<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement /X/ Confidential, for Use of the
Commission Only (as permitted by
/X/ Definitive Proxy Statement Rule 14a-6(e)(2))
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Berkshire Realty Company, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
/_/ No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value per share Series 1997-A
Convertible Preferred Stock, $0.01 par value per share
("Preferred Stock")
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(2) Aggregate number of securities to which transaction applies:
36,752,840 shares of Common Stock
2,737,000 shares of Preferred Stock
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
In accordance with Rule 0-11(c), the fee was calculated to be
one-fiftieth of one percent of the aggregate of the cash and value of
securities and other property to be distributed to the stockholders of
Berkshire Realty Company, Inc.
$9.09 per share of Common Stock (36,711,488 shares for which fee was
paid on December 31, 1998)
$11.375 per share of Common Stock (1,912 shares for which fee was paid
on April 12, 1999)
$11.4375 per share of Common Stock (39,440 shares for which fee was
paid on May 11, 1999)
$28.75 per share of Preferred Stock
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(4) Proposed maximum aggregate value of transaction: $413,008,524
----------------------------------------------------------------------------
(5) Total fee paid: $82,602
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/X/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------
(2) Form, Schedule of Registration Statement No.:
----------------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
BERKSHIRE REALTY COMPANY, INC. (NYSE-BRI)
June 21, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
of Berkshire Realty Company, Inc. to be held on July 21, 1999 at 9:00 a.m. at
the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts. Coffee
and refreshments will be available at the meeting site beginning at 8:30 a.m.
The proxy statement that accompanies this letter describes the matter
which will be presented at the meeting: the consideration and voting upon a Plan
of Liquidation and Dissolution (the "Liquidation Plan") pursuant to which
Berkshire's assets would be liquidated over a maximum three-year period, known
liabilities satisfied, reserves established and remaining proceeds distributed
to the shareholders. The proxy statement is being submitted to Berkshire's
stockholders in order to comply with the requirements of Berkshire's Restated
Certificate of Incorporation, as amended on December 11, 1990 (the "Charter").
The Board of Directors believes that the Liquidation Plan is not in the best
interests of Berkshire and its stockholders and recommends that stockholders
vote "AGAINST" this proposal.
Berkshire believes that if the Liquidation Plan is approved, there is a
likelihood that the risks associated with liquidation will result in holders of
common stock realizing less than the estimated amount available for distribution
of $10.82 per share calculated in accordance with the methodology prescribed by
the Charter, which amount would likely be distributed over the two-year period
after approval of the Liquidation Plan.
YOU SHOULD NOTE THAT WE ARE NOT ASKING YOU NOW TO VOTE ON THE PROPOSED
MERGER OF BERKSHIRE WHICH WE HAVE PREVIOUSLY ANNOUNCED. WE WILL SOLICIT YOUR
VOTE ON THAT TRANSACTION IN A SEPARATE MAILING. IF THE LIQUIDATION PLAN IS
APPROVED, IT IS LIKELY THAT YOU WILL NOT HAVE THE OPPORTUNITY TO VOTE ON THE
MERGER, WHICH, IF CONSUMMATED, WOULD PROVIDE FOR THE PAYMENT OF $12.25 PER SHARE
OF COMMON STOCK.
Thank you for taking the time to review the enclosed materials.
Very truly yours,
/s/David F. Marshall
--------------------
David F. Marshall
President and Chief Executive Officer
One Beacon Street, Suite 1550
Boston, Massachusetts 02108
Telephone: 888-867-0100
<PAGE>
BERKSHIRE REALTY COMPANY, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 21, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Berkshire Realty Company, Inc., a Delaware corporation (the "Company"), will be
held on July 21, 1999 at 9:00 a.m. at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts (the "Meeting") for the purpose of considering and
voting upon the following matters, which are more fully described in the
attached proxy statement:
1. To consider and vote upon a Plan of Liquidation and Dissolution
pursuant to which the Company's assets would be liquidated, known
liabilities satisfied, reserves established and remaining proceeds
distributed to stockholders.
2. To transact such other business, if any, as may properly come
before the Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on May 25, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting and at any adjournments thereof. A list of the
Company's stockholders is open for examination by any stockholder, beginning ten
days prior to the date of the Meeting, for any purpose germane to the Meeting,
at the principal executive offices of the Company, One Beacon Street, Suite
1550, Boston, Massachusetts 02108 and will be available at the Meeting.
By Order of the Board of Directors,
/s/ Scott D. Spelfogel
----------------------
Scott D. Spelfogel
SECRETARY
June 21, 1999
<PAGE>
BERKSHIRE REALTY COMPANY, INC.
ONE BEACON STREET
SUITE 1550
BOSTON, MASSACHUSETTS 02108
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 21, 1999
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Berkshire Realty Company, Inc., a Delaware
corporation (the "Company"), of proxies for use at the Special Meeting of
Stockholders to be held on July 21, 1999 at 9:00 a.m. at the offices of Hale and
Dorr, 60 State Street, Boston, Massachusetts and at any adjournments thereof
(the "Meeting"). The sole order of business known to the Board of Directors is
to consider and vote upon a Plan of Liquidation and Dissolution (the "Plan")
pursuant to which the Company's assets would be liquidated, known liabilities
satisfied, reserves established and remaining proceeds distributed to
stockholders. The Plan is being submitted to stockholders only because the
Company's Restated Certificate of Incorporation, as amended, requires such
submission. See "Plan of Liquidation and Dissolution -- Background."
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted against
approval of the Plan. Any proxy may be revoked by a stockholder at any time
before its exercise by delivery of a written revocation or a subsequently dated
proxy to Scott D. Spelfogel, the Secretary of the Company, or by voting in
person at the Meeting. Attendance at the Meeting will not itself be deemed to
revoke a proxy; the stockholder must give affirmative notice at the Meeting that
the stockholder intends to revoke the proxy and vote in person.
THE BOARD OF DIRECTORS BELIEVES THE APPROVAL OF THE PLAN BY THE
STOCKHOLDERS IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS
AND RECOMMENDS THAT STOCKHOLDERS VOTE "AGAINST" APPROVAL OF THE PLAN. THE BOARD
OF DIRECTORS ARRIVED AT THIS DETERMINATION FOR THE FOLLOWING REASONS:
- The Company, together with its financial advisors, Lazard Freres &
Co. LLC ("Lazard") and Lehman Brothers Inc. ("Lehman"), has since
last summer solicited offers for the acquisition of the Company.
On April 13, 1999, the Company entered into a definitive merger
agreement with a group which includes Douglas Krupp, the Chairman
of the Board of Directors of the Company. If this merger is
consummated, the holders of the Company's Common Stock would
receive cash in the amount of $12.25 per share. See "Plan of
Liquidation at Distribution -- Proposed Merger." This amount
exceeds the $10.82 per share (expected to be paid over a two-year
period) the Board of Directors has estimated would be available
for distribution in a liquidation pursuant to the Plan. The Board
of Directors has recommended that stockholders vote in favor of
this merger. See "Plan of Liquidation and Dissolution -- Sale of
Assets Pursuant to the Plan -- Estimated Proceeds Per Share." If
the Plan is approved, it is likely that the merger agreement will
be terminated, and the Company will be obligated to pay the
expenses incurred by the Buyers (as defined in "Plan of
Liquidation and Dissolution -- Proposed Merger") in connection
with the merger agreement up to a maximum amount of $10,500,000.
- The Company believes that if the Plan is approved, there is a
likelihood that the risks associated with liquidation will result
in holders of Common Stock realizing less than the estimated
amount available for distribution of $10.82 per share calculated
in accordance with the methodology prescribed by the Company's
Restated Certificate of
<PAGE>
Incorporation, as amended (the "Charter"). See "Plan of
Liquidation and Dissolution -- Sale of Assets Pursuant to the
Plan -- Estimated Proceeds Per Share" and "Plan of Liquidation and
Dissolution -- Risks Related to Liquidation."
- In the judgment of the management of the Company, continuing to
operate the Company as a going concern would likely produce
greater stockholder value than a liquidation pursuant to the Plan.
The Company, based on its analysis of conditions in the real
estate and capital markets, estimates that its Funds from
Operations* ("FFO") for fiscal year 1999 will increase
approximately 10% to 14% over 1998 FFO. The Company further
estimates that net operating income from its "same-store" (as
defined below in "Plan of Liquidation and Dissolution -- Estimated
Results of Continuing as a Going Concern") portfolio of apartment
communities for 1999 will increase by approximately 6% over 1998
same-store net operating income. The Company believes this
increase in net operating income should be reflected in increases
in the value of its apartment communities. See "Plan of
Liquidation and Dissolution -- Estimated Results of Continuing as
a Going Concern." There can be no assurance that these results
will be achieved. See "Plan of Liquidation and Dissolution --
Risks Related to Continuing as a Going Concern."
* The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds from Operations as net income (loss) (computed in
accordance with generally accepted accounting principles, consistently applied
("GAAP"), excluding significant non-recurring items and gains (or losses) from
debt restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that Funds from Operations
is helpful to investors as a 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 indication of the
ability of the Company to incur and service debt, to make capital expenditures
and to fund other cash needs. The Company computes Funds from Operations in
accordance with the standards established by NAREIT set forth above, which may
not be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities
determined in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make cash distributions.
SEE "RECOMMENDATION OF THE BOARD OF DIRECTORS."
THE NOTICE OF MEETING, THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD
ARE BEING MAILED TO STOCKHOLDERS ON OR ABOUT JUNE 21, 1999.
-2-
<PAGE>
INTRODUCTION
VOTING SECURITIES AND VOTES REQUIRED
On May 25, 1999, the record date (the "Record Date") for determination
of stockholders entitled to vote at the Meeting, there were outstanding and
entitled to vote an aggregate of 36,752,840 shares of common stock of the
Company, $0.01 par value per share (the "Common Stock"), and 2,737,000 shares of
Series 1997-A Convertible Preferred Stock of the Company, $0.01 par value per
share (the "Preferred Stock"). Each holder of record of Common Stock is entitled
to one vote per share. Holders of Preferred Stock are entitled to vote on an "as
converted" basis, together with the holders of Common Stock as one class, on all
matters on which the holders of Common Stock are entitled to vote. Each share of
Preferred Stock is convertible, subject to the terms of the Certificate of
Designation with respect thereto, into 2.0756 shares of Common Stock, based on a
conversion price of $12.04. Accordingly, on May 25, 1999, there were outstanding
and entitled to vote 42,433,757 shares of Common Stock, including in such total
the outstanding shares of Preferred Stock on an as converted basis. No
stockholder has cumulative voting rights.
The holders of units of limited partnership interest ("OP Units") in
BRI OP Limited Partnership (the "Operating Partnership") will have no rights in
their capacity as such holders to vote at the Meeting.
The holders of a majority of the aggregate of the shares of Common
Stock and Preferred Stock (voting on an as converted basis) issued and
outstanding and entitled to vote at the Meeting (collectively, the "Voting
Securities") will constitute a quorum for the transaction of business at the
Meeting. Shares of Common Stock and Preferred Stock present in person or
represented by proxy (including shares which abstain or do not vote with respect
to one or more of the matters presented for stockholder approval) will be
counted for purposes of determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a majority of the Voting
Securities issued and outstanding on the Record Date is required for approval of
the Plan of Liquidation and Dissolution. Shares which abstain from voting as to
the Plan of Liquidation and Dissolution, and shares held in "street name" by
brokers or nominees who indicate on their proxies that they do not have
discretionary authority to vote such shares as to such matter, are nonetheless
considered outstanding shares and will have the same effect as a vote against
the Plan of Liquidation and Dissolution.
If the Plan of Liquidation and Dissolution is approved, holders of
shares of Preferred Stock who do not vote for approval of the Plan will be
entitled to a liquidation preference of $28.75 per share of Preferred Stock,
together with 115% of any accrued dividends, before any payment to the holders
of Common Stock. If the Plan of Liquidation and Dissolution is approved, holders
of shares of Preferred Stock who vote in favor of the Plan will be entitled to a
liquidation preference of $25.00 per share of Preferred Stock, together with any
accrued dividends, before any payment to the holders of Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 25, 1999,
with respect to the beneficial ownership of shares of Common Stock and Preferred
Stock by (i) each person known to the Company to beneficially own more than 5%
of the outstanding shares of Common Stock or Preferred Stock; (ii) the directors
of the Company; (iii) the Chief Executive Officer of the Company and the four
most highly compensated executive officers (other than the Chief Executive
Officer) whose total
-3-
<PAGE>
annual salary and bonus exceeded $100,000 for the fiscal year ended December 31,
1998; and (iv) all current directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
Title of Class of Beneficial Owner (1) Beneficial Interest (2) of Class (3)
-------------- ----------------------- ----------------------- ------------
<S> <C> <C> <C>
PREFERRED STOCK
Preferred Stock Cudd & Co. 188,552 Shares (4) 6.9%
599 Lexington Avenue
New York, NY 10022
Preferred Stock Paul D. Kazilionis 2,337,000 Shares (4)(5) 85.4%
Preferred Stock Westbrook Berkshire 254,117 Shares (4) 9.3%
Co-Holdings, L.L.C.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Preferred Stock Westbrook Berkshire 2,082,883 Shares (4) 76.1%
Holdings, L.L.C.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Preferred Stock All Directors and 2,337,000 Shares (4)(5) 85.4%
Executive Officers as a
Group (17 people)
COMMON STOCK
Common Stock Terrance Ahern 6,000 Shares (6)(7)
Common Stock The Berkshire Companies 3,209,091 Shares (8) 8.0%
Limited Partnership
Common Stock Berkshire Realty 5,881,369 Shares (9) 14.0%
Holdings, L.P.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
Title of Class of Beneficial Owner (1) Beneficial Interest (2) of Class (3)
-------------- ----------------------- ----------------------- ------------
<S> <C> <C> <C>
Common Stock David M. deWilde 27,800 Shares (10) (7)
Common Stock Paul Finnegan 28,000 Shares (11) (7)
Common Stock Ridge Frew 91,036 Shares (12) (7)
Common Stock Charles Goldberg 22,000 Shares (13) (7)
Common Stock Stephen Gorn 357,382 Shares (14) (7)
Common Stock Gregory J. Hartman 5,688,107 Shares (15) 13.2%
345 California Street
Suite 3450
San Francisco, CA 94104
Common Stock Paul Kazilionis 5,693,107 Shares (15)(16) 13.2%
Common Stock KGP-1, Incorporated 3,744,066 Shares (17) 9.3%
Common Stock KGP-2, Incorporated 3,744,066 Shares (18) 9.3%
Common Stock Douglas Krupp 5,866,369 Shares (19) 14.0%
Common Stock George Krupp 5,871,269 Shares (20) 14.0%
Common Stock David Marshall 409,747 Shares (21) 1.1%
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
Title of Class of Beneficial Owner (1) Beneficial Interest (2) of Class (3)
-------------- ----------------------- ----------------------- ------------
<S> <C> <C> <C>
Common Stock Morgan Stanley Dean 1,995,300 Shares (22) 5.3%
Witter & Co.
1585 Broadway
New York, NY 10036
Common Stock Morgan Stanley Dean 1,958,700 Shares (22) 5.2%
Witter Investment
Management Inc.
1221 Avenue of
the Americas
New York, NY 10020
Common Stock David Olney 95,674 Shares (23) (7)
Common Stock Jonathan H. Paul 5,688,107 Shares (15) 13.2%
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock Marianne Pritchard 98,228 Shares (24) (7)
Common Stock E. Robert Roskind 43,000 Shares (25) (7)
Common Stock Arthur Solomon 5,000 Shares (26) (7)
Common Stock William H. Walton III 5,688,107 Shares (15) 13.2%
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock Westbrook Berkshire Co- 5,688,107 Shares (15) 13.2%
Holdings, L.L.C.
599 Lexington Avenue
Suite 3800
New York, NY 10022
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
Title of Class of Beneficial Owner (1) Beneficial Interest (2) of Class (3)
-------------- ----------------------- ----------------------- ------------
<S> <C> <C> <C>
Common Stock Westbrook Berkshire 5,688,107 Shares (15) 13.2%
Holdings, L.L.C.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock Westbrook Real Estate 5,688,107 Shares (15) 13.2%
Co-Investment
Partnership II, L.P.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock Westbrook Real Estate 5,688,107 Shares (15) 13.2%
Fund II, L.P.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock Westbrook Real Estate 5,688,107 Shares (15) 13.2%
Partners, L.L.C.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock Westbrook Real Estate 5,688,107 Shares (15) 13.2%
Partners Management II,
L.L.C.
599 Lexington Avenue
Suite 3800
New York, NY 10022
Common Stock All Directors and 12,890,331 Shares (27) 26.5%
Executive Officers as a
group (17 people)
</TABLE>
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<PAGE>
(1) The address of each person, except as noted, is c/o Berkshire Realty
Company, Inc., One Beacon Street, Suite 1550, Boston, Massachusetts 02108.
(2) Excepted as indicated in the other notes to this table for each
beneficial owner, information relating to beneficial ownership is based upon
information furnished by each person using "beneficial ownership" concepts set
forth in rules of the Securities and Exchange Commission (the "SEC") under
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under those rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power" which includes the power to
vote or to direct the voting of such security, or "investment power," which
includes the power to dispose or to direct the disposition of such security. The
person is also deemed to be a beneficial owner of any security of which that
person has a right to acquire beneficial ownership (such as by exercise of
options) within 60 days after May 25, 1999. Under such rules, more than one
person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he or
she may disclaim any beneficial interest. Except as indicated in other notes to
this table, directors and executive officers possessed sole voting and
investment power with respect to all shares of Common Stock and Preferred Stock
referred to in the table.
(3) Any Common Stock not outstanding which is subject to options or
conversion privileges which the beneficial owner had the right to exercise as of
May 25, 1999 or within 60 days thereafter shall be deemed outstanding for
purposes of computing the percentage of Common Stock owned by such beneficial
owner but shall not be deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by any other beneficial owner.
However, for purposes of determining the percentage of Common Stock owned by the
Directors and Officers as a group, any Common Stock not outstanding which is
subject to options or conversion privileges which a member of the group had the
right to exercise as of May 25, 1999 or within 60 days thereafter shall be
deemed outstanding for purposes of computing the percentage of ownership of the
group.
(4) Information with respect to the Preferred Stock held by Cudd & Co.,
Westbrook Berkshire Co-Holdings, L.L.C. ("Co-Holdings"), and Westbrook Berkshire
Holdings, L.L.C. ("Holdings") is based on the Company's stock ledger records.
(5) Mr. Kazilionis is an indirect beneficial owner of the 2,082,883 shares
of Preferred Stock held by Holdings and the 254,117 shares of Preferred Stock
held by Co-Holdings, by virtue of being a managing principal of Westbrook Real
Estate Partners, L.L.C. ("WREP"), an affiliate of Holdings and Co-Holdings. Mr.
Kazilionis has shared voting and investment powers for these shares and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
(6) Mr. Ahern owns no shares of Common Stock directly. Mr. Ahern has the
right to acquire 6,000 shares of Common Stock pursuant to Options.
(7) The amount owned does not exceed one percent of the Common Stock of the
Company outstanding as of May 25, 1999.
(8) According to a joint filing made by The Berkshire Companies Limited
Partnership ("BCLP"), Douglas Krupp, George Krupp, KGP-1, Incorporated
("KGP-1"), KGP-2, Incorporated ("KGP- 2"), Aptco Gen-Par, L.L.C. (the "Berkshire
GP") and Aptco Holdings, L.L.C. (the "Berkshire LP") (collectively, the "Krupp
Affiliates") on a Schedule 13D filed with the SEC on March 4, 1999, as amended
(as so amended, the "Krupp Schedule 13D"), BCLP claims to have sole voting and
sole dispositive power over 3,209,091 shares of Common Stock by virtue of their
record ownership of 3,209,091 Operating Partnership Units ("OP Units") in BRI OP
Limited Partnership (the
-8-
<PAGE>
"Operating Partnership"), the operating partnership of which the Company is a
special limited partner and whose general partner is a wholly-owned subsidiary
of the Company, which are convertible on a one-for-one basis for shares of the
Company's Common Stock or cash, at the election of the Company. According to the
Krupp Schedule 13D, BCLP disclaims beneficial ownership of Common Stock issuable
upon the conversion of OP Units because the Company may elect to substitute cash
in lieu of issuing such Common Stock.
(9) According to (i) the Krupp Schedule 13D, (ii) a joint filing made by
The Goldman Sachs Group, Inc. ("GS Group") (a successor in interest to The
Goldman Sachs Group, L.P. which was merged with and into GS Group on May 7,
1999), Whitehall Street Real Estate Limited Partnership XI ("Whitehall"), WH
Advisors, L.L.C. XI, Goldman, Sachs & Co. ("GS&Co.") and WXI/BRH Gen-Par, L.L.C.
(the "Whitehall GP") (collectively the "Whitehall Affiliates") on Schedule 13D
filed with the SEC on March 4, 1999, as amended (as so amended, the "Whitehall
13D") and a Form 3 filed with the SEC on March 4, 1999, as amended (as so
amended, the "Whitehall Form 3") and (iii) a joint filing made by Blackstone
Real Estate Acquisitions III, L.L.C., Blackstone Real Estate Advisors III, L.P.,
BRE Advisors III L.L.C., BRE/Berkshire GP L.L.C. (the "Blackstone GP"),
BRE/Berkshire LP L.L.C. (the "Blackstone LP"), Peter G. Peterson and Stephen A.
Schwarzman (collectively the "Blackstone Affiliates") on Schedule 13D filed with
the SEC on March 4, 1999, as amended (as so amended, the "Blackstone 13D") and a
Form 3 filed with the SEC on March 4, 1999, as amended (as so amended, the
"Blackstone Form 3"), the Krupp Affiliates, the Whitehall Affiliates and the
Blackstone Affiliates formed Berkshire Realty Holdings, L.P. (the "Parent") for
the purpose of engaging in the transactions contemplated by the Merger Agreement
and the Partnership Merger Agreement (as defined in "Plan of Liquidation and
Dissolution -- Proposed Merger"). According to the Krupp Schedule 13D, the
Whitehall 13D and the Blackstone 13D, as a result of the making of a proposal by
certain of the Krupp Affiliates, certain of the Whitehall Affiliates and certain
of the Blackstone Affiliates for the acquisition of the Company on February 22,
1999 and the entry by the Parent and BRI Acquisition, LLC into the Merger
Agreement, the Krupp Affiliates, the Whitehall Affiliates and the Blackstone
Affiliates may be deemed to constitute a "group" within the meaning of Section
13(d) of the Exchange Act and, therefore, such a group may be deemed to have
acquired beneficial ownership of any shares of Common Stock of the Company owned
or deemed to be beneficially owned by the Krupp Affiliates, the Blackstone
Affiliates or the Whitehall Affiliates. According to the Whitehall 13D and the
Whitehall Form 3, the Whitehall Affiliates do not affirm that (i) they
constitute a group with the Krupp Affiliates and/or the Blackstone Affiliates
for the purposes of Section 13(d) of the Exchange Act or any other purpose and
(ii) Whitehall and the Whitehall GP constitute a group with the Berkshire GP,
the Berkshire LP, the Blackstone GP and the Blackstone LP for any purpose other
than what they may be deemed to constitute under Section 13(d) of the Exchange
Act. According to the Blackstone 13D and the Blackstone Form 3, the Blackstone
Affiliates do not affirm that they constitute a group with the Krupp Affiliates
and/or the Whitehall Affiliates for the purposes of Section 13(d) of the
Exchange Act or any other purpose. According to the Krupp Schedule 13D, the
Krupp Affiliates do not affirm that they constitute a group with Whitehall, the
Whitehall GP, the Blackstone GP and the Blackstone LP for any purpose other than
what they may be deemed to constitute under Section 13(d) of the Exchange Act.
In addition, according to the Whitehall 13D, the Whitehall Form 3, the
Blackstone 13D and the Blackstone Form 3, each of the Whitehall Affiliates and
the Blackstone Affiliates disclaims beneficial ownership of, and any pecuniary
interest in, any shares of Common Stock, including those beneficially owned by
the Krupp Affiliates, that may be deemed to be beneficially owned by any such
deemed group or by the Parent.
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Further, the Whitehall 13D and the Whitehall Form 3 state that as of
February 22, 1999 each of GS Group and GS&Co. may be deemed to beneficially own,
for Section 13(d) purposes, 27,208 shares of Common Stock held in Managed
Accounts (as defined below). According to the Whitehall 13D and the Whitehall
Form 3, the Whitehall Affiliates disclaim beneficial ownership of Common Stock
held in Managed Accounts, and none of the Whitehall Affiliates has a "pecuniary
interest" in such Common Stock. In addition, according to the Krupp Schedule 13D
and the Blackstone 13D, each of the Krupp Affiliates and the Blackstone
Affiliates disclaims beneficial ownership of Common Stock held in Managed
Accounts that may be deemed to be beneficially owned by any such deemed group or
by the Parent.
According to (i) the Krupp Schedule 13D, (ii) the Whitehall 13D, (iii)
the Whitehall Form 3, (iv) the Blackstone 13D and (v) the Blackstone Form 3, the
5,881,369 shares reflect 5,881,369 shares of Common Stock beneficially owned by,
or deemed to be beneficially owned by, the Krupp Affiliates and excludes 27,208
shares of Common Stock held in certain accounts with respect to which GS&Co. or
employees of GS&Co. have voting or investment discretion, or both ("Managed
Accounts") that may be deemed to be beneficially owned by GS&Co. or GS Group.
(10) Mr. deWilde directly owns 2,800 shares of Common Stock. In addition,
Mr. deWilde has the right to acquire 25,000 shares of Common Stock pursuant to
Options.
(11) Mr. Finnegan directly owns 700 shares of Common Stock. He disclaims
beneficial ownership of 300 shares of Common Stock owned by his wife. In
addition, Mr. Finnegan has the right to acquire 27,000 shares of Common Stock
pursuant to Options.
(12) Mr. Frew directly owns 43,036 shares of Common Stock. In addition, Mr.
Frew has the right to acquire 48,000 shares of Common Stock pursuant to Options.
(13) Mr. Goldberg owns no shares of Common Stock directly. Mr. Goldberg has
the right to acquire 22,000 shares of Common Stock pursuant to Options.
(14) Mr. Gorn owns 138,960 shares of Common Stock and directly owns 218,422
shares of OP Units in the Operating Partnership.
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(15) According to a joint filing made by WREP, Westbrook Real Estate
Partners Management II, L.L.C. ("WREM II"), Westbrook Real Estate Fund II, L.P.,
Westbrook Real Estate Co-Investment Partnership II, L.P. ("WRECIP II"),
Holdings, Co-Holdings, Gregory J. Hartman, Paul D. Kazilionis, Jonathan H. Paul
and William H. Walton, III (collectively, the "Westbrook Affiliates") on
Schedule 13G made with the SEC on April 29, 1999 (the "Westbrook Schedule 13G"),
each of the Westbrook Affiliates has shared voting power over 5,688,107 shares
of Common Stock and dispositive power over 4,857,547 shares of Common Stock.
Each Westbrook Affiliate, except Co-Holdings, disclaims beneficial ownership of
the Co-Holdings Conversion Shares (as defined in the Westbrook 13G). Each
Westbrook Affiliate, except Holdings, disclaims ownership of the Holdings
Conversion Shares (as defined in the Westbrook 13G).
(16) According to information provided to the Company by Mr. Kazilionis, he
owns no shares of Common Stock directly, he has the right to acquire 5,000
shares of Common Stock pursuant to Options, and he is the indirect beneficial
owner of the 2,082,883 shares of Preferred Stock held of record by Holdings and
254,117 shares of Preferred Stock held of record by Co-Holdings, by virtue of
being a managing principal of WREP, an affiliate of Holdings and Co-Holdings.
Mr. Kazilionis has shared voting and investment powers for these shares.
According to the Company's records, as of September 19, 1998, these shares of
Preferred Stock became convertible into shares of Common Stock based on the
conversion ratio in effect at the time of conversion. As of May 25, 1999,
Holdings has the right to acquire 4,323,232 shares of Common Stock in exchange
for its shares of Preferred Stock and Co-Holdings has the right to acquire
527,445 shares of Common Stock in exchange for its shares of Preferred Stock
based on a conversion ratio of 2.0756.
(17) According to the Krupp Schedule 13D, KGP-1 claims to have shared voting
and shared dispositive power over 3,744,066 shares of Common Stock consisting of
(i) 3,209,091 OP Units in the Operating Partnership owned of record by BCLP,
which are convertible on a one-for-one basis for shares of the Company's Common
Stock, or cash at the election of the Company, and over which KGP-1 has shared
voting power and shared dispositive power; and (ii) 534,975 OP Units in the
Operating Partnership owned of record by GN Limited Partnership which are
convertible on a one-for-one basis for shares of the Company's Common Stock, or
cash at the election of the Company, and over which KGP-1 has shared voting
power and shared dispositive power. According to the Krupp Schedule 13D, KGP-1
disclaims beneficial ownership of Common Stock issuable upon the conversion of
OP Units because the Company may elect to substitute cash in lieu of issuing
such Common Stock.
(18) According to the Krupp Schedule 13D, KGP-2 claims to have shared voting
and shared dispositive power over 3,744,066 shares of Common Stock consisting of
(i) 3,209,091 OP Units in the Operating Partnership owned of record by BCLP,
which are convertible on a one-for-one basis for shares of the Company's Common
Stock, or cash at the election of the Company, and over which KGP-2 has shared
voting power and shared dispositive power; and (ii) 534,975 OP Units in the
Operating Partnership owned of record by GN Limited Partnership which are
convertible on a one-for-one basis for shares of the Company's Common Stock, or
cash at the election of the Company, and over which KGP-2 has shared voting
power and shared dispositive power. According to the Krupp Schedule 13D, KGP-2
disclaims beneficial ownership of Common Stock issuable upon the
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conversion of OP Units because the Company may elect to substitute cash in lieu
of issuing such Common Stock.
(19) According to the Krupp Schedule 13D, Douglas Krupp claims to have sole
voting and sole dispositive power over 10,100 shares of Common Stock of which he
is the direct beneficial owner. According to the Krupp Schedule 13D, Mr. Krupp
claims to have shared voting and shared dispositive power over 5,856,269 shares
of Common Stock consisting of (i) 512,203 shares of Common Stock owned of record
by Berkshire Realty Advisors Limited Partnership, as to which Mr. Krupp has
shared voting and shared dispositive power; (ii) 534,975 OP Units in the
Operating Partnership owned of record by GN Limited Partnership which are
convertible on a one-for-one basis for shares of the Company's Common Stock or
cash, at the election of the Company, and over which Mr. Krupp has shared voting
power and shared dispositive power; (iii) 1,600,000 OP Units in the Operating
Partnership owned of record by Turtle Creek Associates Limited Partnership which
are convertible on a one-for-one basis for shares of the Company's Common Stock,
or cash at the election of the Company, and over which Mr. Krupp has shared
voting power and shared dispositive power; and (iv) 3,209,091 OP Units in the
Operating Partnership owned of record by BCLP, which are convertible on a
one-for-one basis for shares of the Company's Common Stock, or cash at the
election of the Company, and over which Mr. Krupp has shared voting power and
shared dispositive power. According to the Krupp 13D, Douglas Krupp disclaims
beneficial ownership of Common Stock issuable upon the conversion of OP Units
because the Company may elect to substitute cash in lieu of issuing such Common
Stock. Also stated in the Krupp 13D, although Mr. Krupp may be deemed to
beneficially own 15,950 shares of Common Stock owned of record by Judy Krupp,
Richard Krupp and Alex Krupp such shares were excluded from the table and,
pursuant to Rule 13d-4 of the Exchange Act, the filing of this statement shall
not be construed as an admission that Douglas Krupp beneficially owns such
shares.
(20) According to the Krupp Schedule 13D, George Krupp claims to have sole
voting and sole dispositive power over 15,000 shares of Common Stock of which he
is the direct beneficial owner. According to the Krupp Schedule 13D, Mr. Krupp
claims to have shared voting and shared dispositive power over 5,856,269 shares
of Common Stock consisting of (i) 512,203 shares of Common Stock owned of record
by Berkshire Realty Advisors Limited Partnership, as to which Mr. Krupp has
shared voting and shared dispositive power; (ii) 534,975 OP Units in the
Operating Partnership owned of record by GN Limited Partnership which are
convertible on a one-for-one basis for shares of the Company's Common Stock or
cash, at the election of the Company, and over which Mr. Krupp has shared voting
power and shared dispositive power; (iii) 1,600,000 OP Units in the Operating
Partnership owned of record by Turtle Creek Associates Limited Partnership which
are convertible on a one-for-one basis for shares of the Company's Common Stock,
or cash at the election of the Company, and over which Mr. Krupp has shared
voting power and shared dispositive power; and (iv) 3,209,091 OP Units in the
Operating Partnership owned of record by BCLP, which are convertible on a
one-for-one basis for shares of the Company's Common Stock, or cash a the
election of the Company, and over which Mr. Krupp has shared voting power and
shared dispositive power. According to the Krupp 13D, George Krupp disclaims
beneficial ownership of Common Stock issuable upon the conversion of OP Units
because the Company may elect to substitute cash in lieu of issuing such Common
Stock. Also stated in the Krupp 13D, although Mr. Krupp may be deemed to
beneficially own 26,160 shares of Common Stock owned of record by Elizabeth
Krupp, Daniel Krupp and Michael Krupp such shares were excluded from the table
and, pursuant to Rule 13d-4 of the Exchange Act, the filing of this statement
shall not be construed as an admission that George Krupp beneficially owns such
shares.
(21) Mr. Marshall directly owns 90,804 shares of Common Stock. He disclaims
beneficial ownership of 6,343 shares of Common Stock owned by various members of
his family. In addition, Mr. Marshall has the right to acquire 312,600 shares of
Common Stock pursuant to Options.
(22) According to a joint filing made by Morgan Stanley Dean Witter & Co.
("MSDW") and Morgan Stanley Dean Witter Investment Management Inc. ("MSDWI") on
Schedule 13G filed with the SEC on February 8, 1999, MSDW has shared voting and
dispositive power over 1,995,300 shares of Common Stock and MSDWI has shared
voting and shared dispositive power over 1,958,700 shares of Common Stock. In
said filing, MSDW and MSDWI further state that they are Investment Advisers
registered under Section 203 of the Investment Advisers Act of 1940, as amended,
and that MSDWI is a wholly-owned subsidiary of MSDW. According to the filing,
MSDWI manages accounts on a discretionary basis and said accounts have the right
to receive or the power to direct the receipt of dividends from, or the proceeds
from, the sale of such securities. The filing further states that no such
account holds more than 5% of the class.
(23) Mr. Olney directly owns 45,674 shares of Common Stock. In addition, Mr.
Olney has the right to acquire 50,000 shares of Common Stock pursuant to
Options.
(24) Ms. Pritchard directly owns 44,228 shares of Common Stock. In addition,
Ms. Pritchard has the right to acquire 54,000 shares of Common Stock pursuant to
Options.
(25) Mr. Roskind directly owns 20,000 shares of Common Stock. In addition,
Mr. Roskind has the right to acquire 23,000 shares of Common Stock pursuant to
Options.
(26) Mr. Solomon owns no shares of Common Stock directly. Mr. Solomon has
the right to acquire 5,000 shares of Common Stock pursuant to Options.
(27) All Directors and Executive Officers as a group directly or indirectly
own 919,136 shares of Common Stock. In addition, all Directors and Officers as a
group have the right to acquire shares of Common Stock pursuant to 720,600
Options. All Directors and Executive Officers as a group, directly or indirectly
own 5,562,488 OP Units. Typically, holders of OP Units acquire conversion rights
one year and ten days from the date of issuance whereupon the OP Units are
redeemable on a one-for-one basis for shares of Common Stock or at the Company's
election, for cash. As of May 25, 1999, 5,562,488 of these OP Units have
acquired conversion rights or will acquire such rights within 60 days
thereafter. All Directors and Executive Officers as a group, directly or
indirectly own 2,082,883 shares of Preferred Stock held by Holdings and the
254,117 shares of Preferred Stock held by Co-Holdings, by virtue of Mr.
Kazilionis' position as a managing principal of WREP. According to the Westbrook
Schedule 13G, Mr. Kazilionis has shared dispositive power over 5,688,107 shares
of Common Stock. Accordingly, all Directors and Executive Officers have shared
voting and dispositive power over 5,688,107 shares of Common Stock.
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FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements, including
certain of those set forth under "Plan of Liquidation and Dissolution -- Sale of
Assets Pursuant to the Plan -- Solicitation of Offers to Acquire the Company"
and "Plan of Liquidation and Dissolution -- Estimated Results of Continuing the
Company." Any statements that are not statements of historical fact may be
forward-looking statements. Words such as "believes," "may," "anticipates,"
"plans," "expects," "intends," "estimates" and similar expressions are intended
to identify forward-looking statements. Stockholders should keep in mind the
risk factors and other cautionary statements in this Proxy Statement. The risk
factors noted in the sections titled "Plan of Liquidation and Dissolution --
Risks Related to Liquidation" and "Plan of Liquidation and Dissolution -- Risks
Related to Continuing as a Going Concern" and other important factors noted
throughout this Proxy Statement, including certain risks and uncertainties,
could cause the Company's results to differ materially from those indicated by
any forward-looking statement.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Set forth below is a description of certain arrangements between the
Company and its directors or officers or their affiliates which would be
affected by approval of the Plan.
LEASED SPACE ALLOCATION AGREEMENT. Pursuant to the terms of a Leased
Space Allocation Agreement, the Company is not entitled to assign or sublet all
or any portion of the Company's office space located at One Beacon Street in
Boston, Massachusetts (the "One Beacon Premises") to any party without first
offering to assign or sublet the One Beacon Premises to BCLP. Accordingly, in
the event that the Plan of Liquidation and Dissolution is approved by the
stockholders and, in connection with the liquidation process, the Company seeks
to assign or sublet the One Beacon Premises, the Company will be required to
offer to assign or sublease the One Beacon Premises to BCLP before making such
an offer to any third party.
BCLP, a Massachusetts limited liability partnership, has two general
partners, KGP-1 and KGP-2. Douglas Krupp, the Chairman of the Company's Board of
Directors, is a 50% stockholder of each of these general partners of BCLP. Mr.
Krupp's brother owns the other 50% of each entity. The sole limited partner of
BCLP also has KGP-1 and KGP-2 as its two general partners.
BUSINESS CONTRIBUTION AGREEMENT. Pursuant to the terms of an Advisory
and Development Services Business Contribution Agreement (the "Business
Contribution Agreement"), BCLP is entitled to receive consideration in OP Units
in the event that certain prices (the "Trigger Prices") are achieved with
respect to the Company's Common Stock. In the event that the Plan of Liquidation
and Dissolution is approved by the stockholders and liquidating distributions
(other than any such distributions paid in respect of cash flow from operations)
are made pursuant thereto, the Trigger Prices will be reduced by the aggregate
amount of any such liquidating distribution paid to holders of Common Stock. For
example, if an aggregate of $6.00 in such liquidating distributions is paid to
holders of Common Stock, then each Trigger Price will be reduced by $6.00. The
Trigger Prices still in effect under the Business Contribution Agreement are
$13.00, $14.00, $15.00 and $16.00. BCLP may earn a maximum of $4,800,000 in
value of OP Units if all remaining Trigger Prices are achieved.
If, in connection with the final liquidating distribution payable with
respect to the Company's Common Stock, the aggregate amount (the "Aggregate
Value") of distributions that have been made with respect to a share of Common
Stock (plus certain additional amounts as determined under the Business
Contribution Agreement) is equal to or greater than any Trigger Price, as of the
date such
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final liquidating distribution is to be made, BCLP is entitled to receive, as
additional consideration, $1,200,000 in value of OP Units for each Trigger Price
included within the Aggregate Value.
SEVERANCE PAYMENTS FOR CERTAIN EXECUTIVES. In the event that the Plan
is approved by the stockholders, Messrs. David Marshall, Ridge Frew, Dennis
Suarez, James Jackson and David Olney and Ms. Marianne Pritchard (the
"Executives") would each be entitled to a lump-sum severance payment in the
event of their respective terminations of employment by the Company without
cause during the two-year period following approval of the Plan. The amount of
the severance payment for each Executive other than Mr. Marshall would be
generally two years of both base salary and target bonus. The amount of the
severance payment for Mr. Marshall would be three years of both base salary and
target bonus. Finally, upon approval of the Plan by stockholders, loans by the
Company to Messrs. Marshall, Olney and Frew and Ms. Pritchard in the aggregate
amount of $2.275 million would be forgiven in accordance with their terms.
In addition, the Company has adopted an Option Protection Plan pursuant
to which, upon approval of the Plan by the stockholders, participating employees
may receive payments from the Company in certain circumstances. Such payments
would be based on the estimated amount available for distribution per share (on
a fully diluted basis) for each share of Common Stock issuable upon exercise of
an employee's existing options reduced by the exercise price per share
applicable to such option. All members of the Company's management team,
including the Executives, would be eligible to participate in this program.
PAYMENT PURSUANT TO MERGER AGREEMENT. If the Plan is approved by the
stockholders, it is likely that the merger agreement with the Buyers will be
terminated, and the Company will be obligated to pay the Buyers' expenses
incurred in connection with the merger agreement up to a maximum amount of
$10,500,000. Douglas Krupp, the Chairman of the Board of the Company, and
affiliates of his are members of the group that constitutes the Buyers.
PLAN OF LIQUIDATION AND DISSOLUTION
BACKGROUND
In order to comply with the requirements of the Company's Charter, the
Company's Board of Directors has adopted a resolution authorizing the Company to
submit to holders of the Company's voting stock a Plan of Liquidation and
Dissolution (the "Plan"). In order to comply with the formal requirements of
Section 275 of the Delaware General Corporation Law governing corporate
dissolutions, the resolution adopted by the Board of Directors stated that the
Board of Directors deems dissolution advisable. However, the Board of Directors
is recommending against approval of the Plan by the stockholders, as discussed
below under "-- Recommendation of the Board of Directors."
Approval of the Plan by the stockholders would require the Company to
dispose of its assets, regardless of market conditions, in no more than three
years following the date of approval by the stockholders. The Company owns
apartment complexes indirectly through its ownership of interests in the
Operating Partnership and other subsidiaries. Unless the context requires
otherwise, references in this section titled "Plan of Liquidation and
Dissolution" to the Company shall include the Company's subsidiaries, including
the Operating Partnership.
The Company was formed on April 26, 1990 as a real estate investment
trust ("REIT") and commenced operations on June 27, 1991. The Company's
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 May 1,
1999,
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the Company owned 82 apartment communities consisting of 24,387 units. The
Company has approximately 655 multifamily units under development and holds two
parcels of land for future development.
The Company reorganized as an Umbrella Partnership ("UPREIT") on May 1,
1995 when the Company contributed substantially all of its assets subject to
substantially all of its liabilities to the Operating Partnership. The Company,
in its capacity as the Special Limited Partner of the Operating Partnership and
through its sole ownership of Berkshire Apartments, Inc., the general partner of
the Operating Partnership, held 79.19% of the OP Units as of May 1, 1999. The
purpose of becoming an UPREIT was to allow the Company to offer OP Units in the
underlying Operating Partnership in exchange for assets from tax-motivated
sellers. Under certain circumstances, the exchange of OP Units for a seller's
assets will defer the tax liability associated with the sale.
On June 7, 1999, the high and low sales prices of the Company's Common
Stock on the New York Stock Exchange, Inc. (the "NYSE") were $11.50 and
$11.4375, respectively.
CERTIFICATE OF INCORPORATION
The Charter requires the Company's Board of Directors to prepare and
submit to the holders of the Company's voting stock, on or before December 31,
1998, a plan of liquidation providing for the sale of all of the Company's
properties and other assets and the distribution of the net proceeds therefrom
to the Company's stockholders. Because the Company, together with Lazard and
Lehman, was engaged in the process that has resulted in the signing of a
definitive merger agreement, the Board of Directors determined that it was in
the best interests of the Company and its stockholders to defer this submission
until July 1999.
Effecting the Plan would require the dissolution of the Company.
Section 275 of the Delaware General Corporation Law provides that, for a
corporation to be dissolved, the board of directors of such corporation must
adopt a corporate resolution to the effect that it is advisable, in the judgment
of such board of directors, that such corporation be dissolved. For purposes of
complying with its obligations under the Charter, the Company's Board of
Directors has adopted a resolution authorizing the Company to submit the Plan to
holders of the Company's voting stock and deeming dissolution advisable.
However, stockholders should be aware that the Company's Board of Directors
would not be submitting the Plan to the stockholders of the Company if the
Charter did not require it and the Company's Board of Directors recommends that
stockholders vote "AGAINST" approval of the Plan for the reasons described below
under "-- Recommendation of the Board of Directors."
The Charter requires that the Plan include:
(i) the time frame for the liquidation of the Company's
properties and other assets;
(ii) the procedures for collecting and distributing to the
Company's stockholders the cash and net proceeds of any
mortgage notes received by the Company in connection with the
sale of the properties;
(iii) the anticipated amount of expenses to be incurred by the
Company in connection with the liquidation; and
(iv) the anticipated tax consequences of the liquidation.
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The Charter also requires the Plan to provide that the sale and
distribution be completed not more than three years after the adoption of the
Plan by the holders of the Company's voting stock.
Pursuant to the terms of the Charter, the Company's Board of Directors
must accompany the submission to the stockholders of the proposal to adopt the
Plan with the following:
- independent appraisals of the properties dated as of a date not
more than six months prior to the mailing of the Plan to holders
of the Company's voting stock;
- the estimated proceeds per share which would be realizable by the
stockholders upon liquidation if the properties were sold for
their appraised values; and
- the recommendations of the person(s) or entity responsible for
directing or performing the day-to-day business affairs of the
Company with respect to the Plan.
The Charter provides that the Plan only becomes effective if approved
by the affirmative vote of the holders of the Company's voting stock holding a
majority of the shares of the Company's voting stock outstanding and entitled to
vote. The Charter further provides that, unless the life of the Company is
earlier terminated pursuant to a plan of liquidation approved by the
stockholders as described in this Proxy Statement, the Company has a perpetual
life.
PLAN OF LIQUIDATION AND DISSOLUTION
In accordance with the requirements of the Charter and the Delaware
General Corporation Law, the Board of Directors has authorized the submission of
the Plan to the holders of the Company's voting stock. The affirmative vote of
the holders of a majority of the aggregate shares of the Voting Securities
issued and outstanding on the Record Date is required for approval of the Plan.
Directors and officers of the Company who own or control Common Stock or
Preferred Stock (constituting approximately 15.6% of the outstanding Voting
Securities) have indicated to the Company that they intend to vote all such
shares in opposition to the Plan. The Board of Directors believes that the Plan
is not in the best interest of the Company and its stockholders and recommends
that stockholders vote AGAINST this proposal. See "-- Recommendation of the
Board of Directors" below.
DISSOLUTION UNDER DELAWARE LAW. Section 275 of the Delaware General
Corporation Law provides that a corporation may dissolve upon either (a) a
majority vote of the Board of Directors of the corporation followed by a
majority vote of its stockholders; or (b) a unanimous stockholder consent.
Following such approval, the dissolution is effected by filing a Certificate of
Dissolution with the Secretary of State of the State of Delaware. Once a
corporation is dissolved, its existence is automatically continued for a term of
three years, but solely for the purpose of winding up its business. The process
of winding up includes:
- the prosecution and defense of lawsuits;
- the settling and closing of business;
- the disposition and conveyance of any property;
- the discharge of any liabilities; and
- the distribution of any remaining assets to the stockholders of
the corporation.
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With respect to any action, suit or proceeding begun by or against the
corporation before or within the winding up period, the corporation will
automatically continue to exist beyond the three-year period until any
judgments, orders or decrees are fully executed.
DESCRIPTION OF THE PLAN. The following is a brief summary of the Plan.
It is qualified in its entirety by reference to the full text of the Plan
attached hereto as Exhibit A and incorporated herein by reference. You should
read the Plan carefully.
The Plan provides that, if it is approved by the holders of at least a
majority of the outstanding Voting Securities, the Company will take such
actions as are deemed necessary or appropriate by the Board of Directors to wind
up all of the Company's business and affairs and to dispose of, by sale, all of
the assets of the Company. The Company's assets consist primarily of its real
estate portfolio of apartment communities. The Company's other assets consist of
cash and cash equivalents, notes receivable, mortgage-backed securities,
accounts receivable and other assets comprised primarily of escrows and
deposits.
The Plan provides that the Company's assets may be converted into cash
or other assets which may be conveniently distributed to the stockholders. If
the Plan is approved by the stockholders, the Company will not obtain any
further approvals from the stockholders. Subject to the obligation to distribute
assets in kind to certain holders of OP Units who so elect, the Company expects
that all of its assets would be sold for cash. See "-- Distributions to
Stockholders -- Rights of OP Unitholders" below. Other than as set forth below
under "-- Sale of Assets Pursuant to the Plan -- Solicitation of Offers to
Acquire the Company," no discussions have occurred and no negotiations have been
entered into with any prospective buyers with respect to the terms of any
liquidating sales. The Company does not expect to sell its properties to any
persons deemed to be affiliates of the Company, although one or more affiliates
of the Company could purchase properties by virtue of submitting the highest
bids in respect of such properties.
The Plan does not specify the manner in which the Company would sell
its assets. Such sales could take the form of individual sales of properties,
sales of portfolios of properties organized by region or otherwise, a sale of
the entire portfolio or some combination of these. As part of the Plan, the
Company would satisfy its existing debts and obligations from existing cash
balances and the proceeds of the sale of the Company's assets. In addition, the
Company's Board of Directors may establish reserves, as it deems necessary, for
liabilities or expenses, contingent or otherwise, that may arise. The remaining
proceeds would be distributed to the Company's stockholders as full payment for
their capital stock. See "-- Distributions to Stockholders" below.
If the Plan is approved by the stockholders, the appropriate officers
of the Company, in accordance with the terms of the Plan, will execute,
acknowledge and file a Certificate of Dissolution with the Secretary of State of
the State of Delaware which will effect the dissolution of the Company. The
Company will be continued for the sole purpose of disposing of its assets,
settling and closing its business, discharging its liabilities, making
distributions to its stockholders and prosecuting and defending claims. See
"Dissolution Under Delaware Law" above.
It is difficult to predict the timing of the sale of the Company's
assets and, consequently, the timing of liquidating distributions to
stockholders. While it is expected that the Company will continue to qualify as
a REIT for purposes of the Internal Revenue Code of 1986, as amended (the
"Code") for the period prior to the distribution of the Company's assets to
stockholders, the Company may lose or terminate its status as a REIT as a result
of unforeseen circumstances. See "-- Material Federal Income Tax Consequences"
below.
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The Company does not expect that any federal or state regulatory
approvals will be required to consummate the liquidation of the Company in
accordance with the Plan; however, if one or more purchasers buy a substantial
amount of the Company's assets, the Company may have to make one or more
filings, and have the transactions reviewed, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
The Plan provides that, if it is approved, the sale and distribution of
assets will be completed not more than three years after the approval of the
Plan by the holders of the Company's voting stock. However, because of tax
considerations, the Company will attempt to liquidate within two years after
approval of the Plan. See "-- Risks Related to Liquidation -- Liquidation Within
24 Months of Adoption of the Plan" below.
APPRAISALS. The Company has obtained appraisals (the "Appraisals") of
each of its properties from Cushman & Wakefield, Inc. or one of its various
subsidiaries (said companies herein, "Cushman & Wakefield"). By letter dated
June 2, 1999, Cushman & Wakefield, Inc. opined that, subject to the limitations,
assumptions and qualifications contained in the Appraisals and based on
representations made by the Company, the market value estimates in the
Appraisals effective as of October 15, 1998 were fair and accurate as of January
1, 1999. The Company selected Cushman & Wakefield to prepare the Appraisals
because of its reputation and experience in connection with real estate assets.
The Valuation Advisory Services Group of Cushman & Wakefield, Inc. and its
subsidiaries is one of the largest real estate valuation and consulting networks
in the United States. According to Cushman & Wakefield, the Valuation and
Advisory Group of Cushman & Wakefield, Inc. and its subsidiaries operates out of
22 branch offices that are staffed by approximately 157 professionals,
approximately 75 of whom hold the MAI designation. Cushman & Wakefield serves
institutional and corporate clients including banking and financial
institutions, investment banks, real estate investors, attorneys and government
agencies. The Company did not consider retaining other appraisal companies.
Cushman & Wakefield was selected on the basis of its national presence, ability
to meet tight reporting deadlines and its previous experience appraising assets
within the Company's portfolio. Other than this engagement, neither the Company
nor any of its affiliates had any material relationship with Cushman & Wakefield
during the two-year period ended May 1, 1999. Cushman & Wakefield was retained
by the Company prior to that date to prepare appraisal reports on certain of the
Company's assets in the ordinary course of the Company's business.
In preparing the Appraisals, Cushman & Wakefield collected from the
Company information regarding the operating history of the properties, conducted
site inspections of the properties, consulted with local brokers, buyers and
sellers of multi-family projects, reviewed economic and demographic trends for
each market and interviewed and relied on representations of certain
representatives of the Company.
As described in the summary of the Appraisals attached hereto as
Exhibit B, Cushman & Wakefield has determined that the Company's holdings
consist of Class A and Class B apartment complexes. Class A apartment complexes
are generally recently constructed buildings situated on large sites with
well-landscaped grounds. These complexes have amenities which are typical of
modern apartments, including, for example, washer and dryer hookups, swimming
pools, clubhouses with recreation areas and kitchens equipped with microwave
ovens and dishwashers. Apartment complexes may also be considered Class A (even
if they lack modern amenities) if those complexes have special features, such as
their excellent location or construction type. For example, a high-rise property
located within a very desirable residential neighborhood may achieve higher rent
levels than newer garden apartment properties which are located in less
desirable residential neighborhoods. Class B apartment complexes lack one or
several of the amenities described above for Class A apartment complexes and
typically consist of older buildings which have entered the period of their
economic life where capital repairs and unit replacements are required.
-19-
<PAGE>
Cushman & Wakefield's conclusions are based upon conditions that they
observed at the properties during their inspections and assumptions,
qualifications and limitations deemed reasonable at the time concerning, among
other things, legal title, the absence of physical defects or hazardous
materials, future occupancy, income and competition with respect to each
property. The Company imposed no conditions or limitations on the scope of
Cushman & Wakefield's investigation or the methods and procedures to be followed
in preparing the Appraisals. Based on the Appraisals, the sum of the individual
market value estimates for all of the Company's properties, which includes two
developments appraised on an as-completed basis and one apartment community
under contract for purchase by the Company, is $1,278,550,000. The sum of the
individual market estimates does not include a discount for purchase in bulk.
The estimated amount that would be available for distribution to stockholders in
liquidation, however, is significantly less than this number. See "-- Sale of
Assets Pursuant to the Plan -- Estimated Proceeds Per Share" below.
The Appraisals reflect Cushman & Wakefield's valuation of the real
estate assets of the Company as of the date stated in each Appraisal, in the
context of the information available on that date. Events occurring subsequent
to that date could affect the properties or assumptions used in preparing the
Appraisals. Because of the subjectivity inherent in the appraisal process, the
estimated appraised value for the properties shown in the Appraisals may differ
significantly from that which would be realized if the Plan were approved and
the assets were sold. A summary of the Appraisals is attached hereto as Exhibit
B. The Company paid Cushman & Wakefield $420,000 to prepare the Appraisals.
SALE OF ASSETS PURSUANT TO THE PLAN
If the Plan were approved, the Company would attempt to sell its assets
at an aggregate purchase price that would yield the greatest net proceeds to the
stockholders. The assets could be sold to one or more purchasers in one or more
transactions over a period of time, in which case the Company would continue to
operate until all investments are sold.
It is impossible to determine with any precision the aggregate net
proceeds that may ultimately be available for distribution to the Company's
stockholders if the Plan is approved. That amount will depend upon a variety of
factors, including the timing of and the net proceeds realized from the sale of
the Company's assets, as well as the ultimate amounts of liquidation-related
expenses and other obligations and liabilities that must be satisfied out of the
Company's assets, as well as general and local economic conditions over the
period during which the liquidation is conducted. The estimated proceeds per
share set forth below is only an estimate, and there can be no assurance that
the Company will actually realize this amount. The Company believes that there
is a likelihood that the risks associated with liquidation will result in
holders of Common Stock receiving less than the estimated amount available for
distribution of $10.82 per share set forth below. See "-- Recommendation of The
Board of Directors" and "-- Risks Related to Liquidation" below.
INDEBTEDNESS. Fifty-one of the Company's properties, with an estimated
fair market value of $853,830,000, according to their respective Appraisals, are
encumbered by indebtedness secured by mortgages in the amount of approximately
$436,563,000 as of March 31, 1999. Unless these liabilities are assumed by
purchasers of the Company's assets, they will have to be discharged upon sale.
Some of the debt is also subject to prepayment penalties. The amount of such
penalties is dependent upon the timing of the sales of the properties to which
such debt relates.
As of March 31, 1999, the Company had outstanding $173,100,000 in
borrowings under a $180,000,000 unsecured credit facility from BankBoston, N.A.
(the "BankBoston Credit Facility"). The BankBoston Credit Facility contains
certain restrictive covenants relating to, among other things, the Company's net
worth, ratios of total debt to total assets and the Operating Partnership's
ratio of net
-20-
<PAGE>
income before interest, income taxes and depreciation and amortization
("EBITDA") to consolidated interest expense. If the Plan is approved by the
stockholders, the Company (i) will be required to repay the debt outstanding
under the BankBoston Credit Facility prior to making any distributions to
stockholders; and (ii) may default under the BankBoston Credit Facility in the
course of liquidating assets, which would allow the lender under the BankBoston
Credit Facility to accelerate the indebtedness. If the Plan is approved by the
stockholders, the Company would attempt to negotiate with the lender amendments
to the BankBoston Credit Facility that would avoid any defaults under these
provisions during the liquidation process, but the Company might not succeed in
such negotiations. See "-- Risks Related to Liquidation -- Risk of Default Under
Line of Credit" below.
The BankBoston Credit Facility provides that if a proposal to sell or
liquidate the Company or the Operating Partnership is pending before, or has
been approved by, the Company's stockholders, then the proceeds of the sales of
any assets, prior to being applied to any other purpose, must be applied to (i)
the reduction of revolving loans under the BankBoston Credit Facility; and (ii)
the cash collateralization of letters of credit outstanding under the BankBoston
Credit Facility. These provisions may conflict with the requirement to
distribute assets in kind to certain limited partners. If the Plan is approved
by the stockholders and such provisions are determined to conflict with this
requirement, the Company would attempt to negotiate amendments to the BankBoston
Credit Facility that would avoid any default. There can be no assurance that the
Company would succeed in such negotiations. See "--Distributions to Stockholders
- -- Rights of OP Unit Holders," "-- Risks Related to Liquidation -- Risk of
Default Under Line of Credit" and "-- Risks Related to Liquidation --
Uncertainty of Composition of Portfolio" below.
PREFERRED STOCK. If the Plan is approved, holders of shares of
Preferred Stock who do not vote for approval of the Plan will be entitled to a
liquidation preference of $28.75 per share of Preferred Stock, together with all
accrued dividends, before any payment to the holders of Common Stock. If the
Plan is approved, holders of shares of Preferred Stock who vote in favor of the
Plan will be entitled to a liquidation preference of $25.00 per share of
Preferred Stock, together with all accrued dividends, before any payment to the
holders of Common Stock. See "-- Risks Related to Liquidation - - Priority of
Credit Facility and Preferred Stock" below.
ESTIMATED PROCEEDS PER SHARE. As required by the Charter, the Board of
Directors has estimated an amount per share that would be available for
distribution to holders of Common Stock upon liquidation if the Company's
properties were sold for the value set forth in the Appraisals. THERE CAN BE NO
ASSURANCE THAT THE ESTIMATED PROCEEDS PER SHARE WILL BE REALIZED IF THE PLAN IS
APPROVED. The Company believes that there is a likelihood that certain risks
related to liquidation will result in holders of Common Stock realizing less
than the amount per share estimated below. See "-- Risks Related to Liquidation"
below for a discussion of some of these risks.
The following Schedule of Estimated Amounts Available for Distribution
(the "Estimated Liquidation Distribution Schedule") is presented in this Proxy
Statement to illustrate management's estimate of what the Company's stockholders
would receive, on a per share basis and in the aggregate, upon liquidation of
the Company.
The valuation of assets and liabilities necessarily requires estimates
and assumptions by management (see "Significant Assumptions" below), or in the
case of real estate assets, independent appraisals, and there would be
substantial uncertainties in carrying out the provisions of the Plan. The actual
value of any liquidating distributions would depend upon a variety of factors
including, but not limited to, the actual proceeds from the sale of any of the
Company's assets, the ultimate settlement amounts of the Company's liabilities
and obligations, actual costs incurred in connection
-21-
<PAGE>
with carrying out the Plan, including costs of liquidation and establishing
reserves, and the actual timing of the distributions.
The Estimated Liquidation Distribution Schedule and related notes
should be read in conjunction with the Company's historical consolidated
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, which are incorporated
by reference in this Proxy Statement.
The values and liabilities ultimately realized may differ from the
amounts shown herein and the difference could be material. Accordingly, it is
not possible to precisely predict the aggregate net values to be distributed to
stockholders and no assurance can be given that the amount to be received in
liquidation would equal the estimated amount available for distribution per
share presented herein.
SIGNIFICANT ASSUMPTIONS
The Estimated Liquidation Distribution Schedule is based, in part, on
certain assumptions, including without limitation, the following: (i) real
estate values are based on independent Appraisals with an effective date of
value as of January 1, 1999, (ii) that, based on management's assumption, no
Contributing Partner will elect to receive Contributed Property as a
distribution in kind; (iii) all mortgage notes payable will be paid off at time
of sale, resulting in contractual prepayment penalties to be incurred; (iv) that
no payments will be made to BCLP under the Business Contribution Agreement; (v)
that all holders of Preferred Stock will vote against the Plan and thereby be
entitled to a liquidation preference of $28.75 per share; (vi) that the Company
will maintain its REIT status during the liquidation period, resulting in the
Company incurring no material federal or state income tax expenses; and (vii)
break-up expenses under the merger agreement will be payable in the amount of
$10,500,000.
-22-
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SCHEDULE OF ESTIMATED AMOUNTS AVAILABLE FOR DISTRIBUTION
MARCH 31, 1999
<TABLE>
<CAPTION>
Estimated
Liquidation Value
------------------
<S> <C>
Real estate properties $1,227,827,500 A
Mortgage loan 2,835,020 B
Mortgage-backed securities 4,747,436 C
Cash and cash equivalents 23,220,983
Accounts receivable 1,652,247
Note receivable 4,000,000
Other assets 18,027,671 D
-------------
Total assets $1,282,310,857
-------------
-------------
Lines of credit and mortgage notes payable $ 642,451,502 E
-------------
-------------
Accounts payable and other liabilities 59,560,398 F
Preferred stock 78,688,750 G
Minority interest 104,365,788 H
Total liabilities, preferred stock and minority interest $ 885,066,438
-------------
-------------
Estimated amount available for distribution $ 397,244,419
-------------
-------------
Number of common shares outstanding 36,727,591
-------------
-------------
Estimated amount available for distribution per common share $ 10.82
-------------
-------------
</TABLE>
-23-
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES NOTES
TO SCHEDULE OF ESTIMATED AMOUNTS AVAILABLE FOR DISTRIBUTION
MARCH 31, 1999
A. Reflects real estate properties at their estimated net realizable value
based on independent appraisals adjusted as follows:
<TABLE>
<S> <C>
Aggregate appraised value (prepared on an as completed basis) $1,278,550,000
Less:
Estimated costs to complete development and rehabilitation projects (12,366,000)
Estimated property disposition costs (3% of appraised value) (38,356,500)
--------------
Net estimated value $1,227,827,500
--------------
--------------
</TABLE>
Property disposition costs are estimated to be $38,356,500, which is 3% of
the aggregate appraised value (50% of these costs are expected to consist of
brokerage commissions and 50% of these costs are expected to consist of
legal and closing costs).
B. Reflects mortgage loan at the actual outstanding principal balance before
giving effect to purchase discount.
C. Reflects mortgaged-backed securities at their estimated net realizable
values as per valuation report from the custodian.
D. Reflects other assets, which consist primarily of escrows, deposits and
prepaid expenses at estimated net realizable value. The assets for which
management has ascribed no realizable value, primarily deferred financing costs,
have been written off.
E. Reflects line of credit and mortgage notes payable at their estimated
settlement amounts as follows:
<TABLE>
<S> <C>
Outstanding principal balance at March 31, 1999 $609,662,907
Estimated amount of contractual prepayment penalties
associated with the assumed payoff all notes payable 32,788,595
------------
Estimated settlement amount $642,451,502
------------
------------
</TABLE>
F. Reflects accounts payable and other accrued liabilities at March 31, 1999
as well as accruals for estimated costs of liquidation, which include severance
payments to employees ($11,700,000), break-up expenses under the merger
agreement (payable in the amount of $10,500,000) and other liabilities
($7,708,000).
G. Reflects preferred shareholder liquidation preference of $28.75 per share.
H. Reflects minority investors' interest in the Operating Partnership at the
estimated amount available for distribution of $10.82 per OP Unit.
-24-
<PAGE>
DISTRIBUTIONS TO STOCKHOLDERS
If the Plan is approved, following the sale of the Company's assets and
satisfaction by the Company, through payment or establishment of reserves, of
all of its liabilities and obligations, including the expenses of liquidation
and satisfaction of the liquidation preference of the shares of Preferred Stock,
the Company will distribute to its stockholders the balance of available
liquidation proceeds. The Company may make partial liquidating distributions
prior to the satisfaction of all of its liabilities and obligations. It is not
possible to predict the timing of the sale of the Company's assets and the
distributions to stockholders, which could be made over a substantial period of
time.
If the Plan is approved, the Company will make distributions to
stockholders at such times and upon such terms as are determined by the Board of
Directors. The Board of Directors may from time to time fix a date in respect of
any distribution for the determination of the persons to be treated as
stockholders of record entitled to receive such distributions. The Company will
advise stockholders at the time of any such distribution as to the details of
the mechanics of distribution. If the Company transfers its assets to a
liquidating trust as discussed below, certificates for shares of Common Stock or
for shares of Preferred Stock will be deemed to represent a stockholder's
interest in the liquidating trust.
RIGHTS OF OP UNITHOLDERS. In order to continue to defer tax liability
in connection with their contribution of direct or indirect interests (i.e.,
partnership interests) in real property (the "Contributed Property") to the
Operating Partnership in exchange for OP Units, certain limited partners of the
Operating Partnership (the "Contributing Partners") have the right to receive
their Contributed Property as a distribution in kind in satisfaction of their
rights to liquidating distributions under the partnership agreement of the
Operating Partnership. Thirty-nine of the Company's properties, with an
estimated fair market value of $525,200,000, according to their respective
Appraisals, are subject to these rights. The Contributing Partners may exercise
these rights no later than 30 days after the Plan is approved.
These rights are exercisable by the individual Contributing Partners
rather than by the Contributing Partners as a group or by groups of Contributing
Partners who contributed partnership interests in the same property-owning
partnership. Accordingly, the value (based on the Appraisals) of the assets the
Company will sell to third parties (and not distribute to Contributing Partners)
may vary from a maximum of $1,278,550,000 to a minimum of $753,350,000 and
cannot be determined prior to the vote by stockholders on whether to approve the
Plan. In addition, the exercise of these rights by less than all Contributing
Partners may result in the Company's owning minority interests in partnerships
that own real estate. See "-- Risks Related to Liquidation -- Uncertainty of
Composition of Portfolio" and "-- Risks Related to Liquidation -- Discount for
Ownership of Non-Controlling Interests" below.
A Contributing Partner's share of the liquidation proceeds (the
"Contributing Partner's Share") will not be known until the completion of the
liquidation process. Contributing Partners who elect to receive a distribution
of their Contributed Property in kind will be required to pay the Operating
Partnership the difference between the fair market value of such Contributed
Property (determined by the applicable Appraisal) and such Contributing
Partner's Share in the event that the fair market value of such Contributed
Property exceeds such Contributing Partner's Share. In the event that a
Contributing Partner's Share exceeds the fair market value of the Contributed
Property, the Operating Partnership will be required to pay such Contributing
Partner the difference between such Contributing Partner's Share and the fair
market value of the Contributed Property. See "-- Risks Related to Liquidation
- -- Uncertainty as to Receipt of Payments from Holders of OP Units" below.
-25-
<PAGE>
Prior to the final distribution of the Company's remaining assets to
its stockholders, the shares of Common Stock will continue to be transferrable
and the Company's stockholders will continue to have such rights as applicable
law confers upon stockholders. The Company intends to seek to maintain the
listing of the shares of Common Stock on the NYSE until such time as the NYSE
causes the shares of Common Stock to be delisted. See "-- Risks Related to
Liquidation -- Possible Decreasing Liquidity" below. It is anticipated that the
current officers and directors of the Company will continue to serve in their
current capacities. See "-- Risks Related to Liquidation -- Risk of Loss of
Personnel" below.
Under the Plan, the Board of Directors would have the authority to
transfer the assets of the Company to a liquidating trust designated by the
Board of Directors. The liquidating trust would be established pursuant to a
Liquidating Trust Agreement in such form as the Board of Directors may approve.
The Board of Directors would not expect to transfer assets to a liquidating
trust except (i) when such a transfer is required to avoid the imposition of
federal income taxes on the Company or (ii) to establish reserves for
liabilities and obligations of the Company (contingent or otherwise) out of
amounts which would otherwise be distributed to stockholders. See "-- Material
Federal Income Tax Consequences -- Liquidating Trust" below.
ESTIMATED RESULTS OF CONTINUING AS A GOING CONCERN
If the stockholders do not approve the Plan and if the Company does not
choose, or is not able, to consummate the sale of the Company by merger or
otherwise, the Company intends to continue to operate as a going concern. The
Company believes that its portfolio of apartment communities will produce
favorable financial results in the current economic environment. In 1997 and
1998, the Company acquired approximately 11,400 apartment units, constituting
approximately 47% of the Company's current portfolio. The Company's acquisitions
typically have not generated incremental growth in FFO in their first year of
ownership by the Company and have often been modestly dilutive to FFO growth in
the first year. However, the Company has historically increased cash flows and
FFO from these acquisitions in years following the first year of operation
because of the implementation of renovation and rehabilitation programs and
professional property management and marketing systems. Because 47% of the
Company's portfolio is expected to begin contributing incremental growth in FFO
in 1999, the Company estimates that it will:
- Increase FFO by approximately 10% to 14% over 1998 FFO
- Increase net operating income on its same-store portfolio by
approximately 6% over 1998 same-store net operating income. The
Company believes this increase should be reflected in an increase
in the value of its apartment communities (1)
- Increase the value of its most recently acquired assets, which are
not yet same-store assets and are undergoing rehabilitation.
- Increase dividends per share of Common Stock
(1) "Same store" properties are those the Company has owned and
operated for two consecutive 12-month periods.
While currently the cost of equity capital for REITs and prices (as a
percentage of operating income) for apartment communities are both unusually
high, the Company expects that both the cost of capital and the price of
properties will moderate over time. The Company expects to seek to raise common
and preferred equity as well as additional debt capital when and if the relation
between the capital and the real estate markets warrants. The Company also plans
to continue to grow by
-26-
<PAGE>
acquiring and developing luxury, middle and moderate income apartment
communities in selected targeted markets. As part of the acquisition strategy,
the Company intends to continue to take advantage of its UPREIT structure to the
extent feasible. Finally, the Company plans to continue its policy of reviewing
all properties in its portfolio on an ongoing basis to assess their future FFO
growth potential and capital needs. The Company expects this process to continue
to lead to selected disposition of properties and reinvestment in newly acquired
or developed assets which the Company believes have greater growth potential.
The information set forth above constitutes the Company's expectations
regarding its 1999 operations. However, there are a number of important factors
that could cause the Company's results to differ from those set forth above. See
"-- Risks Related to Continuing as a Going Concern" below. There can be no
assurance that, even if the Company succeeds in meeting the expectations set
forth above, the improved results of operations will have a positive effect on
the market price of the Common Stock.
PROPOSED MERGER
The Company has entered into an Agreement and Plan of Merger, dated as
of April 13, 1999 (the "Merger Agreement"), with Berkshire Realty Holdings, L.P.
and BRI Acquisition, LLC (the "Buyers"), pursuant to which BRI Acquisition, LLC
would merge with and into the Company or, at the election of Berkshire Realty
Holdings, L.P., the Company would be merged with and into Berkshire Realty
Holdings, L.P. (either such structure is hereinafter referred to as the
"Merger"). If the Merger is consummated, each share of Common Stock will be
converted into the right to receive $12.25 in cash, and each share of Preferred
Stock will be converted into the right to receive $28.75 in cash, together with
115% of any Accrued Dividends (as defined in the Certificate of Designation of
the Preferred Stock) on such share.
CONDITIONS OF CLOSING. The obligations of each party to the Merger
Agreement to consummate the Merger are subject to the following conditions:
- The adoption of the Merger Agreement by the requisite vote of the
holders of Common Stock and holders of Preferred Stock.
- The existence of no temporary restraining order, or preliminary or
permanent injunction preventing the consummation of the Merger.
- The termination of all applicable waiting periods (and any
extensions thereof) under the HSR Act.
The obligations of Berkshire Realty Holdings, L.P. and BRI Acquisition,
LLC to consummate the Merger are subject to the following principal conditions:
- The accuracy of the representations and warranties in all material
respects of the Company set forth in the Merger Agreement.
- The performance by the Company in all material respects of all
obligations under the Merger Agreement.
- No material adverse change subsequent to April 13, 1999 in the
business, properties, assets, financial conditions or results of
operations of the Company and its subsidiaries, taken as a whole.
-27-
<PAGE>
- Receipt by the Buyers of opinions of Hale and Dorr LLP and Baker &
Hostetler LLP as to the Company's REIT status.
- Obtaining all material consents and waivers (other than consents
and waivers in connection with instruments, obligations or matters
disclosed in a disclosure letter which has been furnished to the
Buyers).
None of the initiation, threat or existence of any legal action of any
kind will constitute a failure of the conditions set forth immediately above
unless that action has resulted in the granting of injunctive relief that
prevents the consummation of the Merger and such injunctive relief has not been
dissolved or vacated.
The conditions to the obligation of the Company to consummate the
Merger are the customary conditions found in documents similar to the Merger
Agreement and include the delivery of an opinion by a reputable firm as to the
solvency and adequate capitalization of the Company and the Operating
Partnership immediately before the consummation of the Merger and the merger of
a limited partnership controlled by the Buyers with and into the Operating
Partnership (the "Partnership Merger") and of the entities surviving such
transactions immediately after their consummation.
REPRESENTATIONS. The Merger Agreement contains representations and
warranties by the parties that are customary for transactions like the Merger.
CLOSING. The closing of the Merger will take place on the first
business day to occur on or after the day (the "Satisfaction Date") which is the
later of:
- the tenth calendar day following satisfaction of the conditions to
closing (with certain exceptions for conditions that cannot be
satisfied until closing) and
- October 15, 1999.
Berkshire Realty Holdings, L.P. may elect to extend the closing date to any
business day on or prior to December 29, 1999 (the "Extension Option"). If
Berkshire Realty Holdings L.P. exercises the Extension Option, the principal
conditions to the Buyers' obligations to close the Merger will be deemed to have
been satisfied as of the Satisfaction Date, other than the condition related to
the Company's performance of its obligations in all material respects.
TERMINATION. The occurrence of certain events will give rise to the
right of the Buyers, the Company or both to terminate the Merger Agreement. In
the event of certain terminations, the Company and the Operating Partnership
will be obligated to pay Berkshire Realty Holdings, L.P., or the Buyers will be
obligated to pay the Company on behalf of the Operating Partnership, the holders
of Common Stock and the holders of OP Units:
- a break-up fee in the amount of $25,000,000 (which amount is
increased to $50,000,000 in the event of a payment to the Company
by the Buyers if the Buyers have exercised the Extension Option)
(the "Break-Up Fee") and/or
- the out-of-pocket expenses incurred by the party to which the
payment is to be made in connection with the Merger Agreement and
the transactions contemplated thereby (the "Break-Up Expenses").
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<PAGE>
Set forth below is information regarding the circumstances in which the
Merger Agreement may be terminated and the payments required to be made in
connection therewith:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Terminating Party Event Giving Rise to Right to Terminate Payment
- -----------------------------------------------------------------------------------------------------------------
Mutual Written consent of the Company and Berkshire None
Realty Holdings, L.P.
- -----------------------------------------------------------------------------------------------------------------
Either Buyer Willful breach by the Company of any The Company and the
representation or warranty, covenant or obligation Operating Partnership pay
Break-Up Expenses (up to a
maximum amount of
$10,500,000) and the
Break-Up Fee
- -----------------------------------------------------------------------------------------------------------------
Non-willful breach by the Company of any The Company and the
representation, warranty, covenant or obligation Operating Partnership pay
Break-Up Expenses (up to a
maximum amount of
$15,000,000)
- -----------------------------------------------------------------------------------------------------------------
The Company Willful breach by either Buyer of any Buyers pay Break-Up
representation, warranty, covenant or obligation Expenses (up to a maximum
amount of $4,500,000) and
the Break-Up Fee
- -----------------------------------------------------------------------------------------------------------------
Non-willful breach by either Buyer of any Buyers pay Break-Up
representation, warranty, covenant or obligation Expenses (up to a maximum
amount of $4,500,000)
- -----------------------------------------------------------------------------------------------------------------
The Company The requisite approval of the holders of Common The Company and the
(unless the Stock and Preferred Stock has not been obtained at Operating Partnership pay
Company is in a meeting of stockholders Break-Up Expenses (up to a
breach of its maximum amount of
obligations to mail $15,000,000)
a proxy statement
and hold a meeting
of stockholders to
consider the
Merger
Agreement) or
either Buyer
- -----------------------------------------------------------------------------------------------------------------
The Company The Board of Directors has withdrawn or modified The Company and the
its approval or recommendation of the Merger in Operating Partnership pay
connection with, or approved or recommended, a Break-Up Expenses (up to a
Superior Acquisition Proposal (as defined below in maximum amount of
"-- Other Acquisition Proposals") $10,500,000) and the Break-
Up Fee
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Either Buyer The Board of Directors, prior to the meeting of The Company and the
stockholders held to consider the Merger, has Operating Partnership pay
withdrawn or modified in any manner adverse to Break-Up Expenses (up to a
the Buyers its approval or recommendation of the maximum amount of
Merger Agreement or has approved or $10,500,000) and the Break-
recommended any other proposal to acquire the Up Fee
Company, or the Company has entered into a
definitive agreement relating to any other proposal
to acquire the Company
- -----------------------------------------------------------------------------------------------------------------
The Company BRI Acquisition, LLC has not closed the equity Buyers pay Break-Up
funding contemplated by its equity commitment or Expenses (up to a maximum
the borrowings contemplated by its financing amount of $4,500,000) and
commitment on or prior to the Satisfaction Date or, the Break-Up Fee
if the Extension Option has been exercised, on or
prior to December 29, 1999
- -----------------------------------------------------------------------------------------------------------------
Any party The holders of the Voting Securities have approved The Company and the
the Plan Operating Partnership pay
Break-Up Expenses (up to a
maximum amount of
$10,500,000)
- -----------------------------------------------------------------------------------------------------------------
Either Buyer (i) Another acquisition proposal has been publicly The Company and the
announced and the Company has not rejected such Operating Partnership pay
proposal within 10 business days or (ii) the Break-Up Expenses (up to a
Company has failed to confirm its recommendation maximum amount of
of the Merger $10,500,000) and the Break-
Up Fee
- -----------------------------------------------------------------------------------------------------------------
Any party Any judgment, injunction, order, decree or
action No payment of a governmental authority
preventing the consummation of the Merger has become
final and non-appealable
- -----------------------------------------------------------------------------------------------------------------
Any party (so long Closing of the Merger has not occurred on or No payment
as such party is not before December 31, 1999
in breach)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER ACQUISITION PROPOSALS. The Merger Agreement provides that the
Company will not:
- initiate, solicit or knowingly encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or
offer to acquire the Company by merger, purchase or otherwise or
- engage in any negotiations, provide any confidential information
to or have any discussions with any party relating to such a
proposal or otherwise facilitate any effort or attempt to make or
implement such a proposal.
Notwithstanding the foregoing, the Board of Directors may approve or
recommend another acquisition proposal, or withdraw or modify its approval or
recommendation of the Merger, if such other acquisition proposal is a Superior
Acquisition Proposal. "Superior Acquisition Proposal" means a
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bona fide acquisition proposal made by a third party which the Board of
Directors determines in good faith (after consultation with its financial
advisor) to be more favorable to the Company's stockholders than the Merger and
which the Board of Directors determines is reasonably capable of being
consummated.
DIVIDENDS. The Merger Agreement permits the Company to declare and pay
dividends on its Common Stock and Preferred Stock in the same amounts and at the
same frequency at which they are currently paid; provided, however, that no
dividend on the shares of Common Stock may be declared or paid for the period
commencing August 1, 1999 and ending October 31, 1999; provided, further, that
if the Extension Option is exercised, the Company will have the right to declare
and pay dividends on the shares of Common Stock in the amount of $.25 per share
for the period commencing August 1, 1999 and ending October 31, 1999.
PARTNERSHIP MERGER. Immediately prior to the consummation of the
Merger, a limited partnership controlled by the Buyers will be merged into the
Operating Partnership. In connection with the Partnership Merger, the holders of
OP Units will have the right to elect to receive $12.25 in cash per OP Unit or
to receive interests in Berkshire Realty Holdings, L.P.
THIS PROXY STATEMENT AND THE ABOVE DESCRIPTION OF THE MERGER AGREEMENT
DOES NOT CONSTITUTE A SOLICITATION OF CONSENTS FROM THE COMPANY'S STOCKHOLDERS
IN RESPECT OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. ANY
SUCH SOLICITATION OF THE COMPANY'S STOCKHOLDERS THAT THE COMPANY MAY MAKE WILL
BE MADE ONLY PURSUANT TO SEPARATE SOLICITATION MATERIALS COMPLYING WITH THE
REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT AND THE RULES AND REGULATIONS
THEREUNDER.
RECOMMENDATION OF THE BOARD OF DIRECTORS
BACKGROUND. In the early part of 1998, management of the Company
perceived that prices for real estate assets had increased substantially since
late 1997 and that capitalization rates at which properties traded had decreased
correspondingly. The Company believes this price increase was attributable in
part to the desire of a number of REITs to increase their assets, either through
the purchase of additional real estate or through the acquisition of other real
estate-owning companies. In early to mid-1998, the Company submitted bids on
several real estate portfolios in an effort to increase its assets. These bids
were unsuccessful as other parties submitted bids at higher prices which the
Company believed were not economically justified.
In an environment of intense competition among REITs to increase the
amount of their assets and a corresponding increase in asset prices, management
of the Company determined that it was prudent to explore whether the Company
should dispose of its portfolio of apartment communities. Accordingly, at the
recommendation of management, the Board of Directors retained Lazard and Lehman
to help the Company evaluate strategic alternatives. In the late summer and
early fall of 1998, while this evaluation took place, many REITs suffered
declines in their stock prices, and their willingness to pay premium prices to
acquire real estate portfolios substantially decreased.
RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board of Directors
believes the approval of the Plan is not in the best interests of the
stockholders of the Company and recommends that stockholders vote "AGAINST" the
Plan. The Board of Directors has made this determination for the following
reasons:
- As described above, the Company, together with its financial
advisors, Lazard and Lehman, has since last summer solicited
offers for the acquisition of the Company. On April 13, 1999, the
Company entered into the Merger Agreement. If the Merger is
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consummated, the holders of Common Stock will receive $12.25 in
cash per share of Common Stock. This amount exceeds the $10.82 per
share (expected to be paid over a two-year period) the Board of
Directors has estimated would be available for distribution in a
liquidation pursuant to the Plan. The Board of Directors has
recommended that stockholders vote in favor of the Merger. See
"Plan of Liquidation and Dissolution -- Sale of Assets Pursuant to
the Plan -- Estimated Proceeds Per Share." If the Plan is
approved, it is likely that the Merger Agreement will be
terminated and the Company will be obligated to pay the expenses
incurred by the Buyers in connection with the Merger Agreement up
to a maximum amount of $10,500,000.
- The Company believes that if the Plan is approved, there is a
likelihood that the risks associated with liquidation will result
in holders of Common Stock realizing less than the estimated
amount available for distribution of $10.82 per share calculated
in accordance with the methodology prescribed by the Charter. See
"-- Sale of Assets Pursuant to the Plan -- Estimated Proceeds Per
Share" and "-- Risks Related to Liquidation" below.
- In the judgment of the management of the Company, continuing to
operate the Company as a going concern would likely produce
greater stockholder value than a liquidation pursuant to the Plan.
The Company, based on its analysis of conditions in the real
estate and capital markets, estimates that its FFO for fiscal year
1999 will increase approximately 10% to 14% over 1998 FFO. The
Company further estimates that net operating income from its
same-store portfolio of apartment communities for 1999 will
increase by approximately 6% over 1998 same-store net operating
income. The Company believes this increase should be reflected in
increases in the value of its apartment communities. See "--
Estimated Results of Continuing as a Going Concern" above. There
can be no assurance that these results will be achieved. See "--
Risks Related to Continuing as a Going Concern" below.
RISKS RELATED TO LIQUIDATION
There are a number of factors that could affect the amount of net
proceeds payable to stockholders if the Plan is approved. In addition to the
other information set forth in this Proxy Statement, stockholders should
carefully consider the following:
- RISK OF CHANGES IN MARKET CONDITIONS. The Plan provides that the
Company's assets may be liquidated over up to a three-year period.
For tax reasons, the Company intends to liquidate its assets
within two years of approval of the Plan by stockholders. During
the period in which the liquidation occurs, the Company will be
subject to the risks incident to the ownership and operation of
multifamily real estate generally, including changes in local and
national economic conditions. In addition, stockholders should
note that the Appraisals have an effective date of value as of
January 1, 1999, and changes in local or national market
conditions may affect the prices that can be realized from the
sale of these assets at a later date. There can be no assurance
that the assets can be sold for the prices reflected in the
Appraisals.
- DISCOUNT FOR OWNERSHIP OF NON-CONTROLLING INTERESTS. In the case
of Contributed Property which constitutes interests in a
property-owning partnership, some of the Contributing Partners may
elect to receive the Contributed Property as a distribution in
kind while other Contributing Partners (who were partners in the
same property-owning partnership prior to the contribution to the
Operating Partnership) may elect to receive their allocable share
of cash distributions in the liquidation. These
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disparate elections might result in the Company's owning a
significant non-controlling, limited partner interest in the
property-owning partnership. This interest might not be saleable
or, if it were saleable, might be valued at a substantial discount
to its pro rata share of the value of the underlying real
property.
- UNCERTAINTY OF COMPOSITION OF PORTFOLIO. The Contributing Partners
who contributed the Contributed Property will have, if the Plan is
approved, the right to receive the return of their Contributed
Property in respect of their interests in the Operating
Partnership. Thirty-nine of the Company's properties, with an
estimated fair market value of $525,200,000, according to their
respective Appraisals, are subject to these rights. If some or all
of these rights are exercised, the removal of these properties
from the Company's portfolio may cause some or all of the
Company's remaining properties to be less attractive to potential
buyers who may be seeking to acquire a critical mass of properties
in a particular region or regions.
- UNCERTAINTY AS TO RECEIPT OF PAYMENTS FROM HOLDERS OF OP UNITS.
Contributing Partners who elect to receive a distribution of their
Contributed Property in kind will be required to pay the Operating
Partnership the difference, if any, between the fair market value
of such Contributed Property (determined by the applicable
Appraisal) and the Contributing Partner's Share. Because such
Contributing Partner's share of liquidating proceeds will not be
known until the completion of the liquidation, any such obligation
to pay the Operating Partnership will not mature until the
conclusion of the liquidation and may not then be collectible by
the Company or the Operating Partnership, thus decreasing the
amount available for distribution to the Company's stockholders.
- RISK OF LOSS OF PERSONNEL. The Company may have difficulty in
retaining the services of key employees throughout the liquidation
process. Although the Company has adopted various arrangements
designed to encourage employees to remain with the Company if the
Plan is approved, the Company may not be able to retain or replace
key employees. If key employees depart, the amount realized by
stockholders in liquidation may be materially adversely affected.
- RISK OF DEFAULT UNDER LINE OF CREDIT. The BankBoston Credit
Facility contains certain restrictive covenants relating to, among
other things, the Company's net worth, ratios of total debt to
total assets, the Operating Partnership's ratio of EBITDA to
consolidated interest expense and the Company's maintenance of
REIT status and listing on the NYSE . If the Plan is approved by
the stockholders, as the Company implements the Plan, the Company
likely would not be able to maintain the thresholds and ratios
required by the BankBoston Credit Facility and might not be able
to maintain its REIT status and listing on the NYSE. As a result,
the Company would be in default under the BankBoston Credit
Facility, which would permit the lender to accelerate the
indebtedness and sue to recover the full amount of the outstanding
debt, together with any applicable penalties, interest and costs
of collection. In addition, the BankBoston Credit Facility
provides that if a proposal to sell or liquidate the Company or
the Operating Partnership is pending before, or has been approved
by, the Company's stockholders, then the proceeds of the sales of
any assets, prior to being applied to any other purpose, must be
applied to (i) the reduction of revolving loans under the
BankBoston Credit Facility, and (ii) the cash collateralization of
letters of credit outstanding under the BankBoston Credit
Facility. These provisions may conflict with the requirement to
distribute assets in kind to Contributing Partners and there can
be
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<PAGE>
no assurance that such conflict would not lead to significant
additional expenses for the Company.
- LOSS OF REIT STATUS. For federal income tax purposes, the Company
is taxed as a REIT under Sections 856 through 860 of the Code. As
such, the Company generally is entitled to a deduction for any
dividends paid to its stockholders so that it is effectively not
subject to federal income taxation with respect to its distributed
income. In order for the Company to continue to qualify as a REIT,
it must satisfy a number of tests under the Code relating to the
nature of its assets, the source of its income and the amount and
timing of its distributions. If the Plan is adopted, there could
be significant changes in the nature of the Company's assets and
in the Company's sources of income as a result of sales of assets
in the liquidation process and the need to retain assets to meet
liabilities. Accordingly, the Company may not meet the
REIT-qualification tests during the liquidation period. If the
Company ceased to qualify as a REIT for any taxable year, it would
not be entitled to deduct dividends paid to the stockholders from
its taxable income and would, therefore, be liable for federal
income taxes with respect to its gains from sales of assets and
its income from operations for that year and for subsequent years,
thereby reducing cash available for distribution to stockholders.
See "Material Federal Income Tax Consequences -- Tax Consequences
to the Company."
- LIQUIDATION WITHIN 24 MONTHS OF ADOPTION OF THE PLAN; GAIN ON
DISTRIBUTION TO A LIQUIDATING TRUST. The REIT provisions of the
Code also require that the Company distribute as a dividend to its
stockholders each year 95% of its REIT taxable income.
Distributions in liquidation of the Company, however, generally
will not qualify as dividends for this purpose unless, among other
things, the Company is liquidated within 24-months of the adoption
of the Plan. The Company may not meet this timetable. For
instance, it may not be possible to sell the Company's assets at
acceptable prices during such period. In such event, rather than
forfeit the Company's status as a REIT retroactively to the year
in which the Plan was adopted, the Company could elect to
distribute its remaining assets and liabilities to a liquidating
trust in order to meet the 24- month requirement. Such a
distribution would be treated as a direct distribution to the
Company's stockholders. As a result, a stockholder would recognize
gain to the extent his share of the cash and the fair market value
of any assets received by the liquidating trust was greater than
the stockholder's basis in his stock, notwithstanding that the
stockholder would not contemporaneously receive a distribution of
cash or any other assets with which to satisfy the resulting tax
liability. See "Material Federal Income Tax Consequences --
Liquidating Trust."
- APPLICATION OF 100% EXCISE TAX ON PROHIBITED TRANSACTIONS. REITs
are subject to a 100% excise tax on any gain from "prohibited
transactions" (i.e., sales or other dispositions of property held
for sale to customers in the ordinary course of the REIT's trade
or business). The determination of whether property is held for
sale to customers in the ordinary course of the Company's trade or
business is inherently factual in nature and, thus, cannot be
predicted with certainty. The Code does provide a "safe harbor"
which, if all its conditions are met, would protect a REIT's
property sales from being considered prohibited transactions,
but the Company is not expected to be able to satisfy these
conditions. While the Company does not believe that if the
stockholders approve the Plan any of its property should be
considered to be held for sale to customers in the ordinary course
of the Company's trade or business, because of the substantial
number of properties that would have to be sold and the active
marketing that would be necessary, there is a material risk that
the Internal Revenue Service (the "IRS") would seek to treat some
or all of the property sales as prohibited transactions.
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<PAGE>
- CONTINGENCY RESERVE. Under the Delaware General Corporation Law,
in the event the Company fails to create an adequate contingency
reserve for payment of its expenses and liabilities (the
"Contingency Reserve"), or should the Contingency Reserve be
exceeded by the amount ultimately found to be payable in respect
of the Company's expenses, obligations and liabilities, each
stockholder could be held liable for the payment to the Company's
creditors of such stockholder's pro-rata share of such excess,
limited to the amounts theretofore received by such stockholder
from the Company. Accordingly, in such event, a stockholder could
be required to return some or all of the distributions previously
made. Moreover, in the event a stockholder has paid taxes on
amounts received, a repayment of all or a portion of such amount
could result in a situation in which a stockholder may incur a net
tax cost if the repayment of the amount distributed does not cause
a similar reduction in taxes.
- POSSIBLE DECREASING LIQUIDITY. As assets of the Company are sold
and proceeds are distributed, the market capitalization of the
Company's Common Stock will diminish and market interest in the
shares of Common Stock in the investment community may diminish,
thereby reducing or effectively eliminating the market demand and
liquidity for the shares of Common Stock, which would adversely
affect the market price for the shares of Common Stock. In
addition, as the Company disposes of its assets, the NYSE may
cause the Company's Common Stock to be delisted from trading.
- DECLINE OF OPERATING CASH FLOW. If stockholders approve the Plan,
it is likely that as the Company disposes of revenue-producing
assets in accordance with the Plan, the operating cash flow
available to the Company will decline. Accordingly, the funds
available for distribution to stockholders that are generated by
the Company's real estate portfolio would likely correspondingly
decline. In addition, there can be no assurance that the Company's
expenses, including overhead, will also decline or will decline as
rapidly as cash flow declines, in which event the Company's
operating margin and funds available for distribution to
stockholders would decline.
- LOSS OF PUBLIC ENTITY VALUE. If the stockholders approve the Plan,
the Company will take such actions as are deemed necessary or
appropriate by the Board of Directors to wind up all of the
Company's business and affairs and to dispose of, by sale, all of
the assets of the Company. This fact jeopardizes any value that a
potential acquiror might place on the ability to acquire a
publicly-held entity, and it may preclude other possible courses
of action not yet identified by the Board of Directors.
- PRIORITY OF CREDIT FACILITY AND PREFERRED STOCK. The BankBoston
Credit Facility provides that the proceeds from any sale of assets
in connection with implementing the Plan must be applied first to
repay amounts outstanding under the BankBoston Credit Facility. If
the stockholders approve the Plan, the Company will repay all such
debt prior to making any distributions to the holders of Common
Stock. In addition, if the stockholders approve the Plan, the
holders of Common Stock will receive no distributions until the
holders of Preferred Stock have received their respective
liquidation preference, as applicable, of $28.75 or $25.00 per
share of Preferred Stock, together with all accrued dividends.
- SALES OF ASSETS NOT SUBJECT TO FURTHER STOCKHOLDER APPROVAL. If
the stockholders approve the Plan, the Board of Directors will
have the authority to sell all of the Company's assets on such
terms as the Board of Directors determines appropriate. The
stockholders will have no subsequent opportunity to vote on such
matters and will, therefore, have no right to approve or
disapprove the terms of any such sale.
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<PAGE>
- NO APPRAISAL RIGHTS. Under Delaware law, and the Company's
Charter, stockholders who vote against the Plan will not have any
appraisal rights or similar dissenters' rights for their shares of
Common Stock or Preferred Stock.
RISKS RELATED TO CONTINUING AS A GOING CONCERN
There are a number of important factors that could affect the Company's
financial condition, results of operations and prospects if it continues as a
going concern. In addition to the other information set forth in this Proxy
Statement, stockholders should carefully consider the following:
DEVELOPMENT AND ACQUISITION RISKS
ACQUISITION RISKS. The Company regularly evaluates 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 OP
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 OP 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 stockholders and, therefore, may have an adverse
effect on the Company's results of operations, financial condition and ability
to make expected distributions to stockholders. 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 stockholders 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 has experienced a period of
rapid growth. During 1997 and through December of 1998, the Company acquired, or
completed development of, 46 apartment communities containing an aggregate of
approximately 11,600 units. The integration of the recent acquisitions and
development into existing management and operating structures presents a
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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 condition and ability to pay expected distributions to
stockholders.
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 stockholders 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 significantly lower
than expected rates, the Company's results of operations, financial condition
and ability to make expected distributions to stockholders 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 stockholders
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 stockholders.
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 stockholders.
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RISKS OF LIABILITY AND LOSS. The development and ownership of real
estate may result in liability to third parties, due to conditions existing on a
property which result in injury. Such liability may be uninsurable in some
circumstances or may exceed the limits of insurance maintained at typical
amounts for the type and condition of such property. In addition, real estate
may suffer a loss in value due to casualties such as fire or hurricane. Such
loss may be uninsurable in some circumstances or may exceed the limits of
insurance maintained at typical amounts for the type and condition of the
property. Real estate may also be taken, in whole or in part, by public
authorities for public purposes in eminent domain proceedings. Awards resulting
from such proceedings may not adequately compensate the Company for the value
lost.
VALUE AND ILLIQUIDITY OF REAL ESTATE. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If the
Company must sell an investment, there can be no assurance that it will be able
to dispose of the investment in the time period it desires or that the sales
price of the investment will recoup or exceed the amount of the Company's cost
for the investment.
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 stockholders 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 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
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expenditures, the Company's results of operation, financial condition and
ability to make expected distributions to stockholders 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 stockholders.
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 stockholders.
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. 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 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 OP 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 OP 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 Charter and the Company's By-Laws, as amended
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(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 stockholders. An increase in interest expense could also cause
the Company to be in default under certain covenants of the credit facilities.
POTENTIAL ENVIRONMENTAL LIABILITY
Under various Federal, state and local environmental laws, ordinances
and regulations, an owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances on such
property. These laws often impose environmental liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain third parties may
seek recovery from owners or operators of such properties or persons who
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, are potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
All of the properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. These environmental
assessments have not revealed any environmental liability that would have a
material adverse effect on the Company's results of operations, financial
condition and ability to make expected distributions to stockholders, and the
Company is not aware of any such environmental liability.
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
stockholders and (ii) limit the opportunity for stockholders 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.
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<PAGE>
The Company's Organizational Documents contain certain provisions which
may discourage a change in control of the Company. In particular, under the
Charter, 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
stockholders' 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 stockholders. 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
stockholders.
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 Stock 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 stockholders. 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 stockholders 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.
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 stockholders 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 stockholders 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 stockholders 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
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<PAGE>
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.
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 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 stockholders.
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.
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.
SUMMARY SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial and other
data for the Company. The following summary selected financial information
should be read in conjunction with the financial statements and notes thereto
incorporated by reference herein.
The historical financial data as of and for the quarters ended March
31, 1999 and 1998 have been derived from unaudited financial statements included
in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and 1998, respectively. The historical financial data for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 have been derived from audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, as amended by Annual Report on Form 10-K/A.
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<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars In Thousands,
Except Number of Apartment Units and Per Share Amounts)
<TABLE>
<CAPTION>
For Quarters
Ended March 31, For Years Ended December 31,
Operating Data: 1999 1998 1998 1997 1996
- -------------- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Rental revenue $48,815 $39,219 $175,965 $109,974 $89,451
Total revenue 50,282 41,015 182,785 115,499 93,002
Property operating expenses, including 21,710 17,234 77,611 50,221 42,353
property management fees
Depreciation and amortization 18,554 15,754 70,827 43,315 30,172
Provision for losses on real estate assets -- -- -- 1,850 7,500
General and administrative 1,491 1,680 6,360 5,744 4,254
Interest 11,217 8,011 38,801 24,006 20,501
Non-recurring charges 3,048 -- 1,470 -- 442
Income (loss) from operations before (5,738) (1,664) (12,285) (12,037) (12,612)
joint venture income (loss), gains on
sales of assets, gains on payoff of
mortgage loans, minority interest and
extraordinary items
Joint venture income (loss) -- 52 132 (4,910) (3,009)
Gains on sales of real estate assets -- 513 1,265 6,455 58
Minority interest in Operating 1,552 471 3,370 2,154 1,403
Partnership
Extraordinary items, net -- -- (478) (90) (149)
Net income (loss) $ (4,186) $ (629) $ (7,995) $ (8,429) $(14,308)
Income allocated to preferred $ (1,540) $ (1,540) $ (6,158) $ (1,659) $ --
shareholders
Net income (loss) allocated to common $ (5,726) $ (2,168) $(14,154) $ (10,088) $(14,308)
shareholders
PER SHARE DATA -- COMMON:
Net income (loss)(basic and diluted) $(.16) $(.06) $(.39) $(.37) $(.56)
Dividends paid $ .25 $.23 $ .96 $ .92 $ .90
Weighted average common shares 36,714,346 36,615,474 36,684,985 27,099,522 25,393,147
outstanding
</TABLE>
<TABLE>
<CAPTION>
Operating Data: 1995 1994
- -------------- ---- ----
<S> <C> <C>
Rental revenue $70,068 $63,222
Total revenue 74,441 68,470
Property operating expenses, including 33,347 31,826
property management fees
Depreciation and amortization 21,984 19,507
Provision for losses on real estate assets -- --
General and administrative 1,356 2,044
Interest 15,618 10,794
Non-recurring charges 1,728 2,555
Income (loss) from operations before (1,157) 510
joint venture income (loss), gains on
sales of assets, gains on payoff of
mortgage loans, minority interest and
extraordinary items
Joint venture income (loss) 1,407 1,178
Gains on sales of real estate assets 15,603 4,069
Minority interest in Operating (167) --
Partnership
Extraordinary items, net (901) --
Net income (loss) $ 14,786 $ 5,757
Income allocated to preferred $ -- $ --
shareholders
Net income (loss) allocated to common $ 14,786 $ 5,757
shareholders
PER SHARE DATA - COMMON:
Net income (loss)(basic and diluted) $(.58) $(.23)
Dividends paid $ .89 $ .86
Weighted average common shares 25,392,621 25,391,478
outstanding
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted average preferred shares .... 2,737,000 2,737,000 2,737,000 727,367 --
outstanding
BALANCE SHEET DATA:
Total assets ......................... $ 1,023,245 $ 924,596 $ 1,008,907 $ 846,420 $ 569,670
Real estate, excluding joint ventures, $ 1,140,740 $ 971,590 $ 1,105,996 $ 880,652 $ 585,795
before accumulated depreciation
Long-term fixed rate obligations ..... $ 412,905 $ 379,597 $ 413,953 $ 362,762 $ 206,837
Shareholders' equity ................. $ 318,273 $ 359,831 $ 333,018 $ 368,195 $ 223,654
Book value per common share .......... $ 6.80 $ 7.94 $ 7.21 $ 8.25 $ 8.81
Common shares outstanding ............ 36,727,591 36,688,034 36,713,400 36,334,601 25,393,368
Other Information:
Apartment units owned, end of period . 24,387 21,533 24,123 18,773 12,435
</TABLE>
<TABLE>
<S> <C> <C>
Weighted average preferred shares .... -- --
outstanding
BALANCE SHEET DATA:
Total assets ......................... $ 486,968 $ 458,207
Real estate, excluding joint ventures, $ 465,846 $ 448,058
before accumulated depreciation
Long-term fixed rate obligations ..... $ 155,201 $ 88,279
Shareholders' equity ................. $ 260,788 $ 268,591
Book value per common share .......... $ 10.27 $ 10.58
Common shares outstanding ............ 25,392,951 25,391,426
Other Information:
Apartment units owned, end of period . 9,433 9,385
</TABLE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income
tax consequences to the stockholders relevant to the Company's adoption and
implementation of the Plan. The discussion does not deal with all of the tax
consequences of the Plan that may be relevant to every stockholder of the
Company. STOCKHOLDERS SHOULD THEREFORE CONSULT THEIR OWN TAX ADVISORS AS TO THE
TAX CONSEQUENCES ASSOCIATED WITH IMPLEMENTATION OF THE PLAN UNDER APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. The discussion of tax consequences
that follows is based upon the Code, Treasury Regulations, IRS rulings, and
judicial decisions in effect on the date of this Proxy Statement, all of which
are subject to change at any time; any such changes may be applied
retroactively.
TAX CONSEQUENCES TO THE COMPANY. For federal income tax purposes, the
Company is taxed as a REIT under Sections 856 through 860 of the Code. As such,
the Company generally is entitled to a deduction for any dividends paid to its
stockholders for a taxable year so that it is effectively not subject to federal
income taxation with respect to its distributed income. If the Plan is adopted
by the stockholders, it is currently contemplated that the Company will continue
to qualify as a REIT prior to its final distribution of assets. However, in
order for the Company to continue to qualify as a REIT, it must satisfy a number
of asset, income and distribution tests, and there can be no assurances that the
Company will be able to satisfy these tests throughout the period during which
it would liquidate its assets.
ASSET TEST. To qualify as a REIT for federal income tax purposes, at
least 75% of the value of the Company's assets at the close of each quarter of
the Company's taxable year must be represented by real estate assets, cash, cash
items (including receivables arising in the ordinary course of the Company's
operations), and government securities. The Company may not have more than 25%
of its total assets represented by non-government securities and, in connection
with investments in such non-government securities, not more than 5% of the
value of the Company's total assets may be invested in such securities of any
one issuer. In addition, the Company may not hold more than 10% of the
outstanding voting securities of any one issuer unless it holds all of the
securities of such issuer.
INCOME TESTS. The Company must also meet two tests relating to the
source of its income. First, at least 75% of the Company's gross income for each
year must be derived from rents from real property, interest on obligations
secured by mortgages on real property, and other sources directly related to its
real estate activities.
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<PAGE>
Second, at least 95% of the Company's gross income must be derived from the
sources described in the preceding sentence and from dividends, interest and
gains from sales or dispositions of stock or securities.
DISTRIBUTIONS. The REIT provisions of the Code also require that the
Company distribute 95% of its REIT taxable income (determined without regard to
the dividends paid deduction (discussed below) and by excluding any net capital
gain) to its stockholders each taxable year.
LIQUIDATION PERIOD. The Company anticipates that it would remain
qualified under the foregoing tests throughout the period of the liquidation of
its assets. However, given the changes in the nature of the Company's assets and
in the Company's sources of income which could result from sales of assets in
the liquidation process and the need to retain assets to meet liabilities, there
can be no assurance that the qualification tests would be met. If the Company
ceases to qualify as a REIT for any taxable year, it would not be entitled to
deduct dividends paid to the stockholders from its taxable income and would,
therefore, be liable for federal income taxes with respect to its gains from
sales of assets and its income from operations for that year and for subsequent
taxable years.
To be entitled to a deduction for the amount distributed to its
stockholders for a year (a "Dividends Paid Deduction"), a REIT's distributions
must qualify as "dividends." Distributions in liquidation of a corporation,
however, are generally treated as being in full payment of a stockholder's
interest in the corporation rather than as dividends. Nevertheless, in the
context of the liquidation of a REIT, Section 562(b) of the Code provides a
special rule which classifies liquidating distributions as dividends solely for
purposes of the Dividends Paid Deduction if certain conditions are met. In
particular, Section 562(b) provides that, if a REIT is liquidated within the
24-month period following the adoption of a plan of liquidation, distributions
pursuant to such plan will, to the extent of the distributing corporation's
earnings and profits for the year of the distribution, be treated as dividends
for purposes of computing the corporation's Dividends Paid Deduction.
Adoption of the Plan by the stockholders of the Company would
constitute the adoption of a plan of liquidation for purposes of Section 562(b)
of the Code. It is anticipated that the Company would completely liquidate
within 24 months of the adoption of the Plan so as to take advantage of Section
562(b), but no assurance can be provided that this timetable in fact will be
met. For instance, it may not be possible to sell the Company's assets at
acceptable prices during such period. As the end of the 24-month period
approaches, the Company will evaluate the then existing situation and consider
whether distribution of its remaining assets and liabilities to a liquidating
trust (which would satisfy the complete liquidation requirement of Section
562(b) of the Code) would be appropriate, or whether existing circumstances
indicate that the stockholders would be better served by a course of action
which might forego the benefits of Section 562(b).
Although Section 562(b) of the Code may treat liquidating distributions
as dividends, it only does so "to the extent of the earnings and profits of the
corporation for the taxable year of the distribution." Section 562(e) of the
Code provides that, for purposes of determining a REIT's Dividends Paid
Deduction, a REIT's earnings and profits for a taxable year are to be increased
by the total amount of gain recognized on the sale or exchange of real property
during that year. Thus, there should be sufficient earnings and profits to allow
distribution of such gain on sale to qualify as a dividend. It is anticipated
that the Company would make its best efforts to distribute sufficient amounts to
its stockholders each year during the liquidation period so that it would remain
qualified as a REIT under the rules described above so that the Company would
have no REIT taxable income as a result of the proposed liquidation.
PROHIBITED TRANSACTIONS. REITs also are subject to a 100% excise tax on
any gain from "prohibited transactions." The term "prohibited transaction" means
the sale or other disposition of property which is held for sale to customers in
the ordinary course of the REIT's trade or business. The determination of
whether property is held for sale to customers in the ordinary course of the
Company's trade or business is inherently factual in nature and, thus, cannot be
predicted with certainty. The Code does provide a "safe harbor" which, if all
its conditions are met, would protect a REIT's property sales from being
considered prohibited transactions,
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<PAGE>
but the Company is not expected to be able to satisfy these conditions. While,
as noted above, the determination of whether property is held for sale to
customers in the ordinary course of business is inherently factual, the Company
does not believe that any of its property will be considered to be so held, but
rather that they will be considered to be held for investment and the production
of rental income. Nevertheless, because of the substantial number of properties
that would have to be sold and the active marketing that would be necessary if
the Plan is adopted, there is a material risk that the IRS would seek to treat
some or all of the property sales as prohibited transactions. If the Company
challenged the IRS's treatment of such sales and prevailed, the Company would
nonetheless likely incur substantial legal and other expenses.
CONSEQUENCES TO STOCKHOLDERS. The Company believes that the
distributions of proceeds of sales of properties, if any, to its stockholders
pursuant to the Plan would be treated as distributions in complete liquidation
of the Company; that is, they would not be treated as dividends received by a
stockholder, but rather as if the stockholder had sold his or her shares. In
such case, a stockholder would recognize gain (loss) with respect to each share
of Company stock held by the stockholder, measured by the difference between:
(i) the total amount of cash and fair market value of other property, if any,
received by the stockholder with respect to such share pursuant to the Plan; and
(ii) the stockholder's basis in that share. (See "Liquidating Trust," below, for
the consequences to stockholders if the Company's assets are dispersed to a
liquidating trust.) If a stockholder holds more than one block of shares (groups
of shares acquired at different times or at different costs), each liquidating
distribution would be allocated ratably among the various blocks of shares, and
gain or loss would be computed separately with respect to each block of shares.
Gain or loss recognized by a stockholder would be capital gain or loss
provided the shares are held by the stockholder as capital assets. Capital gain
or loss would be long-term if the shares were held for more than 12 months.
Corporate stockholders may deduct capital losses in the year recognized only to
the extent of capital gains recognized during such year. Unused capital losses
of a corporation may be carried back three years and forward for five years, but
may not be carried to any year in which they would create or increase a net
operating loss. Individual stockholders may deduct capital losses to the extent
of their capital gains, plus $3,000. Any unused capital loss may be carried
forward indefinitely by individual taxpayers until the individual recognizes
sufficient capital gains to absorb them. Capital losses may not be carried back
by an individual.
If adopted, the Plan could result in more than one liquidating
distribution to the stockholders. Each liquidating distribution would be first
applied against the adjusted tax basis of each of a stockholder's shares of the
Company and gain would be recognized with respect to a share only after an
amount equal to the adjusted tax basis of such share has been fully recovered.
Any losses with respect to a share could be recognized by a stockholder only
after the Company has made its final distribution, if any, or after the last
substantial liquidating distribution was determinable with reasonable certainty.
As a consequence of the foregoing, stockholders of the Company that would
realize losses under the Plan would likely be prevented from recognizing such
losses until the receipt of any final distribution.
LIQUIDATING TRUST. In the event that the Company is unable to dispose
of all of its assets within 24 months after adoption of the Plan, or if it is
otherwise advantageous or appropriate to do so, the Company may establish a
liquidating trust to which the Company could distribute in kind its unsold
assets. In any event, even if all of the Company's assets were disposed of
within such period, it might be necessary to establish a liquidating trust to
retain cash reserves beyond such 24-month period to meet contingent liabilities
of the Company. Under the Code, a trust will be treated as a liquidating trust
if it is organized for the primary purpose of liquidating and distributing the
assets transferred to it, and if its activities are all reasonably necessary to
and consistent with the accomplishment of that purpose. However, if the
liquidation is prolonged or if the liquidation purpose becomes so obscured by
business activities that the declared purpose of the liquidation can be said to
be lost or abandoned, it will no longer be considered a liquidating trust.
Although neither the Code nor the Regulations thereunder provide any specific
guidance as to the length of time a liquidating trust may last, the Internal
Revenue Service's guidelines for issuing rulings with respect to
46
<PAGE>
liquidating trust status call for a term not to exceed three years, which period
may be extended to cover the collection of installment obligations.
An entity classified as a liquidating trust may receive assets,
including cash, from the liquidating entity without incurring any tax. It will
be treated as a grantor trust, and accordingly will also not be subject to tax
on any income or gain recognized by it. Instead, each beneficiary will be
treated as the owner of his pro rata portion of each asset, including cash,
received by and held by the liquidating trust. Accordingly, if the Plan is
adopted and if the Company ultimately employs a liquidating trust, each
stockholder of the Company would be treated as having received a liquidating
distribution equal to his share of the amount of cash and the fair market value
of any asset distributed to the liquidating trust and generally would recognize
gain to the extent such value was greater than his basis in his stock,
notwithstanding that he may not contemporaneously receive a distribution of cash
or any other assets with which to satisfy the resulting tax liability. In
addition, each stockholder would be required to take into account in computing
his own taxable income his pro rata share of each item of income, gain and loss
of the liquidating trust. Since stockholders would be treated as owning their
respective shares of the trust's assets, they would be treated as directly
engaging in the operations of the trust. As such, stockholders that are
tax-exempt entities may realize "unrelated business taxable income" with respect
to the trust's activities and foreign investors may be considered to receive
income that is "effectively connected" with a U.S. trade or business. A full
discussion of the consequences to tax-exempt and foreign stockholders of using a
liquidating trust is beyond the scope of this Proxy Statement and any such
stockholder should consult its own tax advisors.
An individual stockholder who itemizes deductions would be entitled to
deduct his pro rata share of fees and expenses of the liquidating trust only to
the extent that such amount, together with the stockholder's other miscellaneous
deductions, exceeded 2% of his adjusted gross income. A stockholder would also
recognize taxable gain or loss when all or part of his pro rata portion of an
asset is disposed of for an amount greater or less than his pro rata portion of
the fair market value of such asset at the time it was transferred to the
liquidating trust. Any such gain or loss would be capital gain or loss so long
as the stockholder held his interest in the assets as a capital asset.
If a liquidating trust fails to qualify as such, its treatment will
depend upon, among other things, the reasons for its failure to so qualify. It
most likely would be taxable as a corporation. In such case, the liquidating
trust itself would be subject to tax, and stockholders could also be subject to
tax upon the receipt of certain distributions from the liquidating trust. If the
Company determines to make use of a liquidating trust, it is anticipated that
every effort will be made to ensure that the trust will be classified as a
grantor trust for federal income tax purposes.
TAXATION OF NON-UNITED STATES STOCKHOLDERS. Because liquidating
distributions pursuant to the Plan would be treated as paid in exchange for a
stockholder's shares in the Company and not as dividends, no withholding on
liquidating distributions would generally be required because of the Foreign
Investment in Real Property Tax Act, commonly known as "FIRPTA," unless a
stockholder who is not a U.S. citizen or resident owns, or has owned within the
prior five years, 5% or more of the Company's outstanding shares.
STATE AND LOCAL INCOME TAX. Stockholders may also be subject to state
or local taxes with respect to distributions received by them pursuant to the
Plan and should consult their tax advisors regarding such taxes.
BACKUP WITHHOLDING. Liquidating distributions will not be subject to
back-up withholding.
PENDING LEGISLATION. Stockholders should be aware that a variety of
tax-related legislation is under consideration before Congress, some of which
could affect the tax treatment of transactions described in this Proxy
Statement. Neither the Company nor its counsel can predict whether any of these
proposals will ultimately be enacted or whether any enactments would have an
adverse effect on the Company or any
47
<PAGE>
stockholder. Stockholders are urged to contact their own tax advisors regarding
the effect any proposed changes may have on their own individual situations.
GENERAL
INDEPENDENT ACCOUNTANTS
A representative of PricewaterhouseCoopers LLP, the Company's
independent accountants, is expected to be present at the Meeting and, if he so
desires, will have the opportunity to make a statement, and in any event will be
available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that described above. However, if any
other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 2000 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
principal executive offices, One Beacon Street, Suite 1550, Boston,
Massachusetts 02108, no later than December 31, 1999 in order to be considered
for inclusion in the proxy statement relating to that meeting.
In addition, the Company's By-Laws require that the Company be given
advance notice of shareholder nominations for election to the Company's Board of
Directors and of other matters which shareholders wish to present for action at
an annual meeting of shareholders (other than matters included in the Company's
proxy materials in accordance with Rule 14a-8 under the Exchange Act). The
required notice must be made in writing to the Secretary of the Company and
delivered to, or mailed and received at, the principal executive offices of the
Company, not less than 50 days nor more than 150 days prior to the 2000 Annual
Meeting of Shareholders; provided, however, that if less than 70 days' notice or
prior public disclosure of the date of the 2000 Annual Meeting of Shareholders
is given or made, such notice must be so delivered or received (i) in the case
of nominations of candidates for election to the Board of Directors, not later
than the close of business on the 10th day following the earlier of (a) the day
on which such notice of the date of the 2000 Annual Meeting of Shareholders was
mailed or (b) the day on which such public disclosure was made and (ii) in the
case of other matters to be acted upon, not later than the close of business on
the 15th day following the day on which such notice of the 2000 Annual Meeting
of Shareholders was mailed. The 2000 Annual Meeting of Shareholders is currently
expected to be held on May 11, 2000. Assuming that this date does not change, in
order to comply with the time period set forth in the Company's By-Laws,
appropriate notice would need to be provided no earlier than December 13, 1999
and no later than March 22, 2000. The advance notice provisions of the Company's
By-Laws supersede the notice requirements contained in recent amendments to Rule
14a-4 under the Exchange Act.
COSTS OF SOLICITATION
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, facsimile
and personal interviews. The Company will also request brokerage houses,
custodians, nominees and fiduciaries to forward copies of the proxy material to
those persons for whom they hold shares and request instructions for voting the
Proxies. The Company will reimburse such brokerage houses and other persons for
their reasonable expenses in connection with this distribution.
48
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the SEC
(File No. 1-10660) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31,
1998 as filed on March 19, 1999, as amended by Annual Report
on Form 10-K/A as filed on May 7, 1999;
(b) Current Report on Form 8-K as filed on April 15, 1999;
(c) Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 as filed on May 17, 1999; and
(d) 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 hereof and prior to the
date of the Meeting or any adjournment or postponement thereof shall be deemed
to be incorporated by reference herein 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 Proxy Statement to the extent that a
statement contained herein or in any other document subsequently filed with the
SEC which also is deemed to be incorporated by reference herein modified 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
Proxy Statement.
The Company will provide without charge to each person to whom a copy
of this Proxy Statement is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein
(not including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to: Berkshire Realty Company, Inc., One Beacon Street,
Suite 1550, Boston, Massachusetts 02108, Attention: Marianne Pritchard,
Executive Vice President and Chief Financial Officer, telephone (888) 867-0100.
By Order of the Board of Directors,
/s/ Scott D. Spelfogel
----------------------
Scott D. Spelfogel
Secretary
June 21, 1999
49
<PAGE>
EXHIBIT INDEX
A. Plan of Liquidation and Dissolution
B. Summary of Independent Appraisals
<PAGE>
EXHIBIT A
BERKSHIRE REALTY COMPANY, INC.
PLAN OF LIQUIDATION AND DISSOLUTION
1. This Plan of Liquidation and Dissolution (the "Plan") of Berkshire Realty
Company, Inc., a Delaware corporation (the "Company"), has been approved by the
Company's Board of Directors for purposes of submitting it to the stockholders
for approval and the Board of Directors has directed that the Plan be submitted
to the stockholders of the Company for their approval. Upon approval of the Plan
by the holders of a majority of the aggregate of the shares of common stock of
the Company, $0.01 par value per share (the "Common Stock"), and shares of
Series 1997-A Convertible Preferred Stock of the Company, $0.01 par value per
share (the "Preferred Stock"), voting with the Common Stock on an as converted
basis, the Plan shall become effective.
2. Upon adoption of the Plan by the stockholders, the Board of Directors of
the Company shall cause a certificate of dissolution (the "Certificate of
Dissolution") to be filed with the Office of the Secretary of State of the State
of Delaware in accordance with Section 275(d) of the Delaware General
Corporation Law. At such time thereafter as the Board of Directors of the
Company shall determine, in its sole discretion, the Company shall (i) provide
notice of dissolution as required by Section 280 of the Delaware General
Corporation Law (the "Notice of Dissolution"), (ii) cause any documentation
required by federal or state tax authorities to be obtained, prepared, executed
and filed, and (iii) as required by Section 280 of the Delaware General
Corporation Law, after the filing of the Certificate of Dissolution and the
provision of notice to the Company's known creditors, provide notice of the
filing of the Certificate of Dissolution by publishing such notice (A) at least
once a week for two (2) consecutive weeks in a newspaper of general circulation
in the applicable jurisdiction, and (B) at least once in all editions of a daily
newspaper with a national circulation.
3. On or after the date of filing the Certificate of Dissolution with the
Office of the Secretary of State of the State of Delaware (the "Effective
Date"), the Company shall be voluntarily liquidated and dissolved and there
shall be distributed to or for the benefit of the stockholders, within three (3)
years of the Effective Date and in accordance with the further provisions
hereof, in complete cancellation of all issued and outstanding shares of Common
Stock and Preferred Stock, all of the Company's assets, tangible and intangible,
and all of its property, real, personal and mixed.
4. The appropriate officers of the Company shall take such actions, including,
without limitation, the sale, transfer, conveyance and delivery of the real
estate assets owned by the Company's subsidiaries, in one or more transactions,
on such terms as the Board of Directors determines to be necessary or
appropriate in order to marshal the assets of the Company and convert the same,
in whole or in parts, into such form as may be conveniently distributed to the
stockholders.
5. After provision for all debts and other reserves as may be deemed necessary
or appropriate by the Board of Directors, the appropriate officers of the
Company shall distribute, by means of one or more distributions, all of the
assets of the Company to the stockholders and in connection therewith, such
officers shall execute all checks, instruments, notices and any and all other
documents necessary to effectuate such distribution.
6. Subject to Section 8 hereof, the final distribution contemplated by
Section 5 hereof shall be in complete liquidation of the Company and in
complete redemption and cancellation of all shares of Common Stock and
Preferred Stock issued and outstanding, and all certificates representing
such issues and outstanding shares of Common Stock and Preferred Stock shall
thereupon be cancelled. The Board of Directors shall make such provisions
as it deems appropriate regarding the cancellation, in connection with the
making of distributions hereunder, of certificates representing the shares of
-A1-
<PAGE>
Common Stock and Preferred Stock (or certificates representing interests in the
Liquidating Trust as provided in Section 8 hereof) outstanding.
7. In the course of the liquidation, the Board of Directors, acting in its
discretion, shall have the authority to terminate the Company's status as a real
estate investment trust under Sections 856-860 of the Internal Revenue Code of
1986, as amended.
8. In the event that it should not be feasible, in the opinion of the Board of
Directors, for the Company to pay, or adequately provide for, all debts and
liabilities of the Company (including costs and expenses incurred and
anticipated to be incurred in connection with the liquidation of the Company) at
the time the final liquidating distribution is made pursuant to Section 5
hereof, or the latest applicable date to avoid payment by the Company of federal
income taxes, or the Board of Directors shall determine that it is not advisable
to distribute at such time any of the property then held by or for the account
of the Company, including, without limitation, the cash and net proceeds of any
mortgage notes received in connection with the sale of such property, because
such property is not reasonably susceptible of distribution to stockholders or
otherwise, the Company shall transfer and assign, at such time as is determined
by the Board of Directors, to a liquidating trust as designated by the Board of
Directors (the "Liquidating Trust") sufficient cash and property to pay, or
adequately provide for, all such debts and liabilities and such other property
as it shall have determined is appropriate. Upon such transfer and assignment,
certificates for shares of Common Stock and Preferred Stock will be deemed to
represent certificates for interests in the Liquidating Trust. The Liquidating
Trust shall be constituted pursuant to a Liquidating Trust Agreement in such
form as the Board of Directors may approve, it being intended that the transfer
and assignment to the Liquidating Trust pursuant hereto and the distribution to
stockholders of the beneficial interest therein shall constitute a part of the
final liquidating distribution by the Company to the stockholders of their pro
rata interest in the remaining amount of cash and other property held by or for
the account of the Company. From and after the date of the Company's transfer of
cash and property to the Liquidating Trust, the Company shall have no interest
of any character in and to any such cash and property and all of such cash and
property shall thereafter be held by the Liquidating Trust solely for the
benefit of an ultimate distribution to the stockholders, subject to any
unsatisfied debts, liabilities and expenses.
9. The Board of Directors of the Company, or the trustees of the Liquidating
Trust, and such officers of the Company as the Board of Directors may direct,
are hereby authorized to interpret the provisions of this Plan and are hereby
authorized and directed to take such further actions, to execute such
agreements, conveyances, assignments, transfers, certificates and other
documents, as may in their judgment be necessary or desirable in order to wind
up expeditiously the affairs of the Company and complete the liquidation
thereof, including without limitation, (i) the execution of any contracts,
deeds, assignments or other instruments necessary or appropriate to sell or
otherwise dispose of, any and all property of the Company whether real or
personal, tangible or intangible, (ii) the appointment of other persons to carry
out any aspect of this Plan, (iii) the temporary investment of funds in such
medium as the Board of Directors may deem appropriate and (iv) the modification
of this Plan as may be necessary to implement this Plan. The Board of Directors
may authorize such variations from or amendments to the provisions of the Plan
as may be necessary or appropriate to effectuate the complete liquidation,
dissolution and termination of existence of the Company, and the distribution of
its assets to the stockholders in accordance with the laws of the State of
Delaware. The death, resignation or other disability of any Director or officer
of the Company shall not impair the authority of the surviving or remaining
Directors or officers of the Company (or any person appointed as substitutes
therefor) to exercise any of the powers provided for in this Plan. Upon such
death, resignation or other disability, the surviving or remaining Directors
shall have the authority to fill the vacancy or vacancies so created, but the
failure to fill such vacancy or vacancies shall not impair the authority of the
surviving or remaining Directors or officers to exercise any of the powers
provided for in this Plan.
-A2-
<PAGE>
10. Without limiting the authority of the Board of Directors to authorize the
payment of the Company's expenses, the Board of Directors is authorized,
empowered and directed to pay any and all fees, costs and expenses incurred by
the Company in connection with the Plan and the sale of assets and liquidating
distributions contemplated hereunder, including, without limitation, general and
administrative expenses, compensation and other ongoing operating expenses,
severance compensation expenses and all legal, accounting, printing, appraisal,
brokerage, agency and other fees, costs and expenses of persons rendering
services to the Company. The anticipated amount of expenses to be borne by the
Company in connection with the liquidation and dissolution of the Company is
estimated to be in excess of $110,000,000.
11. For a detailed description of the anticipated tax consequences of the
liquidation and dissolution, see the discussion set forth in the Company's
Definitive Proxy Statement for its Special Meeting of Stockholders, to which
this Plan is Exhibit A.
12. After adoption of the Plan, the Company shall not engage in any business
activities, except to the extent necessary for preserving the values of the
Company's assets, winding-up its business and affairs, discharging and paying
all Company liabilities and distributing Company assets in accordance with the
Plan.
13. After adoption of the Plan by the stockholders, the stockholders shall
have no right to approve or disapprove the terms of the sale of any Company
assets.
14. The Board of Directors, the officers of the Company or a liquidation
administrator shall pay, or shall make adequate provision for payment of, all
known liabilities of the Company which are attributable to the Company or its
personal or real property or other assets and which are not assumed by any buyer
thereof. After the time period for response to the Notice of Dissolution has
elapsed, the Board of Directors or the officers of the Company (or a liquidation
administrator), at the direction of the Board of Directors, shall establish a
reserve account for all claims which are contingent, conditional or unmatured
claims known to the Company, and all claims which are known to the Company but
for which the identity of the claimant is unknown. The Board of Directors may in
its discretion also reserve from distribution cash or other assets of the
Company in such additional amount as the Board of Directors determines to be
reasonably necessary for payment of unknown, unascertained liabilities or
expenses of the Company (all such amounts reserved are collectively referred to
as the "Contingency Reserve").
15. At any time after the Effective Date, the Board of Directors may, if the
Board of Directors deems such action to be in the best interests of the Company
and the stockholders, cause the shares of Common Stock to be delisted from any
securities exchange on which they are traded or to no longer be traded or
completely prohibit the trading or other transfer of the Company's Common Stock
if and to the extent permitted by law (the "Stop Trading Date"). The Board of
Directors shall cause the officers of the Company to send notice of any Stop
Trading Date in advance of such date to all known stockholders and to such
brokers and market makers as the Board of Directors deems advisable.
16. If any distribution to a stockholder cannot be made, whether because the
stockholder cannot be located, has not surrendered its certificates evidencing
its shares of Common Stock and/or Preferred Stock as required hereunder or for
any other reason, the distribution to which such stockholder is entitled shall
(unless transferred to a Liquidating Trust established pursuant hereto) be
transferred at such time as the final liquidating distribution is made by the
Company to and deposited with the state official authorized by the laws of the
State of Delaware to receive the proceeds of such distribution; such transfer
shall comply in all respects with the laws of the State of Delaware and the
Delaware General Corporation Law. The proceeds of such distribution shall
thereafter be held solely
-A3-
<PAGE>
for the benefit of and for ultimate distribution to such stockholder as the sole
equitable owner thereof and shall escheat to the State of Delaware or be treated
as abandoned property in accordance with the laws of the State of Delaware. In
no event shall the proceeds of any such distribution revert to or become the
property of the Company.
17. The Board of Directors shall have the power and authority after the
Effective Date to purchase and/or continue and maintain insurance as it deems
necessary to cover the Company's indemnification obligations, including
insurance which shall remain in effect subsequent to the dissolution of the
Company. The Company's obligation to provide such indemnification may be
satisfied out of the Contingency Reserve or any Liquidating Trust. All
indemnification agreements to which the Company is a party shall remain in full
force and effect after the Effective Date.
18. The approval of this Plan of Liquidation and Dissolution by the
stockholders as provided in Section 1 hereof shall constitute the authorization
and approval contemplated by Section 3 of Article I of the Company's Restated
Certificate of Incorporation, as amended (the "Restated Certificate"), such that
the provisions of this Plan shall supersede and take precedence over any
conflicting provision of the Restated Certificate.
-A4-
<PAGE>
EXHIBIT B
[Letterhead: Cushman & Wakefield, Inc.]
Cushman & Wakefield, Inc. [logo:
51 West 52nd Street CUSHMAN&
New York, NY 10019-6178 WAKEFIELD(R)]
(212) 841-7500 Improving your place
in the world.
December 1, 1998
Berkshire Realty Company, Inc. (NYSE-BRI)
One Beacon Street, Suite 1550
Boston, MA 02108
Re: Appraisal of Real Property
Real Estate Assets of Berkshire
Realty Company, Inc., a publicly
traded Real Estate Investment Trust
Ladies and Gentlemen:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield, Inc. and its affiliates are pleased to transmit a summary
appraisal estimating the market value of the fee simple estate in the referenced
real property. This appraisal is a summary of our conclusions as stated in each
of our complete, self-contained reports on each asset. Our complete,
self-contained reports that detail our analyses, and valuation conclusions have
been delivered to you under separate cover. The value conclusions stated within
this report are subject to the assumptions and limiting conditions attached and
those contained in each individual report.
This report is intended to comply with the reporting requirements set forth
under Standards Rule 2-2 (c) of the Uniform Standards of Professional Appraisal
Practice for a complete summary appraisal report. As such, it does not include a
discussion of data, reasoning and analyses that were used in the appraisal
process to develop the appraisers' opinion of value. Reliance upon this report
by the client, is limited to the extent that we have not included supporting
data nor our work files. However, supporting data has been included in our
complete, self-contained reports which you have received under separate cover.
The effective date of value is October 15, 1998. The properties which are
the subject of this report were inspected at various dates during the months of
September and October 1998 by the preparers of each individual report. This
summary report was prepared by Douglas H. Larson and Matthew C. Mondanile, MAI,
while the self-contained appraisal reports were prepared by Cushman & Wakefield
Valuation Advisory Services personnel of the various affiliates of Cushman &
Wakefield, Inc.
The purpose of this appraisal is to estimate the market value of the fee
simple estate, as of the valuation date. The function of the report is for the
internal business decisions of Berkshire Realty Company, Inc. ("BRI"). This
report may also be furnished to BRI's stockholders. The definition of market
value, taken from Uniform Standards of Professional Appraisal Practice of the
Appraisal Foundation, is presented as follows:
-B1-
[logo: Cushman & Wakefield Worldwide]
Independent Members
Cushman & Wakefield Worldwide (SM)
Royal LePage C&W/CGI Healey & Baker C&W/SEMCO Mackenzie Hill Marlin Land
Argentina China Greece Malaysia Singapore
Austria Czech Republic Hong Kong Mexico South Africa
Belgium Denmark Hungary The Netherlands Spain
Brazil Finland Ireland Northern Ireland Sweden
Canada France Israel Poland Switzerland
Channel Islands Germany Italy Portugal Turkey
Chile Great Britain Japan Russia United States
<PAGE>
Cushman & Wakefield, Inc.
Berkshire Realty Company, Inc. (NYSE-BRI) -2- December 1, 1998
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in US dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as the estimated length of time the
property interest being appraised would have been offered on the market
prior to the hypothetical consummation of a sale at the market value on the
effective date of the appraisal. Exposure time is presumed to precede the
effective date of the appraisal.
Based on our research of recent sales of apartment complexes considered to
be reasonably comparable to those contained within BRI, as well as our
discussions with local brokers and buyers/sellers of multi-family projects,
we have concluded that the probable exposure time for the properties would
have been approximately twelve months. In fact, the majority of the
apartment sales included within our self-contained appraisal reports, were
exposed on the market for a period of approximately six to twelve months
prior to closing. Thus, the aforementioned exposure time appears
reasonable.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power, and escheat.
Direct Capitalization
1. A method used to convert an estimate of a single year's income
expectancy into an indication of value in one direct step, either by
dividing the income estimate by an appropriate rate or by multiplying
the income estimate by an appropriate factor.
-B2-
<PAGE>
Cushman & Wakefield, Inc.
Berkshire Realty Company, Inc. (NYSE-BRI) -3- December 1, 1998
2. A capitalization technique that employs capitalization rates and
multipliers extracted from sales. Only the first years income is
considered. Yield and value change are implied, but not identified.
Discounted Cash Flow Analysis
The procedure in which a discount rate is applied to a set of projected
income streams and a reversion. The analyst specifies the quantity,
variability, timing, and duration of the income streams as well as the
quantity and timing of the reversion and discounts each to its present
value at a specified yield rate. Discounted Cash Flow Analysis can be
applied with any yield capitalization technique and may be performed on
either a lease-by-lease or aggregate basis.
Market Value As Is on Appraisal Date
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
Prospective Value on Reaching Stabilized Occupancy
The value of a property as of a point in time when all improvements have
been physically constructed and the property has been leased to its optimum
level of long term occupancy. At such point, all capital outlays for tenant
improvements, leasing commissions, marketing costs, and other carrying
charges are assumed to have been absorbed.
In preparing our self-contained appraisal reports, Cushman & Wakefield
personnel inspected each of the properties. Our appraisers were able to inspect
those areas of the properties and immediate area that would be inspected during
the course of a typical appraisal assignment. We reviewed economic and
demographic trends for each market, taking into account the impact of both the
existing competitive inventory and proposed additions to the market. We have
also compiled and analyzed recent market sales, as well as projecting future
anticipated income and expenses. During the course of their research and
analysis, our appraisers concluded that each property's highest and best use is
its existing or proposed use, multi-family construction.
BRI is a real estate investment trust which is publicly traded on the New
York Stock Exchange. BRI is a multi-family REIT specializing in owning,
developing, and managing multi-family apartment complexes in four defined
regions of the United States. The apartment complexes are typically in excess of
200 units in size. As of the effective date of appraisal, BRI owned and managed
a total of 23,827 units. Although primarily an owner and manager, BRI
periodically develops new apartment complexes and renovates and rehabilitates
existing units and complexes.
BRI operates in four areas identified as the Mid-Atlantic, Southeast,
Florida, and Texas regions.
-B3-
<PAGE>
Cushman & Wakefield, Inc
Berkshire Realty Company, Inc. (NYSE-BRI) -4- December 1, 1998
Mid-Atlantic -- BRI owns and manages 6,218 units in this region which
encompasses suburban Washington, D.C. and Baltimore, Maryland. As of August
31, 1998, there portfolio was 98.7 percent occupied in this region. There
is one property owned and managed in Nassau County, New York.
Southeast -- The Southeast region includes complexes located in suburban
Atlanta, Georgia, Charlotte, and Raleigh, North Carolina, Greenville and
Mauldin, South Carolina, and Nashville and Knoxville, Tennessee. BRI owns
and manages 5,993 units in this region which are 97.1 percent occupied.
Florida -- The BRI holdings in the State of Florida include complexes in
suburban areas of Broward County on the east coast, Orlando in the central
part of the state, and Tampa St. Petersburg on the west coast. BRI owns and
manages 3,161 units in this region which are 95.9 percent occupied.
Texas -- Similar to their Florida holdings, BRI owns and manages 8,455
units in suburban areas of the major cities of Dallas, Ft. Worth, Houston,
San Antonio, and Austin. The 8,455 units are 97.9 percent occupied.
In addition to owning and operating 23,827 units as 80 operating properties
within the four regions, BRI has four properties under development and two
future development sites identified as follows:
-------------------------------------------------------------------------
Under Development City State No. of Units
-------------------------------------------------------------------------
Granite Run Baltimore MD 264
-------------------------------------------------------------------------
Berkshires @ Crooked Creek Durham NC 296
-------------------------------------------------------------------------
Berkshire Commons I Clemson SC 177
-------------------------------------------------------------------------
The Berkshires @ Deerfield I Atlanta GA 478
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Land Held for Future Development City State No. of Units
-------------------------------------------------------------------------
Inglesby Site Greenville SC 488
-------------------------------------------------------------------------
Garlington Road Site Greenville SC 452
-------------------------------------------------------------------------
Property Descriptions
BRI owns and manages multi-family housing in the form of garden, mid-rise,
and high-rise apartment complexes and buildings. The properties are rental units
where tenants pay a monthly rent which averaged $673 per unit as of August 31,
1998. The complexes are located in municipalities which have not instituted rent
controls or restrictions. These are primarily "market rate" apartments primarily
aimed at middle income tenants, although certain units are rented to low income
and upper income families. BRI also owns and operates seven complexes which have
tax-exempt bond financing in place. This type of financing requires that 20
percent of the units in each complex be rented to families that make no more
than 80 percent of the area median income. Other than these properties, there
are no rent restricted properties.
The BRI holdings are primarily garden apartment complexes. The typical
complex is located in a suburban neighborhood on the outskirts of a major or
mid-sized city. The neighborhoods are typically in the growth phase, or at
minimum the stable phase, based on current demographic information. The
complexes have multiple buildings of two to three stories on campus-like
settings with well landscaped acreage.
-B4-
<PAGE>
Cushman & Wakefield, Inc.
Berkshire Realty Company, Inc. (NYSE-BRI) -5- December 1, 1998
The buildings are typically wood frame structures with stucco or clapboard
exterior walls and composition shingle roofs. The apartment units and common
areas are served by electric or gas fueled package unit HVAC; electric and
natural gas for cooking, and public water and sewer supply. All buildings meet
local fire code standards providing smoke alarms and fire extinguishers.
Hallways are carpeted and common areas frequently include swimming pools and
playgrounds, as well as clubhouses with recreation areas.
The apartment units are often one-, two-, and three-bedroom units with a
living room, dining room, and kitchen. They generally contain one to three
bathrooms. Tenants primarily pay monthly rent for an unfurnished apartment to
BRI plus a monthly electric and gas bill directly to the local utility company
for HVAC and interior lighting. BRI typically incurs the cost of providing water
and trash pick-up to the unit.
Two of the complexes, Berkshire Towers in Silver Spring, Maryland and
River Oaks in Houston, Texas, are high-rise properties which differ physically
from the garden properties but are generally operated and managed in a similar
way. These properties do however, command higher monthly rents than the garden
properties in their immediate areas and have achieved higher stabilized
occupancy rates.
Appraisal Methodology
Cushman & Wakefield, Inc. and its affiliates were retained to estimate the
market value of each BRI property as of October 15, 1998. The self-contained
appraisal reports are subject to the assumptions and limiting conditions
contained within each report. The properties were appraised individually,
assuming they were managed by a third party management company. Our appraised
values assume a typical marketing period of twelve months consistent with local
market conditions as reflected in sales of comparable apartment complexes in
each respective market area. Our appraisers employed at least two of the three
traditional approaches to value in their reports, most typically the Sales
Comparison Approach and the Income Capitalization Approach. The properties under
construction, in addition to the Sales and Income Capitalization Approaches,
included the Cost Approach to value.
In the Sales Comparison Approach, our appraisers searched the local market
area for recent sales of comparable apartment complexes. They then analyzed
those sales on the basis of sales price per square foot, sale price per unit,
and the effective gross income multiplier (EGIM). The appraisers correlated the
various value indications into a point estimate from within the range indicated
by the comparable sales.
In developing the Income Capitalization Approach, our appraisers studied
rents in effect in each BRI complex and competing complexes to estimate
potential rental income at market levels. They also included an estimate of
income from sources other than apartment rentals such as laundry income, vending
machine income, and forfeited deposits. The next step in this approach included
an analysis of recent history of operating expenses at the properties and
competing properties in comparison to the BRI budget to estimate an appropriate
level of stabilized expenses and reserves for unit replacement and capital
items. Our appraisers then
-B5-
<PAGE>
Cushman & Wakefield, Inc.
Berkshire Realty Company, Inc. (NYSE-BRI) -6- December 1, 1998
estimated net operating income by subtracting stabilized expenses from potential
gross income and capitalized the stabilized net operating income into an
indication of capital value. The capitalization rate employed was based upon
prevailing going-in rates abstracted from an analysis of recent comparable
apartment complex sales.
The second phase of the Income Capitalization Approach involved the
application and preparation of a discounted cash flow analysis in which the
estimated income and expenses are analyzed over a ten year forecast period and
the estimated property value at the time of reversion are discounted at an
appropriate rate to estimate present market value. The discount rate employed in
the discounted cash flow analysis was based upon responses to recent surveys of
investors who employ this methodology. The BRI property holdings are primarily
"market rate" apartment complexes and buildings whose rental income will
fluctuate over time depending upon economic conditions in each local market area
as well as competitive supply and demand. In our experience, the direct
capitalization method utilized within the Income Capitalization Approach is the
most common method employed by investors, whether leveraged or unleveraged, who
would seek to buy these assets if placed on the market for sale. In light of
this factor, our appraisers typically concluded at a market value estimate based
upon the direct capitalization method while given consideration to the
conclusions reached by the Sales Comparison Approach and the discounted cash
flow analysis.
Compliance with Appraisal Standards and Existing Financing
We estimated market value in conformance with the Uniform Standards of
Professional Appraisal Practice, as well as Title XI of the Financial
Institution's Reform, Recovery, and Enforcement Act of 1989 (FIRREA) which
assume a sale price under terms equivalent to cash. Our appraisers employed, as
an underwriting guide, both Federal National Mortgage Association and Federal
Home Loan Bank Board appraisal standards. Consistent with our compliance with
generally accepted appraisal standards, we disregarded existing financing
encumbering the properties which are prepayable. There are however, eight
properties within the BRI holdings which have non-prepayable debt. The mortgages
are typically the Housing and Urban Development Department (HUD) or tax exempt
bond holders. Our appraisers considered the terms and conditions of these
mortgages in concluding at their final value estimates for each of the eight
properties. Overall, the effect on market value of these eight mortgages was not
material.
Discussions and Conclusions
The BRI holdings are either Class A or Class B apartment complexes and
buildings located in four regions of the United States. The neighborhoods in
which the properties are located are most often improving subdistricts that are,
at minimum, stable areas. Physically, the properties, both externally and
internally, are in good condition. The buildings are well maintained along with
landscaped public areas with only minor amounts of deferred maintenance noted by
our appraisers and reflected in BRI's capital expenditure budgets on the
effective date of value. Management seems to be responsive to problems and
efficient in their operation of the properties. The BRI holdings have an average
monthly rent of $673 per unit with average operating expenses before reserves of
$2,869 per unit. The average occupancy of the properties was 97.8 percent. These
statistics are reflective of well managed multi-family property and are within
the range found in other apartment complexes which are owned by competing public
companies.
-B6-
<PAGE>
Cushman & Wakefield, Inc.
Berkshire Realty Company, Inc. (NYSE-BRI) -7- December 1, 1998
Final Value Estimates
The final value estimates for these properties total $1,278,650,000. This
represents the sum of the individual market value estimates for each property
and does not represent a bulk value or sale price of the portfolio. The property
list and market value conclusions, as referenced in our complete self-contained
appraisal reports, are exhibited on the following pages.
Respectfully submitted,
Cushman & Wakefield, Inc.
/s/ Douglas H. Larson
Douglas H. Larson
Associate Director
Valuation Advisory Services
/s/ Matthew C. Mondanile
Matthew C. Mondanile, MAI
Senior Director
Valuation Advisory Services
DHL:MCM:ew
-B7-
<PAGE>
Cushman & Wakefield, Inc.
- --------------------------------------------------------------------------------
Berkshire Realty Company Portfolio
- --------------------------------------------------------------------------------
Property Name City State Market Value
1 Arborview Belcamp MD $20,500,000
2 Liriope Belcamp MD $6,400,000
3 Calvert's Walk Belair MD $17,500,000
4 Ridgeview Chase Westminster MD $14,400,000
5 The Berkshire Towers High Rise Silver Spring MD $65,300,000
6 Westchester Silver Spring MD $20,000,000
7 Courtleigh Baltimore MD $16,100,000
8 Coventry Baltimore MD $7,000,000
9 Diamond Ridge Baltimore MD $5,700,000
10 Heraldry Square Baltimore MD $12,600,000
11 Estates Pikesville MD $14,200,000
12 Fairway Ridge Baltimore MD $9,500,000
13 Hazelcrest Baltimore MD $1,400,000
14 Hilltop Baltimore MD $1,200,000
15 Jamestowne Baltimore MD $11,500,000
16 Kingwood Common I Baltimore MD $10,200,000
17 Kingwood Common II Baltimore MD $10,500,000
18 Old Forge Baltimore MD $9,100,000
19 Rolling Wind Baltimore MD $22,000,000
20 Stratton Meadows Baltimore MD $15,700,000
21 The Channel (Heritage Hill) Glen Burnie MD $7,100,000
22 The Cove (Washington Square) Glen Burnie MD $11,200,000
23 The Lighthouse (Lamplighter) Glen Burnie MD $11,200,000
24 Harpers Mill Glen Burnie MD $9,100,000
25 Warren Park Baltimore MD $7,400,000
26 Williston Baltimore MD $3,500,000
27 Granite Run Baltimore MD $25,500,000
28 Altamonte Bay Club Altamonte FL $11,250,000
29 Arbor Keys (Seven Winds) Tamarac FL $12,600,000
30 Woodland Meadows Tamarac FL $15,500,000
31 Berkshire West (Polos West) Winter Garden FL $10,950,000
32 Lakes at Jacaranda Plantation FL $23,400,000
33 Plantation Colony Plantation FL $17,000,000
34 Lynn Lake St. Petersburg FL $28,700,000
35 Newport Tampa FL $12,900,000
36 Park Colony Hollywood FL $20,750,000
37 Sunchase Bradenton FL $6,500,000
38 Arbors at Breckinridge Duluth GA $33,100,000
39 Avalon on Abernathy Atlanta GA $16,900,000
40 Essex House Atlanta GA $7,940,000
41 River Parkway Atlanta GA $25,900,000
42 Highlands @ Briarcliff Atlanta GA $9,100,000
43 Huntington Chase Norcross GA $25,940,000
- --------------------------------------------------------------------------------
-B8-
<PAGE>
Cushman & Wakefield, Inc.
- --------------------------------------------------------------------------------
44 Pines @ Dunwoody Atlanta GA $20,700,000
45 The Berkshires @ Deerfield I Atlanta GA $6,500,000
46 British Woods Nashville TN $11,270,000
47 Highland Ridge Madison TN $8,200,000
48 Windover Knoxville TN $10,200,000
49 Benchmark Irving TX $12,300,000
50 Huntington Ridge Irving TX $9,900,000
51 Berkshire Springs (Country Wood) Dallas TX $9,000,000
52 Berkshire @ Addison (Summer Place) Addison TX $9,600,000
53 Golfside Haltom City TX $10,500,000
54 Hunters Glen Plano TX $13,700,000
55 Huntington Brook Dallas TX $15,100,000
56 Huntington Lake Dallas TX $21,300,000
57 Indigo on Forest Dallas TX $57,000,000
58 Pleasant Woods Dallas TX $9,200,000
59 Prescott Place Mesquite TX $11,000,000
60 Prescott Place 11 Mesquite TX $12,900,000
61 Providence Dallas TX $9,500,000
62 Sweetwater Ranch Richardson TX $21,200,000
63 Cumberland Cove Raleigh NC $38,500,000
64 East Lake Village Charlotte NC $10,200,000
65 The Timbers Charlotte NC $16,600,000
66 Berkshires @ Crooked Creek Durham NC $22,000,000
67 Berkshire Commons I Clemson SC $15,100,000
68 Inglesby Site Greenville SC $3,650,000
69 Garlington Road Site Greenville SC $1,500,000
70 Brookfield Trace/The Berkshires Mauldin SC $18,200,000
71 The Oaks Mauldin SC $7,800,000
72 Brookwood Valley Mauldin SC $10,200,000
73 Stoneledge Greenville SC $12,400,000
74 Huntington Downs Greenville SC $23,800,000
75 Roper Mountain Greenville SC $8,800,000
76 6200 Gessner Houston TX $13,700,000
77 River Oaks High Rise Houston TX $17,500,000
78 Berkshire Crossing (The Lodge) Houston TX $6,500,000
79 Yorktown Houston TX $29,000,000
80 Kingwood Crossing Houston TX $15,750,000
81 Kingwood Lakes Houston TX $15,150,000
82 Berkshire Hills (Pinto Ridge) Austin TX $10,900,000
83 The Bluffs of Berkshire Austin TX $17,800,000
84 Carlyle Place San Antonio TX $8,900,000
85 Oaks of Marymont San Antonio TX $12,900,000
86 Southpoint Massapequa NY $18,400,000
- --------------------------------------------------------------------------------
Total $1,278,550,000
-B9-
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
"Appraisal" means the appraisal report and opinion of value stated therein, or
the letter opinion of value, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
The Appraisal has been made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed for
the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken.
2. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the owner
of the Property. Neither the Appraiser nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits and factual matters.
3. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited which consent has been given with
respect to the proxy statement to be sent to shareholders. Except as may be
otherwise stated in the letter of engagement, the Appraisal may not be used
by any person other than the party to whom it is addressed or for purposes
other than that for which it was prepared. No part of the Appraisal shall
be conveyed to the public through advertising, or used in any sales or
promotional material without C&W's prior written consent. Reference to the
Appraisal Institute or to the MAI designation is prohibited.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
6. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for arranging
for engineering studies that may be required to discover them); (c) full
compliance with all applicable federal, state and local zoning and
environmental regulations and laws, unless noncompliance is stated, defined
and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and other governmental consents have been or can
be obtained and renewed for any use on which the value estimate contained
in the Appraisal is based.
-B10-
<PAGE>
Assumptions and Limiting Conditions
- --------------------------------------------------------------------------------
7. The physical condition of the improvements considered by the Appraisal is
based on visual inspection by the Appraiser or other person identified in
the Appraisal. C&W assumes no responsibility for the soundness of
structural members nor for the condition of mechanical equipment, plumbing
or electrical components.
8. The forecasted potential gross income referred to in the Appraisal may be
based on lease summaries provided by the owner or third parties. The
Appraiser assumes no responsibility for the authenticity or completeness of
lease information provided by others. C&W recommends that legal advice be
obtained regarding the interpretation of lease provisions and the
contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market thinking
on future income and expenses. The Appraiser and C&W make no warranty or
representation that these forecasts will materialize. The real estate
market is constantly fluctuating and changing. It is not the Appraiser's
task to predict or in any way warrant the conditions of a future real
estate market; the Appraiser can only reflect what the investment
community, as of the date of the Appraisal, envisages for the future in
terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements or may be located at or about the
Property was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the requirements
of the Americans With Disabilities Act of 1990 (ADA) has not been
considered in arriving at the opinion of value. Failure to comply with the
requirements of the ADA may adversely affect the value of the Property. C&W
recommends that an expert in this field be employed.
-B11-
<PAGE>
CERTIFICATION OF APPRAISAL
- --------------------------------------------------------------------------------
We certify that, to the best of our knowledge and belief:
1. The undersigned did not inspect each of the properties which are the
subject of this report. The reader is referred to each individual report
for names of those professionals who performed the inspections.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
5. No one provided significant professional assistance to the persons signing
this report.
6. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
7. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
8. As of the date of this report, Matthew C. Mondanile has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ Douglas H. Larson /s/ Matthew C. Mondanile
Douglas H. Larson Matthew C. Mondanile, MAI
Associate Director Senior Director
Valuation Advisory Services Valuation Advisory Services
-B12-
<PAGE>
[Letterhead: Cushman & Wakefield]
Matthew C. Mondanile, MAI [logo: CUSHMAN &
Senior Director WAKEFIELD(R)]
Valuation Advisory Services
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019-6178
(212) 841 7680 Tel
(212) 841 7849 Fax
June 2, 1999
Berkshire Realty Company, Inc.
One Beacon Street, Suite 1550
Boston, MA 02108
Attn: David F. Marshall
President and Chief Executive Officer
Re: Appraisal of Real Property
Real Estate Assets of
Berkshire Realty Company, Inc., a publicly
traded Real Estate Investment Trust
Dear Mr. Marshall:
In response to your letter dated June 2, 1999 in which you requested a
"bring down" letter which states that the property values set forth in the
appraisals are fair and accurate as of January 1, 1999, we have performed the
following:
1. Discussed market conditions effective January 1, 1999 including occupancy
rates, market rental rates, and capitalization rates with C&W's appraisers
responsible for the appraisal values.
2. Investigated economic statistics including, but not limited to, mortgage
interest rates, unemployment rates and changes in the consumer price index,
effective January 1, 1999.
3. Interviewed Berkshire Realty Company, Inc. executives with regard to any
retrospective or prospective material adverse changes in the properties as
of January 1, 1999. These material adverse changes would include physical,
functional, financial or economic conditions at each property.
Our complete appraisal reports on the above referenced properties, dated
October 15, 1998, including assumptions and limiting conditions ("original
appraisal") are an integral part of this letter and are incorporated by
reference.
-B13-
Abu Dhabi o Australia o Austria o Belgium o Brazil o Canada o Channel Islands
o China o Czech Republic o Denmark o Finland o France o Germany o Great Britain
o Greece o Hong Kong o Hungary o India o Ireland o Israel o Italy
o Japan o Kuwait o Lebanon o Mexico o The Netherlands o Northern Ireland
o Norway o Poland o Portugal o Romania o Russia o Singapore o Slovakia o South
Africa o Spain o Sweden o Switzerland o Thailand o Turkey o United States
<PAGE>
Cushman & Wakefield, Inc.
Mr. David F. Marshall
President and Chief Executive Officer -2- June 2, 1999
This is a restricted report in that it does not contain the data,
reasoning, or analysis upon which our value conclusion is based. The details of
our analyses and findings will be retained in our files as required by the
Uniform Standards of Professional Appraisal Practice to which we are subject.
This report can only be relied upon by a reader familiar with the original
appraisals. In reviewing this update, the reader should consider it in the
context of the original appraisals.
Based upon these independent investigations and representations made to us
in your June 2, 1999 letter, we are of the opinion that the market values as
estimated in our appraisals effective October 15, 1998, were fair and accurate
as of January 1, 1999.
Respectfully submitted,
Cushman & Wakefield, Inc.
/s/ Matthew C. Mondanile
Matthew C. Mondanile, MAI
Senior Director
Valuation Advisory Services
MCM:ew
cc: Brian R. Corcoran
John D. Busi
-B14-
<PAGE>
BERKSHIRE REALTY COMPANY, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
CONCERNING THE PLAN OF LIQUIDATION AND DISSOLUTION
TO BE HELD JULY 21, 1999
The undersigned, having received notice of the Special Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) David F. Marshall, Douglas Krupp and Scott
D. Spelfogel, and each of them, attorneys or attorney of the undersigned (with
full power of substitution in them and each of them) for and in the name(s) of
the undersigned to attend the Special Meeting of Stockholders of BERKSHIRE
REALTY COMPANY, INC. (the "Company") to be held on July 21, 1999 at 9:00 a.m. at
the offices of Hale and Dorr, LLP, 60 State Street, Boston, Massachusetts, and
any adjournments thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SPECIAL MEETING OF STOCKHOLDERS
CONCERNING THE PLAN OF LIQUIDATION AND DISSOLUTION
BERKSHIRE REALTY COMPANY, INC.
JULY 21, 1999
Please be aware that this proxy card does not relate to the
proposed merger of Berkshire which has been previously announced.
Berkshire will solicit your vote on that transaction in a separate mailing.
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
Please mark your votes
[X] as indicated in this sample
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
AND SHOULD BE RETURNED AS SOON AS POSSIBLE
A VOTE "AGAINST" THE PLAN OF LIQUIDATION AND DISSOLUTION IS RECOMMENDED
BY THE BOARD OF DIRECTORS.
STOCKHOLDERS SHOULD NOTE THAT THIS PROXY IS NOT A VOTE ON THE PROPOSED
MERGER DESCRIBED IN THE PROXY STATEMENT, WHICH WILL BE PRESENTED SEPARATELY TO
THE STOCKHOLDERS FOR APPROVAL.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE
PROXIES SHALL VOTE "AGAINST" THE PLAN OF LIQUIDATION AND DISSOLUTION AS
RECOMMENDED BY THE BOARD OF DIRECTORS. ATTENDANCE OF THE UNDERSIGNED AT THE
MEETING OR AT ANY ADJOURNMENT THEREOF WILL NOT BE DEEMED TO REVOKE THIS PROXY
UNLESS THE UNDERSIGNED GIVES AFFIRMATIVE NOTICE OF REVOCATION.
<PAGE>
1. To approve the Plan of Liquidation and Dissolution pursuant to which the
Company's assets would be liquidated, known liabilities satisfied, reserves
established and remaining proceeds distributed to stockholders.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
2. Other Business. In their discretion, the proxy holders are authorized to vote
upon such other matters as may properly come before the meeting or any
adjournments thereof.
MARK HERE
FOR ADDRESS [ ] MARK HERE IF YOU PLAN [ ]
CHANGE AND TO ATTEND THE MEETING
NOTE AT LEFT
Signature:______________________ Signature if held jointly:__________________
Dated: ______________________, 1999
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY
JOINT OWNERS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF
A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY AUTHORIZED
OFFICER, GIVING FULL TITLE. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON, GIVING FULL TITLE.
