Pre-Effective Amendment to Registration Statement for Securities of a Real Estate Company — Form S-11
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-11/A Pre-Effective Amendment to Registration Statement 232 1.07M
for Securities of a Real Estate Company
2: EX-1.1 Underwriting Agreement 22 81K
3: EX-3.1 Articles of Incorporation/Organization or By-Laws 54 246K
4: EX-3.2 Articles of Incorporation/Organization or By-Laws 29 82K
5: EX-4.1 Instrument Defining the Rights of Security Holders 2 11K
6: EX-5.1 Opinion re: Legality 3 15K
7: EX-8.1 Opinion re: Tax Matters 4 20K
8: EX-10.1 Material Contract 16 68K
17: EX-10.10 Material Contract 24 81K
18: EX-10.11 Material Contract 24 82K
19: EX-10.14 Material Contract 46 127K
20: EX-10.15 Material Contract 46 126K
21: EX-10.16 Material Contract 46 126K
22: EX-10.17 Material Contract 25 81K
23: EX-10.18 Material Contract 26 83K
24: EX-10.19 Material Contract 27 83K
9: EX-10.2 Material Contract 10 42K
25: EX-10.20 Material Contract 59 177K
26: EX-10.21 Material Contract 61 171K
27: EX-10.22 Material Contract 42 137K
10: EX-10.3 Material Contract 9 39K
11: EX-10.4 Material Contract 3 16K
12: EX-10.5 Material Contract 13 58K
13: EX-10.6 Material Contract 30 94K
14: EX-10.7 Material Contract 19 63K
15: EX-10.8 Material Contract 24 82K
16: EX-10.9 Material Contract 24 81K
28: EX-23.1 Consent of Experts or Counsel 1 11K
29: EX-99 Miscellaneous Exhibit 9 59K
S-11/A — Pre-Effective Amendment to Registration Statement for Securities of a Real Estate Company
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 2003.
REGISTRATION NO. 333-108426
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in its Governing Instruments)
MARYLAND 56-2356626
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o BOSTON CAPITAL CORPORATION
ONE BOSTON PLACE, SUITE 2100
BOSTON, MA 02108-4406
(617) 624-8900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
JEFFREY H. GOLDSTEIN, PRESIDENT
BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST, INC.
c/o BOSTON CAPITAL CORPORATION
ONE BOSTON PLACE, SUITE 2100
BOSTON, MA 02108-4406
Telephone: (617) 624-8900 Telecopy: (617) 624-8999
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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WITH A COPY TO:
NESTOR M. NICHOLAS, ESQ.
NIXON PEABODY LLP
101 FEDERAL STREET
BOSTON, MA 02110
Telephone: (617) 345-1000 Telecopy: (617) 345-1300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell securities, and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ___________________, 2003
PROSPECTUS
3,000,000 SHARES (Minimum Offering)
31,500,000 SHARES (Maximum Offering)
BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST, INC.
COMMON STOCK
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This is our initial public offering. We will elect to be taxed as a
real estate investment trust for federal income tax purposes. We invest in
residential multifamily apartment communities.
Up to 30,000,000 shares are being offered on a best-efforts basis at
$10 per share to investors who meet our suitability standards. No shares
will be sold unless a minimum of 3,000,000 shares are sold to investors.
Until the closing, your purchase funds will be held in an escrow account at
Wainwright Bank & Trust Co. bearing interest at [.56]% per annum. If this
offering does not close, your funds plus interest will be returned to you
within 15 days after the termination date. You must purchase at least 100
shares for $1,000. Up to an additional 1,500,000 shares are being offered
to be issued pursuant to our dividend reinvestment plan at $10 per share.
This offering will end no later than ____________, 2005. The
dealer-manager, Boston Capital Services, Inc., is our affiliate.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE ____ OF THIS PROSPECTUS. SOME
RISKS INCLUDE:
- We will rely on Boston Capital REIT Advisors, LLC, our Advisor and an
affiliate of our company, to select properties and conduct our operations.
Boston Capital REIT Advisors has no previous experience operating a REIT. Our
Chairman and CEO controls and has an indirect ownership interest in the
Advisor. Our senior management also has major management responsibilities
with the Advisor and its affiliates and will not spend their full time on our
affairs. We have no ownership interest in the Advisor.
- The Advisor may face various conflicts of interest resulting from its
activities with affiliated entities. The advisory services agreement was not
negotiated at arm's length, and the Advisor and its affiliates will receive
substantial asset management, acquisition and sales fees that are not based
on our performance.
- The Advisor will rely on third-party property managers for leasing,
maintenance and other day-to-day management of our apartment communities. If
these managers are unable to operate our communities successfully, our
financial condition could be adversely affected.
- We have a $60,000,000 line of credit with BCP Funding, LLC, our affiliate and
an affiliate of the Advisor. We have borrowed approximately $56,600,000 under
this line to acquire the apartment communities described in this prospectus.
If the minimum is raised, we will repay the amounts we borrowed under this
line of credit related to our Jacksonville, Florida, communities, and BCP
Funding will release its lien on those properties. BCP Funding's liens on the
balance of our communities will only be released if we raise sufficient
additional funds in this offering to repay the balance of the amounts
borrowed under the line of credit. If we do not raise sufficient funds, we
will lose our interests in the communities still subject to BCP Funding's
liens. The line of credit debt matures on May 31, 2004. For our Seattle
communities, we must raise sufficient funds in this offering not only to
repay amounts borrowed under the line of credit related to those communities
but also to repay $8,100,000 of mezzanine debt (subordinate to the permanent
mortgage financing) from an unaffiliated lender encumbering those
communities.
- Our apartment communities are subject to permanent mortgage loans, which are
described in this prospectus. These loans will not be repaid from the
proceeds of this offering and, accordingly, our communities will continue to
be subject to the liens of those lenders. We could become too highly
leveraged, although we do not currently intend to have mortgage debt on
communities that are no longer (or have not been) financed with our current
or any replacement line of credit in excess of 55% to 65% of their total net
asset value or total debt on those communities in excess of 73% of their
total net asset value (our board of directors can decide to exceed these
limits). If our leverage does not increase our profitability, we will have
less cash available for distributions. If we are unable to meet our debt
service obligations, we may lose our investment in any community that secures
indebtedness on which there has been a default. If we cross-collateralize our
communities, we may lose our investment in a good-performing community
cross-collateralized with a poor-performing community.
- Currently, no public market exists for our common stock, and there are no
assurances that any market for our shares will develop. Therefore, it will be
difficult to sell your shares promptly, and the sale price may reflect a
discount from the proportionate value of the real estate we own. If our
shares are not listed on a national securities exchange or national
securities market by _________, 2013, we will sell our assets and distribute
the proceeds if stockholders holding a majority of our shares vote to
authorize us to do so.
- The investments in apartment communities described in this prospectus
represent 22% of the maximum offering amount. If this offering continues
after our current line of credit has been repaid, we will acquire interests
in additional communities, which will be a blind pool that you will not have
the opportunity to evaluate.
- The number of apartment communities that we will own interests in and the
geographic diversity of our investments will be reduced to the extent that
the total proceeds of this offering are less than $300,000,000. If only the
minimum is raised, we will retain our interests only in our Jacksonville,
Florida, communities. Limited diversification will increase the potential
adverse effect on us of an underperforming property.
- We will pay selling commissions to broker-dealers of seven percent and a
dealer-manager fee for reimbursement of marketing expenses of two and
one-half percent out of the offering proceeds raised. We will pay an
additional approximately six and one-half percent of the offering proceeds in
fees and expenses to our affiliates for services and as reimbursement for
offering- and acquisition-related expenses incurred on our behalf. We will
not have as much of the offering proceeds to invest in communities as a
result of these payments, which may inhibit our efforts to achieve our
investment objectives. We will invest approximately eighty-three percent of
the offering proceeds in apartment communities.
- Our board of directors may amend or revise our investment objectives and
policies without a vote of our stockholders.
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PER SHARE MINIMUM TOTAL MAXIMUM TOTAL(1)
Public offering price $ 10.00 $ 30,000,000 $ 315,000,000
Selling commissions and fees $ .95 $ 2,850,000 $ 29,925,000
Proceeds, before expenses, to Company $ 9.05 $ 27,150,000 $ 298,075,000
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(1)Best efforts, minimum-maximum offering. The Dealer-Manager must sell a
minimum of 3,000,000 shares if any are sold. The Dealer-Manager is
required to use only its best efforts to sell the maximum number of
31,500,000 shares offered.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATION TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
The date of this prospectus is ____________________, 2003.
SUITABILITY STANDARDS
You can buy shares pursuant to this prospectus provided that you have
either (1) a net worth of at least $45,000 and an annual gross income of at
least $45,000, or (2) a net worth of at least $150,000. For this purpose, net
worth does not include your home, home furnishings or personal automobiles.
These minimum levels may be higher in certain states, so you should carefully
read the more detailed description of the net worth requirements in the
"Suitability Standards" section of this prospectus.
Generally, you must invest at least $1,000. This minimum investment
level may be higher in certain states, so you should carefully read the more
detailed description of the minimum investment requirements appearing later in
the "Suitability Standards" section of this prospectus.
These suitability standards are intended to help ensure that, given the
long-term nature of an investment in our shares, our investment objectives and
the relative illiquidity of our shares, our shares are an appropriate investment
for those of you desiring to become stockholders. Each participating
broker-dealer must make every reasonable effort to determine that the purchase
of shares is a suitable and appropriate investment for each stockholder based on
information provided by the stockholder in the subscription agreement, a form of
which accompanies this prospectus. Each participating broker-dealer is required
to maintain records of the information used to determine that an investment in
shares is suitable and appropriate for each stockholder for a period of six
years.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS iv
PROSPECTUS SUMMARY 1
RISK FACTORS 11
RISKS RELATED TO OUR PROPERTIES AND OUR BUSINESS 11
BORROWING CREATES RISKS THAT THE OFFERING PROCEEDS MAY BE INSUFFICIENT TO PAY THE NON-RECOURSE
ACQUISITION DEBT ON THE PROPERTIES OR OUR CASH FLOW MAY BE INSUFFICIENT TO MEET OUR DEBT OBLIGATIONS 11
ADVERSE ECONOMIC CONDITIONS AND COMPETITION MAY IMPEDE OUR ABILITY TO RENEW LEASES OR RE-LEASE UNITS AS
LEASES EXPIRE AND REQUIRE US TO UNDERTAKE UNBUDGETED CAPITAL IMPROVEMENTS, WHICH COULD HARM OUR BUSINESS
AND OPERATING RESULTS 11
OUR FINANCIAL COVENANTS MAY RESTRICT OUR OPERATING ACTIVITIES, WHICH MAY HARM OUR FINANCIAL CONDITION AND
OPERATING RESULTS 12
OUR WORKING CAPITAL RESERVES MAY NOT BE ADEQUATE TO COVER ALL OF OUR CASH NEEDS, IN WHICH CASE WE WILL HAVE
TO OBTAIN FINANCING FROM OTHER SOURCES 12
THE ADVISOR MAY NOT BE SUCCESSFUL IN IDENTIFYING SUITABLE ADDITIONAL ACQUISITIONS THAT MEET OUR CRITERIA 12
WE FACE COMPETITION FOR THE ACQUISITION OF APARTMENT PROPERTIES, WHICH MAY IMPEDE OUR ABILITY TO MAKE
FUTURE ACQUISITIONS OR MAY INCREASE THE COST OF ACQUISITIONS 12
RISING OPERATING EXPENSES COULD REDUCE OUR CASH FLOW AND FUNDS AVAILABLE FOR FUTURE DISTRIBUTIONS 13
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES MAY RESULT IN DELAYS AND INCREASED COSTS AND RISKS 13
DISCOVERY OF PREVIOUSLY UNDETECTED ENVIRONMENTALLY HAZARDOUS CONDITIONS MAY ADVERSELY AFFECT OUR OPERATING
RESULTS 13
WE MAY FACE CONFLICTS WITH SELLERS, PARTNERS AND JOINT VENTURERS 13
THE LIQUIDATION OF OUR ASSETS MAY BE DELAYED 14
RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE 14
THE BOARD OF DIRECTORS CAN TAKE MANY ACTIONS WITHOUT STOCKHOLDER APPROVAL 14
OUR ORGANIZATIONAL DOCUMENTS CONTAIN PROVISIONS WHICH MAY DISCOURAGE A TAKEOVER OF OUR COMPANY AND DEPRESS
OUR STOCK PRICE 15
OUR BUSINESS WILL BE HARMED IF WE CANNOT ENGAGE AND RETAIN THE SERVICES OF REPUTABLE AND RELIABLE MANAGERS
FOR OUR PROPERTIES 16
OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR DIRECTORS AND OFFICERS ARE LIMITED 16
MORTGAGE DEBT OBLIGATIONS EXPOSE US TO INCREASED RISK OF LOSS OF PROPERTY, WHICH COULD HARM OUR FINANCIAL
CONDITION 16
ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD SIGNIFICANTLY IMPEDE OUR ABILITY TO RESPOND TO ADVERSE CHANGES
IN THE PERFORMANCE OF OUR PROPERTIES AND HARM OUR FINANCIAL CONDITION 16
IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS OF OUR INSURANCE COVERAGE
LIMITS, WE COULD LOSE INVESTED CAPITAL AND ANTICIPATED PROFITS 17
YOUR INTEREST IN OUR COMPANY MAY BE DILUTED IF WE ISSUE ADDITIONAL SHARES AND YOUR DIVIDENDS MAY BE AFFECTED 17
RISKS RELATED TO THIS OFFERING 17
WE ARE DEPENDENT ON THE ADVISOR AND THE PROPERTY MANAGERS 17
WE HAVE LIMITED OPERATING HISTORY 17
PAYMENT OF FEES TO THE ADVISOR AND ITS AFFILIATES WERE NOT DETERMINED IN ARM'S LENGTH NEGOTIATIONS AND WILL
REDUCE CASH AVAILABLE FOR INVESTMENT AND DISTRIBUTION 18
THE PERFORMANCE OF OUR PROPERTIES DURING THE PERIOD BEFORE OUR INITIAL LINE MUST BE REPAID MAY NOT MEET OUR
EXPECTATIONS 18
IF WE DO NOT RAISE SUFFICIENT FUNDS TO REPAY THE AMOUNTS WE BORROWED TO ACQUIRE OUR INTERESTS IN OUR
COMMUNITIES, OUR LENDER WILL TAKE SOME OF THOSE INTERESTS 18
STOCKHOLDERS MAY NOT BE ABLE TO LIQUIDATE THEIR INVESTMENT PROMPTLY AT A REASONABLE PRICE 18
YOU CANNOT EVALUATE ALL OF THE PROPERTIES WE MAY OWN 18
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LIMITED DIVERSIFICATION INCREASES RISK OF LOSS 19
OUR MANAGEMENT AND THAT OF THE ADVISOR HAVE LITTLE EXPERIENCE INVESTING IN MARKET RATE APARTMENT
COMMUNITIES AND NO EXPERIENCE OPERATING A REIT 19
YOUR BROKER WILL EARN COMMISSIONS ON SHARES YOU PURCHASE PURSUANT TO OUR DIVIDEND REINVESTMENT PLAN 19
YOU ARE LIMITED IN YOUR ABILITY TO SELL YOUR SHARES PURSUANT TO OUR SHARE REDEMPTION PROGRAM 19
AN INDEPENDENT UNDERWRITER WILL NOT MAKE AN INDEPENDENT INVESTIGATION OF OUR COMPANY 20
THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK 20
CONFLICTS OF INTEREST RISKS 20
YOUR SUBSCRIPTION PAYMENT IS IRREVOCABLE 21
TAX AND EMPLOYEE BENEFIT PLAN RISKS 21
IF WE FAIL TO REMAIN QUALIFIED AS A REIT, OUR DISTRIBUTIONS WILL NOT BE DEDUCTIBLE BY US, AND OUR INCOME
WILL BE SUBJECT TO TAXATION, REDUCING OUR EARNINGS AVAILABLE FOR DISTRIBUTION 21
EVEN REITS ARE SUBJECT TO FEDERAL AND STATE INCOME TAXES 21
AN INVESTMENT IN OUR COMMON STOCK MAY NOT BE SUITABLE FOR EVERY EMPLOYEE BENEFIT PLAN 22
INVESTOR SUITABILITY STANDARDS 23
ESTIMATED USE OF PROCEEDS 24
DIVIDEND POLICY 25
BUSINESS AND PROPERTIES 26
OVERVIEW 26
PROPERTIES 26
PROPERTY SELECTION PROCESS 83
PROPERTY MANAGEMENT 84
PROPERTY DEVELOPMENT AND CONSTRUCTION 86
JOINT VENTURE INVESTMENTS 86
COMPETITION 87
OFFICES 87
LINE OF CREDIT 88
MORTGAGE INDEBTEDNESS 88
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 89
LIQUIDITY 89
CAPITAL RESOURCES 90
RESULTS OF OPERATIONS 90
CRITICAL ACCOUNTING POLICIES 90
MANAGEMENT 93
GENERAL 93
DIRECTORS AND EXECUTIVE OFFICERS 93
INDEPENDENT DIRECTORS 96
COMMITTEES OF THE BOARD OF DIRECTORS 96
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 97
EQUITY INCENTIVE PLAN 97
INDEMNIFICATION 98
THE ADVISOR AND THE ADVISORY SERVICES AGREEMENT 99
OTHER AFFILIATED COMPANIES 102
MANAGEMENT DECISIONS 102
COMPENSATION AND FEES 102
CONFLICTS OF INTEREST 106
THERE ARE CERTAIN RELATIONSHIPS BETWEEN OUR COMPANY AND OTHER ENTITIES PROVIDING SERVICES TO US 106
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PRIOR AND FUTURE PROGRAMS 106
COMPETITION TO ACQUIRE PROPERTIES 106
SALES OF PROPERTIES 107
COMPETITION FOR MANAGEMENT TIME 107
COMPENSATION OF THE ADVISOR 107
RELATIONSHIP WITH DEALER-MANAGER 107
RELATIONSHIP WITH BCP FUNDING LLC 108
JOINT VENTURES WITH AFFILIATES OF THE ADVISOR 108
LEGAL REPRESENTATION 108
CERTAIN CONFLICT RESOLUTION PROCEDURES 108
CONFLICT PROVISIONS OF MARYLAND LAW 109
INVESTMENT POLICIES AND POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES 110
INVESTMENTS IN REAL ESTATE 110
BORROWING POLICIES 111
DISPOSITIONS 112
EQUITY CAPITAL POLICIES 112
REPORTING POLICIES 113
INVESTMENT LIMITATIONS 113
PRIOR PERFORMANCE OF AFFILIATES OF MANAGEMENT 113
OVERVIEW 113
PRIVATE PLACEMENTS 115
PUBLIC OFFERINGS 115
PRINCIPAL STOCKHOLDERS 116
DESCRIPTION OF CAPITAL STOCK 117
GENERAL 117
AUTHORIZED STOCK 117
COMMON STOCK 118
PREFERRED STOCK; OTHER EQUITY SECURITIES 118
RESTRICTIONS ON OWNERSHIP 118
INSPECTION OF BOOKS AND RECORDS 119
RESTRICTION ON "ROLL-UP" TRANSACTIONS 120
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR ARTICLES AND BYLAWS 121
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS 124
GENERAL 124
TAXATION OF THE COMPANY 125
TAXATION OF TAXABLE U.S. STOCKHOLDERS 131
TAXATION OF TAX-EXEMPT U.S. STOCKHOLDERS 133
TAXATION OF NON-U.S. STOCKHOLDERS 134
OTHER TAX CONSIDERATIONS 135
ERISA CONSIDERATIONS 135
PLAN CONSIDERATIONS 135
ANNUAL VALUATION 137
SUMMARY OF REINVESTMENT PLAN 138
SHARE REDEMPTION PROGRAM 138
SELLING AND ESCROW ARRANGEMENTS 139
SELLING ARRANGEMENTS 139
ESCROW ARRANGEMENTS 143
MARKET FOR OUR STOCK 144
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SUPPLEMENTAL SALES MATERIAL 144
EXPERTS 144
LEGAL MATTERS 144
WHERE YOU CAN FIND MORE INFORMATION 145
INDEX TO FINANCIAL STATEMENTS 1
APPENDIX I: TABULAR INFORMATION CONCERNING PRIOR LIMITED PARTNERSHIPS 1
EXHIBIT A: REINVESTMENT PLAN A-1
EXHIBIT B: SUBSCRIPTION AGREEMENT 1
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You should rely only on the information contained in this prospectus. No
dealer, salesman or any other person has been authorized to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus does not constitute an
offer to sell these securities in any jurisdiction where that offer or sale is
not permitted. We will only accept subscriptions from people who meet the
suitability standards described in this prospectus. You should assume that the
information appearing in this prospectus is accurate only as of the date on the
front cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date. We will amend or
supplement this prospectus, however, if there is a material change in our
affairs.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in "Prospectus Summary," "Risk Factors,"
"Dividend Policy," "Business and Properties," "Unaudited Pro Forma Income
Statement Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Investment Policies and Policies with Respect to
Certain Activities" and elsewhere in this prospectus constitute forward-looking
statements. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. In some
cases you can identify forward-looking statements by terms as such "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or the negative of these terms or other comparable
terminology.
The forward-looking statements contained in this prospectus reflect our
current views about future events and are subject to risks, uncertainties,
assumptions and changes in circumstances that may cause our actual results to
differ significantly from those expressed in any forward-looking statement. The
factors that could cause actual results to differ materially from expected
results include changes in economic, business and competitive market conditions.
For more information regarding risks that may cause our actual results to differ
materially from any forward-looking statements, see "Risk Factors" beginning on
page ___. We do not intend and disclaim any duty or obligation to update or
revise any industry information or forward-looking statements set forth in this
prospectus to reflect new information, future events or otherwise.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS ALL MATERIAL INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING
"RISK FACTORS" BEFORE MAKING A DECISION TO INVEST IN OUR COMMON STOCK.
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BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST, INC.
OVERVIEW
We were formed in Maryland on May 2, 2003, and commenced operations on
May 15, 2003, when we acquired at cost from BCMR Seattle, Inc., an affiliate, a
99.99% interest in a limited partnership that owns four apartment communities in
Seattle, Washington, that were acquired from an unaffiliated third party in late
2002. BCMR Seattle, Inc., was formed in November 2002 with the intention of
acquiring the interest and transferring it to us at cost following our formation
if we deemed it a suitable investment. Assuming the sale of at least 3,000,000
shares in this offering, we intend to qualify as a real estate investment trust,
or REIT. Our objective is to generate stable and increasing cash flow and asset
value by managing multifamily apartment communities in the United States. There
is no assurance we will meet our objective. To date, in addition to our four
Seattle apartment communities, we have acquired six apartment communities in
Jacksonville, Florida, Portland, Oregon, and Salt Lake City, Utah, for an
aggregate total investment of approximately $56,600,000. If this offering
continues after we have raised this amount, we will acquire interests in
additional communities, which you will not have the opportunity to evaluate.
Accordingly, this offering is termed an unspecified property or "blind pool"
offering. Our interest in each apartment community (or, where appropriate, each
related group of communities) is owned by a limited liability company or other
entity wholly owned by us. The apartment communities themselves are owned by
subsidiaries of limited liability companies in which our subsidiary-owner
companies own the equity interest and in which unaffiliated third parties have a
subordinated economic interest.
We have borrowed and may continue to borrow money to acquire interests in
communities by obtaining one or more lines of credit. We do this in order to
control suitable communities prior to sufficient funds being raised in this
offering. We have entered into an initial $60,000,000 loan agreement with BCP
Funding, LLC, our affiliate and an affiliate of the Advisor, which we have used
to acquire interests in communities. BCP Funding, LLC, is wholly owned by Boston
Capital Companion Limited Partnership. John P. Manning, our Chairman and Chief
Executive Officer, owns the general partner of and a limited partner interest in
Boston Capital Companion Limited Partnership. This line of credit is
non-recourse to our company and is secured by our interests in the communities
acquired with the proceeds of the loan. We will repay approximately $25,000,000
of our outstanding indebtedness of approximately $56,600,000 under this line
from the proceeds of this offering at an initial closing following completion of
the minimum offering of 3,000,000 shares, and our line-of-credit lender will
release its lien on our interests in our Jacksonville communities. The balance
of our outstanding borrowings under this line will be repaid as and when
additional shares are sold, and must in any case be repaid by May 31, 2004,
subject to a single six-month extension. If sufficient additional shares are not
sold, and the balance of our outstanding indebtedness under this line is not
repaid, we will lose our interests in the communities still subject to the liens
of our line-of-credit lender. The communities that we have acquired interests in
to date are also encumbered by permanent mortgage indebtedness which will not be
repaid from the proceeds of this offering.
After the borrowings under our initial line have been repaid, we will
pursue one or both of two alternatives for acquiring interests in additional
communities. One, our board of directors may determine to establish one or more
new lines of credit to be used to purchase interests in additional communities
and to repay those borrowings as sufficient funds are raised from the sale of
additional shares. If our board determines to repeat this reborrowing and
repayment process, it is possible that any new borrowing will be secured by our
interests in all of our communities. Alternatively, our board may determine to
acquire additional interests in communities as sufficient funds are raised. In
this alternative, no funds would have to be borrowed under any line of credit to
acquire interests in communities. Whichever alternative is used, our board of
directors anticipates that every community we invest in will be
encumbered by mortgage indebtedness, that the aggregate amount of the mortgage
indebtedness on our communities that are no longer (or have not been) financed
with our current or any replacement line of credit will not exceed 55% to 65% of
the total net asset value of those communities and that our total indebtedness
on those communities will not exceed 73% of the total net asset value of those
communities. We will supplement or amend this prospectus from time to time as
necessary to describe the procedures we will follow after the repayment of the
initial line.
We maintain our principal office c/o Boston Capital Corporation, One
Boston Place, Suite 2100, Boston, Massachusetts 02108-4406. Our telephone number
is (617) 624-8900.
OUR ADVISOR
Our advisor is Boston Capital REIT Advisors, LLC, an affiliate of our
company, which is entirely responsible for managing our affairs on a day-to-day
basis and for identifying and making, subject to the approval of our board,
acquisitions on our behalf. Our company has no employees of its own. Boston
Capital REIT Advisors, LLC, is wholly owned by Boston Capital Holdings Limited
Partnership. John P. Manning, our Chairman and Chief Executive Officer, owns the
general partner of and a limited partner interest in Boston Capital Holdings
Limited Partnership. We refer to Boston Capital REIT Advisors, LLC, as the
Advisor in this prospectus.
OUR MANAGEMENT
Our board of directors must approve each acquisition proposed by the
Advisor, as well as certain other matters set forth in our articles of
incorporation. We have five members on our board of directors. The majority of
the directors are independent of the Advisor and have responsibility for
reviewing its performance. Our directors are elected annually by the
stockholders. John P. Manning, who is one of our directors, our Chairman and our
Chief Executive Officer, is responsible for our formation and commencement of
business.
RISK FACTORS
You should carefully consider the matters discussed in the section
"Risk Factors" beginning on page ____ prior to deciding whether to invest in our
common stock. Some of these risks include:
- You must rely on the Advisor, which, together with our board of
directors, has responsibility for the management of our business and
the selection of our apartment communities. Our officers and directors
(apart from two of our independent directors) and those of the Advisor
have no previous experience operating a REIT, which could adversely
affect our business. Our Chairman and CEO controls and has an indirect
ownership interest in the Advisor. Our senior management also has
major management responsibilities with the Advisor and its affiliates
and may not spend their full time on our affairs. We have no ownership
interest in the Advisor.
- The Advisor may face various conflicts of interest resulting from its
activities with affiliated entities. The advisory services agreement
was not negotiated at arm's length, and the Advisor and its affiliates
will receive substantial asset management, acquisition and sales fees
that are not based on our performance.
- The Advisor will rely on third-party property managers for leasing,
maintenance and other day-to-day management of our communities. If
these managers are unable to operate our communities successfully, our
financial condition could be adversely affected.
- We have a $60,000,000 line of credit which we have used in connection
with the acquisition of the apartment communities described in this
prospectus. If the minimum is raised, we will repay the amounts we
borrowed under this line of credit related to our Jacksonville
communities, and our line-of-credit lender will release its lien on
those properties. Our line-of-credit lender's liens on the balance of
our communities will only be released if we raise sufficient
additional funds in this offering to repay the balance of the loan. If
we do not raise sufficient funds in this offering to repay the balance
of our line-of-credit loan, we will lose our interest in the
communities still subject to the liens of our line-of-
2
credit lender. For our Seattle communities, we must raise sufficient
funds in this offering not only to repay amounts borrowed under the
line of credit related to those communities but also to repay
$8,120,000 of mezzanine debt (subordinate to the permanent mortgage
financing) from an unaffiliated lender encumbering those communities.
- Our apartment communities are subject to permanent mortgage loans,
which are described in this prospectus. These loans will not be repaid
from the proceeds of this offering and, accordingly, our communities
will continue to be subject to the liens of those lenders. We could
become too highly leveraged, although we currently do not intend to
have mortgage debt on our communities that are no longer (or have not
been) financed with our current or any replacement line of credit
equal to more than 55% to 65% of the total net asset value of those
communities or total debt on those communities equal to more than 73%
of the total net asset value of those communities (our board of
directors can decide to exceed these limits). If our leverage does not
increase our profitability, we will have less cash available for
distributions. We cannot assure you that we will be able to meet our
debt service obligations, including interest costs which may be
substantial. If we are unable to meet our debt service obligations, we
may lose our investment in any community that secures indebtedness on
which we have defaulted. If we cross-collateralize our communities, we
may lose our investment in a good-performing community
cross-collateralized with a poor-performing community.
- There is no public trading market for our shares, and we cannot assure
you that one will ever develop. Until our shares are publicly traded,
you will have a difficult time selling your shares, and your shares
may be subject to a market discount from the proportionate value of
real estate we own.
- If we do not obtain listing of our shares on a national securities
exchange or national securities market by _______________, 2013, our
articles of incorporation provide that we must begin to sell all of
our properties and distribute the net proceeds to our stockholders if
stockholders holding a majority of our shares vote to authorize us to
do so.
- The specific investments in apartment communities described in this
prospectus represent 22% of the maximum offering amount. If this
offering continues after our current line of credit has been repaid,
we will acquire interests in additional communities, which will be a
blind pool that you will not have the opportunity to evaluate.
- The number of apartment communities that we will own interests in and
the geographic diversity of our investments will be reduced to the
extent that the total proceeds of this offering are less than
$300,000,000. If only the minimum is raised, we will retain our
interests only in our Jacksonville communities. Limited
diversification will increase the potential adverse effect on us of an
underperforming property.
- We will pay selling commissions to broker-dealers of seven percent and
a dealer-manager fee for reimbursement of marketing expenses of two
and one-half percent out of the offering proceeds raised. We will pay
an additional approximately six and one-half percent of the offering
proceeds in fees and expenses to affiliates for services and as
reimbursement for offering- and acquisition-related expenses incurred
on our behalf. The amount of proceeds that will be available to invest
in communities will be decreased as a result of such payments, which
may inhibit our ability to meet our investment objectives. We will
invest approximately eighty-three percent of the offering proceeds in
apartment communities. The broker-dealers, dealer-manager and
affiliates will be paid and will retain these fees regardless of the
investment performance of the apartment communities.
- Our board of directors will have significant flexibility regarding our
operations. For example, our board has the ability to change
investment objectives and policies, to issue additional shares and
dilute stockholders' equity interests as well as to issue preferred
stock with rights senior to our common stock, which could include
superior dividend rights that could result in our common stockholders
receiving no dividend distributions. Our board also has the ability to
change the compensation of the
3
Advisor and to employ and compensate affiliates. Our board of
directors can take such actions solely on its own authority and
without stockholder approval.
- If the communities we own do not yield the returns we expect, we will
have less income with which to pay dividends.
- Adverse economic conditions and competition may impede our ability to
renew leases or re-lease apartment units as leases expire and require
us to undertake unbudgeted capital improvements, which could harm our
business and operating results.
- Our charter documents contain several anti-takeover provisions and a
requirement that, with some exceptions, no person may actually or
constructively own more than 9.8% of our capital stock, which may
discourage third parties from conducting a tender offer or seeking
other change of control transactions that could involve a premium
price for our shares or otherwise benefit our stockholders.
- If we fail to qualify and to remain qualified as a REIT, our
distributions will not be deductible by us, and our income will be
subject to taxation, reducing our earnings available for distribution.
OUR INVESTMENT OBJECTIVES
Our policy is to acquire assets primarily for current income
generation. In general, our investment objectives are:
- To provide quarterly cash dividends equal to at least 6% annually on a
$10 per share investment, as well as to provide growth in dividends
over time. The achievement of this objective is not guaranteed.
- To increase our value through increases in the cash flows and values
of our apartment communities.
- To achieve long-term capital appreciation, and preserve and protect
the value of our interest in our communities.
RESTRICTIONS ON OWNERSHIP OF OUR CAPITAL STOCK
Due to limitations on the concentration of ownership of REIT stock
imposed by the Internal Revenue Code, and to address other concerns relating to
concentration of capital stock ownership, our charter documents generally
prohibit any stockholder from actually or constructively owning more than 9.8%
of the outstanding shares of our capital stock.
Our board of directors may, in its sole discretion, waive the ownership
limit with respect to a particular stockholder if our board is presented with
evidence satisfactory to it that the ownership will not then or in the future
jeopardize our status as REIT.
OUR TAX STATUS
We will elect to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code. We believe that we are organized in conformity with
the requirements for qualification as a REIT under the Internal Revenue Code,
and that our manner of operation will enable our company to meet the
requirements for taxation as a REIT for federal income tax purposes. To maintain
REIT status, we must meet a number of organizational and operational
requirements, including a requirement that we currently distribute at least 90%
of our REIT taxable income to our stockholders. As a REIT, we generally will not
be subject to federal income tax on REIT taxable income we distribute currently
to our stockholders. If we fail to qualify as a REIT in any taxable year, we
will be subject to federal income tax at regular corporate rates. Even if we
qualify for taxation as a REIT, we may be subject to some federal, state and
local taxes on our income and property.
4
CONFLICTS OF INTEREST
We have retained the Advisor to provide us with acquisition, advisory
and administrative services. All of the executive officers of the Advisor are
also officers or directors of our company. Some of our officers and directors,
who are also officers of the Advisor, may experience conflicts of interest in
their management of our company. These arise principally from their involvement
in other activities that may conflict with our business and interests, including
matters related to:
- allocation of management time and services between us and various
other entities, principally approximately 1,130 limited partnerships
with interests in low-income residential apartment communities,
- the timing and terms of an investment in or sale of a community,
- compensation to the Advisor,
- our relationship with the Dealer-Manager, Boston Capital Services,
Inc., which is our affiliate and an affiliate of the Advisor, and
- the fact that our securities and tax counsel also serves as securities
and tax counsel for some of our affiliates, and that neither we nor
the stockholders will have separate counsel.
The Advisor and its affiliates, including the Dealer-Manager, will receive
substantial fees, commissions, compensation and other income from transactions
with and by us regardless of the success of your investment.
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The following chart shows our relationship to the various affiliated
entities participating in this offering:
[Enlarge/Download Table]
----------------------------------------------===================================
| JOHN P. MANNING ------------------------------
| -------------------==================================== |
| | | | |
| | | 100% | 100% |
| | | | |
| | ==================== =================== |
| | BOSTON CAPITAL BOSTON CAPITAL |
| | PARTNERS II CORPORATION |
| | CORPORATION (General Partner) |
| | (General Partner) |
| | (Organized in 1994) |
| | ==================== =================== |
| | | | |
| |Limited | | |Limited
| |Partnership |.01% |.01% |Partnership
| |Interest | | |Interest
| | | | |
| ================================= =================================================
| BOSTON CAPITAL COMPANION BOSTON CAPITAL HOLDINGS LIMITED
| LIMITED PARTNERSHIP PARTNERSHIP
| ================================= =================================================
| | \ 20,000 | |
| | \ Shares of | 66 2/3% | 100%
| 100% | \ Common | |
| | \ Stock ====================== ======================
| | \ BOSTON CAPITAL BOSTON CAPITAL REIT
| | \ SERVICES, INC. ADVISORS, LLC
| | 100% \ (Dealer-Manager) (Advisor)
| | \ ====================== ======================
| | \ | |
| | \ | Dealer-Manager | Advisory
| | \ | Agreement | Agreement
| | \ | |
| ===================== Loan ====================================================================
| BCP FUNDING, LLC Agreement BOSTON CAPITAL REAL ESTATE INVESTMENT
| (Lender) ---------------- TRUST, INC.
| ===================== ====================================================================
| | | |
| | 99.99% | 100% | 100%
| | | |
| ========================== ======================= ==================== ==================
| BCMR, Inc. .01% BCMR Seattle, A BCMR BCMR Portland,
|-------- (General Partner) ----------------- Limited Partnership Jacksonville, LLC LLC
| ========================== ======================= ==================== ==================
| Exercises | | |
| voting rights | 100% | 100% | 100%
| of BCMR | | |
| ========================== Seattle, A ======================= ==================== ==================
| Limited BC-Bainbridge
|-------- BCMR Special, Inc. Partnership BC-GFS LLC(1) LLC(2) BC-GFS II LLC(1)
----------------
========================== ======================= ==================== ==================
| | |
| 100% | 100% | 100%
| | |
======================= ==================== ==================
Four LLCs Three LLCs Three LLCs
(Each an Owner of (Each an Owner (Each an Owner of
one of the Seattle of one of the one of the
Communities) Jacksonville Portland/Salt
Communities) Lake Communities)
======================= ==================== ==================
----------
(1)GFS Equity Management LLC, an unaffiliated party, has a subordinated
economic interest in this entity and is its manager pursuant to its LLC
agreement.
(2)Bainbridge Jacksonville LLC, an unaffiliated party, has a subordinated
economic interest in this entity pursuant to its LLC agreement, and
Bainbridge Group, Inc., an unaffiliated party affiliated with Bainbridge
Jacksonville LLC, manages this entity pursuant to an advisory services
agreement.
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In December 2002, BCMR Seattle, Inc., a corporation controlled by John
P. Manning, our Chairman and Chief Executive Officer, acquired a 99% limited
partnership interest in BCMR Seattle, A Limited Partnership, which owns a member
interest in BC-GFS LLC which, through four wholly owned subsidiaries, owns title
to our communities in Seattle, Washington. The general partner of BCMR Seattle,
A Limited Partnership, BCMR, Inc., is also controlled by Mr. Manning. As
consideration, BCMR Seattle, Inc., contributed approximately $9,300,000,
including closing costs, of borrowed funds to purchase the Seattle communities.
BCMR Seattle, Inc., acquired the interest prior to our formation with the
intention of transferring it to us following our organization if we determined
it to be a suitable investment. On May 15, 2003, we acquired the interest from
BCMR Seattle, Inc., assuming its approximately $9,300,000 of acquisition debt,
but paying no additional fees, expenses or other consideration. This assumed
debt was rolled into our line-of-credit loan from BCP Funding, LLC.
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COMPENSATION AND FEES
The Advisor and its affiliates will receive compensation and fees for
services relating to this offering and the management of our affairs. The most
significant items of compensation are included in the following table:
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ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM AMOUNT
-----------------------------------------------------------------------------------------------------------
OFFERING STAGE
SELLING COMMISSIONS - 7.0% of gross offering proceeds, including shares $ 22,050,000
THE DEALER-MANAGER that may be sold pursuant to the reinvestment plan
DEALER-MANAGER FEE - 2.5% of gross offering proceeds, including shares $ 7,875,000
THE DEALER-MANAGER that may be sold pursuant to the reinvestment plan
(up to 1.5% may be reallowed to participating
broker-dealers)
OFFERING EXPENSES - 3.0% of gross offering proceeds $ 9,000,000
THE ADVISOR OR ITS AFFILIATES
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[Enlarge/Download Table]
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM AMOUNT
-----------------------------------------------------------------------------------------------------------
ACQUISITION AND DEVELOPMENT STAGE
ACQUISITION FEES - 3.0% of gross offering proceeds $ 9,000,000
THE ADVISOR OR ITS AFFILIATES
ACQUISITION EXPENSES - 0.5% of gross offering proceeds $ 1,500,000
THE ADVISOR OR ITS AFFILIATES
OPERATIONAL STAGE
ASSET MANAGEMENT FEE - Monthly, 1/12th of 0.75% of the total amount N/A
THE ADVISOR invested in communities (exclusive of acquisition
fees and acquisition expenses) plus the total
outstanding principal amounts of mortgages on the
communities
LOAN INTEREST - 9.5% per annum, payable quarterly, and to the extent N/A
BCP FUNDING not paid added to principal; additional interest
payable quarterly only to the extent of income from
communities not released by BCP Funding and not from
proceeds of this offering
SUBORDINATED DISPOSITION FEE - 3.0% of contract price for communities sold after N/A
THE ADVISOR OR ITS AFFILIATES investors receive a return of capital plus a 6.0%
return on capital
SUBORDINATED SHARE OF NET SALE 15.0% of remaining amounts of net sale proceeds N/A
PROCEEDS (PAYABLE ONLY IF WE ARE after investors receive a return of capital plus a
NOT LISTED ON AN EXCHANGE) - 6.0% return on capital
THE ADVISOR
SUBORDINATED INCENTIVE LISTING FEE 10.0% of the amount by which our adjusted market N/A
(PAYABLE ONLY IF WE ARE LISTED ON value exceeds the aggregate capital contributions
NATIONAL SECURITIES EXCHANGE OR contributed by investors
MARKET) -
THE ADVISOR
There are many additional conditions and restrictions on the amount of
compensation the Advisor and its affiliates may receive. There are also some
smaller items of compensation and expense reimbursements that the Advisor may
receive.
THE OFFERING
We are offering up to 30,000,000 shares of our common stock at $10 per
share to investors who meet our suitability standards. The shares are being
offered on a best efforts basis, which means that no specified amount of capital
will be raised. No shares will be sold, however, unless at least 3,000,000
shares are sold. We are also offering up to 1,500,000 shares to be issued
pursuant to our dividend reinvestment plan at $10 per share. We will begin
selling shares in this offering on the effective date of this prospectus, and
this offering will terminate no later than ____________, 2005. We may terminate
this offering at any time prior to that date. We will place initial monies
raised in an escrow account with Wainwright Bank & Trust Co., Boston,
Massachusetts, until the $30,000,000 minimum is achieved. During that time,
interest will be earned at savings account rates, currently [0.56]% per annum.
The interest will be paid to the investor even if the minimum is not reached. An
initial closing
9
will be held within 15 days after the minimum is achieved. After the initial
closing, we will admit stockholders to our company as soon as reasonably
possible following receipt of their subscriptions. If the minimum is not
achieved by the termination date, the escrowed funds with accrued interest will
be returned to investors within 15 days. The Dealer-Manager will not purchase
any of our shares.
ESTIMATED USE OF PROCEEDS
We anticipate that at least 83% of the proceeds of this offering will be
invested in real estate communities. We will use the remainder to pay selling
commissions and dealer-manager fees, fees and expenses relating to the selection
and acquisition of properties and the costs of the offering and will retain 1%
as working capital reserves. As long as there are amounts outstanding under our
line of credit used to acquire our interests in apartment communities, this 83%
will be applied to the repayment of the line, and the lender will release its
lien on our interest in the apartment community acquired with the proceeds of
the repaid loan.
LISTING
We expect to seek listing of our shares on a national securities exchange
or national securities market when, in the judgment of our management and our
board of directors, our size and maturity make listing appropriate and
desirable. We expect that our market capitalization would have to equal or
exceed that of comparable listed REITs in order to justify listing. In the event
we do not obtain listing of our shares on a national securities exchange or
national securities market by _____________, 2013, our articles of incorporation
require us to begin the sale of our properties and liquidation of our assets if
stockholders owning a majority of our shares vote to authorize us to do so.
DIVIDEND REINVESTMENT PLAN
We have adopted a reinvestment plan which will allow participating
stockholders to have their dividends, less selling commissions and fees of nine
and one-half percent, reinvested in additional shares that may be available. We
have registered 1,500,000 shares of our common stock for this purpose. We
reserve the right in the future to reallocate additional shares to the dividend
reinvestment plan out of the shares we are offering to the public, if necessary.
If you participate, you will be taxed on your share of our taxable income even
though you will not receive the cash for your dividends. As a result, you may
have a tax liability without receiving cash dividends to pay such liability. We
may terminate the dividend reinvestment plan in our discretion at any time upon
ten days notice to you.
SHARE REDEMPTION PROGRAM
We may use proceeds received from the sale of shares pursuant to our
dividend reinvestment plan to redeem your shares. After you have held your
shares for a minimum of one year, our share redemption program provides an
opportunity for you to redeem your shares, subject to certain restrictions and
limitations. If we are engaged in an offering, the redemption price will be the
lesser of (i) the then-current offering price less a discount approximating the
per share commissions and fees paid to brokers on the original sale of the
shares ($9.15 per share in the case of shares repurchased during a $10 per share
offering) or (ii) the price you actually paid for your shares. Our board of
directors reserves the right to amend or terminate the share redemption program
at any time. Our board of directors has delegated to our officers the right to
(i) waive the one-year holding period in the event of the death or bankruptcy of
a stockholder or other exigent circumstances or (ii) reject any request for
redemption at any time and for any reason. You will have no right to request
redemption of your shares should our shares become listed on a national
exchange.
STOCK CERTIFICATES
Your investment will be recorded on our books only. We will not issue stock
certificates. If you wish to transfer your shares, you will be required to send
an executed transfer form to us. We will provide the required form to you upon
request.
10
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CONSIDER THE FOLLOWING RISKS BEFORE MAKING YOUR INVESTMENT DECISION.
RISKS RELATED TO OUR PROPERTIES AND OUR BUSINESS
BORROWING CREATES RISKS THAT THE OFFERING PROCEEDS MAY BE INSUFFICIENT TO PAY
THE NON-RECOURSE ACQUISITION DEBT ON THE PROPERTIES OR OUR CASH FLOW MAY BE
INSUFFICIENT TO MEET OUR DEBT OBLIGATIONS.
We may borrow money to acquire interests in communities, to preserve our
status as a REIT or for other corporate purposes. Our board of directors
anticipates that we will obtain one or more lines of credit to provide financing
for the acquisition of interests in communities to the extent we have not yet
raised sufficient offering proceeds. We have entered into an initial $60,000,000
loan agreement with BCP Funding, LLC, our affiliate and an affiliate of the
Advisor, which we have used to acquire interests in communities. We currently
expect to repay all amounts borrowed under the line of credit from the proceeds
of this offering. The line of credit is non-recourse to our company but is
secured by the interests in communities that we acquired with amounts borrowed
under the line. If we do not receive enough offering proceeds to repay the
amounts due under this or any other line of credit, we will have to seek
additional equity or debt financing or lose our interests in communities that
secure any unpaid amounts due. In addition, our communities are encumbered by
mortgage debt, and we expect any additional properties we acquire interests in
to be similarly encumbered. Borrowing may be risky if the cash flow from our
real estate investments is insufficient to meet our debt obligations. If we
cannot meet our debt obligations on our secured loans, the lender could take the
property, and we would lose both the asset and the income we were deriving from
it. Further, if our leverage does not increase our profitability, we will have
less cash available for distributions. If we cross-collateralize our properties
in order to provide additional collateral to a lender, we run the risk of losing
a good-performing property in the event that it is cross-collateralized with a
poor-performing property that causes us to default on our loan terms. We do not
currently intend to have mortgage debt on our communities that are no longer (or
have not been) financed with our current or any replacement line of credit in
excess of 55% to 65% of the total net asset value of those communities or to
have total debt on those communities in excess of 73% of the total net asset
value of those communities.
ADVERSE ECONOMIC CONDITIONS AND COMPETITION MAY IMPEDE OUR ABILITY TO RENEW
LEASES OR RE-LEASE UNITS AS LEASES EXPIRE AND REQUIRE US TO UNDERTAKE UNBUDGETED
CAPITAL IMPROVEMENTS, WHICH COULD HARM OUR BUSINESS AND OPERATING RESULTS.
ADVERSE ECONOMIC CONDITIONS - If our communities do not generate revenues
sufficient to meet operating expenses, including debt service and capital
expenditures, our income and results of operations will be significantly harmed.
An apartment community's revenues and value may be adversely affected by the
general economic climate; the local economic climate; local real estate
considerations (such as oversupply of or reduced demand for apartments); the
perception by prospective residents of the safety, convenience and
attractiveness of the communities or neighborhoods in which our properties are
located and the quality of local schools and other amenities; and increased
operating costs (including real estate taxes and utilities). Certain significant
fixed expenses are generally not reduced when circumstances cause a reduction in
income from the investment.
DEPENDENCY ON RENTAL INCOME - We will be dependent on rental income to pay
operating expenses and to generate cash to enable us to make distributions to
our stockholders. If we are unable to attract and retain residents or if our
residents are unable, due to an adverse change in the economic condition of a
particular region or otherwise, to pay their rental obligations, our ability to
make expected distributions will be adversely affected.
COMPETITION - Also, we will face competition from other properties of the
same type within the areas in which our apartment communities will be located.
Competition from other properties may affect our ability to attract and retain
residents, to increase rental rates and to minimize expenses of operation.
Virtually all of the leases for our apartment communities will be short-term
leases (generally, one year). Increased competition for residents may also
require us to make capital improvements to apartment communities which we would
not have otherwise planned to make. Any unbudgeted capital improvements we
undertake may divert away cash that would otherwise
11
be available for distributions to stockholders. Ultimately, to the extent we are
unable to renew leases or re-lease apartment units as leases expire, it would
result in decreased cash flow from residents and harm our operating results.
OUR FINANCIAL COVENANTS MAY RESTRICT OUR OPERATING ACTIVITIES, WHICH MAY HARM
OUR FINANCIAL CONDITION AND OPERATING RESULTS.
The mortgages on our communities contain and will contain customary
negative covenants such as those that limit the owner's ability, without the
prior consent of the lender, to transfer interests or further mortgage the
applicable property or to discontinue insurance coverage. In addition, our line
of credit contains customary restrictions, requirements and other limitations on
our ability to incur indebtedness, which we will have to maintain. These include
the requirement to obtain the lender's approval of any acquisitions to be funded
under the line of credit, provide financial statements and information requested
by the lender, and limit indebtedness to the line of credit, property mortgages
and indebtedness incurred for the payment of taxes and governmental charges and
for services and materials in the ordinary course of business. We must also
obtain the lender's consent to the sale or refinancing of any assets pledged
under the line of credit, to any change in our control and to the placing of any
lien on the pledged assets. Our ability to borrow under our line of credit is
subject to compliance with these financial and other covenants. We may rely on
borrowings under this or another line of credit to finance capital improvement
projects and for working capital, and if we are unable to borrow under our line
of credit or to refinance existing indebtedness our financial condition and
results of operations would likely be adversely impacted. If we breach covenants
in our debt agreements, the lender could declare a default and require us to
repay the debt immediately and, if the debt is secured, could immediately take
possession of the property securing the loan.
OUR WORKING CAPITAL RESERVES MAY NOT BE ADEQUATE TO COVER ALL OF OUR CASH NEEDS,
IN WHICH CASE WE WILL HAVE TO OBTAIN FINANCING FROM OTHER SOURCES.
Our working capital reserves equal to 1% of the offering proceeds may not
be adequate to cover all of our cash needs. In order to cover those needs, we
may have to obtain financing from either affiliated or unaffiliated sources. We
cannot assure you that sufficient financing will be available or, if available,
will be available on economically feasible terms or on terms acceptable to us.
Additional borrowings for working capital purposes will increase our interest
expense, and therefore may have a negative impact on our results of operations.
THE ADVISOR MAY NOT BE SUCCESSFUL IN IDENTIFYING SUITABLE ADDITIONAL
ACQUISITIONS THAT MEET OUR CRITERIA.
The Advisor may not be successful in identifying additional suitable
apartment communities that meet our acquisition criteria or consummating
additional acquisitions on satisfactory terms. Except for the investments
described in this prospectus, you will have no opportunity to evaluate the terms
of transactions or other economic or financial data concerning our investments.
You must rely entirely on the management ability of the Advisor and the
oversight of our board of directors. Failures in identifying or consummating
acquisitions could reduce the number of acquisitions we complete, which could in
turn harm our ability to achieve our investment objectives and to pay dividends.
WE FACE COMPETITION FOR THE ACQUISITION OF APARTMENT COMMUNITIES, WHICH MAY
IMPEDE OUR ABILITY TO MAKE FUTURE ACQUISITIONS OR MAY INCREASE THE COST OF
ACQUISITIONS.
We compete with many other entities engaged in real estate investment
activities for acquisitions of apartment communities, including institutional
pension funds, other REITs and other owner-operators of apartments. These
competitors may have driven up the prices we have paid for the interests in
apartment communities we have acquired, and they may drive up the prices we must
pay for interests in apartment communities we seek to acquire or may succeed in
acquiring those assets themselves. In addition, our potential acquisition
targets may find our competitors to be more attractive suitors because they may
have greater resources, may be willing to pay more or may have a more compatible
operating philosophy. In particular, larger REITs may enjoy significant
competitive advantages that result from, among other things, a lower cost of
capital, the ability to use their listed shares and
12
UPREIT structure as currency for acquisition, and enhanced operating
efficiencies. If we pay higher prices for communities, our profitability will be
reduced, and you may experience a lower return on your investment.
RISING OPERATING EXPENSES COULD REDUCE OUR CASH FLOW AND FUNDS AVAILABLE FOR
FUTURE DISTRIBUTIONS.
We bear all expenses incurred in our operations. If any community is not
fully occupied or if rents are being paid in an amount that is insufficient to
cover operating expense, then we could be required to expend funds for that
community's operating expenses. The communities will be subject to increases in
real estate and other tax rates, utility costs, operating expenses, insurance
costs, repairs and maintenance and administrative expenses. In addition, our
board of directors, in its discretion, may retain any portion of cash funds
generated by operations for working capital. We cannot assure you that
sufficient cash will be available for distribution to you.
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES MAY RESULT IN DELAYS AND INCREASED
COSTS AND RISKS.
While we have no present plans to do so, we may in the future invest in the
acquisition of properties upon which we will develop and construct apartment
communities. We will be subject to risks relating to the builder's ability to
control construction costs or to build in conformity with contract terms, plans,
specifications and timetables. The builder's failure to perform may necessitate
legal action by us to rescind the purchase or the construction contract or to
compel performance. Performance may also be affected or delayed by conditions
beyond the builder's control. Delays in completion of construction could also
give residents the right to terminate preconstruction leases for apartments at a
newly developed apartment community. We may incur additional risks when we make
periodic progress payments or other advances to such builders prior to
completion of construction since the builder may default in completing the
project for which progress payments have been made. Factors such as these can
result in increased costs of a project or loss of our investment. In addition,
we will be subject to normal lease-up risks relating to newly constructed
projects. Furthermore, we must rely upon projections of rental income and
expenses and estimates of the fair market value of property upon completion of
construction when agreeing upon a price to be paid for the property at the time
of acquisition of the property. If our projections are inaccurate, we may pay
too much for a property.
DISCOVERY OF PREVIOUSLY UNDETECTED ENVIRONMENTALLY HAZARDOUS CONDITIONS MAY
ADVERSELY AFFECT OUR OPERATING RESULTS.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. Environmental laws also may impose restrictions on the manner
in which property may be used or business may be operated, and these
restrictions may require expenditures. Environmental laws provide for sanctions
in the event of noncompliance and may be enforced by governmental agencies or,
in certain circumstances, by private parties. In connection with the acquisition
and ownership of our communities, we may be potentially liable for such costs.
The cost of defending against claims of liability, of compliance with
environmental regulatory requirements or of remediating any contaminated
property could materially adversely affect the business, assets or results of
operations of our company and, consequently, amounts available for distribution
to you.
WE MAY FACE CONFLICTS WITH SELLERS, PARTNERS AND JOINT VENTURERS.
We may acquire communities from sellers that we will retain as property
managers and who typically will continue to own an equity or other economic
interest in the communities as the general partner or managing member of the
owner limited partnership or limited liability company. We will own
substantially all the equity interests in the owner entities, with the right to
remove the general partner or managing member without cause. While we have no
present plans to do so, we may also enter into joint ventures with other
programs affiliated with us for the acquisition, development or improvement of
properties, and we may develop properties in joint ventures or in partnerships
or other co-ownership arrangements with the sellers of the properties,
affiliates of the sellers,
13
developers or other persons. These investments may involve risks not otherwise
present with an investment in real estate, including, for example:
- the possibility that our co-venturer or partner in an investment might
become bankrupt;
- that such co-venturer or partner may at any time have economic or
business interests or goals which are or which become inconsistent with
our business interests or goals; or
- that such co-venturer or partner may be in a position to take action
contrary to our instructions or requests or contrary to our policies or
objectives.
Actions by a co-venturer or partner might have the result of subjecting the
property to liabilities in excess of those contemplated and may have the effect
of reducing your returns. Under certain joint venture agreements, neither
co-venturer may have the power to control the venture, and an impasse could be
reached regarding matters pertaining to the joint venture, which might have a
negative influence on the joint venture and decrease potential returns to you.
We may face certain additional risks and potential conflicts of interest in
the event we enter into joint ventures. For example, the co-venturer may never
have an active trading market for its equity interests. Therefore, if we become
listed on a national securities exchange or national securities market, we may
no longer have similar goals and objectives with respect to the resale of
properties in the future. In addition, in the event that we are not listed on a
national securities exchange or national securities market by __________, 2013,
our organizational documents provide for an orderly liquidation of our assets if
stockholders holding a majority of our shares vote to authorize us to liquidate.
In the event of our liquidation, any joint venture may be required to sell its
properties at that time. Although the terms of any joint venture agreement could
grant the co-venturer a right of first refusal to buy the properties held in the
joint venture in the event of our liquidation, it is unlikely that the
co-venturer would have sufficient funds to exercise the right of first refusal
in these circumstances.
THE LIQUIDATION OF OUR ASSETS MAY BE DELAYED.
If our shares are not listed on a national securities exchange or national
securities market by _________________, 2013, we will undertake, if stockholders
owning a majority of our stock vote to authorize us to do so, to sell our assets
and distribute the net sales proceeds to our stockholders, and we will
thereafter engage only in activities related to our orderly liquidation. Neither
the Advisor nor our board of directors may be able to control the timing of the
sale of our interests in apartment communities due to market conditions, and we
cannot assure you that we will be able to sell our assets so as to return our
stockholders' aggregate invested capital, to generate a profit for the
stockholders or to fully satisfy our debt obligations. We will only return all
of our stockholders' invested capital if we sell our interests in communities
for more than their original purchase price, although return of capital, for
federal income tax purposes, is not necessarily limited to stockholder
distributions following sales of properties. If we take a purchase money
obligation in partial payment of the sales price of our interest in a community,
we will realize the proceeds of the sale over a period of years.
RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE
THE BOARD OF DIRECTORS CAN TAKE MANY ACTIONS WITHOUT STOCKHOLDER APPROVAL.
Our board of directors has overall authority to conduct our operations.
This authority includes significant flexibility. For example, without a vote of
our stockholders, our board may:
- amend or revise our major policies, including our investment objectives,
financing and distributions,
- change the Advisor's compensation, and employ and compensate affiliates,
- prevent the ownership transfer and/or accumulation of shares in order to
protect our status as a REIT or for any other reason deemed to be in the
best interests of our stockholders,
- issue additional shares, which could dilute your ownership, and
- list the shares on a national securities exchange or market.
14
Any of these actions could reduce the value of our company.
OUR ORGANIZATIONAL DOCUMENTS CONTAIN PROVISIONS WHICH MAY DISCOURAGE A TAKEOVER
OF OUR COMPANY AND DEPRESS OUR STOCK PRICE.
Our organizational documents contain provisions which may have an
anti-takeover effect and inhibit a change in our management. These provisions
include:
(1) THERE ARE OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFERABILITY IN
OUR ARTICLES OF INCORPORATION. In order for us to qualify as a
REIT, no more than 50% of the value of outstanding shares of our
capital stock may be owned, actually or constructively, by five or
fewer individuals at any time during the last half of each taxable
year. To make sure that we will not fail to qualify as a REIT under
this test, subject to some exceptions, our articles prohibit any
stockholder from owning actually or constructively more than 9.8%
of the value or number of outstanding shares of our capital stock.
Our board of directors may exempt a person from the 9.8% ownership
limit if the board determines, in its sole discretion, that
exceeding the 9.8% ownership limit as to any proposed transferee
would not jeopardize our qualification as a REIT. This restriction
may:
- discourage a tender offer or other transactions or a
change in management or control that might involve the
payment of a premium price for our shares or otherwise be
in the best interests of our stockholders; or
- compel a stockholder who had acquired more than 9.8% of
our stock to dispose of the additional shares and, as a
result, to forfeit the benefits of owning the additional
shares.
(2) OUR ARTICLES PERMIT OUR BOARD OF DIRECTORS TO ISSUE PREFERRED STOCK
WITH TERMS THAT MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Our
articles permit our board of directors to issue up to 50,000,000
shares of preferred stock, having those preferences, conversion or
other rights, voting powers, restrictions, limitations as to
distributions, qualifications, or terms or conditions of redemption
as determined by our board. Thus, our board could authorize the
issuance of preferred stock with terms and conditions which could
have the effect of discouraging a takeover or other transaction in
which holders of some or a majority of our shares might receive a
premium for their shares over the then-prevailing market price of
our shares.
(3) OUR ARTICLES AND BYLAWS CONTAIN OTHER POSSIBLE ANTI-TAKEOVER
PROVISIONS. Our articles and bylaws contain other provisions which
may have the effect of delaying, deferring or preventing a change
in control of our company or the removal of existing management
and, as a result, could prevent our stockholders from being paid a
premium for their shares of common stock over the then-prevailing
marketing prices. These provisions include advance notice
requirements for stockholder proposals and the absence of
cumulative voting rights.
(4) MARYLAND LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US.
Maryland law restricts mergers and other business combinations
between our company and an interested stockholder. An "interested
stockholder" is defined as any person who is the beneficial owner
of 10% or more of the voting power of our common stock and also
includes any of our affiliates or associates that, at any time
within the two-year period prior to the date of a proposed merger
or other business combination, was the beneficial owner of 10% or
more of our voting power. A person is not an interested stockholder
if, prior to the most recent time at which the person would
otherwise have become an interested stockholder, our board approved
the transaction which otherwise would have resulted in the person
becoming an interested stockholder. For a period of five years
after the most recent acquisition of stock by an interested
stockholder, we may not engage in any merger or other business
combination with that interested stockholder or any affiliate of
that interested stockholder. After the five-year period, any merger
or other business combination must be approved by our board and by
at least 80% of all the votes entitled to be cast by holders
15
of outstanding shares of our voting stock other than the interested
stockholder or any affiliate or associate of the interested
stockholder unless, among other things, the stockholders (other
than the interested stockholder) receive a minimum price for their
common stock and the consideration received by those stockholders
is in cash or in the same form as previously paid by the interested
stockholder for its common stock. These provisions of the business
combination statute do not apply to business combinations that are
approved or exempted by our board prior to the time that the
interested stockholder becomes an interested stockholder. However,
the business combination statute could have the effect of
discouraging offers from third parties to acquire us and increasing
the difficulty of successfully completing this type of offer.
OUR BUSINESS WILL BE HARMED IF WE CANNOT ENGAGE AND RETAIN THE SERVICES OF
REPUTABLE AND RELIABLE MANAGERS FOR OUR PROPERTIES.
Neither we nor the Advisor will directly control the day-to-day management
of our communities. The Advisor will retain third-party managers on our behalf
who will be responsible for leasing, maintenance and other day-to-day management
of the communities. Because our revenues will largely be derived from rents, our
financial condition will be dependent on the ability of third-party managers
that we do not control to operate the communities successfully. While the
communities that we currently own interests in have experienced property
managers, there can be no assurance that we will be able to make similar
arrangements in future transactions. If our managers are unable to operate the
communities successfully, our financial condition could be adversely affected.
OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR
DIRECTORS AND OFFICERS ARE LIMITED.
Maryland law provides that a director or officer has no liability in that
capacity if he or she performs his or her duties in good faith, in a manner he
or she reasonable believes to be in our best interests and with the care that an
ordinarily prudent person in a like position would use in similar circumstances.
Our articles, in the case of our directors and officers, require us to indemnify
our directors and officers for actions taken by them in those capacities to the
extent permitted by Maryland law. As a result, we and our stockholders may have
more limited rights against our directors and officers than might otherwise
exist under common law. In addition, we may be obligated to fund the defense
costs incurred by our directors and officers.
MORTGAGE DEBT OBLIGATIONS EXPOSE US TO INCREASED RISK OF LOSS OF PROPERTY, WHICH
COULD HARM OUR FINANCIAL CONDITION.
We expect that all our apartment communities will be encumbered by
permanent mortgage financing. Incurring mortgage debt on our communities
increases our risk of loss because defaults on indebtedness secured by our
apartment communities may result in foreclosure actions initiated by lenders and
ultimately our loss of the community securing any loans which are in default.
For tax purposes, a foreclosure of any of our communities would be treated as a
sale of the community for a purchase price equal to the outstanding balance of
the debt secured by the mortgage. If the outstanding balance of the debt secured
by the mortgage exceeded our tax basis in the community, we would recognize
taxable income on foreclosure, but would not receive any cash proceeds. The loss
of part or all of our investment in a community could also cause the value of
our shares and the distributions payable to our stockholders to be reduced.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD SIGNIFICANTLY IMPEDE OUR ABILITY TO
RESPOND TO ADVERSE CHANGES IN THE PERFORMANCE OF OUR PROPERTIES AND HARM OUR
FINANCIAL CONDITION.
Because real estate investments are relatively illiquid, our ability to
promptly sell one or more apartment communities in our portfolio in response to
changing economic, financial and investment conditions is limited. The real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply
and demand, that are beyond our control. We cannot predict whether we will be
able to sell any community for the price or on the terms set by us, or whether
any price or other terms offered by a prospective purchaser would be acceptable
to us. We also cannot predict the length of time needed to find a willing
purchaser and to close the sale of a community.
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We may be required to expend funds to correct defects or to make
improvements before a community can be sold. We cannot assure you that we will
have funds available to correct those defects or to make those improvements. In
addition, the prohibition in the federal tax laws on REITs holding property for
sale and related regulations may affect our ability to sell communities without
adversely affecting distributions to stockholders.
IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS OF
OUR INSURANCE COVERAGE LIMITS, WE COULD LOSE INVESTED CAPITAL AND ANTICIPATED
PROFITS.
Catastrophic losses, such as losses due to wars, earthquakes, floods,
hurricanes, pollution or environmental matters, generally are either uninsurable
or not economically insurable, or may be subject to insurance coverage
limitations, such as large deductibles or co-payments. If one of these events
occurred to, or caused the destruction of, one or more of our communities, we
could lose both our invested capital and anticipated profits from that
community.
YOUR INTEREST IN OUR COMPANY MAY BE DILUTED IF WE ISSUE ADDITIONAL SHARES AND
YOUR DIVIDENDS MAY BE AFFECTED.
Potential investors in this offering do not have preemptive rights to any
shares issued by us in the future. Therefore, investors purchasing shares in
this offering may experience dilution of their equity investment in our company
in the event that we:
- sell additional shares in the future, including those issued pursuant to
the dividend reinvestment plan,
- sell securities that are convertible into shares,
- issue shares in a private offering of securities to institutional
investors,
- issue shares of common stock upon the exercise of options granted to our
independent directors or consultants and employees of our company, the
Advisor and affiliates, or
- issue shares to sellers of communities acquired by us.
Further, our board has the ability to issue shares of preferred stock with
rights senior to those of our common stock, which could include superior
dividend rights that could result in our common stockholders receiving no
dividend distributions.
RISKS RELATED TO THIS OFFERING
WE ARE DEPENDENT ON THE ADVISOR AND THE PROPERTY MANAGERS.
The Advisor, with approval from our board of directors, is responsible for
our daily management, including all acquisitions, dispositions and financings.
The Advisor, in turn, will retain third-party or affiliated managers on our
behalf who will be responsible for leasing, maintenance and other day-to-day
management of our communities. The board of directors may fire the Advisor or
any property manager, but only in certain circumstances. We cannot be sure that
the Advisor or any property manager will achieve our objectives or that the
board of directors will be able to act quickly to remove the Advisor or any
property manager if it deems removal necessary. As a result, it is possible that
we or one or more of our communities could be managed for some period by a
company that was not acting in our best interests or not capable of helping us
achieve our objectives.
WE HAVE LIMITED OPERATING HISTORY.
Prior to May 2, 2003, the date our operations commenced, we had no previous
performance history. To date, we have acquired interests in the apartment
communities described in this prospectus. You cannot be sure how we will be
operated, whether we will pursue the objectives described in this prospectus or
how we will perform financially.
17
PAYMENT OF FEES TO THE ADVISOR AND ITS AFFILIATES WERE NOT DETERMINED IN ARM'S
LENGTH NEGOTIATIONS AND WILL REDUCE CASH AVAILABLE FOR INVESTMENT AND
DISTRIBUTION.
The Advisor and its affiliates, including the Dealer-Manager, will perform
services for us in connection with the offer and sale of the shares, the
selection and acquisition of our properties and the management of our affairs on
a day-to-day basis. They will be paid fees for these services, which will reduce
the amount of cash available for investment in properties or distribution to
stockholders and which may reduce the price you will receive for any shares you
may sell. The fees we will pay to the Advisor and its affiliates were not
determined in arm's-length negotiations and are not based on our performance.
THE PERFORMANCE OF OUR PROPERTIES DURING THE PERIOD BEFORE OUR INITIAL LINE MUST
BE REPAID MAY NOT MEET OUR EXPECTATIONS.
We have made borrowings, on a non-recourse basis, under our $60,000,000
line of credit with BCP Funding, LLC, our affiliate and an affiliate of the
Advisor, to acquire interests in the apartment communities described in this
prospectus and which we will repay, with interest at the rate of 9.5% per year,
from the proceeds of this offering. We will pay additional interest on the loans
to the extent of available income from our communities, but not from the
proceeds of this offering. The proceeds of this offering will also be used to
repay approximately $8,100,000 of mezzanine debt (subordinate to the permanent
mortgage financing) encumbering the Seattle communities and to pay acquisition
fees and expenses, our organizational expenses and the expenses of this
offering. We have assumed that the net income from our communities will be
sufficient to cover the 9.5% interest that we must pay to BCP Funding, LLC, and
the 12% interest payable to the unaffiliated mezzanine lender. If our net income
is less than we anticipate, the amount of working capital that we will have
available to invest in our communities after the repayment of the loan will be
reduced, which could harm our ability to achieve our investment objectives and
to pay dividends.
IF WE DO NOT RAISE SUFFICIENT FUNDS TO REPAY THE AMOUNTS WE BORROWED TO ACQUIRE
OUR INTERESTS IN OUR COMMUNITIES, OUR LENDER WILL TAKE SOME OF THOSE INTERESTS.
We have a $60,000,000 line of credit with BCP Funding, LLC, our affiliate
and an affiliate of the Advisor, which we have drawn against to acquire
interests in the apartment communities described in this prospectus. This loan
is secured by our interests in those communities. If the minimum is raised, we
will repay the amounts we borrowed related to certain of our apartment
communities, and the lender will release its lien on our interests in those
properties. The lender's liens on the balance of the interests we currently own
will only be released if we raise sufficient additional funds to repay the
balance of the loan, which must in any case be repaid by May 31, 2004, subject
to a single six-month extension. If only the minimum is raised, and we cannot
otherwise repay the balance of the loan, we will lose our interests in all the
communities still subject to the liens of our line-of-credit lender.
STOCKHOLDERS MAY NOT BE ABLE TO LIQUIDATE THEIR INVESTMENT PROMPTLY AT A
REASONABLE PRICE.
There is no current public market for our shares, and, therefore, it will
be difficult for you to sell your shares promptly. In addition, the price
received for any shares sold is likely to be less than the proportionate value
of the interests in real estate we own and, due in part to the illiquidity of
our shares and the initial sales load, less than the initial public offering
price. Although it is possible that our common stock may be listed on a national
securities exchange or national securities market in the future, there is no
guarantee that such a listing can or will be accomplished or that a public
market for our shares will develop, or if one develops, that the price received
for any shares sold will equal or exceed the initial public offering price.
Stockholders should consider their investment in our company to be a long-term
investment.
YOU CANNOT EVALUATE ALL OF THE PROPERTIES WE MAY OWN.
Currently, we own interests in the apartment communities described in this
prospectus, representing 22% of the amount of the maximum offering. If we
continue to raise funds after we have raised amounts sufficient to repay all our
outstanding indebtedness under our initial loan agreement, we will acquire
interests in additional apartment
18
communities which the Advisor has not identified and which will be a blind pool
that you will not have the opportunity to evaluate. You must rely on the ability
of the Advisor to find suitable additional investments. We cannot guarantee that
the Advisor will be able to find additional investments meeting our investment
objectives or that any investment we have made or will make will generate income
for stockholders or increase in value over time. In addition, our board of
directors may approve additional future equity offerings or obtain additional
financing, the proceeds of which may be invested in additional communities.
Therefore, you will not have an opportunity to evaluate all of the communities
that will be in our portfolio.
LIMITED DIVERSIFICATION INCREASES RISK OF LOSS.
The number of communities that we will own interests in and the geographic
diversity of our investments will be reduced to the extent that the total
proceeds of this offering are less than $300,000,000. With limited diversity, an
apartment community with poor operating results can have a greater negative
effect on our operations as a whole. Currently, we own properties in the
Seattle, Washington, Portland, Oregon, Salt Lake City, Utah, and Jacksonville,
Florida, areas. If we raise only the offering minimum of $30,000,000, our
line-of-credit lender will release its liens on our Jacksonville communities,
and we will lose our interests in the balance of the communities we currently
own, and accordingly we will own only three communities.
OUR MANAGEMENT AND THAT OF THE ADVISOR HAVE LITTLE EXPERIENCE INVESTING IN
MARKET RATE APARTMENT COMMUNITIES AND NO EXPERIENCE OPERATING A REIT.
Although our management and that of the Advisor have extensive experience
in investing in apartment communities, as we describe in the section "Prior
Performance of Affiliates of Management," substantially all of this experience
was acquired by managing entities that invested in apartment communities
financed or operated, or both, with one or more forms of government subsidy. The
investment objectives of these affordable housing programs were to create
certain tax benefits in the form of tax losses or low-income housing and
rehabilitation tax credits. Distributions of current cash flow were not a
primary objective of these entities. The lack of substantial experience of our
management and its affiliates in investing in market rate apartment communities
may adversely affect our results of operations. Neither we nor the Advisor has
previously operated a REIT; however, officers of the Advisor have previously
managed market rate properties. During their 29-year history, the Advisor and
its affiliates and predecessors acquired 11,087 apartment units of which 2,663
were market rate units. However, they have not previously offered a fully market
rate community program. A REIT must operate in a manner that enables it to meet
complex requirements under the Internal Revenue Code. If we fail to qualify as a
REIT, we will be subject to increased taxation.
YOUR BROKER WILL EARN COMMISSIONS ON SHARES YOU PURCHASE PURSUANT TO OUR
DIVIDEND REINVESTMENT PLAN.
Brokers whose customers elect to participate in our dividend reinvestment
plan will receive a selling commission of seven percent and a fee of up to one
and one-half percent of the purchase price of the shares purchased by their
customers through the plan. This economic benefit may compromise the objectivity
of any recommendation your broker may make to you regarding your participation
in the plan.
YOU ARE LIMITED IN YOUR ABILITY TO SELL YOUR SHARES PURSUANT TO OUR SHARE
REDEMPTION PROGRAM.
Even though our share redemption program provides you with the opportunity
to redeem your shares for $9.30 per share (or the price you paid for the shares,
if lower than $9.30) after you have held them for a period of one year, you
should be fully aware that our share redemption program contains certain
restrictions and limitations. Shares will be redeemed on a first-come,
first-served basis and will be limited to the lesser of (i) during any calendar
year, 3% of the weighted average number of shares outstanding during the prior
calendar year, or (ii) the proceeds we receive from the sale of shares under our
dividend reinvestment plan such that in no event shall the aggregate amount of
redemptions under our share redemption program exceed aggregate proceeds
received from the sale of shares pursuant to our dividend reinvestment plan. Our
board of directors reserves the right to amend or terminate the share redemption
program at any time. In addition, the board of directors has delegated authority
to our officers to reject any request for redemption for any reason at any time.
Therefore, in making a decision to purchase shares
19
of our company, you should not assume that you will be able to sell any of your
shares back to us pursuant to our share redemption program.
AN INDEPENDENT UNDERWRITER WILL NOT MAKE AN INDEPENDENT INVESTIGATION OF OUR
COMPANY.
The Dealer-Manager of this offering will receive commissions and other
compensation as our agent. The Dealer-Manager has not retained counsel separate
from our counsel, but has conducted such due diligence investigation as it deems
necessary in the circumstances. However, because the Dealer-Manager is
affiliated with our management, investors will not have the benefit of an
independent investigation of our company as is customarily made by independent
underwriters.
THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK.
The initial public offering price of $10 per share was determined by our
board of directors after consultation with the Dealer-Manager, based on
prevailing market conditions and other factors, such as the prospects for our
company and the industry in which we compete. Our shares will not be listed on
any securities exchange or market, and there is no assurance that any market for
the shares will develop. The price received per share for any shares you sell is
likely to be less than the proportionate value of the real estate we own. It is
also possible that after the offering, the price received per share for any
shares you sell will be less than the initial public offering price.
CONFLICTS OF INTEREST RISKS.
We will be subject to conflicts of interest arising out of our
relationships with the Advisor and its affiliates, including the material
conflicts discussed below. The "Conflicts of Interest" section provides a
further discussion of the conflicts of interest between us and the Advisor and
its affiliates and our policies to reduce or eliminate certain potential
conflicts.
THERE ARE CERTAIN RELATIONSHIPS BETWEEN OUR COMPANY AND OTHER ENTITIES
PROVIDING SERVICES TO US. The Advisor is a wholly owned subsidiary of Boston
Capital Holdings Limited Partnership. John P. Manning, our Chairman and Chief
Executive Officer, owns the general partner of and a limited partner interest in
Boston Capital Holdings Limited Partnership. Boston Capital Holdings Limited
Partnership also owns 66?% of the Dealer-Manager. BCP Funding, LLC, our
line-of-credit lender, is a wholly owned subsidiary of Boston Capital Companion
Limited Partnership. Mr. Manning also owns the general partner of and a limited
partner interest in Boston Capital Companion Limited Partnership. Boston Capital
Companion Limited Partnership owns 20,000 shares of our common stock.
WE WILL EXPERIENCE COMPETITION FOR PROPERTIES. The Advisor will be
selecting properties for other programs and entities as well as for our company.
The selection of properties for our company may be subject to conflicts of
interest. We cannot be sure that the Advisor will act in our best interests when
deciding whether to allocate any particular property to us. You will not have
the opportunity to evaluate the manner in which these conflicts of interest are
resolved before making your investment.
THERE WILL BE COMPETING DEMANDS ON OUR OFFICERS AND DIRECTORS. Our
directors and officers, and the officers of the Advisor, have management
responsibilities for other companies including affiliated companies. For this
reason, these officers and directors will share their management time and
services among those companies and our company, will not devote all of their
attention to our company, and could take actions that are more favorable to the
other companies than to our company.
THE TIMING OF ACQUISITIONS AND SALES MAY FAVOR THE ADVISOR. The Advisor and
its affiliates may immediately realize 3% of the gross offering proceeds in
acquisition fees and 0.5% of the gross offering proceeds for acquisition
expenses as a result of any investment in a community by us. They may realize
subordinated disposition fees of 3% of the contract price for communities sold
after our stockholders receive a return of all of their capital plus a 6% annual
cumulative noncompounded return on capital. After stockholders have received
their return of capital and the 6% return on capital, the Advisor is entitled to
15% of the remaining net sales proceeds.
20
Our board of directors must approve any investments and sales, but the Advisor's
recommendation to the board may be influenced by the impact of the transaction
on the Advisor's compensation. The Advisor and its affiliates also will receive
monthly 1/12th of 0.75% of the amount invested in communities (including all
mortgage debt). The agreements between us and the Advisor were not the result of
arm's-length negotiations. As a result, the Advisor may not always act in our
best interests, which could adversely affect our results of operations.
WE HAVE BORROWED FROM AN AFFILIATE OF THE ADVISOR. BCP Funding, LLP, our
line-of-credit lender, is an affiliate of the Advisor. The negotiations for the
terms of the line of credit did not have the benefit of arm's-length
negotiations of the type that would be associated with borrowing from an
unaffiliated lender.
WE MAY INVEST WITH AFFILIATES OF THE ADVISOR. We may invest in joint
ventures with other programs sponsored by the Advisor or its affiliates. Our
board of directors, including the independent directors, must approve the
transaction, but the Advisor's recommendation may be affected by its
relationship with one or more of the co-venturers and may be more beneficial to
the other programs than to us. Such a joint venture with an affiliate might be
considered if an investment opportunity in apartment communities in the United
States was too large for us to invest in without a joint venture partner. Any
joint venture would have to be consistent with our investment objectives and
policies. Joint venture negotiations with affiliates would not have the benefit
of arm's-length negotiations.
THERE IS NO SEPARATE COUNSEL FOR OUR COMPANY, OUR AFFILIATES AND INVESTORS.
We may have interests that conflict with yours and those of our affiliates, but
none of us has separate counsel.
YOUR SUBSCRIPTION PAYMENT IS IRREVOCABLE.
Once we have accepted your subscription to purchase shares in this
offering, your subscription is irrevocable and you cannot withdraw your payment
for your shares unless we raise less than the $30,000,000 minimum.
TAX AND EMPLOYEE BENEFIT PLAN RISKS
IF WE FAIL TO REMAIN QUALIFIED AS A REIT, OUR DISTRIBUTIONS WILL NOT BE
DEDUCTIBLE BY US, AND OUR INCOME WILL BE SUBJECT TO TAXATION, REDUCING OUR
EARNINGS AVAILABLE FOR DISTRIBUTION.
We intend to qualify and to remain qualified as a REIT under the Internal
Revenue Code for as long as being so qualified affords us significant tax
advantages. The requirements for this qualification, however, are complex. If we
fail to meet these requirements, our distributions will not be deductible to us
and we will have to pay a corporate level tax on our income. This would
substantially reduce our cash available to pay dividends and your yield on your
investment in our stock. In addition, such a tax liability might cause us to
borrow funds, liquidate some of our investments or take other steps which could
negatively affect our operating results. Moreover, if our REIT status is
terminated because of our failure to meet a technical REIT requirement or if we
voluntarily revoke our election, we would generally be disqualified from
electing treatment as a REIT for the four taxable years following the year in
which REIT status is lost.
EVEN REITS ARE SUBJECT TO FEDERAL AND STATE INCOME TAXES.
Even if we qualify and maintain our status as a REIT, we may become subject
to federal income taxes and related state taxes. For example, if we have net
income from the sale or other disposition of inventory or property, other than
foreclosure property, held primarily for sale to customers in the ordinary
course of business, that income will be subject to applicable federal income
taxes and related state taxes. We may not be able to make sufficient
distributions to avoid excise taxes applicable to REITs. We may also decide to
retain income we earn from the sale or other disposition of a property and pay
income tax directly on that income. In that event, our stockholders would be
treated as if they earned that income and paid the tax on it directly. However,
stockholders that are tax-exempt, such as charities or qualified pension plans,
would have no benefit from their deemed payment of that tax liability. We cannot
assure you that we will be able to continue to satisfy the REIT requirements, or
that it will be in our best
21
interests to continue to so do. We may also be subject to state and local taxes
on our income, and our communities will be subject to property taxes.
AN INVESTMENT IN OUR COMMON STOCK MAY NOT BE SUITABLE FOR EVERY EMPLOYEE BENEFIT
PLAN.
When considering an investment in our common stock, an individual with
investment discretion over assets of any pension plan, profit-sharing plan,
retirement plan, IRA or other employee benefit plan covered by ERISA should
consider whether the investment satisfies the requirements of Section 404 of
ERISA or other applicable laws. In particular, attention should be paid to the
diversification requirements of Section 404(a)(3) of ERISA in light of all the
facts and circumstances, including the portion of the plan's portfolio of which
the investment will be a part. All plan investors should also consider whether
the investment is prudent and meets plan liquidity requirements as there may be
only a limited market in which to sell or otherwise dispose of our common stock,
whether the investment is permissible under the plan's governing instrument, and
whether the investment could be a prohibited transaction under ERISA or the
Internal Revenue Code. Also, the annual determination of the fair market value
of that plan's assets required of the fiduciary may be difficult because there
is no public market for the stock. We have not, and will not, evaluate whether
an investment in our common stock is suitable for any particular plan.
22
INVESTOR SUITABILITY STANDARDS
The shares we are offering are suitable only as a long-term investment for
persons of adequate financial means. Initially, we do not expect to have a
public market for the shares, which means that it may be difficult for you to
sell your shares. You should not buy these shares if you need to sell them
immediately or will need to sell them quickly in the future.
In consideration of these factors, we have established suitability
standards for initial stockholders and subsequent transferees. These suitability
standards require that a purchaser of shares have either:
- a net worth of at least $150,000; or
- a gross annual income of at least $45,000 and a net worth of at least
$45,000.
Net worth shall be determined exclusive of the value of a purchaser's home, home
furnishings and automobiles.
The minimum purchase is 100 shares ($1,000), except in certain states as
described below. You may not transfer fewer shares than the minimum purchase
requirement. In addition, you may not transfer, fractionalize or subdivide your
shares so as to retain less than the number of shares required for the minimum
purchase. In order to satisfy the minimum purchase requirements for retirement
plans, unless otherwise prohibited by state law, a husband and wife may jointly
contribute funds from their separate IRAs, provided that each such contribution
is made in increments of $100. You should note that an investment in shares of
our company will not, in itself, create a retirement plan and that, in order to
create a retirement plan, you must comply with all applicable provisions of the
Internal Revenue Code.
The minimum purchase for Maine, New York and North Carolina residents is
250 shares ($2,500), except for IRAs which must purchase a minimum of 100 shares
($1,000). The minimum purchase for Minnesota residents is 250 shares ($2,500),
except for IRAs and other qualified retirement plans which must purchase a
minimum of 200 shares ($2,000). Following an initial subscription for at least
the required minimum investment, any investor may make additional purchases in
increments of at least ten shares ($100), except for purchases made by residents
of Maine and Minnesota, whose additional investments must meet their state's
minimum investment amount, and purchases of shares pursuant to our dividend
reinvestment plan, which may be in lesser amounts.
Several states have established suitability standards different from those
we have established. Shares will be sold only to investors in these states who
meet the special suitability standards set forth below.
Arizona, California, Iowa, Massachusetts, Michigan, Missouri,
North Carolina and Tennessee - Investors must have either (i) a net worth of at
least $225,000 or (ii) gross annual income of $60,000 and a net worth of at
least $60,000.
Maine - Investors must have either (i) a net worth of at least $200,000 or
(ii) gross annual income of $50,000 and a net worth of at least $50,000.
Iowa, Michigan, Missouri, Ohio, Oregon and Pennsylvania - In addition to
our suitability requirements, investors must have a net worth of at least ten
times their investment in our company.
New Hampshire - Investors must have either (i) a net worth of at least
$250,000 or (ii) taxable income of $50,000 and a net worth of at least $125,000.
In the case of sales to fiduciary accounts, these suitability standards
must be met by the fiduciary account, by the person who directly or indirectly
supplied the funds for the purchase of the shares or by the beneficiary of the
account. These suitability standards are intended to help ensure that, given the
long-term nature of an investment in our shares, our investment objectives and
the relative illiquidity of our shares, our shares are an appropriate investment
for those of you desiring to become stockholders. Each participating
broker-dealer must make every reasonable effort to determine that the purchase
of shares is a suitable and appropriate investment for each
23
stockholder based on information provided by the stockholder in the subscription
agreement, a form of which accompanies this prospectus as Exhibit B. Each
participating broker-dealer is required to maintain for six years records of the
information used to determine that an investment in the shares is suitable and
appropriate for a stockholder.
ESTIMATED USE OF PROCEEDS
The following table sets forth information about how we intend to use the
proceeds raised in this offering assuming that we sell 3,000,000 shares and
30,000,000 shares, respectively, in the offering. Many of the figures set forth
below represent management's best estimate since they cannot be precisely
calculated at this time. We expect to invest at least 83% of the money we raise
in this offering in apartment communities, while the remaining up to 17% will be
used for working capital and to pay expenses and fees, including the payment of
fees to the Dealer-Manager and the Advisor.
[Enlarge/Download Table]
MINIMUM MAXIMUM
OFFERING OFFERING(1)
------------------ ------------------
Common stock offered 3,000,000 shares 30,000,000 shares
Shares of common stock outstanding after the offering 3,023,000 shares(2) 30,023,000 shares(2)
%
------
Estimated use of proceeds
Gross offering proceeds(3) $ 30,000,000 $ 300,000,000 100.0%
================== ==================
Less public offering expenses:
Selling commissions (3) 2,100,000 21,000,000 7.0%
Dealer-manager fee(3) 750,000 7,500,000 2.5%
Organization and offering expenses(4) 900,000 9,000,000 3.0%
------------------ ------------------ ------
Total offering expenses 3,750,000 37,500,000 12.5%
------------------ ------------------ ------
Amount available after offering expenses $ 26,250,000 $ 262,500,000 87.5%
================== ================== ======
Acquisition fees(5) 900,000 9,000,000 3.0%
Acquisition expenses(5) 150,000 1,500,000 .5%
Working capital reserve(6) 300,000 3,000,000 1.0%
------------------ ------------------ ------
Net available for investment in properties (by
repayment of debt, if outstanding)(7) $ 24,900,000 $ 249,000,000 83.0%
----------
(1) Excludes 1,500,000 shares that may be sold pursuant to the reinvestment
plan.
(2) The number of shares of common stock to be outstanding after this offering
excludes 2,400,000 shares reserved for issuance under our equity incentive
plan. No options are outstanding under the plan. The number also excludes
97,000 of the 100,000 shares reserved for issuance under our independent
director stock option plan. Options to acquire 15,000 shares at $10 per
share are outstanding under the plan, 3,000 of which are currently
exercisable.
(3) Gross offering proceeds are calculated as if all shares are sold at $10 per
share and do not take into account any reduction in selling commissions.
See "Selling and Escrow Arrangements" for a description of the
circumstances in which selling commissions may be reduced. Selling
commissions are calculated assuming that commissions are not reduced in
connection with the purchase of any shares. The shares are being offered to
the public through Boston Capital Services, Inc., which will receive
selling commissions of 7% on all sales of shares and will act as
Dealer-Manager. The Dealer-Manager is an affiliate of the Advisor. Other
unaffiliated broker-dealers may be engaged to sell shares and be reallowed
selling commissions of up to 7% with respect to shares they sell. In
addition, up to 1.5% of the dealer-manager fee may be reallowed to
broker-dealers for
24
expenses incurred by them in selling the shares, in the sole discretion of
the Dealer-Manager. See "Selling and Escrow Arrangements" for a more
complete description of this fee.
(4) Includes among others legal, accounting, escrow, printing, registration,
qualification, distribution, filing and other accountable expenses incurred
in connection with the organization of our company, the structuring of our
company's investments and the offering of shares. If the organization and
offering expenses exceed 3% of the total offering proceeds, the excess will
be paid by the Advisor and not by us.
(5) Consists of legal and accounting fees and travel, communication and other
expenses to be paid to third parties and amounts to be paid to the Advisor
for selecting, evaluating, negotiating and closing our company's
investments in apartment communities.
(6) Money in the working capital reserve will be available for contingencies
relating to the operation, management and administration of the apartment
communities and our company, to the extent other funds are not so
available. In addition, funds held in the working capital reserve can be
used for option and/or other payments and interest expense incurred (all to
unaffiliated third parties) to secure the acquisition of apartment
communities. Working capital reserves will not be used to pay additional
compensation, expenses or fees to insiders or affiliates.
(7) At a minimum, the amount of offering proceeds which will be invested in
apartment communities (or to retire debt used to acquire apartment
communities) will be 83% of the total offering proceeds. At the first
closing, and at each subsequent closing when there are borrowings
outstanding under our line of credit that were used to acquire our
interests in apartment communities, we will apply the net available for
investment in properties to the repayment of those borrowings. As we repay
the borrowings used to acquire our interest in an apartment community in
accordance with the terms of our loan agreement, the lender will release
its lien on our interest in that apartment community. Assuming the
communities themselves are encumbered by mortgages equal to a maximum of
65% of their value, which will not be repaid from the proceeds of this
offering, the communities in which we will have an interest will have a
value of approximately $47,000,000 if the minimum is raised and
$700,000,000 if the maximum is raised.
DIVIDEND POLICY
After this offering, we intend to pay regular quarterly dividends to
holders of our common stock. Any distributions we make, however, will be at the
discretion of our board of directors, in accordance with our earnings, cash
flow, capital needs and general financial condition. We intend to pay our first
dividend with respect to the first full quarter ending after the first closing
date. We cannot assure you that our intended dividend policy will be sustained.
Our actual results of operations may differ materially from our current
expectations. Our actual results of operations and, accordingly, cash available
for distribution as quarterly dividends, will be affected by a number of
factors, including the revenue we receive from our communities, our operating
expenses, interest expense, the ability of our residents to meet their
obligations and unanticipated expenditures. For more information regarding risk
factors that could materially adversely affect our actual results of operations,
please see "Risk Factors," beginning on page __. In addition, variations in the
net proceeds from this offering as a result of a failure to sell the maximum
number of shares offered may affect our cash available for distributions and
available reserves, which may affect our ability to pay the contemplated
dividends.
We are required to make distributions sufficient to satisfy the
requirements for qualification as a REIT for tax purposes. Our board's
discretion as to the payment of dividends will be directed, in substantial part,
by its obligation to cause us to comply with the REIT requirements. Generally,
income distributed as dividends will not be taxable to us under federal income
tax law if we distribute annually at least 90% of our REIT taxable income. For
more information, please see "Material United States Federal Income Tax
Considerations - Taxation of the Company - Annual Distribution Requirements."
Taxable income and actual cash available for distribution are not the same. We
anticipate that our estimated cash available for distribution as quarterly
dividends will exceed the annual distribution requirements applicable to REITs.
However, in some circumstances, we may be required to pay distributions in
excess of cash available for distributions in order to meet these distribution
requirements, and we may need to borrow funds to make these required
distributions.
25
BUSINESS AND PROPERTIES
OVERVIEW
We are a newly-formed Maryland corporation. Assuming the sale of at least
3,000,000 shares in this offering, we will operate as a REIT that will own
interests in, lease and maintain apartment communities in the United States,
typically multifamily garden apartments and select mid-rise properties of 150 or
more rental units that are located in suburban or metropolitan areas.
Generally, our interests in each community (or, where appropriate, in each
related group of communities) will be owned by a limited liability company or
other entity wholly owned by us. The communities themselves will be owned by
subsidiaries of limited liability companies in which our subsidiary-owner
companies will own the equity interest and in which unaffiliated third parties
will have a subordinated economic interest. Decisions relating to the purchase
and sale of interests in communities will be made by the Advisor, subject to the
approval of our board of directors. Our communities will be managed by
third-party managers selected by the Advisor and approved by our board of
directors. Currently, our communities in Seattle, Portland and Salt Lake City
are managed by Pinnacle Realty Management Company, and our Jacksonville
communities are managed by Bainbridge Management Jacksonville LLC, neither of
which is affiliated with us or the Advisor. We may hire Pinnacle or Bainbridge
to manage other communities if those communities are in areas in which Pinnacle
or Bainbridge does business and the Advisor and our board determines that
Pinnacle or Bainbridge is the best choice.
PROPERTIES
The apartment communities we own interests in are described below.
Typically, a wholly owned subsidiary of our company owns limited liability
company interests (representing all of the equity) in a limited liability
company that owns, through wholly owned subsidiaries, a group of apartment
communities. The manager of the LLC that owns apartment communities through
wholly owned subsidiaries is typically an affiliate of the property manager, and
typically has a small economic interest in the LLC. We have the right to remove
and replace the LLC manager at any time without cause. We believe that this
arrangement is an appropriate incentive to encourage performance by the manager
of the LLC. In the future, we may also own communities directly, or through
joint ventures with affiliated or unaffiliated third parties.
The following chart shows the basic structure of our investment in each
community:
REIT
|
|100%
|
REIT Subsidiary in which the REIT
Has a 100% Ownership and
Economic Interest
|
|100%
|
100%-owned Entity in which an
Unaffiliated Third Party Shares an
Economic Interest Subordinate to
the REIT's
|
|100%
|
Entity Holding Title to the
Community
The aggregate purchase price for our interests in our apartment communities
was approximately $56,600,000, and we acquired them by borrowing that amount
under our line of credit with BCP Funding, LLC. If the minimum is raised, we
will repay the $25,000,000 borrowing under this line of credit related to our
interests in our Jacksonville communities, and our line-of-credit lender will
release its lien on those interests, but not its liens on the balance of our
interests in communities, which will only be released if we raise sufficient
additional funds in this offering to repay the balance of the loan. Assuming we
raise sufficient additional funds, we will repay the balance
26
in one or more installments, as additional closings are held, first repaying our
borrowings related to our Portland and Salt Lake City communities, and then
repaying our borrowings related to our Seattle communities. In the tables below
the apartment communities are listed in the order in which we currently intend
to repay the related line of credit borrowings. Under the terms of our line of
credit, we must repay our borrowings related to any group of communities on a
group basis, and not on a community-by-community basis. In any case we must
repay all amounts due under the line by May 31, 2004, subject to a single
six-month extension. Each time a portion of the outstanding balance of the loan
is repaid, our line-of-credit lender will release its lien on our interests in
the communities acquired with the proceeds of the repaid loan. The line of
credit is non-recourse to our company, and there is no provision for
cross-collateralization between communities which are no longer (or have not
been) financed with the line of credit, and those that are still financed with
it. If only the minimum is raised, and we cannot otherwise repay the balance of
the loan, we will lose our interests in all but the Jacksonville communities.
The Seattle apartment communities are also encumbered by approximately
$8,100,000 of mezzanine debt from a third-party lender, which we will repay from
the proceeds of this offering when we repay the line-of-credit loans related to
those communities. All of the apartment communities we have acquired interests
in are further encumbered by an aggregate of approximately $[112,557,000] of
permanent mortgage debt, which will not be repaid from the proceeds of this
offering. All required debt payments have been made to date.
As to our apartment communities which are no longer (or have not been)
financed with our current or any replacement line of credit, we do not currently
intend to have mortgage debt on those communities in excess of 55% to 65% of
their total asset value or total debt on those communities in excess of 73% of
their total asset value.
We will supplement or amend this prospectus from time to time when we have
identified additional communities for acquisition.
27
INFORMATION CONCERNING THE JACKSONVILLE COMMUNITIES
[Enlarge/Download Table]
NAME LOCATION NUMBER MORTGAGE PROPERTY
OF OF OF MONTHLY PURCHASE PERMANENT INTEREST MANAGEMENT ANNUAL PROPERTY
COMMUNITY PROPERTY UNITS RENTS AT CLOSING(1) PRICE(2) MORTGAGE LOAN RATE AGENT MANAGEMENT FEE
------------- --------------- ------ --------------------- ------------ ------------- -------- ------------ ---------------
1. Spicewood East 512 $ 549 - 625 1BR $ 30,579,666 $ 19,100,000 4.26% Bainbridge 3.5% of
Springs (Jacksonville), $ 730 - 850 2BR(3) Berkshire Management Gross Income
Florida Mortgage Jacksonville
Company(4) LLC
2. Bay Pointe Southside 300 $ 550 1BR $ 17,815,831 $ 9,800,000 4.32% Bainbridge 3.5% of
(Jacksonville), $ 640 2BR(5) Berkshire Management Gross Income
Florida Mortgage Jacksonville
Company(6) LLC
3. Oaks At Jacksonville 228 $ 460 - 540 1BR $ 11,428,227 $ 6,474,000 4.32% Bainbridge 3.5% of
Timuquana Heights $ 650 - 705 2BR Berkshire Management Gross Income
(Jacksonville), $ 781 3BR(7) Mortgage Jacksonville
Florida Company(8) LLC
----------
(1) Exclusive of utilities and rent concessions of up to one month that may be
offered occasionally on select units, unless otherwise noted.
(2) Including closing costs, funds escrowed to pay for renovations, and
operating reserves.
(3) Spicewood Springs is undergoing a $1,248,697 renovation and repositioning
of the property. Upon completion the monthly rents are projected to be
$563-645 on 1BR and $755-883 on 2BR.
(4) The principal amount of the mortgage as of September 30, 2003 was
$19,100,000, with a remaining term of six years. The original mortgage loan
is for a seven-year term with seven years at interest only.
(5) Bay Pointe is undergoing a $4,790,827 renovation and repositioning of the
property. Upon completion the monthly rents are projected to be $674 on 1BR
and $787 on 2BR.
(6) The principal amount of the mortgage as September 30, 2003 was $9,800,000,
with a remaining term of six years. The original mortgage loan is for a
seven-year term with seven years at interest only.
(7) Oaks at Timuquana is undergoing a $2,240,841 renovation and repositioning
of the property. Upon completion the monthly rents are projected to be
$495-550 on 1BR, $715-755 on 2BR and $825 on 3BR.
(8) The principal amount of the mortgage as of September 30, 2003 was
$6,474,000, with a remaining term of six years. The original mortgage loan
is for a seven-year term with seven years at interest only.
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INFORMATION CONCERNING THE PORTLAND AND SALT LAKE CITY COMMUNITIES
[Enlarge/Download Table]
NAME LOCATION NUMBER MORTGAGE PROPERTY
OF OF OF MONTHLY PURCHASE PERMANENT INTEREST MANAGEMENT ANNUAL PROPERTY
COMMUNITY PROPERTY UNITS RENTS(1) PRICE(2) MORTGAGE LOAN RATE(3) AGENT MANAGEMENT FEE
------------------ ------------ ------ --------------- ------------ ------------------ ------- --------------- ---------------
4. Boulder Creek Wilsonville 296 $ 602 1BR $ 17,742,642 $ 11,375,000 4.52% Pinnacle Realty 3.5% of
(Portland), $635 - 685 2BR Berkshire Mortgage Management Gross Income
Oregon $ 819 3BR Company(4) Company
5. Bridge Creek Wilsonville 315 $ 589 1BR $ 20,242,177 $ 12,958,000 4.52% Pinnacle Realty 3.5% of
(Portland), $ 700 2BR Berkshire Mortgage Management Gross Income
Oregon $ 834 3BR Company(5) Company
6. Settler's Point Taylorsville 416 $539 - 587 1BR $ 23,396,250 $ 15,000,000 4.52% Pinnacle Realty 3.5% of
(Salt Lake $630 - 703 2BR Berkshire Mortgage Management Gross Income
City), Utah Company(6) Company
----------
(1) Exclusive of utilities and rent concessions of up to one month that may be
offered occasionally on select units, unless otherwise indicated.
(2) Including closing costs, funds escrowed to pay for renovations, and
operating reserves.
(3) Under the terms of our LLC agreement with GFS Equity Management, Inc., we
would have been responsible for 75% of the rate lock deposit fee in the
event the loan failed to close and GFS Equity Management LLC would have
been responsible for 25%. We had a choice of accepting an interest rate of
4.60% with a rate lock deposit that had more favorable refund terms than
the alternative rate of 4.52%. In order to secure the lower rate and also
to mitigate the risk of losing the rate lock deposit, GFS Equity Management
LLC agreed to assume 100% of the risk of loss on the rate lock deposit in
return for receiving 75% of the spread between the two interest rates
(.06%). This additional interest payment will be paid from cash flow to GFS
Equity Management LLC throughout the duration of the loan term
contemporaneously with the payments on the first mortgage loans.
(4) The principal amount of the mortgage as of September 30, 2003 was
$11,375,000, with a remaining term of nine years. The original mortgage
loan is for a 10-year term with seven years at a fixed interest rate at
4.52% and a floating rate for the last three years. During the last three
years of the loan term, the loan term can be extended for five years and a
five-year fixed rate note can be executed.
(5) The principal amount of the mortgage as of September 30, 2003 was
$12,958,000, with a remaining term of nine years. The original mortgage
loan is for a 10-year term with seven years at a fixed interest rate at
4.52% and a floating rate for the last three years. During the last three
years of the loan term, the loan term can be extended for five years and a
five-year fixed rate note can be executed.
(6) The principal amount of the mortgage as of September 30, 2003 was
$15,000,000, with a remaining term of nine years. The original mortgage
loan is for a 10-year term with seven years at a fixed interest rate at
4.52% and a floating rate for the last three years. During the last three
years of the loan term, the loan term can be extended for five years and a
five-year fixed rate note can be executed.
29
INFORMATION CONCERNING THE SEATTLE COMMUNITIES
[Enlarge/Download Table]
NAME LOCATION NUMBER MORTGAGE PROPERTY
OF OF OF MONTHLY PURCHASE PERMANENT INTEREST MANAGEMENT ANNUAL PROPERTY
COMMUNITY PROPERTY UNITS RENTS(1) PRICE(2) MORTGAGE LOAN RATE AGENT MANAGEMENT FEE
-------------- ---------- ------ ----------- ------------ ------------------ -------- ------------------ ---------------
7. Alderwood Lynnwood 188 $ 752 1BR $ 13,397,470 $ 9,210,000 4.67% Pinnacle Realty 3.5% of
(Seattle), $ 863 2BR Berkshire Mortgage Management Company Gross Income
Washington Company(3)
8. Ridgegate Kent 153 $ 742 1BR $ 10,786,486 $ 7,420,000 4.67% Pinnacle Realty 3.5% of
(Seattle), $ 887 2BR Berkshire Mortgage Management Company Gross Income
Washington $ 1,026 3BR Company(4)
9. Ridgetop Silverdale 221 $ 720 1BR $ 14,076,016 $ 9,690,000 4.67% Pinnacle Realty 3.5% of
(Seattle), $ 824 2BR Berkshire Mortgage Management Company Gross Income
Washington $ 970 3BR Company(5)
10. Wellington Silverdale 240 $ 720 1BR $ 16,044,073 $ 11,530,000 4.67% Pinnacle Realty 3.5% of
(Seattle), $ 890 2BR Berkshire Mortgage Management Company Gross Income
Washington $ 1,004 3BR Company(6)
----------
(1) Exclusive of utilities and rent concessions of up to one month that may be
offered occasionally on select units, unless otherwise indicated.
(2) Including closing costs, funds escrowed to pay for renovations, and
operating reserves.
(3) The principal amount of the mortgage as of September 30, 2003 was
$9,210,000, with a remaining term of nine years. The original mortgage loan
is for a 10-year term with five years at interest only. Beginning in
January 2008 we can fix the interest rate for the remaining five years at
170 basis points over the interest rate on a five-year Treasury Bill.
(4) The principal amount of the mortgage as of September 30, 2003 was
$7,420,000, with a remaining term of nine years. The original mortgage loan
is for a 10-year term with five years at interest only. Beginning in
January 2008 we can fix the interest rate for the remaining five years at
170 basis points over the interest rate on a five-year Treasury Bill.
(5) The principal amount of the mortgage as of September 30, 2003 was
$9,690,000, with a remaining term of nine years. The original mortgage loan
is for a 10-year term with five years at interest only. Beginning in
January 2008 we can fix the interest rate for the remaining five years at
170 basis points over the interest rate on a five-year Treasury Bill.
(6) The principal amount of the mortgage as of September 30, 2003 was
$11,530,000, with a remaining term of nine years. The original mortgage
loan is for a 10-year term with five years at interest only. Beginning in
January 2008 we can fix the interest rate for the remaining five years at
170 basis points over the interest rate on a five-year Treasury Bill.
30
JACKSONVILLE, FLORIDA, COMMUNITIES
We own interests in three apartment communities in Jacksonville, Florida -
Spicewood Springs, Bay Pointe and Oaks at Timuquana. To acquire these interests,
we borrowed approximately $25,000,000 under our line of credit with BCP Funding,
LLC. This amount includes the equity required to purchase the properties,
initial capital requirements for planned renovations, establishment of operating
reserves and costs associated with our line of credit with BCP Funding, LLC,
with respect to the transaction. In addition, the Jacksonville communities are
encumbered with $35,374,000 of first mortgage debt as of September 30, 2003. We
will repay the outstanding portion of our line of credit attributable to these
communities from the proceeds of this offering. The outstanding mortgage
indebtedness on the Jacksonville communities will not be repaid with the
proceeds of this offering, and will continue to encumber the communities in
accordance with the terms of the mortgage loans.
We acquired our interests in the Jacksonville communities by forming a
wholly owned subsidiary, BCMR Jacksonville, LLC, to acquire a 100% member
interest in BC-Bainbridge LLC. We paid $24,409,639 for our interest.
BC-Bainbridge LLC owns legal fee simple title to the communities through three
wholly owned subsidiaries. The manager of BC-Bainbridge LLC is Bainbridge
Jacksonville LLC, a third party which is not affiliated with us or the Advisor.
Bainbridge Jacksonville LLC is entitled to participate in cash
distributions of BC-Bainbridge LLC after we have received asset management fees
and a preferred return. We will receive a $50 per unit annual asset management
fee and then a 12% preferred return on our unreturned capital contributions
(which initially were $24,409,639). We will then share 50/50 with Bainbridge
Jacksonville LLC in all remaining income from operations of the Jacksonville
communities. Proceeds from the sale of any of the Jacksonville communities will
first be distributed to pay us a 1% sales analysis fee, and then to pay us any
unpaid asset management fees. Remaining sale proceeds will be distributed to us
until we have received a return of our capital contributions (taking into
account prior distributions) plus a 16% per annum rate of return on our capital
contributions. We will then receive 75% and Bainbridge Jacksonville LLC will
receive 25% of any remaining sale proceeds. There is no guarantee that any
preferred return will be sufficient for us to make any distribution to
stockholders. We believe that this arrangement is an appropriate incentive to
encourage performance by Bainbridge Jacksonville LLC. We can remove Bainbridge
Jacksonville LLC without cause at any time.
SPICEWOOD SPRINGS APARTMENTS
Spicewood Springs Apartments is an existing multifamily apartment complex
consisting of 512 units located in suburban Jacksonville, Florida. The community
consists of 26 two-story and three-story buildings on a landscaped setting and
includes the following interior amenities: central air conditioning, dishwasher,
frost-free refrigerator, electric stove/oven, garbage disposal, ceiling fans,
kitchen pantry, wall-to-wall carpeting, walk-in closets, patios/balconies, cable
access, high speed internet access, storage closet and some units contain
wood-burning fire places. The development also includes the following exterior
amenities: 2 swimming pools, BBQ/picnic area, resident lounge, resident kitchen,
fitness center, tennis courts, outdoor basketball court, volleyball court,
controlled gated access and perimeter fencing. There are 328 one-bedroom units
and 184 two-bedroom units. The apartment units have an average size of 759
square feet. The community was constructed in two phases; phase I in 1985 and
phase II in 1987.
The purchase price for the community was $30,579,866, paid as follows: (i)
$28,000,000 to the unaffiliated seller; (ii) $1,007,669 in customary closing
costs; (iii) $1,248,697 for renovation costs; (iv) $47,482 in operating
reserves; and (v) $275,818 in preferred return reserves. The closing occurred on
May 29, 2003, and the purchase price was funded by a combination of first
mortgage debt and borrowings on our credit line. The independently appraised
value of the community at the time of closing was $29,400,000. With current
first mortgage debt in the principal amount of $19,100,000, the community's
loan-to-value ratio is 65%. We will only be liable to the community and its
creditors up to the amount of our initial capital in the community.
31
The property management agent is Bainbridge Management Jacksonville LLC,
which is affiliated with Bainbridge Jacksonville LLC. Bainbridge has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Bainbridge does not manage communities not owned by us
that compete with our communities in the Jacksonville market.
The following chart details the anticipated renovations which will take place
at the property and will be paid for through funds escrowed from the purchase
price:
[Enlarge/Download Table]
PROJECT ESTIMATED COST
------------------------------------------------------------------------------------------
Sitework - Exterior Common Areas $ 157,675
Pool - Recreation Areas 6,000
Leasing Center Furniture and Paint Fitness Center 25,000
Maintenance Building Exterior Upgrades 10,000
Roof repairs/Chimney Flashing 37,610
Gutter and Downspout Repairs 7,800
Exterior Painting 160,550
Breezeway Area Repair 115,986
Rough Carpentry: Trim, Siding, Balcony and Stair Landings 54,600
Termite Treatment and Repairs Allowance 40,000
Carpet and Vinyl Replacement 45,568
Add Combination Washers/Dryers in 196 1 Bedroom Units 302,131
Apartment Entry Doors w/Hardware and Signage 12,544
Mechanical: HVAC, Plumbing and Electrical Repairs 76,800
MEP Engineer and Landscape Architect 10,000
Contingency and General Conditions/Overhead 126,971
------------------------------------------------------------------------------------------
Sub-Total $ 1,189,235
Construction Management Fee (5%) 59,461
------------------------------------------------------------------------------------------
TOTAL $ 1,248,697
------------------------------------------------------------------------------------------
Renovations on the property have begun and are expected to be completed in
July, 2004. It is not anticipated that there will be any material relocation or
loss of tenants during the renovation. Nevertheless, a preferred return reserve
in the amount of $275,818 was funded from the proceeds of the purchase price and
is available to supplement the income of the community during the renovation
process to the extent needed. Proceeds from the preferred return reserve can be
used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
preferred return reserve is being held in escrow at Wainwright Bank & Trust Co.
and any withdrawals from this reserve require our consent and signature.
After completion of the renovations, it is anticipated that the physical
condition of the community will be sufficiently enhanced to allow us to obtain
higher rents. Based upon third-party market studies commissioned by us, monthly
rents are expected to increase to between $14 and $20 for one-bedroom units and
between $25 and $33 for two-bedroom units.
All of the leased space is residential with leases ranging from an initial
term of six months to one year. The average historical occupancy rate is as
follows:
[Download Table]
YEAR END DECEMBER 31,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
94% 95% 94% 92% 92%
As of September 30, 2003, the property's occupancy rate was 95%.
32
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ 6,092/unit $ 6,136/unit $ 6,241/unit $ 6,454/unit $ 6,343/unit
As shown above, the effective annual rental rate has grown at a steady pace
over the past few years other than in 2002. The dip in 2002 occurred when the
local multifamily apartment market weakened due to a weakening in the national
economy and lower interest rates, which enabled more potential tenants to move
into single family homes, resulting in a need to offer rent concessions in order
to maintain the occupancy rate. The property was purchased with a plan to
renovate and reposition it and it is management's belief that, as the national
economy and the local multifamily apartment market strengthens, which appears to
be occurring based on current occupancy rates, and the renovation and
repositioning of the property is completed, the annual rental rate per unit will
increase.
The community is located in the East Jacksonville submarket of
Jacksonville, Florida, an area which has historically had a high median income
(currently $53,322) and low residential vacancy rates (averaging 5.9% in 2002).
- The Spicewood Springs Apartments are located on 445 Monument Rd., at the
intersection of Regency Square Blvd. and Monument Rd. The neighborhood is a
mixture of mature multifamily developments, a wide range of
commercial-retail properties and single-family home subdivisions.
Proceeding north on Monument Rd. are mature multifamily properties in good
condition, single-family homes, open land and the entrance to State Route
9. Immediately south of the site along Monument Rd. are multifamily
properties in good condition, the entrance to the one million square foot
Regency Square Mall and the entrance to State Route 10. Across Monument Rd.
to the east is open space and single-family home subdivisions along Lee Rd.
Across Monument Rd. to the west is open space, single-family homes and
within four miles, the St. Johns River. In addition, the entrance to State
Route 113 is located approximately 500 yards from the subject along Regency
Square Blvd.
- On Monument Rd., directly north and adjacent to Spicewood Springs
Apartments, are the Oaks at Mill Creek Apartments. Constructed in 1987,
this 360-unit property is similar to Spicewood Springs Apartments in terms
of both unit mix and unit size. About one mile south of the Oaks at Mill
Creek Apartments is Regency Place Apartments, consisting of 120 apartments
that were constructed in 1996. One mile southwest from Regency Place
Apartments, on Beacon Point Drive, is The Waterford at Regency Apartments,
a 159-unit community that was constructed in 1985. About one and one-half
miles north of Spicewood Springs Apartments is Paddock Club Apartments,
consisting of 440 units that were constructed in 1990. All of these
properties have similar amenities to those found at Spicewood Springs
Apartments and they all share a common attribute of multifamily
developments in the area, mature landscaping and park-like settings.
To continue to compete well with these properties, management has
implemented an aggressive marketing campaign and we have started the
renovations, which will increase the exterior curb appeal and provide upgrades
to the interior of the apartment units, as shown in the renovation table above.
This strategy along with the strong demand for multifamily housing should keep
Spicewood Springs competitive in the market.
BAY POINTE APARTMENTS
Bay Pointe Apartments is an existing multifamily apartment complex
consisting of 300 units located in suburban Jacksonville, Florida. The community
consists of 15 two-story buildings on a landscaped setting and includes the
following interior amenities: central air conditioning, dishwasher, frost-free
refrigerator, electric stove/oven, garbage disposal, kitchen pantry,
wall-to-wall carpet, patios/balconies, cable access, walk-in closets and storage
closet. Exterior amenities include: swimming pool, BBQ/picnic area, resident
lounge, fitness center, tennis
33
courts, outdoor basketball court, volleyball court, child's playground and
perimeter fencing. There are 120 one-bedroom units and 180 two-bedroom units.
The apartment units have an average size of 971 square feet. This community was
constructed in 1974.
The purchase price for the community was $17,815,831, paid as follows: (i)
$11,690,000 to the unaffiliated seller of the property; (ii) $673,529 in
customary closing costs; (iii) $4,790,827 in renovation costs; (iv) $201,340 in
operating reserves; and (v) $460,135 in preferred return reserves. The closing
occurred on May 22, 2003, and the purchase price was funded by a combination of
first mortgage debt and borrowings on our credit line. The independently
appraised value of the community at the time of closing was $14,200,000. With
current first mortgage debt in the principal amount of $9,800,000, the
community's loan-to-value ratio is 69.01%. We will only be liable to the
community and its creditors up to the amount of our initial capital in the
community.
The property management agent is Bainbridge Management Jacksonville LLC,
which is affiliated with Bainbridge Jacksonville LLC. Bainbridge has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Bainbridge does not manage communities not owned by us
that compete with our communities in the Jacksonville market.
The following chart details the anticipated renovations which will take
place at the property and will be paid for through funds escrowed from the
purchase price:
[Enlarge/Download Table]
PROJECT ESTIMATED COST
------------------------------------------------------------------------------------------
Sitework - Exterior Common Areas $ 132,125
Pool - Recreation Areas 61,000
Trash Enclosure Systems 11,400
Leasing Center Exterior Upgrades 10,000
Maintenance Building Interior Upgrades 5,000
Laundry Facility Exterior Upgrades 10,000
Plywood Deck Replacement 15,000
Shingle Replacement with Architectural Shingles 174,000
Gutter and Downspout Repairs 52,500
Installation of Vinyl Siding 750,000
Rough Carpentry: Wood Repair and General Exterior Repairs
and Upgrades 84,800
Site Drainage 20,000
Termite Treatment and Repairs Allowance 55,000
Apartment Entry Doors w/Hardware and Signage 52,500
Drywall, Painting and Replacing Light Fixtures 180,000
Flooring (Carpet and Vinyl) 330,000
Kitchen Cabinets 360,000
Kitchen Appliances 229,500
Plumbing Fixtures in Kitchens 45,000
Bathroom Fixtures and Accessory Upgrades 276,000
Replace Window Blinds 52,500
Add Stackable Washers/Dryers 600,000
Miscellaneous Interior Items 55,500
Mechanical: HVAC, plumbing and electrical repairs 455,625
MEP engineer and landscape architect 59,017
Contingency and general conditions/overhead 486,226
------------------------------------------------------------------------------------------
Sub-Total $ 4,562,693
Construction Management Fee (5%) 228,134
------------------------------------------------------------------------------------------
TOTAL $ 4,790,827
------------------------------------------------------------------------------------------
34
Renovations on the property have begun and are expected to be completed in
October 2004. It is anticipated that there will be some relocation or loss of
tenants during the renovations. A preferred return reserve in the amount of
$460,135 was funded from the proceeds of the purchase price and is available to
supplement the income of the community during the renovation process to the
extent needed. Proceeds from the preferred return reserve can be used to
supplement the income of the community sufficient for us to make distributions
to investors in accordance with our investment objectives. This preferred return
reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
After completion of the renovations, it is anticipated that the physical
condition of the community will be sufficiently enhanced sufficient to allow us
to obtain higher rents. Based upon third-party market studies commissioned by
us, monthly rents are expected to increase to $674 for one-bedroom units and
$787 for two-bedroom units.
All of the leased space is residential with leases ranging from an initial
term of six months to one year. The average historical occupancy rate is as
follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
91% 93% 94% 94% 90%
As of September 30, 2003, the occupancy rate was 88%. Approximately 22
units were under renovation, however. Not including these units, the occupancy
rate would be 95%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ 5,131/unit $ 5,483/unit $ 5,715/unit $ 5,961/unit $ 5,968/unit
As shown above, the effective annual rental rate has grown at a steady pace
over the past few years. Vacancy increased slightly in 2002 due to a weakening
in the national economy and lower interest rates, which enabled more potential
tenants to move into single family homes, leading to a slight weakening in the
local multifamily apartment market. The effective annual rental rate grew
slightly, however, which should lead to higher revenue when the market recovers,
which appears to be occurring based on current occupancy rates. In addition, the
property was purchased with a plan to renovate and reposition it and it is
management's belief that, as the renovation and repositioning of the property is
completed, the annual rental rate per unit will increase further.
The community is located in the Southside submarket of Jacksonville, Florida,
an area which has historically had high median income (currently $53,155) and
low residential vacancy rates (averaging 5.3% in 2002).
- The Bay Pointe Apartments are located on Baymeadows Rd. approximately on
and a quarter miles west from Highway 1. The neighborhood is a mixture of
mature multifamily developments, a wide range of commercial-retail, and
single-family subdivisions. Immediately north across Baymeadows Rd. are
recently built office condos with dentists and other professional tenants.
Immediately south of the site is Graven Rd. and a single-family home
neighborhood in good condition. Adjacent to the site on the east is a
retention pond. East of the pond is Baymeadows Baptist Day School and
Kindergarten. Further east along Baymeadows Rd. are single-family homes,
small strip malls with restaurants, banks and personal services all in very
good condition. Adjacent to the site on the west is another retention pond.
West of the pond is the intersection of Graven Rd. and Baymeadows Rd. and
the Beauclerc Elementary School.
35
- On Princeton Square Blvd. East, directly east from Bay Pointe, is Princeton
Square Apartments. Built in 1983, the 288-unit property has a similar unit
mix and range of unit sizes. About one block south of Princeton Square is
Bentley Green Apartments, with 444 apartments built in 1973. One mile
northeast from Bentley Green Apartments, on Southside Blvd., is the
Preserves at Deerwood, a 226-unit community built in 1997. About three and
one-half miles north of The Preserves at Deerwood is the Antlers with 217
units built in 1970. All of these properties have similar amenities to
those at Bay Pointe and share a common attribute of multifamily
developments in the area, mature landscaping and park-like settings. The
Antlers and Bentley Green Apartments recently underwent significant
renovations and reflect the anticipated comparable end result projected for
Bay Pointe Apartments upon completion of its respective rehab.
To continue to compete well with these properties, management has
implemented an aggressive marketing campaign and we have started the
renovations, which will increase the exterior curb appeal and provide
significant upgrades to the interior of the apartment units, as shown in the
renovation table above. This strategy along with the strong demand for
multifamily housing should keep Bay Pointe competitive in the market.
OAKS AT TIMUQUANA APARTMENTS
Oaks at Timuquana Apartments is an existing multifamily apartment complex
consisting of 228 units located in suburban Jacksonville, Florida. The community
consists of 22 two-story buildings on a landscaped setting and includes the
following interior amenities: central air conditioning, dishwasher, frost free
refrigerator, electric stove/oven, garbage disposal, kitchen pantry,
wall-to-wall carpet, patios/balconies, cable access, walk-in closets and storage
closet. Exterior amenities include: swimming pool, BBQ/picnic area, resident
lounge, fitness center, tennis courts, outdoor basketball court, volleyball
court, child's playground and perimeter fencing. There are 96 one-bedroom units,
88 two-bedroom units and 44 three-bedroom units. The apartment units have an
average size of 921 square feet. The community was constructed in 1971.
The purchase price for the community was $11,498,227, paid as follows: (i)
$7,690,000 to the unaffiliated seller of the property; (ii) $1,188,788 in
customary closing costs; (iii) $2,240,841 in renovation costs; (iv) $76,540 in
operating reserves; and (v) $302,058 in preferred return reserves. The closing
occurred on May 22, 2003, and the purchase price was funded by a combination of
first mortgage debt and borrowings on our credit line. The independently
appraised value of the community at the time of closing was $9,640,000. With
current first mortgage debt in the principal amount of $6,474,000, the
community's loan-to-value ratio is 67.17%. We will only be liable to the
community and its creditors up to the amount of our initial capital in the
community.
The property management agent is Bainbridge Management Jacksonville LLC,
which is affiliated with Bainbridge Jacksonville LLC. Bainbridge has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Bainbridge does not manage communities not owned by us
that compete with our communities in the Jacksonville market.
36
The following chart details the anticipated renovations which will take
place at the property and will be paid for through funds escrowed from the
purchase price:
[Enlarge/Download Table]
PROJECT ESTIMATED COST
------------------------------------------------------------------------------------------
Sitework - Exterior Common Areas $ 255,200
Pool - Recreation Areas 47,000
Trash Enclosure Systems 14,250
Leasing Center Exterior Upgrades 25,000
Maintenance Building Exterior Upgrades 7,000
Plywood Deck Replacement 7,296
Shingle replacement with 3-tab shingles 160,050
Gutter and Downspout Repairs 39,900
Attic Fire Rating 27,500
Exterior Painting 79,750
Rough Carpentry: Wood Repair and General Exterior Repairs
and Upgrades 137,400
Termite Treatment and Repairs Allowance 43,000
Drywall, Painting and Replacing Light Fixtures 79,800
Flooring (Carpet and Vinyl) 87,780
Kitchen Cabinets 96,900
Bathroom Fixtures and Accessory Upgrades 59,200
Add Stackable Washers/Dryers 456,000
Miscellaneous Interior Items 54,720
Mechanical: HVAC, Plumbing and Electrical Repairs 180,576
MEP Engineer and Landscape Architect 49,358
Contingency and General Conditions/Overhead 226,454
------------------------------------------------------------------------------------------
Sub-Total $ 2,134,134
Construction Management Fee (5%) 106,707
------------------------------------------------------------------------------------------
TOTAL $ 2,240,841
------------------------------------------------------------------------------------------
Renovations on the property have begun and are expected to be completed in
October 2002. It is anticipated that there will be some relocation or loss of
tenants during the renovations. A preferred return reserve in the amount of
$302,058 was funded from the proceeds of the purchase price and is available to
supplement the income of the community during the renovation process to the
extent needed. Proceeds from the preferred return reserve can be used to
supplement the income of the community sufficient for us to make distributions
to investors in accordance with our investment objectives. This preferred return
reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
After completion of the renovations, it is anticipated that the physical
condition of the community will be sufficiently enhanced to allow us to obtain
higher rents. Based upon third-party market studies commissioned by us, monthly
rents are expected to increase to between $495 and $550 for one-bedroom units,
between $715 and $755 for two-bedroom units, and to approximately $825 for
three-bedroom units.
All of the leased space is residential with leases ranging from an initial
term of six months to one year. The average historical occupancy rate is as
follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
91% 83% 84% 92% 90%
37
As of September 30, 2003, the occupancy rate was 92%. Approximately
nine units were under renovation, however. Not including these units, the
occupancy rate would be 95%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- -------------
$ 6,776/unit $ 7,766/unit $ 7,511/unit $ 7,833/unit $ 8,514/unit
As shown above, Oaks at Timuquana's occupancy and effective annual
rental rates have varied over the past few years. Prior to 2001 there was weak
demand in the Jacksonville Heights submarket; however, since then, occupancy has
stabilized and rental rates have increased. The property was purchased with a
plan to renovate and reposition it and it is management's belief that, as the
renovation and repositioning of the property is completed, the annual rental
rate per unit will increase.
The community is located in the Jacksonville Heights submarket of
Jacksonville, Florida, an area which has historically had high median income
(currently $42,266) and low residential vacancy rates (averaging 3.6% in 2002).
- Oaks at Timuquana Apartments are located on Roosevelt Blvd. The
neighborhood is a mixture of older multifamily developments, a wide
range of commercial-retail and single-family subdivisions. Immediately
north along Roosevelt Blvd .are located several restaurants and some
light retail. The area is a mixture of light commercial real estate
and mature single-family homes. Roosevelt Blvd. runs north alongside
U.S. Highway 17 and State Route 15. Immediately south of the site on
Allegheny Rd. is a single-family home neighborhood in good condition.
Southeast of the subject, three quarters of a mile, is the
Jacksonville Naval Air Station. Allegheny Rd. is located adjacent to
the site on the east and is the main access to the property. Further
east of the property are mature single-family homes, some apartment
complexes, open space, and a municipal golf course. To the west across
U.S. Highway 17 and State Route 15 is some light retail, a restaurant,
and automotive repair shop. Further west is open space and a water
inlet to the St. John's River.
- On State Route 21, two and one-half miles southwest from the Oaks at
Timuquana, is Planters Walk. Built in 1970, the 217-unit property has
a similar unit mix and range of unit sizes. Approximately three and
one-half miles southwest of the Oaks at Timuquana are three comparable
properties which are slightly superior; but reflect the anticipated
comparable product after rehab of the property. These properties are
located along the Interstate 295 beltway and are noted as follows as:
The Waterford at Orange Park, with 280 apartments built in 1988,
Wellington Place, with 358 units built in 1987, and Westland Park,
with 405 units built in 1989. The following properties are all located
two to five miles to the north of the Oaks at Timuquana and are
considered to be comparable to its current condition: Colonial Forest,
a 174-unit building built in 1970, Gregory West a 162-unit building
built in 1972, The Preserve at Cedar River a 464-unit building built
in 1973, and Mission Springs a 444-unit building built in 1973. All of
these properties have similar amenities to those at the Oaks at
Timuquana and share a common attribute of multifamily developments in
the area, mature landscaping and park-like settings.
To continue to compete well with these properties, management has
implemented an aggressive marketing campaign and we have started the
renovations, which will increase the exterior curb appeal and provide
significant upgrades to the interior of the apartment units, as shown in the
renovation table above. This strategy along with the strong demand for
multifamily housing should keep Oaks at Timuquana competitive in the market.
PORTLAND, OREGON, and SALT LAKE CITY, UTAH, COMMUNITIES
We own interests in two apartment communities in Portland, Oregon, and
one apartment community in Salt Lake City, Utah. The Portland, Oregon,
communities are Boulder Creek and Bridge Creek, and the Salt Lake City,
38
Utah, community is Settler's Point. To acquire these interests, we borrowed
approximately $22,300,000 under our line of credit with BCP Funding, LLC. This
amount includes the capital contributions required to purchase the properties,
initial capital requirements for planned renovations, establishment of operating
reserves and costs associated with our line of credit with BCP Funding, LLC,
with respect to this transaction. In addition, the Portland and Salt Lake City
communities are encumbered with $39,222,000 of first mortgage debt as of
September 30, 2003. We will repay the outstanding portion of our line of credit
attributable to these communities from the proceeds of this offering. The
outstanding mortgage indebtedness on these communities will not be repaid with
the proceeds of this offering, and will continue to encumber the communities in
accordance with the terms of the mortgage loans.
We acquired our interests in the Portland and Salt Lake City
communities by forming a wholly owned subsidiary, BCMR Portland, LLC, to acquire
a 100% member interest in BC-GFS-II LLC. We paid $21,829,724 for our interest,
which is comprised of two classes, Class A ($9,355,595) and Class B
($12,474,128). The Class B contribution is treated as mezzanine financing. We
receive a preferred return of 11% on both capital contributions; however, the
16% preferred return at sale is calculated only on the Class A contribution.
BC-GFS-II LLC owns legal fee simple title to the communities through three
wholly owned subsidiaries. The manager of BC-GFS-II LLC is GFS Equity Management
LLC, a third party which is not affiliated with us or the Advisor.
During the terms of the current first mortgage loans on the Portland
and Salt Lake City communities, GFC Equity Management LLC is entitled to be paid
..045% per annum from the cash flow of BC-GFS-II LLC as compensation for its
agreement to assume 100% of the risk of loss on the rate lock deposit paid to
the first mortgage holder. GFS Equity Management LLC is entitled to participate
in cash distributions of BC-GFS-II LLC after we have received asset management
fees and a preferred return. We will receive a $50 per unit annual asset
management fee and then an 11% preferred return on our unreturned capital
contributions (which initially were $21,829,724). We will then share 50/50 with
GFS Equity Management LLC in all remaining income from operations of the
Portland and Salt Lake City communities. Proceeds from the sale of any of the
Portland or Salt Lake City communities will first be distributed to pay us any
unpaid asset management fees. Remaining sale proceeds will be distributed to us
until we have received a return of our capital contributions (taking into
account prior distributions) plus a 16% per annum rate of return on our Class A
capital contributions. We will receive 75% and GFS Equity Management LLC will
received 25% of any remaining sale proceeds. There is no guarantee that any
preferred return will be sufficient for us to make any distribution to
stockholders. We believe that this arrangement is an appropriate incentive to
encourage performance by GFS Equity Management LLC. We can remove GFS Equity
Management LLC without cause at any time.
BOULDER CREEK APARTMENTS
Boulder Creek Apartments is an existing multifamily apartment complex
consisting of 296 units located in suburban Portland, Oregon. The community
consists of 21 two and three-story buildings on a landscaped setting and
includes the following interior amenities: dishwasher, frost free refrigerator,
electric stove/oven, garbage disposal, ceiling fans, wall-to-wall carpet in
living areas, walk-in closets, patios/balconies, vaulted ceilings, cable access,
high speed internet access, washer/dryer connections, sided by side washer/dryer
furnished and storage closet. The development also includes the following
exterior amenities: carports, garages, swimming pool, resident lounge, resident
kitchen, and fitness center. There are 71 one-bedroom units, 48
two-bedroom/one-bath units, 129 two-bedroom/two-bath units and 48 three-bedroom
units. The apartment units have an average size of 850 square feet. The
community was constructed in 1990.
The purchase price for the community was $17,742,642, paid as follows:
(i) $16,700,000 to the unaffiliated seller of the property; (ii) $579,555 in
customary closing costs; (iii) $317,710 in renovation costs; and (iv) $145,377
in operating reserves. The closing occurred on May 30, 2003, and the purchase
price was funded by a combination of first mortgage debt and borrowings on our
credit line. The independently appraised value of the community at the time of
closing was $18,230,000. With current first mortgage debt in the principal
amount of $11,375,000, the community's loan-to-value ratio is 62.40%. We will
only be liable to the community and its creditors up to the amount of our
initial capital in the community.
39
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Pinnacle also manages Boulder Creek's sister community
Bridge Creek as well as one other property in the immediate submarket not owned
by us. That property has fewer but larger units than Boulder Creek and Bridge
Creek and is not considered direct competition to these communities. Boulder
Creek and Bridge Creek do compete with each other, however. Each community is
overseen by separate investment managers within Pinnacle and has separate
leasing teams to maintain a healthy competition between the two communities.
However, the communities refer business to each other to provide the best
service possible to potential tenants.
The following chart details the anticipated renovations that will take
place at the property and will be paid for through funds escrowed from the
purchase price:
[Enlarge/Download Table]
PROJECT ESTIMATED COST
-------------------------------------------------------------------------------------
Appliances $ 44,000
Parking Lot and Handicap Parking 23,420
Exterior Stair Rails 12,600
Balconies 69,000
Carport Roof and Fascia Trim 4,000
Roofing Repairs 3,240
Water Heaters 2.500
HVAC/Bathroom Exhaust Systems 54,000
Plumbing/Basement Unit Drains 6,000
Electrical/Infrared Scanning 3,500
Life Safety/Fire Extinguisher Location Trim 50
Refurbish Clubhouse 55,000
-------------------------------------------------------------------------------------
TOTAL $ 317,710
-------------------------------------------------------------------------------------
Renovations on the property have begun and are expected to be
completed by the end of 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $145,377 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available 95% 94% 91%
As of September 30, 2003, the property's occupancy rate was 92%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available $ 7,020.98/unit $ 7,288/unit $ 6,831/unit
40
In 2002, the local real estate market weakened, resulting in
both an increase in the property's vacancy rate and a need to offer rent
concessions. The property was purchased based on the market conditions that were
present in 2002. The property was purchased with a plan to renovate and
reposition it and it is management's belief that, as the local real estate
market strengthens and the renovation and repositioning of the property is
completed, concessions will come to an end, the annual rental rates will
increase and vacancy will decrease.
The community is located in Wilsonville, Clackamas County, Oregon,
approximately 17 miles south of downtown Portland and 25 miles north of the
state capital. This area has a median income of $58,491 and an average
residential vacancy of just above 5% over the last five years.
- The immediate neighborhood is a mixture of early to mid-1990's
multifamily developments, single-family subdivisions, neighborhood
retail, service stations and public schools. Directly north is a
single-family residential subdivision. Directly south of the property
is Boeckman Creek Primary School and Wilsonville High School. Wooded
land and farmland is east of the property, which is located outside
the Urban Growth Boundary. To the west is Wilsonville Road and across
the street is a single-family subdivision. A competing apartment
complex is located across Wilsonville Road to the southwest.
- Boulder Creek's sister property, Bridge Creek, is located about
one-half mile southwest. It is a 315-unit property, built in three
phases between 1988 and 1990. Bridge Creek has a similar apartment mix
but does not offer 2BR/1BA floor plans. It offers a similar range in
unit size, and comparable amenities to those at Boulder Creek.
Berkshire Court is located on Wilsonville Road across from the
subject. It is a 266-unit community constructed in 1996. Berkshire
Court is identical in the floor plans but has more 2BR/1BA units than
Boulder Creek and has comparable amenities to those offered at Boulder
Creek. Hathaway Court is located across Wilsonville Road from the
subject and is a 298-unit community constructed between 1997 and 1998.
Hathaway Court is identical in the floor plans to both Boulder Creek
and Berkshire Court but has more 2BR/1BA units than Boulder Creek and
offers comparable amenities. Town Center Park is located approximately
one mile northwest of the Boulder Creek Apartments. Town Center Park,
which was built in 1991, is comprised of 111 units with much larger
floor plans and no 2BR/1BA models. Town Center Park offers similar
amenities but is more conveniently located to shopping and services.
Sundial Apartments, with 120 units, is located approximately one and a
quarter miles northwest of Boulder Creek. Sundial was built in 1991
and offers an inferior amenity package. Sundial's apartments are
smaller than those at Boulder Creek and it does not offer 2BR/1BA
units.
With the enhancements proposed, Boulder Creek is expected to continue
to compete successfully in its market. Located in Clackamas County with an
attractive quality of life, the Wilsonville area offers affordable living,
convenient shopping, good schools and ready access to neighborhood employment.
Although the economy of the region has been fairly diversified, recent economic
events have taken their toll on local employment although much less than on the
rest of the Portland area. Oregon's managed growth policy has moderated large
swings in rental housing supply that typically accompany economic fluctuations.
While low interest rates have impacted the rental community as a whole with a
migration to homeownership, the effect on Boulder Creek appears to have been
minimal. Boulder Creek offers social and recreational amenities equivalent to
those at comparable properties, and the anticipated post-renovation rents would
be at competitive levels. The physical improvements proposed are expected to
enhance the community's competitive position and improve its income stream.
BRIDGE CREEK APARTMENTS
Bridge Creek Apartments is an existing multifamily apartment complex
consisting of 315 units located in suburban Portland, Oregon. The community
consists of 28 two and three-story buildings on a landscaped setting and
includes the following interior amenities: dishwasher, frost-free refrigerator,
electric stove/oven, garbage disposal, wood burning fireplace, ceiling fans,
wall-to-wall carpet, patios/balconies, cable access, high speed internet
41
access, washer/dryer connections, washer/dryer furnished, and storage closet.
Exterior amenities include: carports, garages, outdoor spa, 2 outdoor swimming
pools, resident lounge, resident kitchen, fitness center, child's playground and
perimeter fencing. There are 80 one-bedroom units, 183 two-bedroom units and 52
three-bedroom units. The apartment units have an average size of 870 square
feet. This community was constructed in 1987.
The purchase price for the community was $20,242,177, paid as follows:
(i) $18,100,000 to the unaffiliated seller of the property; (ii) $606,679 in
customary closing costs; (iii) $1,390,435 in renovation costs; and (iv) $145,063
in operating reserves. The closing occurred on May 30, 2003, and the purchase
price was funded by a combination of first mortgage debt and borrowings on our
credit line. The independently appraised value of the community at the time of
closing was $19,995,000. With current first mortgage debt in the principal
amount of $12,958,000, the community's loan-to-value ratio is 64.81%. We will
only be liable to the community and its creditors up to the amount of our
initial capital in the community.
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Pinnacle also manages Bridge Creek's sister community
Boulder Creek as well as one other property in the immediate submarket not owned
by us. That property has fewer but larger units than Bridge Creek and Boulder
Creek and is not considered direct competition to these communities. Bridge
Creek and Boulder Creek do compete with each other, however. Each community is
overseen by separate investment managers within Pinnacle and has separate
leasing teams to maintain a healthy competition between the two communities.
However, the communities refer business to each other to provide the best
service possible to potential tenants.
42
The following chart details the anticipated renovations that will take
place at the property and will be paid for through funds escrowed from the
purchase price:
[Enlarge/Download Table]
PROJECT ESTIMATED COST
---------------------------------------------------------------------------------------
Replace Pool Gates with Self-Latching Hardware $ 1,500
Install Additional French Drains and Water-Resistive Membrane,
Repair Footing Tiles 24,000
Install Barrier Fence to Clubhouse Roof 2,600
Repairs to Irrigation System 1,200
Sealcoat and Stripe; Minor Repairs 25,830
Balcony & Walkway Entrance Decking Repairs/Replacements 33,000
Install Addition Vertical Members to Balcony Guardrails to Create
Openings to 4" Maximum 70,000
Replace Kitchen Windows on Level # of the 18-Plex Building with
1-Hour Rated 34,500
Install 1 X 6 Board Enclosure to Close Gap at Exterior Stair
Stringers 10,000
New Vinyl Siding & Trim 800,000
Gutter Repairs 5,000
Roofing Repairs to Assure Roof Performance through Their Remaining
Useful Life 5,000
Moisture Repairs in Bathrooms 2,500
Repairs/Replacements to Patio Storage Closets 51,750
"Appliances" (PRMC Unit Recap) Micro 47,400
Ramp & Accessible Path to North Leasing Office Building Entrance 2,500
New Accessible Entrance & Adapt the Public Bathroom at the Leasing
Office for HC Use 7,500
Provide Exterior Termination to Upper Floor Bath Exhaust Fan Ducts 25,000
Replace Ductless Bath Exhaust with Ducted Equipment to Exterior 140,000
Water Heater Pans in Bedroom Closets 20,475
Direct Water Heater Overflows to Exterior Discharge 3,150
Remove and Replace Polybutylene Fixture Connectors 15,030
Perform Infrared Scan of Electrical Service Equipment 3,500
Replace Pool Heaters 4,000
Refurbish Two Clubhouses 55,000
---------------------------------------------------------------------------------------
TOTAL $ 1,390,435
---------------------------------------------------------------------------------------
Renovations on the property have begun and are expected to be
completed by the end of 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $145,063 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
43
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available 95% 94% 90%
As of September 30, 2003, the property's occupancy rate was 96%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available $ 7,493/unit $ 7,845/unit $ 7,669/unit
In 2002, the local real estate market weakened, resulting in both an
increase in the property's vacancy rate and a need to offer rent concessions.
The property was purchased based on the market conditions that were present in
2002. The property was purchased with a plan to renovate and reposition it, and
it is management's belief that, as the local real estate market strengthens and
the renovation and repositioning of the property is completed, concessions will
come to an end, the annual rental rates will increase and vacancy will decrease.
The community is located in Wilsonville, Clackamas County, Oregon,
approximately 17 miles south of downtown Portland and 25 miles north of the
state capital. This area has a median income of $58,491 and an average
residential vacancy of just above 5% over the last 5 years. The property was
purchased with a plan to renovate and reposition it and it is management's
belief that, as the local real estate market strengthens and the renovation and
repositioning of the property is completed, concessions will come to an end, the
annual rental rates will increase and vacancy will decrease.
- The immediate neighborhood is a mixture of early to mid-1990's
multifamily developments, single-family subdivisions, neighborhood
retail, service stations and public schools. Directly north is a
Hathaway Village apartment complex. Directly south of the property is
Wilsonville Road; across the road are some single-family residences
and then Wilsonville Memorial Park. The property abuts a Methodist
Church and Hathaway Village apartment complex to the east. To the west
is a greenbelt followed by Wilsonville Community Center to the south
and condos and single-family residences to the north.
- Bridge Creek's sister property, Boulder Creek, is located about
one-half miles northeast, was built in phases between 1988 and 1990. A
296-unit property, it has a similar apartment mix although it includes
2BR/1BA and 2BR/2BA floor plans, similar range in unit size, and
comparable amenities to those at Bridge Creek. Berkshire Court is
located on Wilsonville Road about one-half mile north of the subject.
It is a 266-unit community constructed in 1996. Berkshire Court is
identical in the floor plans but has more 2BR/1BA units than Bridge
and has comparable amenities to those offered at Bridge Creek.
Hathaway Court is located on Wilsonville Road about one-quarter mile
north of the subject. It is a 298-unit community constructed between
1997 and 1998. Hathaway Court is identical in the floor plans to both
Bridge Creek and Berkshire Court but has more 2BR/1BA units than
Bridge Creek and offers comparable amenities. Town Center Park is
located approximately one mile west of Bridge Creek Apartments. Town
Center Park, which was built in 1991, is comprised of 111 units with
much larger floor plans and no 2BR/1BA models. Town Center Park offers
similar amenities but is more conveniently located to shopping and
services. Sundial Apartments, with 120 units, is located about one and
a quarter miles northwest of Bridge Creek. Built in 1991, Sundial
offers an inferior amenity package. Sundial's apartments are smaller
than those at Bridge Creek and it does not offer 2BR/1BA units.
44
With the enhancements proposed, Bridge Creek is expected to continue
to compete successfully in its market. Located in Clackamas County with an
attractive quality of life, the Wilsonville area offers affordable living,
convenient shopping, good schools and ready access to neighborhood employment.
Although the economy of the region has been fairly diversified, recent economic
events have taken their toll on local employment although much less than on the
rest of the Portland area. Oregon's managed growth policy has moderated large
swings in rental housing supply that typically accompany economic fluctuations.
While low interest rates have impacted the rental community as a whole with a
migration to homeownership, the effect on Bridge Creek appears to have been
minimal. Bridge Creek offers social and recreational amenities equivalent to
those at comparable properties. Renovation of the second clubhouse and pool area
provides Bridge Creek an opportunity to differentiate itself through additional
amenities and services that competing properties do not provide, and the
anticipated post-renovation rents would be at competitive levels. The physical
improvements proposed are expected to enhance the community's competitive
position and improve its income stream.
SETTLER'S POINT APARTMENTS
Settler's Point Apartments is an existing multifamily apartment
complex consisting of 416 units located in suburban Salt Lake City, Utah. The
community consists of 50 two-story buildings on a landscaped setting and
includes the following interior amenities: central air, dishwasher, frost free
refrigerator, electric stove/oven, garbage disposal, built-in microwave, ceiling
fans, wood burning fireplace, wall-to-wall carpet, patios/balconies, vaulted
ceilings, cable access, high speed internet access, washer/dryer connections,
stacked washer/dryer furnished (288 units), and storage closets. Exterior
amenities include: carports, outdoor spa, outdoor swimming pool, fitness center,
tennis court, outdoor basketball court and some perimeter fencing. There are 136
one-bedroom units, 56 two-bedroom/one-bath units, and 224 two-bedroom/two-bath
units. The apartment units have an average size of 876 square feet. The
community was constructed in 1985 and 1986.
The purchase price for the community was $23,396,250, paid as follows:
(i) $21,500,000 to the unaffiliated seller of the property; (ii) $826,898 in
customary closing costs; (iii) $941,700 in renovation costs; and (iv) $127,652
in operating reserves. The closing occurred on May 30, 2003, and the purchase
price was funded by a combination of first mortgage debt and borrowings on our
credit line. The independently appraised value of the community at the time of
closing was $22,200,000. With current first mortgage debt in the principal
amount of $15,000,000, the community's loan-to-value ratio is 67.57%. We will
only be liable to the community and its creditors up to the amount of our
initial capital in the community.
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
property since its acquisition and receives a property management fee equal to
3.5% of gross income. Pinnacle also manages communities in the market not owned
by us; however, we do not consider these properties to be direct competition
with our communities.
45
The following chart details the anticipated renovations that will take
place at the property and will be paid for through funds escrowed from the
purchase price:
[Enlarge/Download Table]
PROJECT ESTIMATED COST
---------------------------------------------------------------------------------------
Patch and Repair Asphalt Paving; Remove Circle Island $ 5,000
Parking Pavements - Repair, Sealcoat, Re-stripe 30,000
Repair or Replace Concrete Sidewalks 19,500
Remove and Replace Apartment Patios 10,000
Repair Cracked Apartment Patios 9,900
Repair and Replace Broken Splash Blocks 1,000
Repair Trash Enclosure 250
Patch and Repair Cracks in Tennis Court Slab, Resurface 5,000
Landscaping 6,000
New Site Signage 30,000
Allowance for Patio Fence Repairs (Cut Down to 4') 20,000
Analyze and Repair Damaged Side Balconies 25,000
Replace Dual-Paned Window Units 5,000
Repair Damaged Hardwood Siding 250
Repair Cracks in Settler's Side Balcony Concrete Topping 21,600
Repair Deteriorated Boards in Brookfield Side Balconies and Stairs 1,500
Re-Install Concrete Stair Treads 300
Replace Deteriorated Concrete-Stair Treads at the Settler's Side 500
Repair Insect Damage to Building Exterior 1,400
Repair Lightweight-Concrete Topping on Settler's Side Upper-Floor
Landings 1,000
Repair Damaged Downspouts and Replace Missing Sections 2,500
Carpet Replacements 37,400
Kitchen Cabinets Reface & New Counters 150,000
Refrigerators 83,200
Ranges 72,800
Re-stripe the Disabled-Access Parking to Be Van-Accessible and
Provide Compliant Signage 400
Modify the Main Entrance Door to the Leasing Office 2,500
Replace Hardware on Leasing Office Restrooms with Lever Handles 500
Provide Compliant Signage for the Leasing Office Restrooms 500
Budget for One-Time Preventive Maintenance Procedure for Settler's
Side AC Condensing Units 14,400
Replace Brookfield Evaporative-Cooling Units with AC Condensing
Units, and Cooling Coils in Existing Furnaces 240,000
Gas Water Heater Replacements 3,500
Replace Sauna Equipment 600
Replace Polybutylene Plumbing Fixture with Copper 15,000
Provide Ground-Fault-Interrupter Receptacles in Kitchens and
Bathrooms 21,500
Replace, Repair, or Re-Connect Bathroom Ceiling Fans 3,700
Settlers Clubhouse 50,000
Brookfield Clubhouse 50,000
---------------------------------------------------------------------------------------
TOTAL $ 941,700
---------------------------------------------------------------------------------------
46
Renovations on the property have begun and are expected to be
completed by the end of 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $127,652 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available Not Available 92% 88%
As of September 30, 2003, the occupancy rate was 93%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available Not Available $ 6,992/unit $ 7,071/unit
The community is located in Taylorsville, Utah, an area which has
historically had high median income (currently $49,512) and higher than normal
residential vacancy rates over the past couple of years, mainly due to low
mortgage interest rate levels that allow tenants to afford entry-level housing,
and an excess supply of inventory related to the Olympic Games and subsequent
departure of service and support personnel. The property was purchased with a
plan to renovate and reposition it and it is management's belief that, as the
local real estate market strengthens and the renovation and repositioning of the
property is completed, concessions will burn off, the annual rental rates will
increase and vacancy will decrease.
- Settler's Point is located south of the central business district of
Salt Lake City, within the Salt Lake Valley, in the city of
Taylorsville. The site is conveniently and centrally located between
two major freeways, I-15 to the east and I-215 to the west and south.
The property's immediate surroundings include a City of Taylorsville
park, adjoining to the west and Fore Lakes golf course, a par 3 golf
course, adjoining to the south and east. Local shopping is within
walking distance and consists of neighborhood centers located north
and west of the park. Just to the west, the N/S cross street is
Redwood Road, the retail arterial road for the neighborhood. The
Primary Market Area is about a 5-mile square with the subject in the
approximate center. The majority of competition is lying within that
area and the majority of potential prospects are expected to be
residing within that area.
With the enhancements proposed, Settler's Point is expected to compete
well in its market. Strategically located with easy access to I-15 and I-215,
the community offers an attractive quality of life. The Taylorsville area offers
affordable living, excellent access to local shopping, good schools and ready
access to major employment centers. The economic slowdown after the winter 2002
Olympic Games should subside and the area return to the more typical growth seen
through the 1990s. Settler's Point offers social and recreational amenities
equivalent to those at comparable properties and the anticipated post-renovation
rents would be competitive. The improvements proposed by us will restore the
apartments, buildings, amenities and grounds to a condition that is expected to
enhance the community's competitive position, gradually eliminate incentives and
improve its income stream.
47
SEATTLE, WASHINGTON, COMMUNITIES
We own interests in four apartment communities in Seattle, Washington
- Alderwood, Ridgegate, Ridgetop and Wellington. To acquire these interests, we
borrowed approximately $9,300,000 under our line of credit with BCP Funding,
LLC. This amount includes the equity required to purchase the properties,
initial capital requirements for planned renovations, establishment of operating
reserves and costs associated with our line of credit with BCP Funding, LLC,
with respect to the transaction. In addition, the Seattle communities are
encumbered with $37,350,000 of first mortgage debt as well as approximately
$8,092,395 of mezzanine debt as of September 30, 2003. We will repay the
outstanding portion of our line of credit attributable to these communities as
well as the mezzanine debt on the communities, which must be repaid in order to
bring our investment in these communities within our leverage limits, from the
proceeds of this offering. The outstanding mortgage indebtedness on the Seattle
communities will not be repaid with the proceeds of this offering, and will
continue to encumber the communities in accordance with the terms of the
respective mortgage loans.
We acquired our interests in the Seattle communities by acquiring a
99.99% limited partnership interest in BCMR Seattle, A Limited Partnership,
which owns a 100% member interest in BC-GFS LLC. We paid $8,626,540 for our
limited partner interest. BC-GFS LLC owns legal fee simple title to the
communities through four wholly owned subsidiaries. The general partner of BCMR
Seattle, A Limited Partnership, is BCMR, Inc., which is an affiliate of the
Advisor. BCMR Special, Inc., which is an affiliate of the Advisor, acts as
investor manager of BC-GFS LLC for the purpose of exercising certain consent
rights. We can remove BCMR, Inc. and BCMR Special, Inc. at any time without
cause. The manager of BC-GFS LLC is GFS Equity Management LLC, a third party
which is not affiliated with us or the Advisor.
GFS Equity Management LLC is entitled to participate in cash
distributions of BC-GFS LLC after we have received asset management fees and a
preferred return. We will receive a $50 per unit annual asset management fee and
then a 12% preferred return on our unreturned capital contributions (which
initially were $8,626,540). We will then share 50/50 with GFS Equity Management
LLC in all remaining income from operations of the Seattle communities. Proceeds
from the sale of any of the Seattle communities will first be distributed to pay
us any unpaid asset management fees. Remaining sale proceeds will be distributed
to us until we have received a return of our capital contributions (taking into
account prior distributions) plus a 16% per annum rate of return on our capital
contributions. We will then receive 75% and GFS Equity Management LLC will
receive 25% of any remaining sale proceeds. There is no guarantee that any
preferred return will be sufficient for us to make any distribution to
stockholders. We believe that this arrangement is an appropriate incentive to
encourage performance by GFS Equity Management LLC. We can remove GFS Equity
Management LLC without cause at any time.
ALDERWOOD PARK APARTMENTS
Alderwood Park Apartments is an existing multifamily apartment complex
consisting of 188 units located in suburban Seattle, Washington. The community
consists of 14 two-story buildings on a landscaped setting and includes the
following interior amenities: dishwasher, frost free refrigerator, electric
stove/oven, garbage disposal, wood burning fireplace, wall-to-wall carpet,
patios/balconies, cable access, washer/dryer connections, stacked washer/dryer
furnished and storage closet. The development also includes the following
exterior amenities: carports, indoor spa, swimming pool, conference room, tenant
lounge, fitness center, tanning bed, outdoor basketball and child's playground.
There are 84 one-bedroom units and 104 two-bedroom units. The apartment units
have a weighted average size of 762 square feet. The community was constructed
in 1982.
The purchase price for the community was $13,397,470, paid as follows:
(i) $12,410,000 to the unaffiliated seller of the property; (ii) $600,660 in
customary closing costs; (iii) $351,750 in renovation costs; and (iv) $35,060 in
operating reserves. The closing occurred on December 16, 2002, and the purchase
price was funded by a combination of first mortgage debt, mezzanine financing
and borrowings on our credit line. The independently appraised value of the
community at the time of closing was $12,950,000. With current first mortgage
debt in the principal amount of $9,210,000, the community's loan-to-value ratio
is 71.12%. We will only be liable to the community and its creditors up to the
amount of our initial capital in the community.
48
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Pinnacle also manages communities not owned by us that
compete with our communities in the Seattle market.
The following chart details the anticipated renovations which will
take place at the property and will be paid for through funds escrowed from the
purchase price:
[Download Table]
PROJECT ESTIMATED COST
-------------------------------------------------------------------------
Appliances $ 5,000
Balconies and Landings 40,000
Bathroom Fans 100,000
Carpets 5,000
Carport Fascia Trim 20,000
Clubhouse Remodel 35,000
Electrical/Lighting 5,000
Landscape Irrigation and Drainage 7,500
Landscape/Tree Pruning/Entry 40,000
Pool Re-plaster/Furniture 17,500
Re-stripe/Pressure Wash Parking Lot 5,000
Sidewalks (ADA) 15,000
Trash Compactor 40,000
-------------------------------------------------------------------------
Sub-Total $ 335,000
Construction Management Fee (5%) 16,750
-------------------------------------------------------------------------
TOTAL $ 351,750
-------------------------------------------------------------------------
Renovations on the property have begun and are expected to be
completed by February 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $35,060 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available 97% 94% 92%
As of September 30, 2003, the property's occupancy rate was 96%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ 8,694/unit $ 8,231/unit $ 8,219/unit $ 8,310/unit $ 7,685/unit
In 2002, the local real estate market weakened, resulting in both an
increase in the property's vacancy rate and a need to offer selected rent
concessions. The property was purchased based on the market conditions that were
49
present in 2002. It is management's belief that, as the local real estate market
strengthens, the annual rent rate per unit will increase.
The community is located in Lynnwood, Washington, an area which has
historically had a high median income (currently $59,823) and low residential
vacancy rates (averaging 7.3% in 2002).
- The Alderwood Park Apartments are located on 36th Avenue West,
adjacent to the Alderwood Mall. The neighborhood is a mixture of
newer multifamily developments, a wide range of commercial-retail
properties and single-family home subdivisions. One block south
of the property is a new senior citizen assisted living
development. This development is part of a senior housing campus
consisting of townhouses and apartments which are still under
construction. Along 36th Avenue are several apartment complexes
which are targeting households similar to those attracted to
Alderwood Park Apartments. Five of these properties are
considered to be comparable properties.
- On 36th Avenue, directly across from Alderwood Park Apartments,
is Alderwood Heights Apartments. Constructed in 1986, this
272-unit property is similar to Alderwood Park Apartments in
terms of both unit mix and unit size. About one mile north of
Alderwood Park Apartments is Countrywalk Apartments, consisting
of 228 apartments that were constructed in 1988. Directly across
from Countrywalk Apartments is Orchard Ridge Apartments, a
104-unit community that was constructed in 1989. About one-half
mile west of Countrywalk Apartments and Orchard Ridge Apartments
is Canyon Springs Apartments, consisting of 254 units that were
constructed in 1991. Further north on 36th Avenue, about two
miles from Alderwood Park Apartments, is the Renaissance
Apartments, a 361-unit gated community with a mixture of one-,
two- and three-bedroom apartments that were constructed in 1988.
All of these properties have similar amenities to those found at
Alderwood Park Apartments and they all share a common attribute
of multifamily developments in the area, mature landscaping and
park-like settings.
It is our belief that the planned initial renovations, combined with a
more aggressive management and leasing staff, will enable Alderwood Park to
distinguish itself from the other developments in the area and improve its
financial performance.
RIDGEGATE APARTMENTS
Ridgegate Apartments is an existing multifamily apartment complex
consisting of 153 units located in suburban Seattle, Washington. The community
consists of 14 two-story buildings on a landscaped setting and includes the
following interior amenities: dishwasher, frost-free refrigerator, ice makers,
electric stove/oven, garbage disposal, built-in microwave, wood burning
fireplace, wall-to-wall carpet, patios/balconies, cable access, washer/dryer
connections, stacked washer/dryer furnished, ceiling fans, decorative mirrors,
walk-in closets and storage closet. Exterior amenities include: carports, indoor
spa, swimming pool, conference room, tenant lounge, fitness center, tanning bed,
racquetball court and child's playground. There are 62 one-bedroom units, 60
two-bedroom units and 31 three-bedroom units. The apartment units have a
weighted average size of 891 square feet. This community was constructed in
1990.
The purchase price for the community was $10,786,486, paid as follows:
(i) $10,086,750 to the unaffiliated seller of the property; (ii) $479,351 in
customary closing costs; (iii) $185,325 in renovation costs; and (iv) $35,060 in
operating reserves. The closing occurred on December 16, 2002, and the purchase
price was funded by a combination of first mortgage debt, mezzanine financing
and borrowings on our credit line. The independently appraised value of the
community at the time of closing was $10,550,000. With current first mortgage
debt in the principal amount of $7,420,000, the community's loan-to-value ratio
is 70.33%. We will only be liable to the community and its creditors up to the
amount of our initial capital in the community.
50
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Pinnacle also manages communities not owned by us that
compete with our communities in the Seattle market.
The following chart details the anticipated renovations which will
take place at the property and will be paid for through funds escrowed from the
purchase price:
[Download Table]
PROJECT ESTIMATED COST
------------------------------------------------------------------------
Appliances $ 5,000
Balconies and Landings 60,000
Carpets 5,000
Clubhouse Remodel 35,000
Electrical/Lighting 5,000
Elevated Walkways 10,000
Landscape/Irrigation 10,000
Pool Re-plaster/Furniture 17,500
Pressure Wash Decks/Landings/Carports 2,500
Seal Coat and Re-stripe Lot/Curbs 20,000
Sidewalks (ADA) 5,000
Spa Repair 1,500
------------------------------------------------------------------------
Sub-Total $ 176,500
Construction Management Fee (5%) 8,825
------------------------------------------------------------------------
TOTAL $ 185,325
------------------------------------------------------------------------
Renovations on the property have begun and are expected to be
completed by February 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $35,060 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available 95% 94% 96%
As of September 30, 2003, the property's occupancy rate was 94%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ 8,370/unit $ 8,936/unit $ 8,401/unit $ 8,743/unit $ 8,668/unit
51
The community is located in Kent, Washington, an area which has
historically had high median income (currently $52,009) and low residential
vacancy rates (averaging 7.3% in 2002).
- Along SE 248th St. are several apartment properties targeting
households similar to those that have been attracted to Ridgegate
Apartments. Directly to the west of Ridgegate Apartments is a
newer single-family subdivision with homes starting in the low
$200,000 range. To the northwest and southwest, there are
numerous new and older single-family home subdivisions. The
nearest competitor to Ridgegate Apartments is Forest Park
Apartments. This development is located to the south of the
property but separated by a small park and it is comprised of 92
units. Forest Park Apartments is also managed by Pinnacle Realty
Management Company and was constructed in 1991. Its amenities are
slightly inferior to those at Ridgegate Apartments as a result of
its smaller size, but its unit mix and rent rates are comparable.
- One block north of Ridgegate Apartments is Wilson Apartments, an
82-unit gated community constructed in 2001. This development has
similar unit sizes, mix and rent rates but has slightly inferior
recreational amenities when compared to Ridgegate Apartments.
- Approximately two miles to the west of Ridgegate Apartments on
highway 516 is Signature Pointe Apartments. Signature Pointe
Apartments is comprised of 624 units and is also managed by
Pinnacle Realty Management Company. Constructed in 1989,
Signature Pointe Apartments has a similar unit mix and unit sizes
compared to Ridgegate Apartments. It also has slightly superior
amenities compared to those offered at Ridgegate Apartments. Its
location is inferior, however: the property is located close to a
major highway and is split into two sections by a highway, making
the recreational facilities less convenient to a large number of
its residents. The property also has the appearance of being more
densely developed.
Ridgegate enjoys either a location that is superior or physical
amenities that are superior to many of the other multifamily developments in the
area. These factors, combined with the improvements that are being made to the
property, are expected to allow the property to compete favorably with the other
developments.
RIDGETOP APARTMENTS
Ridgetop Apartments is an existing multifamily apartment complex
consisting of 221 units located in suburban Seattle, Washington. The community
consists of 24 two- and three-story buildings on a landscaped setting and
includes the following interior amenities: dishwasher, frost free refrigerator,
ice makers, electric stove/oven, garbage disposal, built-in microwave, wood
burning fireplace, wall-to-wall carpet, patios/balconies, cable access,
washer/dryer connections, stacked washer/dryer furnished, ceiling fans,
decorative mirrors, walk-in closets and storage closet. Exterior amenities
include: carports, indoor/outdoor spa, indoor swimming pool, conference room,
tenant lounge, fitness center, tanning bed, racquetball court, indoor/outdoor
basketball court and child's playground. There are 78 one-bedroom units, 95
two-bedroom units and 48 three-bedroom units. The apartment units have a
weighted average size of 871 square feet. The community was constructed in 1989.
The purchase price for the community was $14,076,016, paid as follows:
(i) $13,234,250 to the unaffiliated seller of the property; (ii) $620,856 in
customary closing costs; (iii) $185,850 in renovation costs; and (iv) $35,060 in
operating reserves. The closing occurred on December 16, 2002, and the purchase
price was funded by a combination of first mortgage debt, mezzanine financing
and borrowings on our credit line. The independently appraised value of the
community at the time of closing was $13,650,000. With current first mortgage
debt in the principal amount of $9,690,000, the community's loan-to-value ratio
is 70.99%. We will only be liable to the community and its creditors up to the
amount of our initial capital in the community.
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
community since its acquisition and receives a property
52
management fee equal to 3.5% of gross income. Pinnacle also manages communities
not owned by us that compete with our communities in the Seattle market.
The following chart details the anticipated renovations which will
take place at the property and will be paid for through funds escrowed from the
purchase price:
[Download Table]
PROJECT ESTIMATED COST
--------------------------------------------------------------------
Appliances $ 5,000
Balconies and Landings 20,000
Carpets 5,000
Clubhouse Remodel 25,000
Electrical/Lighting 5,000
Fire/Safety Compliance 18,000
Landscape Irrigation and Drainage 20,000
Pool Re-plaster/Furniture/Equipment 18,000
Seal and Re-stripe Parking Lot 16,000
Sidewalks (ADA) 5,000
Trash Compactor 40,000
--------------------------------------------------------------------
Sub-Total $ 177,000
Construction Management Fee (5%) 8,850
--------------------------------------------------------------------
TOTAL $ 185,850
--------------------------------------------------------------------
Renovations on the property have begun and are expected to be
completed by February 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $35,060 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available 96% 97% 97%
As of September 30, 2003, the occupancy rate was 98%.
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ 6,776/unit $ 7,766/unit $ 7,511/unit $ 7,833/unit $ 8,514/unit
The community is located in Silverdale, Washington, an area which has
historically had high median income (currently $47,818) and low residential
vacancy rates (averaging 2.4% in 2002).
- Ridgetop Apartments is located about a mile and one-half from
State Highway 3, the primary north-south route serving Kitsap
County. The neighborhood is a mixture of newer multifamily
developments, neighborhood retail, service stations, public
schools and single-family
53
subdivisions. Many of the single-family home subdivisions in the
neighborhood were developed in the last ten years and sales
prices average between $150,000 and $175,000.
- Five apartment properties located in the Silverdale area were
selected as comparable properties. Outlook Apartments, situated
less than a mile north of the Ridgetop Apartments, consists of
210 units. Constructed in 1991, Outlook Apartments offers similar
amenities to those provided at Ridgetop Apartments.
- Ridgetop Apartments' sister property, Wellington Apartments, is
located approximately two miles to the southwest, across from the
Kitsap Mall. Wellington Apartments, constructed in 1989, is a
240-unit property in a residential area with large multifamily
developments and single-family tract home subdivisions.
Wellington Apartments has a similar apartment mix, range in unit
size, and comparable amenities to those offered at Ridgetop
Apartments.
- Also located in the Ridgetop Apartments area is Quail Hollow
Apartments, a 201-unit development. Similar to Ridgetop
Apartments, this property is located in a neighborhood of large
multifamily developments and single-family homes. Quail Hollow
Apartments, constructed in 1988, also offers comparable amenities
to those at Ridgetop Apartments.
- Santa Fe Ridge Apartments is located only about two blocks north
of the Ridgetop Apartments. Santa Fe Ridge Apartments, which was
constructed in 1992, is comprised of 240 units of similar size
and unit mix to that of Ridgetop Apartments. Santa Fe Ridge
Apartments offers amenities similar to those of Ridgetop
Apartments.
- Olympic Village Apartments, with 340 units, is located in
Bremerton, less than three miles southeast of Ridgetop
Apartments. Similar to the other competing properties surveyed in
this report, Olympic Village Apartments is situated in an area
heavily developed with large multifamily properties and
single-family subdivisions. Olympic Village Apartments was
constructed in 1993 and offers an amenity package similar to that
available at Ridgetop Apartments.
Ridgetop Apartments is located in a real estate market that has
historically been underserved by multifamily housing. Occupancy rates have
historically remained relatively high in the area and rents have generally
increased. There is a significant military presence in this market that has been
stable for a number of years. Individuals actively serving in the military
together with individuals working in support jobs for the military have helped
maintain a stable local market. There is no evidence that this presence will
change in the foreseeable future.
It is our belief that the planned initial renovations, combined with a
more aggressive management and leasing staff, will enable Ridgetop to
distinguish itself from the other developments in the area and improve its
financial performance.
WELLINGTON APARTMENTS
Wellington Apartments is an existing multifamily apartment complex
consisting of 240 units located in suburban Seattle, Washington. The community
consists of 16 two- and three-story buildings on a landscaped setting and
includes the following interior amenities: dishwasher, frost free refrigerator,
ice makers, electric stove/oven, garbage disposal, built-in microwave, wood
burning fireplace, wall-to-wall carpet, patios/balconies, cable access,
washer/dryer connections, stacked washer/dryer furnished, ceiling fans,
decorative mirrors, walk-in closets and storage closet. Exterior amenities
include: carports, outdoor spa, swimming pool, conference room, tenant lounge,
fitness center, tanning bed, racquetball court, indoor/outdoor basketball court
and playground. There are 132 one-
54
bedroom units and 108 two-bedroom units. The apartment units have a weighted
average size of 948 square feet. The community was constructed in 1988.
The purchase price for the community was $16,044,073, paid as follows:
(i) $15,635,000 to the unaffiliated seller of the property; (ii) $738,013 in
customary closing costs; (iii) $336,000 in renovation costs; and (iv) $35,060 in
operating reserves. The closing occurred on December 16, 2002, and the purchase
price was funded by a combination of first mortgage debt, mezzanine financing
and borrowings on our credit line. The independently appraised value of the
community at the time of closing was $15,650,000. With current first mortgage
debt in the principal amount of $11,530,000, the community's loan-to-value ratio
is 73.67%. We will only be liable to the community and its creditors up to the
amount of our initial capital in the community.
The property management agent is Pinnacle Realty Management Company,
which is affiliated with GFS Equity Management LLC. Pinnacle has managed the
community since its acquisition and receives a property management fee equal to
3.5% of gross income. Pinnacle also manages communities not owned by us that
compete with our communities in the Seattle market.
The following chart details the anticipated renovations which will
take place at the property and will be paid for through funds escrowed from the
purchase price:
[Download Table]
PROJECT ESTIMATED COST
-------------------------------------------------------------------
Appliances $ 5,000
Balconies and Landings 60,000
Carpets 5,000
Clubhouse Remodel 30,000
Electrical/Lighting 10,000
Fire Safety Compliance 17,000
Landscape Irrigation and Drainage 40,000
Pool Re-Plaster/Furniture 18,000
Seal Coat and Re-stripe Lot/Curbs 30,000
Sidewalks (ADA) 5,000
Windows 100,000
-------------------------------------------------------------------
Sub-Total $ 320,000
Construction Management Fee (5%) 16,000
-------------------------------------------------------------------
TOTAL $ 336,000
-------------------------------------------------------------------
Renovations on the property have begun and are expected to be
completed by February 2004. It is not anticipated that there will be any
material relocation or loss of tenants during the renovations. Nevertheless, an
operating reserve in the amount of $35,060 was funded from the proceeds of the
purchase price and is available to supplement the income of the community during
the renovation process to the extent needed. Proceeds from the operating reserve
can be used to supplement the income of the community sufficient for us to make
distributions to investors in accordance with our investment objectives. This
operating reserve is being held in escrow at Wainwright Bank & Trust Co. and any
withdrawals from this reserve require our consent and signature.
All of the leased space is residential with leases ranging from an
initial term of six months to one year. The average historical occupancy rate is
as follows:
[Download Table]
YEAR END DECEMBER 31,
---------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Not Available Not Available 95% 96% 97%
As of September 30, 2003, the property's occupancy rate was 98%.
55
The average effective annual rental per unit for each of the last five
years is as follows:
[Download Table]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ 7,210/unit $ 7,907/unit $ 7,642/unit $ 8,080/unit $ 8,649/unit
The community is located in Silverdale, Washington, an area which has
historically had high median income (currently $47,818) and low residential
vacancy rates (averaging 2.4% in 2002).
- Wellington Apartments is located across from and just west of the
Kitsap Mall. The area is comprised of numerous neighborhood
retail centers that are typically developed adjacent to regional
malls, service businesses and agencies, restaurants, healthcare
services, apartments and single-family subdivisions. Many of the
single-family subdivisions in the neighborhood were developed in
the last ten years and sales prices average between $150,000 and
$175,000.
- Five apartment properties located in the Silverdale area were
selected for purposes of comparison. Outlook Apartments, situated
about one and a half miles northeast of Wellington Apartments,
consists of 210-units. Constructed in 1991, Outlook Apartments
offers similar amenities to those provided at Wellington
Apartments.
- Wellington Apartments' sister property, Ridgetop Apartments, is
located approximately two miles northeast along Ridgetop
Boulevard and less than a mile from the Harrison Silverdale
Healthcare Campus. Ridgetop Apartments, which was constructed in
1989, is a 221-unit property located in a residential area with
large multifamily developments and single-family tract home
subdivisions. Ridgetop Apartments has a similar apartment mix,
range in unit size and comparable amenities to those offered at
Wellington Apartments.
- Also located close to Ridgetop Apartments is Quail Hollow
Apartments, a 201-unit development. Similar to Ridgetop
Apartments, this property is located in a neighborhood of large
multifamily developments and single-family homes. Quail Hollow
Apartments, constructed in 1988, also offers comparable amenities
to those at Wellington Apartments.
- Santa Fe Ridge Apartments is located northeast of Wellington
Apartments and is only about two blocks from Ridgetop Apartments.
Santa Fe Ridge Apartments, which was built in 1992, is comprised
of 240 units of similar size and unit mix to that of Wellington
Apartments. Santa Fe Ridge Apartments offers amenities similar to
those of Wellington Apartments.
- Olympic Village Apartments, with 340 units, is located
approximately three miles southeast of Wellington Apartments.
Similar to the other competing properties surveyed in this
report, Olympic Village Apartments is situated in an area heavily
developed with large multifamily properties and single-family
subdivisions. Olympic Village Apartments was constructed in 1993
and offers an amenity package similar to that available at
Wellington Apartments.
Wellington Apartments is located in a real estate market that has
historically been underserved by multifamily housing. Occupancy rates have
historically remained relatively high in the area and rents have generally
increased. There is a significant military presence in this market that has been
stable for a number of years. Individuals actively serving in the military
together with individuals working in support jobs for the military have helped
maintain a stable local market. There is no evidence that thus presence will
change in the foreseeable future.
56
It is our belief that the planned initial renovations, combined with a
more aggressive management and leasing staff, will enable Wellington to
distinguish itself from the other developments in the area and improve its
financial performance.
The following are consolidated audited income statements for all ten
communities for the fiscal year ended December 31, 2002, and unaudited financial
information for the three-month period ended March 31, 2003.
Only one year of audited financial information is presented for the
communities because the unaffiliated seller did not provide information
sufficient to conduct an audit of earlier years. A detailed market analysis was
completed in order to obtain additional material information to assess the
communities' financial viability. The survey concluded that the current rents
and occupancy levels are comparable with the rents charged and occupancy levels
in similar properties in the market area. The study did note a prevalence of
rent incentives which were typically one month's free rent. The communities
typically offer one month free rent for new tenants and this is reflected in the
current financial information. In addition, the core unit expense in 2002 is
comparable with the operating expenses of similarly situated communities in the
Seattle area.
The Advisor is unaware of any material factors relating to the
communities that would cause the reported financial information not to be
indicative of future operating results.
57
COMBINED STATEMENT OF GROSS INCOME AND DIRECT OPERATING EXPENSES AND
INDEPENDENT AUDITORS' REPORT
BAY POINTE APARTMENTS, OAKS AT TIMUQUANA APARTMENTS,
AND SPICEWOOD SPRINGS APARTMENTS
THE "JACKSONVILLE COMMUNITIES"
DECEMBER 31, 2002
58
[REZNICK FEDDER & SILVERMAN LOGO] 2002 Summit Boulevard
REZNICK FEDDER & SILVERMAN Suite 1000
Certified Public Accountants - A Professional Corporation Atlanta, GA 30319-1470
404.847.9447 Phone
404.847.9495 Fax
www.rfs.com
INDEPENDENT AUDITORS' REPORT
To Boston Capital Corporation
We have audited the accompanying Combined Statement of Gross Income and
Direct Operating Expenses of the Jacksonville Communities for the year ended
December 31, 2002. This Combined Statement of Gross Income and Direct Operating
Expenses is the responsibility of the management of the Jacksonville
Communities. Our responsibility is to express an opinion on the Combined
Statement of Gross Income and Direct Operating Expenses based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance that the Combined Statement
of Gross Income and Direct Operating Expenses is free of material misstatement.
An audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Combined Statement of Gross Income
and Direct Operating Expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Combined Statement of Gross Income and Direct Operating
Expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in the
registration statement on Form S-11 of Boston Capital Real Estate Investment
Trust, Inc.) as described in Note A and is not intended to be a complete
presentation of the Jacksonville Communities revenues and expenses.
In our opinion, the Combined Statement of Gross Income and Direct Operating
Expenses referred to above presents fairly, in all material respects, the gross
income and direct operating expenses of the Jacksonville Communities for the
year ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the Combined
Statement of Gross Income and Direct Operating Expenses. The supplemental
information is presented for purposes of additional analysis and is not a
required part of the Combined Statement of Gross Income and Direct Operating
Expenses. Such information has been subjected to the auditing procedures applied
in the audit of the Combined Statement of Gross Income and Direct Operating
Expenses and, in our opinion, is fairly stated in all material respects in
relation to the Combined Statement of Gross Income and Direct Operating
Expenses.
/s/ Reznick Fedder & Silverman
Atlanta, Georgia
November 14, 2003
59
The Jacksonville Communities
COMBINED STATEMENT OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
Year ended December 31, 2002
[Download Table]
Revenue
Rents $ 7,077,543
Less:
Vacancies (705,370)
Miscellaneous other income
Utility reimbursement 157,672
Tenant charges 472,180
Interest income 5,412
-----------
7,007,437
===========
Expenses
Payroll 889,078
Utilities 506,187
Repairs and maintenance 1,038,766
Taxes 513,853
Management fees 320,794
Professional fees 56,454
Advertising 90,575
Administrative 78,344
Insurance 224,394
-----------
3,718,445
-----------
Net operating income 3,288,992
===========
See notes to combined statement of gross income and direct operating expenses
60
The Jacksonville Communities
NOTES TO COMBINED STATEMENT OF
GROSS INCOME AND DIRECT OPERATING EXPENSES
December 31, 2002
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined statement of gross income and direct operating
expenses consists of three market rate apartment complexes: a 300 unit
apartment complex in Jacksonville, Florida known as Bay Pointe Apartments,
a 228 unit apartment complex in Jacksonville, Florida known as Oaks at
Timuquana Apartments and a 512 unit apartment complex in Jacksonville,
Florida known as Spicewood Springs Apartments (herein referred to as the
"Jacksonville Communities").
Bay Pointe Apartments and Oaks at Timuquana Apartments are subsidiaries of
Vestcor Equities, Inc. Spicewood Springs Apartments is a wholly owned
subsidiary of Equity Residential, a Maryland real estate investment trust.
During May 2003, the Jacksonville Communities were purchased by BC -
Bainbridge, LLC, a Delaware limited liability company to acquire, improve,
finance, hold, own, operate, lease, redevelop, sell, mortgage, pledge,
exchange, convey, or otherwise dispose of the Jacksonville Communities.
The accompanying combined statement of gross income and direct operating
expenses was prepared in order present the combined statement of gross
income and direct operating expenses of the Jacksonville Communities in an
SEC Filing expected to occur during 2003. Subsequent to the proposed SEC
Filing the Jacksonville Communities are intended to operate as subsidiaries
of a real estate investment trust for the purpose of generating cash flow
and asset value to attract investors.
A summary of significant accounting policies follows.
PRINCIPLES OF ACCOUNTING
The combined statement of gross income and direct operating expenses was
prepared on the accrual basis of accounting and does not include
depreciation expense on related rental property or interest expense on
financing arrangements of the Jacksonville Communities. A complete
presentation of the Jacksonville Communities financial statements in
accordance with accounting principles generally accepted in the United
States of America, which would have included a balance sheet and statement
of cash flows, was not presented in order to follow prescribed reporting
requirements by the SEC.
PRINCIPLES OF COMBINATION
The accompanying combined statement of gross income and direct operating
expenses includes the accounts of the Jacksonville Communities. All
intercompany transactions were eliminated in the combination.
61
USE OF ESTIMATES
The preparation of the combined statement of gross income and direct
operating expenses in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
RENTAL INCOME
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between each community and
tenants of each community are operating leases.
INCOME TAXES
No provision or benefit for income taxes has been included in the combined
statement of gross income and direct operating expenses since taxable
income or loss passes through to, and is reportable by, the partners of
each community individually.
ACCOUNTS RECEIVABLE AND BAD DEBTS
Tenant receivables are charged to bad debt expense when they are determined
to be uncollectible based upon a periodic review of the accounts by
management. Accounting principles generally accepted in the United States
of America require that the allowance method be used to recognize bad
debts; however, the effect of using the direct write-off method is not
materially different from the results that would have been obtained under
the allowance method.
62
SUPPLEMENTAL INFORMATION
63
The Jacksonville Communities
COMBINING SCHEDULE OF GROSS INCOME AND DIRECT OPERATING EXPENSES BY COMMUNITY
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31, 2002
BAY POINTE OAKS AT TIMUQUANA SPICEWOOD SPRINGS ELIMINATING
APARTMENTS APARTMENTS APARTMENTS ENTRIES TOTAL
----------- ----------------- ----------------- ----------- -----------
Revenue
Rents $ 1,959,620 $ 1,517,890 $ 3,600,033 $ - $ 7,077,543
Less:
Vacancies (210,605) (161,599) (333,166) - (705,370)
Miscellaneous other income
Utility reimbursement - - 157,672 - 157,672
Tenant charges 195,019 70,198 206,963 - 472,180
Interest income 635 4,721 56 - 5,412
----------- ----------------- ----------------- ----------- -----------
1,944,669 1,431,210 3,631,558 - 7,007,437
----------- ----------------- ----------------- ----------- -----------
Expenses
Payroll 252,783 238,363 397,932 - 889,078
Utilities 148,179 112,270 245,738 - 506,187
Repairs and maintenance 323,957 193,570 521,239 - 1,038,766
Taxes 125,336 98,465 290,052 - 513,853
Management fees 104,808 71,102 144,884 - 320,794
Professional fees 31,559 16,190 8,705 - 56,454
Advertising 33,372 28,774 28,429 - 90,575
Administrative 21,067 19,513 37,764 - 78,344
Insurance 95,986 64,136 64,272 - 224,394
----------- ----------------- ----------------- ----------- -----------
1,137,047 842,383 1,739,015 - 3,718,445
----------- ----------------- ----------------- ----------- -----------
Net operating income $ 807,622 $ 588,827 $ 1,892,543 $ - $ 3,288,992
=========== ================= ================= =========== ===========
64
The Jacksonville Communities
COMBINING STATEMENTS OF GROSS INCOME AND DIRECT OPERATING EXPENSES
BY COMMUNITY (UNAUDITED)
[Enlarge/Download Table]
FOR THE PERIOD FROM FOR THE PERIOD FROM
1/1/03 - 5/21/03 1/1/03 - 5/27/03
-------------------------------- -------------------
BAY POINTE OAKS AT TIMUQUANA SPICEWOOD SPRINGS ELIMINATING
APARTMENTS APARTMENTS APARTMENTS ENTRIES TOTAL
----------- ----------------- ------------------- ----------- -----------
Revenue
Rents $ 772,993 $ 609,633 $ 1,478,741 $ - $ 2,861,367
Less:
Vacancies (139,214) (40,427) (99,115) - (278,756)
Miscellaneous other income
Utility reimbursement - - 73,099 - 73,099
Tenant charges 96,365 34,897 111,818 - 243,080
----------- ----------------- ----------------- ----------- -----------
730,144 604,103 1,564,543 - 2,898,790
----------- ----------------- ----------------- ----------- -----------
Expenses
Payroll 102,542 91,506 200,664 - 394,712
Utilities 50,247 44,367 90,496 - 185,110
Repairs and maintenance 93,818 99,844 197,440 - 391,102
Taxes 45,559 47,325 119,024 - 211,908
Management fees 43,558 31,976 62,584 - 138,118
Professional fees 3,370 2,810 5,484 - 11,664
Advertising 9,272 9,011 14,053 - 32,336
Administrative 11,380 8,449 14,539 - 34,368
Insurance 30,888 30,531 57,069 - 118,488
----------- ----------------- ----------------- ----------- -----------
390,634 365,819 761,353 - 1,517,806
----------- ----------------- ----------------- ----------- -----------
Net operating income $ 339,510 $ 238,284 $ 803,190 $ - $ 1,380,984
=========== ================= ================= =========== ===========
65
COMBINED STATEMENT OF GROSS INCOME AND DIRECT OPERATING EXPENSES
AND
INDEPENDENT AUDITORS' REPORT
BOULDER CREEK APARTMENTS, BRIDGE CREEK APARTMENTS
AND SETTLER'S POINT APARTMENTS
THE "PORTLAND AND SALT LAKE CITY COMMUNITIES"
DECEMBER 31, 2002
66
[REZNICK FEDDER & SILVERMAN LOGO]
REZNICK FEDDER & SILVERMAN 2002 Summit Boulevard
Certified Public Accountants - A professional Suite 1000
Corporation Atlanta, GA 30319-1470
404 847.9447 Phone
404.847.9495 Fax
www.rfs.com
INDEPENDENT AUDITORS' REPORT
To Boston Capital Corporation
We have audited the accompanying Combined Statement of Gross Income and
Direct Operating Expenses of the Portland and Salt Lake City Communities for the
year ended December 31, 2002. This Combined Statement of Gross Income and Direct
Operating Expenses is the responsibility of the management of the Portland and
Salt Lake City Communities. Our responsibility is to express an opinion on the
Combined Statement of Gross Income and Direct Operating Expenses based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance that the Combined Statement
of Gross Income and Direct Operating Expenses is free of material misstatement.
An audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Combined Statement of Gross Income
and Direct Operating Expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Combined Statement of Gross Income and Direct Operating
Expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in the
registration statement on Form S-11 of Boston Capital Real Estate Investment
Trust, Inc.) as described in Note A and is not intended to be a complete
presentation of the Portland and Salt Lake City Communities revenues and
expenses.
In our opinion, the Combined Statement of Gross Income and Direct Operating
Expenses referred to above presents fairly, in all material respects, the gross
income and direct operating expenses of the Portland and Salt Lake City
Communities for the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the Combined
Statement of Gross Income and Direct Operating Expenses. The supplemental
information is presented for purposes of additional analysis and is not a
required part of the Combined Statement of Gross Income and Direct Operating
Expenses. Such information has been subjected to the auditing procedures applied
in the audit of the Combined Statement of Gross Income and Direct Operating
Expenses and, in our opinion, is fairly stated in all material respects in
relation to the Combined Statement of Gross Income and Direct Operating
Expenses.
/s/ Reznick Fedder & Silverman
Atlanta, Georgia
September 8, 2003
ATLANTA - BALTIMORE - BETHESDA - CHARLOTTE
67
The Portland and Salt Lake City Communities
COMBINED STATEMENT OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
Year ended December 31, 2002
[Download Table]
Revenue
Rents $ 7,681,805
Less:
Vacancies (908,476)
Casualty loss (357)
Miscellaneous other income
Utility reimbursement 475,874
Late fees, deposit forfeitur 241,239
Nonrefundable move-in fees 81,319
7,571,404
Expenses
Repairs and maintenance 1,702,667
Payroll 937,007
Utilities 671,021
Taxes 582,797
Management fees 304,104
Advertising 139,647
Insurance 128,940
Administrative 51,838
-----------
4,518,021
Net operating income $ 3,053,383
===========
See notes to financial statements
68
The Portland and Salt Lake City Communities
NOTES TO COMBINED STATEMENT OF
GROSS INCOME AND DIRECT OPERATING EXPENSES
December 31, 2002
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined statement of gross income and direct
operating expenses consists of three market rate apartment complexes: a
296 unit apartment complex in Wilsonville, Oregon known as Boulder
Creek Apartments, a 315 unit apartment complex in Wilsonville, Oregon
known as Bridge Creek Apartments, and a 416 unit apartment complex in
Taylorsville, Utah known as Settler's Point Apartments (herein referred
to as the "Portland and Salt Lake City Communities").
The Portland and Salt Lake City Communities are wholly owned
subsidiaries of Equity Residential, a Maryland real estate investment
trust. On May 30, 2003, the Portland and Salt Lake City Communities
were purchased by BC-GFS II, LLC, a Delaware limited liability company
to acquire, improve, finance, hold, own, operate, lease, redevelop,
sell, mortgage, pledge, exchange, convey, or otherwise dispose of the
Portland and Salt Lake City Communities.
The accompanying combined statement of gross income and direct
operating expenses was prepared in order to present the combined
statement of gross income and direct operating expenses of the Portland
and Salt Lake City Communities in an SEC Filing expected to occur
during 2003. Subsequent to the proposed SEC Filing the Portland and
Salt Lake City Communities are intended to operate as subsidiaries of a
real estate investment trust for the purpose of generating cash flow
and asset value to attract investors.
A summary of significant accounting policies follows.
PRINCIPLES OF ACCOUNTING
The combined statement of gross income and direct operating expenses
was prepared on the accrual basis of accounting and does not include
depreciation expense on related rental property or interest expense on
financing arrangements of the Portland and Salt Lake City Communities.
A complete presentation of the Portland and Salt Lake City Communities
financial statements in accordance with accounting principles generally
accepted in the United States of America, which would have included a
balance sheet and statement of cash flows, was not presented in order
to follow prescribed reporting requirements by the SEC.
PRINCIPLES OF COMBINATION
The accompanying combined statement of gross income and direct
operating expenses includes the accounts of the Portland and Salt Lake
City Communities. All intercompany transactions were eliminated in the
combination.
69
USE OF ESTIMATES
The preparation of the combined statement of gross income and direct
operating expenses in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
RENTAL INCOME
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between each
community and tenants of each community are operating leases.
INCOME TAXES
No provision or benefit for income taxes has been included in the
combined statement of gross income and direct operating expenses since
taxable income or loss passes through to, and is reportable by, the
partners of each community individually.
ACCOUNTS RECEIVABLE AND BAD DEBTS
Tenant receivables are charged to bad debt expense when they are
determined to be uncollectible based upon a periodic review of the
accounts by management. Accounting principles generally accepted in the
United States of America require that the allowance method be used to
recognize bad debts; however, the effect of using the direct write-off
method is not materially different from the results that would have
been obtained under the allowance method.
70
SUPPLEMENTAL INFORMATION
71
The Portland and Salt Lake City Communities
The Communities
COMBINING SCHEDULE OF GROSS INCOME AND DIRECT OPERATING EXPENSES BY COMMUNITY
Year ended December 31, 2002
[Enlarge/Download Table]
BOULDER CREEK BRIDGE CREEK SETTLER'S POINT ELIMINATING
APARTMENTS APARTMENTS APARTMENTS ENTRIES TOTAL
------------- ------------ --------------- ------------ ------------
Revenue
Rents $ 2,242,169 $ 2,452,750 $ 2,986,886 $ - $ 7,681,805
Less: -
Vacancies (220,320) (278,036) (410,120) - (908,476)
Casualty loss - - (357) - (357)
Miscellaneous other income -
Late fees, deposit forfeitures,
etc 137,712 132,145 206,017 - 475,874
Utility reimbursement 83,459 90,419 67,361 - 241,239
Nonrefundable move-in fees 24,680 27,525 29,114 - 81,319
------------- ------------ --------------- ------------ ------------
2,267,700 2,424,803 2,878,901 - 7,571,404
------------- ------------ --------------- ------------ ------------
Expenses -
Repairs and maintenance 412,245 420,761 869,661 - 1,702,667
Payroll 233,427 282,752 420,828 - 937,007
Utilities 301,051 239,964 130,006 - 671,021
Taxes 226,283 229,462 127,052 - 582,797
Management fees 91,298 97,115 115,691 - 304,104
Advertising 42,670 42,208 54,769 - 139,647
Insurance 37,164 39,552 52,224 - 128,940
Administrative 16,798 16,704 18,336 - 51,838
------------- ------------ --------------- ------------ ------------
1,360,936 1,368,518 1,788,567 - 4,518,021
------------- ------------ --------------- ------------ ------------
Net operating income $ 906,764 $ 1,056,285 $ 1,090,334 $ - $ 3,053,383
============= ============ =============== ============ ============
See independent auditors' report
72
The Portland and Salt Lake City Communities
COMBINING SCHEDULE OF GROSS INCOME AND DIRECT OPERATING EXPENSES BY
COMMUNITY -UNAUDITED
For the period from January 1, 2003 to May 29, 2003
[Enlarge/Download Table]
BOULDER CREEK BRIDGE CREEK SETTLER'S POINT
APARTMENTS APARTMENTS APARTMENTS TOTAL
------------------ ------------------ ------------------ -----------------
Revenue
Rents $ 898,223 $ 968,413 $ 1,164,896 $ 3,999,945
Less:
Vacancies (102,027) (107,221) (166,594) (483,063)
Miscellaneous other income
Late fees, deposit forfeitures,
etc. 64,536 51,594 75,226 191,356
Utility reimbursement 35,853 38,540 27,980 140,913
Nonrefundable move-in fees 11,700 13,534 11,886 50,654
908,285 964,860 1,113,394 3,899,805
----------- ----------- ------------ ------------
Expenses
Repairs and maintenance 152,385 176,384 200,990 529,759
Payroll 103,822 124,155 178,891 406,868
Taxes 101,691 104,050 54,962 260,703
Utilities 101,894 89,349 46,011 237,254
Management fees 36,474 38,689 44,747 119,910
Advertising 15,472 20,092 29,003 64,567
Insurance 14,486 15,418 17,792 47,696
Administrative 6,454 5,218 19,336 31,008
----------- ----------- ------------ ------------
532,678 573,355 591,732 1,697,765
----------- ----------- ------------ ------------
Net operating income $ 375,607 $ 391,505 $ 521,662 $ 2,202,040
=========== =========== ============ ============
73
COMBINED STATEMENT OF GROSS INCOME AND DIRECT OPERATING EXPENSES AND
INDEPENDENT AUDITORS' REPORT
ALDERWOOD PARK APARTMENTS, RIDGEGATE APARTMENTS,
RIDGETOP APARTMENTS, AND WELLINGTON APARTMENTS
THE "SEATTLE COMMUNITIES"
DECEMBER 31, 2002
74
[REZNICK FEDDER & SILVERMAN LOGO]
REXNICK FEEDER & SILVERMAN 5607 Glenridge Drive, Suite 500
Certified Public Accountants - A professional Atlanta, GA 30342-4998
Corporation 404 847.9447 Phone
404.847.9495 Fax
www.rfs.com
INDEPENDENT AUDITORS' REPORT
To Boston Capital Corporation
We have audited the accompanying Combined Statement of Gross Income and
Direct Operating Expenses of the Seattle Communities as of and for the year
ended December 31, 2002. This Combined Statement of Gross Income and Direct
Operating Expenses is the responsibility of the management of the Seattle
Communities. Our responsibility is to express an opinion on the Combined
Statement of Gross Income and Direct Operating Expenses based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance that the Combined Statement
of Gross Income and Direct Operating Expenses is free of material misstatement.
An audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Combined Statement of Gross Income
and Direct Operating Expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Combined Statement of Gross Income and Direct Operating
Expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in the
registration statement on Form S-11 of Boston Capital Real Estate Investment
Trust, Inc.) as described in Note A and is not intended to be a complete
presentation of the Seattle Communities revenues and expenses.
In our opinion, the Combined Statement of Gross Income and Direct Operating
Expenses referred to above presents fairly, in all material respects, the gross
income and direct operating expenses of the Seattle Communities for the year
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the Combined
Statement of Gross Income and Direct Operating Expenses. The supplemental
information is presented for purposes of additional analysis and is not a
required part of the Combined Statement of Gross Income and Direct Operating
Expenses. Such information has been subjected to the auditing procedures applied
in the audit of the Combined Statement of Gross Income and Direct Operating
Expenses and, in our opinion, is fairly stated in all material respects in
relation to the Combined Statement of Gross Income and Direct Operating
Expenses.
/s/ Reznick Fedder & Silverman
Atlanta, Georgia
July 2, 2003
ATLANTA - BALTIMORE - BETHESDA - CHARLOTTE
75
The Seattle Communities
COMBINED STATEMENT OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
Year ended December 31, 2002
[Download Table]
Revenue
Rents $ 6,762,559
Less:
Vacancies (326,853)
Casualty loss (13,973)
Miscellaneous other income
Utility reimbursement 303,546
Late fees, deposit forfeitures, etc. 259,505
Nonrefundable move-in fees 116,995
Parking 52,807
---------------
7,154,586
---------------
Expenses
Payroll 690,841
Utilities 598,235
Repairs and maintenance 575,218
Taxes 473,004
Management fees 288,542
Advertising 104,923
Administrative 94,986
Insurance 92,279
---------------
2,918,028
---------------
Net operating income $ 4,236,558
===============
See notes to combined statement of gross income and direct operating expenses
76
The Seattle Communities
NOTES TO COMBINED STATEMENT OF
GROSS INCOME AND DIRECT OPERATING EXPENSES
December 31, 2002
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined statement of gross income and direct operating
expenses consists of four market rate apartment complexes: a 188 unit
apartment complex in Lynwood, Washington known as Alderwood Park
Apartments, a 153 unit apartment complex in Kent, Washington known as
Ridgegate Apartments, a 221 unit apartment complex in Silverdale,
Washington known as Ridgetop Apartments, and a 240 unit apartment complex
in Silverdale, Washington known as Wellington Apartments (herein referred
to as the "Seattle Communities").
Prior to December 16, 2002, the Seattle Communities were wholly owned
subsidiaries of Equity Residential, a Maryland real estate investment
trust. On December 16, 2002, The Communities were purchased by BC - GFS,
LLC, a Delaware limited liability company to acquire, improve, finance,
hold, own, operate, lease, redevelop, sell, mortgage, pledge, exchange,
convey, or otherwise dispose of the Seattle Communities.
The accompanying combined statement of gross income and direct operating
expenses was prepared in order present the combined statement of gross
income and direct operating expenses of the Seattle Communities in an SEC
Filing expected to occur during 2003. Subsequent to the proposed SEC Filing
the Seattle Communities are intended to operate as subsidiaries of a real
estate investment trust for the purpose of generating cash flow and asset
value to attract investors.
A summary of significant accounting policies follows.
PRINCIPLES OF ACCOUNTING
The combined statement of gross income and direct operating expenses was
prepared on the accrual basis of accounting and does not include
depreciation expense on related rental property or interest expense on
financing arrangements of the Seattle Communities.
PRINCIPLES OF COMBINATION
The accompanying combined statement of gross income and direct operating
expenses includes the accounts of the Seattle Communities. No intercompany
transactions were eliminated in the combination.
77
USE OF ESTIMATES
The preparation of the combined statement of gross income and direct
operating expenses in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
RENTAL INCOME
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between each community and
tenants of each community are operating leases.
INCOME TAXES
No provision or benefit for income taxes has been included in the combined
statement of gross income and direct operating expenses since taxable
income or loss passes through to, and is reportable by, the partners of
each community individually.
ACCOUNTS RECEIVABLE AND BAD DEBTS
Tenant receivables are charged to bad debt expense when they are determined
to be uncollectible based upon a periodic review of the accounts by
management. Accounting principles generally accepted in the United States
of America require that the allowance method be used to recognize bad
debts; however, the effect of using the direct write-off method is not
materially different from the results that would have been obtained under
the allowance method.
78
SUPPLEMENTAL INFORMATION
79
THE SEATTLE COMMUNITIES
COMBINING SCHEDULE OF GROSS INCOME AND DIRECT OPERATING EXPENSES BY COMMUNITY
Year ended December 31, 2002
[Enlarge/Download Table]
ALDERWOOD PARK RIDGEGATE RIDGETOP WELLINGTON
APARTMENTS APARTMENTS APARTMENTS APARTMENTS TOTAL
-------------- ------------ ------------ ------------ ------------
Revenue
Rents $ 1,518,630 $ 1,324,955 $ 1,858,436 $ 2,060,538 $ 6,762,559
Less:
Vacancies (134,069) (57,807) (58,815) (76,162) (326,853)
Casualty loss (12,504) (1,469) - - (13,973)
Miscellaneous other income
Utility reimbursement 73,211 58,776 84,504 87,055 303,546
Late fees, deposit forfeitures, 76,381 49,264 65,577 68,283 259,505
etc
Nonrefundable move-in fees 28,690 14,285 33,846 40,174 116,995
Parking - 17,948 - 34,859 52,807
------------ ------------ ------------ ------------ ------------
1,550,339 1,405,952 1,983,548 2,214,747 7,154,586
------------ ------------ ------------ ------------ ------------
Expenses
Payroll 170,351 167,062 178,385 175,043 690,841
Utilities 119,068 124,084 180,117 174,966 598,235
Repairs and maintenance 147,567 130,162 144,197 153,292 575,218
Taxes 102,083 100,304 126,773 143,844 473,004
Management fees 65,020 56,258 78,849 88,415 288,542
Advertising 28,615 32,825 24,837 18,646 104,923
Administrative 24,835 19,479 23,543 27,129 94,986
Insurance 21,637 17,611 25,421 27,610 92,279
------------ ------------ ------------ ------------ ------------
679,176 647,785 782,122 808,945 2,918,028
------------ ------------ ------------ ------------ ------------
Net income $ 871,163 $ 758,167 $ 1,201,426 $ 1,405,802 $ 4,236,558
============ ============ ============ ============ ============
80
THE COMMUNITIES
Statement of Gross Income and Direct Operating Expenses
For the Nine Months Ended 9/30/2003
[Enlarge/Download Table]
SEATTLE PORTFOLIO
----------------------------------------------------------------
WELLINGTON RIDGETOP ALDERWOOD RIDGEGATE
Statement of Gross Income and Direct
Operating Expenses
For the Nine Months Ended 9/30/2003
Revenue
Rental Income $ 1,652,894 $ 1,483,399 $ 1,135,354 $ 1,043,480
Less:
Vacancies (93,734) (110,327) (172,319) (45,575)
Casualty loss - - - -
Miscellaneous other income
Utility reimbursement 69,839 65,074 51,868 53,846
Late fees, deposit forfeitures, etc 102,041 49,226 51,786 47,198
Interest income 1,565 902 1,811 981
------------- ------------- ------------- -------------
Total Income 1,732,605 1,488,274 1,068,500 1,099,930
------------- ------------- ------------- -------------
Expenses
Repairs and Maintenance 168,868 132,078 162,593 114,875
Salaries and wages 189,275 190,005 150,139 146,892
Utilities 136,253 149,716 93,136 105,850
Taxes 108,143 95,443 78,444 69,645
General and administrative 47,913 53,972 73,811 52,954
Management fees 60,631 52,081 38,453 38,812
Insurance expense 28,332 23,089 22,792 17,816
Replacement Reserves - - - -
Interest Cap Reserve - - - -
Partnership expenses 9,285 8,577 7,337 6,028
------------- ------------- ------------- -------------
748,700 704,961 626,705 552,872
------------- ------------- ------------- -------------
Net operating income $ 983,905 $ 783,313 $ 441,795 $ 547,058
============= ============= ============= =============
Interest Expense 558,687 469,867 446,837 359,574
------------- ------------- ------------- -------------
Net Cash Flow from Operations $ 425,218 $ 313,446 $ (5,042) $ 187,484
============= ============= ============= =============
REIT Expenses*
Accounting, Audit & Tax $ 37,500
Distribution Expense 4,500
Director's Salaries 40,500
Board Meeting Related Costs 9,000
Legal & Insurance 56,250
Advisory Fee 360,000 Includes deferral of $ 298,287
------------- =============
Total REIT Expenses $ 507,750
=============
REIT Net Cash Flow**
Stockholder Equity***
PORTLAND PORTFOLIO
-----------------------------------------------
BOULDER BRIDGE SETTLER'S
CREEK CREEK POINT
Statement of Gross Income and Direct
Operating Expenses
For the Nine Months Ended 9/30/2003
Revenue
Rental Income $ 1,621,720 $ 1,761,865 $ 2,162,189
Less:
Vacancies (181,902) (182,391) (255,299)
Casualty loss - - -
Miscellaneous other income
Utility reimbursement 63,004 67,273 52,653
Late fees, deposit forfeitures, etc 97,643 98,089 124,277
Interest income 457 2,347 1,847
------------- ------------- -------------
Total Income 1,600,922 1,747,183 2,085,667
------------- ------------- -------------
Expenses
Repairs and Maintenance 217,863 244,077 322,254
Salaries and wages 175,903 219,718 280,657
Utilities 221,958 176,517 107,150
Taxes 187,407 191,670 86,081
General and administrative 64,735 64,873 105,296
Management fees 64,242 70,020 83,638
Insurance expense 14,486 15,418 17,792
Replacement Reserves - - -
Interest Cap Reserve - - -
Partnership expenses 37,917 36,448 45,116
------------- ------------- -------------
984,511 1,018,741 1,047,984
------------- ------------- -------------
Net operating income $ 616,411 $ 728,442 $ 1,037,683
============= ============= =============
Interest Expense 131,394 149,679 173,267
------------- ------------- -------------
Net Cash Flow from Operations $ 485,017 $ 578,763 $ 864,416
============= ============= =============
REIT Expenses*
Accounting, Audit & Tax
Distribution Expense
Director's Salaries
Board Meeting Related Costs
Legal & Insurance
Advisory Fee
Total REIT Expenses
REIT Net Cash Flow**
Stockholder Equity*** $ 75,887,112
=============
JACKSONVILLE PORTFOLIO
-----------------------------------------------
SPICEWOOD OAKS AT
SPRINGS TIMUQUANA BAY POINTE
Statement of Gross Income and Direct
Operating Expenses
For the Nine Months Ended 9/30/2003
Revenue
Rental Income $ 2,710,220 $ 1,165,889 $ 1,488,655
Less:
Vacancies (214,121) (90,412) (196,373)
Casualty loss - - -
Miscellaneous other income
Utility reimbursement 73,099 - -
Late fees, deposit forfeitures, etc 210,524 67,122 132,288
Interest income 30 14 17
------------- ------------- -------------
Total Income 2,779,752 1,142,613 1,424,587
------------- ------------- -------------
Expenses
Repairs and Maintenance 271,691 127,644 128,822
Salaries and wages 306,109 162,697 170,080
Utilities 173,700 81,039 102,559
Taxes 265,372 88,093 107,231
General and administrative 171,735 66,197 91,936
Management fees 103,773 52,060 64,421
Insurance expense 115,980 56,794 65,427
Replacement Reserves - - -
Interest Cap Reserve - - -
Partnership expenses 8,533 3,800 5,000
------------- ------------- -------------
1,416,893 638,324 735,476
------------- ------------- -------------
Net operating income $ 1,362,859 $ 504,289 $ 689,111
============= ============= =============
Interest Expense 278,001 100,994 152,880
------------- ------------- -------------
Net Cash Flow from Operations $ 1,084,858 $ 403,295 $ 536,231
============= ============= =============
REIT Expenses*
Accounting, Audit & Tax
Distribution Expense
Director's Salaries
Board Meeting Related Costs
Legal & Insurance
Advisory Fee
Total REIT Expenses
REIT Net Cash Flow**
Stockholder Equity***
TOTAL REIT TOTAL
PORTFOLIO ADJUSTMENTS PORTFOLIO
Statement of Gross Income and Direct
Operating Expenses
For the Nine Months Ended 9/30/2003
Revenue
Rental Income $ 16,225,665 $ - $ 16,225,665
Less:
Vacancies (1,542,453) - (1,542,453)
Casualty loss - - -
Miscellaneous other income
Utility reimbursement 496,656 - 496,656
Late fees, deposit forfeitures, etc 980,194 - 980,194
Interest income 9,971 - 9,971
------------- ------------- -------------
Total Income 16,170,033 - 16,170,033
------------- ------------- -------------
Expenses
Repairs and Maintenance 1,890,765 (369,272) 1,521,493
Salaries and wages 1,991,475 - 1,991,475
Utilities 1,347,878 - 1,347,878
Taxes 1,277,529 58,618 1,336,147
General and administrative 793,422 - 793,422
Management fees 628,131 (41,930) 586,201
Insurance expense 377,926 71,452 449,378
Replacement Reserves - 165,413 165,413
Interest Cap Reserve - 57,980 57,980
Partnership expenses 168,041 (27,305) 140,736
------------- ------------- -------------
8,475,167 (85,045) 8,390,122
------------- ------------- -------------
Net operating income $ 7,694,866 $ 85,045 $ 7,779,911
============= ============= =============
Interest Expense 2,821,180 993,127 3,814,307
------------- ------------- -------------
Net Cash Flow from Operations $ 4,873,686 $ (1,078,172) $ 3,965,604
============= ============= =============
REIT Expenses*
Accounting, Audit & Tax
Distribution Expense
Director's Salaries
Board Meeting Related Costs
Legal & Insurance
Advisory Fee
Total REIT Expenses 507,750
-------------
REIT Net Cash Flow** $ 3,457,853
=============
Stockholder Equity*** 6.08%
=============
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* REIT Expenses represent the projected costs associated with the daily,
quarterly, and annual management of the REIT. These costs are projected
to include, but not be limited to auditing and tax work, costs
associated with the quarterly distributions to the Stockholders,
Director's salaries, board meeting costs, D&O insurance, legal and the
REIT's annual Advisory Fee.
** Net Cash Flow from Operations represents actual historical results of
the communities. REIT Net Cash Flow from Operations represents actual
historical results of the communities. REIT Net Cash Flow represents the
pro forma net cash flow of the communities after deducting REIT expenses
not reflected in the actual historical amounts.
*** The Stockholder Equity has been calculated by combining the equity
required to acquire all of the Communities and the load associated with
the Offering.
Summary of REIT adjustments
Repairs and maintenance items have been removed for which reserves were
set aside at closing or would have been reserved for the period prior to
REIT ownership.
Taxes have been adjusted for the new higher tax rate that is in place
under REIT ownership.
Management fees have been adjusted to reflect a lower management fee
percentage under REIT ownership.
Insurance has been adjusted to reflect the higher coverage and
corresponding premiums now present under REIT ownership.
Replacement reserves have been added to reflect planned reserve deposits
that are being made under REIT ownership.
Interest cap reserve has been added to reflect the new financing
structure under REIT ownership.
Partnership expenses have been adjusted to remove expenses that would
not be required under the current ownership structure of the
communities.
Interest expense has been adjusted to reflect the debt in place under
REIT ownership.
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PROPERTY SELECTION PROCESS
When making investments in apartment communities, the Advisor considers
relevant real property and financial factors, including the condition and
location of the community, its income-producing capacity and the prospects for
its long-term appreciation. The proper location, design and amenities are
important to the success of a community.
Apartment communities under consideration are first subjected to a
comprehensive due diligence review. In selecting specific communities, the
Advisor, as approved by our board of directors, applies the following minimum
standards.
- The apartment community is in what the Advisor considers to be a
quality market area within locations that provide stability and upside
potential.
- The apartment community is projected to provide stockholders with at
least a 6% annual distribution on their $10 per share investment,
after all operating and other expenses of the property and the related
expenses of our company, based on the Advisor's analysis.
- We will endeavor to maintain an aggregate mortgage indebtedness on our
communities totaling between 55% and 65% of our total net assets, but
this is not a limitation on the amount of mortgage indebtedness on any
one community acquired.
- For communities acquired before the initial closing, the communities
have at least 18 months of stable operations and audited financial
information for a recently-ended 12-month period; following the
initial closing, at least 90% of the communities will meet this
standard.
1. The location considerations include characteristics of the surrounding area
and the suitability of the neighborhood services and amenities available to
the resident base. The Advisor considers accessibility to the community by
both public and private transportation, and its visibility and curb appeal
to prospective residents. Property considerations include physical aspects
of the property, its condition, quality of design and materials and its
amenities.
2. The market area is characterized as having current and long-term suitable
demographic and economic conditions. The Advisor considers supply and
demand factors and determines that the capture rates in the primary and
secondary market areas are within appropriate standards for the resident
base. The Advisor also considers the competitive advantage of the community
as compared with competing properties in the same market area.
3. In determining the 6% annual distribution, the Advisor performs a detailed
examination of the financing sources, the projected sources and use of
funds, and the projected income and expenses. The Advisor must determine
that the mortgage indebtedness on the property does not cause the aggregate
mortgage indebtedness on our portfolio of communities to exceed 55% to 65%
of the value of the entire portfolio.
4. In its determination of the stability of the property's operations, the
Advisor considers the potential impact of rent growth, turnover, rent
discounts, concessions and other factors that exist or may exist in the
competitive environment.
5. The Advisor must determine, through an environmental assessment, that the
property is not subject to any recognized environmental conditions that
would impact the future marketability or saleability of the property.
6. The community's management team, including any potential joint venture
partners, must demonstrate substantial experience where applicable in the
design, development and management of market rate apartment communities.
The Advisor considers each individual's or entity's current financial
position, past financial performance as well as performing credit checks,
background checks and reference reviews.
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PROPERTY MANAGEMENT
SELECTION OF MANAGERS
The selection of property managers by the Advisor, as approved by our board
of directors, will be based on management capability. We intend to enter into
property management agreements only with managers having substantial prior
experience in the operation of apartment communities, who may also manage
competing communities in the same geographic area. We plan to engage property
managers that are not affiliated with our company or the Advisor. The managers
of the communities we currently own interests in meet these criteria and the
further standards described in items 3 through 5 below. All of our current
property management agreements are the result of arm's-length negotiations.
While we have no present plans to do so, we may in the future engage
affiliates as property managers if a majority of our directors, including a
majority of our independent directors, approve the transaction as being fair and
reasonable to our company and on terms and conditions not less favorable to us
than those available from an unaffiliated third party.
While we have no present plans to do so, we may in the future decide to
perform the property management function ourselves.
PROPERTY MANAGEMENT AGREEMENTS AND PLANS
In acquiring interests in apartment communities, the Advisor will use its
best efforts to obtain favorable terms and will apply the following minimum
standards to property management agreements, management plans and marketing
plans.
- The property manager is considered by the Advisor to possess suitable
and substantial multifamily experience.
- The form of property management agreement is considered by the Advisor
to meet the standards required for successful management of the
community.
- The management and marketing plans are considered by the Advisor to be
comprehensive and appropriate to the apartment community and its
targeted resident base.
1. Substantial multifamily experience includes knowledge of the geographic area
and experience in managing properties that target a similar resident base.
The Advisor must consider the apartment community's management agreement,
management plan and marketing plan to be appropriate to households like those
targeted for the community.
2. Having applied the following guidelines, the Advisor must determine that the
property manager possesses the experience and knowledge required for the
successful management of the community:
- Properties managed by the property manager are well maintained and
employ knowledgeable and competent on-site personnel;
- Effective written policies and procedures are used in lease-up
marketing and promotion, qualifying prospective residents, maintaining
records and books of account, training and supervising on-site staff,
performing building and grounds maintenance and serving the needs of
the targeted resident base;
- The property manager maintains a central office with highly qualified
personnel that regularly oversee on-site operations and provide
professional training, seminars and assistance for site-located staff;
- The property manager has in place a comprehensive system for reporting
physical and economic occupancy on a regular basis;
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- An effective financial accounting system is maintained with a chart of
accounts, and a reporting system that provides monthly ledgers,
registers and operating statements of budgets, actual and variances.
The property manager maintains a resident record system that contains
necessary forms and documentation required for internal and external
review and audit; and
- The property manager demonstrates the skill and experience required to
maintain effective resident relations, manage and facilitate programs
suitable for the targeted resident base, and provide the support
necessary for special resident services where applicable.
3. Having applied the following guidelines, the Advisor must determine that the
form of property management agreement meets the standards required for
successful management of the property:
- The property management agreement will generally be limited to a
period of one year;
- Compensation is in the 3% to 5% range unless circumstances (size of
property, special needs households, etc.) justify an exception;
- The property manager is responsible for securing a renewing liability
insurance at limits established by the Advisor;
- The property manager is responsible for compliance with Fair Housing
and other pertinent regulatory requirements;
- The property manager is responsible for maintaining financial records
suitable for annual audit and tax accounting;
- The property manager carries a fidelity bond to insure against
employee theft that covers an amount of at least two months of rent
collections;
- The agreement provides for the preparation of an annual budget,
periodic reporting, owner approvals, and property manager expenditure
limits;
- Relationships with affiliates are acceptable to the Advisor as long as
they are disclosed at the outset;
- The Advisor is satisfied with the designation of the number and type
of apartments and non-revenue rent arrangements provided for employees
of the property manager; and
- All site staff are employees of the management company and not of the
controlling owner entity or our company.
4. The Advisor must determine that the form of management plan is comprehensive
and includes the following:
- There are descriptions of the property manager's role and lines of
authority, staffing qualifications and responsibilities, job
descriptions, personnel practices, hiring practices, staff training,
hours of operation and operating procedures;
- The property manager provides each of its on-site personnel with
written procedures, forms and personnel manuals;
- All on-site personnel are provided in-house training and participate
in training seminars;
- Bookkeeping and accounting records are prepared at the site location
and with oversight and review at the home office;
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- The plan details the property manager's maintenance and repair
program, rent collection procedures, resident services and management
relations; and
- The accounting and financial management procedures describe resident
accounts, record keeping, procurement responsibilities and threshold
limits, maintaining of separate bank accounts for security deposits
and resident rents, and detained reporting requirements.
5. Having applied the following guidelines, the Advisor must determine that the
form of marketing plan is comprehensive and includes the following:
- The use of professionally designed media advertising, press releases,
Yellow Page listings, apartment guides, direct mail, brochures and
signage;
- Professionally prepared display advertising scheduled for insertion in
regional and local newspapers;
- Grand opening promotional events and resident referral programs
developed to promote awareness within the targeted market areas;
- Lead generation and outreach efforts using an extensive list of
employers of prospective residents and agencies and organizations
including Chambers of Commerce, schools, churches, service
organizations and neighborhood social and recreational centers; and
- A description of the marketing practices that are to be used following
stabilization including a sufficient number of trained on-site staff,
a leasing office open seven days a week with hours of operation
appropriate for the area and for the targeted resident base.
PROPERTY DEVELOPMENT AND CONSTRUCTION
We may in the future invest in properties on which improvements are to be
constructed or completed. When we conclude it is necessary to help ensure
performance by the builders of properties which are under construction,
completion of properties under construction will be guaranteed at the price
contracted either by an adequate completion bond or performance bond. The
Advisor may rely upon the substantial net worth of the contractor or developer
or a personal guarantee accompanied by financial statements showing a
substantial net worth provided by an affiliate of the person entering into the
construction or development contract as an alternative to a completion bond or
performance bond. Development of real estate properties is subject to risks
relating to a builder's ability to control construction costs or to build in
conformity with plans, specifications and timetables. (See "Risk Factors - Risks
Related to Our Properties and Our Business.")
We or the Advisor may employ one or more project managers to plan,
supervise and implement the development of any unimproved properties which we
may acquire. Such persons would be compensated directly or indirectly by us.
JOINT VENTURE INVESTMENTS
The Advisor has the authority to cause us to enter into joint ventures,
general partnerships, co-tenancies and other participations with real estate
developers, owners and others for the purpose of developing, owning and
operating real properties. We generally intend to structure our investments in
apartment communities as equity investments in the partnerships or limited
liability companies that own the communities. A description of these
arrangements with respect to each community in which we currently have an
interest is contained in the section "Business and Properties - Properties" in
this prospectus. While we have no present plans to do so, we may also enter into
joint ventures with affiliated entities for the acquisition, development or
improvement of properties.
86
If we enter into joint ventures with other affiliated programs for the
acquisition of properties, we will only do so provided that:
- a majority of our directors, including a majority of the independent
directors, approve the transaction as being fair and reasonable to our
company;
- the investment by our company and such affiliate are on substantially
the same terms and conditions; and
- we will have a right of first refusal to buy if such co-venturer
elects to sell its interest in the property held by the joint venture.
In the event that a co-venturer were to elect to sell property held in any
joint venture in which we have a right of first refusal to buy, however, we may
not have sufficient funds to exercise our right of first refusal to buy the
other co-venturer's interest in the property held by the joint venture. In the
event that any joint venture holds interests in more than one property, the
interest in each such property may be specially allocated based upon the
respective proportion of funds invested by each co-venturer in each such
property. Entering into joint ventures with other affiliated programs will
result in certain conflicts of interest. (See "Conflicts of Interest -- Joint
Ventures with Affiliates of the Advisor.")
COMPETITION
We intend to acquire interests in apartment communities in the United
States wherever suitable communities are identified by the Advisor. We will
compete with many other REITs, real estate partnerships, real estate operating
companies and other investors, including banks and insurance companies, many of
which will have greater financial resources than our company, in the acquisition
and operation of apartment communities. All of our apartment communities will be
located in developed areas that include other multifamily residential
properties. The number of competitive properties in a particular area could have
a material effect on our ability to lease units at our apartment communities and
on the rents charged at the properties. While there are no dominant competitors
in the industry, the market for acquiring apartment communities in the United
States is extensive and local in nature. We may be competing with other entities
that have greater resources than ours, including several with national
portfolios valued at billions of dollars, and whose managers may have more
experience than ours. In addition, other forms of housing, including
manufactured housing community properties and single-family housing provide
alternatives to potential residents of multifamily residential properties. We
will seek to grow by acquiring apartment communities in selected targeted
markets. We intend to compete for the acquisition of properties by identifying
opportunities that other competitors do not appreciate and by offering the
highest acquisition price possible within the parameters of our investment
objectives and policies. We cannot predict how successful we will be in
identifying and acquiring suitable apartment communities. In particular, we seek
opportunities to add value through renovation and rehabilitation projects. Our
presence in metropolitan areas in Florida, Utah and the northwest United States
gives our initial portfolio geographic diversity while providing us with a
competitive advantage in identifying and competing for acquisition and
development opportunities in those target markets. We believe our management
structure and our strategy of employing seasoned local property managers will
allow us to grow in both our existing markets and in selected new markets
without incurring substantial additional costs. Our strategy of providing a
subordinated economic interest to established local operators also may give us a
competitive advantage over buyers that may not provide such an incentive.
OFFICES
We maintain our principal office in space leased by Boston Capital Holdings
Limited Partnership, the parent of the Advisor, at One Boston Place, Suite 2100,
in downtown Boston, Massachusetts. We do not pay rent for this space, although
our advisory services agreement with the Advisor takes the Advisor's space costs
into consideration.
87
LINE OF CREDIT
We have entered into an initial non-recourse loan agreement and a related
pledge agreement with BCP Funding, LLC, our affiliate and an affiliate of the
Advisor. These agreements have been approved by a majority of our independent
directors. We have borrowed approximately $56,600,000 under our loan agreement
to acquire our interests in the communities described in this prospectus.
Generally, interest on the loans accrues in arrears at an annual rate of 9.5%,
and is due and payable quarterly to the extent of cash available for debt
service for that quarter and, to the extent not paid, will be added to
principal. Further, additional interest on the loans is due and payable
quarterly only to the extent of cash available for debt service for that quarter
after payment of 9.5% interest for that quarter, and to the extent not paid will
accrue but will not be added to principal or be considered in calculating 9.5%
interest. Accrued additional interest will be payable quarterly without further
interest to the extent of cash available for debt service for that quarter only
after payment of 9.5% interest and additional interest for that quarter. Each
time a closing under this offering occurs during the term of the loan agreement,
we must apply the offering proceeds to the repayment of outstanding loan
principal and any unpaid 9.5% interest. All outstanding additional interest is
also due and payable at each closing, but only to the extent of cash available
for debt service and not from the proceeds of this offering. In any event, all
outstanding amounts under the loan agreement are due and payable on May 31,
2004, subject to a single six-month extension, but if we do not have sufficient
cash available for debt service to pay all accrued additional interest, the
unpaid balance of the additional interest will not be due or payable by us.
Initially, loans made under the loan agreement are secured by all our
interests in the communities financed with the line of credit, and by the 20,000
shares of our common stock owned by Boston Capital Companion Limited
Partnership, and are non-recourse to our company. If we repay the advances used
to acquire our interest in an apartment community and accrued 9.5% interest
using the proceeds of a closing under this offering, the lender will release its
lien on our interest in that apartment community. Cash distributions from
released apartment communities will no longer be available to the lender for
debt service. The loan agreement provides that we cannot further encumber our
interests in our properties during the term of the agreement without the
lender's consent.
The advances we have received under the loan agreement and the uses we have
made of those funds are described above in the "Business and Properties --
Properties" section of this prospectus.
MORTGAGE INDEBTEDNESS
To date, all the apartment communities in which we have invested are
encumbered with mortgage indebtedness. These mortgages are described above in
the "Business and Properties--Properties" section of this prospectus. We expect
all apartment communities we invest in to be similarly encumbered. In addition
to permanent mortgage financing, the Seattle communities are encumbered by
approximately $8,100,000 of mezzanine debt bearing interest at 12% subordinated
to the permanent mortgage financing on those communities. Assuming sufficient
additional funds are raised after the $30,000,000 minimum is reached, a portion
of the proceeds of this offering will be used to repay this mezzanine debt. The
mezzanine debt matures on December 31, 2007, and can be repaid with a 1% penalty
at any time on or after December 12, 2003, and with no penalty on or after
December 12, 2004. The lender is an unaffiliated third party, Berkshire/WAFRA
Mezzanine Debt Investors Foreign Fund.
88
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE FINANCIAL
INFORMATION ON OUR APARTMENT COMMUNITIES, OUR FINANCIAL STATEMENTS AND RELATED
NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN ANY SUPPLEMENT.
The company was formed on May 2, 2003, and has limited operating history.
To date our operations consist of acquiring interests in the apartment
communities described in this prospectus. These interests have been purchased by
means of the line of credit described below.
LIQUIDITY
We have borrowed and may continue to borrow money to acquire interests in
communities by obtaining one or more lines of credit. We do this in order to
control suitable communities prior to sufficient funds being raised in this
offering. We have entered into an initial $60,000,000 loan agreement with our
affiliate BCP Funding, LLC, our affiliate and an affiliate of the Advisor. We
have borrowed approximately $56,600,000 under this line to acquire our interests
in the communities described in this prospectus, and the period during which we
can make borrowings under the line has ended. This line of credit is
non-recourse to the company and is secured by our interests in the communities
acquired with the proceeds of the loan and by the 20,000 shares of our common
stock owned by Boston Capital Companion Limited Partnership. We will repay a
portion of our outstanding indebtedness under this line from the proceeds of
this offering at an initial closing following completion of the minimum offering
of 3,000,000 shares. Amounts repaid cannot be reborrowed. The balance of our
outstanding borrowings under this line will be repaid as and when additional
shares are sold and must in any case be repaid by May 31, 2004, subject to a
single six-month extension. The loan agreement provides that we cannot further
encumber our interests in our communities during the term of the agreement
without the lender's consent. The line of credit is further described under
"Business and Properties - Line of Credit."
The communities that we have acquired interests in to date are also
encumbered by mortgage indebtedness. The Jacksonville communities are encumbered
by $35,374,000 of first mortgage debt; the Portland and Salt Lake City
communities by $39,222,000 of first mortgage debt; and the Seattle communities
by $37,350,000 of first mortgage debt, all as of September 30, 2003. These loans
will not be repaid from the proceeds of this offering. The first mortgage loans
are further described in the three charts containing information about the
communities under "Business and Properties - Properties." The Seattle
communities are also encumbered by approximately $8,100,000 of mezzanine debt as
of September 30, 2003, which we will repay from the proceeds of this offering
when we repay the line-of-credit loans related to those communities. This debt
is further described under "Business and Properties - Mortgage Indebtedness."
After the borrowings under our initial line of credit have been repaid, we
will pursue one or both of two alternatives for acquiring interests in
additional communities, depending upon which we determine to be more beneficial
to our stockholders from time to time. One, our board of directors may determine
to reborrow, either from BCP Funding, LLC, or under one or more new lines of
credit that we may establish with one or more unaffiliated lenders, to purchase
interests in additional communities as suitable communities are found, and to
repay those borrowings as sufficient funds are raised from the sale of
additional shares. Our board of directors may determine to repeat this
reborrowing and repayment process until the maximum of 30,000,000 shares has
been sold or this offering terminates. If our board determines to repeat this
reborrowing and repayment process, it is possible that any new borrowing will be
secured by our interests in all of our communities. Alternatively, our board,
either after the initial line has been repaid or at some subsequent point during
the offering period, may determine to acquire additional interests in
communities as sufficient funds are raised. In this alternative, no funds would
have to be borrowed under any line of credit to acquire interests in
communities. Whichever alternative is used, our board of directors anticipates
that every community we invest in will be encumbered by mortgage indebtedness,
that the aggregate amount of that mortgage indebtedness on our communities that
are no longer (or have not been) financed with our current or any replacement
line of credit will not exceed 55% to 65% of the total net asset value of those
communities and that our total indebtedness on those communities will not exceed
73% of the total net asset value of those communities.
89
In addition to any line of credit and the proceeds of this offering,
operating income generated by the communities will be available to increase our
liquidity, if necessary.
CAPITAL RESOURCES
We intend to purchase, or enter into binding commitments to purchase,
interests in certain apartment communities prior to the completion of this
offering. The communities we have acquired interests in to date are described in
this prospectus, and any additional communities acquired during this offering
will be described in a supplement to this prospectus. The proceeds of this
offering and our current and any replacement lines of credit are anticipated to
provide the source of funds needed to make such acquisitions and commitments. In
the event insufficient offering proceeds are raised to repay the borrowings
under our line of credit used to purchase interests in a particular community,
the line-of-credit lender's remedy will be to take possession of our interest in
the community financed with the line of credit. The line of credit is
non-recourse to the company, and there is no provision for
cross-collateralization between interests in communities which are no longer (or
have not been) financed with the line of credit, and those that are still
financed with it.
RESULTS OF OPERATIONS
Since it is newly formed, the company has limited results of operations and
there are no meaningful comparisons between previous periods. Currently, the
interest expense incurred on the line of credit used to acquire communities is
an operating expense of the company. It is anticipated that the line of credit
will be repaid from offering proceeds, and if that occurs, the interest expense
will be reduced or eliminated.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the company to make
estimates and assumptions that affect the amounts reported in the financial
statements. On a regular basis, the company reviews these estimates and
assumptions including those related to revenue recognition, asset lives and
depreciation and impairment of long-lived assets. These estimates are based on
the company's historical experience and on various other assumptions believed to
be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The company believes,
however, that the estimates, including those for the above-listed items, are
reasonable.
The company believes the following critical accounting policies involve the
most complex, difficult and subjective judgments and estimates used in the
preparation of these financial statements:
BASIS OF ACCOUNTING
The company's consolidated financial statements have been prepared using
the accrual method of accounting.
In June 2001, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 141, "Business Combinations." SFAS No. 141 requires that
acquisitions be accounted for by the purchase method as well as other
requirements. The company accounts for real estate acquisitions in accordance
with SFAS No. 141. All in-place property-tenant leases are one year or less and
are considered operating leases. Lease rental rates approximate market rents,
therefore the purchase price is allocated to land and improvements and no
contract-based intangible assets, liabilities, or commitments are recognized.
ACCOUNTS RECEIVABLE AND BAD DEBTS
Tenant receivables are reported net of an allowance for doubtful accounts.
Management's estimate of the allowance is based on historical collection
experience and a review of the current status of tenant accounts receivable. It
is reasonably possible that management's estimate of the allowance will change.
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REVENUE RECOGNITION
Tenant leases are classified as operating leases. Rental income
attributable to leases is recorded when due from tenants and is recognized
monthly as it is earned, which is not materially different from on a
straight-line basis. Leases between a tenant and property for the rental of an
apartment unit are generally year-to-year, renewable upon consent of both
parties on an annual or monthly basis. Interest income is recorded on an accrual
basis.
REAL ESTATE
Real estate is carried at cost. Depreciation is computed under the
straight-line method using service lives of seven years for personal property,
40 years for buildings and 20 years for land improvements.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," the Company reviews real estate for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
INCOME TAXES
The company will operate in a manner intended to qualify as a real estate
investment trust for federal income tax purposes. A trust which distributes at
least 90% of its real estate investment trust taxable income to its shareholders
each year and which meets certain other conditions will not be taxed on that
portion of its taxable income which is distributed to its shareholders.
Therefore, federal income taxes are expected to be immaterial. The company is
obligated for state taxes, generally consisting of franchise or gross receipts
taxes in certain states and are expected to be immaterial.
USE OF ESTIMATES
The preparation of the balance sheet in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The company controls, through ownership and by agreement, the operating
limited liability companies and their respective subsidiaries that own the
apartment communities in which the company has an interest, all of which are
consolidated within the Company for financial reporting purposes. All
intercompany transactions have been eliminated in consolidation.
The company controls BCMR Seattle, A Limited Partnership, which controls
BC-GFS LLC (an operating limited liability company), whose wholly-owned
subsidiaries own legal fee simple title to the Seattle communities.
The company is the sole member of BCMR Jacksonville, LLC, which controls
BC-Bainbridge LLC (an operating limited liability company) whose wholly-owned
subsidiaries own legal fee simple title to the Jacksonville communities.
The company is the sole member of BCMR Portland, LLC, which controls BC-GFS
II LLC (an operating limited liability company), whose wholly-owned subsidiaries
own legal fee simple title to the Portland/Salt Lake City communities.
OTHER
In January 2003, the FASB issued Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies existing
accounting for whether interest entities should be consolidated in financial
statements based upon the investee's ability to finance its activities without
additional financial support and whether investors possess characteristics of a
controlling financial interest. FIN No. 46 requires a variable interest entity
to
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be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003 and apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. The company controls the
underlying real estate entities and already presents its financial statements on
a consolidated basis; therefore, adoption of FIN No. 46 is not expected to have
a material effect on the consolidated financial position or consolidated results
of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145," among other items, rescinds the automatic classification of costs
incurred on debt extinguishment as extraordinary charges. Instead, gains and
losses from debt extinguishment should only be classified as extraordinary if
they meet the unusual and infrequently occurring criteria outlined in APB No.
30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The
company adopted the standard effective January 1, 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting, for Costs
Associated with Exit or Disposal Activities," which addresses accounting and
processing for costs associated with exit or disposal activities. SFAS No. 146
requires the recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred versus the date the company
commits to an exit plan. In addition, SFAS No. 146 states that the liability
should be initially measured at fair value. The requirements of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. This pronouncement is not expected to have a material impact on our
financial position or results of operations.
The FASB has issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions," which is effective for certain transactions arising on or after
October 1, 2002. SFAS No. 147 will have no impact on the company.
The FASB has issued SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
company does not currently have stock based employee compensation.
FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others - an interpretation of FASB Statements No. 5, 57 and 107
and rescission of FASB Interpretation No. 34," was issued in November 2002. FIN
45 elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year end. The disclosure requirements in FIN 45 are effective
for financial statements of interim or annual periods ending after December 15,
2002. The company has made the disclosures required by FIN 45.
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MANAGEMENT
GENERAL
We will operate under the direction of our board of directors, the members
of which are accountable to our company as fiduciaries. Applicable regulations
require review and ratification of our articles of incorporation by a majority
vote of our directors and of our independent directors. All of our directors
have reviewed and ratified our articles of incorporation and have adopted our
bylaws. Our board of directors will be responsible for the management and
control of our affairs; however, our board will retain the Advisor to manage our
day-to-day affairs and the acquisition and disposition of investments, subject
to the supervision of our board.
The directors are not required to devote all of their time to our company
and are only required to devote such of their time to the affairs of our company
as their duties require. Our board of directors will meet quarterly in person or
by telephone, or more frequently if necessary. It is not expected that the
directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the directors, will have a fiduciary
duty to our company.
The directors will establish written policies on investments and borrowings
and will monitor the administrative procedures, investment operations, and
performance of our company and the Advisor to assure that such policies are in
the best interest of the stockholders and are fulfilled. Until modified by the
directors, we will follow the policies on investments set forth in this
prospectus. See "Investment Policies and Policies With Respect to Certain Other
Activities."
The independent directors are responsible for reviewing our fees and
expenses at least annually or with sufficient frequency to determine that our
total fees and expenses are reasonable in light of our investment performance,
net assets, net income, and the fees and expenses of other comparable
unaffiliated REITs. For purposes of this determination, net assets are our total
assets (other than intangibles), calculated at cost before deducting
depreciation or other non-cash reserves, less total liabilities, and computed at
least quarterly on a basis consistently applied. Such determination will be
reflected in the minutes of the meetings of our board of directors. In addition,
a majority of the independent directors and a majority of directors not
otherwise interested in the transaction must approve each transaction with the
Advisor or its affiliates. Our board of directors will be responsible for
reviewing and evaluating the performance of the Advisor before entering into or
renewing an advisory services agreement. The independent directors will
determine from time to time and at least annually that compensation to be paid
to the Advisor is reasonable in relation to the nature and quality of services
to be performed and will supervise the performance of the Advisor and the
compensation paid to it by our company to determine that the provisions of the
advisory services agreement are being carried out. Specifically, the independent
directors will consider factors such as the amount of the fee paid to the
Advisor in relation to the size, composition and performance of our investments,
the success of the Advisor in generating appropriate investment opportunities,
rates charged to other comparable REITs and other investors by advisors
performing similar services, additional revenues realized by the Advisor and its
affiliates through their relationship with us, whether paid by us or by others
with whom we do business, the quality and extent of service and advice furnished
by the Advisor, the performance of our investment portfolio and the quality of
our portfolio relative to the investments generated by the Advisor for its own
account. Such review and evaluation will be reflected in the minutes of the
meetings of our board of directors. Our board of directors must determine that
any successor advisor possesses sufficient qualifications to (i) perform the
advisory function for us and (ii) justify the compensation provided for in its
contract with us.
DIRECTORS AND EXECUTIVE OFFICERS
Our board currently consists of five directors, three of whom are
independent directors. Directors will be elected annually, and each director
will hold office until the next annual meeting of stockholders or until his
successor has been duly elected and qualified. There is no limit on the number
of times that a director may be elected to office. There will be no cumulative
voting in the election of directors. Consequently, at each annual meeting of our
stockholders, directors will be elected by a plurality of the votes cast at that
meeting.
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The following table sets forth information concerning the individuals who
will be our directors and executive officers upon the consummation of this
offering:
[Enlarge/Download Table]
NAME AGE POSITION
John P. Manning 55 Chairman, Chief Executive Officer and Director
Jeffrey H. Goldstein 42 President, Chief Operating Officer and Director
Kevin P. Costello 57 Executive Vice President
Richard J. DeAgazio 59 Executive Vice President
Daniel P. Petrucci 38 Senior Vice President
Marc N. Teal 39 Senior Vice President, Chief Financial Officer, Treasurer and
Secretary
Mark W. Dunne 47 Senior Vice President
Philip S. Cottone 63 Director
W. Pearce Coues 62 Director
Stephen Puleo 69 Director
The following is a biographical summary of the experience of our executive
officers and directors:
Mr. Manning is also co-founder, President and Chief Executive Officer of
Boston Capital Corporation, the general partner of Boston Capital Holdings
Limited Partnership ("Boston Capital") which owns 100% of the Advisor and
66 2/3% of the Dealer-Manager. At Boston Capital, he is primarily responsible
for strategic planning and business development. In addition to his
responsibilities at Boston Capital, Mr. Manning is a proactive leader in the
industry. He served in 1990 as a member of the Mitchell-Danforth Task Force,
which reviewed and suggested reforms to the Low Income Housing Tax Credit. He
was the founding President of the Affordable Housing Tax Credit Coalition, is a
former member of the board of the National Leased Housing Association and
currently sits on the Executive Committees of the National Housing Conference
and the National Multi Housing Council. During the 1980's he served as a member
of the Massachusetts Housing Policy Committee as an appointee of the Governor of
Massachusetts. In addition, Mr. Manning has testified before the U.S. House Ways
and Means Committee and the U.S. Senate Finance Committee on the critical role
of the private sector in the success of the Low Income Housing Tax Credit
Program. In 1996, President Clinton appointed him to the President's Advisory
Committee on the Arts at the John F. Kennedy Center for the Performing Arts. In
1998, President Clinton also appointed Mr. Manning to the President's Export
Council, which is the premier committee comprised of major corporate CEOs that
advise the President in matters of foreign trade and commerce. Mr. Manning sits
on the Board of Directors of the John F. Kennedy Presidential Library in Boston,
where he serves as Chairman of the Distinguished Visitors Program. He also
serves as a member of the Advisory Board of the Woodrow Wilson Institute for
International Scholars in Washington, D.C. Mr. Manning is a graduate of Boston
College.
Mr. Goldstein is also Chief Operating Officer and Director of Real Estate
of Boston Capital Corporation. He directs Boston Capital's comprehensive real
estate services, which include all aspects of origination, underwriting, due
diligence and acquisition. As COO, Mr. Goldstein is responsible for the
financial and operational areas of Boston Capital Corporation and assists in the
design and implementation of business development and strategic planning
objectives. Mr. Goldstein previously served as the Director of the Asset
Management division as well as the head of the dispositions and troubled assets
group. Utilizing his 16 years experience in the real estate syndication and
development industry, Mr. Goldstein has been instrumental in the diversification
and expansion of Boston Capital's businesses. Prior to joining Boston Capital in
1990, Mr. Goldstein was Manager of Finance for A.J. Lane & Co., where he was
responsible for placing debt on all new construction projects and debt structure
for existing apartment properties. Prior to that, he served as Manager for
Homeowner Financial Services, a financial consulting firm for residential and
commercial properties, and worked as an analyst responsible for budgeting and
forecasting for the New York City Council Finance Division. He graduated from
the University of Colorado and received his MBA from Northeastern University.
Mr. Costello is also Executive Vice President and Director of Institutional
Investing for Boston Capital Corporation. Mr. Costello directs Boston Capital's
institutional investment business. He has overseen this segment of Boston
Capital's investment business, which encompasses investment activities for
corporate institutional
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funding, private proprietary funds and state community reinvestment act funds,
since its inception in 1992. Mr. Costello has over 20 years experience in the
real estate syndication and investment services industry, including previous
roles at Boston Capital leading the acquisition team and managing the
structuring and distribution of conventional and tax credit private placements.
Prior to joining Boston Capital in 1987, he held senior management positions
with Reynolds Securities, Bache & Company and First Winthrop where he focused on
real estate syndication. Mr. Costello graduated from Stonehill College and
received his MBA with honors from Rutgers' Graduate School of Business
Administration.
Mr. DeAgazio is also Executive Vice President of Boston Capital
Corporation, and is President of Boston Capital Services, Inc., Boston Capital's
NASD-registered broker/dealer. Mr. DeAgazio formerly served on the national
Board of Governors of the NASD. He recently served as a member of the National
Adjudicatory Council of the NASD. He was the Vice Chairman of the NASD's
District 11 Committee, and served as Chairman of the NASD's Statutory
Disqualification Subcommittee of the National Business Conduct Committee. He
also served on the NASD State Liaison Committee and the Direct Participation
Program Committee. He is a founder and past President of the National Real
Estate Investment Association and past President of the National Real Estate
Securities and Syndication Institute (Massachusetts Chapter). Prior to joining
Boston Capital in 1981, Mr. DeAgazio was the Senior Vice President and Director
of the Brokerage Division of Dresner Securities (USA), Inc., an international
investment banking firm owned by four major European banks, and was a Vice
President of Burgess & Leith/Advest. He has been a member of the Boston Stock
Exchange since 1967. He is on the Board of Directors of FurnitureFind.com and
Cognistar Corporation. He serves on the Board of Trustees of Bunker Hill
Community College, the Business Leaders Council of the Boston Symphony, the
Board of Trustees of Junior Achievement of Northern New England, the Board of
Advisors for the Ron Burton Training Village and is on the Board of Corporators
of Northeastern University. He graduated from Northeastern University.
Mr. Petrucci is also Senior Vice President, Director of Structured Finance
and Portfolio Management of Boston Capital Corporation, and is responsible for
all corporate and retail fund portfolio management. Prior to accepting his
current responsibilities, he performed duties in the areas of real estate
origination, underwriting and acquisitions. Mr. Petrucci has more than 16 years
of real estate, finance and syndication experience. Prior to joining Boston
Capital in 1990, he was responsible for conducting all aspects of due diligence
on commercial and multifamily acquisition candidates for the Krupp Companies, a
leading real estate syndication, development and lending institution. He is a
graduate of Marquette University, Milwaukee, Wisconsin.
Mr. Teal is also Senior Vice President and Chief Financial Officer of
Boston Capital Corporation. He oversees the accounting, financial reporting, SEC
reporting, budgeting, audit, tax and compliance for Boston Capital, its
affiliated entities and all Boston Capital-sponsored partnerships. Additionally,
he is responsible for maintaining all banking and borrowing relationships of
Boston Capital and for managing all working capital reserves. Mr. Teal has more
than 17 years of finance and accounting experience. Prior to joining Boston
Capital in 1990, Mr. Teal was a Senior Accountant for Cabot, Cabot & Forbes, a
multifaceted real estate company, and prior to that was a Senior Accountant for
Liberty Real Estate Corp. He graduated from Bentley College and received a
Masters in Finance from Suffolk University.
Mr. Dunne is Senior Vice President and Director of Market Rate Housing for
Boston Capital Corporation. Capitalizing on his 20 years in real estate and
finance, Mr. Dunne oversees market rate housing initiatives for Boston Capital.
Working with the Originations and Acquisitions teams, Mr. Dunne and his staff
identify experienced development partners with a solid track record in
multifamily development seeking to acquire and construct low-rise to mid-rise
properties with 150 to 400 units. Prior to joining Boston Capital in 2002, Mr.
Dunne served from 1989 to 2002 as President of River Partners, Inc. a real
estate services company in Boston, Massachusetts. In this capacity, he served
from 1991 to 2002 as Head of Portfolio Management and Dispositions with
PaineWebber Properties. In addition, Mr. Dunne served from 1998 to 2002 as
Director of Asset Management for real estate equity investments for PaineWebber,
Inc. Previously, he held positions in real estate development and commercial
lending. He holds an AB from Syracuse University and an MS from MIT.
Mr. Cottone is President of Property Trust Advisory Corporation, Devon,
Pennsylvania; a Vice President of Rutherford Brown & Catherwood, a Philadelphia,
Pennsylvania, broker-dealer; and a Vice President of Universal Field Services, a
Tulsa, Oklahoma, right of way contract services firm, positions he has held
since 1987. He has been Chairman of Ascott Investment Corporation and active in
real estate investment, development and syndication
95
since 1983. He is a director of Government Properties Trust, a public REIT in
registration; of a subsidiary of Universal; and of RC Company, Inc., a Paoli,
Pennsylvania, general contractor. He was General Counsel and a member of the
Executive Committee of the International Right of Way Association from 1976 to
1983 and 1998 to 2002 and a trustee and Treasurer of the Right of Way
International Education Foundation from 1983 to 1998. Mr. Cottone is a Counselor
of Real Estate (CRE), was a 1999 Vice President of the Counselors, and is 2004
Chair. He was 1988 President of the Real Estate & Syndication Institute (RESSI).
Mr. Cottone was Vice Chair of the Board of Governors of the NASD in 1993, Chair
of the NASD National Business Conduct Committee in 1992 and Chair of the
National Arbitration & Mediation Committee from 1995 to 1998. By invitation he
has testified before the House, Senate and administrative agencies of the
federal government on real estate securities, and he is a lecturer on the
subject on the faculty of the Real Estate Institute of New York University. Mr.
Cottone received an AB from Columbia College, an LLB from New York University
School of Law and is a retired member of the New York bar.
Mr. Coues has been Chief Executive Officer and a Trustee of the MGI
Properties Liquidating Trust since its inception in September 2000 and was
Chairman of the Board of Trustees and Chief Executive Officer of MGI Properties,
Inc., a publicly traded REIT, from 1982 until its dissolution in September 2000.
From 1992 to 2001 he was a member of CRE (the Counselors of Real Estate), a
professional membership organization for individuals recognized for their
achievements in real estate counseling. Mr. Coues has an associate's degree from
Boston University and is a graduate of the Brown University Graduate School of
Savings Banking.
Mr. Puleo has since 1997 been engaged in business as a consultant and
director. In 1997, he retired as a director of Coopers & Lybrand, an
international accounting and consulting firm where he worked from 1995 to 1997
primarily servicing real estate industry clients. From 1993 to 1994, Mr. Puleo
was a tax director for Deloitte & Touche. From 1984 to 1993, Mr. Puleo held the
positions of Executive Vice President and Chief Financial Officer of a
predecessor to The Berkshire Group, a multi-faceted real estate company and
sponsor of REITs. Prior to that, Mr. Puleo was the Chairman of the National Real
Estate Industry Group of Coopers & Lybrand where he provided various real estate
services and was a senior tax partner in charge of the Northeast Region. He
currently serves as director of Simpson Housing Limited Partnership of Denver,
Colorado and as a trustee of Krupp Government Income Trust and Krupp Government
Income Trust II. He is a graduate of McNeese State University and attended the
Executive Development Program at the Tuck School of Business at Dartmouth
College. He is a Certified Public Accountant.
INDEPENDENT DIRECTORS
Under our articles of incorporation, a majority of our board of directors
must consist of independent directors, except for a period of 90 days after the
death, removal or resignation of an independent director. The independent
directors will nominate replacements for vacancies in the independent director
positions. An independent director may not, directly or indirectly (including
through a member of his immediate family), own any interest in, be employed by,
have any present business or professional relationship with or serve as an
officer or director of the Advisor or its affiliates, or serve as a director of
more than three REITs organized by the Advisor or its affiliates. Except to
carry out the responsibilities of a director, an independent director may not
perform material services for our company. Messrs. Cottone, Coues and Puleo are
our independent directors.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The board has established an Audit Committee. A majority
of the members of the Audit Committee must be independent directors, and all of
its members must be directors. Currently, the members of the Audit Committee are
Messrs. Cottone, Coues and Puleo and Mr. Puleo is its chairman.
OTHER COMMITTEES. The board has established a Compensation Committee
consisting entirely of directors. At least a majority of the members of this
committee, and any other committee our board may establish, must be independent
directors. Currently, the members of the Compensation Committee are Messrs.
Cottone, Coues and Manning and Mr. Cottone is its chairman.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Following completion of this offering, we anticipate that each independent
director will receive an annual retainer of $18,000, as well as $1,000 for each
meeting attended in person ($375 for each telephonic meeting in which the
director participates), including committee meetings, except for a committee
meeting attended in person held in connection with a board meeting attended in
person, for which the director will receive $500. During the offering period,
the annual retainer may be reduced, all or a part of it may be deferred, or all
or a part of it may be paid in stock valued at $10 per share or in a combination
of stock and cash. In addition, the independent directors receive, upon initial
election to our board, an option to purchase 5,000 shares of our common stock,
and annually each year after their initial election receive an option to
purchase 5,000 shares of our common stock. The option exercise price is the fair
market value of our common stock on the date prior to the date of initial
election or prior to the date of our annual meeting, as applicable. We will not
pay any compensation to our officers and directors who also serve as officers of
the Advisor. In connection with their election to our board, Messrs. Cottone,
Coues and Puleo were each granted options to purchase 5,000 shares at $10 per
share.
EQUITY INCENTIVE PLAN
We have adopted the Boston Capital Real Estate Investment Trust, Inc. 2003
Equity Incentive Plan. The incentive plan is designed to enable the Advisor and
its affiliates to obtain or retain the services of employees, and to enable us,
the Advisor and its affiliates to retain or obtain the services of consultants,
considered essential to our long-range success by offering such persons
incentives under the plan. The incentive plan is administered by our
compensation committee. The maximum number of shares available for issuance
under the incentive plan is 2,400,000 shares of common stock, or approximately
8% of the total outstanding shares of our common stock if 30,000,000 shares are
sold in this offering. Under the incentive plan, the maximum number of shares of
common stock for which options may be granted to any person in any calendar year
and the aggregate maximum number of shares subject to other awards which may be
delivered (or the value of which may be paid) to any person in any calendar year
under the incentive plan are each 100,000. A copy of the incentive plan has been
filed with the SEC as an exhibit to the registration statement of which this
prospectus is a part.
NON-QUALIFIED STOCK OPTIONS
The incentive plan permits the granting of "non-qualified" stock options to
participants subject to the absolute discretion of our compensation committee
and applicable limitations of the incentive plan. The option exercise price of
each option may not be less than 100% of the fair market value of our common
stock on the date of grant.
The term of each option is fixed by our compensation committee, but may not
exceed ten years from the date of grant. If an optionee's employment or other
association with our company, the Advisor or its affiliates is terminated,
whether voluntarily or otherwise, any outstanding option of the optionee ceases
to be exercisable not less than six months following the date of termination if
termination is caused by death or disability and not less than 30 days from the
date of termination if termination is caused by other than death or disability,
unless employment is terminated for cause. Upon exercise of options, the option
exercise price must be paid in full either in cash or, if our compensation
committee permits, by delivery of shares of common stock already owned by the
optionee.
RESTRICTED STOCK
Our compensation committee may also award shares of our common stock to
participants, subject to such conditions and restrictions as our compensation
committee may determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment or
consulting arrangement with our company, the Advisor or its affiliates through a
specified restricted period. Performance goals could include our achievement of
a certain level of financial performance or the achievement of goals more
directly related to the property acquisition, managerial or financial services
the person is providing to us. If the performance goals and other restrictions
are not attained, the participants will forfeit their shares of restricted
stock. The purchase price of shares of restricted stock, if any, will be
determined by our compensation committee.
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UNRESTRICTED STOCK
Our compensation committee may also grant shares of our common stock, at no
cost, or for a purchase price determined by our compensation committee, which
are free from any restrictions under the incentive plan. Shares of unrestricted
stock may be issued to participants in recognition of past services or other
valid consideration, and may be issued in lieu of cash compensation to be paid
to those participants.
PERFORMANCE SHARE AWARDS
Our compensation committee may also grant performance share awards of our
common stock to participants entitling the participants to receive shares of our
common stock upon the achievement of individual or company performance goals and
such other conditions as our compensation committee may determine.
TAX ASPECTS UNDER THE INTERNAL REVENUE CODE
The following summary of the principal federal income tax consequences of
awards under the incentive plan has been prepared by our tax counsel, Nixon
Peabody LLP. This discussion is based upon the Internal Revenue Code of 1986, as
amended, the Treasury Regulations promulgated under the Internal Revenue Code,
judicial decisions, and administrative rulings of the Internal Revenue Service
now in effect, all of which are subject to change or different interpretations,
possibly with retroactive effect. It does not describe all federal tax
consequences under the incentive plan, however, nor does it describe state or
local tax consequences.
OPTIONS. There are no federal income tax consequences to either the
optionee or to us on the grant of a non-qualified option. On the exercise of a
non-qualified option, the optionee has taxable ordinary income equal to the
excess of the fair market value of the common stock received on the exercise
date over the option price of those shares. The optionee's tax basis for the
shares acquired upon exercise of a non-qualified option is increased by the
amount of that taxable income. We will be entitled to a federal income tax
deduction in an amount equal to that excess provided that we comply with the
applicable reporting requirements. Upon the sale of the shares acquired by
exercise of a non-qualified option, the optionee will realize long-term or
short-term capital gain or loss depending upon his or her holding period for
those shares.
Special rules apply if an optionee surrenders shares of our common stock in
payment of the exercise price of a non-qualified option.
OTHER AWARDS. Grants of restricted stock, stock grants and performance
awards under the incentive plan will generally result in additional compensation
taxable as ordinary income for federal income tax purposes when granted, unless
the award is subject to a substantial risk of forfeiture (such as an obligation
to perform substantial future services as a condition to retaining awarded
stock). If the award is subject to a substantial risk of forfeiture the
recipient will be taxed when the award is granted if the recipient elects to
have the substantial risk of forfeiture disregarded for federal income tax
purposes via a so-called "Section 83(b) election," and otherwise when the risk
of forfeiture lapses. The amount of recipient's taxable income will be the value
of the stock or award at the point at which the recipient is taxable, reduced by
the amount paid for the award, if any. We will be entitled to a federal income
tax deduction in the same amount generally provided we comply with applicable
reporting requirements.
INDEMNIFICATION
Our articles contain a provision permitted under the Maryland General
Corporation Law eliminating, with limited exceptions, each director's and
officer's personal liability for monetary damages for breach of any duty as a
director or officer. In addition, our charter documents require us to indemnify
our directors and officers from specified liabilities and expenses, as well as
to advance costs, expenses and attorneys' fees, to the fullest extent permitted
under the Maryland General Corporation Law. These rights are contract rights
fully enforceable by each beneficiary of those rights, and are in addition to,
and not exclusive of, any other right to indemnification.
We have agreed to indemnify the Dealer-Manager against liabilities,
including liabilities under the Securities Act, arising out of a breach or
alleged breach by us of any of our representations and warranties or arising out
of an untrue statement or alleged untrue statement of a material fact contained
in this prospectus or the
98
registration statement of which it is a part, or arising out of the omission or
alleged omission to state in those documents a material fact required to be
stated in those documents necessary to make the statements not misleading. The
Dealer-Manager has agreed to indemnify us against liabilities arising out of the
failure or alleged failure by the Dealer-Manager to perform under the
Dealer-Manager Agreement or arising out of any untrue statement or alleged
untrue statement of a material fact made by the Dealer-Manager to any offeree or
purchaser of shares in this offering (other than any statement contained in this
prospectus or in any sales literature authorized by us) or arising out of any
omission or alleged omission by the Dealer-Manager to state to any offeree or
purchaser a material fact necessary in order to make the statements made to such
offeree or purchaser not misleading in light of the circumstances in which they
were made (other than any such material fact omitted from this prospectus).
Furthermore, we have agreed to indemnify and hold harmless the Advisor and its
affiliates performing services for us from specific claims and liabilities
arising out of the performance of its obligations under the advisory agreement
between the Advisor and our company.
Any indemnification or any agreement to hold harmless is recoverable only
out of our assets and not from our stockholders.
Furthermore, we have agreed to indemnify and hold harmless the Advisor and
its affiliates performing services for us from specific claims and liabilities
arising out of the performance of its obligations under the advisory services
agreement between the Advisor and our company. As a result, we and our
stockholders may be entitled to a more limited right of action than they would
otherwise have if these indemnification rights were not included in these
agreements.
THE ADVISOR AND THE ADVISORY SERVICES AGREEMENT
OVERVIEW
Our Advisor is Boston Capital REIT Advisors, LLC, a Delaware limited
liability company that is a wholly owned subsidiary of Boston Capital. Some of
our officers and directors are also officers of the Advisor. John P. Manning is
the sole shareholder of Boston Capital Corporation, the general partner of
Boston Capital and the manager of the Advisor. (See "Conflicts of Interest.")
The Advisor has contractual responsibility to our company and our stockholders
pursuant to an advisory services agreement. Our company has no employees of its
own.
While we have no present plans to do so, we may in the future decide to
perform the advisory services function ourselves.
The following table sets forth information concerning the individuals who
are the directors and executive officers of the Advisor:
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NAME AGE POSITION
---- --- --------
John P. Manning 55 President
Jeffrey H. Goldstein 42 Executive Vice President, Treasurer and Clerk
Kevin P. Costello 57 Executive Vice President
Richard J. DeAgazio 59 Executive Vice President
Marc N. Teal 39 Senior Vice President, Assistant Treasurer and Assistant Clerk
Mark W. Dunne 47 Senior Vice President
Daniel P. Petrucci 38 Senior Vice President
Theodore Trivers 49 Senior Vice President
The backgrounds of Messrs. Manning, Goldstein, Costello, DeAgazio, Teal,
Dunne and Petrucci are described in the "Management - Directors and Executive
Officers" section of this prospectus. The following is a biographical summary of
the experience of Mr. Trivers and of other persons who will be performing
services to the Advisor.
Frank L. Chandler, age 39, is Vice President and Director of Sales for
Boston Capital Services, Inc. He is in charge of the firm's sales force, key
accounts and direct sales. Prior to joining Boston Capital in 1997,
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Mr. Chandler was the President and founder of a financial services video
marketing company. Prior to that, he was a financial executive and Vice
President at Bear Stearns & Company and a Registered Representative at both
Drexel Burnham Lambert and Smith Barney. Mr. Chandler attended Syracuse
University prior to receiving a BA from Skidmore College.
Eileen P. O'Rourke, age 47, is Senior Vice President and Director of
Taxation and Housing Compliance for Boston Capital Corporation. Ms. O'Rourke has
over 20 years experience in taxation and accounting. Ms. O'Rourke's prior
responsibilities at Boston Capital involved the management of the Asset
Management Department. Prior to joining Boston Capital in 1995, she was the
Partnership Tax Controller at First Data Investor Services Group, Inc., where
she directed the tax compliance of real estate public partnerships and the
issuance of 200,000 investors' K-1s annually. Before that she held positions as
a Senior Tax Accountant with Culp, Elliott and Carpenter, P.C., and as a Senior
Auditor with the Internal Revenue Service. Ms. O'Rourke graduated with honors
from Russell Sage College and is licensed as a Certified Public Accountant. She
is Co-Chair of the Housing Credit Certified Professional Board of Governors and
is a member of the American Institute of Certified Public Accountants, the
Massachusetts and North Carolina Societies of Certified Public Accountants, as
well as New England Women in Real Estate.
Steven M. Spall, age 40, is Senior Vice President and Director of Asset
Management. Mr. Spall joined Boston Capital with previous experience as an Asset
Manager with the Weissberg Development Corporation in Arlington, Virginia, and
The Grossman Companies in Quincy, Massachusetts. For the past ten years he has
worked in the Acquisitions Department and has been responsible for developing
and maintaining successful relationships with many of the most important general
partners of the public and private limited partnerships sponsored by Boston
Capital. He has an MBA with a concentration in finance from Suffolk University
and a BA in economics from the State University of New York at Oswego.
Mr. Trivers is also Senior Vice President and Director of Real Estate for
Boston Capital Corporation. He directs the underwriting and acquisition of
properties for the Boston Capital portfolios and serves on Boston Capital's
Investment Committee and its Disposition Committee. Mr. Trivers previously
served as Chief Underwriter and Director of Underwriting Due Diligence. He has
23 years experience in real estate development, construction, finance and
property management. Prior to joining Boston Capital in 1993, Mr. Trivers was
Treasurer of New England Communities, Inc., a regional real estate acquisition,
asset management and property management company located in Massachusetts. Mr.
Trivers received a BS in business and an MBA from Babson College.
THE ADVISORY SERVICES AGREEMENT
Many of the services to be performed by the Advisor in managing our
day-to-day activities are summarized below. This summary is provided to
illustrate the material functions which the Advisor will perform for us as our
advisor and it is not intended to include all of the services which may be
provided to us by third parties. Under the terms of the advisory services
agreement, the Advisor undertakes to use its best efforts to present to us
investment opportunities consistent with our investment policies and objectives
as adopted by the board of directors. In its performance of this undertaking,
the Advisor, either directly or indirectly by engaging an affiliate, will,
subject to the authority of our board:
- find, present and recommend to us real estate investment opportunities
consistent with our investment policies and objectives;
- structure the terms and conditions of transactions pursuant to which
acquisitions of communities will be made;
- acquire communities on our behalf in compliance with our investment
objectives and policies;
- arrange for financing and refinancing of communities; and
- enter into property management contracts for the communities acquired.
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The initial term of the advisory services agreement ends on the first
anniversary of the initial closing of shares in this offering and may be renewed
for an unlimited number of successive one-year periods. Additionally, the
advisory services agreement may be terminated without cause by a majority of our
independent directors or the Advisor upon 60 days' written notice.
The Advisor and its affiliates expect to engage in other business ventures
and, as a result, their resources will not be dedicated exclusively to our
business. However, pursuant to the advisory services agreement, the Advisor must
devote sufficient resources to the administration of our company to discharge
its obligations. The Advisor may assign the advisory services agreement to an
affiliate upon approval of a majority of our independent directors. We may
assign or transfer the advisory services agreement to a successor entity.
The Advisor may not make any acquisition of a community or financing of
such acquisition on our behalf without the prior approval of a majority of our
independent directors. The actual terms and conditions of transactions involving
investments in communities will be determined in the sole discretion of the
Advisor, subject at all times to such board approval.
Pursuant to the advisory services agreement, we will pay the Advisor fees
and reimbursements, as shown in "Compensation and Fees." The fees include:
- a monthly asset management fee equal to 1/12th of .75% of the
total amount invested in communities (exclusive of acquisition fees
and acquisition expenses), including the original principal amounts of
mortgages assumed on acquisition of the communities;
- a subordinated disposition fee equal to the lesser of 3% of the
contract price for communities sold or one-half of a competitive real
estate commission, payable only after investors have received a return
of 100% of their invested capital plus a 6% annual cumulative
noncompounded return on their invested capital; and
- a subordinated share of net sale proceeds equal to 15% of net sale
proceeds, payable only after investors have received a return of 100%
of their invested capital plus a 6% annual cumulative noncompounded
return on their invested capital.
We will also reimburse the Advisor for all of the costs it incurs in
connection with the services it provides to us, including:
- organization and offering expenses in an amount up to 3% of gross
offering proceeds, which include actual legal, accounting, printing
and expenses attributable to preparing the SEC registration statement,
qualification of the shares for sale in the states and filing fees
incurred by the Advisor;
- the annual cost of goods and materials used by us and obtained from
entities not affiliated with the Advisor, including brokerage fees
paid in connection with the purchase and sale of securities;
- administrative services including personnel costs; provided, however,
that no reimbursement will be made for costs of personnel to the
extent that personnel are used in transactions for which the Advisor
receives a separate fee; and
- acquisition expenses, which are defined to include expenses related to
the selection and acquisition of communities, at the lesser of actual
cost or 90% of competitive rates charged by unaffiliated persons
providing similar services.
The Advisor must reimburse us at least annually for reimbursements paid to
the Advisor in any year to the extent that such reimbursements to the Advisor
cause our operating expenses to exceed the greater of (i) 2% of our average
invested assets, which generally consists of the average book value of our real
estate communities before reserves for depreciation or bad debts, or (ii) 25% of
our net income, which is defined as our total revenues less total expenses for
any given period excluding reserves for depreciation and bad debt. Such
operating expenses do not
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include amounts payable out of capital fees payable to the Advisor. To the
extent that operating expenses payable or reimbursable by us exceed this limit
and our independent directors determine that the excess expenses were justified
based on unusual and nonrecurring factors which they deem sufficient, the
Advisor may be reimbursed in future years for the full amount of the excess
expenses, or any portion thereof, but only to the extent the reimbursement would
not cause our operating expenses to exceed the limitation in any year. Within 60
days after the end of any of our fiscal quarters for which total operating
expenses for the 12 months then ended exceed the limitation, we will send our
stockholders a written disclosure, together with an explanation of the factors
the independent directors considered in arriving at the conclusion that the
excess expenses were justified.
In the event the advisory services agreement is terminated, the Advisor
will be paid all accrued and unpaid fees and expense reimbursements, and a
special termination payment equal to the projected asset management fee for the
one-year period following termination. We will not reimburse the Advisor or its
affiliates for services for which the Advisor or its affiliates are entitled to
compensation in the form of a separate fee.
OTHER AFFILIATED COMPANIES
DEALER-MANAGER
Boston Capital Services, Inc., our Dealer-Manager, is a member firm of the
NASD. The Dealer-Manager was organized in 1982 for the purpose of participating
in and facilitating the distribution of securities of other programs sponsored
by Boston Capital.
The Dealer-Manager will provide certain wholesaling, sales promotional and
marketing assistance services to us in connection with the distribution of the
shares offered pursuant to this prospectus. It may also sell a limited number of
shares at the retail level. (See "Selling and Escrow Arrangements.") The
Dealer-Manager will also serve as reinvestment agent for our reinvestment plan.
(See "Summary of Reinvestment Plan.")
Boston Capital Holdings Limited Partnership and Richard J. DeAgazio are the
stockholders of the Dealer-Manager. Mr. DeAgazio is the President, Jeffrey H.
Goldstein is the Treasurer and Clerk, and Mr. DeAgazio and John P. Manning are
the directors of the Dealer-Manager. Mr. Manning is also the owner, President
and Chief Executive Officer of the general partner of Boston Capital Holdings
Limited Partnership. (See "Conflicts of Interest.")
MANAGEMENT DECISIONS
The primary responsibility for the management decisions of the Advisor and
its affiliates, including the selection of investment properties recommended to
our board of directors, the negotiation for these investments, and the selection
of property managers for these investment properties resides in an Investment
Committee consisting of John P. Manning, Jeffrey H. Goldstein, Theodore Trivers
and Mark Dunne. Our board of directors must approve all acquisitions of real
estate properties and all contracts with property managers.
COMPENSATION AND FEES
The table below summarizes the types, recipients, methods of computation,
and estimated amounts of all compensation, fees, reimbursements and
distributions to be paid directly or indirectly by our company to the Advisor
and its affiliates, exclusive of any distributions to which the Advisor or its
affiliates may be entitled by reason of their purchase and ownership of shares
in connection with this offering.
The following arrangements for compensation and fees to the Advisor and its
affiliates were not determined by arm's-length negotiations. See "Conflicts of
Interest." There is no item of compensation and no fee that can be paid to the
Advisor or its affiliates under more than one category.
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TYPE OF ESTIMATED
COMPENSATION MINIMUM ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION AMOUNT(1) AMOUNT(1)
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OFFERING STAGE
SELLING COMMISSIONS - Up to 7.0% gross offering $ 2,100,000 $ 22,050,000
BOSTON CAPITAL SERVICES proceeds, including shares
that may be sold pursuant to
the dividend reinvestment
plan, before reallowance of
commissions earned by
participating broker-dealers.
Boston Capital Services, our
Dealer-Manager, intends to
reallow 100% of commissions
earned to participating
broker-dealers.
DEALER-MANAGER FEE - Up to 2.5% of gross offering $ 750,000 $ 7,875,000
BOSTON CAPITAL SERVICES proceeds, including shares
that may be sold pursuant to
the dividend reinvestment
plan, before reallowance to
participating broker-dealers.
Boston Capital Services, in
its sole discretion, may
reallow up to 1.5% of its
dealer-manager fee to be paid
to such participating
broker-dealers as a marketing
fee and due diligence expense
reimbursement, based on such
factors as the volume of
shares sold by such
participating broker-dealers
and marketing support.
REIMBURSEMENT OF Up to 3.0% of gross offering $ 900,000 $ 9,000,000
ORGANIZATION AND OFFERING proceeds. All organization and
EXPENSES - THE ADVISOR OR offering expenses (excluding
ITS AFFILIATES selling commissions and the
dealer-manager fee) will be
advanced by the Advisor or its
affiliates and reimbursed by
us up to 3.0% of gross
offering proceeds.
ACQUISITION STAGE
ACQUISITION FEES - THE Up to 3.0% of gross offering $ 900,000 $ 9,000,000
ADVISOR OR ITS proceeds for the review and
AFFILIATES(2) evaluation of real property
acquisitions.
REIMBURSEMENT OF Up to 0.5% of gross offering $ 150,000 $ 1,5000,000
ACQUISITION EXPENSES - THE proceeds for reimbursement of
ADVISOR OR ITS expenses related to real
AFFILIATES(2) property acquisitions, such as
legal fees, travel expenses,
property appraisals, title
insurance premium expenses and
other closing costs.
OPERATIONAL STAGE
ASSET MANAGEMENT FEES - For the management of our affairs we Actual amounts are dependent upon
THE ADVISOR will pay the Advisor a monthly asset the costs of our properties and
management fee equal to 1/12th therefore cannot be determined at
of 0.75% of the amount invested in the present time.
communities
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we wholly own (including the
original principal amount of
any mortgage indebtedness
assumed upon purchase), plus,
in the case of communities in
which we are a co-venturer or
partner, our portion of such
amount with respect to such
communities, exclusive of
acquisition fees and
acquisition expenses. The
asset management fee, which
will not exceed fees which are
competitive for similar
services in the same
geographic area, may or may
not be taken, in whole or in
part as to any year, in the
sole discretion of the
Advisor. All or any portion of
the asset management fee not
taken as to any fiscal year
will be deferred without
interest and may be taken in
such other fiscal year as the
Advisor determines.
LOAN INTEREST - BCP FUNDING 9.5% per annum, payable quarterly to Actual amounts are dependent upon
the extent of cash available for amounts borrowed, timing of
debt service for that quarter, to borrowings and repayments, and
the extent not paid added to results of operations and therefore
principal; additional interest cannot be determined at the present
payable quarterly to the extent of time.
income from communities not released
by BCP Funding for that quarter
after payment of 9.5% interest, to
the extent not paid accrues without
interest and is not added to
principal or considered in
calculating 9.5% interest;
additional interest payable only to
the extent of income from
communities not released by BCP
Funding and not from the proceeds of
this offering.
SUBORDINATED DISPOSITION In connection with the sale of Actual amounts are dependent upon
FEE - THE ADVISOR OR ITS communities, an amount not exceeding results of operations and therefore
AFFILIATES the lesser of: (A) 50% of the cannot be determined at the present
reasonable, customary and time.
competitive real estate brokerage
commissions customarily paid for the
sale of a comparable property in
light of the size, type and location
of the property, or (B) 3.0% of the
contract price of each community
sold, subordinated to distributions
to investors from sale proceeds of
an amount which, together with prior
distributions to the investors, will
equal (1) 100% of their invested
capital plus (2) 6.0% annual
cumulative noncompounded return on
their invested capital.
SUBORDINATED SHARE OF NET After investors have received a Actual amounts are dependent upon
SALE PROCEEDS - THE return of their invested capital and results of operations and therefore
ADVISOR(3) a 6.0% annual cumulative cannot be determined at the present
noncompounded return on
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their invested capital, the time.
Advisor is entitled to receive
15% of remaining net sale
proceeds. This is payable only
if we are not listed on an
exchange.
SUBORDINATED INCENTIVE Upon listing on a national Actual amounts are dependent upon
LISTING FEE - THE securities exchange or national results of operations and therefore
ADVISOR(4)(5) securities market, a fee equal to cannot be determined at the present
10.0% of the amount by which (1) the time.
market value of our outstanding
stock plus distributions paid by us
prior to listing exceeds (2) the sum
of the total amount of investors'
aggregate invested capital and the
amount of a 6.0% annual cumulative
noncompounded return on invested
capital.
WE MAY NOT REIMBURSE ANY ENTITY FOR
OPERATING EXPENSES IN EXCESS OF THE
GREATER OF 2% OF OUR AVERAGE INVESTED
ASSETS OR 25% OF OUR NET INCOME FOR THE
YEAR.
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(Footnotes to "Compensation and Fees")
(1) The estimated minimum dollar amounts are based on the sale of a minimum of
3,000,000 shares to the public at $10 per share. The estimated maximum
dollar amounts are based on the sale of a maximum of 30,000,000 shares to
the public at $10 per share. Except as noted, the sale of up to 1,500,000
shares at $10 per share pursuant to our dividend reinvestment plan is
excluded from those amounts.
(2) Notwithstanding the method by which we calculate the payment of acquisition
fees and expenses, as described in the table, the total of all such
acquisition fees and acquisition expenses will not exceed, in the
aggregate, an amount equal to 6.0% of the contract price of all of the
properties which we purchase, as required by the NASAA Guidelines.
(3) The subordinated share of net sale proceeds and the subordinated incentive
listing fee to be received by the Advisor are mutually exclusive of each
other. In the event that we become listed and the Advisor receives the
subordinated incentive listing fee prior to its receipt of the subordinated
participation in net sale proceeds, the Advisor will not be entitled to any
such participation in net sale proceeds.
(4) If at any time the shares become listed on a national securities exchange
or national securities market, or, notwithstanding the absence of such
listing, our stockholders elect to continue our company's existence after
____________, 2013, we will negotiate in good faith with the Advisor a fee
structure appropriate for an entity with a perpetual life. A majority of
the independent directors must approve any new fee structure negotiated
with the Advisor. In negotiating a new fee structure, the independent
directors will consider all the factors they deem relevant, including but
not limited to:
- The size of the advisory fee in relation to the size, composition and
profitability of our portfolio;
- The success of the Advisor in generating opportunities that meet our
investment objectives;
- The rates charged to other REITs and to investors other than REITs by
advisors performing similar services;
- Additional revenues realized by the Advisor;
- The quality and extent of service and advice furnished by the Advisor;
- The performance of our investment portfolio, including income,
conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations; and
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- The quality of our portfolio in relationship to the investments
generated by the Advisor for the account of other clients.
The board, including a majority of the independent directors, may not
approve a new fee structure that is, in its judgment, more favorable to the
Advisor than the current fee structure.
(5) The market value of our outstanding stock will be calculated based on the
average market value of the shares issued and outstanding at listing over
the 30 trading days beginning 180 days after the shares are first listed on
a stock exchange. We have the option to pay the listing fee in the form of
stock, cash, a promissory note or any combination thereof. In the event the
subordinated incentive listing fee is paid to the Advisor as a result of
the listing of our shares, we will not be required to pay the Advisor any
further subordinated participation in net sale proceeds.
In addition, the Advisor and its affiliates will be reimbursed only
for the actual costs of goods and services used for or by us. We will not
reimburse the Advisor or its affiliates for services for which they are entitled
to compensation by way of a separate fee.
Since the Advisor and its affiliates are entitled to differing levels
of compensation for undertaking different transactions on behalf of our company,
such as the advisory fees for managing our affairs and the subordinated
participation in net sale proceeds, the Advisor has the ability to affect the
nature of the compensation it receives by undertaking different transactions.
However, the Advisor is obligated to exercise good faith and integrity in all
its dealings with respect to our affairs pursuant to the advisory agreement.
(See "Management - The Advisor - The Advisory Agreement.") Because these fees or
expenses are payable only with respect to certain transactions or services, they
may not be recovered by the Advisor or its affiliates by reclassifying them
under a different category.
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
out of its relationship to the Advisor and its affiliates, as described below.
THERE ARE CERTAIN RELATIONSHIPS BETWEEN OUR COMPANY AND OTHER ENTITIES PROVIDING
SERVICES TO US
The Advisor is a wholly owned subsidiary of Boston Capital Holdings
Limited Partnership. John P. Manning, our Chairman and Chief Executive Officer,
owns the general partner of and a limited partner interest in Boston Capital
Holdings Limited Partnership. Boston Capital Holdings Limited Partnership also
owns 66?% of the Dealer-Manager. Boston Capital Funding, LLC, our line-of-credit
lender, is a wholly owned subsidiary of Boston Capital Companion Limited
Partnership. Mr. Manning also owns the general partner of and a limited partner
interest in Boston Capital Companion Limited Partnership. Boston Capital
Companion Limited Partnership owns 20,000 shares of our common stock.
PRIOR AND FUTURE PROGRAMS
In the past, affiliates of the Advisor have organized approximately
370 other real estate investment programs, currently have other real estate
holdings, and in the future expect to form, offer interests in, and manage other
real estate programs in addition to our company, and make additional real estate
investments. Currently, no affiliate of the Advisor owns, operates, leases or
manages properties that would be suitable for our company, although future real
estate programs may involve affiliates of the Advisor in the ownership,
financing, operating, leasing, and management of properties that may be suitable
for us. Such conflicts between our company and affiliated programs may affect
the value of our investments as well as our net income. We believe that the
Advisor has established guidelines to minimize such conflicts.
COMPETITION TO ACQUIRE PROPERTIES
Affiliates of the Advisor may compete with us to acquire properties of
a type suitable for acquisition by us and may be better positioned to make such
acquisitions. A purchaser who wishes to acquire one or more of these
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properties may have to do so within a relatively short period of time,
occasionally at a time when we (due to insufficient funds, for example) may be
unable to make the acquisition.
The Advisor or its affiliates also may be subject to potential
conflicts of interest at such time as we wish to acquire a property that also
would be a suitable investment for an affiliate of the Advisor. Affiliates of
the Advisor serve as directors of our company and, in this capacity, have a
fiduciary obligation to act in the best interest of our stockholders and, as
general partners or directors of affiliates of the Advisor, to act in the best
interests of the investors in other entities or programs with investments that
may be similar to those of our company, and will use their best efforts to
assure that we will be treated as favorably as any other entity or program. We
have also developed procedures to resolve potential conflicts of interest in the
allocation of properties between our company and certain of its affiliates. See
"Conflicts of Interest - Certain Conflict Resolution Procedures" below.
SALES OF PROPERTIES
A conflict also could arise in connection with the Advisor's
determination as to whether or not to sell a property, since the interests of
the Advisor and the stockholders may differ as a result of their distinct
financial and tax positions and the compensation to which the Advisor or its
affiliates may be entitled upon the sale of a property. See "Conflicts of
Interest - Compensation of the Advisor" below for a description of these
compensation arrangements. In order to resolve this potential conflict, our
board of directors will be required to approve each sale of a property.
COMPETITION FOR MANAGEMENT TIME
The officers of the Advisor and the directors and officers of our
company currently are engaged, and in the future will engage, in the management
of other business entities and properties and in other business activities,
including entities, properties and activities associated with affiliates of the
Advisor. They will devote only as much of their time to the business of our
company as they, in their judgment, determine is reasonably required, which will
be substantially less than their full time. These officers and directors of the
Advisor and officers and directors of the company may experience conflicts of
interest in allocating management time, services, and functions among the
company and the various entities, investor programs (public or private), and any
other business ventures in which any of them are or may become involved.
Currently, in addition to their involvement with our company, these persons are
involved in the management of approximately 1,130 limited partnerships with
interests in low-income residential apartment communities.
COMPENSATION OF THE ADVISOR
Pursuant to an advisory services agreement, we have engaged the
Advisor to perform various services for us, and the Advisor will receive fees
and compensation for such services. The advisory services agreement was not the
result of arm's-length negotiations. The advisory services agreement was
approved by a majority of our board of directors, including a majority of the
independent directors, not otherwise interested in the transaction, as being
fair and reasonable to our company and on terms and conditions no less favorable
than those which could be obtained from unaffiliated entities. Any future
agreements with the Advisor, including any amendment or restatement of the
advisory services agreement, will require the same approval. The timing and
nature of fees and compensation to the Advisor could create a conflict between
the interests of the Advisor and those of the stockholders. A transaction
involving the purchase or sale of any community by our company may result in the
immediate realization by the Advisor and its affiliates of substantial
commissions, fees, compensation, and other income. Although the advisory
services agreement authorizes the Advisor to take primary responsibility for all
decisions relating to any such transaction, our board of directors must approve
all of the company's acquisitions and sales of communities. Potential conflicts
may arise in connection with the determination by the Advisor on our behalf of
whether to hold or sell a community as such determination could affect the
timing and amount of fees payable to the Advisor. See "Management - The Advisor
- The Advisory Services Agreement."
RELATIONSHIP WITH DEALER-MANAGER
The Dealer-Manager is Boston Capital Services, Inc., an affiliate of
the Advisor and our company. Certain of our officers and directors are also
officers, directors, and registered principals of the Dealer-Manager. This
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relationship may create conflicts in connection with the fulfillment by the
Dealer-Manager of its due diligence obligations under the federal securities
laws. Although the Dealer-Manager has examined the information in this
prospectus for accuracy and completeness, the Dealer-Manager is an affiliate of
the Advisor and our company and will not make an independent review of our
company or the offering. Accordingly, the investors do not have the benefit of
such independent review. The Dealer-Manager is not prohibited from acting in any
capacity in connection with the offer and sale of securities offered by entities
that may have some or all investment objectives similar to those of our company
and is expected to participate in other offerings sponsored by one or more of
our officers or directors.
RELATIONSHIP WITH BCP FUNDING, LLC
Our current lender is BCP Funding, LLC, an affiliate of the Advisor
and our company. Subject to oversight by our board of directors, the Advisor has
considerable discretion with respect to all decisions relating to the terms and
timing of our borrowings from BCP Funding. Our board may encounter conflicts of
interest in enforcing our rights or invoking our powers under our loan agreement
with BCP Funding. A majority of our independent directors must approve any
agreement with BCP Funding as being fair and reasonable to us and on terms and
conditions no less favorable to us than those available from an unaffiliated
third party.
JOINT VENTURES WITH AFFILIATES OF THE ADVISOR
While we have no present plans to do so, we may in the future enter
into one or more joint venture agreements with other affiliated programs for the
acquisition, development or improvement of properties. (See "Business and
Properties -- Joint Venture Investments.") The Advisor and its affiliates may
have conflicts of interest in determining which affiliated program should enter
into any particular joint venture agreement. The co-venturer may have economic
or business interests or goals which are or which may become inconsistent with
our business interests or goals. In addition, should any such joint venture be
consummated, the Advisor may face a conflict in structuring the terms of the
relationship between our interests and the interest of the affiliated
co-venturer and in managing the joint venture. Since the Advisor and its
affiliates will control both our company and the affiliated co-venturer,
agreements and transactions between the co-venturers with respect to any such
joint venture will not have the benefit of arm's-length negotiation of the type
normally conducted between unrelated co-venturers. (See "Risk Factors -- Risks
Related to Our Properties and Our Business.")
LEGAL REPRESENTATION
Nixon Peabody LLP, which serves as our securities and tax counsel in
this offering, also serves as securities and tax counsel for certain of our
affiliates, including other real estate programs, in connection with other
matters. Neither we nor the stockholders will have separate counsel. In the
event any controversy arises following the termination of this offering in which
the interests of our company appear to be in conflict with those of the Advisor
or its affiliates, other counsel may be retained for one or both parties.
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, our articles of incorporation contain a number of restrictions
relating to (i) transactions we enter into with the Advisor and its affiliates,
(ii) certain future offerings, and (iii) allocation of properties among
affiliated entities. These restrictions include, among others, the following:
- We will not accept goods or services from the Advisor or its
affiliates unless a majority of our directors, including a majority of
the independent directors, not otherwise interested in the
transactions approve such transactions as fair and reasonable to us
and on terms and conditions not less favorable to us than those
available from unaffiliated third parties.
- We will not purchase or lease properties in which the Advisor or its
affiliates has an interest without a determination by a majority of
the directors, including a majority of the independent directors, not
otherwise interested in such transaction, that such transaction is
competitive and commercially reasonable to us and at a price to us no
greater than the cost of the property to the Advisor or its
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affiliates unless there is substantial justification for any amount
that exceeds such cost and such excess amount is determined to be
reasonable. In no event will we acquire any such property at an amount
in excess of its appraised value. We will not sell or lease properties
to the Advisor or its affiliates or to our directors unless a majority
of the directors, including a majority of the independent directors,
not otherwise interested in the transaction, determine the transaction
is fair and reasonable to our company.
- We will not make any loans to the Advisor or its affiliates or to our
directors. Any loans made to us by the Advisor or its affiliates or to
our directors must be approved by a majority of the directors,
including a majority of the independent directors, not otherwise
interested in the transaction, as fair, competitive and commercially
reasonable, and no less favorable to us than comparable loans between
unaffiliated parties. The Advisor and its affiliates are entitled to
reimbursement, at cost, for actual expenses incurred by them on our
behalf subject to the limitation on reimbursement of operating
expenses to the extent that they exceed the greater of 2% of our
average invested assets or 25% of our net income, as described in the
"Management - The Advisor - The Advisory Services Agreement" section
of this prospectus.
- In the event that an investment opportunity becomes available which is
suitable, under all of the factors considered by the Advisor, for our
company and one or more other public or private entities affiliated
with the Advisor and its affiliates, then the entity which has had the
longest period of time elapse since it was offered an investment
opportunity will first be offered such investment opportunity. In
determining whether or not an investment opportunity is suitable for
more than one program, the Advisor, subject to approval by the board
of directors, shall examine, among others, the following factors:
- The cash requirements of each program;
- The effect of the acquisition on diversification of each program's
investments by type of apartment community and geographic area;
- The policy of each program relating to leverage of properties;
- The anticipated cash flow of each program;
- The income tax effects of the purchase of each program;
- The size of the investment; and
- The amount of funds available to each program and the length of
time such funds have been available for investment.
If a subsequent development, such as a delay in the closing of a
property, causes any such investment, in the opinion of our board of directors
and the Advisor, to be more appropriate for a program other than the program
that committed to make the investment, the Advisor may determine that another
program affiliated with the Advisor or its affiliates will make the investment.
Our board of directors has a duty to ensure that the method used by the Advisor
for the allocation of the acquisition of properties by two or more affiliated
programs seeking to acquire similar types of properties shall be reasonable.
CONFLICT PROVISIONS OF MARYLAND LAW
In addition to the policies that we have adopted to reduce or
eliminate potential conflicts of interest (see "Conflicts of Interest - Certain
Conflict Resolution Procedures" above), our board is subject to certain
provisions of Maryland law, which are also designed to eliminate or minimize
conflicts. However, we cannot assure you that these policies or provisions of
law will be successful in eliminating the influence of these conflicts.
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Under Maryland law, a contract or other transaction between us and
any of our directors and any other entity in which that director is also a
director or has a material financial interest is not void or voidable solely on
the grounds of the common directorship or interest, the fact that the director
was present at the meeting at which the contract or transaction is approved or
the fact that the director's vote was counted in favor of the contract or
transaction, if:
- The fact of the common directorship or interest is disclosed to our
board or a committee of our board, and our board or that committee
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even if the disinterested
directors constitute less than a quorum;
- The fact of the common directorship or interest is disclosed to our
stockholders entitled to vote, and the contract or transaction is
approved by a majority of the votes cast by the stockholders entitled
to vote, other than votes of shares owned of record or beneficially by
the interested director, corporation, firm or other entity; or
- The contract or transaction is fair and reasonable to us.
INVESTMENT POLICIES AND POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES
The following is a discussion of our investment policies and our
policies with respect to certain other activities. These policies may be amended
or revised from time to time at the discretion of our board of directors without
a vote of our stockholders. Any change to any of these policies would be made by
our directors, however, only after a review and analysis of that change, in
light of then existing business and other circumstances, and then only if, in
the exercise of their business judgment, they believe that it is advisable to do
so in our and our stockholders' best interest. We cannot assure you that our
investment objectives will be attained.
INVESTMENTS IN REAL ESTATE
We are a REIT that will own interests in, lease and maintain
multifamily apartment communities in the United States, typically multifamily
garden apartments and selected mid-rise properties having 150 or more rental
units. We invest primarily in suburban and metropolitan areas.
Our policy is to invest in assets primarily for current income
generation. In general, our investment objectives are:
- To provide quarterly cash dividends, as well as to provide growth
in dividends over time.
- There is no assurance that any dividend will be paid. Rising
operating expenses could reduce our cash flow and funds
available for future distribution.
- To increase our value through increases in the cash flows and
values of our communities.
- The performance of our properties may not meet our
expectations. Adverse economic conditions and competition
may impede our ability to renew leases, which could affect
our operating results.
- To achieve long-term capital appreciation, and preserve and
protect the value of our interest in our communities.
- There is no assurance of capital appreciation. We will only
return all of our stockholders' invested capital if we sell
our interests in communities for more than their original
purchase price.
There are no limitations on the amount or percentage of our total net
assets that may be invested in any one community. Additionally, no limits have
been set on the concentration of investments in any one location. However, the
Advisor does plan to diversify its acquisitions to mitigate risk.
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Apartment communities under consideration are first subjected to a
comprehensive due diligence review. In selecting specific communities, the
Advisor, as approved by our board of directors, applies the following minimum
standards.
- The apartment community is in what the Advisor considers to be a
quality market area within locations that provide stability and upside
potential.
- The apartment community is projected to provide stockholders with at
least a 6% annual distribution on their $10 per share investment,
after all operating and other expenses of the property and the related
expenses of our company, based on the Advisor's analysis.
- We will endeavor to maintain an aggregate mortgage indebtedness on our
communities totaling between 55% and 65% of our total net assets, but
this is not a limitation on the amount of mortgage indebtedness on any
one community acquired.
- For communities acquired before the initial closing, the communities
have at least 18 months of stable operations and audited financial
information for a recently-ended 12-month period; following the
initial closing, at least 90% of the communities will meet this
standard.
Generally, we will acquire our interests in our communities by forming a
limited liability company which will be controlled by a wholly owned subsidiary
of our company and in which an unaffiliated third party will have an economic
interest. A wholly owned subsidiary of this limited liability company will in
turn own title to the community.
BORROWING POLICIES
While we strive for diversification, the number of different communities we
can acquire interests in will be affected by the amount of funds available to
us. There is no limitation on the amount we may invest in any single improved
property or on the amount we can borrow for the purchase of an interest in any
property subject to the limitation that we cannot borrow in excess of 300% of
our net assets. However, we currently intend to limit the aggregate mortgage
debt on our communities that are no longer (or have not been) financed with our
current or any replacement line of credit to no more than 55% to 65% of the
total net asset value of those communities and our total debt on those
communities to no more than 73% of the total net asset value of those
communities, unless any excess borrowing is approved by a majority of the
independent directors and is disclosed to stockholders in our next quarterly
report.
We will, at least initially, borrow money to acquire interests in
communities and to pay certain related fees. We plan to maintain one or more
lines of credit for the purpose of acquiring interests in communities. We intend
to encumber our assets in connection with the borrowing. Initially, we intend to
repay any line of credit with offering proceeds. We also plan to obtain
permanent mortgage financing for all of our communities, or to continue the
existing mortgage indebtedness on the communities.
Management believes that any financing obtained during the offering
period will allow us to make investments in communities that we otherwise would
be forced to delay until we raised a sufficient amount of proceeds from the sale
of shares. By eliminating this delay, we will also eliminate the risk that these
investments will no longer be available, or the terms of the investment will be
less favorable, when we have raised sufficient offering proceeds. Alternatively,
affiliates of the Advisor could make such investments, pending receipt by us of
sufficient offering proceeds in order to preserve the investment opportunities
for us. However, interests in communities acquired by us in this manner could be
subject to closing costs both on the original purchase by the affiliate and on
the subsequent purchase by us, which would increase the amount of expenses
associated with the acquisition of communities and reduce the amount of offering
proceeds available for investment in other income-producing assets.
While we have no present plans to do so, we may in the future
establish a line of credit principally to finance capital improvement projects
and for working capital purposes, such as the costs of renovating, repairing,
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and marketing our communities. We may also borrow funds for the purpose of
preserving our status as a REIT. For example, we may borrow to the extent
necessary to permit us to make distributions required in order to enable us to
qualify as a REIT for federal income tax purposes; however, we will not borrow
for the purpose of returning invested capital to our stockholders unless
necessary to eliminate corporate level tax to our company.
We expect that all of our communities will also be encumbered with
mortgage debt. By operating on a leveraged basis, we will have more funds
available for investment in communities. This will allow us to make more
investments than would otherwise be possible, resulting in a more diversified
portfolio. Although any liability for the repayment of mortgage indebtedness is
expected to be limited to the value of the property securing the liability and
the rents or profits derived therefrom, our use of leveraging increases the risk
of default on the mortgage payments and a resulting foreclosure of a particular
property. (See "Risk Factors -- Risks Related to Our Organization and
Structure.") To the extent that mortgage loans are not maintained on our
communities, our ability to acquire additional communities will be restricted.
The Advisor will use its best efforts to obtain financing on the most favorable
terms available to us. Lenders may have recourse to assets not securing the
repayment of the indebtedness.
The Advisor may refinance communities during the term of a loan when it
deems it is in the best interests of our company, for example, when a decline in
interest rates makes it beneficial to prepay an existing mortgage or if an
attractive investment becomes available and the proceeds from the refinancing
can be used to purchase such investment. The benefits of the refinancing may
include an increased cash flow resulting from reduced debt service requirements,
an increase in dividend distributions from proceeds of the refinancing, if any,
and/or an increase in property ownership if some refinancing proceeds are
reinvested in real estate.
Our aggregate borrowing, secured and unsecured, will be reasonable in
relation to our assets and will be reviewed by our board of directors at least
quarterly.
Any loans from any of our directors or from the Advisor and its affiliates
must be approved by a majority of the directors, including a majority of the
independent directors, not otherwise interested in the transaction, as fair,
competitive and commercially reasonable and no less favorable to us than
comparable loans between unaffiliated parties. We will not make loans to the
directors, officers, the Advisor or their affiliates.
DISPOSITIONS
Although we generally will not seek to dispose of our interests in
communities in our portfolio, we will consider doing so, subject to REIT
qualification rules, if our management determines that a sale of our interest in
a community would be in our best interests based on the price being offered for
the community, the operating performance of the community, the tax consequences
of the sale and other factors and circumstances surrounding the proposed sale.
We may consider offering purchase money financing in connection with the sale of
communities where the provision of that financing would increase the value to be
received by us for the community sold.
EQUITY CAPITAL POLICIES
Our board has the authority, without further stockholder approval, to issue
additional authorized shares of common stock and preferred stock or otherwise
raise capital, including through the issuance of senior securities, in any
manner and on those terms and for that consideration it deems appropriate,
including in exchange for property. Existing stockholders will have no
preemptive right to shares of common stock or other shares of our capital stock
issued in any offering, and any offering might cause a dilution of a
stockholder's investment in us. Although we have no current plans to do so,
other than in connection with our dividend reinvestment plan, we may in the
future issue common stock.
We may, in certain circumstances, purchase shares of our common stock in
private transactions with our stockholders, if those purchases are approved by
our board. Our board has no present intention of causing us to repurchase any
shares, and any action would only be taken in conformity with applicable federal
and state laws and the applicable requirements for qualifying as a REIT.
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REPORTING POLICIES
After this offering, we will become subject to the full information
reporting requirements of the Securities Exchange Act of 1934, as amended.
Pursuant to these requirements, we will file periodic reports, proxy statements
and other information, including certified financial statements, with the
Securities and Exchange Commission. See "Where You Can Find More Information."
We will also establish an internet-accessible area for our company on the Web
site of Boston Capital Corporation, www.bostoncapital.com.
INVESTMENT LIMITATIONS
We do not intend to invest in the securities of other issuers for the
purpose of exercising control (except to the extent that we may acquire the
controlling securities of an entity holding real property that meets our
investment criteria), to underwrite securities of other issuers, or to engage in
the purchase and sale (or turnover) of investment securities in exchange for
property, nor do we have any present intention of offering securities in
exchange for property or to invest in real estate mortgages, although our board
may determine to authorize an exchange of securities for property or an
investment in mortgages in the future.
PRIOR PERFORMANCE OF AFFILIATES OF MANAGEMENT
OVERVIEW
During their more than 29-year history, the Advisor and its affiliates and
their respective predecessors in interest have raised approximately $3.0 billion
in real estate equity from approximately 80,000 investors in approximately 370
investment programs to acquire interests in approximately 2,350 properties
containing approximately 112,000 apartment units and 90 commercial buildings in
48 states and territories, representing approximately $8.33 billion in original
development and acquisition costs. Of the properties acquired, 92 were apartment
complexes that included 2,663 market rate units out of a total of 11,087 units
located in 26 states and representing $253,000,197 of investor equity.
During the ten-year period from January 1, 1993 to December 31, 2002, the
Advisor and its affiliates and their respective predecessors in interest have
served as general partners of two public limited partnerships and 37 private
limited partnerships including 27 corporate limited partnerships and six direct
placement corporate limited partnerships for a total of 39 real estate programs.
None of these programs had investment objectives similar to our company's. All
of these programs involved residential apartment communities, and although none
of them were 100% market rate communities, approximately 2,663 units in these
residential apartment communities were market rate units. The residential
apartment communities invested in by the previous programs are affordable
housing communities subject to certain rent and tenant restrictions, of which a
component is market rate units. Typically, the market rate units (if any), are
less than 50% of the total units in the community.
The Advisor and its affiliates and their respective predecessors in
interest raised $2,424,138,913 in subscriptions from 46,812 investors during
this ten-year period. A total of 1,131 properties(1), with a total development
cost of $4,318,300,708 were acquired for the public and private limited
partnerships. These properties are geographically located 12% in the Northeast,
10% in the Mid-Atlantic, 30% in the Southeast, 25% in the Mid-west, 14% in the
Southwest, and 9% in the West.
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The foregoing information covering the period from January 1, 1993 to
December 31, 2002, can be summarized as follows:
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PROGRAMS PROPERTIES INVESTORS
-------- ---------- ---------
AVERAGE
TOTAL CAPITAL
DEVELOPMENT INVESTED
TYPE NUMBER NUMBER COST NUMBER CAPITAL PER PROPERTY
--------------- -------- --------- ------------------ --------- ------------------ --------------
Public 2 555 $ 1,650,741,876 46,624 $ 866,166,500 $ 1,560,660
Private 37 576 2,667,558,832 188 1,557,972,443 2,704,813
-------- --------- ------------------ --------- ------------------ --------------
Total 39 1,131 $ 4,318,300,708 46,812 $ 2,424,138,943 $ 2,143,359
[Download Table]
REGIONS
NORTHEAST MID-ATLANTIC SOUTHEAST MIDWEST SOUTHWEST WEST
--------- ------------ --------- ------- --------- ----
Public 7% 5% 15% 13% 6% 4%
Private 5% 5% 15% 12% 7% 5%
--- --- --- --- --- --
Total 12% 10% 30% 25% 13% 9%
All these 39 prior limited partnerships have invested in apartment
complexes (or operating partnerships which owned such complexes) financed and/or
operated with one or more forms of government subsidy, primarily RHS. The states
in which these apartment complexes are located and the number of properties in
each state are as follows:(2)
[Download Table]
Alabama 15 Maryland 18 Oregon 1
Arizona 8 Massachusetts 15 Pennsylvania 7
Arkansas 18 Michigan 57 Puerto Rico 4
California 54 Minnesota 7 Rhode Island 2
Colorado 29 Mississippi 50 South Carolina 12
Connecticut 17 Missouri 47 South Dakota 2
Delaware 3 Montana 3 Tennessee 15
District of Columbia 2 Nebraska 4 Texas 86
Florida 22 Nevada 3 Utah 4
Georgia 60 New Hampshire 5 Vermont 4
Illinois 16 New Jersey 13 Virginia 46
Indiana 11 New Mexico 8 Virgin Islands 11
Iowa 13 New York 61 Washington 3
Kansas 19 North Carolina 24 West Virginia 6
Kentucky 52 North Dakota 17 Wisconsin 11
Louisiana 102 Ohio 7 Wyoming 0
Maine 13 Oklahoma 29
----------
(1) Includes 78 properties which are jointly owned by two or more investment
partnerships or series within an investment partnership which represent a
total of 79 shared investments.
(2) The total number of properties by state does not reflect the 75 shared
investments of 78 operating partnerships. The net number of properties
reflected is 1,046.
The 39 government-assisted partnerships which invested in residential
apartment complexes accounted for 100% of the total development cost of all
properties acquired by all limited partnerships sponsored over the ten-year
period.
The investment objectives of the 39 prior partnerships were, in order of
priority: (1) certain tax benefits in the form of tax losses or low-income
housing and rehabilitation tax credits which each such limited partnership's
partners might use to offset income from other sources; (2) long-term capital
appreciation through increases in the
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value of each apartment complex and (3) cash distributions through potential
sale or refinancing transactions. Distributions of current cash flow were not a
primary objective of these partnerships, in that the government agencies which
provide subsidies regulate both the amount of rent and the amount of cash
distributions which may be made to partners.
PRIVATE PLACEMENTS
Interests in 37 of the 39 limited partnerships described above were sold to
approximately 188 investors in private offerings intended to be exempt from the
registration requirements of the Securities Act of 1933. A total of
$1,557,972,443 in subscriptions was raised. Interests were acquired in a total
of 576 properties, with total development costs of $2,667,558,832.
The private limited partnerships involved new construction or renovation of
apartment complexes, financed with mortgage indebtedness aggregating
approximately $1,430,564,793 in addition to the equity investment of the prior
limited partnerships of $1,557,972,443. The purchased properties equaled 100% of
the total development cost of all non-conventional properties invested in by
private limited partnerships.
PUBLIC OFFERINGS
Interests in two of the 39 limited partnerships described above were sold
to approximately 46,624 investors in public offerings registered under the
Securities Act of 1933. A total of $866,166,500 in subscriptions was raised. A
total of 555 properties were purchased at a total development cost of
$1,650,741,876.
Information regarding the public offerings is summarized as follows as of
December 31, 2002:
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INVESTORS PROPERTIES TYPE OF PROPERTIES
--------- ---------- ------------------
TOTAL UNDER HISTORIC
DEVELOPMENT RECENTLY CON- TAX
PROGRAM CLOSED NUMBER CAPITAL NUMBER COST COMPLETED STRUCTION CREDIT
------------------------------------------------------------------------------------------------------------------------------------
Boston Capital Tax Credit
Fund III L.P. (Series 17
through 19) 1993 7,476 $ 126,962,000 109 $ 290,143,950 101 N/A 8
Boston Capital Tax Credit
Fund IV L.P. (Series 20
through 43) 39,148 $ 739,204,500 446 $ 1,360,597,926 425 17 4
During the four-year period ending December 31, 2002, affiliates of our
management sponsored one public investment partnership with investment
objectives similar to the 39 described above. This public limited partnership
owns interests in 116 operating partnerships which include 11 properties jointly
owned by two or more investment partnerships or series within an investment
partnership, representing a total of 11 shared investments. The total number of
properties by state does not duplicate the 15 shared investments. The net number
of properties reflected is 105 located in:
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[Download Table]
Alabama 0 Maryland 1 Ohio 0
Arizona 1 Massachusetts 1 Oklahoma 3
Arkansas 1 Michigan 11 Oregon 1
California 2 Minnesota 0 Pennsylvania 0
Colorado 12 Mississippi 1 Puerto Rico 0
Connecticut 1 Missouri 3 Rhode Island 0
Florida 0 Montana 0 South Carolina 0
Georgia 5 Nebraska 0 South Dakota 1
Illinois 5 Nevada 0 Tennessee 1
Indiana 2 New Hampshire 2 Texas 8
Iowa 0 New Jersey 0 Utah 0
Kansas 5 New Mexico 1 Vermont 0
Kentucky 10 New York 6 Virginia 1
Louisiana 12 North Carolina 0 Virgin Islands 2
Maine 1 North Dakota 0 Wisconsin 2
All of the operating partnership acquisitions of the public limited
partnership involved new construction or renovation of existing apartment
complexes, financed with government-assisted mortgaged indebtedness aggregating
approximately $165,621,018 in addition to the equity investment of the investing
partnerships of $246,558,000. These properties equaled 100% of the total
development cost of properties acquired by public limited partnerships in the
four-year period ended December 31, 2002.
Information regarding public limited partnerships organized with investment
objectives not similar to ours is contained in Appendix I - Tabular Information
Concerning Prior Limited Partnerships.
Any investor or prospective investor may view and/or obtain a copy of the
most recent Form 10-K or Form 10-Q filed with the Securities and Exchange
Commission relative to the public offerings at the Web site of Boston Capital
Corporation, www.bostoncapital.com.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock before and after this offering. The principal
address of each person and entity named below is c/o Boston Capital Real Estate
Investment Trust, Inc., c/o Boston Capital Corporation, One Boston Place, Suite
2100, Boston, MA 02108-4406.
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[Enlarge/Download Table]
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES OWNED ALL SHARES SHARES OWNED ALL SHARES
NAME AND BUSINESS ADDRESS PRIOR TO PRIOR TO AFTER AFTER
OF BENEFICIAL OWNER OFFERING(1) OFFERING OFFERING(1) OFFERING(2)
------------------------- ------------ ---------- ------------ -----------
Boston Capital Companion Limited
Partnership 20,000 87% 20,000 *(3)
John P. Manning None - - *
Jeffrey H. Goldstein None - - *
Kevin P. Costello None - - *
Richard J. DeAgazio None - - *
Daniel P. Petrucci None - - *
Marc N. Teal None - - *
Mark W. Dunne None - - *
Philip S. Cottone 1,000(4) - 1,000(4) *
W. Pearce Coues 1,000(4) - 1,000(4) *
Stephen Puleo 1,000(4) - 1,000(4) *
Directors and Executive Officers as a
group (10 persons) 3,000 3% 3,000 *
----------
* Less than 1%
(1) In accordance with 13d-3 under the Securities Exchange Act of 1934, shares
are shown as beneficially owned if the person named in the table has or
shares the power to vote or to direct the voting of, or the power to
dispose or to direct the disposition of, those shares. Inclusion of shares
in the table does not necessarily mean that the persons named have any
economic interest in shares set opposite their names. In addition, shares
are deemed to be beneficially owned by a person if that person has the
right to acquire shares, for example, upon exercise of an option or
warrant, within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares is deemed to include the amount of shares beneficially owned by
that person, and only by that person, by reason of that acquisition right.
As a result, the percentage of outstanding shares of any person as shown on
the preceding table does not necessarily reflect the person's actual voting
power at any particular date.
(2) Assumes 30,000,000 shares are sold in offering.
(3) Approximately 1% if no more than the 2,000,000-share minimum is sold.
(4) Currently exercisable options.
DESCRIPTION OF CAPITAL STOCK
GENERAL
We were formed under the laws of the State of Maryland. Rights of our
stockholders are governed by the Maryland General Corporation Law, or MGCL, our
charter, or our articles, and our bylaws. The following summary of the material
provisions of our capital stock does not purport to be complete and is subject
to and qualified in its entirety by reference to our articles and bylaws, copies
of which are filed as exhibits to the registration statement of which this
prospectus is a part.
AUTHORIZED STOCK
Our articles provide that we may issue up to 350,000,000 shares of common
stock, par value $.00l per share, 50,000,000 shares of preferred stock, par
value $.00l per share, and 100,000 shares of "excess stock," par value $.001 per
share, which would be issued only in the event we have purchases in excess of
the ownership limits described below. At the commencement of this offering,
20,000 shares of our common stock were issued and outstanding, all of which were
owned by an affiliate of the Advisor, and no shares of preferred stock or excess
shares were issued and outstanding.
We will not issue stock certificates except to stockholders who make a
written request to us. Each stockholder's investment will be recorded on our
books, and information concerning the restrictions and rights attributable to
shares (whether in connection with an initial issuance or a transfer) will be
sent to the stockholder
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receiving shares in connection with the issuance or transfer. A stockholder
wishing to transfer his or her shares will be required to send only an executed
form to us, and we will provide the required form upon a stockholder's request.
The executed form and any other required documentation must be received by us on
or before the 15th of the month for the transfer to be effective the following
month. Subject to restrictions in our articles of incorporation, transfers of
shares will be effective, and the transferee of the shares will be recognized as
the holder of such shares, as of the first day of the following month on which
we receive properly executed documentation.
COMMON STOCK
In the opinion of Nixon Peabody LLP, a copy of which is attached as an
exhibit to the registration statement of which this prospectus is a part, all of
the shares offered by this prospectus will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of shares of stock, holders of shares of common stock will be entitled to
receive distributions if, as and when authorized and declared by our board out
of assets legally available for such payments and to share ratably in our assets
legally available for distribution to the stockholders in the event of our
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all of our known debts and liabilities and any rights of holders of senior
securities.
Each outstanding share of common stock entitles the holder to one vote on
all matters submitted to a vote of our stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that directors then standing for election will be elected by a plurality
of all votes cast. Holders of shares of common stock have no conversion, sinking
fund, redemption, exchange or appraisal rights, and have no preemptive rights to
subscribe for any of our securities.
PREFERRED STOCK; OTHER EQUITY SECURITIES
Upon completion of this offering, no shares of preferred stock will be
outstanding. Shares of preferred stock may be issued from time to time, in one
or more series, as authorized by our board without further action by our
stockholders, unless action by our stockholders is required by applicable law or
by the rules of any securities exchange or market on which our shares may be
listed in the future. Prior to the issuance of shares of each series, our board
is required by the MGCL and our articles to fix for each series, subject to the
provisions of our articles, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms or conditions of redemption, as permitted by Maryland law. Because our
board has the power to establish the preferences, powers and rights of each
series of preferred stock, it may afford the holders of any series of preferred
stock preferences, powers and rights senior to the rights of holders of shares
of our common stock; however, the voting rights for each share of preferred
stock shall not exceed voting rights which bear the same relationship to the
voting rights of shares of our common stock as the consideration paid to our
company for each share of preferred stock bears to the book value of shares of
our common stock on the date that such preferred stock is issued. The issuance
of preferred stock could have the effect of delaying or preventing a change of
control of our company that might involve a premium price for holders of shares
or otherwise be in their best interest. Our board has no present plans to issue
any preferred stock.
The voting rights per share of our equity securities (other than our
publicly held equity securities) sold in a private offering shall not exceed the
voting rights which bear the same relationship to the voting rights of the
publicly held equity securities as the consideration paid to our company for
each privately offered share bears to the book value of each outstanding
publicly held equity security. Our board of directors has no present plans to
offer equity securities of our company in a private offering.
RESTRICTIONS ON OWNERSHIP
For us to remain qualified as a REIT under the Internal Revenue Code, not
more than 50% of the value of the outstanding shares of our capital stock may be
owned, actually or constructively, by five or fewer individuals, as defined in
the Internal Revenue Code, during the last half of a taxable year, and our stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a shorter taxable
year. See "Material United States Federal Income Tax Considerations." To satisfy
these ownership requirements and other requirements for qualification as a REIT,
our articles contain provisions restricting the ownership or acquisition of
shares of our capital stock.
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The ownership limit provisions provide that no stockholder may own, or be
deemed to own by virtue of the attribution provisions of the Internal Revenue
Code, more than the ownership limit, which is equal to 9.8% of our stock. The
attribution rules are complex and may cause stock owned directly or indirectly
by a group of related individuals and/or entities to be deemed to be owned by
one individual or entity. As a result, the acquisition of less than 9.8% (by
value or number of shares, whichever is more restrictive) of each class of our
outstanding stock, or the acquisition of an interest in an entity which owns our
stock, by an individual or entity could cause that individual or entity to
constructively own in excess of 9.8% of our outstanding stock, and thus subject
that stock to the ownership limit.
Our board may, in its sole discretion, waive the ownership limit with
respect to a particular stockholder if evidence satisfactory to our board is
presented that the ownership will not then or in the future jeopardize our
status as a REIT. As a condition to the waiver, our board may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving our REIT status. If, in the opinion of our board, any
proposed transfer of shares of our stock may jeopardize our qualification as a
REIT, our board has the right to refuse to permit the transfer of that stock.
A transfer of our common stock or other event that results in a person
owning shares in excess of the ownership limit will result in those shares of
our stock most recently acquired by that person that are in excess of the
ownership limit being converted into "excess shares." These excess shares will
then be automatically transferred to a trust, the beneficiary of which will be a
qualified charitable organization that we select. The intended transferee will
not be entitled to vote these shares and will not receive any dividends declared
on these shares. Within 20 days after the transfer of the shares to the trust,
the trustee of the trust will be required to sell the excess shares to a person
or entity who could own the shares without violating the ownership limit. The
trustee, upon a sale of these shares, would then distribute to the intended
transferee an amount equal to the lesser of the price paid by that intended
transferee (or, in some circumstances, the market value of those shares) or the
sale proceeds received by the trust. In addition, assuming that these excess
shares had not yet been sold by the trustee, we would have the right, for a
period of 120 days beginning on the date described below, to purchase all or any
portion of the excess shares from the trust at a price equal to the lesser of
the price paid for the stock by the intended transferee (or, in some
circumstances, the market value of those shares) and the closing market price
for the common stock on the date we exercise our option to purchase the stock.
This period commences on the date of the violative transfer if the intended
transferee gives us notice of the transfer, or the date our board determines
that a violative transfer has occurred if no notice is provided.
The affirmative vote of the holders of at least two-thirds of the shares of
our voting stock is required to alter, amend, adopt any provision inconsistent
with or repeal the ownership limit provision. In addition to preserving our
status as a REIT, the ownership limit may have the effect of precluding an
acquisition of control of the REIT without the approval of our board.
All persons who own at least a specified percentage of our stock must file
an affidavit with us containing information regarding their ownership of stock,
as set forth in the United States Treasury Regulations. Under current Treasury
Regulations, the percentage will be set between 0.5% and 5%, depending on the
number of record holders of stock. In addition, each stockholder will upon
demand be required to disclose to us in writing that information with respect to
the direct, indirect and constructive ownership of shares as our board deems
necessary to comply with the provisions of the Internal Revenue Code applicable
to a REIT or to comply with the requirements of any taxing authority or
governmental agency.
INSPECTION OF BOOKS AND RECORDS
The Advisor will keep, or cause to be kept, on our behalf, full and true
books of account on an accrual basis of accounting, in accordance with generally
accepted accounting principles. All of such books of account, together with all
other records of our company, including a copy of our articles of incorporation
and bylaws and any amendments thereto, will at all times be maintained at our
principal office, and will be open to inspection, examination, and, for a
reasonable charge, duplication upon reasonable notice and during normal business
hours by a stockholder or his or her agent.
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As a part of our books and records, we will maintain at our principal
office an alphabetical list of names of stockholders, along with their addresses
and telephone numbers and the number of shares held by each stockholder. Such
list will be updated at least quarterly and will be available for inspection at
our principal office by a stockholder or his or her agent upon such
stockholder's request. Such list also will be mailed to any stockholder
requesting the list within 10 days of a request. The copy of the stockholder
list shall be printed in alphabetical order, on white paper, and in readily
readable type size that is not smaller than 10-point type. We may impose a
reasonable charge for expenses incurred in reproducing such list. The list may
not be sold or used for commercial purposes.
If the Advisor or our directors neglect or refuse to exhibit, produce or
mail a copy of the stockholder list as requested, the Advisor and our directors
will be liable to any stockholder requesting the list for the costs, including
attorneys' fees, incurred by that stockholder for compelling the production of
the stockholder list. It will be a defense that the actual purpose and reason
for requests for inspection or for a copy of the stockholder list is to secure
such list of stockholders or other information for the purpose of selling such
list or copies thereof, or of using them for a commercial purpose other than in
the interest of the applicant as a stockholder relative to the affairs of our
company. We may require the stockholder requesting the stockholder list to
represent that the list is not requested for a commercial purpose unrelated to
the stockholder's interest in our company. The remedies provided by our articles
of incorporation to stockholders requesting copies of the stockholder list are
in addition to, and do not in any way limit, other remedies available to
stockholders under federal law or the law of any state.
RESTRICTION ON "ROLL-UP" TRANSACTIONS
In connection with any proposed "Roll-Up Transaction," which, in general
terms, is any transaction involving the acquisition, merger, conversion or
consolidation, directly or indirectly, of our company and the issuance of
securities of an entity (a "Roll-Up Entity") that would be created or would
survive after the successful completion of the Roll-Up Transaction, an appraisal
of all properties will be obtained from a competent independent appraiser. In
order to qualify as an independent appraiser for this purpose, the person or
entity must have no material current or prior business or personal relationship
with the Advisor or our directors and must be engaged to a substantial extent in
the business of rendering opinions regarding the value of assets of the type
held by our company. The properties must be appraised on a consistent basis, and
the appraisal must be based on the evaluation of all relevant information and
indicate the value of the properties as of a date immediately prior to the
announcement of the proposed Roll-Up Transaction. The appraisal must assume an
orderly liquidation of properties over a 12-month period. The terms of the
engagement of such independent appraiser must clearly state that the engagement
is for our benefit and the benefit of our stockholders. A summary of the
independent appraisal, indicating all material assumptions underlying the
appraisal, must be included in a report to stockholders in connection with a
proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction,
the person sponsoring the Roll-Up Transaction must offer to stockholders who
vote against the proposal the choice of:
(i) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up Transaction; or
(ii) one of the following:
(A) remaining stockholders of our company and preserving their
interests therein on the same terms and conditions as existed
previously; or
(B) receiving cash in an amount equal to the stockholder's PRO RATA
share of the appraised value of our net assets.
We are prohibited from participating in any proposed Roll-Up Transaction:
(i) which would result in the stockholders having democracy rights in the
Roll-Up Entity that are less than those provided in our articles of
incorporation and by-laws and described elsewhere in this section of the
prospectus, including rights with respect to the election and removal of
directors, annual reports, annual and special meetings, amendment of the
articles of incorporation, and dissolution of our company;
(ii) which includes provisions that would operate as a material impediment
to, or frustration of, the accumulation of shares by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent
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necessary to preserve the tax status of the Roll-Up Entity), or which would
limit the ability of an investor to exercise the voting rights of its securities
of the Roll-Up Entity on the basis of the number of shares held by that
investor;
(iii) in which investor's rights to access of records of the Roll-Up Entity
will be less than those provided in our articles of incorporation and described
in this section of the prospectus under the heading " - Inspection of Books and
Records," above; or
(iv) in which any of the costs of the Roll-Up Transaction would be borne
by us if the Roll-Up Transaction is not approved by the stockholders.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR ARTICLES AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
of our articles and bylaws. The business combination provisions and the control
share acquisition provisions of the MGCL, and the advance notice provisions of
our bylaws, could have the affect of delaying, deferring or preventing a
transaction or a change in control that might involve a premium price for
holders of shares of our common stock or otherwise be in our stockholders' best
interest.
TERMINATION OF OUR COMPANY AND REIT STATUS
Our articles provide for us to have a perpetual existence. If our shares are not
listed on a national securities exchange or national securities market by
___________, 2013, however, we will liquidate and dissolve if stockholders
holding a majority of our shares vote to authorize us to do so. Our articles
further provide for the voluntary termination or dissolution of our company by
the affirmative vote of a majority of the shares of common stock outstanding and
entitled to vote at a meeting called for that purpose. In addition, our articles
permit the stockholders to terminate our status as a REIT under the Code only by
the affirmative vote of the holders of a majority of the shares of common stock
outstanding and entitled to vote.
AMENDMENT OF ARTICLES AND BYLAWS
Our articles may be amended by the affirmative vote of a majority of the
shares of common stock outstanding and entitled to vote except in the case of
amendments to the provisions regarding amending our articles or reorganizing our
company, which require a two-thirds vote. The stockholders may vote to amend our
articles, terminate or dissolve our company or remove one or more directors
without necessity for concurrence by our board of directors. However, if within
60 days of the meeting at which a vote will take place with respect to an
amendment to our articles, there is an interested stockholder (i.e., a
stockholder who has acquired 9.8% of our stock, other than a "look-through
entity"), that amendment must be approved in advance by an affirmative vote of a
majority of our "continuing directors" (i.e., those directors who are not
affiliated with the interested stockholder and who were in office prior to the
time the stockholder became an interested stockholder).
Unless otherwise required by law, our board may amend our bylaws by the
affirmative vote of a majority of the directors then in office. However, if at
the time of the action, there is an "interested stockholder," the amendment must
be approved in advance by an affirmative vote of a majority of the continuing
directors.
MEETINGS OF STOCKHOLDERS
Under our bylaws, annual meetings of stockholders for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting are to be held in May of each year at a date and time as
determined by our board. Special meetings of stockholders may be called by a
majority of the independent directors or by the Chairman or the President.
Special meetings must be called by the Secretary upon the written request of the
holders of not less than 10% of the shares of our common stock entitled to vote
at a meeting. Upon receipt of such a written request, either in person or by
mail, stating the purpose or purposes of the meeting, we will provide all
stockholders, within ten days of receipt of the written request, written notice,
either in person or by mail, of the meeting and its purpose. Such meeting will
be held not less than 15 nor more than 60 days after distribution of the notice,
at the time and place specified in the request, or if none is specified, at a
time and place convenient to
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stockholders. Only matters set forth in the notice of the meeting may be
considered and acted upon at a special meeting.
At any meeting of stockholders, each stockholder is entitled to one vote
per share of common stock owned of record on the applicable record date. In
general, the presence in person or by proxy of 50% of the shares of common stock
then outstanding will constitute a quorum, and the majority vote of the shares
of common stock present in person or by proxy will be binding on all our
stockholders.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
Our bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for directors or bring other business before an annual
meeting of stockholders. Any stockholder nomination or proposal for action at an
upcoming stockholder meeting must be delivered to our Secretary not less than 90
days nor more than 150 days prior to the scheduled meeting of stockholders and
must comply with other procedural requirements described in our bylaws. Our
bylaws contain a similar notice requirement in connection with nominations for
directors at a special meeting of stockholders called for the purpose of
electing one or more directors.
The purpose of requiring stockholders to give advance notice of nominations
and other proposals is to afford our board the opportunity to consider the
qualifications of the proposed nominees or the advisability of the other
proposals and, to the extent considered necessary by our board, to inform
stockholders and make recommendations regarding the nominations or other
proposals. The advance notice procedures also permit a more orderly procedure
for conducting our stockholder meetings. Although the bylaws do not give our
board the power to disapprove timely stockholder nominations and proposals, they
may have the effect of precluding a contest for the election of directors or
proposals for other action if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors to our board or to approve its own
proposal.
THE BOARD OF DIRECTORS
Our articles provide that our board will initially consist of five
directors and thereafter the number of directors may be established by our board
or by a majority vote of the stockholders, but the total cannot be less than
three or more than 15. A majority of our board of directors will be independent
directors. See "Management--Independent Directors." Each director, other than a
director elected to fill the unexpired term of another director, will be elected
at each annual meeting or at any special meeting of the stockholders called for
that purpose, by a majority of the shares of common stock present in person or
by proxy and entitled to vote. However, if there is an interested stockholder,
the filling of the vacancy must also be approved by the affirmative vote of a
majority of those directors who are not affiliated with the interested
stockholder and who were in office prior to the time the stockholder became an
interested stockholder. Independent directors will nominate replacements for
vacancies among the independent directors. Under our articles, the term of
office for each director will be one year, expiring at each annual meeting of
stockholders; however, nothing in our articles prohibits a director from being
reelected by the stockholders. The directors may not, without concurrence of a
majority of the outstanding shares, (a) amend our articles, except for
amendments which do not adversely affect the rights, preferences and privileges
of stockholders; (b) sell all or substantially all of our assets other than in
the ordinary course of business or in connection with liquidation and
dissolution; (c) cause the merger or other reorganization of our company; or (d)
dissolve or liquidate our company, other than before the initial closing. The
directors may establish such committees as they deem appropriate (provided that
the majority of the members of each committee are independent directors).
Under our articles, a director may resign or be removed with or without
cause by the affirmative vote of a majority of our capital stock outstanding and
entitled to vote.
BUSINESS COMBINATIONS
As permitted by Maryland law, our articles provide that any merger,
consolidation or sale of substantially all of our assets or voluntary
dissolution or liquidation must be approved by our directors and the holders of
at least a majority of the outstanding shares of our common stock. In addition,
any such transaction involving an affiliate of
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our company or the Advisor also must be approved by a majority of the directors
(including a majority of the independent directors) not otherwise interested in
such transaction as fair and reasonable to our company and on terms and
conditions not less favorable to us than those available from unaffiliated third
parties.
In addition, under the MGCL, particular business combinations, including a
merger, consolidation, share exchange or, in some circumstances, an asset
transfer or issuance or reclassification of equity securities, between a
Maryland corporation and specified insiders or any stockholder who beneficially
owns, directly or indirectly, 10% or more of our stock, are prohibited for five
years. Thereafter, any business combination must be recommended by our board of
directors and approved by the affirmative vote of at least (a) 80% of the votes
entitled to be cast by holders of our outstanding voting stock, and (b)
two-thirds of the votes entitled to be cast by holders of our outstanding voting
stock, other than shares held by the parties with whom the business combination
is to be effected. These provisions of the MGCL do not apply, however, to
business combinations that are approved or exempted by our board of directors
prior to the time that the insider or 10% stockholder becomes an insider or 10%
stockholder.
CONTROL SHARE ACQUISITION
With certain exceptions, the MGCL provides that "Control Shares" of a
Maryland corporation acquired in a control share acquisition have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiring
person or by our officers or directors who are our employees, and may be
redeemed by us. "Control Shares" are voting shares which, if aggregated with all
other shares owned or voted by the acquiror, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-tenth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Control shares do not include shares the acquiror is then entitled to
vote as a result of having previously obtained stockholder approval. A control
share acquisition means, subject to certain exceptions, the acquisition by any
person of ownership or voting power of issued and outstanding control shares. A
person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions, including an undertaking to pay expenses,
may compel our board to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the "Control Shares" in
question. If no request for a meeting is made, we may present the question at
any stockholders' meeting.
Our bylaws contain a provision exempting any and all acquisitions of our
capital stock from the control shares provision of Maryland law. Nothing
prevents our board from amending or repealing this provision in the future.
ANTI-TAKEOVER LEGISLATION
Maryland law allows publicly-held Maryland corporations to elect to be
governed by all or any part of Maryland law provisions relating to extraordinary
actions and unsolicited takeovers. The election to be governed by one or more of
these provisions can be made by a Maryland corporation in its articles or bylaws
or by resolution adopted by its board of directors so long as the corporation
has at least three directors who, at the time of electing to be subject to the
provisions, are not:
- officers or employees of the corporation;
- persons seeking to acquire control of the corporation;
- directors, officers, affiliates or associates of any person seeking
to acquire control; or
- nominated or designated as directors by a person seeking to acquire
control.
Articles supplementary must be filed with the Maryland State Department of
Assessments and Taxation if a Maryland corporation elects to be subject to any
or all of the provisions by board resolution or bylaw amendment. Stockholder
approval is not required for the filing of articles supplementary.
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The Maryland legislation provides that a corporation can elect to be
subject to all or any portion of the following provisions, notwithstanding any
contrary provisions contained in that corporation's existing charter documents:
- CLASSIFIED BOARD: The corporation may divide its board into three
classes which, to the extent possible, will have the same number of
directors, the terms of which will, after their initial terms, expire
at the third annual meeting of stockholders after the election of
each class;
- TWO-THIRDS STOCKHOLDER VOTE TO REMOVE DIRECTORS ONLY FOR CAUSE: The
stockholders may remove any director only by the affirmative vote of
at least two-thirds of all votes entitled to be cast by the
stockholders generally in the election of directors, but a director
on a classified board may not be removed without cause;
- SIZE OF BOARD FIXED BY VOTE OF BOARD: The number of directors will be
fixed only by resolution of the board;
- BOARD VACANCIES FILLED BY THE BOARD FOR THE REMAINING TERM: Vacancies
that result from an increase in the size of the board, or the death,
resignation, or removal of a director, may be filled only by the
affirmative vote of a majority of the remaining directors even if
they do not constitute a quorum. Directors elected to fill vacancies
will hold office for the remainder of the full term of the class of
directors in which the vacancy occurred, as opposed to until the next
annual meeting of stockholders, and until a successor is elected and
qualifies; and
- STOCKHOLDER CALLS OF SPECIAL MEETINGS: Special meetings of
stockholders may be called by the secretary of the corporation only
upon the written request of stockholders entitled to cast at least a
majority of all votes entitled to be cast at the meeting and only in
accordance with procedures set out in the MGCL.
We have not elected to be governed by this legislation. We can elect to be
governed by any or all of the provisions of the Maryland legislation at any time
in the future.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following general discussion of material United States federal income
tax considerations relevant to investors in our common stock has been prepared
by our tax counsel, Nixon Peabody LLP, which has also delivered an opinion
supporting this discussion, a copy of which is an exhibit to the registration
statement of which this prospectus is a part. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated under the Code, judicial decisions, and administrative rulings of
the Internal Revenue Service, or the IRS, now in effect, all of which are
subject to change or different interpretations, possibly with retroactive
effect. This summary does not purport to be a complete analysis of all the
potential tax considerations relating to our qualification and taxation as a
REIT, or to the acquisition, ownership, and disposition of our common stock. In
particular, this discussion does not address any aspect of state, local or
non-U.S. tax law, or any aspect of United States non-income tax law.
Congress recently passed the Jobs and Growth Tax Relief Reconciliation Act
of 2003 (the "New Tax Act") which reduces the maximum individual tax rate for
certain dividends from 35% to 15% and reduces the maximum individual tax rate
for capital gains from 20% to 15%. The 15% tax rate will apply to the following
dividends paid by our company to our U.S. Stockholders other than corporations:
(1) capital gains distributions; (2) dividends attributable to dividends
received by our company from corporations that are not REITs, such as taxable
REIT subsidiaries and (3) dividends attributable to income that was retained by
our company and subject to tax at regular corporate tax rates. All other
dividends will be subject to ordinary income tax rates.
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Except as specifically discussed below with respect to non-U.S.
Stockholders this summary applies only to U.S. Stockholders who hold our common
stock as a "capital asset" (within the meaning of Section 1221 of the Code). For
purposes of this summary, a U.S. Stockholder is:
- a citizen or individual resident (as defined in Section 7701(b) of
the Code) of the United States;
- a corporation (including any entity treated as a corporation for
United States federal income tax purposes) formed under the laws of
the United States or any political subdivision of the United States;
- an estate the income of which is subject to United States federal
income taxation regardless of its source; or
- a trust if a United States court is able to exercise primary
supervision over the administration of that trust and if one or more
United States persons has the authority to control all substantial
decisions with respect to that trust.
Persons other than U.S. Stockholders, referred to below as Non-U.S.
Stockholders, are subject to special United States federal income tax
considerations, some of which are discussed below.
This discussion does not address all aspects of United States federal
income taxation that may be relevant to a particular investor in light of that
investor's individual circumstances. In addition, this discussion does not
address the federal income tax considerations applicable to investors that may
be subject to special tax rules, such as banks, insurance companies, regulated
investment companies, REITs, dealers in securities, traders in securities that
elect to use a mark-to-market method of accounting, persons that have a
functional currency other than the United States dollar, persons holding our
common stock in a tax deferred or tax advantaged account, persons who are
partners, shareholders or beneficiaries of an entity that holds our common
stock, persons who are former United States citizens or long-term residents
subject to taxation as expatriates, persons who acquire our common stock as
compensation for the performance of services, persons that are subject to the
alternative minimum tax, persons holding our common stock as part of a hedging
transaction, a straddle or a conversion transaction, persons having entered into
a "constructive ownership transaction" (as defined in the Code) with respect to
our common stock, persons deemed to sell our common stock under the constructive
sale provisions of the Code, Non-U.S. Stockholders (except to the extent
specifically described below), and tax-exempt organizations (except to the
extent specifically described below).
We have not sought, nor will we seek, any ruling from the IRS with respect
to the statements made and the conclusions reached in the following summary.
Accordingly, there can be no assurance that the IRS will not challenge those
statements and conclusions or that a court will not sustain that challenge.
Prospective investors considering the purchase of our common stock should
consult their tax advisors as to the consequences of the purchase, ownership and
disposition of our common stock, as to the application of the United States
federal income tax laws to their particular situations, and as to any tax
consequences arising under United States non-income tax laws, under the laws of
any state, local, or non-U.S. taxing jurisdiction, and under any applicable tax
treaty.
TAXATION OF THE COMPANY
GENERAL
We will make an election to be taxed as a REIT under Sections 856 through
860 of the Code. We believe that we have been organized in a manner so as to
qualify for treatment as a REIT under the Code, and we intend to remain
organized and to operate in such a manner. No assurance, however, can be given
that we will operate in a manner so as to qualify as a REIT. Qualification and
treatment as a REIT depend on our ability to meet, on a continuing basis,
various tests relating to our distribution rates, diversity of stock ownership
and other qualification requirements imposed on REITs, some of which are
summarized below. Given the highly complex nature of the rules governing REITs,
the ongoing importance of factual determinations and the possibility of future
changes in our
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circumstances, no assurance can be given that we have so qualified, or that we
will so qualify, for any particular year. See "--Failure to Qualify," below.
So long as we qualify for treatment as a REIT, we generally will not be
subject to federal income tax on our net income that we distribute currently to
our stockholders. This treatment substantially eliminates the "double taxation"
(taxation at both the corporate and stockholder levels) that generally results
from an investment in a corporation by a U.S. Stockholder. If we do not qualify
as a REIT, we would be taxed at federal income tax rates applicable to
corporations on all of our income, whether or not distributed to our
stockholders. Even if we qualify as a REIT, we may be subject to some federal
income or excise taxes:
- we will be taxed at regular corporate rates on any undistributed
"real estate investment trust taxable income," including our
undistributed net capital gains;
- under some circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any;
- if we have (A) net income from the sale or other disposition of
"foreclosure property" (generally, property that we acquire by reason
of a foreclosure or otherwise after a default on a loan secured by
the property or on a lease of the property) that is held primarily
for sale to customers in the ordinary course of business, or (B)
other nonqualifying net income from foreclosure property, we will be
subject to tax at the highest corporate rate on that income;
- if we have net income from "prohibited transactions" (which are, in
general, some sales or other dispositions of inventory or property,
other than foreclosure property, held primarily for sale to customers
in the ordinary course of business), that income will be subject to a
l00% tax;
- if we should fail to satisfy the 75% gross income test or the 95%
gross income test for qualification as a REIT, both of which are
discussed below, and nonetheless maintain our qualification as a REIT
because we meet other requirements, we will be subject to a tax equal
to the product of the greater of (A) the amount by which we fail the
75% gross income test, or (B) the amount by which 90% of our gross
income for the taxable year (excluding gross income from prohibited
transactions) exceeds the amount of our gross income for the taxable
year that is qualifying income for purposes of applying the 95% gross
income test, multiplied by a fraction intended to reflect our
profitability; if we should fail to distribute with respect to each
calendar year at least the sum of (A) 85% of our ordinary income (as
defined in Code section 4981) for that year, (B) 95% of our capital
gain net income (as defined in Code section 4981) for that year, and
(C) any undistributed taxable income from prior years, we would be
subject to a 4% excise tax on the excess of that required
distribution over the amounts actually distributed;
- if we acquire any asset from a C corporation (generally, a
corporation subject to full corporate-level tax) in a transaction in
which the basis of the asset in our hands is determined by reference
to the basis of the asset (or any other property) in the hands of the
C corporation and we subsequently recognize gain on the disposition
of that asset during the 10-year period (the "Recognition Period")
beginning on the date on which we acquired the asset, then, unless
the transferor makes certain elections, the lesser of (A) the fair
market value of the asset as of the beginning of the Recognition
Period over our basis in the asset as of the beginning of the
Recognition Period (the "Built-In Gain"), or (B) the amount of gain
we would otherwise recognize on the disposition will be subject to
tax at the highest regular corporate rate (the "Built-In Gain Rule");
and
- we will be subject to a 100% tax equal to the amount, if any, of our
redetermined rents (generally, the amount of "rents from real
property" we receive from our tenants that would be treated under the
Code as income of our taxable REIT subsidiaries to clearly reflect
the value of services they render to those tenants), redetermined
deductions (generally, the amount by which the deductions of our
taxable REIT subsidiaries are reduced under the Code to appropriately
reflect the sharing of deductible expenses among us and our taxable
REIT subsidiaries), and excess interest (generally, the amount of
interest
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deductions claimed by our taxable REIT subsidiaries in respect of
interest payments they make to us to the extent those interest
payments are in excess of a commercially reasonable rate).
GENERAL REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association that
maintains in effect an election to be treated as a REIT and--
(i) is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
(iii) would be taxable as a domestic corporation but for Sections 856
through 859 of the Code;
(iv) is neither a financial institution nor an insurance company subject
to certain provisions of the Code;
(v) has the calendar year as its taxable year;
(vi) the beneficial ownership of which is held by 100 or more persons;
(vii) at all times during the last half of each taxable year not more than
50% (by value) of the outstanding stock of which is owned, directly
or indirectly, by five or fewer individuals (which term includes
some entities, such as qualified pension trusts described in Section
401(a) of the Code), determined by applying various "look-through"
rules (we refer to this test, discussed in more detail below, as the
Five or Fewer Requirement); and
(viii) that meets various other tests, described below, regarding the
nature of its income and assets and the amounts of its
distributions.
The Code provides that each of the conditions described in (i) through (v), must
be met during the entire taxable year and that the condition described in (vi)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. The conditions
described in (vi) and (vii) do not apply during the first taxable year for which
an election is made to be taxed as a REIT (in our case, our initial taxable
year, which will end December 31, 2003).
The Five or Fewer Requirement referred to above is modified in the case of
some pension trusts, referred to below as qualified trusts, that own shares of a
REIT and are described in Section 401(a) of the Code and exempt from federal
income taxation under Section 501(a) of the Code. Shares in a REIT held by a
qualified trust are treated as held directly by the qualified trust's
beneficiaries in proportion to their actuarial interests in the qualified trust,
rather than by the qualified trust itself.
QUALIFIED REIT SUBSIDIARIES
We may in the future have one or more qualified REIT subsidiaries. A
corporation that is a qualified REIT subsidiary is not treated as a separate
corporation for federal income tax purposes, and all assets, liabilities and
items of income, deduction and credit of a qualified REIT subsidiary are treated
as assets, liabilities and items of the REIT. In applying the REIT qualification
requirements, qualified REIT subsidiaries are ignored, and all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of income, deduction and
credit of the REIT. Qualified REIT subsidiaries are therefore not subject to
federal corporate income taxation, although they may be subject to state and
local taxation. We currently have no qualified REIT subsidiaries.
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TAXABLE REIT SUBSIDIARIES
We may in the future have one or more taxable REIT subsidiaries. A
taxable REIT subsidiary is any corporation in which we directly or indirectly
own stock, provided that we and that corporation make a joint election to treat
it as a taxable REIT subsidiary. In addition, if a taxable REIT subsidiary
holds, directly or indirectly, more than 35% of the securities of any other
corporation (by vote or by value), then that other corporation is also treated
as a taxable REIT subsidiary. A taxable REIT subsidiary is subject to federal
income tax at regular corporate rates, and may also be subject to state and
local taxation. We may hold more than 10% of the stock of a taxable REIT
subsidiary without jeopardizing our qualification as a REIT. However, as noted
below, the securities of taxable REIT subsidiaries may not represent more than
20% of the total value of our assets. We currently have no taxable REIT
subsidiaries.
PARTNERSHIPS AND DISREGARDED ENTITIES
We currently hold our properties indirectly through entities (i) that
are organized as limited partnerships or limited liability companies under state
law and are classified as partnerships for federal income tax purposes, each of
which is referred to below as a Partnership Entity, or (ii) that are organized
as limited partnerships or limited liability companies under state law and are
disregarded as entities separate from us for federal income tax purposes, each
of which is referred to below as a Disregarded Entity. All assets, liabilities
and items of income, deduction and credit of a Disregarded Entity are treated as
our assets, liabilities and items of income, deduction and credit in applying
the income and asset tests discussed below and for all other federal income tax
purposes. In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to that share. In
addition, the partnership's assets and gross income will retain the same
character in the hands of the REIT. Accordingly, our proportionate shares of the
assets and items of income of a Partnership Entity are treated as our assets and
items of income in applying the income and asset tests discussed below. We will
not hold any properties through a Partnership Entity unless we have been advised
by our counsel, Nixon Peabody LLP that such entity will be treated as a
partnership for federal income tax purposes and that the allocations of income
and loss in such Partnership Entity's partnership agreement will be respected
for federal income tax purposes. Similarly, we will not hold any property
through a Disregarded Entity unless we have been advised by our counsel that
such entity will be disregarded for federal income tax purposes.
INCOME TESTS
In order to qualify as a REIT, we must satisfy two gross income
requirements on an annual basis. First, at least 75% of our gross income
(excluding gross income from "prohibited transactions," described above) for
each taxable year must be derived directly or indirectly from investments
relating to real property or interests in mortgages on real property (including
"rents from real property" (described below), interest on obligations secured by
mortgages on real property, and distributions on, and gain with respect to the
disposition of, shares of other REITs) or from various types of temporary
investments. Second, at least 95% of our gross income (excluding gross income
from "prohibited transactions," described above) for each taxable year must be
derived from the same items which qualify under the 75% gross income test, and
from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of these items. We intend that the income
generated by our investments will be of a type which satisfies both the 75% and
the 95% gross income tests. If we were to fail either of these tests in a
taxable year, we will not be disqualified as a REIT if the failure was due to
reasonable cause and not willful neglect and we file additional information with
our tax return for that taxable year. It is not possible, however, to state
whether in all circumstances we would be entitled to the benefit of these relief
provisions. As discussed above, even if these relief provisions were to apply, a
tax would be imposed on certain excess net income.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income tests described above only if several conditions are
met:
- First, the amount of rent generally must not be based in whole or in
part on the income or profits of any person. A REIT's "rents from
real property" may include amounts based on a fixed percentage or
percentages of a tenant's gross receipts or sales.
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- Second, rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT owns
10% or more of the tenant, whether directly or after application of
various attribution rules. This rule does not apply to amounts paid
to a REIT by its taxable REIT subsidiary if some conditions are met.
While we intend not to lease property to any party if rents from that
property would not qualify as "rents from real property," application
of the 10% ownership rule is dependent upon complex attribution rules
that may apply by reason of circumstances beyond our control. For
example, ownership (directly or by attribution) by an unaffiliated
third-party of more than 10% of our common stock and more than 10% of
the stock of one or more of our lessees would result in that lessee's
rents not qualifying as "rents from real property." Although our
articles contain restrictions that are intended to help us maintain
our status as a REIT, there can be no assurance that we will be able
to monitor and enforce those restrictions, nor will our stockholders
necessarily be aware of ownership attributable to them under the
Code's attribution rules.
- Third, if rent attributable to personal property leased in connection
with the lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to
that personal property will not qualify as "rents from real
property." Subject to meeting this threshold test, rent attributable
to personal property leased in connection with the lease of real
property will be treated as "rents from real property" for this
purpose.
- Finally, charges for services customarily furnished or rendered in
connection with the rental of real property may be treated as "rents
from real property" for this purpose. However, in order for rents
received with respect to a property and these charges to qualify as
"rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to tenants, except
through a taxable REIT subsidiary or through an independent
contractor who is adequately compensated and from whom the REIT
derives no income. The requirement that services be provided through
a taxable REIT subsidiary or through an independent contractor,
however, does not apply to services provided by the REIT that are
"usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered to be
rendered to the occupant. If the value of the non-customary service
income with respect to a property (valued at no less than 150% of the
direct costs of performing such services) is 1% or less of the total
income derived from the property, then all rental income except the
non-customary service income will qualify as "rents from real
property."
We do not anticipate charging rent that is based in whole or in part on the
income or profits of any person. We do not anticipate receiving a material
amount of rents from any tenants that are related parties as described above. We
do not anticipate receiving rent attributable to personal property leased in
connection with real property.
We do not anticipate providing services with respect to our properties.
Rather, we will employ adequately compensated independent contractors for that
purpose.
ASSET TESTS
To qualify as a REIT, we must also satisfy three tests relating to the
nature of our assets at the close of each quarter of each taxable year:
- at least 75% of the value of our total assets must be represented by
"real estate assets" as defined in the Code, cash, cash items and
government securities. For these purposes, a REIT's "real estate
assets" include (A) its allocable share of real estate assets held by
partnerships in which it has an interest, (B) shares in other REITs,
and (C) stock or debt instruments purchased with the proceeds of a
stock offering or long-term (i.e., at least five years) debt offering
of the REIT and held for not more than one year following the receipt
of those proceeds;
- not more than 20% of the value of our total assets may be represented
by securities of taxable REIT subsidiaries; and
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- of the investments that do not qualify for purposes of the first test
described above, the value of any one issuer's securities may not
exceed 5% of the value of our total assets, and we may not own more
than 10% (by vote or by value) of any one issuer's outstanding
securities. Equity interests in a Partnership Entity or in a
Disregarded Entity, shares of a qualified REIT subsidiary and shares
of a taxable REIT subsidiary held by a REIT are disregarded for
purposes of this test. Instead, as discussed above, our proportionate
share of the assets of each Partnership Entity and all of the assets
of each Disregarded Entity are treated as our assets in applying
these asset tests.
Securities, for the purposes of these asset tests, may include debt we
hold. However, debt we hold in an issuer will not be taken into account for
purposes of the 10% value test if the debt securities are straight debt (as
defined in the Code's REIT provisions) and either (i) the issuer is an
individual, (ii) the only securities of the issuer that we hold are straight
debt, or (iii) if the issuer is a partnership, we hold at least a 20% profits
interest in the partnership.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy these asset tests at
the end of a later quarter solely by reason of changes in asset values. If a
failure to satisfy these asset tests results from an acquisition of securities
or other property during a quarter, the failure may be cured by a disposition of
sufficient nonqualifying assets within 30 days following the close of that
quarter. We have maintained, and we intend to continue to maintain, adequate
records of the value of our assets to permit compliance with the asset tests and
we plan to take on a timely basis any actions that may be required to cure any
noncompliance. However, there can be no assurance that we will succeed in taking
any such necessary actions.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our stockholders in an amount at least
equal to (i) the sum of (A) 90% of our "real estate investment trust taxable
income" (computed without regard to the dividends paid deduction and by
excluding the amount of the REIT's net capital gain) and (B) 90% of our net
income (after tax), if any, from foreclosure property, minus (ii) various items
of noncash income. In addition, if we dispose of any asset subject to the
Built-In Gain Rule during its Recognition Period (see "--Taxation of the
Company--General," above), we are required to distribute an amount equal to at
least 90% of the Built-In Gain (after payment of a corporate level tax), if any,
recognized on the disposition. These distributions must be paid during the
taxable year to which they relate (or during the following taxable year, if the
distributions are declared before we timely file our tax return for the
preceding year and are paid on or before the first regular dividend payment
after the declaration). In addition, dividends declared in October, November, or
December to stockholders of record on a specified date during those months and
paid during the following January will be treated as having been both paid and
received on December 31 of the year the dividend is declared. As noted above, if
we do not distribute all of our net capital gain and all of our "real estate
investment trust taxable income," as adjusted, we will be subject to tax on the
undistributed amount at regular corporate tax rates. Furthermore, as noted
above, if we fail to distribute during each calendar year at least the sum of
(i) 85% of our ordinary income (as defined in Code Section 4981) for such year,
(ii) 95% of our capital gain net income (as defined in Code Section 4981) for
such year, and (iii) any undistributed taxable income from prior periods, we
will be subject to a nondeductible 4% excise tax on the excess of that required
distribution over the amounts actually distributed.
We may elect to retain rather than distribute all or a portion of our net
capital gains and pay the tax on the gains. In that case, we may elect to have
our stockholders include their proportionate share of the undistributed net
capital gains in income as long-term capital gains and receive a credit for
their share of the tax paid by us. For purposes of the 4% excise tax described
above, any retained amounts would be treated as having been distributed. See
also "--Taxation of Taxable U.S. Stockholders--General" below.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements for qualification as a REIT described above. We expect
that our "real estate investment trust taxable income" will be less than our
cash flow due to the allowance of depreciation and other noncash charges in the
computation of our "real estate investment trust taxable income."
Under some circumstances, we may be able to rectify a failure to meet the
distribution requirements for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for
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dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we would be required to
pay to the IRS interest based upon the amount of any deduction taken for
deficiency dividends.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and
relevant relief provisions do not apply, we will be subject to tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates. Distributions to stockholders in any year in which we fail to
qualify as a REIT will not be deductible by us, nor will we be required to make
them. Under those circumstances, to the extent of current and accumulated
earnings and profits, all distributions to our stockholders will be taxable to
them as dividend income and, subject to some limitations imposed by the Code,
corporate distributees may be eligible for the "dividends received deduction."
Our failure to qualify as a REIT could substantially reduce the cash available
for distributions to stockholders. Unless entitled to relief under specific
statutory provisions, whose availability would depend on the circumstances of
our disqualification, we also would be disqualified from electing taxation as a
REIT for the four taxable years following the year during which we became
disqualified.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
GENERAL
Congress recently passed the Jobs and Growth Tax Relief Reconciliation Act
of 2003 (the "New Tax Act") which reduces the maximum individual tax rate for
certain dividends from 35% to 15% and reduces the maximum individual tax rate
for capital gains from 20% to 15%. The 15% tax rate will apply to the following
dividends paid by our company to our U.S. Stockholders other than corporations:
(1) capital gains distributions; (2) dividends attributable to dividends
received by our company from corporations that are not REITs, such as taxable
REIT subsidiaries and (3) dividends attributable to income that was retained by
our company and subject to tax at regular corporate tax rates. All other
dividends will be subject to ordinary income tax rates.
As long as we qualify as a REIT, distributions made to our taxable U.S.
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends or otherwise eligible for the maximum tax
rate of 15% described above), or otherwise treated by us as a dividend, will
constitute dividends taxable at ordinary income tax rates. No dividends received
deduction will be allowed with respect to our dividend distributions.
Distributions that we designate as capital gain dividends will be taxed as
long-term gains from the sale or exchange of a capital asset (to the extent they
do not exceed our actual net capital gain for the taxable year) without regard
to the period for which the stockholder has held its stock. In the event we
designate any portion of a dividend as a capital gain dividend, a stockholder's
share of that capital gain dividend will be an amount which bears the same ratio
to the total amount of dividends paid to that stockholder for the taxable year
as the total amount of capital gain dividends bears to the total amount of all
dividends paid on all classes of stock for that taxable year. However, corporate
stockholders may be required to treat up to 20% of some capital gain dividends
as ordinary income. We may elect to retain and pay income tax on any net
long-term capital gain, in which case our U.S. Stockholders would include in
their income as long-term capital gain their proportionate share of that
undistributed net long-term capital gain. A U.S. Stockholder would also receive
a refundable tax credit for its proportionate share of the tax paid by us on any
retained net long-term capital gains and an increase in its basis in our stock
in an amount equal to the difference between the undistributed net long-term
capital gains and the amount of tax paid by us. See "--Capital Gains and
Losses," below. If we should elect to retain any net long-term capital gains in
this fashion, we will notify each U.S. Stockholder of the relevant tax
information within 60 days after the close of the applicable taxable year.
Distributions in excess of our current and accumulated earnings and profits
and not treated by us as a dividend will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of that stockholder's stock,
but rather will reduce the adjusted basis of that stock. To the extent that
those distributions exceed the adjusted basis of a stockholder's stock, they
will be treated as a capital gain realized from the taxable disposition of those
shares and will be included in income as short-term or long-tern capital gain,
depending on the length of time those shares have been held. In addition, as
previously noted, any dividend declared by us in
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October, November or December of any year and payable to a stockholder of record
on a specific date in any of those months will be treated as both paid by us and
received by the stockholder on December 31 of that year, provided that the
dividend is actually paid by us during January of the following calendar year.
U.S. Stockholders may not include any of our net operating losses or
capital losses in their individual income tax returns. Instead, we will carry
those losses forward for potential offset against future income, subject to some
limitations. Our distributions and gain realized by stockholders from the sale
or exchange of shares of our common stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders that are individuals,
estates, trusts, personal service corporations, or closely held C corporations
generally will not be able to apply any "passive losses" against that income and
gain.
U.S. Stockholders other than corporations who borrow funds to finance their
acquisition of our common stock may be limited in the amount of deductions
allowed for the interest paid on the indebtedness so incurred. Interest paid or
accrued on indebtedness incurred or continued to purchase or carry property held
for investment is generally deductible only to the extent of the investor's net
investment income. Our ordinary dividend distributions generally will be treated
as investment income for this purpose. Capital gain dividends and capital gains
realized by a stockholder from the disposition of shares of our common stock
(including distributions treated as such), however, will be treated as
investment income only if the stockholder so elects, in which case the capital
gains will be taxed at ordinary income rates. Distributions treated as a
nontaxable return of the U.S. Stockholder's investment in our common stock and
that reduce the U.S. Stockholder's basis in our common stock will not enter into
the computation of net investment income. We will notify stockholders after the
close of our taxable year as to the portions of distributions attributable to
that year that constitute ordinary dividend income, return of capital, capital
gain and dividends subject to the maximum 15% tax rate.
CAPITAL GAINS AND LOSSES
In general, a U.S. Stockholder will recognize capital gain or loss on the
taxable sale or exchange of shares of our common stock in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received in that sale or exchange, and (ii) the stockholder's adjusted
basis in the shares of our common stock sold or exchanged. That gain or loss
generally will constitute short-term capital gain or loss if the stockholder has
not held those shares for more than one year and long-term capital gain or loss
if the stockholder has held those shares for more than one year. In general,
loss realized upon a sale or exchange of shares of our common stock by a
stockholder who has held the common stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions received from us required to be treated by that
stockholder as long-term capital gain and allocations to the stockholder of our
undistributed long-term capital gains. Any loss realized upon a disposition of
shares may also be disallowed under the rules relating to wash sales.
The New Tax Act reduced the maximum marginal ordinary income tax rate
applicable to individuals, estates and trusts to 35% commencing with calendar
year 2003. The maximum tax rate on net capital gains applicable to individuals,
trusts and estates from the sale or exchange of capital assets held for more
than one year has been reduced to 15% by the New Tax Act. The maximum rate
applicable to individuals, estates and trusts for net capital gains attributable
to the sale of depreciable real property held for more than one year is 25% to
the extent of the deductions for depreciation (other than certain depreciation
recapture taxable as ordinary income) with respect to the property. In addition,
the characterization of gross income as either capital gain or ordinary income
may affect the deductibility of capital losses. Capital losses not offset by
capital gains may be deducted against a noncorporate taxpayer's ordinary income
only up to a maximum annual amount of $3,000. Unused capital losses may be
carried forward. All net capital gain of a corporate taxpayer is subject to tax
at regular corporate rates. A corporate taxpayer can deduct capital losses only
to the extent of capital gains; unused capital losses may be carried back three
years and forward five years.
IRS Notice 97-64 provides temporary guidance with respect to the taxation
of distributions by REITs that are designated as capital gain dividends.
According to Notice 97-64, forthcoming temporary Treasury Regulations will
provide that capital gains allocated to a stockholder by us may be designated as
a 15% rate gain distribution or a 25% rate gain distribution. Unless we
specifically designate otherwise, a distribution designated as a capital gain
dividend is presumed to be a 15% rate gain distribution. If we elect to retain
any net long-term capital gain, as
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discussed above, the undistributed net long-term capital gains are considered to
be designated as capital gain dividends for purposes of Notice 97-64.
Furthermore, Notice 97-64 provides that our designations of capital gain
dividends will only be effective to the extent that the distributions with
respect to our different classes of stock are composed proportionately of
ordinary dividends and capital gain dividends.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A U.S. Stockholder may be subject to "backup withholding" with respect to
certain "reportable payments," including dividend payments and, under certain
circumstances, proceeds from the sale or other disposition of our common stock.
The backup withholding rate has been reduced to 28%. Backup withholding
generally will not apply, however, to a U.S. Stockholder who furnishes a correct
taxpayer identification number or who is otherwise exempt from backup
withholding, such as a corporation. Generally, a U.S. Stockholder will provide
this information on Form W-9. In addition, we may be required to withhold a
portion of capital gain distributions made to any U.S. Stockholders who fail to
certify their non-foreign status to us. See "--Taxation of Non-U.S.
Stockholders," below. Any amounts withheld under the foregoing rules will be
creditable against the U.S. Stockholder's federal income tax liability provided
that the proper information is timely furnished to the IRS. We will report to
U.S. Stockholders and to the IRS the amount of any "reportable payments" we make
each calendar year and the amount of tax we withhold, if any, with respect to
such payments.
TAXATION OF TAX-EXEMPT U.S. STOCKHOLDERS
U.S. Stockholders otherwise exempt from United States federal income
taxation are nevertheless taxable on their unrelated business taxable income, or
UBTI to the extent that UBTI from all sources exceeds $1,000 in any taxable
year. Dividends (including REIT distributions treated as dividends) and gains
realized from the sale or disposition of stock (other than stock held as
inventory, stock held primarily for sale to customers in the ordinary course of
business, or stock otherwise used in an unrelated trade or business) are
generally not treated as UBTI. However, dividends and gains that would otherwise
be exempt will, with limited exceptions, be included in UBTI to the extent that
the property generating that income is subject to "acquisition indebtedness"
(i.e., indebtedness that would not have been incurred but for the acquisition or
improvement of the property). Thus, a portion of the dividends received and
gains realized by a tax-exempt investor with respect to our common stock may be
treated as UBTI if the tax-exempt investor incurs indebtedness to purchase or
carry our shares or if the tax-exempt investor holds the shares for sale to
customers or as inventory, or otherwise uses the shares in an unrelated trade or
business.
Qualified trusts that hold more than 10% (by value) of the shares of
certain REITs may be required to treat a certain percentage of such REIT's
distributions as UBTI. This requirement will apply only if (i) treating
qualified trusts holding REIT shares as individuals would result in a
determination that the REIT is "closely held" within the meaning of Section
856(h)(1) of the Code and (ii) the REIT is "predominantly held" by qualified
trusts. A REIT is predominantly held if either (i) a single qualified trust
holds more than 25% by value of the REIT interests or (ii) one or more qualified
trusts, each owning more than 10% by value of the REIT interests, hold in the
aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A DE MINIMIS exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code. The restrictions on ownership of shares in our
articles of incorporation will prevent application of the provisions treating a
portion of REIT distributions as UBTI to tax-exempt entities purchasing our
shares, absent a waiver of the restrictions by our board of directors. See
"Description of Capital Stock - Restrictions on Ownership."
The tax discussion of distributions to qualified retirement plans, IRAs,
Keogh plans and other tax-exempt entities is beyond the scope of this
discussion, and such entities should consult their own tax advisors regarding
such questions.
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TAXATION OF NON-U.S. STOCKHOLDERS
GENERAL
The rules governing the United States federal income taxation of the
ownership and disposition of our common stock by Non-U.S. Stockholders are
complex and this discussion does not purport to provide more than a summary of
those rules. PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE IMPACT OF UNITED STATES FEDERAL, STATE, AND LOCAL
INCOME TAX LAWS ON AN INVESTMENT IN SHARES OF OUR COMMON STOCK, INCLUDING ANY
REPORTING REQUIREMENTS, AS WELL AS THE TAX TREATMENT OF SUCH AN INVESTMENT UNDER
THE LAWS OF NON-U.S. JURISDICTIONS.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income taxation with respect to their investment in shares of our common
stock in the same manner as a U.S. Stockholder if the investment is "effectively
connected" with the conduct by such Non-U.S. Stockholder of a trade or business
in the United States. A Non-U.S. Stockholder that is a corporation and that
receives income with respect to its investment in shares of our common stock
that is (or is treated as) "effectively connected" with the conduct of a trade
or business in the United States may also be subject to the "branch profits tax"
imposed under the Code, which is payable in addition to the regular federal
corporate income tax. The branch profits tax is imposed at a rate of 30%,
subject to reduction in some cases by applicable income tax treaties. The
following discussion addresses only the federal income taxation of Non-U.S.
Stockholders whose investment in shares of our common stock is not "effectively
connected" with the conduct of a trade or business in the United States.
Prospective investors whose investment in shares of our common stock may be
"effectively connected" with the conduct of a United States trade or business
should consult their own tax advisors as to the tax consequences of that
investment.
Distributions that are not attributable to gain from sales or exchanges of
United States real property interests and that are not designated by us as
capital gains dividends will, to the extent that they are made out of our
current or accumulated earnings and profits or are otherwise treated as
dividends, ordinarily be subject to a withholding tax equal to 30% of the gross
amount of the distribution, unless an applicable tax treaty reduces that tax. A
Non-U.S. Stockholder who wishes to claim the benefit of an applicable treaty
rate will be required to satisfy certain certification and other requirements; a
Non-U.S. Stockholder ordinarily will provide that certification on Form W-8BEN.
Distributions that we make in excess of our current and accumulated earnings and
profits and that are not otherwise treated as dividends will not be taxable to a
Non-U.S. Stockholder to the extent they do not exceed the adjusted basis of the
Non-U.S. Stockholder's shares, but rather will reduce the adjusted basis of the
shares (but not below zero). However, distributions in excess of our current and
accumulated earnings and profits will be subject to withholding at a rate of
10%. To the extent that the distributions exceed the adjusted basis of a
Non-U.S. Stockholder's shares, they will give rise to tax liability if such
Non-U.S. Stockholder would otherwise be subject to tax on any gain from the sale
or disposition of shares, as described below.
A distribution in excess of our current and accumulated earnings and
profits may be subject to withholding at the 30% rate (or at a lower rate
prescribed by an applicable treaty) if at the time of the distribution it cannot
be determined whether the distribution will be in an amount in excess of our
current and accumulated earnings and profits. If it is subsequently determined
that the distribution is, in fact, in excess of our current and accumulated
earnings and profits and the distribution is not otherwise treated as a
dividend, the Non-U.S. Stockholder may seek a refund from the IRS if the amount
withheld exceeded the Non-U.S. Stockholder's federal income tax liability, if
any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Stockholder as if the gain were
effectively connected with the Non-U.S. Stockholder's conduct of a United States
trade or business. Non-U.S. Stockholders would thus be taxed at the normal
capital gain rates applicable to domestic stockholders, without regard as to
whether such distributions are designated by us as capital gain dividends. Also,
these distributions may be subject to a branch profits tax at a rate of up to
30% in the hands of a corporate Non-U.S. Stockholder. We are required to
withhold 35% of any distribution to a Non-U.S. Stockholder that could be
designated by us as a capital gain dividend. In addition, for purposes of this
withholding rule, if we designate prior distributions as capital gain dividends,
then subsequent distributions, up to the amount of the prior distributions, will
be treated as capital gain
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dividends. The amount of any tax so withheld is creditable against the Non-U.S.
Stockholder's federal income tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of our shares
generally will not be subject to United States federal income taxation so long
as, at all times during a specified testing period, less than 50% of the value
of our stock is held directly or indirectly by Non-U.S. Stockholders. We believe
that we will meet this test following the completion of the offering and,
therefore, that gain from the sale of our common stock by a Non-U.S. Stockholder
will not be subject to taxation under these rules. Even if we do meet this test,
gain from the sale or exchange of our shares of stock nonetheless will be
subject to a 30% tax if the Non-U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States.
If we do not meet the ownership test described in the preceding paragraph,
whether gain arising from the sale or exchange by a Non-U.S. Stockholder of
shares of our common stock would be subject to federal income taxation will
depend on whether our shares are regularly traded (as defined in applicable
Treasury Regulations) on an established securities market and on the size of the
selling Non-U.S. Stockholder's interest in us. If the gain on the sale of our
common stock were to be subject to federal income taxation, the Non-U.S.
Stockholder would be subject to the same treatment as a domestic stockholder
with respect to the gain (subject to the possible application of the branch
profits tax in the case of a corporate Non-U.S. Stockholder), and the purchaser
of the common stock would be required to withhold and remit to the IRS 10% of
the purchase price.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Non-U.S. Stockholders are generally exempt from information reporting and
backup withholding, but may be required to provide a properly completed Form
W-8BEN or otherwise comply with the applicable certification and identification
procedures in order to prove their exemption. Any amount paid as backup
withholding will be creditable against the Non-U.S. Stockholder's federal income
tax liability.
OTHER TAX CONSIDERATIONS
STATE, LOCAL AND NON-U.S. TAXES
We and our stockholders may be subject to taxation in various state,
local or non-U.S. jurisdictions, including those in which we or they transact
business or reside. State, local and non-U.S. taxation may not conform to the
federal income tax consequences discussed above. CONSEQUENTLY, PROSPECTIVE
STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF
STATE, LOCAL AND NON-U.S. TAX LAWS ON ANY INVESTMENT IN OUR COMMON STOCK.
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with an
investment in us by a pension, profit sharing or other employee benefit plan
subject to Title I of ERISA or Section 4975 of the Code. THE FOLLOWING IS MERELY
A SUMMARY, HOWEVER, AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE OR AS COMPLETE
IN ALL RELEVANT RESPECTS. ALL INVESTORS ARE URGED TO CONSULT THEIR LEGAL
ADVISORS BEFORE INVESTING ASSETS OF AN EMPLOYEE PLAN IN OUR COMPANY AND TO MAKE
THEIR OWN INDEPENDENT DECISIONS.
PLAN CONSIDERATIONS
A fiduciary considering investing assets of an employee plan in us should
consult its legal advisor about ERISA, fiduciary and other legal considerations
before making such an investment. Specifically, before investing in us, any
fiduciary should, after considering the employee plan's particular
circumstances, determine whether the investment is appropriate under the
fiduciary standards of ERISA or other applicable law including standards with
respect to prudence, diversification and delegation of control and the
prohibited transaction provisions of ERISA and the Code. See "An Investment in
Our Common Stock May Not be Suitable for Every Employee Benefit Plan." In making
those determinations, you should take into account, among the other factors
described in this prospectus
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that, as described below, we do not expect that our assets will constitute the
"plan assets" of any investing employee plan, so that neither we nor any of our
principals, agents, employees, or affiliates will be a fiduciary as to any
investing employee plan.
ERISA and the Code do not define "plan assets." However, regulations
promulgated under ERISA by the United States Department of Labor, or the "DOL
Plan Asset Regulations," generally provide that when an employee plan acquires
an equity interest in an entity that is neither a "publicly-offered security"
nor a security issued by an investment company registered under the Investment
Company Act of 1940, as amended, the employee plan's assets include both the
equity interest in the entity and an undivided interest in each of the
underlying assets of the entity, unless it is established either that equity
participation in the entity by "benefit plan investors" is not "significant" or
that the entity is an "operating company," in each case as defined in the DOL
Plan Asset Regulations.
Under the DOL Plan Asset Regulations, a security is a "publicly-offered
security" if it is freely transferable, part of a class of securities that is
widely-held, and either (i) part of a class of securities registered under
section 12(b) or 12(g) of the Securities Exchange Act of 1934 or (ii) sold to an
employee plan as part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act of 1933 and the class
of securities of which that security is a part is registered under the
Securities Exchange Act of 1934 within 120 days (or that later time as may be
allowed by the Securities and Exchange Commission) after the end of the fiscal
year of the issuer during which the offering of those securities to the public
occurred. "Widely-held" for this purpose means the security is of a class owned
by 100 or more investors independent of the issuer and of one another. "Freely
transferable," again for purposes of the DOL Plan Asset Regulations, is a
question to be determined on the basis of all relevant facts and circumstances
but, where the minimum investment is $10,000 or less, is ordinarily not
adversely affected by some enumerated restrictions including restrictions
against any transfer which would result in a termination or reclassification of
the issuer for federal tax purposes.
For purposes of the DOL Plan Asset Regulations, equity participation in an
entity by benefit plan investors is not "significant" if their aggregate
interest is less than 25% of the value of each class of equity securities in the
entity, disregarding, for purposes of such determination, any interests held by
persons, and their affiliates, who have discretionary authority or control with
respect to the assets of the entity or who provide investment advice for a fee
with respect to such assets. Benefit plan investors, for these purposes, include
employee plans and certain other types of plans, such as governmental plans, not
subject to Title I of ERISA.
The definition of "operating company" in the DOL Plan Asset Regulations
includes, among other things, a "real estate operating company," or a REOC. In
general, an entity may qualify as a REOC if (i) at least 50% of its assets
valued at cost, other than short-term investments pending long-term commitment
or distribution to investors are invested in real estate which is managed or
developed and with respect to which the entity has the right to substantially
participate directly in the management or development activities and (ii) such
entity in the ordinary course of its business is engaged directly in real estate
management or development activities.
If our assets were deemed to be "plan assets" of employee plans whose
assets were invested in us, whether as a result of the application of the DOL
Plan Asset Regulations or otherwise, Subtitle A and Parts 1 and 4 of Subtitle B
of Title I of ERISA and Section 4975 of the Code would extend to our
investments. This would result, among other things, in (i) the application of
the prudence and other fiduciary standards of ERISA, which impose liability on
fiduciaries, to investments made by us, which could materially affect our
operations, (ii) potential liability of persons having investment discretion
over the assets of the employee plans investing in us should our investments not
conform to ERISA's prudence and fiduciary standards under Part 4 of Subtitle B
of Title I of ERISA, unless certain conditions are satisfied, and (iii) the
possibility that certain transactions that we might enter into in the ordinary
course of our business and operation might constitute "prohibited transactions"
under ERISA and the Code. A prohibited transaction, in addition to imposing
potential personal liability upon fiduciaries of the employee plans, may also
result in the imposition of an excise tax under the Code upon the "party in
interest," as defined in ERISA, or "disqualified person," as defined in the
Code, with whom the employee plan engaged in the transaction, and correction or
unwinding of the transaction.
Subject to the following, although we will not be obtaining an opinion of
counsel, we believe that after this offering our stock should qualify as a
"publicly offered security" under the DOL Plan Asset Regulations.
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While there are restrictions imposed on the transfer of our stock, we
believe they are the type of restrictions on transfer generally permitted under
the DOL Plan Asset Regulations or are not otherwise material and should not
result in the failure of our stock to be "freely transferable" within the
meaning of the DOL Plan Asset Regulations. We also believe that certain
restrictions on transfer that derive from the securities laws in connection with
this offering should not result in the failure of our stock to be "freely
transferable." Furthermore, we are not aware of any other facts or circumstances
limiting the transferability of our stock that are not included among those
enumerated as not affecting their free transferability under the DOL Plan Asset
Regulations, and we do not expect to impose in the future (or to permit any
person to impose on our behalf) any other limitations or restrictions on
transfer that would not be among the enumerated permissible limitations or
restrictions.
Assuming that our stock is "widely held" within the meaning of the DOL Plan
Asset Regulations and that no facts and circumstances other than those referred
to in the preceding paragraph exist that restrict transferability of our stock,
we believe that, under the DOL Plan Asset Regulations, our stock should be
considered "publicly offered securities" after this offering, and, therefore,
that our underlying assets should not be deemed to be plan assets of any benefit
plan investors that choose to invest in us.
ANNUAL VALUATION
A fiduciary of an employee benefit plan subject to ERISA is required to
determine annually the fair market value of each asset of the plan as of the end
of the plan's fiscal year and to file a report reflecting that value with the
Department of Labor. When the fair market value of any particular asset is not
available, the fiduciary is required to make a good faith determination of that
asset's "fair market value" assuming an orderly liquidation at the time the
determination was made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary subject to
ERISA must act consistently with the relevant provisions of the plan and general
fiduciary standards of ERISA.
Unless and until our shares are listed on a national securities exchange or
over-the-counter market, it is not expected that a public market for the shares
will develop. To date, neither the Internal Revenue Service nor the Department
of Labor has promulgated regulations specifying how a plan fiduciary should
determine the "fair market value" of shares when the fair market value of the
shares is not determined in the marketplace. Therefore, to assist fiduciaries in
fulfilling their valuation and annual reporting responsibilities with respect to
ownership of our shares, we intend to provide reports of our annual
determinations of the current value of our net assets per outstanding share to
those fiduciaries (including IRA trustees and custodians) who identify
themselves to us and request the reports. Until this offering terminates, we
intend to use the offering price of shares as the per share net asset value.
After this offering terminates, the value of our assets will be based on a
valuation that we will perform internally.
We anticipate that we will provide annual reports of our determination of
value (1) to IRA trustees and custodians not later than January 15 of each year
and (2) to other benefit plan fiduciaries with 75 days after the end of each
calendar year. Each determination may be based upon valuation information
available as of October 31 of the preceding year, up-dated, however, for any
material changes occurring between October 31 and December 31.
Plan and IRA fiduciaries will remain responsible to determine in their own
judgment fair market value for applicable reporting purposes, taking into
account the information we provide. We cannot assure you:
- that the value determined by us could or will actually be realized by
us or by stockholders upon liquidation (in part because appraisals or
estimated values do not necessarily indicate the price at which
assets could be sold and because no attempt will be made to estimate
the expenses of selling any of our assets);
- that stockholders could realize this value if they were to attempt to
sell their shares; or
- that the value, or the method used to establish value, would comply
with the ERISA or IRA requirements described above.
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SUMMARY OF REINVESTMENT PLAN
We currently have a dividend reinvestment plan available that allows you to
have the dividends otherwise distributable to you invested in additional shares.
A plan administrator, currently Boston Capital Services, Inc., the
Dealer-Manager, will act on behalf of the participants in the reinvestment plan.
Stockholders may purchase shares under our dividend reinvestment plan for
$10 per share until all of the shares registered as part of this offering have
been sold or this offering otherwise terminates. After that time, shares will be
available for the plan either through purchases made by the plan administrator
on the open market, if a market then exists, or through additional issuances of
shares. At any time that we are not engaged in an offering, and until our shares
are listed on a national securities exchange or market, the price per share
purchased pursuant to the plan will be the fair market value of the shares as
determined by the Advisor in its sole discretion, based on quarterly appraisal
updates of our properties. (Following the termination of this offering, the per
share fair market value of our properties, at least initially, may be less than
the $10 per share offering price.) After listing, if any, the price per share
will be equal to the then prevailing market price on the national securities
exchange or market on which the shares are listed at the date of purchase. In
connection with shares purchased by participants in the dividend reinvestment
plan, we will pay the Dealer-Manager selling commissions of seven percent and a
dealer-manager fee of two and one-half percent of the purchase price of the
shares. Up to seven percent of the selling commissions and up to one and
one-half percent of the dealer-manager fee may be reallowed by the
Dealer-Manager to participating broker-dealers. In the event that proceeds from
the sale of shares to participants are used to acquire interests in communities,
we will pay the Advisor or its affiliates acquisition and advisory fees and
expenses of three and one-half percent of the purchase price of the shares. The
administrative charge for each plan participant for each fiscal quarter will be
the lesser of 5% of the amount reinvested for the participant or $2.50, with a
minimum charge of $0.50. The maximum annual charge is $10.00. A copy of our
reinvestment plan as currently in effect is included as Exhibit A to this
prospectus.
Stockholders may elect to participate in the dividend reinvestment plan by
completing the subscription agreement, or by other written notice to the plan
administrator. Boston Capital Holdings Limited Partnership and its affiliates
are not eligible to participate in the reinvestment plan. Participation in the
plan will begin with the next distribution made after receipt of the
participant's written notice. We may terminate the plan for any reason at any
time upon ten days' prior written notice to participants. A participant's
participation in the plan will also be terminated to the extent that a
reinvestment of the participant's dividends in our shares would cause the
percentage ownership limitation contained in our articles of incorporation to be
exceeded. In addition, participants may terminate their participation in the
dividend reinvestment plan at any time by providing us with written notice.
If a stockholder elects to participate in the dividend reinvestment plan
and is subject to federal income taxation, the stockholder will incur a tax
liability for dividends allocated to him or her even though the stockholder has
elected not to receive the dividends in cash but rather to have the dividends
withheld and reinvested pursuant to the plan. Specifically, the stockholder will
be treated as if he or she has received the dividend from us in cash and then
applied such dividend to the purchase of additional shares. The stockholder will
be taxed on the amount of such dividend as ordinary income to the extent such
dividend is from current or accumulated earnings and profits, unless we have
designated all or a portion of the dividend as a capital gain dividend or the
dividend is eligible for the maximum 15% tax rate. See "Material United States
Federal Income Tax Considerations - Taxation of Taxable U.S. Stockholders."
SHARE REDEMPTION PROGRAM
Prior to the time that our shares are listed on a national securities
exchange or market, stockholders (other than Boston Capital Holdings Limited
Partnership and its affiliates) who have held their shares for at least one
year, and who purchased their shares from us or received the shares through a
non-cash transaction, not in the secondary market, may receive the benefit of
limited interim liquidity by presenting for redemption all or any portion of
their shares to us at any time in accordance with the procedures outlined below.
At that time, we may, subject to the conditions and limitations described below,
redeem the shares presented for redemption for cash to the extent that we have
sufficient funds available to us to fund such redemption.
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If you have held your shares for the required one-year period, and we are
engaged in an offering, the redemption price will equal the lesser of (i) the
then-current offering price per share less a discount approximating the
commissions and fees paid to brokers when the shares were originally acquired
from the company or (ii) the purchase price per share you actually paid for your
shares. For example, if the then-current offering price is $10.00 per share, the
redemption price will equal the lesser of (i) $9.15 per share or (ii) the
purchase price per share that you actually paid for your shares. During periods
when we are not engaged in an offering, the per share price of our common stock,
for purposes of repurchase, will be based on periodic updates on the value of
our properties, as the board of directors reasonably determines based upon
market conditions. Accordingly, the repurchase prices paid to stockholders for
shares of common stock repurchased by us during periods when we are not engaged
in an offering may vary over time. Our board of directors will announce any
price adjustment and the time period of its effectiveness as a part of its
regular communications with stockholders.
In the event that you are redeeming all of your shares, shares purchased
pursuant to our dividend reinvestment plan may be excluded from the foregoing
one-year holding period requirement, in the discretion of our board of
directors. Our board of directors reserves the right in its sole discretion at
any time and from time to time to (i) change the purchase price for redemptions
or (ii) otherwise amend the terms of our share redemption program. In addition,
our board of directors has delegated to our officers the right to (i) waive the
one-year holding period in the event of the death or bankruptcy of a stockholder
or other exigent circumstances or (ii) reject any request for redemption at any
time and for any reason.
Redemption of shares, when requested, will be made quarterly on a
first-come, first-served basis. Subject to funds being available, we will limit
the number of shares redeemed pursuant to our share redemption program as
follows: (i) during any calendar year, we will not redeem in excess of 3.0% of
the weighted average number of shares outstanding during the prior calendar
year; and (ii) funding for the redemption of shares will come exclusively from
the proceeds we receive from the sale of shares under our dividend reinvestment
plan such that in no event shall the aggregate amount of redemptions under our
share redemption program exceed aggregate proceeds received from the sale of
shares pursuant to our dividend reinvestment plan. The board of directors, in
its sole discretion and after 30 days' written notice to stockholders, may
choose to terminate the share redemption program or to reduce the number of
shares purchased under the share redemption program if it determines the funds
otherwise available to fund our share redemption program are needed for other
purposes. (See "Risk Factors - Risks Related to this Offering.")
We cannot guarantee that the funds set aside for our share redemption
program will be sufficient to accommodate all requests made in any year. If we
do not have such funds available, at the time when redemption is requested, you
can (i) withdraw your request for redemption or (ii) ask that we honor your
request at such time, if any, when sufficient funds become available. Such
pending requests will be honored on a first-come, first-served basis.
Our share redemption program is only intended to provide interim liquidity
for stockholders until a secondary market develops for the shares. No such
market currently exists, and we cannot assure you that any market for your
shares will ever develop. The share redemption program will terminate if a
secondary market develops for the shares.
The shares we redeem under our share redemption program will be cancelled,
and will be held as treasury stock. We will not resell such shares to the public
unless they are first registered with the Securities and Exchange Commission
under the Securities Act of 1933 and under appropriate state securities laws or
otherwise sold in compliance with such laws.
SELLING AND ESCROW ARRANGEMENTS
SELLING ARRANGEMENTS
We are offering a maximum of 30,000,000 shares at $10 per share on a "best
efforts" basis through Boston Capital Services, Inc., the Dealer-Manager. "Best
efforts" means generally that the Dealer-Manager is required to use only its
best efforts to sell the shares and it has no firm commitment or obligation to
purchase any of the shares. We are also offering up to an additional 1,500,000
shares to be issued pursuant to our dividend reinvestment plan at
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$10 per share. No shares will be sold unless subscriptions from the public for
at least 3,000,000 shares are received and accepted by _____________, 2004.
The Dealer-Manager is a registered broker-dealer affiliated with our
management and with the Advisor. If the minimum offering is sold, we will pay
the Dealer-Manager as compensation selling commissions of seven percent of the
public offering price of the shares sold in this offering ($0.70 per share). We
will also pay the Dealer-Manager a dealer-manager fee of two and one-half
percent of the public offering price of the shares sold as compensation for
acting as the Dealer-Manager and for expenses incurred in connection with
coordinating sales efforts, training of personnel and generally performing
"wholesaling" functions. We will not pay referral or similar fees to any
accountants, attorneys or other persons in connection with the distribution of
the shares. Stockholders who elect to participate in the dividend reinvestment
plan will be charged selling commissions and dealer-manager fees on shares
purchased pursuant to the dividend reinvestment plan.
The Dealer-Manager may authorize certain other broker-dealers who are
members of the NASD to sell shares. In the event of the sale of shares by such
other broker-dealers, the Dealer-Manager may reallow its commissions in the
amount of up to seven percent of the gross offering proceeds to such
participating broker-dealers. In addition, the Dealer-Manager, in its sole
discretion, may reallow to broker-dealers participating in the offering its
dealer-manager fee in the amount of up to one and one-half percent of gross
offering proceeds to be paid to such participating broker-dealers as marketing
fees and as reimbursement of BONA FIDE due diligence expense, based on such
factors as the number of shares sold by such participating broker-dealers and
the assistance of such participating broker-dealers in marketing the offering.
We anticipate that the total underwriting compensation, including sales
commissions, the dealer-manager fee and underwriting expenses, will not exceed
nine and one-half percent of gross offering proceeds.
We have agreed to indemnify the participating broker-dealers, including the
Dealer-Manager, against certain liabilities arising under the Securities Act of
1933, as amended. The Dealer-Manager and the participating broker-dealers may be
deemed underwriters as that term is defined in the Securities Act of 1933.
The broker-dealers participating in the offering of our shares are not
obligated to obtain any subscriptions on our behalf, and we cannot assure you
that any shares will be sold.
Our executive officers and directors, as well as officers and employees of
the Advisor or other affiliates, may purchase shares offered in this offering at
a discount. The purchase price for such shares will be $9.30 per share
reflecting the fact that selling commissions in the amount of $0.70 per share
will not be payable in connection with such sales. The net offering proceeds we
receive will not be affected by such sales of shares at a discount. Any
purchases of shares by our executive officers or directors or by officers or
employees of the Advisor or other affiliates will not be considered in order to
meet the minimum offering. The Advisor and its affiliates will be expected to
hold their shares purchased as stockholders for investment and not with a view
towards distribution.
If you choose to buy shares in this offering, you must complete a
subscription agreement like the one attached to this prospectus as Exhibit B. In
completing the subscription agreement, you will be making certain
acknowledgments - that you received a copy of this prospectus not less than five
business days prior to your signing the subscription agreement, that you meet
the investor suitability standards described in the "Investor Suitability
Standards" section of this prospectus, that you are purchasing the shares for
your own account, that the shares are not liquid and that there are restrictions
on their assignability and transferability. We ask you to make these
acknowledgments to further our obligations under federal and state securities
laws not to sell the shares to investors for whom an investment in our company
would be unsuitable, and to evidence our efforts to fulfill those obligations if
any of the acknowledgments you make turns out to be untrue.
You should pay for your shares by check payable to "Wainwright Bank & Trust
Escrow Account." Subscriptions will be effective only upon our acceptance, and
we reserve the right to reject any subscription in whole or in part. We may not
accept a subscription for shares until at least five business days after the
date you receive this prospectus. You will receive a confirmation of your
purchase. Except for purchases pursuant to our dividend reinvestment plan, all
accepted subscriptions must be for whole shares and for not less than 100 shares
($1,000). (See "Investor Suitability Standards.") After investors have satisfied
the minimum purchase requirement,
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minimum additional purchases must be in increments of at least 10 shares ($100),
except for purchases made pursuant to our dividend reinvestment plan.
Investors who desire to establish an IRA for purposes of investing in
shares may do so by having Wainwright Bank & Trust Co., an independent,
qualified bank IRA custodian, act as their IRA custodian. In the event that an
IRA is established having Wainwright Bank & Trust Co. as the IRA custodian, the
authority of Wainwright Bank & Trust Co. will be limited to holding the shares
on behalf of the beneficiary of the IRA and making distributions or
reinvestments in shares solely at the discretion of the beneficiary of the IRA.
Wainwright Bank & Trust Co. will not have the authority to vote any of the
shares held in an IRA except strictly in accordance with the written
instructions of the beneficiary of the IRA.
The offering of shares will terminate no later than ____________, 2005. We
reserve the right to terminate this offering at any time prior to such
termination date.
The proceeds of this offering will be received and held in trust for the
benefit of purchasers of shares to be used only for the purposes set forth in
the "Estimated Use of Proceeds" section of this prospectus. Subscriptions will
be accepted or rejected within 30 days of receipt by us, and if rejected, all
funds will be returned to the rejected subscribers within ten business days.
We may sell shares to retirement plans of broker-dealers participating in
the offering, to broker-dealers in their individual capacities, to IRAs and
qualified plans of their registered representatives or to any one of their
registered representatives in their individual capacities for 93% of the public
offering price in consideration of the services rendered by such broker-dealers
and registered representatives in the offering. The net proceeds to us from such
sales will be identical to net proceeds we receive from other sales of shares.
In connection with sales of 50,000 or more shares ($500,000) to a
"purchaser" as defined below, a participating broker-dealer may agree in his or
her sole discretion to reduce the amount of his or her selling commissions. Such
reduction will be credited to the purchaser by reducing the total purchase price
payable by such purchaser. The following table illustrates the various discount
levels available:
[Enlarge/Download Table]
SALES COMMISSIONS DEALER-
DOLLAR VOLUME ------------------------- PURCHASE PRICE MANAGER FEE NET PROCEEDS
SHARES PURCHASED PERCENT PER SHARE PER SHARE PER SHARE PER SHARE
---------------- ------- --------- -------------- ----------- ------------
Under $500,000 7.0% $ 0.7000 $ 10.0000 $ 0.25 $ 9.05
$500,000 - $999,999 5.0% $ 0.4895 $ 9.7895 $ 0.25 $ 9.05
$1,000,000 and Over 3.0% $ 0.2876 $ 9.5876 $ 0.25 $ 9.05
For example, if an investor purchases 100,000 shares, he could pay as
little as $958,760 rather than $1,000,000 for the shares, in which event the
commission on the sale of such shares would be $28,760 ($0.2876 per share), and,
after payment of the dealer-manager fee, we would receive net proceeds of
$905,000 ($9.05 per share). The net proceeds to us will not be affected by
volume discounts.
Because all investors will be deemed to have contributed the same
amount per share to our company for purposes of declaring and paying dividends,
an investor qualifying for a volume discount will receive a higher return on his
investment than investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the
volume discounts in the case of subscriptions made by any "purchaser," as that
term is defined below, provided all such shares are purchased through the same
broker-dealer. The volume discount shall be prorated among the separate
subscribers considered to be a single "purchaser." Any request to combine more
than one subscription must be made in writing, and must set forth the basis for
such request. Any such request will be subject to verification by the Advisor
that all of such subscriptions were made by a single "purchaser."
For purposes of such volume discounts, the term "purchaser" includes:
141
- an individual, his or her spouse and their children under the age of
21 who purchase the units for his, her or their own accounts;
- a corporation, partnership, association, joint-stock company, trust
fund or any organized group of persons, whether incorporated or not;
- an employees' trust, pension, profit sharing or other employee
benefit plan qualified under Section 401(a) of the Internal Revenue
Code; and
- all commingled trust funds maintained by a given bank.
In addition, in order to encourage purchases in the amount of 500,000
or more shares, the Advisor and the Dealer-Manager may in their discretion agree
with a potential purchaser who proposes to purchase at least 500,000 shares to
further reduce the selling commissions payable with respect to the sale of such
shares. All such sales must be made through registered broker-dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of shares made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to
this Rule, volume discounts can be made available to California residents only
in accordance with the following conditions:
- there can be no variance in the net proceeds to us from the sale of
the shares to different purchasers of the same offering;
- all purchasers of the shares must be informed of the availability of
quantity discounts;
- the same volume discounts must be allowed to all purchasers of shares
which are part of the offering;
- the minimum amount of shares as to which volume discounts are allowed
cannot be less than $10,000;
- the variance in the price of the shares must result solely from a
different range of commissions, and all discounts allowed must be
based on a uniform scale of commissions; and
- no discounts are allowed to any group of purchasers.
Accordingly, volume discounts for California residents will be available in
accordance with the foregoing table of uniform discount levels based on dollar
volume of shares purchased, but no discounts are allowed to any group of
purchasers, and no subscriptions may be aggregated as part of a combined order
for purposes of determining the number of shares purchased.
Investors who, in connection with their purchase of shares, have
engaged the services of a registered investment advisor with whom the investor
has agreed to pay a fee for investment advisory services in lieu of normal
commissions based on the volume of securities sold may agree with the
participating broker-dealer selling such shares and the Dealer-Manager to reduce
the amount of selling commissions payable with respect to such sale to zero. The
net proceeds to us will not be affected by eliminating the commissions payable
in connection with sales to investors purchasing through such investment
advisors. All such sales must be made through registered broker-dealers.
Neither the Dealer-Manager nor its affiliates will directly or
indirectly compensate any person engaged as an investment advisor by a potential
investor as an inducement for such investment advisor to advise favorably for
investment in our company.
In addition, subscribers for shares may agree with their participating
broker-dealers and the Dealer-Manager to have selling commissions due with
respect to the purchase of their shares paid over a six-year period
142
pursuant to a deferred commission arrangement. Stockholders electing the
deferred commission option will be required to pay a total of $9.40 per share
purchased upon subscription, rather than $10.00 per share, with respect to which
$0.10 per share will be payable as commissions due upon subscription. For the
period of six years following subscription, or longer if required to satisfy
outstanding deferred commission obligations, $0.10 per share shall will be
deducted on an annual basis from cash distributions otherwise payable to the
stockholders and used by us to pay deferred commission obligations. The net
proceeds to us will not be affected by the election of the deferred commission
option. The foregoing commission amounts may be adjusted with approval of the
Dealer-Manager by application of the volume discount provisions described
previously. In the event the stockholder sells or assigns his or her shares
before all outstanding deferred commissions are paid, the stockholder will be
required to pay all remaining deferred commissions as a condition to the sale or
assignment of the shares.
Stockholders electing the deferred commission option who are subject
to federal income taxation will incur tax liability for dividends or other cash
distributions otherwise payable to them with respect to their shares even though
such dividends or other cash distributions will be withheld from such
stockholders and will instead be paid to third parties to satisfy sales
commission obligations.
Investors who wish to elect the deferred commission option should make
the election on their subscription agreement signature page. Election of the
deferred commission option will authorize us to withhold cash distributions
otherwise payable to such stockholder for the purpose of paying commissions due
under the deferred commission option, provided, however, that in no event may we
withhold in excess of $0.60 per share in the aggregate under the deferred
commission option. Such cash distributions otherwise payable to stockholders may
be pledged by us or by the Dealer-Manager or its affiliates to secure one or
more loans, the proceeds of which would be used to satisfy sales commission
obligations.
In the event that, at any time prior to the satisfaction of our
remaining deferred commission obligations, listing of the shares occurs or is
reasonably anticipated to occur, or we begin a liquidation of our properties,
the remaining commissions due under the deferred commission option may be
accelerated by us. In either such event, we will provide notice of any such
acceleration to stockholders who have elected the deferred commission option. In
the event of listing, the amount of the remaining commissions due shall be
deducted and paid by us out of cash distributions otherwise payable to such
stockholders during the time period prior to listing. To the extent that the
distributions during such time period are insufficient to satisfy the remaining
commissions due, our obligation and that of our stockholders to make any further
payments of deferred commissions under the deferred commission option will
terminate, and participating broker-dealers will not be entitled to receive any
further portion of their deferred commissions following listing of our shares.
In the event of a liquidation of our properties, the amount of remaining
commissions due shall be deducted and paid by us out of distributions or net
sale proceeds otherwise payable to stockholders who are subject to any such
acceleration of their deferred commission obligations.
ESCROW ARRANGEMENTS
During the course of the offering, subscription payments will be deposited
and held in trust for the benefit of the purchasers of shares in an escrow
account or accounts with Wainwright Bank & Trust Co. as escrow agent. These
proceeds may be temporarily invested in bank time deposits, certificates of
deposit, bank money market accounts and government securities. Offering proceeds
deposited may not be withdrawn by purchasers.
If investors subscribe for at least 3,000,000 shares by _______________,
2004, we will have an initial closing of this offering and the funds in escrow
will be released to our company. If subscriptions for fewer than 3,000,000
shares are received and accepted by _______________, 2004, the offering will be
terminated and all subscription payments will be returned to the subscribers.
Following the initial closing, the escrow agent will, at our direction, release
subscription payments with respect to subscriptions subsequent to completion of
the minimum offering to our company as soon as we have raised sufficient
additional funds to purchase additional communities.
Upon each closing (including the initial closing) of the offering (or its
termination, if subscriptions for at least 3,000,000 shares are not received and
accepted by ___________, 2004), a subscriber for shares will be entitled to
receive an amount equal to the amount of the interest earned on his or her
subscription proceeds held in the escrow account from the date after such
proceeds were received in the escrow account until but not including the closing
(or termination) date. Such interest distribution will be made within 75 days of
the end of the fiscal quarter
143
following the relevant closing date, and will be made prior to, and without
regard to, any distributions from our company to which stockholders are entitled
as described under "Distribution Policy." In the case of interest due to
subscribers upon termination of this offering because the minimum has not been
met, such distributions will be made promptly following such termination. The
current interest rate is ___%.
MARKET FOR OUR STOCK
Before this offering, there has been no public market for our common stock.
The initial public offering price was determined by our board of directors after
consultation with the Dealer-Manager. In addition to prevailing market
conditions, the factors considered in determining the initial public offering
price were
- the prospects for our company and the industry in which we compete,
- an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
Following this offering, our shares will not be listed on any securities
exchange, and there are no assurances that any market for the shares will
develop. Therefore, it will be difficult for you to sell your shares promptly.
In addition, the price received for any shares sold is likely to be less than
the proportionate value of the real estate we own. It is also possible that
after the offering, the price received for any shares sold will be less than the
initial public offering price.
SUPPLEMENTAL SALES MATERIAL
In addition to this prospectus, we may use certain sales material in
connection with the offering of the shares, although only when accompanied by or
preceded by the delivery of this prospectus. In certain jurisdictions, some or
all of such sales material may not be available. This material may include
information relating to this offering, the past performance of the Advisor and
its affiliates, property brochures and articles and publications concerning real
estate. In addition, this sales material may contain certain quotes from various
publications without obtaining the consent of the author or the publication for
use of the quoted material in the sales material.
This offering of shares is made only by means of this prospectus. Although
the information contained in such sales material will not conflict with any of
the information contained in this prospectus, such material does not purport to
be complete, and should not be considered a part of this prospectus or the
registration statement of which this prospectus is a part, or as incorporated by
reference into this prospectus or such registration statement or as forming the
basis of the offering of the shares.
EXPERTS
Certain of the financial statements appearing in this prospectus and the
registration statement of which it is a part have been audited by Reznick Fedder
& Silverman, independent certified public accountants, as set forth in their
report thereon appearing elsewhere in this prospectus and in the registration
statement and are included in reliance upon that report, given upon the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares offered by this prospectus has been passed upon
for us by Nixon Peabody LLP. The statements under the caption "Material United
States Federal Income Tax Considerations" as they relate to federal income tax
matters have been reviewed by Nixon Peabody LLP. Nixon Peabody LLP has
represented the Advisor and the Dealer-Manager, as well as their affiliates, in
other matters and may continue to do so in the future. (See "Conflicts of
Interest.")
144
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-11, including exhibits, schedules and amendments filed with
this registration statement, under the Securities Act of 1933 with respect to
the shares of our common stock to be sold in this offering. This prospectus does
not contain all of the information set forth in the registration statement and
exhibits and schedules to the registration statement. For further information
with respect to our company and the shares of our common stock to be sold in
this offering, reference is made to the registration statement, including the
exhibits and schedules to the registration statement. Statements contained in
this prospectus as to the contents of any contract or other document referred to
in this prospectus are not necessarily complete and, where that contract is an
exhibit to the registration statement, each statement is qualified in all
respects by reference to the exhibit to which the reference relates. Copies of
the registration statement, including the exhibits and schedules to the
registration statement, as well as periodic reports and other information filed
by us in the future, may be examined without charge at the public reference room
of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549. Information about the operation of the public reference
room may be obtained by calling the Securities and Exchange Commission at
1-800-SEC-0300. Copies of all or a portion of the registration statement can be
obtained from the public reference room of the Securities and Exchange
Commission upon payment of prescribed fees. In addition, the Securities and
Exchange Commission maintains a Web site at www.sec.gov that contains reports
and other information filed electronically with the Commission, including our
registration statement.
We will establish an internet-accessible area for our company on the Web
site of Boston Capital Corporation, www.bostoncapital.com.
145
INDEX TO FINANCIAL STATEMENTS
BCMR Seattle, Inc.
TABLE OF CONTENTS
[Download Table]
PAGE
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2002 F - 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
PERIOD JANUARY 1, 2003 THROUGH MAY 15, 2003 (UNAUDITED)
AND FOR THE PERIOD NOVEMBER 1, 2002 (INCEPTION)
THROUGH DECEMBER 31, 2002 F - 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S
EQUITY FOR THE PERIOD JANUARY 1, 2003 THROUGH MAY 15, 2003
(UNAUDITED) AND FOR THE PERIOD NOVEMBER 1, 2002
(INCEPTION) THROUGH DECEMBER 31, 2002 F - 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD
JANUARY 1, 2003 THROUGH MAY 15, 2003 (UNAUDITED) AND FOR
THE PERIOD NOVEMBER 1, 2002 (INCEPTION) THROUGH
DECEMBER 31, 2002 F - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
MAY 15, 2003 (UNAUDITED) AND DECEMBER 31, 2002 F - 7
F-1
[REZNICK FEDDER & SILVERMAN LOGO] 2002 Summit Boulevard
Reznick Fedder & Silverman Suite 1000
Certified Public Accountants - Atlanta, GA 30319- 1470
A Professional Corporation 404.847.9447 Phone
404.847.9495 Fax
www.rfs.com
INDEPENDENT AUDITORS' REPORT
To the Shareholders
of BCMR Seattle, Inc.
We have audited the accompanying consolidated balance sheet of BCMR
Seattle, Inc. (a Maryland corporation) and subsidiaries as of December 31, 2002,
and the related consolidated statements of operations, changes in shareholder's
equity, and cash flows for the period from November 1, 2002 (inception) through
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BCMR
Seattle, Inc. and subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the period from November 1, 2002 (inception)
through December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
August 28, 2003
ATLANTA - BALTIMORE - BETHESDA - CHARLOTTE
F-2
BCMR Seattle, Inc.
CONSOLIDATED BALANCE SHEET
December 31, 2002
[Download Table]
ASSETS
REAL ESTATE
Land $ 8,814,219
Buildings and improvements 43,766,927
Personal property 435,127
-------------
53,016,273
Less accumulated depreciation 47,923
-------------
52,968,350
OTHER ASSETS
Cash 25,425
Accounts receivable - tenants 39,066
Deferred tax asset 53,268
Tenants' security deposits 124,564
Reserve account 140,571
Real estate tax and insurance escrows 131,729
Financing costs, net of accumulated amortization of $25,995 753,844
Capital improvements escrow 1,058,925
Other assets 99,268
-------------
$ 55,395,010
=============
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable $ 45,970,000
Accounts payable and accrued expenses 25,259
Unearned rental revenue 33,479
Tenants' security deposits 124,567
-------------
46,153,305
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 100 shares authorized, issued
and outstanding 1
Additional paid-in capital 9,325,983
Accumulated deficit (84,279)
-------------
9,241,705
-------------
$ 55,395,010
=============
See notes to consolidated financial statements
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
[Download Table]
FOR THE PERIOD
FOR THE PERIOD FROM NOVEMBER
FROM JANUARY 1, 1, 2002
2003 THROUGH (INCEPTION)
MAY 15, 2003 THROUGH
(TERMINATION) DECEMBER 31,
(UNAUDITED) 2002
--------------- -----------------
TOTAL REVENUE $ 2,657,943 $ 338,218
--------------- -----------------
OPERATING COSTS
Property operating costs 888,129 48,822
General and administrative 101,312 2,054
Depreciation and amortization 497,664 73,918
Other expenses 119,557 229,103
--------------- -----------------
1,606,662 353,897
--------------- -----------------
OPERATING INCOME (LOSS) 1,051,281 (15,679)
Interest expense (913,735) (121,868)
--------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES 137,546 (137,547)
Benefit from (provision for) income taxes (53,268) 53,268
--------------- -----------------
NET INCOME (LOSS) $ 84,278 $ (84,279)
=============== =================
See notes to consolidated financial statements
F-4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the period from January 1, 2003 through May 15, 2003 (termination)
(unaudited) and for the period from November 1, 2002 (inception) through
December 31, 2002
[Enlarge/Download Table]
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
Shares issued 100 $ 1 $ 9,325,983 $ - $ 9,325,984
Net loss - - - (84,279) (84,279)
----------- ----------- ----------- ----------- -----------
Balance as of
December 31, 2002 100 1 9,325,983 (84,279) 9,241,705
Net income (unaudited) - - - 84,278 84,278
Return of capital (unaudited) - - (9,325,983) - (9,325,983)
----------- ----------- ----------- ----------- -----------
Balance as of
May 15, 2003
(termination)
(unaudited) 100 $ 1 $ - $ (1) $ -
=========== =========== =========== =========== ===========
See notes to consolidated financial statements
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
FOR THE PERIOD FOR THE PERIOD
FROM JANUARY 1, FROM NOVEMBER
2003 1, 2002
THROUGH MAY 15, (INCEPTION)
2003 THROUGH
(TERMINATION) DECEMBER 31,
(UNAUDITED) 2002
----------------- ----------------
Cash flows from operating activities
Net income (loss) $ 84,278 $ (84,279)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 497,664 73,918
Gain on sale of net real estate assets (43,192) -
Deferred taxes 53,268 (53,268)
(Increase) decrease in accounts receivable - tenants 35 (39,066)
(Increase) decrease in prepaid expenses (164,949) -
(Increase) decrease in tenants' security deposits - asset 15,805 (124,564)
(Increase) decrease in reserve account - (140,571)
(Increase) decrease in real estate taxes and insurance escrows (9,328) (131,729)
(Increase) decrease in other assets (466,307) (99,268)
Increase (decrease) in accounts payable and accrued expenses 158,100 25,259
Increase (decrease) in unearned rental revenue (7,144) 33,479
Increase (decrease) in tenants' security deposits - liability (13,846) 124,567
----------------- ----------------
Net cash provided by (used in) operating activities 104,384 (415,522)
----------------- ----------------
Cash flows from investing activities
(Increase) decrease in capital improvements escrow (129,809) (211,785)
Proceeds from sale of net real estate assets 9,325,983 -
Real estate acquisition costs - (7,893,413)
----------------- ----------------
Net cash provided by (used in) investing activities 9,196,174 (8,105,198)
----------------- ----------------
Cash flows from financing activities
Paid in capital - 9,325,984
Distributions (9,325,983) -
Financing fees paid - (779,839)
----------------- ----------------
Net cash provided by (used in) financing activities (9,325,983) 8,546,145
----------------- ----------------
NET INCREASE (DECREASE) IN CASH (25,425) 25,425
Cash, beginning 25,425 -
----------------- ----------------
Cash, end $ - $ 25,425
================= ================
Interest paid $ 913,735 $ 121,868
================= ================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of real estate through debt assumption $ - $ 45,122,860
================= ================
Funding of capital improvements escrow through debt assumption $ - $ 847,140
================= ================
Sale of net assets
Real estate and other assets sold $ 55,295,983 $ -
Debts assumed (45,970,000) -
----------------- -----------------
$ 9,325,983 $ -
================= ================
See notes to consolidated financial statements
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BCMR Seattle, Inc. (the Company), a Maryland corporation, was formed on
November 1, 2002. The Company is a real estate company engaged in the
acquisition, ownership, management, and operation of market rate multifamily
properties throughout the United States. The Company was capitalized by
issuing 100 shares of $.01 par value common stock with a price of $93,259.84
which resulted in initial proceeds of $9,235,984.
As of December 31, 2002, the Company owned four properties (the "Communities")
in Washington, consisting of 802 units.
[Enlarge/Download Table]
OCCUPANCY
AS OF
PROPERTY NAME CITY, STATE # OF UNITS DATE ACQUIRED APRIL 30, 2003
-----------------------------------------------------------------------------------------------
Alderwood Park Apartments Lynwood, WA 188 December 16, 2002 86%
Ridgegate Apartments Kent, WA 153 December 16, 2002 96%
Ridgetop Apartments Silverdale, WA 221 December 16, 2002 95%
Wellington Apartments Silverdale, WA 240 December 16, 2002 95%
A summary of significant accounting policies follows.
BASIS OF ACCOUNTING
The financial statements have been prepared using the accrual method of
accounting. As such, revenue is recorded when earned and expenses are
recognized when incurred.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that acquisitions be accounted for by the
purchase method as well as other requirements. The Company accounts for real
estate acquisitions in accordance with SFAS No. 141. All in-place
property-tenant leases are one year or less and are considered operating
leases. Lease rental rates approximate market rents; therefore, the purchase
price is allocated to land and improvements and no contract-based intangible
assets, liabilities, or commitments are recognized.
F-7
PRINCIPLES OF CONSOLIDATION
The Company controls, through ownership and by agreement, the Operating
Limited Liability Company and its respective subsidiaries, all of which are
consolidated within the Company for financial reporting purposes. All
intercompany accounts and transactions have been eliminated in consolidation.
BCMR Seattle, Inc., controls BCMR Seattle, A Limited Partnership, which
controls BC-GFS, LLC (an operating limited liability company) whose
wholly-owned subsidiaries own legal fee simple title to the communities.
ACCOUNTS RECEIVABLE
Tenant receivables are reported net of an allowance for doubtful accounts.
Management's estimate of the allowance is based on historical collection
experience and a review of the current status of tenant accounts receivable.
It is reasonably possible that management's estimate of the allowance will
change.
REVENUE RECOGNITION
Tenant leases are classified as operating leases. Rental income attributable
to leases is recorded when due from tenants and is recognized monthly as it is
earned, which is not materially different than on a straight-line basis.
Leases between a tenant and property for the rental of an apartment unit are
generally year-to-year, renewable upon consent of both parties on an annual or
monthly basis. Advanced receipts of rental income are deferred and classified
as liabilities until earned. Interest income is recorded on an accrual basis.
REAL ESTATE
Real estate is carried at cost. Depreciation is computed under the
straight-line method using service lives of 7 years for personal property and
40 years for buildings and improvements.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Company reviews real estate for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. No impairment has been recorded as of December
31, 2002.
AMORTIZATION
Financing costs are amortized over the term of the respective mortgage loans
using the effective interest method.
F-8
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. The recognition of deferred tax assets is reduced, if
necessary, by a valuation allowance for the amount of any tax benefits that,
based on available evidence, are not expected to be realized. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
ORGANIZATION COSTS
Organization costs are expensed in the period incurred.
RECENT ACCOUNTING PRONOUNCEMENTS AND INTERPRETATIONS
In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation
of Variable Interest Entities." FIN 46 clarifies existing accounting for
whether interest entities should be consolidated in financial statements based
upon the investee's ability to finance its activities without additional
financial support and whether investors possess characteristics of a
controlling financial interest. FIN No. 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003 and apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. The Company controls the
underlying real estate entities and already presents its financial statements
on a consolidated basis; therefore, adoption of FIN No. 46 is not expected to
have a material effect on the consolidated financial position or consolidated
results of operations.
F-9
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145, among other items, rescinds the automatic
classification of costs incurred on debt extinguishment as extraordinary
charges. Instead, gains and losses from debt extinguishment should only be
classified as extraordinary if they meet the unusual and infrequently
occurring criteria outlined in APB No. 30. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. The Company adopted the standard
effective January 1, 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting, for Costs Associated
with Exit or Disposal Activities," which addresses accounting and processing
for costs associated with exit or disposal activities. SFAS No. 146 requires
the recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits to
an exit plan. In addition, SFAS No. 146 states that the liability should be
initially measured at fair value. The requirements of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December
31, 2002. This pronouncement is not expected to have a material impact on the
Company's financial position or results of operations.
The FASB has issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions," which is effective for certain transactions arising on or after
October 1, 2002. SFAS No. 147 will have no impact on the Company.
The FASB has issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company does not currently have stock-based employee
compensation.
F-10
FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others - an interpretation of FASB Statements No. 5, 57, and 107 and
rescission of FASB Interpretation No. 34," was issued in November 2002. FIN 45
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. FIN 45 does not prescribe
a specific approach for subsequently measuring the guarantor's recognized
liability over the term of the related guarantee. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year end. The disclosure requirements in FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company has made the disclosures required by FIN 45.
NOTE B - NOTES PAYABLE
[Enlarge/Download Table]
Note payable to Berkshire Mortgage Finance Limited Partnership. The note bears interest
at 4.67% and matures on January 1, 2008. Monthly interest only payments of $147,300 are
required beginning February 1, 2003. The note is secured by a first mortgage on the
Communities and an interest in BC GFS, LLC. $ 37,850,00
Note payable to Berkshire/WAFRA Mezzanine Debt Investors Foreign Fund. The note bears
interest at 12% and matures on December 31, 2007. Monthly principal and interest
payments of $86,084 are required beginning February 1, 2003 with a balloon payment due
at maturity. Amortization is calculated based on a 25-year term. Upon maturity, the
Company can either make a balloon payment for any unpaid principal or convert the note
to a fixed or floating interest rate term loan. The note is secured by a second
mortgage on the Communities and interest in the BC GFS, LLC. 8,120,00
------------------
$ 367,760,000
==================
Aggregate maturities of the above notes payable for the next five years and
thereafter are as follows:
[Download Table]
December 31, 2003 $ 40,831
2004 43,105
2005 51,632
2006 58,276
2007 7,926,156
Thereafter 37,850,000
---------------
Total $ 45,970,000
===============
F-11
NOTE C - RELATED PARTY TRANSACTIONS
During the period from January 1, 2003 through May 15, 2003, property
management fees of $82,918 were paid to an affiliate of BC GFS, LLC; no
management fees were paid during the period from November 1, 2002 through
December 31, 2002.
NOTE D - INCOME TAXES
The components of income tax expense are as follows:
[Download Table]
(UNAUDITED)
2003 2002
------------- --------------
Current $ - $ -
Deferred 53,268 (53,268)
------------- --------------
$ 53,268 $ (53,268)
============= ==============
In 2002, the Company incurred a net operating loss of approximately $138,000,
which is available to offset future income. A deferred tax asset of $53,268
was established at December 31, 2002 based on the net operating loss available
to be carried forward, a federal tax rate of 34% and a state tax rate of 7%.
The deferred tax asset was fully used in 2003.
NOTE E - SUBSEQUENT EVENT
On May 15, 2003 Boston Capital Real Estate Investment Trust, Inc. acquired all
assets, liabilities, contracts, leases, rights, and titles previously held by
BCMR Seattle, Inc., which ceased operations. Boston Capital Real Estate
Investment Trust, Inc. executed a note payable of $9,325,983 payable to BCP
Funding LLC, a related party, in order to complete this transaction. BCMR
Seattle, Inc. recognized a gain of $43,192 upon the sale and returned all
capital to its shareholder. The gain is included in total revenue on the
consolidated statements of operations.
F-12
Boston Capital Real Estate Investment Trust, Inc.
successor to
BCMR Seattle, Inc.
CONSOLIDATED BALANCE SHEET
September 30, 2003
(Unaudited)
[Enlarge/Download Table]
ASSETS
REAL ESTATE
Land $ 29,033,389
Buildings and improvements 127,870,229
Personal property 4,206,122
--------------
161,109,740
Less accumulated depreciation 1,802,882
--------------
$ 159,306,858
OTHER ASSETS
Cash 853,813
Accounts receivable - tenants 178,564
Prepaid expenses 161,702
Utility deposits 40,900
Tenants' security deposits 386,278
Reserve account 1,801,794
Real estate taxes and insurance escrows 1,279,909
Financing costs, net of accumulated amortization of $215,235 3,213,126
Replacement reserve 290,628
Portfolio reserve 910,440
Capital improvements escrow 9,844,984
Other reserves 1,270,983
--------------
$ 179,539,979
==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Line of credit, affiliate $ 56,596,665
Notes payable 120,649,396
Accounts payable and accrued expenses 806,643
Management fee payable 164,567
Real estate taxes payable 783,972
Unearned rental revenue 125,483
Tenant security deposits 362,878
--------------
179,489,604
--------------
SHAREHOLDER'S EQUITY
Common stock, $.001 par value, 20,000 shares authorized, issued and outstanding 20
Additional paid-in capital 199,980
Accumulated deficit (149,625)
--------------
50,375
--------------
$ 179,539,979
F-13
CONSOLIDATED STATEMENT OF OPERATIONS
For the period from May 15, 2003 (inception) through September 30, 2003
(Unaudited)
[Download Table]
TOTAL REVENUE $ 10,293,568
------------
OPERATING COSTS
Property operating costs 4,101,973
General and administrative 603,287
Depreciation and amortization 2,018,117
Other expenses 898,636
------------
7,622,013
OPERATING INCOME 2,671,555
Interest expense (2,821,180)
============
NET LOSS $ (149,625)
============
F-14
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
For the period from May 15, 2003 (inception) through September 30, 2003
(Unaudited)
[Enlarge/Download Table]
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
Shares issued 20,000 $ 20 $ 199,980 $ $ 200,000
Net loss - - - (149,625) (149,625)
----------- ----------- ----------- ----------- -----------
Balance as of
September 30, 2003 20,000 $ 20 $ 199,980 $ (149,625) $ 50,375
=========== =========== =========== =========== ===========
F-15
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from May 15, 2003 (inception) through September 30, 2003
(Unaudited)
[Download Table]
Cash flows from operating activities
Net income (loss) $ (149,625)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation and amortization 2,018,117
(Increase) decrease in accounts receivable - tenants (178,564)
(Increase) decrease in prepaid expenses (161,702)
(Increase) decrease in utility deposits (40,900)
(Increase) decrease in tenants' security deposits - asset (386,278)
(Increase) decrease in reserve account (314,846)
(Increase) decrease in real estate taxes and insurance escrows (223,652)
(Increase) decrease in replacement reserve (50,784)
(Increase) decrease in portfolio reserve (159,090)
(Increase) decrease in capital improvements escrow (1,720,314)
(Increase) decrease in other reserves (222,092)
Increase (decrease) in accounts payable and accrued expenses 806,643
Increase (decrease) in management fee payable 164,567
Increase (decrease) in real estate taxes payable 783,972
Increase (decrease) in unearned rental revenue 125,483
Increase (decrease) in tenants' security deposits - liability 362,878
--------------
Net cash provided by operating activities 653,813
--------------
Cash flows from financing activities
Proceeds from sale of common stock 200,000
--------------
Net cash provided by financing activities 200,000
--------------
NET INCREASE IN CASH 853,813
Cash, beginning -
--------------
Cash, end $ 853,813
==============
Interest paid $ 2,821,180
==============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Real estate assets acquired $ 161,109,740
Escrows funded 14,399,098
Financing costs incurred 3,428,361
Debts assumed (177,256,113)
Other liabilities assumed (1,681,086)
--------------
Net $ -
==============
See notes to consolidated financial statements
F-16
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from May 15, 2003 (inception) through September 30, 2003
(Unaudited)
[Download Table]
Transfer of assets and assumption of debt
Assets assigned to company -
Debts assumed by company -
--------------
-
==============
Cash paid for interest $ 2,821,180
==============
See notes to consolidated financial statements
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Boston Capital Real Estate Investment Trust, Inc. (the "Company"), a Maryland
corporation, was formed on May 2, 2003. The Company is a real estate company
engaged in the acquisition, ownership, management, and operation of market
rate multifamily properties. The Company has elected to be taxed as a real
estate investment trust. The Company was initially capitalized by offering
20,000 shares of $.001 par value common stock to an affiliated entity. The
offer price of $10 per share resulted in gross proceeds of $200,000.
As of September 30, 2003, the Company owned three portfolios of properties as
follows:
The Seattle Portfolio consists of four apartment communities containing 802
apartment units as follows:
[Enlarge/Download Table]
OCCUPANCY
AS OF
NUMBER SEPTEMBER 30,
PROPERTY NAME CITY, STATE OF UNITS DATE ACQUIRED 2003
------------------------------------------------------------------------------------------
Alderwood Park Apartments Lynwood, WA 188 May 15, 2003 96%
Ridgegate Apartments Kent, WA 153 May 15, 2003 94%
Ridgetop Apartments Silverdale, WA 221 May 15, 2003 98%
Wellington Apartments Silverdale, WA 240 May 15, 2003 98%
The Portland Portfolio consists of three apartment communities containing
1,027 apartment units as follows:
[Enlarge/Download Table]
OCCUPANCY
NUMBER AS OF SEPTEMBER
PROPERTY NAME CITY, STATE OF UNITS DATE ACQUIRED 30, 2003
--------------------------------------------------------------------------------------------
Boulder Creek Apartments Portland, OR 296 May 30, 2003 92%
Bridge Creek Apartments Portland, OR 228 May 30, 2003 92%
Settler's Point Apartments Salt Lake City, UT 416 May 30, 2003 93%
F-18
The Jacksonville Portfolio consists of three apartment communities containing
1,040 apartment units as follows:
[Enlarge/Download Table]
OCCUPANCY
AS OF
NUMBER SEPTEMBER 30,
PROPERTY NAME CITY, STATE OF UNITS DATE ACQUIRED 2003
------------------------------------------------------------------------------------------
Bay Pointe Apartments Jacksonville, FL 300 May 22, 2003 88%
Oaks at Timuquana Apartments Jacksonville, FL 228 May 22, 2003 92%
Spicewood Springs Apartments Jacksonville, FL 512 May 28, 2003 95%
A summary of significant accounting policies follows.
BASIS OF ACCOUNTING
The consolidated financial statements have been prepared using the accrual
method of accounting.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that acquisitions be accounted for by the
purchase method as well as other requirements. The Company accounts for real
estate acquisitions in accordance with SFAS No. 141. All in-place
property-tenant leases are one year or less and are considered operating
leases. Lease rental rates approximate market rents, therefore the purchase
price is allocated to land and improvements and no contract-based intangible
assets, liabilities, or commitments are recognized.
F-19
PRINCIPLES OF CONSOLIDATION
The Company controls, through ownership and by agreement, the operating
limited liability companies and their respective subsidiaries, all of which
are consolidated within the Company for financial reporting purposes. All
intercompany accounts and transactions have been eliminated in consolidation.
Boston Capital Real Estate Investment Trust, Inc. controls BCMR Seattle, A
Limited Partnership, which controls BC-GFS LLC (an operating limited liability
company), whose wholly-owned subsidiaries own legal fee simple title to the
Seattle Portfolio Communities.
Boston Capital Real Estate Investment Trust, Inc. is the sole member of BCMR
Jacksonville, LLC, which controls BC-Bainbridge LLC (an operating limited
liability company) whose wholly-owned subsidiaries own legal fee simple title
to the Jacksonville Portfolio Communities.
Boston Capital Real Estate Investment Trust, Inc. is the sole member of BCMR
Portland, LLC, which controls BC-GFS II LLC (an operating limited liability
company), whose wholly-owned subsidiaries own legal fee simple title to the
Portland Portfolio Communities.
ACCOUNTS RECEIVABLE
Tenant receivables are reported net of an allowance for doubtful accounts.
Management's estimate of the allowance is based on historical collection
experience and a review of the current status of tenant accounts receivable.
It is reasonably possible that management's estimate of the allowance will
change.
REVENUE RECOGNITION
Tenant leases are classified as operating leases. Rental income attributable
to leases is recorded when due from tenants and is recognized monthly as it is
earned, which is not materially different from on a straight-line basis.
Leases between a tenant and property for the rental of an apartment unit are
generally year-to-year, renewable upon consent of both parties on an annual or
monthly basis. Advanced receipts of rental income are deferred and classified
as liabilities until earned. Interest income is recorded on an accrual basis.
F-20
REAL ESTATE AND ACQUISITIONS
Real estate is carried at cost. Depreciation is computed under the
straight-line method using service lives of seven years for personal property
and 40 years for buildings and improvements. Depreciation expense for the
period from May 15, 2003 (inception) through September 30, 2003 was
$1,802,882.
On May 15, 2003, the company acquired all assets, liabilities, contracts,
leases, rights, and titles to the Seattle portfolio from BCMR Seattle, Inc.,
who is the predecessor for accounting purposes. Assets and liabilities were
recorded by the Company at fair value, which is not materially different than
the predecessor's historical cost, established at the original purchase during
December 2002.
The Company accounts for real estate acquisitions using the purchase method of
accounting. The purchase price is allocated to land, buildings and
improvements, and personal property, based on consideration of the assessed
value of the property at the time of acquisition, valuations of comparable
properties, and market replacement costs considerations. The results of
operations of the acquired properties are included in the statement of
operations as of the acquisition date.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Company reviews real estate for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
INCOME TAXES
The Company operates in a manner intended to qualify as a real estate
investment trust for federal income tax purposes. A trust which distributes at
least 90% of its real estate investment trust taxable income to its
shareholders each year and which meets certain other conditions will not be
taxed on that portion of its taxable income which is distributed to its
shareholders. Therefore, federal income taxes are expected to be immaterial.
The Company is obligated for state taxes, generally consisting of franchise or
gross receipts taxes in certain states and are expected to be immaterial.
AMORTIZATION
Financing costs are amortized over the term of the respective mortgage loans
using the effective interest method.
F-21
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS AND INTERPRETATIONS
In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation
of Variable Interest Entities." FIN 46 clarifies existing accounting for
whether interest entities should be consolidated in financial statements based
upon the investee's ability to finance its activities without additional
financial support and whether investors possess characteristics of a
controlling financial interest. FIN No. 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003 and apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. The Company controls the
underlying real estate entities and already presents its financial statements
on a consolidated basis; therefore, adoption of FIN No. 46 is not expected to
have a material effect on the consolidated financial position or consolidated
results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145," among other items, rescinds the automatic
classification of costs incurred on debt extinguishment as extraordinary
charges. Instead, gains and losses from debt extinguishment should only be
classified as extraordinary if they meet the unusual and infrequently
occurring criteria outlined in APB No. 30. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. The Company adopted the standard
effective January 1, 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting, for Costs Associated
with Exit or Disposal Activities," which addresses accounting and processing
for costs associated with exit or disposal activities. SFAS No. 146 requires
the recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits to
an exit
See notes to financial statements
F-22
plan. In addition, SFAS No. 146 states that the liability should be initially
measured at fair value. The requirements of SFAS No. 146 are effective for
exit or disposal activities that are initiated after December 31, 2002. This
pronouncement is not expected to have a material impact on our financial
position or results of operations.
The FASB has issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions," which is effective for certain transactions arising on or after
October 1, 2002. SFAS No. 147 will have no impact on the Company.
The FASB has issued SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company does not currently have stock based employee
compensation.
FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others - an interpretation of FASB Statements No. 5, 57 and 107 and rescission
of FASB Interpretation No. 34," was issued in November 2002. FIN 45 elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it
has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year end. The disclosure requirements in FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company has made the disclosures required by FIN 45.
F-23
NOTE B - ACQUISITIONS
During the period from May 15, 2003 (inception) through September 30, 2003,
the Company acquired the Seattle, Portland, and Jacksonville portfolios
through non-cash transactions as follows:
[Enlarge/Download Table]
SEATTLE PORTLAND JACKSONVILLE TOTAL
-------------- -------------- -------------- --------------
Real estate acquired
and escrows funded $ 54,304,045 $ 61,381,069 $ 59,823,724 $ 175,508,838
Financing costs 1,307,187 1,067,506 1,053,668 3,428,361
-------------- -------------- -------------- --------------
Total assets $ 55,611,232 $ 62,448,575 $ 60,877,392 $ 178,937,199
============== ============== ============== ==============
Debt
Notes payable $ 45,952,448 $ 39,333,000 $ 35,374,000 $ 120,659,448
Affilated debt 9,325,983 22,316,616 24,954,066 56,596,665
Other liabilities assumed 332,801 798,959 549,326 1,681,086
-------------- -------------- -------------- --------------
Total liabilities $ 55,611,232 $ 62,448,575 $ 60,877,392 $ 178,937,199
============== ============== ============== ==============
See notes to financial statements
F-24
NOTE C - NOTES PAYABLE
[Enlarge/Download Table]
Note payable to Berkshire Mortgage Finance Limited Partnership. The note bears
interest at 4.67% and matures on January 1, 2008. Monthly interest only payments of
$147,300 are required beginning February 1, 2003. The note is secured by a first
mortgage and deed of trust on the Communities in the Seattle portfolio. $ 37,850,000
Note payable to Berkshire/WAFRA Mezzanine Debt Investors Foreign Fund. The note bears
interest at 12% and matures on December 31, 2007. Monthly principal and interest
payments of $86,084 are required beginning February 1, 2003 with a balloon payment due
at maturity. Amortization is calculated based on a 25 year term. Upon maturity, the
Company can either make a balloon payment for any unpaid principal or convert the note
to a fixed or floating interest rate term loan. The note is secured by a second
mortgage and deed of trust on the Communities in the Seattle portfolio. 8,092,396
Note payable to Berkshire Mortgage Finance Limited Partnership. The note bears
interest at 4.32% and matures on June 1, 2010. Monthly interest only payments of
$126,391 are required beginning July 1, 2003. The note is secured by a mortgage and
deed of trust on the Communities in the Jacksonville portfolio. 35,374,000
Note payable to Berkshire Mortgage Finance Limited Partnership. The note bears
interest at 4.52% and matures on June 1, 2010. Monthly interest only payments of
$148,154 are required beginning July 1, 2003. The note is secured by a mortgage and
deed of trust on the Communities in the Portland portfolio. 39,333,000
------------------
$ 120,649,3960
==================
See notes to financial statements
F-25
Aggregate maturities of the above notes payable for the next five years and
thereafter are as follows:
[Download Table]
September 30, 2004 $ 46,408
2005 50,080
2006 56,525
2007 63,799
2008 7,875,584
Thereafter 112,557,000
---------------
Total $ 120,649,396
===============
NOTE D - LINE OF CREDIT
The Company has a $60,000,000 line of credit with BCP Funding LLC, a related
party. The line bears "base" interest at 9.5% and "bonus" interest at 5.3% and
matures on May 31, 2004 with the option of an additional six month extension.
The line is secured by the Company's interest in BCMR Seattle, a Limited
Partnership, BCMR Jacksonville, LLC and BCMR Portland, LLC and the outstanding
shares of the company. As of September 30, 2003 $56,596,665 was outstanding on
the line.
NOTE E - RELATED PARTY TRANSACTIONS
On May 15, 2003 Boston Capital Real Estate Investment Trust, Inc. acquired all
assets, liabilities, contracts, leases, rights, and titles previously held by
BCMR Seattle, Inc., which ceased operations. Boston Capital Real Estate
Investment Trust, Inc. executed a note payable of $9,325,983 payable to BCP
Funding LLC, a related party, in order to complete this transaction.
On May 28, 2003, the Company executed notes payable of $24,954,066 and
$22,316,616 payable to BCP Funding, LLC, a related party, in order to purchase
the properties in the Jacksonville and Portland communities, respectively.
During the period from May 15, 2003 (inception) through September 30, 2003,
property management fees of $429,290 were paid to an affiliate of Boston
Capital Real Estate Investment Trust, Inc. in connection with management of
the Seattle and Portland portfolios. These fees are included in property
operating costs on the statement of operations. The Jacksonville portfolio is
managed by an unaffiliated property manager.
See notes to financial statements
F-26
NOTE F - GUARANTEES
John A. Goodman ("Guarantor"), an affiliate of the Operator of the Seattle
portfolio, has irrevocably and unconditionally guaranteed payment of the
$37,850,000 note payable related to the Seattle portfolio, whether at maturity
or earlier, by reason of acceleration or otherwise.
Boston Capital Companion Limited Partnership ("Guarantor"), an affiliate of
the Company, has irrevocably and unconditionally guaranteed payment of the
line of credit with BCP Funding, LLC, whether at maturity or earlier, by
reason of acceleration or otherwise.
See notes to financial statements
F-27
Boston Capital Real Estate Investment Trust, Inc.
successor to
BCMR Seattle, Inc.
[Enlarge/Download Table]
ASSETS
REAL ESTATE
Land $ 29,033,389
Buildings and improvements 127,870,229
Personal property 4,206,122
--------------
161,109,740
Less accumulated depreciation 1,802,882
--------------
$ 159,306,858
OTHER ASSETS
Cash 853,813
Accounts receivable - tenants 178,564
Prepaid expenses 161,702
Utility deposits 40,900
Tenants' security deposits 386,278
Reserve account 1,801,794
Real estate taxes and insurance escrows 1,279,909
Financing costs, net of accumulated amortization of $215,235 3,213,126
Replacement reserve 290,628
Portfolio reserve 910,440
Capital improvements escrow 9,844,984
Other reserves 1,270,983
--------------
$ 179,539,979
==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Line of credit, affiliate $ 56,596,665
Notes payable 120,649,396
Accounts payable and accrued expenses 806,643
Management fee payable 164,567
Real estate taxes payable 783,972
Unearned rental revenue 125,483
Tenant security deposits 362,878
--------------
179,489,604
--------------
SHAREHOLDER'S EQUITY
Common stock, $.001 par value, 20,000 shares authorized, issued and outstanding 20
Additional paid-in capital 199,980
Accumulated deficit (149,625)
--------------
50,375
--------------
$ 179,539,979
See notes to financial statements
F-28
[Download Table]
TOTAL REVENUE $ 10,293,568
--------------
OPERATING COSTS
Property operating costs 4,101,973
General and administrative 603,287
Depreciation and amortization 2,018,117
Other expenses 898,636
7,622,013
OPERATING INCOME 2,671,555
Interest expense (2,821,180)
==============
NET LOSS $ (149,625)
==============
See notes to financial statements
F-29
[Enlarge/Download Table]
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
Shares issued 20,000 $ 20 $ 199,980 $ $ 200,000
Net loss - - - (149,625) (149,625)
----------- ----------- ----------- ----------- -----------
Balance as of
September 30, 2003 20,000 $ 20 $ 199,980 $ (149,625) $ 50,375
=========== =========== =========== =========== ===========
F-30
[Download Table]
Cash flows from operating activities
Net income (loss) $ (149,625)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation and amortization 2,018,117
(Increase) decrease in accounts receivable - tenants (178,564)
(Increase) decrease in prepaid expenses (161,702)
(Increase) decrease in utility deposits (40,900)
(Increase) decrease in tenants' security deposits - asset (386,278)
(Increase) decrease in reserve account (314,846)
(Increase) decrease in real estate taxes and insurance escrows (223,652)
(Increase) decrease in replacement reserve (50,784)
(Increase) decrease in portfolio reserve (159,090)
(Increase) decrease in capital improvements escrow (1,720,314)
(Increase) decrease in other reserves (222,092)
Increase (decrease) in accounts payable and accrued expenses 806,643
Increase (decrease) in management fee payable 164,567
Increase (decrease) in real estate taxes payable 783,972
Increase (decrease) in unearned rental revenue 125,483
Increase (decrease) in tenants' security deposits - liability 362,878
--------------
Net cash provided by operating activities 653,813
--------------
Cash flows from financing activities
Proceeds from sale of common stock 200,000
--------------
Net cash provided by financing activities 200,000
--------------
NET INCREASE IN CASH 853,813
Cash, beginning -
--------------
Cash, end $ 853,813
==============
Interest paid $ 2,821,180
==============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Real estate assets acquired $ 161,109,740
Escrows funded 14,399,098
Financing costs incurred 3,428,361
Debts assumed (177,256,113)
Other liabilities assumed (1,681,086)
--------------
Net $ -
==============
See notes to financial statements
F-31
[Download Table]
Transfer of assets and assumption of debt
Assets assigned to company -
Debts assumed by company -
--------------
-
==============
Cash paid for interest $ 2,821,180
==============
See notes to financial statements
F-32
BCMR Seattle, Inc.
CONSOLIDATED BALANCE SHEET
December 31, 2002
[Download Table]
ASSETS
REAL ESTATE
Land $ 8,814,219
Buildings and improvements 43,766,927
Personal property 435,127
--------------
53,016,273
Less accumulated depreciation 47,923
--------------
52,968,350
OTHER ASSETS
Cash 25,425
Accounts receivable - tenants 39,066
Deferred tax asset 53,268
Tenants' security deposits 124,564
Reserve account 140,571
Real estate tax and insurance escrows 131,729
Financing costs, net of accumulated amortization of $25,995 753,844
Capital improvements escrow 1,058,925
Other assets 99,268
--------------
$ 55,395,010
==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable $ 45,970,000
Accounts payable and accrued expenses 25,259
Unearned rental revenue 33,479
Tenants' security deposits 124,567
--------------
46,153,305
--------------
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 100 shares authorized, issued
and outstanding 1
Additional paid-in capital 9,325,983
Accumulated deficit (84,279)
--------------
9,241,705
--------------
$ 55,395,010
==============
See notes to financial statements
F-33
Boston Capital Real Estate Investment Trust, Inc.
successor to
BCMR Seattle, Inc.
[Download Table]
FOR THE PERIOD
FROM JANUARY 1, FOR THE PERIOD
2003 THROUGH FROM NOVEMBER 1,
MAY 15, 2003 2002 (INCEPTION)
(TERMINATION) THROUGH DECEMBER
(UNAUDITED) 31, 2002
--------------- ----------------
TOTAL REVENUE $ 2,657,943 $ 338,218
--------------- ----------------
OPERATING COSTS
Property operating costs 888,129 48,822
General and administrative 101,312 2,054
Depreciation and amortization 497,664 73,918
Other expenses 119,557 229,103
--------------- ----------------
1,606,662 353,897
--------------- ----------------
OPERATING INCOME (LOSS) 1,051,281 (15,679)
Interest expense (913,735) (121,868)
--------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES 137,546 (137,547)
Benefit from (provision for) income taxes (53,268) 53,268
--------------- ----------------
NET INCOME (LOSS) $ 84,278 $ (84,279)
=============== ================
See notes to financial statements
F-34
BCMR Seattle, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
[Enlarge/Download Table]
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ----------- ------------
Shares issued 100 $ 1 $ 9,325,983 $ - $ 9,325,984
Net loss - - - (84,279) (84,279)
----------- ----------- ------------ ----------- ------------
Balance as of
December 31, 2002 100 1 9,325,983 (84,279) 9,241,705
Net income (unaudited) - - - 84,278 84,278
Return of capital (unaudited) - - (9,325,983) - (9,325,983)
----------- ----------- ------------ ----------- ------------
Balance as of
May 15, 2003
(termination)
(unaudited) 100 $ 1 $ - $ (1) $ -
=========== =========== ============ =========== ============
See notes to financial statements
F-35
Boston Capital Real Estate Investment Trust, Inc.
successor to
BCMR Seattle, Inc.
[Enlarge/Download Table]
FOR THE PERIOD FROM
JANUARY 1, 2003 FOR THE PERIOD FROM
THROUGH MAY 15, NOVEMBER 1, 2002
2003 (TERMINATION) (INCEPTION) THROUGH
(UNAUDITED) DECEMBER 31, 2002
------------------- -------------------
Cash flows from operating activities
Net income (loss) $ 84,278 $ (84,279)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation and amortization 497,664 73,918
Gain on sale of net real estate assets (43,192) -
Deferred taxes 53,268 (53,268)
(Increase) decrease in accounts receivable - tenants 35 (39,066)
(Increase) decrease in prepaid expenses (164,949) -
(Increase) decrease in tenants' security deposits - asset 15,805 (124,564)
(Increase) decrease in reserve account - (140,571)
(Increase) decrease in real estate taxes and insurance escrows (9,328) (131,729)
(Increase) decrease in other assets (466,307) (99,268)
Increase (decrease) in accounts payable and accrued expenses 158,100 25,259
Increase (decrease) in unearned rental revenue (7,144) 33,479
Increase (decrease) in tenants' security deposits - liability (13,846) 124,567
------------------ ------------------
Net cash provided by (used in) operating activities 104,384 (415,522)
------------------ ------------------
Cash flows from investing activities
(Increase) decrease in capital improvements escrow (129,809) (211,785)
Proceeds from sale of net real estate assets 9,325,983 -
Real estate acquisition costs - (7,893,413)
------------------ ------------------
Net cash provided by (used in) investing activities 9,196,174 (8,105,198)
------------------ ------------------
Cash flows from financing activities
Paid in capital - 9,325,984
Distributions (9,325,983) -
Financing fees paid - (779,839)
------------------ ------------------
Net cash provided by (used in) financing activities (9,325,983) 8,546,145
------------------ ------------------
NET INCREASE (DECREASE) IN CASH (25,425) 25,425
Cash, beginning 25,425 -
------------------ ------------------
Cash, end $ - $ 25,425
================== ==================
Interest paid $ 913,735 $ 121,868
================== ==================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of real estate through debt assumption $ - $ 45,122,860
================== ==================
Funding of capital improvements escrow through debt assumption $ - $ 847,140
================== ==================
Sale of net assets
Real estate and other assets sold $ 55,295,983 $ -
Debts assumed (45,970,000) -
------------------ ------------------
$ 9,325,983 $ -
================== ==================
See notes to financial statements
F-36
APPENDIX I
TABULAR INFORMATION CONCERNING PRIOR LIMITED PARTNERSHIPS
The information contained in the following Tables I, II, III, and III-A is
presented in conjunction with and as a supplement to the narrative summary
appearing elsewhere in this prospectus under "Prior Performance of Affiliates of
Management" and is qualified in its entirety by the information contained in
such narrative summary.
These Tables include information for the three-year period beginning January 1,
2000, and ending December 31, 2002 (five-year period ending March 31, 2003 for
Table III) relating to public programs in the aggregate sponsored our affiliates
which did not have similar investment objectives to those of the company. Our
affiliates have not sponsored prior programs, public or non-public, with
investment objectives similar to those of the company. The programs described in
these tables are programs receiving Government Assistance and originally
intended to provide, generally (1) tax benefits in the form of tax losses and
low-income housing and rehabilitation tax credits which could be used by limited
partners to offset income from other sources, (2) long-term capital appreciation
through increases in the value of the programs' investments, (3) cash
distributions from the sale or refinancing of the apartment complexes owned by
the operating partnerships, and (4) in some instances, limited cash
distributions from operations.
The programs listed in these Tables were organized our affiliates generally in a
two-tier structure. These two-tier programs consist of one investment limited
partnership (the "investment partnership") which invested in a number of limited
partnerships (the "operating partnerships"), each of which owns an apartment
complex for low- and moderate-income persons, which receives Government
Assistance. In the three-year period ending December 31, 2002, our affiliates
sponsored one public partnership. The following table identifies the number of
operating partnership interests acquired in programs sponsored by our affiliates
as of December 31, 2002:
[Enlarge/Download Table]
% EQUITY # OF OPERATING AVERAGE EQUITY
COMMITTED PARTNERSHIPS PER OPERATING
PROGRAM 12/31/02 ACQUIRED # OF STATES PARTNERSHIP
Boston Capital Tax Credit Fund IV L.P.:
Series 38 100.0% 10 7 $ 2,481,260
Series 39 100.0% 9 6 $ 2,518,836
Series 40 100.0% 16 11 $ 1,576,446
Series 41 100.0% 21 14 $ 1,341,954
Series 42 93.6% 17 9 $ 1,504,722
Series 43 52.1% 14 5 $ 1,312,224
In 1993, our affiliates formed Boston Capital Tax Credit Fund IV L.P., which was
registered under the Securities Act of 1933.
The primary investment objectives of these limited partnerships are the
preservation of the partnership's capital and the provision of current tax
benefits to investors in the form of tax credits and passive losses. Cash flow
distributions from the operating partnerships to the investment partnerships
were not an investment objective in these programs. The regulations of
government subsidy programs limit the amount of rent which may be charged to
tenants and also limit the amount of cash flow which may be distributed, even if
greater amounts of cash flow are available.
Investors in the company will not have any interest in any of the prior limited
partnerships incorporated in the tables or in any of the apartment complexes
owned by these limited partnerships.
The Tabular Information Concerning Prior Limited Partnerships and accompanying
Notes are not covered by reports of independent certified public accountants.
Additional information regarding prior public programs can be obtained upon
written request to:
Boston Capital Corporation
One Boston Place, Suite 2100
Boston, Massachusetts 02108-4406
Attn: Richard DeAgazio
I-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
Table I includes information concerning the experience of the our affiliates in
raising and investing funds for public limited partnerships not having similar
investment objectives to the company. Information is included for the sole
public offering organized between January 1, 2000 and December 31, 2002, which
invested in 87 operating partnerships. Table I presents the dollar amount
offered and raised, the percentage of the amount raised which was used to pay
offering costs and acquire investments, the percentage of leverage used and the
time frame for raising and investing funds.
Table I is presented as if all capital contributions were received and all
expenses and payments of capital were paid in the year in which the offering
closed, although such transactions occur over several years.
The Table should be read in conjunction with the introduction and accompanying
Notes.
I-2
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(ON A PERCENTAGE BASIS)
JANUARY 1, 2000 THROUGH DECEMBER 31, 2002
[Enlarge/Download Table]
PUBLIC OFFERINGS
BCTC IV BCTC IV BCTC IV BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P. L.P. L.P. L.P.
(SERIES 38) (SERIES 39) (SERIES 40) (SERIES 41) (SERIES 42) (SERIES 43)
2000 2000 2001 2001 2002 2002
Dollar amount offered(1) $ 25,431,000 $ 22,955,000 $ 26,269,250 $ 28,916,260 $ 27,442,620 $ 36,379,870
Dollar amount raised (100%) 100% 100% 100% 100% 100% 100%
Less: Offering expenses
Selling commissions and
reimbursements retained by
affiliates(2) 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Selling commissions and
reimbursements to
non-affiliates(3) 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Legal and organizational 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Total offering expenses 12.50% 12.50% 12.50% 12.50% 12.50% 12.50%
Working capital reserves 4.00% 4.00% 4.00% 4.00% 4.00 4.00%
Amount available for
investment from limited
partners 83.50% 83.50% 83.50% 83.50% 83.50% 83.50%
Acquisition fees(4) 8.50% 8.50% 8.50% 8.50% 8.50% 8.50%
Acquisition expenses(5) 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Cash payments to operating
partnerships(6) 73.00% 73.00% 73.00% 73.00% 73.00% 73.00%
Total acquisition costs 87.50% 87.50% 87.50% 87.50% 87.50% 87.50%
Mortgage financing $ 13,785,926 $ 17,115,491 $ 19,043,469 $ 21,276,688 $ 19,313,102 $ 13,870,211
Additional capital(7) $ 620,502 $ 137,684 $ 207,897 $ 126,533 $ 3,134,640 $ 1,169,837
Total other sources $ 14,406,428 $ 17,253,175 $ 19,251,366 $ 21,403,221 $ 22,447,742 $ 15,040,048
Amount available for
investment from offering
proceeds $ 22,252,125 $ 20,085,625 $ 22,985,594 $ 25,301,728 $ 24,012,293 $ 31,832,386
Total development costs $ 36,658,553 $ 37,338,800 $ 42,236,960 $ 46,704,949 $ 46,460,035 $ 46,872,434
Percentage leverage(8) 37.61% 45.84% 45.09% 45.56% 41.57% 29.59%
Date offering began Feb 2000 Aug 2000 Feb 2001 Aug 2001 Feb 2002 Aug 2002
Average length of offering
(days) 159 184 181 153 181 122
Months to invest 90% of
amount available 2 2 3 5 1 N/A
----------
NOTES TO TABLE I
Note 1: The dollar amount offered and raised includes the entire amount of
investors' contributions paid.
Note 2: Includes only 1.0% of the Dealer-Manager Fee as the remaining 1.0% was
re-allotted to unaffiliated brokers. In addition, included is the 1.0%
nonaccountable expense allowance which is considered an offering expense.
Note 3: Includes selling commissions of 7% and the re-allotment by Boston
Capital Services, Inc. of 1.0% of its Dealer-Manager Fee.
Note 4: Acquisition fees are amounts paid to the general partners and affiliates
for selecting, evaluating, negotiating and closing the investment partnerships'
acquisition of operating partnership interests.
Note 5: Acquisition expenses consist of legal and accounting fees, travel,
market studies and other expenses to be paid to third parties.
Note 6: Cash payments to non-affiliated operating partnerships include capital
contributions. The amount shown for 2002 includes 11.89% of public partnerships'
funds not yet committed.
I-3
Note 7: Additional capital represents funds contributed by the operating general
partners. Some properties financed with governmental assistance after 1987
require the operating general partners to provide a minimum of 3% of the total
development cost in equity.
Note 8: The leverage percentage equals the total amount of mortgage indebtedness
on the acquisition date or completion date divided by total development costs.
I-4
TABLE II
COMPENSATION TO AFFILIATES
JANUARY 1, 2000 THROUGH DECEMBER 31, 2002
Table II sets forth the aggregate amount of all compensation earned by or paid
to the our Affiliates between January 1, 2000 and December 31, 2002 for the
programs included in Table I. None of the programs included in this Table have
been liquidated.
The Table should be read in conjunction with the introduction and accompanying
notes.
[Enlarge/Download Table]
PUBLIC OFFERINGS
BCTC IV BCTC IV BCTC IV BCTC IV BCTC IV BCTC IV
L.P. L.P. L.P. L.P. L.P. L.P.
(SERIES 38) (SERIES 39) (SERIES 40) (SERIES 41) (SERIES 42) (SERIES 43)
2000 2000 2001 2001 2002 2002
Date offering commenced Feb 2000 Aug 2000 Feb 2001 Aug 2001 Feb 2002 Aug 2002
Dollar amount raised (1) $ 25,431,000 $ 22,921,000 $ 26,269,250 $ 28,916,260 $ 27,442,620 $ 36,379,870
Amounts paid and/or payable to
sponsor and affiliates from
proceeds (1):
Underwriting fees (2) 508,620 458,420 525,385 578,325 548,852 727,597
Acquisition fees 2,161,635 1,948,285 2,232,886 2,457,882 2,332,623 3,092,289
Acquisition expense
reimbursement 508,620 458,420 525,385 578,325 548,852 727,597
Asset management fee 454,989 327,518 302,518 233,897 88,991 15,671
Dollar amount of cash generated
from operating partnerships
before payments to sponsors (3) 3,777 0 0 0 0 0
Amounts paid to sponsors from
operations (4) 0 0 0 0 0 0
----------
NOTES TO TABLE II
Note 1: Table II is presented as if all capital contributions were received and
all fees payable from offering proceeds to our affiliates, and their
predecessors in interest were paid in the year in which the offerings were
completed; such transactions actually occur over several years.
Note 2: Underwriting fees include non-accountable expense allowances, research
report fees, due diligence fees, selling commissions, purchaser representative
fees, and capital commitment fees. These amounts do not include commissions paid
to an affiliated dealer-manager which were subsequently paid to non-affiliated
brokers. These fees are paid over one to three years.
Note 3: The Acquisition Fee is a flat fee calculated as a percentage of each
certificate sold. It is earned for selecting, evaluating, negotiating and
closing series' investments in apartment complexes.
Note 4: The dollar amount of cash generated from operating partnerships is the
total amount of cash distributions received by the investment partnerships
during the three-year period. For example: 2002 would include 2000-2002 cash
distributions for the partnership organized in 2000. Historically, cash flow
from government-subsidized apartment complexes is generated by the second full
year of operations, yet cash flow is not disbursed until financial statement
analyses are complete.
Note 5: If cash flow is unavailable to pay investment partnership operating
expenses, then expenses are either accrued until cash flow is available in
future years to repay such expenses or the sponsor pays these operating expenses
as they become due and subsequently receives reimbursement when cash flow is
available.
I-5
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
Table III summarizes the operating results of prior partnerships not having
similar investment objectives to the company which were closed between January
1, 1998 and December 31, 2002. The public investment partnerships own interests
in 157 operating partnerships.
Table III includes the actual tax credits received on a $1,000 investment. Table
III-A includes the actual tax credits received as a percentage of capital
invested by an investor. For example, if an investor received $21 of tax credits
on a $1,000 investment for a particular year in Table III, Table III-A would
show that for that year the investor received approximately 2.1% of its
investment.
The information is presented in accordance with generally accepted accounting
principles ("GAAP") except with respect to the information presented in the
tables labeled "Tax & Distribution Data Per $1000 invested on a Tax Basis,"
which is presented on the tax basis method of accounting.
Significant differences can occur in operating results accounted for on a tax
versus GAAP basis. Some differences, but not all, are due to depreciation
methods and depreciable lives, and treatment of capitalized construction period
interest and expenses. The usual effect of these differences is that taxable
losses under GAAP would have been less than the taxable losses. Both GAAP and
tax losses are reported in the table.
The Table should be read in conjunction with the introduction and accompanying
Notes.
I-6
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 1998
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 32)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
1999 2000 2001 2002 2003
Gross Revenues 727,112 342,051 316,656 46,041 29,408
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) 56,660 (1,245,350) (2,669,373) (2,062,829) (1,894,224)
Operating Expenses (3) (505,039) (554,745) (432,918) (375,702) (391,514)
Interest Expense 0 0 0 0
Depreciation (2) (8,897) (29,738) (36,303) (36,625) (36,624)
Net Income--GAAP Basis 269,836 (1,487,782) (2,821,938) (2,429,115) (2,292,954)
Taxable Income from operations (4) (451,885) (1,514,735) (2,903,227) (3,037,663) (2,529,990)
gain on sale 0 0 0 0 0
Cash generated from operations (6) 1,149,015 261,990 (291,574) (284,985) (77,662)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales
and refinancing 1,149,015 261,990 (291,574) (284,985) (77,662)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 0 0
Cash generated (deficiency) after cash
distributions 1,149,015 261,990 (291,574) (284,985) (77,662)
Less: Special items (not including sales
and refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items 1,149,015 261,990 (291,574) (284,985) (77,662)
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 1998 1999 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 21 41 89 102 104
State Credit 0 0 0 0 0
Ordinary Income (loss) (10) (31) (61) (65) (53)
from operations (10) (31) (61) (65) (53)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in program
properties 98.53%
I-7
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 1998
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 33)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
1999 2000 2001 2002 2003
Gross Revenues 256,081 312,853 197,659 21,827 1,841
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) 187,290 (595,041) (1,294,005) (1,059,178) (892,301)
Operating Expenses (3) (239,965) (396,338) (260,722) (195,327) (200,918)
Interest Expense 0 0 0 0 0
Depreciation (2) (9,308) (26,578) (27,066) (27,266) (27,276)
Net Income--GAAP Basis 194,098 (705,104) (1,384,134) (1,259,944) (1,118,654)
Taxable Income from operations (4) (147,561) (661,228) (1,692,569) (1,581,039) (2,347,325)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (85,106) 75,787 (108,662) (181,083) 4,072
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales and
refinancing (85,106) 75,787 (108,662) (181,083) 4,072
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 0 0
Cash generated (deficiency) after cash
distributions (85,106) 75,787 (108,662) (181,083) 4,072
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (85,106) 75,787 (108,662) (181,083) 4,072
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 1998 1999 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 19 37 94 103 105
State Credit 0 0 0 0 0
Ordinary Income (loss) (2) (25) (56) (54) (51)
from operations (2) (25) (56) (54) (51)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in program properties 99.15%
I-8
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 1998
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 34)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
1999 2000 2001 2002 2003
Gross Revenues 156,247 385,293 125,489 5,402 2,482
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) (218) (468,712) (2,140,987) (1,760,695) (1,610,062)
Operating Expenses (3) (116,080) (573,910) (364,760) (314,016) (334,801)
Interest Expense 0 0 0 0 0
Depreciation (2) 0 (41,853) (44,236) (43,940) (43,938)
Net Income--GAAP Basis 39,949 (699,182) (2,424,494) (2,113,249) (1,986,319)
Taxable Income from operations (4) 1,650 (787,448) (2,964,741) (2,364,060) (2,276,581)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (114,918) (33,256) (236,495) (770) (38,602)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales and
refinancing (114,918) (33,256) (236,495) (770) (38,602)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 0 0
Cash generated (deficiency) after cash
distributions (114,918) (33,256) (236,495) (770) (38,602)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (114,918) (33,256) (236,495) (770) (38,602)
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 1998 1999 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 0 16 79 98 98
State Credit 0 0 0 0 0
Ordinary Income (loss) 15 (19) (83) (66) (64)
from operations 15 (19) (83) (66) (64)
from recapture 0 0 0 0 0
Capital gain (loss) 0 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0 0 0 0 0
Return of capital 0 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0 0
Refinancing 0 0 0 0 0
Operations 0 0 0 0 0
Other 0 0 0 0 0
Amount remaining invested in program
properties 99.62%
I-9
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 1999
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 35)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
1999 2000 2001 2002 2003
Gross Revenues 1,803 567,711 236,430 81,661 56,678
Profit on sale of properties 0 0 0 0 0
Less:
Losses from operating partnerships (1) 0 (194,048) (1,875,497) (875,205) (1,198,689)
Operating Expenses (3) (8,570) (410,088) (338,492) (288,877) (259,102)
Interest Expense 0 0 0 0 0
Depreciation (2) 0 (225,179) (128,479) (129,251) (129,236)
Net Income--GAAP Basis (6,767) (261,604) (2,106,038) (1,211,672) (1,530,349)
Taxable Income from operations (4) 0 (309,302) (2,632,426) (1,573,175) (2,093,874)
gain on sale 0 0 0 0 0
Cash generated from operations (6) (2,095,601) 1,894,591 (188,620) (114,631) (191,844)
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
Cash generated from operations, sales and
refinancing (2,095,601) 1,894,591 (188,620) (114,631) (191,844)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0 0
from sales and refinancing 0 0 0 0 0
from other 0 0 0 0 0
Cash generated (deficiency) after cash distributions (2,095,601) 1,894,591 (188,620) (114,631) (191,844)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items (2,095,601) 1,894,591 (188,620) (114,631) (191,844)
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 1999 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 4 39 88 95
State Credit 0 0 0 0
Ordinary Income (loss) (9) (75) (49) (63)
from operations (9) (75) (49) (63)
from recapture 0 0 0 0
Capital gain (loss) 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0 0 0 0
Return of capital 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0
Refinancing 0 0 0 0
Operations 0 0 0 0
Other 0 0 0 0
Amount remaining invested in program properties 99.36%
I-10
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 1999
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 36)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
2000 2001 2002 2003
Gross Revenues 175,394 83,521 9,428 9,488
Profit on sale of properties 0 0 0 0
Less:
Losses from operating partnerships (1) (160,352) (457,746) (1,268,122) (982,302)
Operating Expenses (3) (240,981) (231,839) (182,579) (189,293)
Interest Expense 0 0 0 0
Depreciation (2) (78,850) (86,996) (88,463) (88,463)
Net Income--GAAP Basis (304,789) (693,060) (1,529,736) (1,250,570)
Taxable Income from operations (4) (149,757) (1,901,563) (508,805) (1,616,793)
gain on sale 0 0 0 0
Cash generated from operations (6) (119,222) 38,217 (76,103) 50,551
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales and refinancing (119,222) 38,217 (76,103) 50,551
Less: Cash distributions to investors
from operating cash flow 0 0 0 0
from sales and refinancing 0 0 0 0
from other 0 0 0 0
Cash generated (deficiency) after cash distributions (119,222) 38,217 (76,103) 50,551
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0
Cash generated (deficiency) after cash distributions
and special items (119,222) 38,217 (76,103) 50,551
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 1999 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 2 64 99 98
State Credit 0 0 0 0
Ordinary Income (loss) (8) (85) (24) (76)
from operations (8) (85) (24) (76)
from recapture 0 0 0 0
Capital gain (loss) 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0 0 0 0
Return of capital 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0
Refinancing 0 0 0 0
Operations 0 0 0 0
Other 0 0 0 0
Amount remaining invested in program properties 99.91%
I-11
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 1999
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 37)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
2000 2001 2002 2003
Gross Revenues 145,974 331,766 11,642 3,813
Profit on sale of properties 0 0 0 0
Less:
Losses from operating partnerships (1) (44,958) (318,507) (750,493) (1,337,643)
Operating Expenses (3) (154,532) (237,477) (217,896) (215,182)
Interest Expense 0 0 0 0
Depreciation (2) 0 (91,645) (94,713) (94,823)
Net Income--GAAP Basis (53,516) (315,863) (1,051,460) (1,643,835)
Taxable Income from operations (4) (9,645) (390,505) (911,637) (2,021,202)
gain on sale 0 0 0 0
Cash generated from operations (6) (4,554) 96,442 (131,190) (93,768)
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales and refinancing (4,554) 96,442 (131,190) (93,768)
Less: Cash distributions to investors
from operating cash flow 0 0 0 0
from sales and refinancing 0 0 0 0
from other 0 0 0 0
Cash generated (deficiency) after cash distributions (4,554) 96,442 (131,190) (93,768)
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items (4,554) 96,442 (131,190) (93,768)
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 1999 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 0 14 71 91
State Credit 0 0 0 0
Ordinary Income (loss) (1) (9) (37) (80)
from operations (1) (9) (37) (80)
from recapture 0 0 0 0
Capital gain (loss) 0 0 0 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0 0 0 0
Return of capital 0 0 0 0
Source (on cash basis):
Sales 0 0 0 0
Refinancing 0 0 0 0
Operations 0 0 0 0
Other 0 0 0 0
Amount remaining invested in program properties 99.93%
I-12
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2000
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 38)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
2000 2001 2002 2003
Gross Revenues 1,437 207,525 92,319 14,985
Profit on sale of properties 0 0 0 0
Less:
Losses from operating partnerships (1) 0 (133,908) (1,230,809) (892,478)
Operating Expenses (3) (83,131) (219,590) (216,080) (194,567)
Interest Expense 0 0 0 0
Depreciation (2) 0 0 (50,939) (98,914)
Net Income--GAAP Basis (81,694) (145,973) (1,405,509) (1,170,974)
Taxable Income from operations (4) 0 (151,741) (1,685,712) (1,415,038)
gain on sale 0 0 0 0
Cash generated from operations (6) 361,642 156,853 (161,584) 110,534
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales and refinancing 361,642 156,853 (161,584) 110,534
Less: Cash distributions to investors
from operating cash flow 0 0 0 0
from sales and refinancing 0 0 0 0
from other 0 0 0 0
Cash generated (deficiency) after cash distributions 361,642 156,853 (161,584) 110,534
Less: Special items (not including sales and
refinancing) (identify and quantify) 0 0 0 0
Cash generated (deficiency) after cash distributions
and special items 361,642 156,853 (161,584) 110,534
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 11 45 90
State Credit 0 0
Ordinary Income (loss) (30) (67) (55)
from operations (30) (67) (55)
from recapture 0 0 0
Capital gain (loss) 0 0 0
Cash Distributions to investors:
Source (on GAAP basis):
Investment income 0 0 0
Return of capital 0 0 0
Source (on cash basis):
Sales 0 0 0
Refinancing 0 0 0
Operations 0 0 0
Other 0 0 0
Amount remaining invested in program properties 99.44%
I-13
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2000
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 39)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED
MARCH 31,
2001 2002 2003
Gross Revenues 49,735 116,518 2,441
Profit on sale of properties 0 0 0
Less:
Losses from operating partnerships (1) 3,760 (996,269) (1,093,075)
Operating Expenses (3) (196,332) (222,619) (159,861)
Interest Expense 0 0 0
Depreciation (2) 0 (24,477) (90,324)
Net Income--GAAP Basis (142,837) (1,126,847) (1,340,819)
Taxable Income from operations (4) 69,342 (1,165,268) (1,639,228)
gain on sale 0 0 0
Cash generated from operations (6) (147,183) (71,182) (16,079)
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Cash generated from operations, sales and refinancing (147,183) (71,182) (16,079)
Less: Cash distributions to investors
from operating cash flow 0 0 0
from sales and refinancing 0 0 0
from other 0 0 0
Cash generated (deficiency) after cash distributions (147,183) (71,182) (16,079)
Less: Special items (not including sales and refinancing)
(identify and quantify) 0 0 0
Cash generated (deficiency) after cash distributions and
special items (147,183) (71,182) (16,079)
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 2000 2001 2002
Federal Income Tax Results
Federal Credit (5) 0 22 84
State Credit 0 0 0
Ordinary Income (loss) 11 (55) (71)
from operations 11 (55) (71)
from recapture 0 0 0
Capital gain (loss) 0 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0 0
Investment income 0 0 0
Return of capital 0 0 0
Source (on cash basis):
Sales 0 0 0
Refinancing 0 0 0
Operations 0 0 0
Other 0 0 0
Amount remaining invested in program properties 98.54%
I-14
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2001
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 40)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT PERIOD ENDED MARCH 31,
2001 2002 2003
Gross Revenues 2,317 147,345 119,938
Profit on sale of properties 0 0 0
Less:
Losses from operating partnerships (1) 0 (438,656) (986,508)
Operating Expenses (3) (113,781) (306,075) (222,136)
Interest Expense 0 0 0
Depreciation (2) 0 0 (32,319)
Net Income--GAAP Basis (111,464) (597,386) (1,121,025)
Taxable Income from operations (4) 0 (586,896) (1,086,143)
gain on sale 0 0 0
Cash generated from operations (6) (1,922,962) 836,927 209,484
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
Cash generated from operations, sales and refinancing (1,922,962) 836,927 209,484
Less: Cash distributions to investors
from operating cash flow 0 0 0
from sales and refinancing 0 0 0
from other 0 0 0
Cash generated (deficiency) after cash distributions (1,922,962) 836,927 209,484
Less: Special items (not including sales and refinancing)
(identify and quantify) 0 0 0
Cash generated (deficiency) after cash distributions and
special items (1,922,962) 836,927 209,484
TAX & DISTRIBUTION DATA FOR THE TAX PERIOD ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 2001 2002
Federal Income Tax Results
Federal Credit (5) 14 79
State Credit 0 0
Ordinary Income (loss) (19) (42)
from operations (19) (42)
from recapture 0 0
Capital gain (loss) 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0
Investment income 0 0
Return of capital 0 0
Source (on cash basis):
Sales 0 0
Refinancing 0 0
Operations 0 0
Other 0 0
Amount remaining invested in program properties 99.65%
I-15
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2001
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 41)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
2002 2003
Gross Revenues 52,147 74,991
Profit on sale of properties 0 0
Less:
Losses from operating partnerships (1) (94,125) (1,443,650)
Operating Expenses (3) (241,945) (346,349)
Interest Expense 0 0
Depreciation (2) 0 (133,377)
Net Income--GAAP Basis (283,923) (1,848,385)
Taxable Income from operations (4) (120,068) (2,867,903)
gain on sale 0 0
Cash generated from operations (6) (47,951) (48,190)
Cash generated from sales 0 0
Cash generated from refinancing 0 0
Cash generated from operations, sales and refinancing (47,951) (48,190)
Less: Cash distributions to investors
from operating cash flow 0 0
from sales and refinancing 0 0
from other 0 0
Cash generated (deficiency) after cash distributions (47,951) (48,190)
Less: Special items (not including sales and refinancing) (identify and quantify) 0 0
Cash generated (deficiency) after cash distributions and special items (47,951) (48,190)
FOR THE TAX PERIOD ENDED
TAX & DISTRIBUTION DATA DECEMBER 31,
PER $1,000 INVESTED (7) 2001 2002
Federal Income Tax Results
Federal Credit (5) 1 45
State Credit 0 0
Ordinary Income (loss) (7) (95)
from operations (7) (95)
from recapture 0 0
Capital gain (loss) 0 0
Cash Distributions to investors:
Source (on GAAP basis) 0
Investment income 0 0
Return of capital 0 0
Source (on cash basis):
Sales 0 0
Refinancing 0 0
Operations 0 0
Other 0 0
Amount remaining invested in program properties 99.94%
I-16
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2002
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 42)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
2002 2003
Gross Revenues 986 121,043
Profit on sale of properties 0 0
Less:
Losses from operating partnerships (1) 0 (404,748)
Operating Expenses (3) (111,253) (237,706)
Interest Expense 0 0
Depreciation (2) 0 0
Net Income--GAAP Basis (110,267) (521,411)
Taxable Income from operations (4) 0 (755,961)
gain on sale 0 0
Cash generated from operations (6) (1,322,182) 1,306,517
Cash generated from sales 0 0
Cash generated from refinancing 0 0
Cash generated from operations, sales and refinancing (1,322,182) 1,306,517
Less: Cash distributions to investors
from operating cash flow 0 0
from sales and refinancing 0 0
from other 0 0
Cash generated (deficiency) after cash distributions (1,322,182) 1,306,517
Less: Special items (not including sales and refinancing) (identify and quantify) 0 0
Cash generated (deficiency) after cash distributions and special items (1,322,182) 1,306,517
FOR THE TAX PERIOD
TAX & DISTRIBUTION DATA ENDED DECEMBER 31,
PER $1,000 INVESTED (7) 2002
Federal Income Tax Results
Federal Credit (5) 16
State Credit 0
Ordinary Income (loss) (30)
from operations (30)
from recapture 0
Capital gain (loss) 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0
Return of capital 0
Source (on cash basis):
Sales 0
Refinancing 0
Operations 0
Other 0
Amount remaining invested in program properties 100%
I-17
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2002
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 43)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
2003
Gross Revenues 30,298
Profit on sale of properties
Less:
Losses from operating partnerships (1) (304,873)
Operating Expenses (3) (215,795)
Interest Expense 0
Depreciation (2) 0
Net Income--GAAP Basis (490,370)
Taxable Income from operations (4) (193,688)
gain on sale 0
Cash generated from operations (6) (1,103,274)
Cash generated from sales 0
Cash generated from refinancing 0
Cash generated from operations, sales and refinancing (1,103,274)
Less: Cash distributions to investors
from operating cash flow 0
from sales and refinancing 0
from other 0
Cash generated (deficiency) after cash distributions (1,103,274)
Less: Special items (not including sales and refinancing) (identify and quantify) 0
Cash generated (deficiency) after cash distributions and special items (1,103,274)
FOR THE TAX PERIOD ENDED
TAX & DISTRIBUTION DATA DECEMBER 31,
PER $1,000 INVESTED (7) 2002
Federal Income Tax Results
Federal Credit (5) 4
State Credit 0
Ordinary Income (loss) (3)
from operations (3)
from recapture 0
Capital gain (loss) 0
Cash Distributions to investors:
Source (on GAAP basis)
Investment income 0
Return of capital 0
Source (on cash basis):
Sales 0
Refinancing 0
Operations 0
Other 0
Amount remaining invested in program properties 100%
I-18
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
FROM OPENING THROUGH MARCH 31, 2003
PUBLIC OFFERINGS CLOSED DURING 2003
BOSTON CAPITAL TAX CREDIT FUND IV L.P. (SERIES 44)
[Enlarge/Download Table]
FOR THE FINANCIAL STATEMENT
PERIOD ENDED MARCH 31,
2003
Gross Revenues 1,379
Profit on sale of properties
Less:
Losses from operating partnerships (1) 0
Operating Expenses (3) (116,399)
Interest Expense 0
Depreciation (2) 0
Net Income--GAAP Basis (115,020)
Taxable Income from operations (4) (6,086)
gain on sale 0
Cash generated from operations (6) 701,819
Cash generated from sales 0
Cash generated from refinancing 0
Cash generated from operations, sales and refinancing 701,819
Less: Cash distributions to investors
from operating cash flow 0
from sales and refinancing 0
from other 0
Cash generated (deficiency) after cash distributions 701,819
Less: Special items (not including sales and refinancing) (identify and quantify) 0
Cash generated (deficiency) after cash distributions and special items 701,819
----------
NOTES TO TABLE III
Note 1: This figure represents the GAAP income (loss) allocable to the public
investment partnerships from their investment in operating partnerships. The
GAAP income (loss) is gross rental income less ordinary operating expenses,
interest expense, depreciation and certain non-recurring fees, such as loan
guarantee fees, lease-up fees and partnership management fees paid by the
operating partnerships.
Note 2: This figure represents the amortization by the investment partnerships
of its organization expense over a 60-month period commencing in the month
initial investor admission occurs.
Note 3: Operating expenses consist of investor service costs and legal and
accounting fees of the investment partnerships and expenses paid from equity
which includes partnership management fees, initial investor service fees and
capital commitment fees reported on an accrual basis.
Note 4: The taxable income (losses) for the investment partnerships represent
losses from Operating Partnerships which in turn consist substantially of
depreciation and mortgage interest.
Note 5: Federal credits include low-income housing tax credits and historic tax
credits.
Note 6: Cash generated from operations is the net income (loss), net of non-cash
expenses, adjusted for changes in accounts receivable and payable and
distributions received from the operating partnerships.
Note 7: Federal low-income housing tax credits and historic tax credits and
taxable income (loss), per $1,000 invested represents the limited partners'
allocable share of such items divided by the capital contributed by the limited
partners divided by $1,000. This information is presented on a Tax basis and not
a GAAP basis.
Note 8: The information provided in the tables labeled "Tax & Distribution Data
per $1,000 invested on a Tax Basis" is through the period December 31, 2002.
I-19
TABLE III-A
Table III-A summarizes the Actual Tax Credit results during the period January
1, 1988 through December 31, 2002, of the four public partnerships sponsored by
our affiliates. The Actual Tax Credits represent annual tax credits as a
percentage of capital invested by an investor. The percentage is calculated by
dividing the amount of tax credits received for the period by the amount of
capital invested. For example, for each dollar invested in BCTC 1, the investor
received approximately $0.1096 of tax credits in 1989. Likewise, the headings
"Cumulative" and "Overall Tax Credit Objective" represent cumulative tax credits
as a percentage of capital invested by an investor.
[Enlarge/Download Table]
FINAL
EQUITY CLOSING ACTUAL TAX CREDITS (%)((3)(4))
PROGRAM RAISED DATE 1988 1989 1990(1) 1991 1992 1993 1994 1995 1996
BCTC 1 12,999,000 Dec. 1988 1.00 10.96 21.81 14.02 14.01 14.05 14.01 14.01 14.01
BCTC 2 (CA)(2) 8,303,000 Apr. 1989 4.15 24.78 29.17 26.75 16.91 10.96 10.43 10.12
BCTC 3 28,822,000 May 1989 11.99 18.46 12.72 12.66 12.80 12.80 12.73 12.73
BCTC 4 29,788,160 Jun. 1989 7.74 17.16 13.58 12.32 12.57 12.24 12.24 12.25
BCTC 5 (CA)(2) 4,899,000 Jul. 1989 7.03 24.18 24.93 21.29 15.02 11.01 10.59 10.30
BCTC 6 12,935,780 Sept. 1989 2.91 15.21 14.56 13.15 12.99 12.91 12.90 13.47
BCTC II 7 10,361,000 Dec. 1989 6.16 11.70 16.93 11.78 11.96 12.04 12.04 12.04
BCTC II 9 41,574,018 May 1990 9.30 11.34 11.68 12.39 13.30 13.56 13.67
BCTC II 10 24,288,998 Aug. 1990 3.10 10.24 11.85 13.97 14.47 14.62 14.60
BCTC II 11 24,735,003 Dec. 1990 4.50 7.78 12.13 12.67 13.16 13.20 13.20
BCTC II 12 29,710,003 May 1991 4.70 10.91 11.98 14.12 14.61 14.58
BCTC II 14 55,728,996 Dec. 1991 3.80 8.79 12.32 13.83 14.23 14.33
BCTC III 15 38,705,000 Jun. 1992 3.10 9.07 13.22 14.29 14.65
BCTC III 16 54,293,000 Dec. 1992 1.40 4.36 8.56 13.75 14.05
BCTC III 17 50,000,000 May 1993 3.14 8.21 13.42 13.97
BCTC III 18 36,162,000 Oct. 1993 0.07 7.18 12.67 13.31
BCTC III 19 40,800,000 Dec. 1993 0.00 1.82 10.10 12.45
BCTC IV 20 38,667,000 Jun. 1994 2.10 8.29 13.24
BCTC IV 21 18,927,000 Sept. 1994 0.00 3.43 9.07
BCTC IV 22 25,644,000 Dec. 1994 0.00 4.59 10.28
BCTC IV 23 33,366,000 Jun. 1995 2.50 8.97
BCTC IV 24 21,697,000 Sept. 1995 1.36 5.03
BCTC IV 25 30,248,000 Dec. 1995 0.00 1.34
BCTC IV 26 39,959,000 Jun. 1996 2.10
BCTC IV 27 24,607,000 Sept. 1996 0.74
BCTC IV 28 39,999,000 Jan. 1997 0.00
BCTC IV 29 39,918,000 Jun. 1997
BCTV IV 30 26,490,750 Sept. 1997
BCTC IV 31 44,057,750 Jan. 1998
BCTC IV 32 47,431,000 Jun. 1998
BCTC IV 33 26,362,000 Sept. 1998
BCTC IV 34 35,273,000 Feb. 1999
BCTC IV 35 33,004,625 Jun. 1999
BCTC IV 36 21,068,375 Sept. 1999
BCTC IV 37 25,125,000 Jan. 2000
BCTC IV 38 25,431,000 Jul. 2000
BCTC IV 39 22,921,000 Jan. 2001
BCTC IV 40 26,269,250 Jul. 2001
BCTC IV 41(5) 28,966,260 Jan. 2002
BCTC IV 42(5) 27,442,620 Jul. 2002
BCTC IV S43 Jan. 2003
BCTC IV S44 Apr. 2003
Total $ 1,206,979,588
CUMULATIVE OVERALL
CUMU- TIME TAX CREDIT
LATIVE INVESTED THRU OBJECTIVE
PROGRAM 1997 1998 1999 2000 2001 2002 (%) 2002 (%)
BCTC 1 14.02 11.94 1.10 -1.45 0.00 0.00 143.49 14 yrs. 130-150
BCTC 2 (CA)(2) 10.12 10.12 9.58 3.56 0.92 0.56 168.13 13 yrs. 8 mos. 170
BCTC 3 12.72 12.37 5.97 0.52 0.44 0.44 139.35 13 yrs. 7 mos. 130-150
BCTC 4 12.26 12.26 9.50 0.44 0.00 0.00 134.56 13 yrs. 6 mos. 130-150
BCTC 5 (CA)(2) 10.30 9.98 9.53 1.85 0.83 0.06 156.90 13 yrs. 5 mos. 150-170
BCTC 6 12.71 12.72 11.33 2.84 0.25 0.16 138.11 13 yrs. 3 mos. 130-150
BCTC II 7 12.04 12.04 7.08 5.07 2.97 0.42 134.27 13 yrs. 130-140
BCTC II 9 13.67 13.56 12.63 8.06 2.69 2.26 138.11 12 yrs. 7 mos. 130-150
BCTC II 10 14.60 14.43 13.06 11.39 3.96 2.05 142.34 12 yrs. 4 mos. 130-150
BCTC II 11 13.20 13.15 13.11 12.39 6.33 1.01 135.83 12 yrs. 130-150
BCTC II 12 14.62 14.59 14.56 14.52 9.57 3.56 142.32 11 yrs. 7 mos. 140-160
BCTC II 14 14.35 14.18 14.14 13.94 12.55 4.83 141.29 11 yrs. 140-160
BCTC III 15 14.69 14.66 14.56 14.54 14.54 11.43 138.75 10 yrs. 6 mos. 140-160
BCTC III 16 14.00 14.00 14.00 14.00 13.99 13.97 126.08 10 yrs. 140-160
BCTC III 17 13.97 13.97 13.97 13.61 13.49 13.46 121.21 9 yrs. 7 mos. 140-160
BCTC III 18 13.34 13.34 13.32 13.34 13.34 13.35 113.26 9 yrs. 2 mos. 140-160
BCTC III 19 13.28 13.33 13.33 13.33 13.33 13.33 104.30 9 yrs. 140-160
BCTC IV 20 13.30 13.32 13.32 13.32 13.32 13.32 103.53 8 yrs. 6 mos. 130-150
BCTC IV 21 11.34 11.90 12.03 12.09 12.06 12.05 83.97 8 yrs. 3 mos. 130-150
BCTC IV 22 11.95 12.54 12.65 12.63 12.63 12.48 89.75 8 yrs. 130-150
BCTC IV 23 12.88 13.10 13.10 13.10 13.10 13.10 89.85 7 yrs. 6 mos. 130-150
BCTC IV 24 11.21 12.75 12.76 12.72 12.75 12.76 81.34 7 yrs. 3 mos. 130-150
BCTC IV 25 10.77 12.52 12.28 12.52 12.37 12.37 74.17 7 yrs. 130-150
BCTC IV 26 5.90 10.04 11.34 11.83 11.82 11.82 64.85 6 yrs. 6 mos. 120-140
BCTC IV 27 2.01 6.85 9.82 11.29 11.40 11.40 53.51 6 yrs. 3 mos. 120-140
BCTC IV 28 0.66 4.90 8.80 10.44 10.47 10.53 45.80 5 yrs. 11mos. 120-140
BCTC IV 29 0.00 4.92 8.39 10.76 10.79 10.79 45.65 5 yrs. 6 mos. 110-130
BCTV IV 30 0.00 1.93 7.49 10.25 10.61 10.57 40.85 5 yrs. 3 mos. 110-130
BCTC IV 31 0.00 2.83 8.05 10.29 10.34 10.32 41.83 4 yrs. 11 mos. 110-130
BCTC IV 32 2.08 4.11 8.87 10.24 10.35 35.65 4 yrs. 6 mos. 110-120
BCTC IV 33 1.95 3.66 9.40 10.32 10.50 35.83 4 yrs. 3 mos. 110-120
BCTC IV 34 0.00 1.60 7.89 9.79 9.79 29.07 3 yr. 10 mos. 100-120
BCTC IV 35 0.39 3.95 8.79 9.54 22.67 3 yr. 6 mos. 100-110
BCTC IV 36 0.16 6.39 9.87 9.80 26.22 3 yr. 3 mos. 100-110
BCTC IV 37 0.00 1.37 7.13 9.10 17.60 2 yr. 11 mos. 100-110
BCTC IV 38 1.35 4.49 9.18 15.02 2 yr. 5 mos. 95-100
BCTC IV 39 2.20 8.36 10.56 1 yr. 11 mos. 95-100
BCTC IV 40 1.81 8.00 9.81 1 yr 5 mos. 95-100
BCTC IV 41(5) 0.04 4.47 4.51 11 mos. 95-100
BCTC IV 42(5) 2.04 2.04 5 mos. 97.5-102.5
BCTC IV S43 0.67 0.67
BCTC IV S44 0.00 0.00
Total
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NOTES TO TABLE III-A
(1) The 1990 results reflect, where applicable, the election available to
partnerships owning interests in properties qualifying for federal housing
tax credits pursuant to the 1990 Omnibus Budget Reconciliation Act which
enables individual investors who held an interest in those partnerships
prior to October 31, 1990, to utilize only in 1990 up to 150% of the annual
federal housing tax credit, otherwise allowable for 1990. Where this
election was made, the annual federal housing tax credit has been reduced
by the 50% bonus ratably and will continue to be reduced over the remaining
years of the credit period.
(2) These programs offered both California and federal housing tax credits.
(3) Each investor's first year yield may vary slightly based upon actual date
of investor admission.
(4) The only material benefit from these programs may be tax credits which may
mean that a material portion of each tax credit may represent a return of
the money originally invested if there is not enough money from the sale or
refinancing of the respective apartment complexes to return each investor's
capital contribution.
(5) As with all programs less than one year old, these returns are for a
partial year.
----------
BCTC is Boston Capital Tax Credit Fund.
BCTC II is Boston Capital Tax Credit Fund II.
BCTC III is Boston Capital Tax Credit Fund III.
BCTC IV is Boston Capital Tax Credit Fund IV
I-21
EXHIBIT A
REINVESTMENT PLAN
BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST, INC., a Maryland corporation
(the "Company"), adopted a Reinvestment Plan (the "Reinvestment Plan") on the
terms and conditions set forth below.
1. REINVESTMENT OF DISTRIBUTIONS. Boston Capital Services, Inc., the agent
(the "Reinvestment Agent") for participants (the "Participants") in the
Reinvestment Plan, will receive all cash distributions made by the Company with
respect to shares of common stock of the Company (the "Shares") owned by each
Participant (collectively, the "Distributions"). The Reinvestment Agent will
apply such Distributions as follows:
(a) At any period during which the Company is making a public offering of
Shares, the Reinvestment Agent will invest Distributions in Shares acquired from
the dealer-manager or participating brokers for the offering at the public
offering price per Share. Participants will be charged selling commissions and
dealer-manager fees on Shares acquired pursuant to the Reinvestment Plan.
(b) If no public offering of Shares is ongoing, the Reinvestment Agent will
purchase Shares from any additional Shares which the Company elects to register
with the Securities and Exchange Commission (the "SEC") for the Reinvestment
Plan, at a per Share price equal to the fair market value of the Shares
determined by quarterly appraisal updates performed by the Company based on a
review of the existing appraisal of each property owned by the Company or in
which the Company has an interest (each, a "Property," and collectively, the
"Properties"), focusing on a re-examination of the capitalization rate applied
to the rental stream to be derived from that Property. The capitalization rate
used by the Company and, as a result, the price per Share paid by Participants
in the Reinvestment Plan prior to the listing of the Shares on a national
securities exchange or national securities market ("Listing") will be determined
by Boston Capital REIT Advisors, LLC (the "Advisor") in its sole discretion. The
factors that the Advisor will use to determine the capitalization rate include
(i) its experience in selecting, acquiring and overseeing the management of
properties similar to the Properties; (ii) an examination of the conditions in
the market; and (iii) capitalization rates in use by private appraisers, to the
extent that the Advisor deems such factors appropriate, as well as any other
factors that the Advisor deems relevant or appropriate in making its
determination. The Company's internal accountants will then convert the most
recent quarterly balance sheet of the Company from a "GAAP" balance sheet to a
"fair market value balance sheet. Based on the "fair market value" balance
sheet, the internal accountants will then assume a sale of the Company's assets
and the liquidation of the Company in accordance with its constitutive documents
and applicable law and compute the appropriate method of distributing the cash
available after payment of reasonable liquidation expenses, including closing
costs typically associated with the sale of assets and shared by the buyer and
seller, and the creation of reasonable reserves to provide for the payment of
any contingent liabilities. Upon Listing, the Reinvestment Agent may purchase
Shares either through such market or directly from the Company pursuant to a
registration statement relating to the Reinvestment Plan, in either case at a
per Share price equal to the then-prevailing market price on the national
securities exchange or national securities market on which the Shares are listed
at the date of purchase by the Reinvestment Agent. In the event that, after
Listing occurs, the Reinvestment Agent purchases Shares on a national securities
exchange or national securities market through a registered broker-dealer, the
amount to be reinvested will be reduced by any brokerage commissions charged by
such registered broker-dealer.
(c) For each Participant, the Reinvestment Agent will maintain a record
which shall reflect for each fiscal quarter the Distributions received by the
Reinvestment Agent on behalf of such Participant. The Reinvestment Agent will
use the aggregate amount of Distributions to all Participants for each fiscal
quarter to purchase Shares for the Participants. If the aggregate amount of
Distributions to Participants exceeds the amount required to purchase all Shares
then available for purchase, the Reinvestment Agent will purchase all available
Shares and will return all remaining Distributions to the Participants within 30
days after the date such Distributions are made. The purchased Shares will be
allocated among the Participants based on the portion of the aggregate
Distributions received by the Reinvestment Agent on behalf of each Participant,
as reflected in the records maintained by the Reinvestment Agent. The ownership
of the Shares purchased pursuant to the Reinvestment Plan shall be reflected on
the books of the Company.
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(d) Distributions shall be invested by the Reinvestment Agent in Shares
promptly following the payment date with respect to such Distributions to the
extent Shares are available. If sufficient Shares are not available,
Distributions shall be invested on behalf of the Participants in one or more
interest-bearing accounts in a commercial bank approved by the Company which is
located in the continental United States and has assets of at least
$100,000,000, until Shares are available for purchase, provided that any
Distributions that have not been invested in Shares within 30 days after such
Distributions are made by the Company shall be returned to Participants.
(e) The allocation of Shares among Participants may result in the ownership
of fractional Shares, computed to four decimal places.
(f) Distributions attributable to Shares purchased on behalf of the
Participants pursuant to the Reinvestment Plan will be reinvested in additional
Shares in accordance with the terms hereof.
(g) No certificates will be issued to a Participant for Shares purchased on
behalf of the Participant pursuant to the Reinvestment Plan except to
Participants who make a written request to the Reinvestment Agent. Participants
in the Reinvestment Plan will receive statements of account in accordance with
Paragraph 7 below.
2. ELECTION TO PARTICIPATE. Any stockholder who participates in a public
offering of Shares and who has received a copy of the related final prospectus
included in the Company's registration statement filed with the SEC may elect to
participate in and purchase Shares through the Reinvestment Plan at any time by
written notice to the Company and will not need to receive a separate prospectus
relating solely to the Reinvestment Plan. A person who becomes a stockholder
otherwise than by participating in a public offering of Shares may purchase
Shares through the Reinvestment Plan only after receipt of a separate prospectus
relating solely to the Reinvestment Plan. Participation in the Reinvestment Plan
will commence with the next Distribution made after receipt of the Participant's
notice, provided it is received more than ten business days prior to the last
day of the fiscal quarter to which such Distribution relates. Subject to the
preceding sentence, regardless of the date of such election, a stockholder will
become a Participant in the Reinvestment Plan effective on the first day of the
fiscal quarter following such election, and the election will apply to all
Distributions attributable to the fiscal quarter in which the stockholder makes
such written election to participate in the Reinvestment Plan and to all fiscal
quarters or months thereafter. A Participant who has terminated his
participation in the Reinvestment Plan pursuant to Paragraph 11 will be allowed
to participate in the Reinvestment Plan again upon receipt of a current version
of a final prospectus relating to participation in the Reinvestment Plan which
contains, at a minimum, the following: (i) the minimum investment amount; (ii)
the type or source of proceeds which may be invested; and (iii) the tax
consequences of the reinvestment to the Participant, by notifying the
Reinvestment Agent and completing any required forms. Stockholders who elect the
monthly distribution option, if available, are not eligible to participate in
the Reinvestment Plan. Boston Capital Holdings Limited Partnership and its
affiliates are not eligible to participate in the Reinvestment Plan.
3. DISTRIBUTION OF FUNDS. In making purchases for Participants' accounts,
the Reinvestment Agent may commingle Distributions attributable to Shares owned
by Participants in the Reinvestment Plan.
4. PROXY SOLICITATION. The Reinvestment Agent will distribute to
Participants proxy solicitation material received by it from the Company which
is attributable to Shares held in the Reinvestment Plan. The Reinvestment Agent
will vote any Shares that it holds for the account of a Participant in
accordance with the Participant's written instructions. In the absence of such
written instructions, if a Participant gives a proxy to person(s) representing
the Company covering Shares registered in the Participant's name, such proxy
will be deemed to be an instruction to the Reinvestment Agent to vote the full
Shares in the Participant's account in like manner. If a Participant does not
direct the Reinvestment Agent as to how the Shares should be voted and does not
give a proxy to person(s) representing the Company covering these Shares, the
Reinvestment Agent will not vote the Shares.
5. ABSENCE OF LIABILITY. Neither the Company nor the Reinvestment Agent
shall have any responsibility or liability as to the value of the Company's
Shares, any change in the value of the Shares acquired for the Participant's
account, or the rate of return earned on, or the value of, the interest-bearing
accounts, in which Distributions are invested. Neither the Company nor the
Reinvestment Agent shall be liable for any act done in good faith, or for any
good faith omission to act, including, without limitation, any claims of
liability (a) arising out of the failure to terminate a Participant's
participation in the Reinvestment Plan upon such Participant's death prior to
receipt of notice in writing of such death and the expiration of 15 days from
the date of receipt of such notice and
A-2
(b) with respect to the time and the prices at which Shares are purchased for a
Participant. Notwithstanding the foregoing, liability under the federal
securities laws cannot be waived. Similarly, the Company and the Reinvestment
Agent have been advised that in the opinion of certain state securities
commissioners, indemnification is also considered contrary to public policy and
therefore unenforceable.
6. SUITABILITY.
(a) Within 60 days prior to the end of each fiscal year, the Reinvestment
Agent will mail to each Participant a participation agreement (the
"Participation Agreement"), in which the Participant will be required to
represent that there has been no material change in the Participant's financial
condition and confirm that the representations made by the Participant in the
subscription agreement (a form of which shall be attached to the Participation
Agreement) are true and correct as of the date of the Participation Agreement,
except as noted in the Participation Agreement or the attached form of
subscription agreement.
(b) Each Participant will be required to return the executed Participation
Agreement to the Reinvestment Agent within 30 days after receipt. In the event
that a Participant fails to respond to the Reinvestment Agent or return the
completed Participation Agreement on or before the 15th day after the beginning
of the fiscal year following receipt of the Participation Agreement, the
Participant's Distribution for the first fiscal quarter of that year will be
sent directly to the Participant and no Shares will be purchased on behalf of
the Participant for that fiscal quarter and, subject to (c) below, any fiscal
quarters thereafter, until the Reinvestment Agent receives an executed
Participation Agreement from the Participant.
(c) If a Participant fails to return the executed Participation Agreement
to the Reinvestment Agent prior to the end of the second fiscal quarter for any
year of the Participant's participation in the Reinvestment Plan, the
Participant's participation in the Reinvestment Plan shall be terminated in
accordance with Paragraph 11 below.
(d) Each Participant shall notify the Reinvestment Agent in the event that,
at any time during his participation in the Reinvestment Plan, there is any
material change in the Participant's financial condition or inaccuracy of any
representation under the subscription agreement.
(e) For purposes of this Paragraph 6, a material change shall include any
anticipated or actual decrease in net worth or annual gross income or any other
change in circumstances that would cause the Participant to fail to meet the
suitability standards set forth in the Company's prospectus.
7. REPORTS TO PARTICIPANTS. Within 60 days after the end of each fiscal
quarter, the Reinvestment Agent will mail to each Participant a statement of
account describing, as to such Participant, the Distributions received during
the quarter, the number of Shares purchased during the quarter, the per Share
purchase price for such Shares, the total administrative charge to such
Participant, and the total Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Each statement shall also advise the
Participant that, in accordance with Paragraph 6(d) hereof, he is required to
notify the Reinvestment Agent in the event that there is any material change in
his financial condition or if any representation under the subscription
agreement becomes inaccurate. Tax information for income earned on Shares under
the Reinvestment Plan will be sent to each participant by the Company or the
Reinvestment Agent at least annually.
8. ADMINISTRATIVE CHARGES, COMMISSIONS, AND PLAN EXPENSES. In connection
with Shares purchased by Participants in the Reinvestment Plan, the Company will
pay selling commissions of 7%, a dealer-manager fee of 2.5%, and, in the event
that proceeds from the sale of Shares to Participants are used to acquire
properties, acquisition and advisory fees and expenses of 3.5%, of the purchase
price of the Shares. The administrative charge for each Participant for each
fiscal quarter shall be the lesser of 5% of the amount reinvested for the
Participant or $2.50, with a minimum charge of $.50. Any interest earned on
Distributions will be paid to the Company to defray costs relating to the
Reinvestment Plan. Except as provided in this Paragraph 8, the Company shall be
responsible for all administrative charges and expenses charged by the
Reinvestment Agent.
9. NO DRAWING. No Participant shall have any right to draw checks or drafts
against his account or give instructions to the Company or the Reinvestment
Agent except as expressly provided herein.
A-3
10. TAXES. Taxable Participants may incur a tax liability for Distributions
made with respect to such Participant's Shares, even though they have elected
not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
11. TERMINATION.
(a) A Participant may terminate his participation in the Reinvestment Plan
at any time by written notice to the Company. To be effective for any
Distribution, such notice must be received by the Company at least ten business
days prior to the last day of the fiscal quarter to which such Distribution
relates.
(b) The Company or the Reinvestment Agent may terminate a Participant's
individual participation in the Reinvestment Plan, and the Company may terminate
the Reinvestment Plan itself, at any time by ten days' prior written notice
mailed to a Participant, or to all Participants, as the case may be, at the
address or addresses shown on their account or such more recent address as a
Participant may furnish to the Company in writing.
(c) After termination of the Reinvestment Plan or termination of a
Participant's participation in the Reinvestment Plan, the Reinvestment Agent
will send to each Participant (i) a statement of account in accordance with
Paragraph 7 hereof, and (ii) a check for (a) the amount of any Distributions in
the Participant's account that have not been reinvested in Shares, and (b) the
value of any fractional Shares standing to the credit of a Participant's account
based on the market price of the Shares. The record books of the Company will be
revised to reflect the ownership of record of the Participant's full Shares and
any future Distributions made after the effective date of the termination will
be sent directly to the former Participant.
12. NOTICE. Any notice or other communication required or permitted to be
given by any provision of this Reinvestment Plan shall be in writing and
addressed, if to the Company:
Investor Relations Department
Boston Capital Real Estate Investment Trust, Inc.
c/o Boston Capital Corporation
One Boston Place
Boston, MA 02108-4406
if to the Reinvestment Agent:
Boston Capital Services, Inc.
One Boston Place
Boston, MA 02108-4406
or to such other addresses as may be specified by written notice to all
Participants. Notices to a Participant may be given by letter addressed to the
Participant at the Participant's last address of record with the Company. Each
Participant shall notify the Company promptly in writing of any change of
address.
13. AMENDMENT. The terms and conditions of this Reinvestment Plan may be
amended or supplemented by an agreement between the Reinvestment Agent and the
Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his last address of record; provided, that any such amendment
must be approved by a majority of the independent directors of the Company. Such
amendment or supplement shall be deemed conclusively accepted by each
Participant except those Participants from whom the Company receives written
notice of termination prior to the effective date thereof.
14. GOVERNING LAW. THIS REINVESTMENT PLAN AND A PARTICIPANT'S ELECTION TO
PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS; PROVIDED, HOWEVER, THAT CAUSES OF ACTION FOR
VIOLATIONS OF FEDERAL OR STATE SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS
SECTION 14.
A-4
EXHIBIT B
SUBSCRIPTION AGREEMENT
Boston Capital Real Estate Investment Trust, Inc.
c/o Boston Capital Corporation
One Boston Place, Suite 2100
Boston, Massachusetts 02108
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, tenders this subscription and applies for
the purchase of the number of shares of common stock ("Shares") of Boston
Capital Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), set forth on such Subscription Agreement Signature Page. Payment for
the Shares is hereby made by check payable to "Wainwright Bank & Trust Escrow
Account."
The undersigned hereby acknowledges receipt of the Prospectus of the
Company dated ________, 2003 (the "Prospectus").
The undersigned agrees that if this subscription is accepted, it will be
held, together with the accompanying payment, on the terms described in the
Prospectus. The undersigned understands that subscriptions may be rejected in
whole or in part by the Company in its sole and absolute discretion.
The undersigned acknowledges that he/she has been advised of the following:
(a) The assignability and transferability of the Shares is restricted and
will be governed by the Company's Articles of Incorporation and Bylaws
and all applicable laws as described in the Prospectus.
(b) Prospective investors should not invest in Shares unless they have an
adequate means of providing for their current needs and personal
contingencies and have no need for liquidity in this investment.
(c) There is no public market for the Shares and, accordingly, it may not
be possible to readily liquidate an investment in the Company.
BY SIGNING THIS SUBSCRIPTION AGREEMENT, THE INVESTOR IS NOT WAIVING ANY
RIGHTS THAT THE INVESTOR MAY HAVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
B-1
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
260.141.11 Restrictions on Transfer.
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules
(the "Rules") adopted under the California Corporate Securities Law (the "Code")
shall cause a copy of this section to be delivered to each issuee or transferee
of such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestor, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation INTER VIVOS or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities laws of the foreign state, territory or
country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
15121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled or actually present in this state;
B-2
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advised the commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
therein in capital letters of not less than 10-point size, reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
[LAST AMENDED EFFECTIVE JANUARY 21, 1988.]
SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI AND NEBRASKA
RESIDENTS ONLY
In no event may a subscription for Shares be accepted until at least five
business days after the date the subscriber receives the Prospectus. Residents
of the States of Maine, Massachusetts, Minnesota, Missouri and Nebraska who
first received the Prospectus only at the time of subscription may receive a
refund of the subscription amount upon request to the Company within five days
of the date of subscription.
B-3
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee must sign.
6. TRUST: The trustee must sign. Provide the name of the trust, the name
of the trustee and the name of the beneficiary.
7. COMPANY: Identify whether the entity is a general or limited
partnership or an LLC. In the case of a limited partnership, the
general partners must be identified and all general partners must sign.
In the case of a general partnership or an LLC, all partners or members
must sign (unless a "managing partner," "manager" or "managing member"
has been designated for the entity, in which case he may sign on behalf
of the entity if a certified copy of the document granting him
authority to invest on behalf of the entity is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating
the officer(s) of the corporation authorized to sign on behalf of the
corporation, and (2) a certified copy of the Board's resolution
authorizing the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g.,
an officer) of the bank, trust company, or other fiduciary. The address
of the trustee must be provided in order for the trustee to receive
checks and other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) OR UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the
parent (unless the parent has been designated as the custodian). Only
one child is permitted in each investment under UGMA or UTMA. In
addition, designate the state under which the gift is being made.
B-4
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE TO BOSTON CAPITAL
REAL ESTATE INVESTMENT TRUST, INC., SUBSCRIPTION AGREEMENT
INVESTOR Please follow these instructions carefully
INSTRUCTIONS Failure to do so may result in the rejection of
your . subscription. All information on the
Subscription Agreement Signature Page should be
completed as follows:
1. INVESTMENT a. GENERAL: A minimum investment of $1,000
(100 shares) is required, except for
certain states which require a higher
minimum investment. A CHECK FOR THE FULL
PURCHASE PRICE OF THE SHARES SUBSCRIBED FOR
SHOULD BE MADE PAYABLE TO THE ORDER OF
"WAINWRIGHT BANK & TRUST ESCROW ACCOUNT."
Shares may be purchased only by persons
meeting the standards set forth under the
"Investor Suitability Standards" section of
the Prospectus. Please indicate the state
in which the sale was made. WE WILL NOT
ACCEPT CASH, MONEY ORDERS OR TRAVELERS
CHECKS FOR INITIAL INVESTMENTS.
b. DEFERRED COMMISSION OPTION: Please check
the box if you have agreed with your
broker-dealer to elect the deferred
commission option described in the
Prospectus. By electing the deferred
commission option, you are required to pay
only $9.40 per share purchased upon
subscription. For the next six years
following the year of subscription, or
longer if required to satisfy outstanding
deferred commission obligations, you will
have a 1% sales commission ($.10 per share)
per year deducted from and paid out of
dividends or other cash distributions
otherwise distributable to you. Election of
the deferred commission option will
authorize us to withhold such amounts from
dividends or other cash distributions
otherwise payable to you as is set forth in
the "Selling and Escrow Arrangements"
section of the Prospectus.
2. ADDITIONAL Please check if you plan to make one or more
INVESTMENTS additional investments in the Company. All
additional investments must be in increments of
at least $100. Additional investments by
residents of Maine must be for at least the
$1,000 minimum amount, and residents of Maine
must execute a new Subscription Agreement
Signature Page to make additional investments
in the Company. If additional investments in
the Company are made, the investor agrees to
notify the Company and the broker-dealer named
on the Subscription Agreement Signature Page in
writing if at any time he or she fails to meet
the applicable suitability standards or is
unable to make any other representations or
warranties set forth in the Prospectus or the
Subscription Agreement. The investor
acknowledges that the broker-dealer named in
the Subscription Agreement Signature Page may
receive commissions on such additional
investments as described in the Prospectus.
3. TYPE OF Please check the appropriate box to indicate
OWNERSHIP the type of entity or type of individuals
subscribing. (See page B-4.)
4. REGISTRATION Please enter the exact name in which the Shares
NAME AND ADDRESS are to be held. For joint tenants with right of
survivorship or tenants in common, include the
names of both investors. In the case of
partnerships or corporations, include the name
of an individual to whom correspondence will be
addressed. Trusts should include the name of
the trustee. All investors must complete the
space provided for taxpayer identification
number or social security number. By signing in
Section 6 of the
B-5
Subscription Agreement Signature Page, the
investor is certifying that this number is
correct. Enter the mailing address and
telephone numbers of the registered owner of
this investment. In the case of a Qualified
Plan or trust, this will be the address of the
trustee. Indicate the birthdate and occupation
of the registered owner unless the registered
owner is a partnership, corporation or trust.
5. INVESTOR NAME Complete this Section only if the investor's
AND ADDRESS name and address is different from the
registration name and address provided in
Section 4. If the Shares are registered in the
name of a trust, enter the name, address,
telephone number, social security number,
birthdate and occupation of the beneficial
owner of the trust.
6. SUBSCRIBER Each investor must initial each representation
SIGNATURES in this Section, and then sign and date this
Section. By initialing and signing, each
investor is agreeing that the representations
in this Section are true. Except in the case of
fiduciary accounts, the investor may not grant
any person a power of attorney to make such
representations on his or her behalf. If title
is to be held jointly, all parties must initial
and sign. If the registered owner is a
partnership, corporation or trust, a general
partner, officer or trustee of the entity must
initial and sign. PLEASE NOTE THAT THESE
SIGNATURES DO NOT HAVE TO BE NOTARIZED.
7. DIVIDEND a. DIVIDEND REINVESTMENT PLAN: By electing to
DISTRIBUTIONS participate in the Dividend Reinvestment
Plan, the investor elects to reinvest the
stated percentage of dividends otherwise
payable to such investor in Shares of the
Company. The investor agrees to notify the
Company and the broker-dealer named on the
Subscription Agreement Signature Page in
writing if at any time he or she fails to
meet the applicable suitability standards
or is unable to make any other
representations and warranties as set forth
in the prospectus or subscription
agreement.
b. DIVIDEND ADDRESS: If cash dividends are to
be sent to an address other than that
provided in Section 4 (i.e., a bank,
brokerage firm or savings and loan, etc.),
please provide the name, account number and
address.
8. BROKER-DEALER This Section is to be completed by the
Registered Representative. Please complete all
BROKER-DEALER information contained in Section
8 including suitability certification.
SIGNATURE PAGE MUST BE SIGNED BY AN AUTHORIZED
REPRESENTATIVE.
The Subscription Agreement Signature Page, which has been delivered with
the Prospectus, together with a check for the full purchase price, should be
delivered or mailed to Boston Capital, One Boston Place, Boston, MA 02108. Only
original, completed copies of Subscription Agreement Signature Pages can be
accepted. Photocopies or otherwise duplicate Subscription Agreement Signature
Pages cannot be accepted by the Company.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THE
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-866-2282
B-6
BOSTON CAPITAL
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
[Enlarge/Download Table]
1. INVESTMENT
MAKE INVESTMENT CHECK PAYABLE TO:
_____________________ ____________________ WAINWRIGHT BANK & TRUST ESCROW ACCOUNT
# of Shares Total $ Invested / / Initial Investment (Minimum $1,000)
(# Shares x $10 = $ Invested) / / Additional Investment (Minimum $100)
Minimum purchase $1,000 or 100 Shares State in which sale was made ________________________
Check the following box to elect the Deferred Commission Option: ?
(This election must be agreed to by the Broker-Dealer listed below)
2. ADDITIONAL INVESTMENTS
Please check if you plan to make additional investments in the Company: -
If additional investments are made, please include social security number or
other taxpayer identification number on your check. All additional investments
must be made in increments of at least $100.00. By checking this box, I agree to
notify the Company in writing if at any time I fail to meet the suitability
standards or am unable to make the representations in Section 6.
3. TYPE OF OWNERSHIP
/ / IRA / / Individual
/ / Keogh / / Joint Tenants With Right of Survivorship
/ / Qualified Pension Plan / / Community Property
/ / Qualified Profit Sharing Plan / / Tenants in Common
/ / Other Trust of _______________________________ / / Custodian: As Custodian for _________________________
for the Benefit of _________________________ under the Uniform Gift to Minors Act or the Uniform
/ / Company Transfers to Minors Act of the State of _____________
/ / Corporation / / Other _______________________________________________
4. REGISTRATION NAME AND ADDRESS
Please print name(s) in which Shares are to be registered. Include trust name if applicable.
/ / Mr / / Mrs / / Ms / / MD / / PhD / / DDS / / Other ___________________
Name _____________________________________________ Taxpayer Identification Number
-
___ ___ ___ ___ ___ ___ ___ ___ ___
Social Security Number
___ ___ ___ - ___ ___ - ___ ___ ___ ___
Street Address or P.O. Box
City State Zip Code
Home Telephone No. ( ) Business Telephone No. ( )
Birthdate Occupation
Email Address (Provide only if you would like to receive updated information about Boston Capital via email.)
5. INVESTOR NAME AND ADDRESS
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
/ / Mr / / Mrs / / Ms / / MD / / PhD / / DDS / / Other ___________________
Social Security Number
Name ____________________________________ ___ ___ ___ - ___ ___ - ___ ___ ___ ___
Street Address or P.O. Box
City State Zip Code
Home Telephone No. ( ) Business Telephone No. ( )
Birthdate Occupation
Email Address (Provide only if you would like to receive updated information about Boston Capital via email.)
6. SUBSCRIBER SIGNATURES
The undersigned certifies, under penalty of perjury (i) that the taxpayer
identification number shown on the Subscription Agreement Signature Page is
true, correct and complete, and (ii) that he/she is not subject to backup
withholding either because he/she has not been notified that he/she is subject
to
B-7
backup withholding as a result of a failure to report all interest or
distributions, or the Internal Revenue Service has notified him/her that he/she
is no longer subject to backup withholding.
(CONTINUED ON REVERSE)
B-8
The undersigned further acknowledges and/or represents (or in the case of
fiduciary accounts, the person authorized to sign on such investor's behalf) the
following (please initial each item):
___(a) acknowledges receipt, not less than five (5) business days prior to
the signing of this Subscription Agreement, of the Prospectus of the
Company relating to the Shares wherein the terms and conditions of the
offering of the Shares are described, including among other things,
the restriction on ownership and transfer of Shares, which require,
under certain circumstances, that a holder of Shares shall give
written notice and provide certain information to the Company;
___(b) represents that I (we) either: (i) have a net worth (excluding home,
home furnishings and automobiles) of at least $45,000 and estimate
that (without regard to investment in the Company) I (we) have gross
income due in the current year of at least $45,000; or (ii) have a net
worth (excluding home, home furnishings and automobiles) of at least
$150,000 or such higher suitability as may be required by certain
states and set forth in the "Investor Suitability Standards" section
of the Prospectus; in the case of sales to fiduciary accounts,
suitability standards must be met by the beneficiary, the fiduciary
account or by the donor or grantor who directly or indirectly supplies
the funds for the purchase of the Shares;
___(c) represents that the investor is purchasing the Shares for his or her
own account and if I am (we are) purchasing Shares on behalf of a
trust or other entity of which I am (we are) trustee(s) or authorized
agent(s) I (we) have due authority to execute the Subscription
Agreement Signature Page and do hereby legally bind the trust or other
entity of which I am (we are) trustee(s) or authorized agent(s);
___(d) acknowledges that the Shares are not liquid; and
___(e) if an affiliate of the Company, represents that the Shares are being
purchased for investment purposes only and not with a view toward
immediate resale.
[Enlarge/Download Table]
Agreement Dated _____________________20______ /X/_______________________________________________
_____________________________________________ Signature-Registered Owner
(Print Name of Custodian or Trustee)
_____________________________________________ /X/_______________________________________________
Authorized Signature (Custodian or Trustee) Signature-Co-Owner
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN)
7. DIVIDEND DISTRIBUTIONS
7a. Check the applicable box to participate in the Dividend Reinvestment Plan:
Percentage of participation: 100% / / Other / / _____ %
7b. Complete the following section ONLY to direct dividends to a party OTHER
THAN registered owner:
Name
Account Number
Street Address or P.O. Box
City State Zip Code
8. BROKER-DEALER (TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete
order. Broker-Dealer warrants that it is a duly licensed Broker-Dealer and may
lawfully offer Shares in the state designated as the investor's address or the
state in which the sale was made, if different. The Broker-Dealer or authorized
representative warrants that he/she has reasonable grounds to believe this
investment is suitable for the subscriber as defined in Section 3(b) of the
Rules of Fair Practice of the NASD Manual and that he/she has informed
subscriber of all aspects of liquidity and marketability of this investment as
required by Section 4 of such Rules of Fair Practice.
Broker-Dealer Name Telephone No.
Broker-Dealer Street Address
City State Zip Code
Registered Representative Name Telephone No.
Reg. Rep. Street Address
City State Zip Code
Email Address (Provide only if you would like to receive updated information about Boston Capital via email.)
------------------------------------- --------------------------------------------
Broker-Dealer Signature, if required Registered Representative Signature
PLEASE MAIL COMPLETED SUBSCRIPTION AGREEMENT
SIGNATURE PAGE (WITH ALL SIGNATURES) AND
CHECK(S) MADE PAYABLE TO WAINWRIGHT BANK &
TRUST ESCROW ACCOUNT TO:
BOSTON CAPITAL, ONE BOSTON PLACE, BOSTON, MA 02110
FOR COMPANY USE ONLY:
Amount _______________________ Date ________________________
ACCEPTANCE BY COMPANY Check No. ____________________ Certificate No. _____________
Received and Subscription Accepted: Boston Capital
By:______________________________ ______________________________ ____________________________
_________________________________ Registered Representative # Account #
Broker-Dealer #
B-9
Until ___________________, 2004, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3,000,000 SHARES (MINIMUM OFFERING)
31,500,000 SHARES (MAXIMUM OFFERING)
BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST, INC.
COMMON STOCK
----------
PROSPECTUS
----------
BOSTON CAPITAL SERVICES, INC.
_____________, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are estimates of the expenses to be incurred in
connection with the issuance and distribution of the securities to be
registered:
[Download Table]
SEC registration fee $ 28,980
NASD filing fee $ 30,500
Printing and engraving fees $ 200,000
Legal fees and expenses $ 400,000
Accounting fees and expenses $ 150,000
Blue Sky fees and expenses $ 200,000
Other expenses $ 1,200,000
------------
Total $ 2,209,480
============
ITEM 32. SALES TO SPECIAL PARTIES.
None.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
On May 2, 2003, in connection with our formation, we issued 20,000 shares
of our common stock to Boston Capital Companion Limited Partnership, an
affiliate of the Advisor, for an aggregate consideration of $200,000 ($10 per
share), in cash. No underwriter was involved. The sale was made in reliance upon
an exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof and the rules and regulations thereunder. Section 4(2)
provides an exemption from registration for an isolated sale of securities by an
issuer (us) to a single purchaser (Boston Capital Companion Limited Partnership)
in a transaction that does not involve any public offering. These shares are
deemed restricted securities for purposes of the Securities Act. Currently, John
P. Manning, through his ownership of the general partner of Boston Capital
Companion Limited Partnership, has voting control over these shares.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our charter contains a provision permitted under Maryland General
Corporation Law eliminating, with limited exceptions, each director's and
officer's personal liability for monetary damages for breach of any duty as a
director or officer. In addition, our charter documents require us to indemnify
our directors and officers from specified liabilities and expenses, as well as
advancement of costs, expenses and attorneys' fees, to the fullest extent
permitted under Maryland General Corporation Law. These rights are contract
rights fully enforceable by each beneficiary of those rights, and are in
addition to, and not exclusive of, any other right to indemnification.
Furthermore, our officers and directors are indemnified against specified
liabilities by the soliciting dealers, and the soliciting dealers are
indemnified against certain liabilities by us, under the soliciting dealer
agreements relating to this offering. See "Selling and Escrow Arrangements."
In addition, our directors and officers are indemnified for specified
liabilities and expenses pursuant to the advisory services agreement between us
and the Advisor, Boston Capital REIT Advisors, LLC.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
None of the proceeds will be credited to an account other than the
appropriate capital share account.
II-1
ITEM 36. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS.
(a) Financial Statements: See page F-1 for an index of the financial
statements included in the Registration Statement.
(b) Financial Statement Schedule.
(c) Exhibits.
EXHIBITS
[Download Table]
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1.1 Form of Dealer-Manager Agreement between Boston Capital Services,
Inc., and the Registrant (including, as an exhibit thereto, the
form of Soliciting Dealer Agreement)
3.1 Form of Articles of Amendment and Restatement of the Registrant
3.2 By-Laws of the Registrant
4.1 Form of Common Stock Certificate of the Registrant
4.2 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit B to Prospectus)
5.1 Form of Opinion of Nixon Peabody LLP with respect to the legality
of the shares being registered
8.1 Form of Opinion of Nixon Peabody LLP with respect to tax matters
10.1+ Form of 2003 Equity Incentive Plan
10.2+ Forms of Option Agreement and Restricted Stock Grant Agreement
under the 2003 Equity Incentive Plan
10.3+ Form of Independent Director Stock Option Plan
10.4+ Form of Option Agreement under the Independent Director Stock
Option Plan
10.5+ Form of Advisory Services Agreement between Boston Capital REIT
Advisors, LLC, and the Registrant
10.6 Loan Agreement dated as of May 31, 2003, between BCP Funding,
LLC, and the Registrant
10.7 Pledge Agreement (LLC/LP Interests), dated as of May 31 2003,
between BCP Funding, LLC, and the Registrant
10.8 Property Management Agreement, dated December 12, 2002, between
GFS Alderwood LLC and Pinnacle Realty Management Company
10.9 Property Management Agreement, dated December 12, 2002, between
GFS Ridgegate LLC and Pinnacle Realty Management Company
10.10 Property Management Agreement, dated December 12, 2002, between
GFS Ridgetop LLC and Pinnacle Realty Management Company
10.11 Property Management Agreement, dated December 12, 2002, between
GFS Wellington LLC and
II-2
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Pinnacle Realty Management Company
10.12 Reinvestment Plan (included as Exhibit A to Prospectus)
10.13 Escrow Agreement between Wainwright Bank & Trust Co. and the
Registrant (to be filed by amendment)
10.14 Property Management Agreement, dated May 21, 2003, between
BC-Bainbridge Pointe LLC and Bainbridge Management Jacksonville
LLC
10.15 Property Management Agreement, dated May 21, 2003, between
BC-Bainbridge Timuquana LLC and Bainbridge Management
Jacksonville LLC
10.16 Property Management Agreement, dated May 29, 2003, between
BC-Bainbridge Spicewood LLC and Bainbridge Management
Jacksonville LLC
10.17 Property Management Agreement, dated May 29, 2003, between BC-GFS
Settler's Point LLC and American Management Service West, LLC,
dba Pinnacle
10.18 Property Management Agreement, dated May 29, 2003, between BC-GFS
Bridge Creek LLC and American Management Service West, LLC, dba
Pinnacle
10.19 Property Management Agreement, dated May 21, 2003, between BC-GFS
Boulder Creek LLC and American Management Service West, LLC, dba
Pinnacle
10.20 Agreement for Sale and Purchase of Property (Bay Pointe
Apartments), dated February 11, 2003, between Vestcor-Bay Pointe
Partners, Ltd. and Bainbridge Communities Acquisition Corporation
II, as amended and assigned to BC-Bainbridge Bay Pointe LLC
10.21 Agreement for Sale and Purchase of Property (Oaks at Timuquana
Apartments), dated February 11, 2003, between VCP-Timuquana
Associates, Ltd. and Bainbridge Communities Acquisition
Corporation II, as amended and assigned to BC-Bainbridge
Timuquana LLC
10.22 Real Estate Sale Agreement, dated April 2, 2003, between ERP
Operating Limited Partnership and Bainbridge Communities
Acquisition Corporation II, as amended and assigned to
BC-Bainbridge Spicewood LLC
10.23 Real Estate Sale Agreement, dated March 27, 2003, among
EQR-FANCAP 2000A Limited Partnership, EQR-Bridgecreek Vistas,
Inc. and Goodman Financial Services, Inc. (with respect to
Boulder Creek and Bridge Creek), as amended (to be filed by
amendment)
10.24 Assignment of Real Estate Sale Agreement, dated May 2, 2003, from
Goodman Financial Services, Inc. to BC-GFS II LLC (to be filed by
amendment)
10.25 Real Estate Sale Agreement, dated March 26, 2003, between ERP
Operating Limited Partnership and Goodman Financial Services,
Inc. (with respect to Settler's Point), as amended (to be filed
by amendment)
10.26 Assignment of Real Estate Sale Agreement, dated May 2, 2003, from
Goodman Financial Services, Inc. to BC-GFS II LLC (to be filed by
amendment)
10.27 Assignment of Real Estate Sale Agreement, dated May 21, 2003,
from BC-GFS II LLC to BC-GFS Boulder Creek LLC (to be filed by
amendment)
10.28 Assignment of Real Estate Sale Agreement, dated May 21, 2003,
from BC-GFS II LLC to BC-GFS Bridge Creek LLC (to be filed by
amendment)
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10.29 Assignment of Real Estate Sale Agreement, dated May 21, 2003,
from BC-GFS II LLC to BC-GFS Settler's Point LLC (to be filed by
amendment)
10.30 Washington Portfolio Real Estate Agreement, dated July 11, 2002,
among ERP Operating Limited Partnership, EQR-Alderwood Limited
Partnership, EQR-Wellington, L.L.C., and Goodman Financial
Services, Inc, as amended (to be filed by amendment)
10.31 Assignment of Real Estate Agreement to BC-GFS LLC (to be filed by
amendment)
10.32 Assignment of Real Estate Agreement with respect to Alderwood
from BC-GFS LLC to GFS Alderwood LLC (to be filed by amendment)
10.33 Assignment of Real Estate Agreement with respect to Ridgegate
from BC-GFS LLC to GFS Ridgegate LLC (to be filed by amendment)
10.34 Assignment of Real Estate Agreement with respect to Ridgetop from
BC-GFS LLC to GFS Ridgetop LLC (to be filed by amendment)
10.35 Assignment of Real Estate Agreement with respect to Wellington
from BC-GFS LLC to GFS Wellington LLC (to be filed by amendment)
23.1 Consent of Reznick Fedder & Silverman
23.2 Consent of Nixon Peabody LLP (included in Exhibit 5.1)
23.3 Consent of Nixon Peabody LLP (included in Exhibit 8.1)
24.1 Power of Attorney (included on signature page)
99 Table VI: Acquisition of Properties by Programs
---------------
+compensatory plan or arrangement
ITEM 37. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
II-4
iii. To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act,
and will be governed by the final adjudication of such issue.
The registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Securities Act during the distribution period describing
each property not identified in the prospectus at such time as there
arises a reasonable probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment filed at
least once every three months, with the information contained in such
amendment provided simultaneously to the existing stockholders. Each
sticker supplement should disclose all compensation and fees received by
the Advisor and its affiliates in connection with any such acquisition.
The post-effective amendment shall include audited financial statements
meeting the requirements of Rule 3-14 of Regulation S-X only for
properties acquired during the distribution period.
The registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements
and any additional information required by Rule 3-14 of Regulation S-X, to
reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use
of 10 percent or more (on a cumulative basis) of the net proceeds of the
offering, and to provide the information contained in such report to the
stockholders at least once each quarter after the distribution period of
the offering has ended.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this amendment no. 1 to
its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts,
on this _____ day of _____________, 2003.
BOSTON CAPITAL REAL ESTATE INVESTMENT TRUST,
INC.
By:
----------------------------------------
Jeffrey H. Goldstein
President and Chief Operating Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints John P. Manning
and Jeffrey H. Goldstein, and each of them severally, acting alone and without
the other, his/her true and lawful attorney-in-fact with full power of
substitution or resubstitution, for such person and in such person's name, place
and stead, in any and all capacities, to sign on such person's behalf,
individually and in each capacity stated below, any and all amendments,
including post-effective amendments to this Registration Statement, and to sign
any and all additional registration statements relating to the same offering of
securities of the Registration Statement that are filed pursuant to Rule 462(b)
of the Securities Act of 1933, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
Chairman, Chief Executive Officer, Director ___________, 2003
----------------------------------
John P. Manning (principal executive officer)
President, Chief Operating Officer, Director ___________, 2003
----------------------------------
Jeffrey H. Goldstein
Senior Vice President, Chief Financial ___________, 2003
---------------------------------- Officer, Treasurer, Secretary (principal
Marc N. Teal financial and accounting officer)
* Director ___________, 2003
----------------------------------
Philip S. Cottone
* Director ___________, 2003
----------------------------------
W. Pearce Coues
* Director ___________, 2003
----------------------------------
Stephen Puleo
*Pursuant to Power of Attorney
----------------------------------
Jeffrey H. Goldstein
Attorney-in-Fact
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EXHIBITS
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NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1.1 Form of Dealer-Manager Agreement between Boston Capital Services,
Inc., and the Registrant (including, as an exhibit thereto, the
form of Soliciting Dealer Agreement)
3.1 Form of Articles of Amendment and Restatement of the Registrant
3.2 By-Laws of the Registrant
4.1 Form of Common Stock Certificate of the Registrant
4.2 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit B to Prospectus)
5.1 Form of Opinion of Nixon Peabody LLP with respect to the legality
of the shares being registered
8.1 Form of Opinion of Nixon Peabody LLP with respect to tax matters
10.1+ Form of 2003 Equity Incentive Plan
10.2+ Forms of Option Agreement and Restricted Stock Grant Agreement
under the 2003 Equity Incentive Plan
10.3+ Form of Independent Director Stock Option Plan
10.4+ Form of Option Agreement under the Independent Director Stock
Option Plan
10.5+ Form of Advisory Services Agreement between Boston Capital REIT
Advisors, LLC, and the Registrant
10.6 Loan Agreement dated as of May 31, 2003, between BCP Funding,
LLC, and the Registrant
10.7 Pledge Agreement (LLC/LP Interests), dated as of May 31 2003,
between BCP Funding, LLC, and the Registrant
10.8 Property Management Agreement, dated December 12, 2002, between
GFS Alderwood LLC and Pinnacle Realty Management Company
10.9 Property Management Agreement, dated December 12, 2002, between
GFS Ridgegate LLC and Pinnacle Realty Management Company
10.10 Property Management Agreement, dated December 12, 2002, between
GFS Ridgetop LLC and Pinnacle Realty Management Company
10.11 Property Management Agreement, dated December 12, 2002, between
GFS Wellington LLC and Pinnacle Realty Management Company
10.12 Reinvestment Plan (included as Exhibit A to Prospectus)
10.13 Escrow Agreement between Wainwright Bank & Trust Co. and the
Registrant (to be filed by amendment)
10.14 Property Management Agreement, dated May 21, 2003, between
BC-Bainbridge Pointe LLC and Bainbridge Management Jacksonville
LLC
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10.15 Property Management Agreement, dated May 21, 2003, between
BC-Bainbridge Timuquana LLC and Bainbridge Management
Jacksonville LLC
10.16 Property Management Agreement, dated May 29, 2003, between
BC-Bainbridge Spicewood LLC and Bainbridge Management
Jacksonville LLC
10.17 Property Management Agreement, dated May 29, 2003, between BC-GFS
Settler's Point LLC and American Management Service West, LLC,
dba Pinnacle
10.18 Property Management Agreement, dated May 29, 2003, between BC-GFS
Bridge Creek LLC and American Management Service West, LLC, dba
Pinnacle
10.19 Property Management Agreement, dated May 21, 2003, between BC-GFS
Boulder Creek LLC and American Management Service West, LLC, dba
Pinnacle
10.20 Agreement for Sale and Purchase of Property (Bay Pointe
Apartments), dated February 11, 2003, between Vestcor-Bay Pointe
Partners, Ltd. and Bainbridge Communities Acquisition Corporation
II, as amended and assigned to BC-Bainbridge Bay Pointe LLC
10.21 Agreement for Sale and Purchase of Property (Oaks at Timuquana
Apartments), dated February 11, 2003, between VCP-Timuquana
Associates, Ltd. and Bainbridge Communities Acquisition
Corporation II, as amended and assigned to BC-Bainbridge
Timuquana LLC
10.22 Real Estate Sale Agreement, dated April 2, 2003, between ERP
Operating Limited Partnership and Bainbridge Communities
Acquisition Corporation II, as amended and assigned to
BC-Bainbridge Spicewood LLC
10.23 Real Estate Sale Agreement, dated March 27, 2003, among
EQR-FANCAP 2000A Limited Partnership, EQR-Bridgecreek Vistas,
Inc. and Goodman Financial Services, Inc. (with respect to
Boulder Creek and Bridge Creek), as amended (to be filed by
amendment)
10.24 Assignment of Real Estate Sale Agreement, dated May 2, 2003, from
Goodman Financial Services, Inc. to BC-GFS II LLC (to be filed by
amendment)
10.25 Real Estate Sale Agreement, dated March 26, 2003, between ERP
Operating Limited Partnership and Goodman Financial Services,
Inc. (with respect to Settler's Point), as amended (to be filed
by amendment)
10.26 Assignment of Real Estate Sale Agreement, dated May 2, 2003, from
Goodman Financial Services, Inc. to BC-GFS II LLC (to be filed by
amendment)
10.27 Assignment of Real Estate Sale Agreement, dated May 21, 2003,
from BC-GFS II LLC to BC-GFS Boulder Creek LLC (to be filed by
amendment)
10.28 Assignment of Real Estate Sale Agreement, dated May 21, 2003,
from BC-GFS II LLC to BC-GFS Bridge Creek LLC (to be filed by
amendment)
10.29 Assignment of Real Estate Sale Agreement, dated May 21, 2003,
from BC-GFS II LLC to BC-GFS Settler's Point LLC (to be filed by
amendment)
10.30 Washington Portfolio Real Estate Agreement, dated July 11, 2002,
among ERP Operating Limited Partnership, EQR-Alderwood Limited
Partnership, EQR-Wellington, L.L.C., and Goodman Financial
Services, Inc, as amended (to be filed by amendment)
10.31 Assignment of Real Estate Agreement to BC-GFS LLC (to be filed by
amendment)
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10.32 Assignment of Real Estate Agreement with respect to Alderwood
from BC-GFS LLC to GFS Alderwood LLC (to be filed by amendment)
10.33 Assignment of Real Estate Agreement with respect to Ridgegate
from BC-GFS LLC to GFS Ridgegate LLC (to be filed by amendment)
10.34 Assignment of Real Estate Agreement with respect to Ridgetop from
BC-GFS LLC to GFS Ridgetop LLC (to be filed by amendment)
10.35 Assignment of Real Estate Agreement with respect to Wellington
from BC-GFS LLC to GFS Wellington LLC (to be filed by amendment)
23.1 Consent of Reznick Fedder & Silverman
23.2 Consent of Nixon Peabody LLP (included in Exhibit 5.1)
23.3 Consent of Nixon Peabody LLP (included in Exhibit 8.1)
24.1 Power of Attorney (included on signature page)
99 Table VI: Acquisition of Properties by Programs
--------------
+ compensatory plan or arrangement
II-9
Dates Referenced Herein
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