,742)
========= ======= ========== ======== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Loans Treasury
Receivable- Stock
Officers at cost Total
---------- ----------- --------
Balance,
<S> <C> <C> <C>
December 31, 1997 $ (900,000) $(1,743,075) $368,194,874
Net Loss -- -- (628,550)
Stock issuance costs -- -- (226,980)
Preferred dividends -- -- (1,539,563)
Issuance of Common
Shares -- -- 1,500,000
Conversion of Units
to Common Shares -- -- 379,483
Shares issued in satis-
faction of note payable -- -- 2,130,000
Stock purchase loans
(Note 6) (1,500,000) -- (1,500,000)
Stock purchase loans -
forgiveness 36,250 -- 36,250
Proceeds from the
exercise of stock
warrants -- -- 6,402
Dividends -- -- (8,521,390)
----------- ----------- ------------
Balance,
March 31, 1998 $(2,363,750) $(1,743,075) $359,830,526
=========== =========== ============
</TABLE>
The accompanying notes are an integral
part of the Consolidated Financial Statements.
4
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) $ (628,550) $ 2,895,023
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 12,495,534 7,668,931
Amortization of intangible assets and costs
related to workforce acquired 3,258,049 548,162
Costs associated with Advisor Transaction - 1,200,000
Joint venture (income) loss (51,948) 350,556
Distributions received from joint venture 51,948 --
Gains on sales of assets (512,732) (6,432,040)
Non-employee stock option plan -- 5,646
Stock purchase loan forgiveness 36,250 4,167
Amortization of purchase discounts (37,742) (37,512)
Minority interest in operating partnership (470,775) 684,733
Amortization of deferred financing costs 345,748 336,366
Decrease in operating escrows
and other assets 1,064,456 393,447
Decrease in accrued real estate taxes,
insurance, other liabilities and accounts payable (1,870,816) (3,927,591)
Increase in tenant security deposits,
prepaid rents and escrows 794,102 726,189
----------- -----------
Net cash provided by operating activities 14,473,524 4,416,077
----------- -----------
Investing activities:
Cost to acquire properties (72,555,603) (1,092,704)
Proceeds from sale of properties 14,918,614 26,644,405
Recurring capital expenditures (1,145,496) (886,948)
Rehabilitation and non-recurring
capital expenditures (3,357,665) (1,821,668)
Land acquisition and construction in progress (4,539,943) (4,254,775)
Distributions received from joint venture
in excess of earnings 443,894 700,000
Distribution from sale of joint venture asset, net 14,922,557 --
Contributions to joint venture -- (2,150,000)
Principal collections on MBS 551,387 422,932
Principal collections on mortgage loans 20,157 275,278
Escrow established at acquisition of properties (249,418) (64,957)
Cost to acquire workforce and other
intangible assets -- (440,964)
------------ -----------
Net cash provided by (used for)
investing activities (50,991,516) 17,330,599
------------ -----------
</TABLE>
Continued
5
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Financing activities:
Advances under credit agreements $49,000,000 $ --
Advances under construction loan 3,305,306 316,786
Repayment on credit agreements -- (15,750,000)
Payment on repurchase agreement -- (500,000)
Payment of financing costs (1,440,378) (153,726)
Costs associated with issuance of stock (226,980) --
Dividends paid to preferred stockholders (1,539,563) --
Principal payments on mortgage notes payable (969,278) (513,911)
Proceeds from the exercise of stock warrants 6,402 1,698
Dividends (8,521,390) (5,713,525)
Distributions to minority interest (1,658,586) (824,945)
------------ ------------
Net cash provided by (used for) financing
activities 37,955,533 (23,137,623)
----------- ------------
Net increase (decrease) in cash and cash equivalents 1,437,541 (1,390,947)
Cash and cash equivalents, beginning of period 9,859,110 7,015,953
----------- ------------
Cash and cash equivalents, end of period $11,296,651 $ 5,625,006
=========== ============
Supplemental cash flow disclosure:
Cash paid for interest during period $ 8,641,229 $ 6,367,925
=========== ============
Interest capitalized during period $ 419,722 $ 145,406
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Supplemental disclosure of non-cash financing and investing activities:
<S> <C> <C>
Property acquisitions $(113,473,162) $(16,295,177)
Debt assumed in property acquisitions 24,238,044 11,360,427
Units issued for property acquisitions 16,679,515 3,842,046
------------- ------------
Cash to acquire property (72,555,603) (1,092,704)
============= ============
Conversion of Units to Shares $ 377,233 --
============= ============
Shares issued in satisfaction of note payable $ 2,130,000 --
============= ============
Units issued for intangible assets acquired $ -- $ 18,837,500
============= ============
Reclassification of construction in progress
to multifamily apartment complexes $ -- $ 1,962,305
============= ============
</TABLE>
The accompanying notes are an integral
part of the Consolidated Financial Statements.
6
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------------------
1. Significant Accounting Policies
-------------------------------
These financial statements reflect the consolidated financial position,
results of operations, changes in shareholders' equity and cash flows of
the Company, its subsidiaries and the Operating Partnership (collectively
the "Company") using historical cost of assets, liabilities and results
of operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report on
Form 10-Q pursuant to the Rules and Regulations of the Securities and
Exchange Commission. In the opinion of management, the disclosures
contained in this report are adequate to make the information presented
not misleading. See Notes to the Financial Statements included in the
Company's Annual Report on Form 10-K/A for the year ended December 31,
1997 for additional information relevant to significant accounting
policies followed by the Company.
In the opinion of the management, the accompanying unaudited financial
statements reflect all adjustments necessary to present fairly the
Company's financial position as of March 31, 1998 and the results of its
operations for the three months ended March 31, 1998 and 1997 and cash
flows for the three months ended March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results which may be expected for the
full year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this report.
2. Multifamily and Retail Property
As of March 31, 1998, the Company had investments in 73 apartment
communities in eight states having 21,533 units.
The following summarizes the carrying value of the Company's multifamily
apartment complexes, retail centers and retail centers held for sale (in
thousands):
March 31, December 31,
1998 1997
Land $131,206 $108,593
Buildings and improvements 680,357 625,748
Appliances, carpeting and equipment 134,467 125,040
-------- --------
Total multifamily and retail property 946,030 859,381
Accumulated depreciation (124,825) (129,280)
-------- --------
$821,205 $730,101
======== ========
Acquisitions
On January 21, 1998, the Company acquired Countrywood Apartments, a
208-unit apartment community located in Dallas, Texas, for $6.75 million.
The Company paid cash of $2,015,000, assumed debt of $4,015,000 and
issued $720,000 of Operating Partnership Units. The debt agreement
requires monthly principal and interest payments based on an interest
rate of 7.875% along with monthly funding of real estate tax escrows.
Continued
7
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
-------------------
2. Multifamily and Retail Property - Continued
-------------------------------
On February 4, 1998, the Company acquired four multifamily apartment
communities for approximately $63.8 million. The Company paid cash of
approximately $57.5 million and issued $6.3 million of Operating
Partnership Units. The apartment communities acquired are summarized as
follows:
Number of
---------
Property Name Location Units
------------- -------- -----
The Bluffs Austin, TX 382
Pinto Ridge Austin, TX 238
Carlyle Place San Antonio, TX 184
Yorktown Houston, TX 563
-----
1,367
=====
On February 12, 1998, the Company acquired Olde 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 Operating Partnership Units. The debt agreement requires
monthly principal and interest payments based on an interest rate of
6.43% 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 Operating Partnership 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 debt of $14.4 million and
issued $6.2 million of Operating Partnership Units. The debt agreement
requires monthly principal and interest payments based on an interest
rate of 7% along with monthly funding of real estate tax escrows.
Development
In the fourth quarter of 1996, the Company began construction of Crooked
Creek Apartments, a 296-unit apartment community in Durham, North
Carolina. The project is currently estimated to cost approximately $20.2
million. As of March 31, 1998, the project has incurred $12.85 million of
construction costs.
In January, 1997, the Company purchased a parcel of land in Greenville,
South Carolina for $3,030,000 for the development of a planned 500-unit
apartment community.
In December, 1997, the Company purchased a 60 acre parcel of land in
Atlanta, Georgia for approximately $5.8 million for the development of
approximately 650 apartment units. Construction is expected to begin in
the third quarter of 1998.
The Company also owns two other parcels of land, one of which is located
in Dallas, Texas, which was sold subsequent to March 31, 1998, and
another located in Greenville, South Carolina. Development plans are
under consideration for this site.
The Company is obligated, upon satisfaction of certain conditions, to
acquire three additional properties from an affiliate of an officer of
the Company. The properties were in various stages of development as of
March 31, 1998.
Continued
8
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
-------------------
2. Multifamily and Retail Property - Continued
-------------------------------
Dispositions
In January, 1998, the Company sold its remaining investments in retail
properties.
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 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 loss on the sale totaled
approximately $24,000.
3. Debt Agreements
---------------
As of March 31, 1998, the Company had three lines of credit to provide
for future acquisitions, development and general business obligations.
The following summarizes the Company's borrowings on the Master Credit
Facility with the Federal National Mortgage Association as of March 31,
1998:
<TABLE>
<CAPTION>
Contract Contract
Borrowings Start Date End Date Interest Rate Amount
---------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Fixed 11/22/95 9/20/03 6.997% $50,000,000
Fixed 9/20/96 11/20/05 7.540% 13,345,000
-----------
$63,345,000
</TABLE>
On January 30, 1998, the Company obtained a $130 million unsecured
revolving line of credit with a group of participating commercial banks,
generally at interest rates at 120 basis points over LIBOR ("Revolving
Credit Agreement"). The Revolving Credit Agreement replaced the existing
Credit Agreement. The following summarizes the Company's borrowings on
the Revolving Credit Agreement as of March 31, 1998:
<TABLE>
<CAPTION>
Contract Contract
Borrowings Start Date End Date Interest Rate Amount
---------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Base 3/27/98 -- 8.5000% $ 8,000,000
LIBOR contract 3/02/98 4/01/98 6.8775% 28,000,000
LIBOR contract 3/06/98 4/06/98 6.8775% 25,000,000
-----------
$61,000,000
</TABLE>
Subsequent to March 31, 1998, the Company repriced the borrowings on the
Revolving Credit Agreement at 6.8875% effective through July 24, 1998.
Continued
9
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
-------------------
3. Debt Agreements - Continued
---------------
The Company has a construction loan commitment of $13.1 million with two
commercial banks to fund the development of Crooked Creek ("Construction
Loan"). The agreement requires monthly interest payments at a variable
rate set at 150 basis points over LIBOR. The outstanding principal
balance will be due June 30, 1999. The following summarizes the Company's
borrowings on the Construction Loan as of March 31, 1998:
<TABLE>
<CAPTION>
Contract Contract
Borrowings Start Date End Date Interest Rate Amount
---------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
LIBOR contract 3/12/98 4/09/98 7.1875% $2,262,216
LIBOR contract 3/10/98 4/09/98 7.1875% 1,043,090
----------
$3,305,306
</TABLE>
Subsequent to March 31, 1998, the Company repriced the borrowings on the
Construction Loan at 7.1875% effective through August 6, 1998.
4. Stock Purchase Loans
--------------------
On January 2, 1998, the Board of Directors approved three additional
Stock Purchase Loans, each in the amount of $500,000, for three senior
executive officers of the Company. On January 2, 1998, the officers
purchased 126,984 shares of common stock at $11.81 per share using the
loan proceeds.
The terms of the loan provide for, among other things, an interest rate
of 7.873% per year payable quarterly and an annual forgiveness feature of
5% of the original principal so long as the individual is employed by the
Company. Additional annual forgiveness of up to another 5% may be
forgiven if certain Company performance measures are met. The maximum
forgiveness in any one year is 10%. If the individual terminates his
employment, the loan is due and payable six months from the date of
termination. However, in the event of change of control of the Company,
any then outstanding principal and interest due shall be forgiven.
5. Earnings Per Share
------------------
In accordance with Financial Accounting Standards Board Statement No.
128, "Earnings Per Share", the Company has presented basic and diluted
net income per share on the Consolidated Statement of Operations. The net
income and weighted average shares used in the calculations are presented
below:
March 31, March 31,
1998 1997
----------- ----------
Earnings per common share (basic):
Net income (loss) allocated
to common shareholders
(Numerator) $(2,168,113) $2,895,023
=========== ==========
Weighted average shares
(Denominator) 36,615,474 25,420,444
=========== ==========
Earnings per common share (diluted):
Net income (loss) allocated
to common shareholders
(Numerator) $(2,168,113) $2,895,023
=========== ==========
Weighted average shares
(Denominator) 36,615,474 25,420,444
=========== ==========
Continued
10
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
-------------------
5. Earnings Per Share - Continued
------------------
Options, warrants, preferred stock and Units outstanding at March 31,
1998 and March 31, 1997 were not included in the computation of diluted
earnings per share for the periods ended March 31, 1998 and 1997 because
the effects of these securities were antidilutive in the computations.
6. Note Payable
------------
The Company issued 189,332 Shares in full satisfaction of a $2,130,000
note payable which was assumed in the third quarter of 1997 in
conjunction with the acquisition of property.
7. Subsequent Events
-----------------
On April 9, 1998, the Company acquired two multifamily apartment
communities totaling 899 units located in Houston, Texas, for
approximately $17.4 million. The Company paid cash of $1.4 million,
assumed debt of $14.3 million and issued $1.7 million of Operating
Partnership Units. The debt agreements require monthly principal and
interest payments based on an interest rate of 8.51% along with monthly
funding of real estate tax escrows.
On April 29, 1998, the Company acquired three contiguous parcels of land
totaling 12.6 acres located in Central South Carolina for approximately
$571,000. Development plans for this site are in progress.
On May 13, 1998, the Company sold a parcel of land located in Dallas,
Texas, for approximately $2 million.
11
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. Overview:
---------
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere
herein. Capitalized terms used herein and not otherwise defined have the
meanings ascribed to them in the Notes to the Consolidated Financial
Statements.
The Company is a Real Estate Investment Trust ("REIT") whose operations
consist primarily of the acquisition, renovation, rehabilitation,
development and operation of apartment communities located in the
Mid-Atlantic and Southeast regions of the United States, Florida and
Texas. As of March 31, 1998, the Company owned 73 apartment communities
consisting of 21,533 units. The Company has approximately 740 multifamily
units under development and two parcels of land for future development.
The Company has also contracted to acquire three additional development
properties from an affiliate of the regional partner ("Questar Partner").
The Company also entered into a Development Acquisition Agreement with an
affiliate of the Questar Partner which grants the Company an exclusive
right to acquire all apartment projects developed in the Mid-Atlantic
Region by affiliates of the Questar Partner which meet the Company's
acquisition and development criteria.
UPREIT Reorganization:
----------------------
The Company reorganized as an Umbrella Partnership ("UPREIT") on May 1,
1995 when the Company contributed substantially all of its assets subject
to all liabilities to BRI OP Limited Partnership ("Operating
Partnership"). The Company, in its capacity as the Special Limited
Partner and through its ownership of Berkshire Apartments, Inc. as
General Partner, holds 80.58% of the Operating Partnership interests as
of March 31, 1998. The purpose of becoming an UPREIT was to allow the
Company to offer Units in the underlying Operating Partnership in
exchange for assets from tax-motivated sellers. Under certain
circumstances, the exchange of Units for a seller's assets will defer the
tax liability associated with the sale. This structure allows the Company
to use Units instead of stock or cash to acquire properties, which
provides an advantage over non-UPREIT entities.
Advisor Transaction:
--------------------
Until early 1996, the Company was advised by Berkshire Realty Advisors
("Advisor"), an affiliate of certain directors and officers of the
Company. The Board of Directors determined that it was in the best
interest of the shareholders to become self-advised. Therefore, on
February 28, 1996, the Board, acting on the recommendation of a Special
Committee comprised of the Independent Directors, approved the
acquisition, via contribution of the workforce and other assets of the
Advisor, in exchange for 1.3 million Units which were valued at $13
million (the "Advisor Transaction"). The acquisition price together with
related costs, was recorded as an intangible asset associated with the
workforce acquired. The contribution was completed on March 1, 1996. As
of that date, all charges and expenses associated with the Advisory
Services Agreement ceased and the Company became a self-administered
REIT.
12
<PAGE>
A. Overview: - Continued
---------
In conjunction with the Advisor Transaction, additional Units, up to a
total of $7.2 million in value, may be issued to the former Advisor
during a six year period if certain share price benchmarks are achieved.
As of March 31, 1998, 209,091 additional Units have been issued as a
result of achieving the $11.00 and $12.00 share price benchmarks.
Property Manager Transaction:
-----------------------------
On February 13, 1997, a Special Committee of the Board of Directors
comprised of the Independent Directors approved the acquisition of the
workforce and other assets of an affiliate which provided multifamily
property management services to the Company (the "Property Manager"). The
Property Manager was contributed on February 28, 1997 in exchange for 1.7
million Units or approximately $17.6 million in consideration as of the
pricing date.
On the date of the transaction, the Property Manager managed 57 apartment
communities, including the Company's 35 assets, and employed
approximately 85 professionals, excluding site employees. As a result of
this transaction, the Company no longer pays management fees and
reimbursements for the management operations of its multifamily
portfolio. In addition, the Company receives management fees and
reimbursements of certain expenses associated with 22 third-party
management contracts primarily with partnerships affiliated with certain
directors and officers of the Company.
The value of the Units issued has been recorded on the balance sheet as
an intangible asset associated with the acquisition of a workforce and
third-party property management contracts.
B. Results of Operations:
----------------------
The results of operations from period to period are impacted by
acquisition and disposition activity within the portfolio. Comparisons
will be made with respect to the overall portfolio and constant
properties. The following analysis compares the results of operations for
the three months ended March 31, 1998 and 1997.
Net income for the period ending March 31, 1998 decreased by
approximately $3.5 million when compared to the same period in 1997
primarily as a result of a gain of $6.4 million recorded on the sale of a
residential asset in 1997 which exceeded the gains of $513,000 recorded
on the sales of three retail assets in 1998.
Income and Expenses:
--------------------
Rental income and property operating expenses, including repairs and
maintenance and real estate taxes increased primarily due to increased
weighted average apartment units. Rental revenues for the quarter ended
March 31, 1998 increased $14.7 million or 60% over the prior year and
property operating expenses increased $5.2 million or 52% for the same
periods. Average apartment units increased 58% between 1997 and 1998.
13
<PAGE>
B. Results of Operations:- Continued
----------------------
Detail of the Company's apartment unit growth as of March 31 is set forth
below:
1998 1997
---- ----
Apartments Units:
Beginning of quarter 18,773 12,435
Acquired 2,760 345
Sold -- (348)
Completed developments -- 96
------- ------
End of quarter 21,533 12,528
------ ------
Weighted average units 19,876 12,549
Percent increase over same quarter 58% 33%
of prior year
Management fees and reimbursements increased $618,000 due to revenue
generated from third-party management contracts which were acquired on
February 28, 1997 as a result of the Property Manager Transaction.
Property management fees paid to an affiliate decreased in 1998 as a
result of the Property Manager Transaction and sales of the retail assets
in January, 1998.
Property management operations increased $1.4 million as a result of the
Property Manager Transaction on February 28, 1997 Three months of
expenses were incurred in 1998 compared to one month in 1997. These costs
were more than offset by the decrease in property management fees paid to
an affiliate and the increase in management fees and reimbursements
received from third-party management contracts.
General and administrative expenses increased in 1998 compared to 1997
due to increased employee salaries, benefits, administrative and office
related expenses incurred as a result of the Questar Transaction in
November, 1997.
Interest Expense
----------------
Interest expense has increased because the Company has largely employed
debt capital for acquisitions and development activities. The following
is an analysis of weighted average debt outstanding and interest rates
for the three months ended March 31 (dollars in thousands).
1998 1997
---- ----
Weighted Average
Debt Outstanding
Fixed Rate $379,597 $218,049
Variable Rate 76,788 81,628
-------- --------
Total $456,385 $299,677
======== ========
Weighted Average
Interest Rates
Fixed Rate 7.87% 7.71%
Variable Rate 6.85% 6.62%
Weighted average fixed rate debt increased approximately $162 million
primarily due to mortgages which were assumed with the acquisitions of
apartment communities.
Costs associated with Advisor Transaction were incurred in 1997 as the
Company achieved the $11.00 share price benchmark and issued $1.2 million
of Operating Partnership Units.
Depreciation and amortization increased $7.5 million from 1997 to 1998
due to an increased property asset base. In addition, amortization of
acquired workforce and intangible assets associated with the Advisor
Transaction in 1996 and Property Manager Transaction in 1997 accounted
for $2.7 million of the increase.
14
<PAGE>
B. Results of Operations:- Continued
----------------------
Gains on sales of assets decreased $5.9 million as the gain on the sale
of a residential asset in 1997 exceeded the gains on the sales of the
three retail assets sold in 1998. The carrying values of the Company's
retail assets were adjusted in 1997 to reflect their estimated market
values.
C. Funds from Operations (FFO):
----------------------------
Industry analysts generally consider Funds from Operations, FFO, to be an
appropriate measure of the performance of an equity REIT because, along
with cash flows from operating activities, financing activities and
investing activities; it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital
expenditures. However, FFO should not be considered by the reader as a
substitute to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. The Company
believes that in order to facilitate a clear understanding of the
operating results of the Company, FFO should be analyzed in conjunction
with net income as presented in the Consolidated Financial Statements and
information presented elsewhere. FFO is determined in accordance with a
resolution adopted by the Board of Governors of the National Association
of Real Estate Investment Trusts, and is defined as net income (loss)
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. The
methodology used by the Company when calculating FFO may differ from that
of other equity REIT's and, therefore, may not be comparable to such
other REIT's. In addition, FFO does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations or other commitments. FFO per share
is calculated using weighted average Shares and Operating Partnership
Units for the periods presented as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
-----------------------------------
Ended March 31,
-----------------------------------
1998 1997
------------ ----------
<S> <C> <C>
Loss from operations before
joint venture income (loss),
gains on sales of assets
and minority interest $(1,664,005) $(2,501,728)
Joint venture net operating
income 75,565 876,338
Amortization of
intangible assets 3,258,049 548,162
Costs associated with
Advisor Transaction -- 1,200,000
Depreciation 12,449,700 7,664,208
Income allocated to
preferred shareholders (1,539,563) --
----------- -----------
Funds from Operations $12,579,746 $ 7,786,980
=========== ===========
FFO per share (basic and diluted) $ .28 $ .26
=========== ===========
Weighted Average:
Shares 36,615,474 25,420,444
Units 8,020,816 4,810,885
----------- -----------
44,636,290 30,231,329
=========== ===========
Cash flows provided by (used for):
Operating activities 14,473,524 4,416,077
Investing activities (50,991,516) 17,330,599
Financing activities 37,955,533 (23,137,623)
</TABLE>
15
<PAGE>
C. Funds from Operations:- Continued
----------------------
Same-store Multifamily Communities
----------------------------------
The Company defines same-store apartment communities as those assets that
were owned and operated in each of the two most recent years. The Net
Operating Income ("NOI") of the 35 communities aggregating 12,528 units
which are considered same-store is summarized below (dollars in
thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997 % Change
---- ---- --------
<S> <C> <C> <C>
Revenues $24,853 $23,103 7.58%
Expenses 10,259 9,629 6.54%
------- -------
Net operating income $14,594 $13,474 8.31%
======= =======
Average monthly rent per unit $689 $608
Average occupancy 96.8% 94.5%
</TABLE>
NOI for the same-store communities increased 8.3% in the first quarter of
1998 compared to 1997. Growth in same-store multifamily revenues was 7.6%
when compared to the prior year period. Rent increases accounted for 3%
of the increase and the remaining revenue gain was generated from
increased occupancy.
D. Liquidity and Capital Resources:
--------------------------------
The Company's net cash with respect to investing activities decreased
approximately $68.3 million in 1998 compared to 1997 primarily due to an
increase in investment in multifamily properties of $71.5 million which
was partially offset by an increase in distributions received from the
sale of assets of approximately $3.7 million. The Company's net cash with
respect to financing activities increased approximately $61.4 million in
1998 compared to 1997 due to advances of approximately $52.3 million
under the credit agreements and construction loan in the first quarter of
1998.
Until 1997, operations, debt financing and sales of assets have been the
sources of liquidity employed by the Company. In 1997, the Company raised
additional capital through a private placement of preferred stock and a
public offering of common stock, the proceeds of which were used to
acquire multifamily properties and to pay down variable rate debt. In
addition, the Operating Partnership has issued Units for the acquisition
of 37 multifamily communities. Through the use of Units for acquisitions,
the Company has raised approximately $76.9 million of private equity
since becoming an UPREIT. It is the Company's intention to continue to
use Units as a form of currency to grow the asset base of the Company.
Operating cash flows are earmarked for the payment of dividends as well
as capital expenditures of a recurring nature. Debt financing, proceeds
from asset sales and equity offerings have been used to finance the
acquisition, renovation, rehabilitation and development of apartment
communities.
In each of the previous three years, the Company has paid between 84% and
88% of FFO in dividends, retaining the rest for recurring capital
expenditures and working capital. The Company expects to increase both
FFO and dividends in the future but will strive to gradually reduce the
payout ratio so as to utilize some internally generated funds for growth.
On February 12, 1998, the Board approved a dividend of $.2425 per share
payable on May 15, 1998 to the shareholders of record on May 1, 1998.
The Company has a policy to maintain leverage at or below 50% of
reasonably estimated value of assets. By employing moderate leverage
ratios, the Company expects it can continue to generate sufficient cash
flows to operate its business as well as sustain dividends to
shareholders.
The Company conservatively manages both interest rate risk and maturity
risk. Through the use of a swap, the Company has hedged interest rate
risk on 62% of its outstanding variable rate debt as of March 31, 1998.
Additionally, the Company has spread its maturities on long-term debt and
has weighted average maturities of approximately 15.7 years.
16
<PAGE>
D. Liquidity and Capital Resources:- Continued
--------------------------------
Equity capital, whether publicly or privately raised, will be utilized
when the Company identifies the opportunities to invest the proceeds in
assets that would increase shareholder returns. The Company is not
currently engaged in a secondary or preferred stock offering.
The Company has adequate sources of liquidity to meet its current cash
flow requirements, including dividends and debt service. The Company
currently has sufficient unadvanced commitments under credit facilities
to fund ongoing renovation, rehabilitation and development activities.
E. Business Conditions/Risks:
--------------------------
The Company believes that favorable economic conditions exist in
substantially all of its real estate markets. For the Company's
same-store apartment communities, physical occupancy was 96.8% as of
March 31, 1998 which generally represents current market occupancies. In
addition, the Company has generated competitive rental rates at its
properties. The Company expects to produce consistent performance from
its real estate assets; however, no assurances can be made in this
regard.
The Company's real estate investments are subject to some seasonal
fluctuations resulting from changes in utility consumption and seasonal
maintenance expenditures. Future performance of the Company may be
impacted by unpredictable factors which include general and local
economic and real estate market conditions, variable interest rates,
environmental concerns, energy costs, government regulations and federal
and state income tax laws. The requirements for compliance with federal,
state and local regulations to date have not had an adverse effect on the
Company's operations, and no adverse effects are anticipated in the
future.
During 1997, the Company, with certain affiliates of a director, began a
computer systems project to significantly upgrade its existing hardware
and software. The Company expects to realize operating efficiencies and
also expects to remedy the programming issues associated with the
approach of the millennium. Testing and conversion of the system was
completed in February, 1998. The Company incurred hardware costs as well
as consulting and other expenses related to infrastructure and facilities
enhancements necessary to complete the upgrade and prepare for the year
2000. The Company's share of the cost of the systems conversion is
estimated to be approximately $650,000 and will be capitalized and
depreciated over five years.
The Company is also involved in certain legal actions and claims in the
ordinary course of its business. It is the opinion of management and its
legal counsel, that such litigation and claims should be resolved without
material effect on the Company's financial position.
F. Recently Issued Accounting Standards
------------------------------------
Financial Accounting Standards Board Statement No. 129 ("FAS 129")
"Disclosure of Information about Capital Structure" is effective for
financial statements issued for periods ending after December 31, 1997.
FAS 129 establishes standards for disclosure of information about
securities, liquidation preference of preferred stock and redeemable
stock. Financial Accounting Standards Board Statement No. 130 ("FAS 130")
"Reporting Comprehensive Income" is effective for fiscal years beginning
after December 31, 1997, although earlier application is permitted. FAS
130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. Financial Accounting
Standards Board Statement No. 131 ("FAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", establishes standards
for disclosing measures for profit or loss and total assets for each
reportable segment. FAS 131 is effective for fiscal years beginning after
December 15, 1997. Financial Accounting Standards Board Statement No. 132
("FAS 132") "Employers' Capital Disclosures about Pensions and Other
Postretirement Benefits" is effective for fiscal years beginning after
December 15, 1997, although earlier application is encouraged. FAS 132
establishes standards related to the disclosure requirements for pensions
and other postretirement benefits.
Effective March 19, 1998, the Company has adopted the Emerging Issues
Task Force ruling 97-11 ("EITF 97-11"), entitled "Accounting for Real
Estate Property Acquisitions". EITF 97-11 provides that real estate
companies must begin to expense, as incurred, the internal costs of
identifying and acquiring operating property.
The Company does not believe that the implementation of FAS 129, FAS 130,
FAS 131, FAS 132 or EITF 97-11 will have a material impact on the
Company's financial statements.
17
<PAGE>
G. Forward-Looking Statements
--------------------------
The Company's Annual Report contains forward-looking statements,
estimates or plans within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates", "plans",
"expects", and similar expressions are intended to identify
forward-looking statements. There are a number of factors that could
cause the Company's actual results to differ materially from those
indicated by such forward-looking statements. These factors include the
matters set forth under the caption "Risk Factors" in the Company's
Registration Statement on Form S-3, which was filed with the Securities
and Exchange Commission on April 15, 1998 and which is incorporated
herein by reference. Any statements contained in such filing shall be
deemed to be superseded or modified for purposes of the Annual Report to
the extent that a statement contained herein modifies or supersedes such
statement. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be
achieved.
18
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
----------------
Item 1. Legal proceedings
Response: None
Item 2. Change in securities
Response: None
Item 3. Defaults upon senior securities
Response: None
Item 4. Submission of matters to a vote of security holders
Response: None
Item 5. Other information
Response: None
Item 6. Exhibits and reports on Form 8-K:
Exhibits:
27.1 Financial Data Schedule - March 31, 1998+
27.2 Financial Data Schedule - March 31, 1997+
99.1 Documents incorporated by reference-"Risk Factors" from the
Company's Registration Statement on Form S-3 which was filed
with the SEC on April 15, 1998.+
Reports on Form 8-K
--------------------
Date Event Reported Financial Statements
---- -------------- --------------------
February 13, 1998 Property Disposition No
Reports on Form 8-K/A
----------------------
Date Event Reported Financial Statements
---- -------------- --------------------
March 31, 1998 Property Disposition Yes
+ Filed herein.
19
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Berkshire Realty Company, Inc.
------------------------------
(Registrant)
BY: /s/Marianne Pritchard
---------------------
Marianne Pritchard, Executive Vice President
and Chief Financial Officer of
Berkshire Realty Company, Inc.
DATE: May 15, 1998
20
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making an
investment decision regarding the Common Stock.
Development and Acquisition Risks
Acquisition Risks. The Company is evaluating many potential acquisitions,
the process of which involves costs which are non-recoverable. There can be no
assurance that properties which are acquired will perform in accordance with
expectations or that cost estimates for improvements to the acquired properties
in order to bring them up to the Company's standards will be accurate. In
connection with acquisitions in which the sellers received units of limited
partnership interest in the Operating Partnership, which are exchangeable on a
one-for-one basis for shares of Common Stock, or at the option of the Company
for cash (the "Units"), the Company has agreed to certain restrictions on its
ability to sell (subject to like-kind exchanges), refinance or pay down
indebtedness (subject to refinancing on terms which would not affect the tax
basis of such Unit recipient(s)) on such properties for various periods of time
extending beyond a year. These restrictions may impair the ability of the
Company to take actions during the period such restrictions apply that would
otherwise be in the best interests of the Company's shareholders and therefore,
may have an adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to shareholders. The
Company anticipates that it may agree to similar restrictions in connection with
future acquisitions.
Development Risks. The Company also intends to continue the development and
expansion of apartment communities in accordance with the Company's development
and underwriting policies as opportunities arise in the future. Risks associated
with such development and construction activities include the following: the
Company may abandon development opportunities after expending resources to
determine a project's feasibility; construction costs of a project may exceed
original estimates; occupancy rates and rents at a newly completed property may
not be sufficient to make the properties profitable; financing may not be
available on favorable terms for development of a property; and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. Development activities are also subject to risks
relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy, and other required governmental permits
and authorizations. If any of the foregoing occurs, the Company's results of
operations, financial condition and ability to make expected distributions to
shareholders could be adversely affected. In addition, new development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Further, the Company anticipates that future development will be financed,
in whole or in part, through additional equity offerings or through the
Company's lines of credit or other forms of secured or unsecured construction
financing that will result in the risk that, upon completion of construction,
permanent financing for newly developed properties may not be available or may
be available only on disadvantageous terms.
Risks Associated with Growth. The Company is currently experiencing a
period of rapid growth. During the period from January 1, 1997 through December
31, 1997 the Company acquired approximately 31 apartment communities containing
an aggregate of approximately 6,600 units. The integration of the recent
acquisitions into existing management and operating structures presents a
management challenge. Although the Company believes it has sufficient management
depth to lead the Company through this period of rapid growth, there can be no
assurance that the Company will be able to assimilate these recent acquisitions
or any further acquisitions into its portfolio without certain operating
disruptions and unanticipated costs. The failure to successfully integrate
acquisitions could have an adverse effect on the Company's results of
operations, financial conditions and its ability to pay expected distributions
to shareholders.
Vote Regarding Continuation of the Company
In 1991, when the Company commenced operations, the Company granted the
shareholders the right to vote on its continued existence after a period of
approximately seven and one-half years of operations. Therefore, the Restated
Certificate of Incorporation of the Company, as amended (the "Certificate")
requires that the Board of Directors of the Company prepare and submit to the
shareholders on or before December 31, 1998 a proposal to liquidate the
Company's assets and distribute the net proceeds of such liquidation. The
liquidation proposal will become effective only if
<PAGE>
approved by shareholders holding a majority of the shares then outstanding. If
the Company were liquidated, there would be no assurance that the proceeds of
the liquidation per share would equal the price paid by a shareholder or the
market value of such a share at any particular time. In the event the Company
solicits such shareholder vote, the Company will incur costs associated with the
appraisal of the Company's real estate assets and the shareholder solicitation
regardless of the outcome of such vote.
General Real Estate Risks
The ownership of real estate presents a variety of risks, including those
risks described below:
General. The Company's investments generally consist of investments in
apartment communities and as such will be subject to varying degrees of risk
generally incident to the ownership and development of real property. The
underlying value of the Company's real estate investments and the Company's
financial condition and ability to make expected distributions to its
shareholders will be dependent upon its ability to operate and develop its
properties in a manner sufficient to maintain or increase revenues and to
generate sufficient income in excess of operating expenses. Income from the
properties may be adversely affected by changes in national and local economic
conditions such as oversupply of apartment units or a reduction in demand for
apartment units in the Company's markets, the attractiveness of the properties
to tenants, changes in interest rates and in the availability, cost and terms of
mortgage financings, the ongoing need for capital improvements, particularly in
older structures, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, adverse changes in
zoning laws, civil unrest, acts of God, including natural disasters (which may
result in uninsured losses), acts of war and other factors which are beyond the
control of the Company. If the Company were unable to promptly renew or relet
the leases for a significant number of apartment units, or, if the rental rates
upon such renewal or reletting were significantly lower than expected rates, the
Company's results of operations, financial condition and ability to make
expected distributions to shareholders may be adversely affected. In addition,
certain expenditures associated with each apartment community (such as real
estate taxes and maintenance costs) are generally not reduced when circumstances
cause a reduction in income from such property.
Dependence on Primary Markets. Substantially all of the communities owned
by the Company are located in the Florida, Texas and the Mid-Atlantic and
Southeastern United States and, therefore, the Company's results of operations,
financial condition and ability to make expected distributions to shareholders
will be linked to the economic conditions in these markets as well as the market
for apartment communities generally. To the extent that these conditions affect
the market for apartment 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.
<PAGE>
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If the
Company must sell an investment, there can be no assurance that it will be able
to dispose of the investment in the time period it desires or that the sales
price of the investment will recoup or exceed the amount of the Company's cost
for the investment. In addition, provisions of the Internal Revenue Code of
1986, as amended (the "Code"), limit the Company's ability to sell properties
held for fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting returns to holders of Common Stock.
Further, if the Company were to sell such properties, such sales might adversely
affect the Company's ability to maintain its qualification as a REIT under the
Code.
Potential Adverse Effect on Results of Operations Due to Operating Risks.
The Company's properties are subject to operating risks common to real estate in
general, any and all of which may adversely affect occupancy or rental rates.
The Company's properties are subject to increases in operating expenses such as
cleaning, electricity, heating, ventilation and air conditioning, elevator
repair and maintenance; insurance and administrative costs; and other general
costs associated with security, landscaping, repairs and maintenance. The
Company's tenants in its retail properties generally are obligated to pay these
escalating costs, although there can be no assurance that tenants will agree to
pay such costs upon renewal or that new tenants will agree to pay such costs. In
the case of apartment communities, the Company must bear such increased
expenses. If operating expenses increase, the local rental market may limit the
extent to which rents may be increased to meet such increased expenses without
decreasing occupancy rates. While the Company implements cost-saving incentive
measures at each of its properties, if any of the foregoing occurs, the
Company's results of operations, financial condition and its ability to pay
distributions to shareholders could be adversely affected.
Competition. All of the Company's properties are located in developed areas
that include other multifamily residential properties. The number of competitive
properties in a particular area could have a material effect on the Company's
ability to lease apartment units at its current or newly acquired properties and
on the rents charged at the such properties. The Company may be competing with
other entities that have greater resources than the Company and whose executives
have more experience than the Company's officers and directors. In addition,
other forms of housing, including manufactured housing community properties and
single-family housing provide alternatives to potential residents of multifamily
residential properties.
Cost of Compliance with Americans with Disabilities Act. All of the
Company's properties are subject to the Americans with Disabilities Act (the
"ADA"). The ADA sets forth compliance requirements for "public accommodations"
and "commercial facilities." The ADA requires that facilities, including leasing
offices, open to the general public be made accessible to people with
disabilities. Individual apartment units are not considered "public
accommodations" for purposes of the ADA. Compliance with the ADA requirements
could require removal of access barriers and other capital improvements to the
public areas of the Company's properties. Noncompliance could result in
imposition of fines by the U.S. government or an award of damages to private
litigants. The Company does not believe that any material changes to the
properties are currently required by the ADA. If changes are subsequently
required involving material expenditures, the Company's results of operation,
financial condition and ability to make expected distributions to shareholders
could be adversely affected.
Uninsured Loss. The Company maintains comprehensive liability, fire, flood
(where appropriate), extended coverage and rental loss insurance with respect to
the Company's properties with policy specifications, limits and deductibles
customarily carried for similar properties. Certain types of losses, however,
may be either uninsurable or not economically insurable, such as losses due to
earthquakes, riots or acts of war. Should an uninsured loss occur, the Company
could lose both its investment in and anticipated profits and cash flow from a
property.
Affordable Housing Laws. Certain of the apartment communities owned by the
Company may be in the future, subject to Federal, state and local statutes or
other restrictions requiring that a percentage of apartments be made available
to residents satisfying certain income requirements. These laws and obligations,
as well as any changes thereto making it more difficult to meet such
requirements, or a reduction in or elimination of certain financing advantages
available in some instances to persons satisfying such requirements could
adversely affect the Company's profitability and its development and acquisition
projects in the future.
<PAGE>
Risks of Joint Ventures. The investment by the Company in a joint venture
partnership which owns properties, instead of investing directly in the
properties itself, may, under certain circumstances, involve risks which would
not otherwise be present. For example, the Company's joint venture partner may
experience financial difficulties and such partner may at any time have economic
or business interests or goals which are inconsistent with the business
interests and goals of the Company or contrary to the Company's policies or
objectives. Actions by (or litigation involving) such a partner might have the
result of subjecting the property owned by the joint venture to liabilities in
excess of those contemplated by the terms of the joint venture agreement. In
addition, there is a risk of impasse between the parties since either party may
disagree with a proposed transaction involving the property owned by the joint
venture and impede any proposed action. The Company may own additional
properties through joint venture partnerships between the Company and the
sellers of the properties or other third party partners.
Risk of Adverse Effect on Company from Debt Servicing and Refinancing, Financial
Covenants, Absence of Limitations on Debt, and Increases in Interest Rates
General. If the Company were unable to refinance its indebtedness on
acceptable terms, or at all, the Company might be forced to dispose of one or
more of its properties on disadvantageous terms, which might result in losses to
the Company and might adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
If interest rates or other factors at the time of the refinancing result in
higher interest rates upon refinancing, the Company's interest expense would
increase, which would adversely affect the Company's results of operations,
financial condition and ability to make expected distributions to shareholders.
Furthermore, if a property is mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgagee could foreclose
upon the property, appoint a receiver and receive an assignment of rents and
leases or pursue other remedies, all with a consequent loss of income and asset
value to the Company. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby reducing the Company's cash available for
distribution and hindering the Company's ability to meet the REIT distribution
requirements of the Code. The Company is subject to risks normally associated
with debt financing including the possibility that the Company will have
insufficient cash flow to meet required principal and interest payments, be
unable to satisfy financial covenants in its debt financing agreements, existing
indebtedness (which in most cases will not be fully amortized at maturity), or
secure favorable refinancing terms. Additionally, in connection with the
acquisition of certain properties in exchange for Units, the Company has agreed
to maintain certain levels of nonrecourse debt on the properties in order to
minimize the tax consequences of these acquisitions to the Unit recipients.
Absence of Debt Limitation. The Company currently has a policy of incurring
debt only if upon such incurrence the ratio of the Company's debt to the value
of its assets would be 50% or less. Although the Company has adopted this
policy, the Organizational Documents (as defined herein) do not contain any
limitation on the amount of indebtedness the Company may incur. Accordingly, the
Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary in order for the Company to continue to qualify as
a REIT.
Debt Servicing and Financing. The Company anticipates that only a small
portion of the principal of the Company's mortgage indebtedness will be repaid
prior to maturity. However, if the Company does not have funds sufficient to
repay such indebtedness at maturity, the Company may need to refinance
indebtedness through additional debt financing or equity offerings. If the
Company is unable to refinance this indebtedness on acceptable terms, the
Company may be forced to dispose of properties upon disadvantageous terms, which
could result in losses to the Company and adversely affect the amount of cash
available for distribution to shareholders. If prevailing interest rates or
general economic conditions result in higher interest rates at a time when the
Company must refinance its indebtedness, the Company's interest expense would
increase, which would adversely affect the Company's results of operations,
financial condition and its ability to pay expected distributions to
shareholders. Further, if any of the Company's properties are mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the mortgagee could foreclose or otherwise transfer the property, with
a consequent loss of income and asset value to the Company. Even with respect to
nonrecourse indebtedness, the lender may have the right to recover deficiencies
from the Company in certain circumstances, including fraud and environmental
liabilities.
Increase in Market Interest Rates on Variable Interest Rates. Outstanding
advances under the Company's credit facilities bear interest at a variable rate.
The Company may incur additional variable rate indebtedness in the future.
Accordingly, increases in interest rates could increase the Company's interest
expense, which could adversely affect the Company's results of operations,
financial condition and its ability to pay expected distributions to
shareholders. An increase in interest expense could also cause the Company to be
in default under certain covenants of the credit facilities.
<PAGE>
Potential Environmental Liability
Under various Federal, state and local environmental laws, ordinances and
regulations, an owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain third parties may
seek recovery from owners or operators of such properties or persons who
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, are potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
All of the properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. These environmental
assessments have not revealed any environmental liability that would have a
material adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to shareholders, and the
Company is not aware of any such environmental liability.
Dilution
The interest of the Company's shareholders may be subject to dilution in
the future since the Company has the ability to raise additional equity by
offering shares for sale. The authorized but unissued capital stock of the
Company (including additional authorized preferred stock, senior to the Common
Stock) may be issued for any corporate purpose, including acquisitions of other
entities which invest in or hold real estate investments, issuances of
additional Common Stock pursuant to the Company's Stock Option Plan and
issuances which would make more difficult, and therefore less likely, changes in
control of the Company. Any such issuance of additional stock could have the
effect of diluting the earnings per share, book value per share, voting power of
existing shares of Common Stock and ownership of persons seeking to obtain
control of the Company. See "-- Anti-Takeover Provisions." The issue by the
Operating Partnership of additional Units redeemable for shares of Common Stock
in exchange for real property or other assets may also have a substantially
similar dilutive effect.
The Company also has two types of outstanding securities convertible into
Common Stock, Warrants ("Warrants") and Series 1997-A Convertible Preferred
Stock ("Series 1997-A Preferred"). The conversion price of the Series 1997-A
Preferred is subject to adjustment in certain events to provide anti-dilution
protection to the holders of such stock. See "Description of the Capital Stock
of the Company -- Preferred Stock." During the term of the Warrants, the holders
thereof are given an opportunity to profit from a rise in the market price of
the Common Stock, with a resulting dilution of the interest of the existing
shareholders. Thus, the terms upon which the Company may obtain additional
financing during that period may be adversely affected. The holders of Warrants
might be expected to exercise their rights to acquire Common Stock at a time
when the Company would, in all likelihood, be able to obtain needed capital
through a new offering of securities on terms more favorable than those provided
by these outstanding securities. In the event that such holders exercise these
rights to acquire shares of Common Stock at such time, the net tangible book
value per share of the Common Stock might be subject to dilution. See
"Description of the Capital Stock of the Company -- Warrants."
Anti-Takeover Provisions
In order to facilitate compliance with REIT requirements for tax purposes,
the Company's Certificate and By-Laws, as amended (collectively, the
"Organizational Documents") place restrictions on the accumulation of shares in
excess of 9.8 % of the number of outstanding shares of Common Stock, subject to
certain exceptions permitted with the approval of the Board of Directors to
allow (i) underwritten offerings, or (ii) the sale of equity securities in
circumstances where the Board of Directors determines the Company's REIT federal
tax status will not be jeopardized. The ten million shares of Common Stock
issued in an underwritten public offering on November 10, 1997 and the Series
1997-A Preferred were issued respectively pursuant to such exceptions. Certain
additional provisions restrict the shareholders' ability to nominate candidates
for election as Directors and to alter, amend and adopt provisions inconsistent
with, or to repeal certain provisions of, the Organizational Documents.
<PAGE>
The Company's Organizational Documents contain certain provisions which may
discourage a change in control of the Company. In particular, under the
Company's Certificate, the election of Directors is staggered such that
approximately one-third of the Directors are elected to three-year terms each
year and a supermajority vote is required in order to amend those portions of
the Organizational Documents which concern (1) the definition of
"supermajority"; (2) the requirements for amending the Organizational Documents;
(3) the requirements regarding Excess Share ownership (i.e., ownership of shares
in excess of 9.8 % of the outstanding shares of Common Stock as described
below); (4) the actions which require a supermajority vote; and (5) the
requirements regarding business combinations. The Company is subject to Section
203 of the Delaware General Corporation Law, which restricts business
combinations between the Company and its shareholders. The foregoing
restrictions on ownership and transferability may have the effect of delaying,
deferring or preventing a transaction or change in control of the Company that
might involve a premium price for the shares of Common Stock or that otherwise
might be in the best interest of the Company's shareholders.
The Company has an authorized class of 60,000,000 shares of preferred
stock. Currently the Company has approximately 2.7 million shares of its 1997
Series-A Preferred outstanding. The remaining 57.3 million shares may be issued
by the Board of Directors on such terms and with such rights, preferences and
designations as the Board may determine. Issuance of such preferred stock,
depending on the rights, preferences, and designations thereof, may have the
effect of delaying, deterring, or preventing a change in control of the Company.
Tax Risks
Risk of Termination of REIT Status. The Company was organized and intends
to continue to conduct its operations to enable it to qualify as a REIT under
the Code. To maintain its status as a REIT, the Company must continually meet
certain criteria concerning, among other things, its Common Stock ownership, the
nature of its assets, the sources of its income, and the amount of its
distributions to shareholders. If the Company fails to qualify, the Company
would be taxed on its income at regular corporate tax rates. The payment of such
tax by the Company would substantially reduce the funds available for
distribution to shareholders or for reinvestment and, to the extent that
distributions had been made in anticipation of the Company's qualification as a
REIT, the Company might be required to borrow additional funds or to liquidate
certain of its investments in order to pay the applicable tax. Moreover, should
the Company's election to be taxed as a REIT be terminated, the Company may not
be able to elect to be treated as a REIT for the following five-year period. The
Company also might be required to borrow funds or to liquidate certain of its
investments to maintain REIT status. See "Federal Income Tax Considerations."
REIT Minimum Distribution Requirements; Possible Incurrence of Additional
Debt. In order to qualify as a REIT, the Company generally will be required each
year to distribute to its shareholders at least 95 % of its net taxable income
(excluding any net capital gain). In addition, the Company will be subject to a
4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85 % of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year, and (iii) 100% of its undistributed taxable income
from prior years.
The Company intends to make distributions to its shareholders to comply
with the 95 % distribution requirement and to avoid the nondeductible excise
tax. The Company's income will consist primarily of its share of the income of
the Operating Partnership, and the cash available for distribution by the
Company to its shareholders will consist of its share of cash distributions from
the Operating Partnership. Differences in timing between (i) the actual receipt
of income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of the
Company could require the Company, through the Operating Partnership, to borrow
funds on a short-term basis to meet the 95 % distribution requirement and to
avoid the nondeductible excise tax. The requirement to distribute a substantial
portion of the Company's net taxable income could cause the Company to
distribute amounts that otherwise would be spent on future acquisitions,
unanticipated capital expenditures or repayment of debt, which would require the
Company to borrow funds or to sell assets to fund the costs of such items.
Failure of the Operating Partnership to be Classified as a Partnership for
Federal Income Tax Purposes; Negative Impact on REIT Status. The Company has not
requested, and does not expect to request, a ruling from the Internal Revenue
Service ("IRS") that the Operating Partnership (and each of its noncorporate
Operating Subsidiaries (as hereinafter defined)) will be classified as
partnerships for federal income tax purposes. If the IRS were to successfully
challenge the tax status of the Operating Partnership (or any noncorporate
Operating Subsidiary) as a partnership for federal income tax purposes, the
Operating Partnership (or the noncorporate Subsidiary) would be taxed as a
corporation.
<PAGE>
In such event, the Company would likely cease to qualify as a REIT for a variety
of reasons. Furthermore, the imposition of a corporate income tax on the
Operating Partnership would reduce substantially the amount of cash available
for distribution from the Operating Partnership to the Company and its
shareholders. See "Federal Income Tax Considerations -- Other Tax Consequences
- -- Effect of Tax Status of the Operating Partnership on REIT Qualification."
Investment by Qualified Plans Poses Additional Risks. The fiduciary of a
qualified profit sharing, pension or other retirement plan should take into
consideration certain fiduciary responsibilities and the definition of "plan
assets" under ERISA and applicable Department of Labor regulations.
Possible Changes in Tax Law. Prospective investors should recognize that
the present federal income tax treatment of an investment in the Company may be
modified, prospectively or retroactively, by legislative, judicial or
administrative action at any time. In addition to any direct effects which such
changes might have, such changes might also indirectly affect the market value
of all real estate investments, including those of the Company and,
consequently, the ability of the Company to realize its business objectives.
Dependence on Key Personnel
The Company is dependent on the efforts of its senior executive officers.
While the Company believes that it could find replacements for these key
personnel, the loss of their services could have a temporary adverse effect on
the operations of the Company. As of January 31, 1998, the President and Chief
Executive Officer, Executive Vice President and Chief Operating Officer,
Executive Vice President and Chief Financial Officer, Executive Vice President
for Acquisitions and Chief Investment Officer, Senior Vice President of
Development and President of the Mid-Atlantic Region had entered into employment
agreements with the Company.
Risks of Mortgage Acquisitions
The Company may acquire real estate through the acquisition of distressed
mortgage loans. In such a case, the Company would succeed to the position of the
mortgage lender with the expectation of foreclosing on the mortgaged property
and taking title to it. The Company may encounter certain legal and regulatory
obstacles to foreclosure which could delay or impede the taking of title to the
property by the Company. During the time prior to foreclosure, it is possible
that the borrower of the mortgage loan may make no mortgage payments to the
Company.
Possible Adverse Impact of Market Conditions on Market Price
The market value of the Common Stock could be substantially affected by
general market conditions, including changes in interest rates, government
regulatory action and changes in tax laws. An increase in market interest rates
may lead purchasers of the Common Stock to demand a higher annual dividend yield
on the Common Stock, which could adversely affect the market price of the Common
Stock. Moreover, numerous other factors, such as government regulatory action
and changes in tax laws, could have a significant impact on the future market
price of the Common Stock or other securities.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Berkshire
Realty Company's Financial Statements for the year ended March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 11,296,651
<SECURITIES> 16,801,272<F1>
<RECEIVABLES> 14,223,897<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,508,351<F3>
<PP&E> 846,765,691<F4>
<DEPRECIATION> 0
<TOTAL-ASSETS> 924,595,862
<CURRENT-LIABILITIES> 19,071,273
<BONDS> 456,384,076<F5>
89,309,987<F6>
0
<COMMON> 363,937,351<F7>
<OTHER-SE> (4,106,825)<F8>
<TOTAL-LIABILITY-AND-EQUITY> 924,595,862
<SALES> 0
<TOTAL-REVENUES> 41,014,898<F9>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,667,513<F10>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,011,390
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,664,005)
<DISCONTINUED> (1,068,788)<F11>
<EXTRAORDINARY> 51,948<F12>
<CHANGES> 512,732<F13>
<NET-INCOME> (628,550)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
<FN>
<F1> Includes MBS securities, Mortgage loans and Notes receivable..
<F2> Includes escrows held.
<F3> Includes Investment in Joint Venture of 252,206; Intangible Asset
and Workforce acquired of 19,223,175 and other assets of 16,032,970.
<F4> Includes properties held less depreciation.
<F5> Includes Credit Agreements, Mortgages payable and Construction loan.
<F6> Includes Minority Interest.
<F7> Includes Preferred Stock, Common Stock, Additional Paid-In Capital and
Retained deficit.
<F8> Includes Loan receivable to Officer and Treasury Stock.
<F9> Includes all revenue of the Company.
<F10> Includes all expenses of the Company.
<F11> Includes Minority Interest income less Income allocated to preferred
shareholders.
<F12> Includes income on Joint Venture.
<F13> Includes Gain on Sale of properties.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Berkshire
Realty Company's Financial Statements for the year ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,625,006
<SECURITIES> 12,666,499<F1>
<RECEIVABLES> 9,849,489<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,865,257<F3>
<PP&E> 474,307,805<F4>
<DEPRECIATION> 0
<TOTAL-ASSETS> 582,314,056
<CURRENT-LIABILITIES> 11,357,067
<BONDS> 289,762,123<F5>
59,338,860<F6>
0
<COMMON> 224,594,914<F7>
<OTHER-SE> (2,738,908)<F8>
<TOTAL-LIABILITY-AND-EQUITY> 582,314,056
<SALES> 0
<TOTAL-REVENUES> 25,402,568<F9>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,069,900<F10>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,834,396
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,501,728)
<DISCONTINUED> 282,832<F11>
<EXTRAORDINARY> (294,783)<F12>
<CHANGES> 5,408,702<F13>
<NET-INCOME> 2,895,023
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<FN>
<F1> Includes MBS securities and Mortgage loans held.
<F2> Includes escrows held.
<F3> Includes Investment in Joint Venture of 37,136,167; Intangible Asset
and Workforce acquired of 31,057,341 and other assets of 11,671,749.
<F4> Includes properties held less depreciation.
<F5> Includes Credit Agreements, Mortgages payable and Repurchase Agreements.
<F6> Includes Minority Interest.
<F7> Includes Common Stock, Additional Paid-In Capital and Retained deficit.
<F8> Includes Loan receivable to Officer and Treasury Stock.
<F9> Includes all Revenue of the Company.
<F10> Includes all expenses of the Company.
<F11> Includes Minority Interest income.
<F12> Includes loss on Joint Venture.
<F13> Includes Gain on Sale of properties.
</FN>
</TABLE>
