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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on July 26, 2011

Registration No. 333-            

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form S-11
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES



Morgan Properties Trust
(Exact Name of Registrant as Specified in its Governing Instruments)

160 Clubhouse Road, King of Prussia, Pennsylvania 19406
(610) 265-2800
(Address, Including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)



J. Patrick O'Grady
Executive Vice President and Chief Financial Officer
Morgan Properties Trust
160 Clubhouse Road, King of Prussia, Pennsylvania 19406
(610) 265-2800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)



Copies to:

Gilbert G. Menna
Goodwin Procter LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018
(212) 813-8800

  David J. Goldschmidt
Skadden, Arps, Slate,
Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

                 If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

                 If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

                 If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

                 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. o

                 If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

                 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities to be registered
  Proposed maximum
aggregate offering
price(1)

  Amount of
registration fee

 

Common Shares of Beneficial Interest, $0.01 par value per share

  $800,000,000   $92,880

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. Includes additional common shares of beneficial interest that the underwriters have the option to purchase to cover overallotments, if any. See "Underwriting."

                 The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.


Table of Contents

The information in this preliminary 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 declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale of such securities is not permitted.

Subject to Completion
Preliminary Prospectus dated July 26, 2011

PROSPECTUS

             Shares

Morgan Properties Trust

Common Shares of Beneficial Interest



              This is the initial public offering of Morgan Properties Trust. We are offering             common shares of beneficial interest.

              We expect the initial public offering price to be between $            and $            per share. Currently, no public market exists for our shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol "MPT." We intend to elect to be taxed and to operate in a manner that will allow us to qualify as a real estate investment trust for federal income tax purposes commencing with our taxable year ending December 31, 2011.

              Investing in our common shares involves risks. You should read the section entitled "Risk Factors" beginning on page 24 of this prospectus for a discussion of certain risk factors that you should consider before investing in our common shares.



 
 
Per Share
 
Total

Public offering price

  $   $

Underwriting discount

  $   $

Proceeds, before expenses, to us

  $   $

              The underwriters may also exercise their option to purchase up to an additional                    shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover overallotments, if any.

              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 shares will be ready for delivery on or about                   , 2011.



BofA Merrill Lynch   Goldman, Sachs & Co.   J.P. Morgan   Morgan Stanley



The date of this prospectus is                        , 2011.


Table of Contents


TABLE OF CONTENTS

 
  Page

PROSPECTUS SUMMARY

  1

RISK FACTORS

  24

FORWARD-LOOKING STATEMENTS

  52

USE OF PROCEEDS

  54

DISTRIBUTION POLICY

  55

CAPITALIZATION

  58

DILUTION

  59

SELECTED FINANCIAL DATA

  60

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  63

INDUSTRY BACKGROUND AND MARKET OPPORTUNITY

  84

OUR BUSINESS AND PROPERTIES

  98

MANAGEMENT

  120

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  132

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

  138

STRUCTURE AND FORMATION OF OUR COMPANY

  143

DESCRIPTION OF THE PARTNERSHIP AGREEMENT OF MORGAN PROPERTIES OPERATING PARTNERSHIP, L.P

  147

PRINCIPAL SHAREHOLDERS

  155

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

  156

SHARES ELIGIBLE FOR FUTURE SALE

  162

MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF TRUST AND BYLAWS

  165

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

  171

ERISA CONSIDERATIONS

  193

UNDERWRITING

  196

LEGAL MATTERS

  204

EXPERTS

  204

WHERE YOU CAN FIND MORE INFORMATION

  204



              You should rely only on the information contained in this prospectus, any free writing prospectus prepared by us or information to which we have referred you. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and any free writing prospectus prepared by us is accurate only as of their respective dates or on the date or dates which are specified in those documents. Our business, financial condition, results of operations and prospects may have changed since those dates. We will update this prospectus as required by law.



              We use market data, demographic data, industry forecasts and projections throughout this prospectus. Unless otherwise indicated, we derived such information from the market study prepared for us by Rosen Consulting Group, or RCG, a nationally recognized real estate consulting firm. We have paid RCG a fee for such services. In addition, we have obtained certain market and industry data from publicly available industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness

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of the information are not guaranteed. The forecasts and projections are based on historical market data and the preparers' experience in the industry, and there is no assurance that any of the projected amounts will be achieved. We believe that the market and industry research others have performed are reliable, but we have not independently verified this information. Any forecasts prepared by RCG are based on data (including third-party data), models and experience of various professionals, and are based on various assumptions, all of which are subject to change.



              The term "our predecessor" means the combination of (i) all entities or interests in entities currently controlled by Mitchell L. Morgan and his affiliates that own interests in certain properties, which interests we will own after the completion of our formation transactions described elsewhere in this prospectus, which we refer to as the "existing entities," and (ii) Mitchell L. Morgan Management, Inc., which we refer to as "our management company" and Morgan Properties Payroll Services, Inc., which we refer to as our "payroll company."

              Unless the context otherwise requires, the terms "portfolio" and "properties" includes 99 properties, consisting of our 94 consolidated properties, which includes 91 wholly-owned properties and three properties in which an outside limited partner owns a de minimis equity interest, as well as five properties owned through unconsolidated joint ventures, which we refer to in this prospectus as our "joint venture properties."

              The term "Morgan trusts" means collectively the Agreement of Trust of Mitchell L. Morgan dated May 1, 1996, and the 2007 Morgan Family Trust. When used in the context of describing the tax protection agreements, Mr. Morgan and his affiliates include Mr. Morgan's spouse.

              Interests in our operating partnership are denominated in units, which we call "operating partnership units." Operating partnership units are redeemable for cash or, at our election, for common shares on a one-for-one basis. As used herein, when we refer to our ownership interest in our operating partnership, we mean the percentage of all operating partnership units that will be held by us following the formation transactions described in this prospectus and the completion of this offering.

              The term "public multifamily REITs" consists of the following publicly-traded multifamily real estate investment trusts: Apartment Investment & Management Co., Associated Estates Realty Corp., AvalonBay Communities Inc., BRE Properties, Inc., Camden Property Trust, Colonial Properties Trust, Equity Residential, Essex Property Trust Inc., Home Properties Inc., Mid America Apartment Communities Inc., Post Properties Inc., and UDR, Inc.

              The term "fully diluted basis" means all of our outstanding common shares at such time plus all outstanding restricted shares, if any, and common shares issuable upon the exchange of operating partnership units for our common shares on a one-for-one basis, which is not the same as the meaning of "fully diluted" under generally accepted accounting principles in the United States of America, or GAAP.

              The term "same store" means the portion of our 94 consolidated properties which we owned or managed for each of the entire fiscal years for the period being compared.

              The term "our core markets" means the suburban Philadelphia, suburban New York-New Jersey and suburban Baltimore-Washington, D.C. metropolitan areas. We define these metropolitan areas with reference to combined statistical areas, or CSAs, as defined by the United States Office of Management and Budget.

              The term "high barrier markets" refers to the following metropolitan areas characterized by RCG in its market study report as high barrier markets: Baltimore, Boston, Central New Jersey, Chicago, Fort Lauderdale, Hartford, Honolulu, Los Angeles, Miami, Nassau-Suffolk Counties, New

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York City, Northern New Jersey, Oakland, Orange County, Philadelphia, Portland, San Diego, San Francisco, San Jose, Santa Barbara, Seattle, Stamford, Tacoma, Ventura and Washington, D.C.

              The term "low barrier markets" refers to the following metropolitan areas characterized by RCG in its report as low barrier markets: Albuquerque, Atlanta, Austin, Bakersfield, Birmingham, Boise, Charlotte, Cincinnati, Cleveland, Colorado Springs, Columbus, Dallas, Denver, Detroit, El Paso, Fort Worth, Fresno, Greensboro/Winston-Salem, Houston, Indianapolis, Inland Empire, Jacksonville, Kansas City, Las Vegas, Louisville, Memphis, Milwaukee, Minneapolis, Modesto, Nashville, Norfolk, Orlando, Phoenix, Pittsburgh, Raleigh-Durham, Richmond, Rochester, Sacramento, Salinas, Salt Lake City, San Antonio, Santa Rosa, Spokane, St. Louis, Stockton, Tampa, Tucson, Tulsa, Vallejo and West Palm Beach.

              The term "housing affordability" means the percentage of households with sufficient income to afford monthly mortgage payments on a median-priced existing home utilizing a conventional 30-year fixed mortgage at the prevailing mortgage rate.

              The term "CPI rent growth" refers to the growth in the component of the consumer price index that represents multifamily rent.

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PROSPECTUS SUMMARY

              This summary highlights some of the information in this prospectus. It does not contain all of the information that you should consider before investing in our common shares. You should read carefully the more detailed information set forth under the heading "Risk Factors" and the other information included in this prospectus. Except where the context suggests otherwise, the terms "our company," "we," "us" and "our" refer to Morgan Properties Trust, a Maryland real estate investment trust, together with its consolidated subsidiaries, including Morgan Properties Operating Partnership, L.P., a Delaware limited partnership, of which we are the sole general partner and including, under certain circumstances, our predecessor as described and presented in the financial statements included in this prospectus. We refer to Morgan Properties Operating Partnership, L.P. as our "operating partnership." Unless otherwise indicated, the information contained in this prospectus is provided as of                        , 2011 and assumes that: (1) the underwriters' overallotment option is not exercised, (2) the formation transactions described in this prospectus under the caption "Structure and Formation of our Company" are consummated, (3) the common shares to be sold in this offering are sold at $            per share, which is the midpoint of the estimated per share price range set forth on the cover page of this prospectus, and (4) the operating partnership units to be issued in the formation transactions are valued at $            per unit. Each operating partnership unit is redeemable for cash equal to the then current market value of one of our common shares or, at our option and subject to adjustment under certain circumstances, one of our common shares, commencing 12 months following the completion of this offering.


Morgan Properties Trust

              We are a fully integrated real estate investment trust, or REIT, specializing in the acquisition, ownership, management and repositioning of well-located multifamily properties in high-barrier-to-entry markets. We are headquartered in King of Prussia, Pennsylvania. We were formed to succeed Mitchell L. Morgan's multifamily real estate business founded in 1985 and, as such, we have significant experience, longstanding relationships and substantial knowledge of our core markets. Our strategy is to acquire, reposition and professionally manage well-located multifamily properties in supply constrained markets in the suburban Philadelphia, New York-New Jersey and Baltimore-Washington, D.C. metropolitan areas, which we consider our core markets. We place great significance on providing a superior offering of apartment services and features closely matched to our residents' needs. In addition, we take a proactive long-term approach to asset preservation that allows us to cost-effectively maximize the life of our properties. Both are key elements of our business strategy, which, together with our geographic focus, we believe differentiates us from our competitors.

              We own a portfolio of 94 properties, consisting of approximately 21,518 apartment homes, and we own equity interests in five additional properties that we also manage, consisting of approximately 1,573 apartment homes, through unconsolidated joint ventures. Our properties are primarily located in established middle income areas of the suburban Philadelphia, New York-New Jersey and Baltimore-Washington, D.C. metropolitan areas and had an average occupancy of 94.4% as of the quarter ended March 31, 2011. Based on applications we received for apartment homes for the six month period ending June 30, 2011, the average household income of our residents was approximately $            and the average monthly base rent per occupied apartment home at our properties was approximately $986 for the quarter ending March 31, 2011. We believe our portfolio's extensive footprint in high barrier markets, coupled with our experienced management team and proactive management style positions us to maximize the value of our portfolio over time. Our five-year average same-store revenue growth for the period ending December 31, 2010 of approximately 3.5% has generally outperformed the revenue growth of public multifamily REITs over the same period. A summary of certain information regarding our portfolio of 94 properties is set forth below.

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              According to RCG, our core markets are characterized as having high-barriers-to-entry for new multifamily real estate construction, in addition to having strong demographics and dynamic, diversified economies that will continue to generate jobs and drive rent growth in our core markets. The properties that we will seek to acquire will typically target middle income residents, which we believe constitute a much larger segment of the population of renters than high income residents in our markets. We believe that we will face less competition from single-family housing than operators of high-end luxury multifamily properties will. We expect that a shift in consumer preferences away from homeownership and towards rentership will further strengthen demand for our apartments.

              Mitchell L. Morgan, our founder, Chairman, Chief Executive Officer, President and our largest shareholder, brings a wealth of multifamily expertise developed through more than 30 years of experience in the multifamily real estate industry. Our senior management team, which has an average of 22 years of commercial real estate experience and has worked at our predecessor for an average of approximately 13 years, brings focused expertise in the areas of multifamily leasing, management, marketing, acquisitions, repositioning and financing. Upon completion of this offering, Mr. Morgan and our senior management team, together with affiliates of Mr. Morgan, will own approximately        % of our company on a fully diluted basis.


Our Competitive Strengths

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Our Business and Growth Strategies

              Our primary business goals are to maximize operating cash flow, generate long-term growth and increase shareholder value. We intend to achieve these goals by executing the following business and growth strategies:

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Our History

              We were formed as the successor to Mitchell L. Morgan's multifamily real estate business that was established in 1985. Mr. Morgan's initial purchase was a portfolio of 1,390 apartment homes from a Philadelphia area developer. Since 1985, Mr. Morgan has overseen the acquisition of multifamily properties from third parties consisting of approximately 38,000 apartment homes, and the disposition of multifamily properties to third parties consisting of approximately 14,800 apartment homes. As illustrated in the timeline below, our growth has been marked by a series of significant milestones based on strategic real estate acquisitions and dispositions within our core markets. We believe we are well-positioned to build on our growth based on our extensive network of long-standing relationships within our core markets with real estate owners, developers, brokers and other market participants.

GRAPHIC


(1)
Represents the total purchase price for the acquired assets.

              Since January 1, 2008, Mr. Morgan and his affiliates have made investments of approximately $113.0 million in connection with the buyout of the joint venture partners of Mr. Morgan and his affiliates. These investments relate to 87 properties consisting of approximately 19,000 apartment homes. The $113.0 million includes approximately $67.6 million of direct equity investments and approximately $45.5 million in loans. We will use a portion of the net proceeds from this offering to repay Mr. Morgan and his affiliates approximately $         million of this invested amount. See "Use of Proceeds."

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              The following bar graph illustrates the acquisitions and dispositions by number of apartment homes of our predecessor and its affiliates over five-year intervals since 1985 as well as cumulative acquisitions and dispositions since 1985.

GRAPHIC

Note: The number of acquisitions and dispositions of apartment homes includes our joint venture properties but does not include the buyout of the joint venture partners of Mr. Morgan and his affiliates.

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Summary Risk Factors

              An investment in our common shares involves various risks, and prospective investors are urged to carefully consider the matters discussed under "Risk Factors" prior to making an investment in our common shares. Such risks include, but are not limited to:

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Industry Background and Market Opportunity

              Unless otherwise indicated, all information contained in this Industry Background and Market Opportunity section is derived from the market study prepared by Rosen Consulting Group, which we refer to as RCG, dated July 22, 2011.

Drivers of Multifamily Demand

              RCG expects that the multifamily housing market is well-positioned to lead the commercial real estate recovery in the United States. Over the next few years the combination of job growth, limited new supply, stringent requirements for new single-family mortgage loans, and the decoupling of currently shared households should translate directly into robust demand for existing multifamily housing. In addition, new household formation, the maturation of the echo-boom generation, and immigration should sustain multifamily demand over the long-term. Our core markets of suburban Philadelphia, New York-New Jersey, and Baltimore-Washington, D.C. have some of the most favorable supply-demand characteristics in the United States. As of March 31, 2011, approximately 82% of our annualized base rent was generated in our core markets. Our core markets have high barriers to entry for multifamily product which limit new supply, thus compounding demand for existing multifamily housing.

Short term drivers of demand

Long term drivers of demand

High barrier markets versus low barrier markets

              In addition to underlying demographic and economic trends, the local regulatory environment can become an important indicator of relative market performance. Apartment markets with well-established supply constraints often outperform the average market as the risk of oversupply over the long-term is lessened. These constraints can include development regulations, geographic barriers, affordable housing requirements and many other measures that create barriers to market entry, which have the following effects.

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              The table below compares our core markets with other high barrier markets, low barrier markets and the national average on a number of important economic metrics including multifamily permits as a percentage of multifamily stock, unemployment rate, CPI rent growth, and housing affordability.

 
  Average Over
2003 – 2010
Historical
Period
  2010   Average Over
2011 – 2015 Projected Period
 

Multifamily Permits as a Percentage of Multifamily Stock

                   
 

Our Core Markets

    0.8 %   0.3 %   0.6 %
 

U.S. Average

    0.9 %   0.4 %   1.0 %
 

High Barrier Markets

    0.8 %   0.3 %   0.6 %
 

Low Barrier Markets

    1.2 %   0.4 %   0.8 %

Unemployment Rate

                   
 

Our Core Markets

    5.8 %   8.1 %   6.4 %
 

U.S. Average

    6.5 %   9.6 %   8.0 %
 

High Barrier Markets

    6.4 %   9.4 %   7.7 %
 

Low Barrier Markets

    6.6 %   9.9 %   8.1 %

CPI Rent Growth

                   
 

Our Core Markets

    4.1 %   2.5 %   4.7 %
 

U.S. Average

    2.7 %   0.6 %   3.8 %
 

High Barrier Markets

    3.6 %   1.4 %   4.3 %
 

Low Barrier Markets

    2.0 %   (0.2 )%   3.1 %

Housing Affordability

                   
 

Our Core Markets

    39.9 %   49.3 %   40.3 %
 

U.S. Average

    50.0 %   62.9 %   55.2 %
 

High Barrier Markets

    40.7 %   55.4 %   45.4 %
 

Low Barrier Markets

    61.6 %   73.9 %   67.2 %

Note: Forecasts by RCG. Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau and RCG.

Our core markets

              Our core markets of suburban Philadelphia, New York-New Jersey, and Baltimore-Washington, D.C. have some of the most favorable supply-demand characteristics in the United States. As of March 31, 2011, approximately 82% of our annualized base rent was generated by our 94 consolidated properties in our core markets. Our core markets have high barriers to entry for multifamily product which limit new supply, thus compounding demand for existing multifamily housing.

Suburban Philadelphia

              The suburban Philadelphia area has a total population of approximately 6.0 million, or 1.9% of the United States population. It has one of the highest mean household income levels in the United States at $128,329 and a current unemployment rate of 8.4%. The pharmaceutical, life sciences, healthcare and higher education industries, in particular, have fueled job gains and income growth during the past decade and continue to sustain the local economy. The University of Pennsylvania and its affiliate, Penn Medicine, are two of the largest private sector employers in the region. Furthermore, the Philadelphia economy has diversified, with services-driven industries generally replacing an outdated manufacturing base over time.

              New multifamily construction in the Philadelphia metropolitan area is constrained, resulting in a favorable environment for existing multifamily owners. New multifamily construction permits have averaged 0.6% of total stock versus the national average of 1.0% since 1996. New projects face high

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barriers to entry due to the extended zoning and approval process, land assembly difficulties and heavily unionized labor. Since 2009, the city of Philadelphia has worked to revise its zoning code and development process. Although these efforts should result in a streamlined development process in the future, it is likely that development approvals will continue to be challenging to obtain, the development timelines will be lengthy and the necessary zoning and environmental approvals will be costly. These challenges, together with strict lending standards will constrain new multifamily development, allowing existing multifamily property owners to take advantage of the vacancy rate drop and CPI rent growth RCG expects to occur through 2015.

              A healthy job market, low relative unemployment, high relative household income, and limited new supply have contributed to positive multifamily CPI rent growth in suburban Philadelphia. Average annual CPI rent growth in suburban Philadelphia was 3.0% from 2003 through 2010 versus a national average of 2.7%. RCG expects CPI rent growth in suburban Philadelphia to average 4.0% through 2015 versus the expected national average of 3.8% over the same period.

Suburban New York-New Jersey

              The suburban New York-New Jersey area has a total population of approximately 16.3 million, or 5.3% of the United States population. It has one of the highest mean household income levels in the United States at $153,600 and an unemployment rate of 8.8%. This metropolitan area is one of the most densely populated in the United States, and has one of the largest renter pools at 48.4% of households, versus the national average of 33.1%. Many are long-term renters due to the low housing affordability ratio of 37.0%, versus the national average of 62.9%. This area's role as a global business hub, in addition to its plentiful cultural resources, makes it a desirable location for both businesses and residents. The local economy is highly diverse. In addition to financial services, other major industries throughout the New York-New Jersey metropolitan area include business services, education, health care, media and publishing, pharmaceuticals, life sciences and shipping.

              The New York-New Jersey metropolitan region is a gateway through which immigrants enter the United States. The ethnically diverse population fuels demand for a variety of goods and services. Importantly, high immigrant populations generally translate into strong apartment demand because new residents tend to inhabit rental housing based on preference and greater difficulty obtaining mortgage credit due to recent immigration. Approximately 32.9% of the New York-New Jersey metropolitan area residents were born outside the United States, compared with 13.9% at the national level.

              The apartment market in the New York-New Jersey metropolitan area has high barriers to entry for new construction. New multifamily construction permits have averaged 0.6% of total stock versus the national average of 1.0% since 1996, and the area has one of the lowest multifamily vacancy rates in the United States of 7.1%. Often prohibitively high costs associated with new building projects are due to high tax rates, complex land ownership agreements and heavily unionized labor, among other factors. In addition, assembling the necessary parcels of land, complying with building codes and zoning regulations and conducting environmental reviews add time and extra cost to construction projects. As one of the most densely populated metropolitan areas in the United States, there are few opportunities remaining for new development in desirable locations along transportation corridors such as highways and rail lines.

              A healthy job market, dense population, low relative unemployment, high relative household income, and limited new supply have contributed to positive multifamily CPI rent growth in suburban New York-New Jersey. Average annual CPI rent growth in suburban New York-New Jersey was 4.3% from 2003 through 2010 versus a national average of 2.7%. RCG expects CPI rent growth in suburban New York-New Jersey to average 4.9% through 2015 versus the expected national average of 3.8% over the same period.

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Suburban Baltimore-Washington, D.C.

              The suburban Baltimore-Washington, D.C. area has a total population of approximately 8.3 million, or 2.7% of the United States population. It has one of the highest average household income levels in the United States at $152,310 and one of the lowest current unemployment rates of 6.3%.

              The Baltimore-Washington, D.C. metropolitan area's performance through the recession has been strong, with the presence of the federal government and the private contractors who work for it supporting job growth. The region's numerous colleges and universities also help drive the educational and health services sector, one of Baltimore-Washington, D.C.'s largest job sectors. The area's healthy job market and corresponding high wages are attractions for both young professionals and working families, leading to positive net migration and population growth. Importantly, the Baltimore metropolitan and surrounding area's economy is expected to improve throughout 2011 when the federally mandated Base Realignment and Closure program, which we refer to as BRAC, accelerates. Under this program, 15,000 defense sector jobs are being relocated to bases in Harford and Anne Arundel counties. There is currently more than $100 million of federal funding earmarked for BRAC, and the effort is expected to bring more than 25,000 new jobs to the Baltimore metropolitan and surrounding area through 2015.

              The apartment market in the suburban Baltimore-Washington, D.C. area has high barriers to entry for new construction. In 2009, the city of Baltimore established an extensive sustainability plan focused on evaluating development proposals that are brought before Baltimore's Planning Department & Planning Commission. While these initiatives are a benefit to the city's environmental and economic future, they are often associated with prohibitively high initial costs to developers. Density is limited because of the restraints imposed on building vertically, which has caused development to sprawl horizontally. New developments are forced to locate further away from public transit hubs and are often less attractive commuting options. In addition, the Baltimore-Washington, D.C. metropolitan area is subject to affordable housing laws, which apply added pressure on developers, further reducing the number of market value units made available. Average annual CPI rent growth in suburban Baltimore-Washington, D.C. was 4.0% for 2003 through 2010 versus a national average of 2.7%. RCG expects CPI rent growth in suburban Baltimore-Washington, D.C. to average 4.5% through 2015 versus the expected national average of 3.8% over the same period.

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Our Properties

              We own a portfolio of 94 properties, consisting of approximately 21,518 apartment homes, and we own equity interests in five additional properties, consisting of approximately 1,573 apartment homes, through unconsolidated joint ventures.

              Our properties are located in established high barrier markets and are well-maintained and located in areas with close proximity to schools, local businesses and public transportation systems. Our properties are generally two or three story garden style, communities comprised of brick on block and wood frame construction with mature and professionally managed landscaping. Many of our properties offer resident amenities ranging from swimming pools and tennis courts to business centers, fitness centers, playgrounds and pet play areas. Individual apartment homes include personal amenities such as in-unit washer/dryers, renovated kitchens and modernized bathrooms. Management believes that its focus on quality product, curb appeal, resident conveniences and the quality of the customer service it provides to all residents results in low turnover by industry standards.

              The following table presents an overview of our portfolio of multifamily properties based on information as of March 31, 2011, unless otherwise indicated. No single property accounted for more than 10% of our total assets or gross revenue for the year ended December 31, 2010.

 
  Number
of
Properties
  Number
of
Apartment
Homes(1)
  Average
Occupancy(2)
  Annualized
Base
Rent(3)
  Average
Monthly Base
Rent Per
Occupied
Apartment
Home(4)
  Percentage
of
Annualized
Base Rent(5)
 
 
   
   
   
  (thousands)
   
   
 

Core Markets

                                     
 

Suburban Philadelphia

    33     8,479     94.6 % $ 96,720   $ 1,005     40.1 %
 

Suburban New York-New Jersey

    31     4,503     94.3 %   63,512     1,246     26.4 %
 

Suburban Baltimore-Washington, D.C. 

    10     3,422     94.7 %   37,281     959     15.5 %
                               
 

Subtotal Core Markets

    74     16,404     94.5 %   197,513     1,062     82.0 %

Other Markets

    20     5,114     94.1 %   43,224     749     18.0 %
                               
 

Subtotal Core and Other Markets

    94     21,518     94.4 %   240,737     987     100.0 %
                                     

Joint Venture Properties

    5     1,573     94.2 %   17,194 (6)   967        
                                 
 

Total Properties

    99     23,091     94.4 % $ 257,931   $ 986        
                                 

Note: Figures may not add up due to rounding differences.

(1)
Excludes 57,485 square feet of commercial space located at nine of our residential communities as of June 30, 2011.

(2)
Average Occupancy is defined as total possible residential rental income, net of vacancy expense, as a percentage of total possible residential rental income for the first quarter of 2011.

(3)
Annualized Base Rent is defined as total possible residential rental income, net of vacancy expense for the first quarter of 2011, multiplied by four.

(4)
Average Monthly Base Rent represents Annualized Base Rent divided by the product of the number of apartment homes and Average Occupancy, divided by 12.

(5)
Shown as a percentage of our portfolio of 94 properties.

(6)
Amount of annualized base rent for our joint venture properties is shown on a fully consolidated basis, our pro rata share of the annualized base rent is approximately $1.8 million.

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Our Financing Strategy

              We are currently negotiating the terms of a credit facility with affiliates of certain of the underwriters of this offering. We expect to enter into the facility concurrently with, or shortly following, the completion of this offering. We intend to use this facility for, among other things, capital expenditures related to repositioning activities, acquisitions and general business and working capital purposes. There can be no assurance that we will be able to obtain such financing on favorable terms or at all.

              We expect to have approximately $            of total consolidated indebtedness outstanding upon completion of this offering and the formation transactions. As of                        , our indebtedness will have staggered maturities with a weighted average debt maturity of approximately            years and a weighted average interest rate of        % per annum, and consist of approximately        % fixed rate debt. Our overall leverage will depend on our investments and the cost of leverage. Our declaration of trust does not restrict the amount of leverage that we may use.


Structure and Formation of Our Company

Our Structure

              Morgan Properties Trust was formed on June 24, 2011, as a Maryland real estate investment trust. We are the sole general partner of our operating partnership, Morgan Properties Operating Partnership, L.P., a Delaware limited partnership, which was initially formed on June 2, 2010. We will conduct our business through a traditional UPREIT structure, in which substantially all of our properties are directly or indirectly owned by our operating partnership. We will contribute the net proceeds from this offering to our operating partnership in exchange for operating partnership units.

Formation Transactions

              Prior to or concurrently with the completion of this offering, we will engage in certain formation transactions, which are designed to:

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Our Organization and Ownership Structure

              The following diagram depicts our organization and ownership structure upon completion of this offering and the formation transactions. Our operating partnership will own the various properties in our portfolio directly or indirectly, and in some cases through special purpose entities that were created in connection with various financings and the formation transactions. The ownership percentages below will vary depending on whether and to the extent the underwriters exercise their overallotment option.

GRAPHIC


(1)
On a fully diluted basis, our public shareholders will own approximately        % of our outstanding common shares, Mr. Morgan and his affiliates will own approximately        % of our outstanding common shares, and our trustees and executive officers, other than Mr. Morgan and his affiliates, will own approximately         % of our outstanding common shares.

(2)
Morgan Properties Trust serves as the general partner of Morgan Properties Operating Partnership, L.P.

(3)
Represents limited partnership interests in our operating partnership.

(4)
Consists of 91 wholly-owned properties and three properties in which an outside limited partner owns a de minimis equity interest.

(5)
Represents an approximately 12% economic interest in one multifamily property and an approximately 10% economic interest in four multifamily properties.

(6)
In the future, we may utilize one or more taxable REIT subsidiaries, or TRSs.

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Benefits to Related Parties

              In connection with this offering and the formation transactions, Mr. Morgan, our Chairman, Chief Executive Officer and President, and certain of our trustees and executive officers will receive material financial and other benefits described in "Certain Relationships and Related Party Transactions," including the following. All amounts are based on the midpoint of the per share price range set forth on the cover page of this prospectus. The value of the common shares and operating partnership units to be received as described below will increase or decrease if our common shares are priced above or below on the midpoint of the per share price range set forth on the cover page of this prospectus.


Restrictions on Transfer

              Under the partnership agreement, holders of operating partnership units do not have redemption or exchange rights for a period of 12 months after first acquiring operating partnership units and, except under limited circumstances, may not otherwise transfer their operating partnership units during such period without our consent. In addition, our executive officers and trustees have

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agreed with the underwriters not to sell or otherwise transfer or encumber any of our common shares or securities convertible into or exchangeable for our common shares (including operating partnership units) owned by them at the completion of this offering or thereafter acquired by them for a period of 180 days after the completion of this offering without the consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC.


Restrictions on Ownership of our Common Shares

              The Internal Revenue Code of 1986, as amended, or the Code, imposes limitations on the concentration of ownership of REIT shares. Our declaration of trust generally prohibits (i) any person from beneficially or constructively owning more than 9.8%, in value or in number of shares, whichever is more restrictive, of our outstanding common shares or (ii) 9.8% in value of the aggregate of our outstanding shares. Our declaration of trust also generally prohibits any individual (as defined under the Code to include certain entities such as private foundations) from beneficially owning (i) more than        %, in value or in number of shares, whichever is more restrictive, of our outstanding common shares or (ii)         % in value of the aggregate of our outstanding shares. We refer to these restrictions as the ownership limits. These restrictions generally do not apply, however, to Mr. Morgan, his family and certain affiliates, who may collectively own up to        % by value of the aggregate of our outstanding shares, as described under "Description of Shares of Beneficial Interest—Restrictions on Ownership and Transfer." Our declaration of trust permits our board of trustees in its sole and absolute discretion to increase the ownership limitation applicable to Mr. Morgan, his family and his affiliates and grant additional exemptions from any or all of the ownership limits if, among other limitations, such increase or exemptions will not cause us to fail to qualify as a REIT.


Conflicts of Interest

              Following the completion of this offering and the formation transactions, conflicts of interest may arise with respect to certain transactions between the holders of operating partnership units and our shareholders. In particular, the completion of certain business combinations, the taxable sale of any properties (especially those contributed in exchange for operating partnership units or held by the operating partnership prior to the closing of the initial public offering) or a reduction of indebtedness could have adverse tax consequences to holders of operating partnership units, which would make those transactions less desirable to certain holders of such operating partnership units. Mr. Morgan will hold both operating partnership units and common shares upon completion of this offering and the formation transactions.

              Mr. Morgan and his affiliates own interests, directly or indirectly, in the existing entities that own the properties that are included in our portfolio and that we will acquire in the formation transactions and as such are parties to, or have interests in, contribution or other acquisition agreements with us. In addition, certain of our executive officers may become parties to employment agreements with us. We may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationships with members of our senior management or our board of trustees and their affiliates, with possible negative impact on shareholders.

              We did not conduct arm's-length negotiations with Mr. Morgan with respect to the terms of the formation transactions. In the course of structuring the formation transactions, Mr. Morgan had the ability to influence the type and level of benefits that he will receive from us. In addition, we have not obtained any third-party appraisals of the properties and other assets to be acquired by us from the continuing investors, including Mr. Morgan and his affiliates, in connection with the formation transactions. As a result, the price to be paid by us to our continuing investors, including Mr. Morgan and his affiliates, for the acquisition of the assets in the formation transactions may exceed the fair market value of those assets.

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              In addition, we have agreed pursuant to tax protection agreements to indemnify Mr. Morgan and his affiliates, whom we refer to as the protected parties, against the taxes incurred by them upon a sale, exchange or other disposition of 35 of our properties in our core markets (or 37% of our 94 consolidated properties) in a taxable transaction until ten years following the closing of this offering, which we refer to as the restricted period. We refer to these 35 properties as the tax protected properties. We will also be required to indemnify the protected parties if we engage in other transactions, such as a taxable merger, that trigger their tax gain with respect to the tax protected properties during the restricted period. We also have agreed to maintain sufficient qualified nonrecourse financing during the restricted period on our properties so that at least $250 million of such indebtedness is allocated to Mr. Morgan and his affiliates for federal income tax purposes. In addition, we have agreed to maintain at least $120 million of certain additional indebtedness in order to permit the protected parties to guarantee or otherwise become at risk for such amount at their election in order to facilitate additional deferral of taxable income with respect to their operating partnership units. If we trigger these tax protection provisions, we must indemnify the protected parties for the entire amount of the resulting tax liabilities (without regard to any deductions or offsets available to them from other sources), plus an additional amount equal to the taxes incurred by them as a result of indemnification payments. The tax indemnities granted to the protected parties under the tax protection agreements may affect the way in which we conduct our business, including when and under what circumstances we sell properties or interests therein during the restricted period. See "Certain Relationships and Related Party Transactions—Tax Protection Agreements."

              We intend to adopt policies that are designed to eliminate or minimize certain potential conflicts of interests. See "Policies with Respect to Certain Activities—Conflict of Interest Policies" and "Description of the Partnership Agreement of Morgan Properties Operating Partnership, L.P."


Distribution Policy

              We intend to pay cash dividends to holders of our common shares. We intend to pay a pro rata dividend with respect to the period commencing on the completion of this offering and ending on December 31, 2011 based on a dividend payment of $            per share for a full quarter. On an annualized basis, this would equal $            per share, or an annual distribution rate of approximately        %, based on the midpoint of the per share price range set forth on the cover page of this prospectus. Dividends and other distributions made by us will be authorized by our board of trustees and declared by us out of funds legally available therefor and will be dependent upon a number of factors, including restrictions under applicable law and the distribution requirements for our qualification as a REIT for federal income tax purposes. See "Distribution Policy." We do not intend to reduce the expected dividend per share if the underwriters' overallotment option is exercised.


Our Tax Status

              We intend to elect to be taxed and to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2011. We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our REIT taxable income to our shareholders, determined without regard to the dividends paid deduction and excluding net capital gains. As a REIT, we generally will not be subject to federal income tax on REIT taxable income that we distribute to our shareholders during the year in which we earn the income. If we fail to qualify as a REIT in any taxable year, and the statutory relief provisions of the Code do not apply, we will be subject to federal income tax on all of our taxable income at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income or property. In addition, the income of any

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taxable REIT subsidiary, or TRS, that we own will be subject to taxation at regular corporate rates. See "Material U.S. Federal Income Tax Considerations."


Our Offices

              Our principal executive offices are located at 160 Clubhouse Road, King of Prussia, Pennsylvania 19406. Our telephone number is (610) 265-2800. We maintain a website located at www.morgan-properties.com. The information found on or accessible through our website is not incorporated into and does not form a part of this prospectus or any other report or document we file with or furnish to the Securities and Exchange Commission, or SEC. We have included our website address as an inactive textual reference and do not intend it to be an active link to our website.

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This Offering

Common shares offered by us               shares (plus up to an additional        common shares that we may issue and sell upon exercise of the underwriters' overallotment option in full)

Common shares to be outstanding after this offering

 

            shares(1)

Operating partnership units to be outstanding after this offering

 

            operating partnership units(2)

Use of proceeds

 

We estimate that the net proceeds we will receive from the sale of common shares in this offering will be approximately $        million (or approximately $        million if the underwriters exercise their overallotment option in full), in each case assuming a public offering of $        per share, which is the midpoint of the per share price range set forth on the cover page of this prospectus. We will contribute the net proceeds of this offering to our operating partnership. We intend to use the net proceeds of this offering as follows:

 

•       approximately $        million to repay outstanding third-party indebtedness, including applicable prepayment costs of $        million;

 

•       $        million to repay notes owed to third-party investors in connection with the formation transactions;

 

•       $        million to pay fees in connection with the assumption of indebtedness;

 

•       $        million to repay loans owed to Mr. Morgan and his affiliates;

 

•       $        million to repay Mr. Morgan and his affiliates for a portion of their cash equity investment made in connection with our purchase of certain properties;

 

•       approximately $        million to pay unaccredited investors in connection with the formation transactions;

 

•       approximately $        to pay expenses incurred in connection with this offering and the formation transactions, including $        million in transfer taxes incurred in connection with the formation transactions; and

 

•       the remaining amounts for general business and working capital purposes, including future acquisitions.

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Ownership and Transfer Restrictions   To assist us in qualifying as a REIT, all persons (other than Mr. Morgan, his family and certain of his affiliates) are generally restricted from beneficially or constructively owning more than 9.8%, in value or in number of shares, whichever is more restrictive, of our outstanding common shares or 9.8% in value of the aggregate of our outstanding shares of beneficial interest. Also, individuals and certain entities (other than Mr. Morgan, his family and certain of his affiliates) are generally restricted from beneficially owning more than        %, in value or in number of shares, whichever is more restrictive, of our outstanding common shares or        % in value of the aggregate of our outstanding shares of beneficial interest. No person (including Mr. Morgan, his family and affiliates) may own our shares to the extent such ownership would preclude us from qualifying as a REIT. See "Description of Shares of Beneficial Interest—Restrictions on Ownership and Transfer."

Risk Factors

 

Investing in our common shares involves risks. You should carefully read and consider the information set forth in the section entitled "Risk Factors" and all other information in this prospectus before investing in our common shares.

Proposed New York Stock Exchange symbol

 

We intend to apply to list our common shares on the New York Stock Exchange, or NYSE, under the symbol "MPT".

(1)
Includes (a)             common shares to be issued in this offering, (b)             common shares to be issued in the formation transactions, and (c)             restricted shares to be granted under the 2011 Equity Incentive Plan to our non-employee trustees concurrently with the completion of this offering. Excludes (a)             shares available for future issuance under our 2011 Equity Incentive Plan and (b)              shares that may be issued, at our option, upon exchange of operating partnership units to be issued in the formation transactions.

(2)
Includes            operating partnership units expected to be issued in the formation transactions, which may, subject to certain limitations, be redeemed for cash or, at our option, exchanged for common shares on a one-for-one basis.

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Summary Historical and Pro Forma Financial Data

              The following table sets forth summary historical financial and operating data on a historical combined basis for our predecessor and on a pro forma consolidated basis for our company. Each of the predecessor entities currently owns, directly or indirectly, one or more multifamily properties. Upon completion of the formation transactions, our operating partnership will acquire all of the equity interests in holding companies for our predecessor's properties. We have not presented historical information for Morgan Properties Trust because we have not had any activity since our formation other than the issuance of 100 common shares to Mr. Morgan in connection with the initial capitalization of the company and activity in connection with this offering, and because we believe it would not be meaningful.

              You should read the following summary historical financial data in conjunction with our historical financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this prospectus.

              The historical combined balance sheet information as of December 31, 2010 and 2009 of our predecessor and the combined consolidated statements of operations information for each of the three years in the period ended December 31, 2010 of our predecessor have been derived from the audited combined financial statements of our predecessor included elsewhere in this prospectus. The historical combined consolidated balance sheet information as of March 31, 2011, December 31, 2008, 2007 and 2006, and the combined statements of operations information of our predecessor for the three months ended March 31, 2011 and 2010, and for the years ended December 31, 2007 and 2006, have been derived from the unaudited combined financial statements of our predecessor. In the opinion of our management, such information includes all adjustments necessary to present fairly the information set forth therein.

              The unaudited pro forma consolidated financial statements and operating information as of and for the three months ended March 31, 2011 and the year ended December 31, 2010 assume the completion of this offering and the formation transactions as of January 1, 2010 for the operating data and as of March 31, 2011 for the balance sheet data. Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.

 
  For the Three Months
Ended March 31,
(unaudited)
  For the
Year Ended December 31,
 
 
   
  Predecessor
Entities
   
   
   
   
   
   
 
 
   
   
  Predecessor Entities  
 
  Pro
Forma
2011
  Pro
Forma
2010
 
 
  2011   2010   2010   2009   2008   2007   2006  
 
   
   
   
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (in thousands, except per share data)
 

Statement of Operations Data:

                                                       

Revenues:

                                                       
 

Rental revenues

  $     $ 59,476   $ 15,639   $     $ 84,544   $ 42,567   $ 31,536   $ 28,071   $ 27,049  
 

Operating expense reimbursements

          2,894     1,348           4,626     2,734     1,822     1,180     1,090  
 

Payroll expense reimbursements

          2,388     6,365           25,392     29,073     27,990     17,062     11,899  
 

Related party fee income

          756     2,198           8,661     9,835     10,200     6,725     4,485  
 

Other income

          3,685     1,372           7,594     4,630     2,986     2,367     1,921  
                                       
   

Total revenues

          69,199     26,922           130,817     88,839     74,534     55,405     46,444  
                                       

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  For the Three Months
Ended March 31,
(unaudited)
  For the
Year Ended December 31,
 
 
   
  Predecessor
Entities
   
   
   
   
   
   
 
 
   
   
  Predecessor Entities  
 
  Pro
Forma
2011
  Pro
Forma
2010
 
 
  2011   2010   2010   2009   2008   2007   2006  
 
   
   
   
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (in thousands, except per share data)
 

Expenses:

                                                       
 

Rental operations

          31,271     8,644           45,366     20,692     14,211     12,593     13,961  
 

General and administrative

          4,197     2,846           15,223     11,484     10,729     8,655     6,772  
 

Non Predecessor entities' payroll expense

          2,388     6,365           25,392     29,073     27,990     17,062     11,899  
 

Interest

          24,765     4,668           30,048     10,633     9,249     10,246     10,149  
 

Depreciation

          11,838     3,339           16,931     8,662     5,908     5,202     4,874  
 

Amortization

          6,705     2,007           6,319     1,882     202     44     438  
 

Net (gain) loss on derivative

          144     197           (39 )   (28 )   73     16     70  
                                       
   

Total expenses

          81,308     28,066           139,240     82,398     68,362     53,818     48,163  
                                       
 

Operating income (loss)

          (12,109 )   (1,144 )         (8,423 )   6,441     6,172     1,587     (1,719 )
 

Equity in income (losses) earnings of unconsolidated entities

          4     62           499     322     (789 )   (327 )   (579 )
 

Gain on previously held equity investment

                        110,292     13,033              
 

Non-operating income (expense)

          8     20           43     13     111     5,038     599  
                                       
 

Income (loss) before noncontrolling interest

          (12,097 )   (1,062 )         102,411     19,809     5,494     6,298     (1,699 )
 

Noncontrolling interest

          (9,800 )   (1,201 )         47,307     10,767     2,039     (4,124 )   (424 )
                                       
 

Net income (loss)

  $     $ (2,297 ) $ 139   $     $ 55,104   $ 9,042   $ 3,455   $ 10,422   $ (1,275 )
                                       

Pro forma basic earnings per share (unaudited)

                                                       

Pro forma diluted earnings per share (unaudited)

                                                       

Pro forma weighted average common shares outstanding—basic (unaudited)

                                                       

Pro forma weighted average common shares outstanding—diluted (unaudited)

                                                       

 

 
  As of March 31,   As of December 31,  
 
   
  Predecessor Entities    
   
   
   
   
   
 
 
   
   
  Predecessor Entities  
 
  Pro Forma
2011
  Pro Forma
2010
 
 
  2011   2010   2009   2008   2007   2006  
 
  (unaudited)
  (unaudited)
  (unaudited)
   
   
  (unaudited)
  (unaudited)
  (unaudited)
 
 
  (in thousands)
 

Balance Sheet Data (at period end):

                                                 
 

Net investment in real estate

  $     $ 1,644,937   $     $ 1,654,756   $ 338,607   $ 171,590   $ 111,750   $ 114,825  
 

Cash and cash equivalents

          8,918           13,508     2,006     435     (1,262 )   1,787  
 

Other assets

          62,060           71,959     19,657     15,183     17,442     11,277  
                                   
 

Total assets

  $     $ 1,715,915   $     $ 1,740,223   $ 360,270   $ 187,208   $ 127,930   $ 127,889  
                                   
 

Debt obligations

          1,638,690           1,636,216     392,210     235,121     182,730     181,487  
 

Other liabilities

          48,273           55,610     32,219     29,523     26,973     25,635  
 

Total liabilities

          1,686,963           1,691,826     424,429     264,644     209,703     207,122  
 

Owners' equity (deficit)

          3,353           8,792     (46,365 )   (49,460 )   (46,852 )   (48,268 )
 

Noncontrolling interest

          25,599           39,605     (17,794 )   (27,976 )   (34,921 )   (30,965 )
                                   
 

Total Liabilities and owners' equity

  $     $ 1,715,915   $     $ 1,740,223   $ 360,270   $ 187,208   $ 127,930   $ 127,889  
                                   

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RISK FACTORS

              Investment in our common shares involves risks. In addition to other information contained in this prospectus, you should carefully consider the following factors before acquiring the common shares offered by this prospectus. The occurrence of any of the following risks might cause you to lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled "Forward-Looking Statements."


Risks Related to Our Business and Operations

Risks associated with the ownership of real property, or changes in economic, demographic or real estate market conditions, may adversely affect our results of operations and returns to our shareholders.

              We are subject to risks generally attributable to the ownership of real property, including:

              We are unable to accurately predict future changes in national, regional or local economic, demographic or real estate market conditions. For example, a continued recession or rise in interest rates could make it more difficult for us to lease apartments, may require us to lease our apartments at lower rental rates than projected and may lead to an increase in resident defaults. In addition, these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices. These conditions, or others we cannot predict, could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

Our multifamily properties are primarily concentrated in the suburban Philadelphia, New York-New Jersey and Baltimore-Washington, D.C. metropolitan areas, which makes us more susceptible to adverse economic developments in those markets.

              As of March 31, 2011, approximately 78% of our apartment homes, including those in our joint venture properties, (17,977 out of the total 23,091) are concentrated in our core markets of the suburban Philadelphia, New York-New Jersey and Baltimore-Washington, D.C. metropolitan areas, which exposes us to greater risks associated with the economies of these markets than if our property holdings were more geographically diverse. As of March 31, 2011, these markets represented approximately 82% of the annualized base rent for our 94 consolidated properties in our portfolio. As a result, we are particularly dependent upon the local economic conditions in these markets, including local real estate conditions, and any negative changes in conditions in these markets will impact our overall performance. All of these markets experienced downturns in recent years. If there is a further downturn in the economy in any of these markets, our operations and our revenue and cash available for distribution, including cash available to pay distributions to our shareholders, could be materially adversely affected. We cannot assure you that these markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of multifamily properties. Our operations may also be affected if competing properties are built in any of these markets.

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              In addition, the recent economic downturn caused consumer confidence to plunge and unemployment to rise. Increasing job losses typically slow household formations, which could impact the occupancy rates of our multifamily properties. In addition, continued job losses and weak economic conditions might negatively affect our current residents' ability to pay rent and would likely affect our ability to raise rents.

Our success depends in part on key personnel, including Mr. Morgan, our Chairman, Chief Executive Officer and President, whose continued service is not guaranteed, and the loss of one or more of our key personnel could adversely affect our ability to manage our business and to implement our growth strategies.

              Our success depends to a significant degree upon the contributions of key personnel, including Mr. Morgan, our Chairman, Chief Executive Officer and President. If key personnel, including Mr. Morgan, were to cease employment with us, our operating results could suffer. Additionally, even though we have entered into employment agreements with key personnel, including a            -year employment agreement with Mr. Morgan and a            -year employment agreement with Mr. O'Grady, we cannot assure you that they will continue to serve the company beyond the term of their agreement. The loss of services from one or more of our key personnel could adversely impact our financial condition and cash flows. Further, such a loss could be negatively perceived in the capital markets. We have not obtained and do not expect to obtain key man life insurance on Mr. Morgan.

Repositioning risks could affect our profitability.

              A key component of our strategy is to reposition and renovate apartment homes in order to effect long-term growth. In addition, we have repositioned and in the future may reposition new apartment homes. Our renovation and repositioning activities generally entail certain risks, including the following:

These risks may reduce the funds available for distribution to shareholders.

We depend on residents for revenue, and vacancies, resident defaults, lease terminations or capital improvements may adversely affect our operations and cause the value of your investment to decline.

              The success of our investments depends upon the occupancy levels, rental income and operating expenses of our multifamily properties and our company. The revenues of our portfolio may be adversely affected by the general or local economic climate, local real estate considerations (such as over-supply of or reduced demand for apartments), the perception by prospective residents of the safety, convenience and attractiveness of the communities in which our properties are located (including the quality of local schools and other amenities) and increased operating costs (including real estate taxes and utilities).

              The recent economic downturn resulted in a trend of increasing vacancy rates in apartment rental markets. Although we believe this trend has stabilized, vacancy rates may increase in the future and we may be unable to lease vacant space or renew expiring leases on attractive terms, or at all, and

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we may be required to offer reduced rental rates or other concessions to residents. Our revenues may be lower as a result of lower occupancy rates, increased turnover, reduced rental rates, increased economic concessions and potential increases in uncollectible rent. In addition, we will continue to incur expenses, including maintenance costs, insurance costs and property taxes, even though a property maintains a high vacancy rate. Our financial performance will suffer if our revenues decrease or our costs increase as a result of this trend.

              The underlying value of our properties and our ability to make distributions to you depend upon our ability to lease our available apartment homes and the ability of our residents to generate enough income to pay their rents in a timely manner. Our residents' inability to pay rents may be impacted by employment and other constraints on their personal finances, including debts, purchases and other factors. Upon a resident default, we will attempt to remove the resident from the premises and re-lease the property as promptly as possible. Our ability and the time required to evict a resident, however, will depend on applicable law. Virtually all of our apartment leases are short-term leases, generally ranging from six months to one year. As a result, our rental income and our cash flow are impacted by declines in market conditions more quickly than if our leases were for longer terms.

The average age of our multifamily properties is approximately 40 years and if we are not able to cost effectively maximize the life of our properties we may incur greater than anticipated capital expenditure costs, which may adversely affect our ability to pay distributions on our common shares.

              The average age of our multifamily properties is approximately 40 years. Older properties may carry certain risks including unanticipated repair costs associated with older properties, increased maintenance costs as older properties continue to age, and cost overruns due to the need for special materials and/or fixtures specific to older properties. Although we take a proactive approach to asset preservation, utilizing a preventative maintenance plan, and implementing architectural and engineering solutions that mitigate the cost impact of maintaining exterior building features and aging building components, if we are not able to cost-effectively maximize the life of our properties, we may incur greater than anticipated capital expenditure costs which may adversely affect our ability to pay distributions on our common shares.

We may be unable to identify and complete acquisitions to expand our business on advantageous terms and successfully operate acquired properties, which may materially adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

              We intend to manage our existing properties and acquire additional multifamily properties. The acquisition of properties entails various risks, including the risks that our investments may not perform as we expect, that we may be unable to acquire properties that are as profitable as our prior acquisitions, that we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations, and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, we face significant competition for attractive investment opportunities from other investors. As a result of competition, we may be unable to acquire properties that we desire to purchase or the purchase price may be significantly elevated. Although we expect to finance future acquisitions through a combination of borrowings under the credit facility that we expect to enter into concurrently with, or shortly following, the completion of this offering, long-term debt, the issuance of common and preferred shares and retained cash flow, these sources of funds may not be available at all or on advantageous terms. Any of the above risks could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

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Increased competition and increased affordability of apartment homes could limit our ability to retain our residents, lease apartment homes or increase or maintain rents at our multifamily properties.

              Our multifamily properties compete with numerous housing alternatives in attracting residents, including other multifamily properties and single-family rental homes, as well as owner occupied single and multifamily homes. Competitive housing in a particular area and an increase in the affordability of owner occupied single and multifamily homes due to, among other things, declining housing prices, oversupply, mortgage interest rates and tax incentives and government programs to promote home ownership, could adversely affect our ability to retain residents, lease apartment homes and increase or maintain rents.

Underlying demographic characteristics and trends in our core markets, which we expect will increase demand for apartments, may not result in higher rental rates and reduced vacancies.

              Over the long term, we believe strong underlying demographic characteristics and trends in our core markets as described in this prospectus under the section "Industry Background and Market Opportunity" will increase demand for our apartment homes resulting in higher rental rates and reduced vacancies. In the event that this is not the case, our ability to effect our growth strategies could be adversely affected.

We face significant competition for real property investments and residents and may not compete successfully, which may materially adversely affect our financial condition, results of operations, cash flows, ability to satisfy our debt service obligations and ability to pay distributions on, and the market price of, our common shares.

              We compete with many other persons and entities seeking to buy real property or to attract residents to properties they own. There are numerous financial institutions, real estate funds and investment companies, pension funds, real estate developers and public and private U.S. and non-U.S. investors that compete with us in seeking investments and residents. Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us. In particular, many of our competitors are larger public REITs, which have greater name recognition, resources and access to capital than we do, thus potentially adversely impacting our ability to compete successfully against our competitors.

              The apartment community industry is highly competitive. This competition could reduce occupancy levels and revenues at our rental properties, which would adversely affect our operations. We face competition from many sources, including from multifamily rental properties both in the immediate vicinity and in the larger geographic market where our multifamily rental properties are located. Overbuilding of multifamily rental properties may occur. If so, this will increase the number of apartment homes available and may decrease occupancy and apartment rental rates. As of the quarter ended March 31, 2011, our apartment community rental portfolio had an average occupancy rate of approximately 94.4%.

              There is no assurance that we will be able to acquire properties or attract residents on favorable terms, if at all. Our competitors may be willing to offer apartment homes at rental rates below our rates, causing us to lose existing or potential residents and pressuring us to reduce our rental rates or provide resident inducement packages to retain existing residents or convince new residents to lease space at our properties. Increased competition may also require us to make capital improvements that we would not otherwise have made in order to keep pace with changing market demands. Each of these factors could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

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Financing and compliance requirements could limit our income and the ability to raise rents, which may materially adversely affect our financial condition, results of operations, cash flows, ability to satisfy our debt service obligations and ability to pay distributions on, and the market price of, our common shares.

              As a requirement related to some of our financing or, in some instances, related to zoning or other municipal approvals, we have committed to make some of our apartment homes available to households whose income does not exceed certain thresholds and/or to limit rent increases. As of June 30, 2011, approximately 3,393 of our apartment homes were under some form of such limitations. These commitments typically expire after a period of time, and may limit our ability to raise rent aggressively and, consequently, may also limit increases in value of the communities subject to these restrictions.

We could be negatively impacted by the condition of the Federal National Mortgage Association, which we refer to as Fannie Mae, or the Federal Home Loan Mortgage Corporation, which we refer to as Freddie Mac.

              Fannie Mae and Freddie Mac are a major source of financing for secured multifamily rental properties. We and other multifamily companies depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing or guaranteeing apartment loans. In September 2008, the U.S. government assumed control of Fannie Mae and Freddie Mac and placed both companies into a government conservatorship under the Federal Housing Finance Agency. In December 2009, the Obama administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion. In February 2011, the U.S. Department of the Treasury and the Department of Housing and Urban Development released a report to Congress entitled "Reforming America's Housing Finance Market" in which they proposed to reduce or eliminate the role of Fannie Mae and Freddie Mac in mortgage financing. However, the report calls for an expansion of federal financing of multifamily real estate in order to provide greater support for rental housing.

              While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded, consolidated or reorganized by the government, it would significantly reduce our access to debt capital and adversely affect our ability to finance or refinance existing indebtedness at competitive rates and it may adversely affect our ability to sell assets. Uncertainty in the future activity and involvement of Fannie Mae and Freddie Mac as a source of financing could negatively impact our ability to make acquisitions and make it more difficult or not possible for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. Further, a decision by the government to eliminate Fannie Mae or Freddie Mac or reduce their acquisitions or guarantees of apartment loans may adversely affect interest rates, capital availability, and the development of multifamily properties. Governmental actions could also make it easier for individuals to finance loans for single-family homes, which would make renting a less attractive option and adversely affect our occupancy or rental rates.

The price we will pay for the existing entities to be acquired by us in the formation transactions may exceed their aggregate fair market value.

              We have not obtained any third-party appraisals of the properties to be acquired by us in connection with this offering or the formation transactions. The value of the operating partnership units and common shares that we will issue as consideration for the properties that we have acquired or will acquire will increase or decrease if our common shares are priced above or below the midpoint of the per share price range set forth on the cover page of this prospectus. The initial public offering price of our common shares will be determined in consultation with the underwriters based on the history and prospects for the industry in which we compete, our financial information, the ability of our management, our business potential and earning prospects, the prevailing securities markets at the time of this offering and the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. The initial public offering price does not necessarily bear any relationship to

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the aggregate book value or the fair market value of the properties acquired in the formation transactions. As a result, the price to be paid by us for the acquisition of the assets in the formation transactions may exceed the fair market value of those assets. The aggregate historical combined net tangible book value of the assets to be acquired by us in the formation transactions was approximately $             million as of            , 2011.

We will not obtain new owner's title insurance policies in connection with the properties that our operating partnership will acquire in the formation transactions.

              Each of our properties is insured by a title insurance policy. We will not, however, obtain new owner's title insurance policies in connection with the acquisition of our properties in the formation transactions, unless the existing mortgage loans on such properties are refinanced in connection therewith, in which case we may obtain new title policies or update existing title policies. Further, we have not obtained updated surveys for all of the properties we have acquired or developed. Because updated surveys were not always obtained, the title insurance policies obtained by us may contain exceptions for matters that an updated survey might have disclosed. Such matters might include such things as boundary encroachments, unrecorded easements or similar matters, which would have been reflected on a survey. Moreover, because no updated surveys were prepared for some properties, we cannot assure you that the title insurance policies in fact cover the entirety of the real property, buildings, fixtures and improvements which we believe they cover. If there were a material title defect related to any of these properties that is not adequately covered by a title insurance policy, we could lose some or all of both our capital invested in and our anticipated profits from such property.

Our real property is subject to property taxes that may increase in the future, which could reduce our cash flow and results of operations.

              Our real properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the property and the property may be subject to a tax sale. In addition, we will generally be responsible for real property taxes related to any vacant space. Consequently, any tax increase may adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

The prior performance of our predecessor may not be indicative of our future performance.

              All of our properties have been acquired or developed by our predecessor and the entities holding our non-controlling interests in our joint venture properties prior to operation of our company as a REIT or a publicly traded company. Consequently, the historical operating results of our properties and the financial data set forth in this prospectus may not be indicative of our future performance. The operating performance of the properties may decline and could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

Our participation in joint ventures creates additional risks as compared to direct real estate investments, and the actions of our joint venture partners could adversely affect our operations or performance.

              We own five of our properties through joint ventures and in the future may purchase properties jointly with other entities, including limited partnerships and limited liability companies, some of which may be unaffiliated with us. There are additional risks involved in these types of transactions as compared to other types of real estate investments, including but not limited to the risks that:

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              In addition, we may owe a fiduciary obligation to our partner in a joint venture transaction, which may make it more difficult to enforce our rights. We generally will seek to maintain sufficient control of our joint venture partnerships to permit us to achieve our business objectives; however, we may not be able to do so. Any of the above risks could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

If we invest in a limited partnership as a general partner, we could be responsible for all liabilities of such partnership.

              In some joint ventures or other investments we may make, if the entity in which we invest is a limited partnership, we may acquire all or a portion of our interest in such partnership as a general partner. As a general partner, we could be liable for all the liabilities of the partnership. Additionally, we may be required to take our interests in other investments as a non-managing general partner. Consequently, we would be potentially liable for all such liabilities without having the same rights of management or control over the operation of the partnership as the managing general partner or partners may have. Therefore, we may be held responsible for all of the liabilities of an entity in which we do not have full management rights or control, and our liability may far exceed the amount or value of the investment we initially made in the partnership.

We own three properties in which an outside limited partner owns a de minimis equity interest, and the actions of such outside limited partner could adversely affect our operations or performance.

              We own three properties located in Montgomery County, Pennsylvania in which an outside limited partner owns a de minimis equity interest. These three properties are subject to a right of first refusal pursuant to which the outside limited partner has a right to purchase our interest in the relevant property in the event we decide to accept an offer to sell any of the three properties to a third party. This may restrict our ability to transfer our interests in these properties when we desire or on advantageous terms.

Investments in properties other than multifamily properties may materially and adversely affect us.

              While our portfolio consists of, and our primary business objective is to make, equity investments in multifamily properties, we may, at the discretion of our board of trustees and without a vote of our shareholders, invest in properties other than multifamily properties. Because we have no investment experience in other types of real estate, our investments may not yield the returns we anticipate, and it could adversely affect our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to satisfy our principal and interest obligations and to make distributions to our shareholders.

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Uninsured losses or premiums for insurance coverage relating to real property may adversely affect our performance and your returns.

              Our business operations are susceptible to, and could be significantly affected by, adverse weather conditions and natural disasters such as hurricanes, wind, floods and fires. These adverse weather conditions and natural disasters could cause significant damage to the properties in our portfolio, the risk of which is exacerbated by virtue of the concentration of our properties' locations and the potential for global climate change that may increase severe weather patterns. In addition, we may be subject to losses as a result of other catastrophic events, such as pollution or environmental matters (including the presence of asbestos or other hazardous building materials) that are uninsurable or not economically insurable.

              We maintain general commercial liability insurance on all of our properties and will attempt adequately to insure all of our real properties against casualty and other losses. However, these policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our real properties. Insurance proceeds may not be adequate to cover business interruption or losses resulting from adverse weather or other catastrophic disasters or to restore our economic position with respect to the affected property. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our real properties incurs a casualty loss which is not fully covered by insurance, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties, which could result in lower distributions to our shareholders. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

              In addition, our title insurance policies may not insure for the current aggregate market value of our portfolio, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases. In connection with this offering, we have not obtained updated surveys for all of the properties we have acquired or developed. Because updated surveys were not always obtained, the title insurance policies obtained by us may contain exceptions for matters that an updated survey might have disclosed. Moreover, because no updated surveys were prepared for some properties, we cannot assure you that the title insurance policies in fact cover the entirety of the real property, buildings, fixtures, and improvements which we believe they cover. We have not obtained and do not intend to obtain new or additional title insurance in connection with this offering and the formation transactions, including any so-called date down endorsements or other modifications to our existing title insurance policies.

Insurance costs and policy deductibles expose us to unpredictable expenses which may be material.

              Our general liability, property and workers' compensation policies provide for deductibles and self-insured retention amounts. These deductibles and self-insured retention amounts expose us to potential uninsured losses. Our management believes that this exposure is justified by savings in insurance premium amounts and, in some cases, was necessary in order for us to secure coverage. Depending on the level of claims experienced, insurance coverage may become difficult to obtain at the current premium and expense levels.

Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our operations and expose us to liability.

              We must operate our properties in compliance with numerous federal, state and local laws and regulations, including landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability. Compliance with changes in laws increasing the potential liability for environmental conditions existing on our properties or the restrictions on discharges or other conditions; rent control or rent stabilization laws; or other governmental rules and

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regulations or enforcement policies affecting the use and operation of our multifamily properties, including changes to building codes and fire and life-safety codes, may result in lower revenue growth or significant unanticipated expenditures.

We may incur costs and increased expenses to repair property damage resulting from inclement weather.

              In many of our markets we are exposed to risks associated with inclement weather, including increased costs for the removal of snow and ice.

Our operating expenses may increase in the future, and to the extent such increases cannot be passed on to residents or satisfied from rental revenues, our cash flow and our operating results could decrease.

              Operating expenses, including utility costs, repair and maintenance and insurance costs, are not fixed and will likely increase in the near term due to general inflation and as we acquire new properties and grow our business. Vacancies in our apartment homes may cause rents to be insufficient to cover operating expenses. If we are unable to offset operating expense increases through rent increases, our cash flow may decrease.

We have a material weakness in our internal control over financial reporting.

              In connection with their audit of our predecessor's combined consolidated financial statements as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 our independent registered public accounting firm identified and communicated to us certain control deficiencies in our internal control, which constituted a material weakness. The material weakness was that our predecessor did not maintain effective controls over the recording of certain complex or non-standard transactions. Specifically, our predecessor's controls were not designed nor operated effectively to ensure complete and accurate accounting for certain costs, holding gains and debt instruments in a timely manner and to ensure complete, accurate and timely recording of certain journal entries including those related to employee compensation forfeitures. Additionally, our independent registered public accounting firm found that our predecessor did not have adequate resources that possessed the prerequisite level of knowledge and experience to effectively review these transactions and record them completely, accurately and timely. These control deficiencies resulted in several audit adjustments in our predecessor's combined consolidated financial statements.

              A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented or detected and corrected, on a timely basis.

              We expect to hire a chief accounting officer concurrently with, or shortly following, the completion of this offering. Although this measure is designed to remediate the deficiencies raised by our independent registered public accounting firm, this and any future measures may not enable us to remedy these deficiencies or avoid other deficiencies in the future.

If we do not implement effective internal controls over financial reporting or disclosure controls and procedures within the required time frame, investors could lose confidence in our reported financial information, which could adversely affect the perception of our business and the trading price of our common shares.

              Since our inception we have operated as a private company through a number of direct and indirect special purpose entities. We cannot assure you that the past experience of our Chief Financial Officer in operating a publicly traded REIT will be sufficient to successfully operate our company as a publicly traded REIT, including the requirements to meet disclosure requirements in a timely manner and comply with the Sarbanes-Oxley Act of 2002. As an internally managed public company, after an initial transition period, we will be required to maintain internal control over financial reporting and our management will be required to evaluate the effectiveness of our internal control over financial reporting as

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of the end of each fiscal year. Additionally, we will be required to disclose in our annual reports on Form 10-K our management's assessment of the effectiveness of our internal control over financial reporting and a registered public accounting firm's attestation report on this assessment. As a public company, we will also be required to maintain disclosure controls and procedures, which encompass most of our internal control over financial reporting. Our principal executive officer and principal financial officer will be required to evaluate our disclosure controls and procedures as of the end of each quarter and disclose in our annual reports on Form 10-K and our quarterly reports on Form 10-Q their conclusions regarding the effectiveness of these controls and procedures. We are in the process of implementing such controls and procedures.

              Historically, as a private company, we have maintained our books and records on either a GAAP or a tax basis; however, as a public company we will be required to maintain books and records that allow us to prepare financial statements in accordance with GAAP. If we fail to remediate the weakness identified above, if we identify significant deficiencies or additional material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner or if we are not successful in establishing effective internal control over financial reporting or disclosure controls and procedures within the required time period, there could be inaccuracies or omissions in the information we are required to file with the SEC, including our consolidated financial information. Additionally, even if there are no inaccuracies or omissions, we will be required to publicly disclose the conclusion of our management that our internal control over financial reporting or disclosure controls and procedures are not effective. These events could cause investors to lose confidence in our reported financial information, adversely impact our share price, result in increased costs to remedy any deficiencies, attract regulatory scrutiny or lawsuits that could be costly to resolve and distract management's attention, limit our ability to access the capital markets or cause our shares to be delisted from the securities exchange on which they are listed.

We are and may continue to be subject to litigation, which could have a material adverse effect on our financial condition.

              We currently are, and are likely to continue to be, subject to litigation, including claims relating to our operations and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves; however, we cannot be certain of the ultimate outcomes of currently asserted claims or of those that arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, would adversely impact our earnings and cash flows, thereby impacting our ability to service debt and pay distributions to our shareholders. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and trustees.

The extent of our indemnification obligations with respect to Mr. Morgan and his affiliates upon the sale or other taxable disposition of certain properties pursuant to tax protection agreements may be such that they prevent us from effectuating such transactions even if they are otherwise in the best interests of shareholders.

              We have agreed pursuant to tax protection agreements to indemnify Mr. Morgan and his affiliates, whom we refer to as the protected parties, against the taxes incurred by them upon a sale, exchange or other disposition of 35 of our properties in our core markets (or 37% of our 94 consolidated properties) in a taxable transaction during the ten years following the closing of this offering, or the restricted period. The tax protection agreements also require us to indemnify the protected parties if we engage in other taxable transactions, such as a taxable merger, that trigger their tax gain with respect to the tax protected properties during the restricted period. We would not be required to indemnify a protected party if we sell, exchange or otherwise dispose of a property in a tax deferred transaction such as a like-kind exchange.

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              We also have agreed to maintain sufficient qualified nonrecourse financing on our properties during the restricted period so that at least $250 million of such indebtedness is allocated to the protected parties for federal income tax purposes, which is intended to allow them to defer recognition of gain and defer recapture of deductions attributable to our properties. In addition, we have agreed to maintain at least $120 million of certain additional indebtedness in order to permit the protected parties to guarantee or otherwise become at risk for such amount at their election in order to facilitate additional deferral of taxable income with respect to their operating partnership units. If we trigger these tax protection provisions, we must indemnify the protected parties for the entire amount of the resulting tax liabilities (without regard to any deductions or offsets available to them from other sources), plus an additional amount equal to the taxes incurred by them as a result of indemnification payments, and not just the value of the loss of deferral of such taxes for the balance of the restricted period.

              The tax indemnities granted to the protected parties may affect the way in which we conduct our business, including whether, when and under what circumstances we sell properties or interests therein and the timing and nature of our financings and refinancing transactions.

Tax consequences to holders of operating partnership units upon a sale or refinancing of properties not covered by the tax protection agreements may cause the interests of our senior management to differ from your own.

              As a result of the unrealized built-in gain attributable to certain properties acquired in connection with the formation transactions or held by the operating partnership immediately prior to the formation transactions, some holders of operating partnership units, including but not limited to Mr. Morgan and his affiliates, may suffer different and more adverse tax consequences than holders of common shares upon the sale or refinancing of properties not covered by the tax protection agreements. Such consequences may include disproportionately greater allocations of items of taxable income and gain upon a realization event. In addition, the refinancing of properties not covered by the tax protection agreements (or upon expiration of the tax protection agreements) could trigger recognition of gain to certain holders if such holders had been relying on operating partnership indebtedness to provide them with tax basis in their operating partnership units and the refinancing has the effect of reducing or eliminating such partnership indebtedness. As holders will not receive a correspondingly greater distribution of cash proceeds with respect to any such allocations of income or recognized gain, such holders may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties, or whether to sell or refinance such properties at all. As a result, the effect of certain transactions on these members of our executive management team may influence their decisions affecting these properties and may cause such members of our executive management team to attempt to delay, defer or prevent a transaction that might otherwise be in the best interests of our other shareholders.

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Risks Related to the Real Estate Industry

The illiquidity of real estate investments and current economic conditions could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

              Real estate investments are relatively illiquid. We will have a limited ability to sell our properties or otherwise vary our portfolio in response to changes in economic or other conditions. We will also have a limited ability to sell assets in order to fund working capital and similar capital needs. We cannot predict whether we will be able to sell any property 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. Additionally, there is no assurance that we will dispose of properties on terms as advantageous to us as prior dispositions. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, the Code imposes a 100% penalty tax on gain recognized by a REIT from the sale of property characterized as held primarily for sale to customers in the ordinary course of business, which creates a disincentive for certain dispositions that other types of real estate companies do not face. These restrictions may increase the illiquidity of our real estate assets. Our inability to respond quickly to changes in the performance of our properties and sell an unprofitable property or parcel of land could adversely affect our cash flows and results of operations and limit our ability to make distributions to our shareholders.

              Additionally, the uncertainty in the credit markets and the economy in general could negatively impact our ability to make dispositions or may affect the price we receive since buyers may experience increased borrowing costs or an inability to obtain financing. As a result, when we sell any of our real estate investments, we may not realize a gain on such sale and we may realize a loss, or the amount of our taxable gain could exceed the cash proceeds we receive from such sale. Our inability to realize a gain, or the realization of a loss, upon the sale of a property may adversely affect our results of operations.

We could incur significant costs related to government regulation and private litigation over environmental matters.

              Under various laws relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up such contamination at or emanating from that property. In the case of contamination of any of our properties, we may face liability under such laws regardless of:

              Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resources or property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties.

              Most of our properties likely contain asbestos or asbestos-containing building materials. Environmental laws require that asbestos-containing building materials be properly managed and

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maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements. Some laws impose liability for release or exposure to asbestos or asbestos-containing building materials. Environmental laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos or asbestos-containing building materials. Properties we may acquire in the future may also contain asbestos.

              To the extent environmental contamination exists on any of our properties, we could be subject to strict, joint and several liability for the contamination by virtue of our ownership interest. The presence of hazardous or toxic substances on our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. In addition, we could be subject to liability by virtue of our ownership interest and incur costs in defending against environmental claims, complying with environmental regulatory requirements or of remediating contaminated property, which could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

              Many of our properties have limited environmental insurance subject to deductibles, exclusions and policy conditions. Environmental liabilities may not be covered, proceeds from any such insurance policy may be insufficient to address any particular environmental situation or we may be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future.

              All of our currently owned properties have been subject to a Phase I or similar environmental assessment by independent environmental consultants, usually conducted at the time of acquisition, and we intend to subject any additional acquisitions to similar assessment. Phase I assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties with respect to releases or potential releases of hazardous substances. Phase I assessments generally include a historical review, a public records review, an investigation of the surveyed site and surrounding properties, and preparation and issuance of a written report, but do not include soil sampling or subsurface investigations and typically do not include an asbestos survey or verification of compliance with environmental or permitting requirements. Even if none of our environmental assessments of our properties reveal an environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations taken as a whole, we cannot give any assurance that such conditions do not exist or may not arise or be discovered in the future. Material environmental conditions, liabilities or compliance concerns may arise or be discovered after the environmental assessment has been completed. Moreover, the environmental condition of our properties may be affected by residents, by the condition of land or operations in the vicinity of our properties (such as releases from underground storage tanks), by third parties unrelated to us, or by catastrophic events such as severe weather, fire or earthquakes.

We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

              Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990, to be accessible to the handicapped. These and other federal, state and local laws may require modifications to our properties, or affect renovations of the properties. Although we believe that the properties in our portfolio substantially comply with present requirements of the ADA and FHAA, we have not conducted an audit or investigation of all of our properties to determine our compliance with the ADA and FHAA. If one or more of the properties in our portfolio does not comply with the ADA or FHAA, then we would be required to incur additional costs to bring the property into compliance. We cannot predict the ultimate cost of compliance with the ADA, FHAA or other legislation. If we incur substantial costs to comply with the ADA, FHAA and any other similar

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legislation, our financial condition, results of operations, cash flow, cash available for distribution, including cash available to pay distributions to our shareholders, per share trading price of our common shares and our ability to satisfy our debt service obligations could be materially adversely affected.

Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediating the problem.

              When excessive moisture accumulates in buildings or on building materials, mold may grow, particularly if the moisture remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues may also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels is alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants in any of our apartment community properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our residents and others if property damage or health concerns arise.


Risks Related to Our Organizational Structure

Conflicts of interest may exist or could arise in the future between the interests of our shareholders and the interests of holders of operating partnership units.

              Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any partner thereof, on the other. Our trustees and officers have duties to our company under applicable Maryland law in connection with their management of our company. At the same time, we, as general partner, have fiduciary duties to our operating partnership and to its limited partners under Delaware law in connection with the management of our operating partnership. Our duties as general partner to our operating partnership and its partners may come into conflict with the duties of our trustees and officers to our company and our shareholders.

Mr. Morgan and his affiliates are involved in other real estate activities and investments and, therefore, may have conflicts of interest with us.

              Mr. Morgan and his affiliates own interests in other real estate-related businesses and investments, including equity securities of public and private real estate companies. Mr. Morgan and his affiliates own an approximate 1% non-controlling interest in each of two multifamily properties located in suburban Philadelphia, and unaffiliated third parties own the remaining interests in the properties. In the formation transactions we will acquire certain rights of first refusal with respect to such properties held by Mr. Morgan and his affiliates. Our executive officers' involvement in other real estate-related activities could divert their attention from our day-to-day operations, and state law may limit our ability to enforce any non-compete agreements.

We did not conduct arm's-length negotiations with Mr. Morgan, our Chairman, Chief Executive Officer and President, regarding the terms of the formation transactions, such as the value of the properties to be acquired, and Mr. Morgan exercised significant influence with respect to the terms of the formation transactions.

              We did not conduct arm's-length negotiations with Mr. Morgan and his affiliates with respect to the terms of the formation transactions. In the course of structuring the formation transactions, Mr. Morgan had the ability to influence the type and level of benefits that he, his affiliates and our

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other executive officers will receive from us. In addition, Mr. Morgan had substantial pre-existing ownership interests in our predecessor and will receive substantial economic benefits as a result of the formation transactions. As a result, Mr. Morgan may receive disproportionate benefits in this offering as compared to other shareholders.

Upon completion of this offering and the formation transactions, Mr. Morgan and his affiliates, directly or indirectly, will own a substantial beneficial interest in our company on a fully diluted basis and will have the ability to exercise significant influence on our company and our operating partnership.

              Upon completion of this offering and the formation transactions, Mr. Morgan and his affiliates will own approximately         % of our outstanding common shares and        % of our outstanding operating partnership units, which together represent an approximate        % beneficial interest in our company on a fully diluted basis. Consequently, Mr. Morgan may be able to significantly influence the outcome of matters submitted for shareholder action, including the approval of significant corporate transactions, including business combinations, consolidations and mergers.

Our declaration of trust and bylaws and the amended and restated partnership agreement of our operating partnership contain provisions that may delay, defer or prevent a change of control transaction.

              Our declaration of trust provides that no person (other than Mr. Morgan, his family and certain of his affiliates) may beneficially or constructively own more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common shares or 9.8% in value of the aggregate of our outstanding shares. Our declaration of trust also generally prohibits any individual (as defined under the Code to include certain entities such as private foundations), other than Mr. Morgan, his family and certain of his affiliates, from beneficially owning more than        % in value or in number of shares, whichever is more restrictive, of our outstanding common shares or        % in value of the aggregate of our outstanding shares. These ownership limitations may prevent an acquisition of control of our company by a third party without our board of trustees' approval, even if our shareholders believe the change of control is in their best interest.

              Our declaration of trust also authorizes our board of trustees to authorize us to issue up to 450,000,000 common shares and up to 50,000,000 preferred shares, to classify or reclassify any unissued common shares or preferred shares and to set the preferences, rights and other terms of the classified or reclassified shares. Furthermore, our board of trustees may, without any action by the shareholders, amend our declaration of trust from time to time to increase or decrease the aggregate number of our shares or the number of shares of any class or series that we have authority to issue. Issuances of additional shares may have the effect of delaying, deferring or preventing a transaction or a change of control of our company that might involve a premium to the market price of our common shares or otherwise be in our shareholders' best interest.

              Additionally, provisions of the partnership agreement may delay or make more difficult unsolicited acquisitions of us or changes in our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, which some shareholders might consider desirable. These provisions include, among others:

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Certain provisions of Maryland law could impede changes in control, which may have the effect of preventing an acquisition that could benefit our shareholders.

              Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of impeding a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could be in the best interests of our shareholders, including:

              As permitted by the MGCL, we have elected, by resolution of our board of trustees, to opt out of the business combination provisions of the MGCL and, pursuant to a provision in our bylaws, to opt out of the control share provisions of the MGCL. Our board of trustees may not repeal this exemption from the business combination provisions of the MGCL or amend our bylaws to opt into the control share provisions of the MGCL without the affirmative vote of a majority of the votes cast on the matter by our common shareholders.

              Maryland law also contains other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

              Title 3, Subtitle 8 of the MGCL permits our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain takeover defenses, some of which, including a classified board or a supermajority vote requirement to remove a trustee, we do not already have. Such takeover defenses may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then current market price.

              In addition, the provisions of our declaration of trust on the removal of trustees and the advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for holders of our common shares or

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otherwise be in their best interest. Likewise, if our company's board of trustees were to opt in to the provisions of Title 3, Subtitle 8 of the MGCL classifying our board of trustees or increasing the vote required to remove a trustee, these provisions of the MGCL could have similar anti-takeover effects.

Our shareholders have only limited voting rights and will be bound by the majority vote on matters on which our shareholders are entitled to vote even if they do not vote with the majority on such matter, which may decrease the degree to which shareholders influence the actions of our company.

              In accordance with our declaration of trust, you may vote only on certain matters at an annual or special meeting of shareholders, including the election and removal of trustees, amendments to the declaration of trust, the termination of our company, mergers or consolidations or the sale or disposition of all or substantially all of our assets, any matters that are required to be approved by our shareholders under applicable law or the rules of any exchange on which our common shares are listed or traded, any properly submitted shareholder proposals and any other matters that our board of trustees directs to be submitted to our shareholders. Our shareholders are not entitled to vote on matters outside these limited areas. In addition, you will be bound by the majority vote on matters requiring approval of the shareholders (other than the election of trustees, in which you will be bound by the plurality vote) even if you do not vote with the majority (or plurality) on any such matter.

Our board of trustees may change our policies without shareholder approval.

              Our policies, including our policies with respect to investments, leverage, financing, growth, debt and capitalization, will be determined by our board of trustees or those committees or officers to whom our board of trustees delegates such authority. Our board of trustees will also establish the amount of any dividends or other distributions that we may pay to our shareholders. Our board of trustees or the committees or officers to which such decisions are delegated will have the ability to amend or revise these and our other policies at any time without shareholder vote. Accordingly, our shareholders will not be entitled to approve changes in our policies, and we may adopt policies that may not prove to be in the best interests of our shareholders.

Your interest in us will be diluted by our issuance of additional shares in this offering or otherwise.

              Existing shareholders and potential investors in this offering do not have preemptive rights to any shares issued by us in the future. Our declaration of trust provides that we may issue up to 500,000,000 shares of beneficial interest, of which 450,000,000 shares are designated as common shares and 50,000,000 shares are designated as preferred shares. All of such shares may be issued in the discretion of our board of trustees. Our board of trustees may increase or decrease the number of authorized shares of beneficial interest, increase or decrease the number of authorized shares of any class or series of shares, or classify or reclassify any unissued shares without obtaining shareholder approval.

              Existing shareholders and investors purchasing common shares in this offering will also experience dilution of their equity investment in us in the event that we:

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              Depending on the terms of such transactions, most notably the price per share, which may be less than the price paid per share in this offering, and the value of our properties, investors in this offering may experience a dilution in the book value per common share. Issuances of a substantial amount of our common shares in the public market, or the perception that such issuances might occur, could also adversely affect the market price of our common shares.

              Additionally, we and other companies in the real estate industry have experienced limited availability of financing in sufficient amounts or on favorable terms from time to time. If we issue additional equity securities to finance repositioning activities and acquisitions instead of incurring debt, the interest of our existing shareholders could be diluted.

We may pursue enforcement of the terms of the formation transaction documents less vigorously because of conflicts of interest with Mr. Morgan, which may adversely affect our shareholders.

              Mr. Morgan and his affiliates have ownership interests in the properties and in the other assets and liabilities that our operating partnership will acquire in the formation transactions. None of the agreements related to the formation transactions were negotiated at arm's-length. We may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationship with Mr. Morgan and the other individuals and entities involved.

Employment agreements that provide termination benefits to Mr. Morgan and Mr. O'Grady, our Chairman, Chief Executive Officer and President and our Executive Vice President and Chief Financial Officer, respectively, could prevent or deter a change of control.

              We expect to enter into employment agreements with Mr. Morgan and Mr. O'Grady that will provide them with severance benefits if their employment ends due to a termination by us without cause or by Mr. Morgan or Mr. O'Grady for good reason. The terms of Mr. Morgan's and Mr. O'Grady's employment agreements could prevent or deter a change of control of our company that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.

Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which may limit our ability to recover damages from our trustees and officers.

              As permitted by the MGCL, our declaration of trust limits the liability of our trustees and officers to us and our shareholders for money damages except for liability resulting from:

              In addition, our declaration of trust authorizes us to obligate our company, and our bylaws so obligate us, to indemnify our trustees and officers for actions taken by them in those and other capacities to the maximum extent permitted by Maryland law. Maryland law permits a Maryland real estate investment trust to indemnify and advance expenses to its trustees, officers, employees and agents to the same extent as permitted for directors, officers, employees and agents of a Maryland corporation. Generally, Maryland law permits a Maryland corporation to indemnify its directors and officers except in instances where the person seeking indemnification acted in bad faith or with active and deliberate dishonesty, actually received an improper personal benefit in money, property or services or, in the case of a criminal proceeding, had reasonable cause to believe that his or her actions were unlawful. Under Maryland law, a Maryland corporation also may not indemnify a director or officer in a suit by or in the right of the corporation in which the director or officer was adjudged liable to the

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corporation or for a judgment of liability on the basis that a personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the trustee or officer did not meet the prescribed standard of conduct; however, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist. Accordingly, in the event that actions taken by any of our trustees or officers impede the performance of our company, your ability to recover damages from that trustee or officer may be limited.


Risks Related to Our Status as a REIT

Failure to qualify as a REIT would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our shareholders.

              We intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending on December 31, 2011. We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. However, we cannot assure you that we will qualify as such, and shareholders should be aware that qualification as a REIT involves the application of highly technical and complex provisions of the Code as to which there are only limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.

              If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distribution to our shareholders because:

              In addition, if we fail to qualify as a REIT, we will not be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect the value of our common shares.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.

              Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, taxes on net income from certain "prohibited transactions," tax on income from certain activities conducted as a result of a foreclosure, and state or local income, franchise, property and transfer taxes. We could also, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. In addition, any of our subsidiaries that are taxable REIT subsidiaries, or TRSs, will be subject to regular corporate U.S. federal, state and local taxes. Any of these taxes would decrease cash available for distributions to shareholders.

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Failure to make required distributions would subject us to U.S. federal corporate income tax.

              We intend to operate in a manner so as to qualify as a REIT for U.S. federal income tax purposes. In order to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, each year to our shareholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders for a calendar year is less than a minimum amount specified under the Code.

If our operating partnership is treated as a corporation for U.S. federal income tax purposes, we will cease to qualify as a REIT.

              We believe that our operating partnership will be treated as a partnership for U.S. federal tax purposes. As a partnership, our operating partnership would not be subject to U.S. federal income tax on its income. Instead, each of its partners, including us, would be required to take into account its allocable share of the operating partnership's income. No assurance can be provided, however, that the IRS would not challenge the status of our operating partnership or of any other subsidiary partnership in which we have an interest as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership or, depending on the size of our interest, a subsidiary partnership as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, our operating partnership and any such subsidiary partnership would become subject to U.S. federal, state and local income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

We may be required to borrow funds or sell assets to satisfy our REIT distribution requirements.

              In order to maintain our qualification as a REIT and to meet the REIT distribution requirements, we may need to borrow funds on a short-term basis or sell assets, even if the then-prevailing market conditions are not favorable for these borrowings or sales. Our cash flows from operations may be insufficient to fund required distributions for a variety of reasons, including as a result of differences in timing between the actual receipt of income and the recognition of income for U.S. federal income tax purposes, or the effect of non-deductible expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Code denies a deduction, the creation of reserves or required debt service or amortization payments. The insufficiency of our cash flows to cover our distribution requirements could have an adverse impact on our ability to raise short- and long-term debt or to sell equity securities in order to fund distributions required to maintain our qualification as a REIT. Also, although the Internal Revenue Service, or IRS, has issued Revenue Procedure 2010-12 treating certain issuances of taxable stock dividends by REITs as distributions for purposes of the REIT requirements for taxable years ending on or before December 31, 2011, no assurance can be given that the IRS will extend this treatment or that we will otherwise be able to pay taxable share dividends to meet our REIT distribution requirements.

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We may in the future choose to pay dividends in the form of our shares instead of cash, in which case shareholders may be required to pay income taxes in excess of the cash dividends they receive.

              We may, in the future, distribute taxable dividends that are payable in cash and common shares at the election of each shareholder or distribute other forms of taxable stock dividends. Taxable shareholders receiving such dividends or other forms of taxable stock dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. shareholder sells the shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including with respect to all or a portion of such dividend that is payable in shares. In addition, if a significant number of our shareholders decide to sell shares in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our shares.

Dividends payable by REITs generally do not qualify for reduced tax rates.

              Certain dividends payable to individuals, trusts and estates that are U.S. shareholders, as defined in "Material U.S. Federal Income Tax Considerations" below, are currently subject to U.S. federal income tax at a maximum rate of 15% and are scheduled to be taxed at ordinary income rates for taxable years beginning after December 31, 2012. Dividends payable by REITs, however, are generally not eligible for the current reduced rates. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common shares.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities or to liquidate otherwise attractive investments.

              To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and the ownership of our shares. In order to meet these tests, we may be required to forego investments we might otherwise make, liquidate otherwise attractive investments and refrain from engaging in certain activities as discussed under "Material U.S. Federal Income Tax Considerations" below. Thus, compliance with the REIT requirements may hinder our performance.

              In addition, if we fail to comply with certain asset ownership tests described under "Material U.S. Federal Income Tax Considerations," below, at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.

We are assuming liabilities in connection with the formation transactions, including unknown liabilities and potential tax liabilities.

              Pursuant to the formation transactions, we and our operating partnership will acquire all of the assets and liabilities of, or all of the interests in, certain existing entities. If any such existing entity filed tax returns as an S corporation or partnership but was properly classified as a regular C corporation, we could assume material U.S. federal income tax liabilities in connection with the formation transactions. In addition, to qualify as a REIT, we will be required to distribute any earnings and profits

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acquired from such existing entities prior to the close of the taxable year in which the formation transactions occur. No rulings from the IRS will be requested and no opinions of counsel will be rendered regarding the U.S. federal income tax treatment of any of the existing entities to be acquired by our company or our subsidiaries in the formation transactions. Accordingly, no assurance can be given that we will not inherit material U.S. federal income or other tax liabilities from any such existing entities.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares.

              At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws, may be amended. We cannot predict if or when any new U.S. federal income tax law, regulation, or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

You may be restricted from acquiring or transferring certain amounts of our shares.

              In order to maintain our REIT qualification, among other requirements, no more than 50% in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code to include certain kinds of entities, during the last half of any taxable year, other than the first year for which a REIT election is made. To assist us in qualifying as a REIT, our declaration of trust contains an aggregate share ownership limit and a common share ownership limit of 9.8% applicable to all shareholders (other than Mr. Morgan, his family and certain of his affiliates) who beneficially or constructively own our shares and also contains additional aggregate and common share ownership limits of        % applicable to individuals (other than Mr. Morgan, his family and certain of his affiliates) who beneficially own our shares. The lower        % ownership limit applicable to individuals is intended to permit Mr. Morgan, his family and his affiliates to exchange their operating partnership units for our shares without violating the prohibition against five or fewer individuals owning more than 50% of our shares. Generally, any shares owned by affiliated owners will be added together for purposes of the aggregate share ownership limits, and any shares of common shares owned by affiliated owners will be added together for purposes of the common share ownership limits.

              If anyone attempts to transfer or own shares in a way that would violate the ownership limits, unless such ownership limits have been waived by our board of trustees, or in a way that would prevent us from continuing to qualify as a REIT, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the ownership limits. If this transfer to a trust fails to prevent such a violation or our disqualification as a REIT, then the initial intended transfer or ownership will be null and void from the outset. Anyone who acquires or owns shares in violation of an aggregate share ownership limit or common share ownership limit, unless such ownership limit or limits have been waived by our board of trustees, or in violation of the other restrictions on transfer or ownership in our declaration of trust bears the risk of a financial loss when the shares are redeemed or sold if the market price of our shares falls between the date of purchase and the date of redemption or sale.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

              The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Generally, income from a hedging transaction we enter into following the offering to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate

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assets does not constitute "gross income" for purposes of the 75% or 95% gross income tests, provided we properly identify the hedge pursuant to the applicable sections of the Code and Treasury Regulations. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary, or TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on income or gains resulting from hedges entered into by it or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in any of our TRSs will generally not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.

The ability of our board of trustees to revoke our REIT qualification without shareholder approval may cause adverse consequences to our shareholders.

              Our declaration of trust provides that our board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to shareholders in computing our taxable income and will be subject to U.S. federal income tax on all of our taxable income at regular corporate rates, which may have adverse consequences on our total return to our shareholders.

The opinion of our tax counsel regarding our status as a REIT does not guarantee that we are a REIT or that we will remain a REIT.

              Our tax counsel, Goodwin Procter LLP, is expected to render an opinion to us to the effect that we have been and are organized in conformity with the requirements for qualification and taxation as a REIT under the Code and our prior, current and proposed ownership and method of operations will allow us to satisfy the requirements for qualification and taxation as a REIT under the Code, commencing with our taxable year ending December 31, 2011. This opinion will be based upon our representations as to the manner in which we will be owned, invest in assets, operate and make distributions, among other things, and will assume we do in fact comply with our representations. The validity of Goodwin Procter LLP's opinion and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis, the results of which will not be monitored by Goodwin Procter LLP. Accordingly, no assurances can be given that we will satisfy the REIT requirements in any taxable year. The opinion of Goodwin Procter LLP will be based upon current law, which is subject to change either prospectively or retroactively. Opinions of counsel impose no obligation on counsel to advise us or the holders of our common shares of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law. Changes in applicable law could modify the conclusions expressed in the opinion. Unlike a ruling from the IRS, an opinion of Goodwin Procter LLP is not binding on the IRS, and no assurance can be given that the IRS could not successfully challenge our qualification as a REIT.


Risks Related to this Offering

There has been no public market for our common shares prior to this offering and we cannot guarantee that an active one will develop. The trading price of our common shares may therefore decline below the initial public offering price determined by agreement among us and the underwriters.

              Prior to this offering, there has been no public market for our common shares, and there can be no assurance that an active trading market will develop or be sustained or that our common shares will be resold at or above the initial public offering price. The initial public offering price of our common shares has been determined by agreement among us and the underwriters, but there can be no assurance that our common shares will not trade below the initial public offering price following the

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completion of this offering. The market value of our common shares could be substantially affected by general market conditions, including the extent to which a secondary market develops for our common shares following the completion of this offering, the extent of institutional investors' interest in us, the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies), our financial performance and general stock and bond market conditions. In addition, the trading market for our common shares will rely in part on the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our shares or our industry, or the stock of any of our competitors, the price of our shares could decline. If one or more of these analysts ceases coverage of our company, we could lose attention in the market, which in turn could cause the price of our common shares to decline.

The market price and trading volume of our common shares may be volatile.

              The market price of our common shares may be volatile. In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, you may be unable to resell your shares at or above the public offering price. We cannot assure you that the market price of our common shares will not fluctuate or decline significantly in the future.

              Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common shares include:

The timing and amount of our cash distributions, if any, may fluctuate over time, and a portion of our distributions to investors in this offering may represent a return of capital.

              One of our primary investment objectives is to pay regular cash distributions to shareholders. If these distributions exceed our then current and accumulated earnings and profits as determined for U.S. federal income tax purposes, a portion of our distributions may represent a return of capital to shareholders for U.S. federal income tax purposes. Although such return of capital distributions will not be taxable to a shareholder unless they exceed the shareholder's adjusted tax basis in our shares, such basis will be reduced by the amount of the return of capital distribution, thereby increasing the amount of gain (or decreasing the amount of loss) recognizable by the shareholder upon a subsequent disposition of our shares. The actual amount and timing of distributions will be made at the discretion of our board of trustees and will depend on our earnings, our financial condition, maintenance of our REIT status and other factors that our board of trustees may deem relevant from time to time. Our

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ability to buy, and earn positive yields on, real estate assets, the yields on our investments, our operating expense levels, distribution requirements under the REIT provisions of the Code and many other variables may affect the availability and timing of our cash distributions. As a result, our distribution rate and payment frequency may vary. Our long-term strategy is to fund the payment of regular cash distributions to our shareholders entirely from our funds from operations. However, in the near term we may need to borrow funds, issue new securities, sell assets, or, to the extent necessary, utilize offering proceeds in order to make cash distributions. Our board of trustees may modify our dividend policy from time to time.

Estimated initial cash available for distribution may not be sufficient to make distributions at expected levels.

              We intend to distribute to our shareholders all or substantially all of our REIT taxable income each year in order to comply with the distribution requirements applicable to REITs under the Code and to avoid federal income and excise tax on retained income. Our estimated initial annual distributions represent        % of our estimated cash available for distribution for the 12 months ending December 31, 2011. Our ability to pay dividends may be adversely affected by the risks described in this prospectus. All distributions will be made at the discretion of our board of trustees and will depend on our earnings, our financial condition, maintenance of our REIT status and other factors that our board of trustees may deem relevant from time to time. We cannot assure you that we will be able to pay our estimated initial annual distribution to shareholders out of cash available for distribution as calculated in "Distribution Policy." This calculation gives no effect to additional leasing of the properties in our portfolio after the date of this prospectus, or other potential sources of in-flows and out-flows of cash. If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital (expected to aggregate approximately $            upon completion of this offering) or to borrow to provide funds for such distribution, or to reduce the amount of such distribution. Any such reduction may result in a decrease in the market price of our shares.

If we pay distributions from sources other than our cash flow from operations, we will have less funding available for the acquisition of properties, and your overall return may be reduced.

              Our organizational documents permit us to make distributions from any source, and we may choose to pay distributions when we do not have sufficient cash flow from operations to fund such distributions. In addition, to the extent we make distributions to shareholders with sources other than funds from operations, the amount of cash that is distributed from such sources will limit the amount of investments that we can make, which will in turn negatively impact our ability to achieve our investment objectives and limit our ability to make future distributions. Distributions that exceed cash flows from operations or the cash flow generated by investing activities will likely not be sustainable for a significant period of time.

If you invest in this offering, you will experience immediate and substantial dilution.

              We expect the initial public offering price of our common shares to be higher than the pro forma book value per share of our outstanding common shares. Accordingly, if you purchase common shares in this offering, you will experience immediate dilution of approximately $            in the book value per common share. This means that investors who purchase common shares will pay a price per share that exceeds the pro forma book value of our assets after subtracting our liabilities.

Affiliates of our underwriters will receive benefits in connection with this offering.

              We expect that affiliates of our underwriters will participate as lenders under our proposed $             million credit facility. We expect that, under this facility, an affiliate of                        will act as administrative agent and joint arranger, and an affiliate of                        will act as syndication agent and joint arranger. These transactions create potential conflicts of interest because the underwriters have an interest in the successful completion of this offering beyond the underwriting

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discounts and commissions they will receive. These interests may influence the decision regarding the terms and circumstances under which the offering and formation transactions are completed.


Risks Related to Our Indebtedness and Future Debt Financing

Payments on our debt will reduce cash available for distribution, including cash available to pay distributions to our shareholders, and may expose us to the risk of default under our debt obligations.

              Upon completion of this offering, we anticipate that our pro forma total consolidated indebtedness will be approximately $             million, and we may incur significant additional debt to finance future acquisition and repositioning activities. Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or pay distributions to our shareholders necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

              If any one of these events were to occur, our financial condition, results of operations, cash flow, cash available for distribution, including cash available to pay distributions to our shareholders, per share trading price of our common shares, and our ability to satisfy our debt service obligations could be materially adversely affected.

Existing loan agreements contain, and future financing arrangements, including our proposed credit facility, will contain restrictive covenants relating to our operations, which could limit our ability to make distributions to our shareholders and cause us to fail to qualify as a REIT.

              We are subject to certain restrictions pursuant to the restrictive covenants of our outstanding indebtedness, which may affect our distribution and operating policies and our ability to incur additional debt. Loan documents evidencing our existing indebtedness contain, and loan documents

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entered into in the future, including our proposed credit facility, will likely contain, certain operating covenants that limit our ability to further mortgage the property or discontinue insurance coverage. In addition, the loan documents generally contain restrictive covenants which may include, among others, financial covenants, including certain debt service coverage and leverage ratios, as well as covenants limiting our ability to incur additional secured and unsecured indebtedness, make dividend payments, sell all or substantially all of its assets, engage in mergers and consolidations and complete certain acquisitions. In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us. Also, if, as a result of covenants applicable to our debt, we are restricted from making distributions, we may be unable to make distributions necessary for us to avoid U.S. federal corporate income and excise taxes and maintain our qualification as a REIT, which could affect our financial condition, results of operations, cash flows, ability to make distributions, and the market price for our common shares.

Future offerings of debt, which would be senior to our common shares upon liquidation, and/or preferred equity securities which may be senior to our common shares for purposes of dividend distributions or upon liquidation, may dilute or otherwise adversely affect the market price of our common shares.

              In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities. Upon liquidation, holders of our debt securities and shares of preferred shares and lenders with respect to other borrowings may receive distributions of our available assets prior to the holders of our common shares. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares are not entitled to preemptive rights or other protections against dilution. Our preferred shares, if issued, could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to pay a dividend or make another distribution to the holders of our common shares. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common shares and diluting their holdings in us.

Disruptions in the financial markets could adversely affect our ability to obtain debt financing and impact our acquisitions and dispositions.

              Dislocations and liquidity disruptions in capital and credit markets could impact liquidity in the debt markets, resulting in financing terms that are less attractive to us and/or the unavailability of certain types of debt financing. The capital and credit markets have recently experienced significant volatility during which the availability of funds to real estate investment trusts, among others, was limited. Should this again be the case, or if funds are only available on unattractive terms, debt financing or refinancing could be costly or unavailable to us. It is possible that our ability to access the capital and credit markets may therefore be limited or precluded at a time when we would like, or need, to do so, which would adversely impact our ability to refinance maturing debt and/or react to changing economic and business conditions. Uncertainty in the credit markets may negatively impact our ability to make acquisitions, make it more difficult or not possible for us to sell properties, or adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. Renewed disruptions in the financial markets could also have other unknown adverse effects on us or the economy generally, and may cause the price of our common shares to fluctuate significantly and/or to decline.

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Our organizational documents contain no limitation on the amount of debt we may incur. As a result, we may become highly leveraged in the future.

              Our organizational documents contain no limitations on the amount of indebtedness that we or our operating partnership may incur. Subject to certain limitations under our existing loan documents, as described above, we could alter the balance between our total outstanding indebtedness and the value of our assets at any time. If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated distributions or the distributions required to maintain our REIT status, and could harm our financial condition.

Increases in interest rates would increase our expenses, make it more difficult for us to make attractive investments and could limit our ability to pay distributions to our shareholders.

              High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. Interest we pay would reduce cash available for distribution to our shareholders and other purposes. Interest rates are currently low relative to historical levels and may increase significantly in the future. Unless we have hedged effectively against interest rate changes, if we incur variable-rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flow and our ability to make distributions to you. Further, increases in interest rates may make investments in other entities more attractive than an investment in us. Conversely, decreases in interest rates may cause the price of real property investments and real estate-related investments to increase, thus making it more difficult for us to make otherwise attractive investments. Any of these risks could adversely affect our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

Failure to hedge effectively against interest rate changes may adversely affect results of operations.

              Subject to maintaining our status as a REIT, we may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap agreements and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such an agreement is not legally enforceable. Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.

Cross-collateralization and cross-default provisions in our loan documents may increase the risk of loss, as defaults under these documents may cause us to lose the properties securing the loans.

              In addition to the general foreclosure risk associated with mortgage financing, some of our secured loan documents contain cross-collateralization or cross-default provisions. These provisions create the risk that a default on a single property could affect multiple properties, including by triggering foreclosure against multiple properties to satisfy the loan obligation. If any of our properties are foreclosed upon due to a default, it could have an adverse effect on our financial condition, results of operations, cash flows, ability to pay distributions, and the market price of our common shares.

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FORWARD-LOOKING STATEMENTS

              We make statements in this prospectus that are "forward-looking statements." In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our pro forma financial statements and all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "could," "should," "seeks," "approximately," "intends," "plans," "projects," "pro forma," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to present or historical matters. You can also identify forward-looking statements by discussions of strategy, projections, plans or intentions.

              Forward-looking statements involve numerous risks and uncertainties and you should not place undue reliance on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

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              While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by law. For a further discussion of these and other factors that could impact our future results, performance or transactions, please carefully read the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Our Business and Properties."

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USE OF PROCEEDS

              We estimate we will receive gross proceeds from this offering of $             million, or approximately $             million if the underwriters' overallotment option is exercised in full, in each case assuming an initial public offering price of $            per share, which is the midpoint of the per share price range set forth on the cover page of this prospectus. After deducting the underwriting discount and commissions and estimated expenses of this offering, we expect to receive net proceeds from this offering of approximately $             million, or approximately $             million if the underwriters' overallotment option is exercised in full.

              We will contribute the net proceeds from this offering to our operating partnership in exchange for operating partnership units. Our operating partnership will subsequently use the net proceeds received from us as described below:

Amount to be Repaid(1)
(in millions)
  Debt to be Repaid(2)   Interest Rate   Effective
Interest Rate
(June 30, 2011)
  Maturity Date  

                         

                         

(1)
Amounts based on outstanding balances as of                        , 2011.

(2)
Exact payment amounts may differ from such estimates due to amortization of principal, additional borrowings, accrual of additional prepayment fees and incurrence of additional transaction expenses.

              If the underwriters exercise their option to purchase up to an additional            common shares in full to cover overallotments, we expect to use the additional net proceeds for general working capital purposes, potential future acquisitions and repositioning activities.

              We currently do not intend to use any of the net proceeds from the offering to fund distributions to our shareholders, but if we use the net proceeds to fund distributions, these payments may be treated as a return of capital to our shareholders for U.S. federal income tax purposes. Pending the application of the net proceeds, we intend to invest the net proceeds in interest-bearing accounts and short-term, interest-bearing securities consistent with our intention to qualify for taxation as a REIT.

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DISTRIBUTION POLICY

              We intend to pay regular quarterly dividends to holders of our common shares. We intend to pay a pro rata initial dividend with respect to the period commencing on the completion of this offering and ending            , based on $            per share for a full quarter. On an annualized basis, this would be $            per share, or an annual distribution rate of approximately        % based on an estimated initial public offering price at the midpoint of the per share price range set forth on the cover page of this prospectus. We estimate that this initial annual distribution rate will represent approximately        % of estimated cash available for distribution for the 12 months ending March 31, 2012. Our intended initial annual distribution rate has been established based on our estimate of cash available for distribution for the 12 months ending March 31, 2012, which we have calculated based on adjustments to our pro forma income for the year ended December 31, 2010 and for the three months ending March 31, 2011. This estimate was based on our historical operating results and does not take into account our growth strategy. In estimating our cash available for distribution for the 12 months ending March 31, 2012, we have made certain assumptions as reflected in the table and footnotes below.

              Our estimate of cash available for distribution does not include the effect of any changes in our working capital resulting from changes in our working capital accounts. Our estimate also does not reflect the amount of cash estimated to be used for investing activities for acquisition and other activities, other than a reserve for recurring capital expenditures. It also does not reflect the amount of cash estimated to be used for financing activities, other than scheduled loan principal payments on mortgage and other indebtedness that will be outstanding upon completion of this offering. Any such investing and/or financing activities may have a material effect on our estimate of cash available for distribution. Because we have made the assumptions set forth above in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations or our liquidity, and have estimated cash available for distribution for the sole purpose of estimating the amount of our initial annual distribution rate. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or our ability to pay dividends or make other distributions. In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future dividends or other distributions.

              Dividends and other distributions made by us will be authorized and determined by our board of trustees in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including restrictions under applicable law and other factors described below. We believe that our estimate of cash available for distribution constitutes a reasonable basis for setting the initial distribution rate; however, we cannot assure you that the estimate will prove accurate, and actual distributions may therefore be significantly different from the expected distributions. We do not intend to reduce the expected dividends per share if the underwriters' overallotment option is exercised; however, this could require us to borrow under our credit facility.

              We cannot assure you that our estimated dividends will be made or sustained or that our board of trustees will not change our dividend policy in the future. Any dividends or other distributions we pay in the future will depend upon our actual results of operations, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our properties, 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. See "Risk Factors."

              U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital

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gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. See "Material U.S. Federal Income Tax Considerations." We anticipate that our estimated cash available for distribution will exceed the amount required to be distributed pursuant to the annual distribution requirements applicable to REITs. However, under some circumstances, we may be required to pay distributions in excess of cash available for distribution in order to meet these distribution requirements or avoid taxes on retained income. To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may consider various funding sources to cover any such shortfall, including borrowing under our proposed credit facility, selling certain of our assets or using a portion of the net proceeds from this offering or further offerings. We may also elect to pay distributions in the form of taxable distributions of shares or debt securities. If, in the future, we issue any preferred shares, the distribution preference on the preferred shares could limit our ability to make distributions to the holders of our common shares.

              The following table describes our pro forma income available to common shareholders for the 12 months ending March 31, 2011, and the adjustments we have made thereto in order to estimate our initial cash available for distribution for the 12 month period ending March 31, 2012 (amounts in thousands). These calculations do not assume any changes to our operations or any acquisitions or dispositions, which could affect our operating results and cash flows, or changes in our outstanding common shares. We cannot assure you that our actual results will be the same as or comparable to the calculations below.

 
  For the Last Twelve
Months Ended
March 31, 2011
 

Pro forma net income (loss) for twelve months ending December 31, 2010

       

Add: Pro forma net income (loss) for the three months ending March 31, 2011

       

Less: Pro forma net income (loss) for the three months ending March 31, 2010

       
       

Pro forma net income (loss) for twelve months ending March 31, 2011

       

Add: Depreciation and amortization

       

Add: Net increase/decrease in management fee income from existing management contracts for the twelve months ending March 31, 2012 as compared to the twelve month period ending March 31, 2011(1)

       

Add: Non-cash compensation expense

       

Add: Non-cash interest expense

       
       

Estimated cash flows from operating activities for the twelve months ending March 31, 2012

       

Estimated cash flows used in investing activities:

       

Less: Annual provision for recurring capital expenditures(2)

       
       

Total estimated cash flow used in investing activities

       

Estimated cash flows used in financing activities:

       

Less: Scheduled loan principal payments(3)

       
       

Total estimated cash flow used in financing activities

       

Total estimated annual cash available for distribution for the twelve months ending March 31, 2012(4)

       

Our share of estimated cash available for distribution

       

Non-controlling interests' share of estimated cash available for distribution

       

Total estimated initial annual distribution to shareholders and unitholders(5)

       

Estimated annual distribution per share

       

Payout ratio based on estimated cash available for distribution

       

(1)
Adjustment reflects the net increase in contractual management fee revenues for the twelve months ending March 31, 2012 compared to the same period ended March 31, 2011 from contracts in place during the twelve months ended March 31, 2011.

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(2)
Represents recurring capital expenditures based on a pro forma historic average recurring capital expenditures calculated as follows:

 
  2010   2009   2008   Average  

Recurring Capital Expenditures

                         

Units

                         

Average Recurring Capital Expenditures Per Unit

                         
(3)
Represents required mortgage loan payments for owned properties after the repayment of certain loans with proceeds from this Offering.

(4)
Reflects estimated cash flows less cash flow used in financing and investing activities.

(5)
Estimated initial annual distribution calculated by multiplying the issued shares of            by the assumed annual distribution amount per share of             .

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CAPITALIZATION

              The following table sets forth the capitalization of our predecessor as of March 31, 2011 and our capitalization on a pro forma basis as of March 31, 2011 to give effect to the formation transactions and as further adjusted to give effect to this offering (assuming a price per share equal to the midpoint of the per share price range set forth on the cover page of this prospectus), and the use of net proceeds as set forth in "Use of Proceeds." You should read this table in conjunction with "Use of Proceeds," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 
  As of March 31, 2011  
 
  Predecessor
Historical
Combined
  Pro Forma
Consolidated
Before this
Offering
  As Adjusted
Pro Forma
Consolidated
 
 
  (Unaudited)
  (Unaudited)
  (Unaudited)
 
 
  (in thousands, except share and
per share amounts)

 

Cash and cash equivalents

  $     $     $    

Debt:

                   
 

Mortgages and other secured loans

  $           $    

Non-controlling interests in our operating partnership

                   

Shareholders' equity (deficit):

                   
 

Preferred shares, $0.01 par value, 50,000,000 shares authorized, none issued or outstanding on an actual or pro forma basis

                   
 

Common shares, $0.01 par value, 450,000,000 shares authorized,                         shares issued and outstanding on an actual and pro forma basis and                        shares issued on an as adjusted pro forma basis(1)

                   
 

Additional paid in capital

                   

Owners' equity (deficit)

                   
 

Total shareholders' equity (owners' deficit)

                   

  $     $     $    
                 

Total Capitalization

  $           $    
                 

(1)
The common shares outstanding as shown include common shares to be issued in this offering and            restricted shares granted to and excludes (i)             shares available for future issuance under our 2011 Equity Incentive Plan and (ii)             shares reserved for issuance with respect to operating partnership units held by limited partners expected to be outstanding subsequent to the formation transactions that may, subject to limits in the partnership agreement of our operating partnership, be redeemed for cash or, at our option, exchanged for            common shares on a one-for-one basis commencing 12 months after the completion of this offering.

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DILUTION

              Purchasers of our common shares offered in this prospectus will experience an immediate and substantial dilution of the net tangible book value of common shares purchased by them. As of March 31, 2011, we had a combined net tangible book value of approximately $            million, or $            per common share held by our continuing investors, assuming the exchange of operating partnership units into common shares on a one-for-one basis. After giving effect to the sale of our common shares offered hereby, including the use of proceeds as described under "Use of Proceeds" and the formation transactions, and the deduction of underwriting discounts and commissions and estimated offering and formation expenses, the pro forma net tangible book value as of March 31, 2011 attributable to common shareholders would have been $             million, or $            per common share. This amount represents an immediate increase in net tangible book value of $            per share to continuing investors and an immediate dilution in pro forma net tangible book value of $            per share from the assumed public offering price of $            per common share to new investors. See "Risk Factors—Risks Related to this Offering." The following table illustrates this per share dilution:

Assumed initial public offering price per share

  $    

Net tangible book value per share before the formation transactions and this offering(1)

       

Net increase in pro forma net tangible book value per share attributable to formation transactions and this offering

       

Pro forma net tangible book value per share after the formation transactions and this offering(2)

       
       

Dilution in pro forma net tangible book value per share to new investors(3)

  $    
       

(1)
Net tangible book value per common share before the formation transactions and this offering is determined by dividing the net tangible book value of our predecessor as of March 31, 2011 (consisting of total assets less intangible assets, which are comprised of                                             net of liabilities to be assumed) by the number of common shares held by continuing investors after this offering, assuming the exchange for common shares on a one-for-one basis of the operating partnership units to be issued in connection with the formation transactions.

(2)
Based on pro forma net tangible book value of approximately $             million divided by the sum of common shares and operating partnership units to be outstanding after this offering, not including            common shares available for issuance under our 2011 Equity Incentive Plan.

(3)
Dilution is determined by subtracting pro forma net tangible book value per common share after giving effect to the formation transactions and this offering from the initial public offering price paid by a new investor for a common share.

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SELECTED FINANCIAL DATA

              The following table sets forth summary selected financial and operating data on a historical combined basis for our predecessor. We refer to our predecessor entities and their subsidiaries as the existing entities. Each of the existing entities currently owns, directly or indirectly, one or more apartment community properties. Upon completion of this offering and the formation transactions, we will acquire 99 properties or interests in properties held by our predecessor or predecessor's affiliates and we will assume the ownership and operation of their businesses. We have not presented historical information for Morgan Properties Trust because we have not had any trust activity since our formation other than the issuance of common shares in connection with the initial capitalization of the company and activity in connection with this offering and because we believe that a discussion of the results of Morgan Properties Trust would not be meaningful.

              You should read the following summary selected financial data in conjunction with our historical combined consolidated financial statements and the related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this prospectus.

              The historical combined balance sheet information as of December 31, 2010 and 2009 of our predecessor and the combined statements of operations information for each of the three years in the period ended December 31, 2010 of our predecessor have been derived from the historical audited combined consolidated financial statements included elsewhere in this prospectus. The historical combined consolidated balance sheet information as of March 31, 2011 and as of December 31, 2008, 2007 and 2006, and the combined statements of operations information for the three months ended March 31, 2011 and 2010 and for the years ended December 31, 2007 and 2006, have been derived from the unaudited combined financial statements of our predecessor. In the opinion of the management of our company, such information includes all adjustments necessary to present fairly the information set forth therein.

              Our unaudited selected pro forma consolidated financial statements and operating information as of and for the three months ended March 31, 2011 and the year ended December 31, 2010 assume completion of this offering and the formation transactions as of January 1, 2010 for the operating data and as of March 31, 2011 for the balance sheet data. Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.

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The Company (Pro Forma) and our Predecessor (Historical)

 
  For the Three Months
Ended March 31,
(unaudited)
  For the
Year Ending December 31,
 
 
   
  Predecessor
Entities
   
  Predecessor
Entities
 
 
  Pro
Forma
2011
  Pro
Forma
2010
 
 
  2011   2010   2010   2009   2008   2007   2006  
 
   
   
   
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (in thousands, except per share data)
 

Statement of Operations Data:

                                                       

Revenues:

                                                       
 

Rental revenues

  $     $ 59,476   $ 15,639   $     $ 84,544   $ 42,567   $ 31,536   $ 28,071   $ 27,049  
 

Operating expense reimbursements

          2,894     1,348           4,626     2,734     1,822     1,180     1,090  
 

Payroll expense reimbursements

          2,388     6,365           25,392     29,073     27,990     17,062     11,899  
 

Related party fee income

          756     2,198           8,661     9,835     10,200     6,725     4,485  
 

Other Income

          3,685     1,372           7,594     4,630     2,986     2,367     1,921  
                                       
   

Total revenues

          69,199     26,922           130,817     88,839     74,534     55,405     46,444  

Expenses:

                                                       
 

Rental operations

          31,271     8,644           45,366     20,692     14,211     12,593     13,961  
 

General and administrative

          4,197     2,846           15,223     11,484     10,729     8,655     6,772  
 

Non Predecessors entities' payroll expense

          2,388     6,365           25,392     29,073     27,990     17,062     11,899  
 

Interest

          24,765     4,668           30,048     10,633     9,249     10,246     10,149  
 

Depreciation

          11,838     3,339           16,931     8,662     5,908     5,202     4,874  
 

Amortization

          6,705     2,007           6,319     1,882     202     44     438  
 

Net loss on derivative

          144     197           (39 )   (28 )   73     16     70  
                                       
   

Total expenses

          81,308     28,066           139,240     82,398     68,362     53,818     48,163  
                                       
 

Operating income (loss)

          (12,109 )   (1,144 )         (8,423 )   6,441     6,172     1,587     (1,719 )
 

Equity in earnings of unconsolidated entities

          4     62           499     322     (789 )   (327 )   (579 )
 

Gain on previously held equity investment

                        110,292     13,033              
 

Non-operating income (expense)

          8     20           43     13     111     5,038     599  
                                       
 

Income (loss) before non-controlling interest

          (12,097 )   (1,062 )         102,411     19,809     5,494     6,298     (1,699 )
 

Non-controlling interest

          (9,800 )   (1,201 )         47,307     10,767     2,039     (4,124 )   (424 )
                                       
 

Net Income (loss)

  $     $ (2,297 ) $ 139   $     $ 55,104   $ 9,042   $ 3,455   $ 10,422   $ (1,275 )
                                       

Pro forma basic earnings per share (unaudited)

                                                       

Pro forma diluted earnings per share (unaudited)

                                                       

Pro forma weighted average common shares outstanding—basic (unaudited)

                                                       

Pro forma weighted average common shares outstanding—diluted (unaudited)

                                                       

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  As of December 31,  
 
  As of March 31,  
 
   
  Predecessor Entities  
 
  Pro Forma
2011
  Predecessor
Entities
2011
  Pro Forma
2010
 
 
  2010   2009   2008   2007   2006  
 
  (unaudited)
  (unaudited)
  (unaudited)
   
   
  (unaudited)
  (unaudited)
  (unaudited)
 
 
  (in thousands)
 

Balance Sheet Data (at period end):

                                                 
 

Net investment in real estate

  $     $ 1,644,937   $     $ 1,654,756   $ 338,607   $ 171,590   $ 111,750   $ 114,825  
 

Cash and cash equivalents

          8,918           13,508     2,006     435     (1,262 )   1,787  
 

Other assets

          62,060           71,959     19,657     15,183     17,442     11,277  
                                   
 

Total assets

  $     $ 1,715,915   $     $ 1,740,223   $ 360,270   $ 187,208   $ 127,930   $ 127,889  
                                   
 

Debt obligations

          1,638,690           1,636,216     392,210     235,121     182,730     181,487  
 

Other liabilities

          48,273           55,610     32,219     29,523     26,973     25,635  
 

Total liabilities

          1,686,963           1,691,826     424,429     264,644     209,703     207,122  
 

Owners' equity (deficit)

          3,353           8,792     (46,365 )   (49,460 )   (46,852 )   (48,268 )
 

Noncontrolling interest

          25,599           39,605     (17,794 )   (27,976 )   (34,921 )   (30,965 )
                                   
 

Total Liabilities and owners' equity

  $     $ 1,715,915   $     $ 1,740,223   $ 360,270   $ 187,208   $ 127,930   $ 127,889  
                                   

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

              The following discussion of our financial condition and results of operation should be read in conjunction with selected combined financial data and related notes and the historical consolidated financial statements of our "predecessor," included elsewhere in this prospectus. Each of the existing entities currently owns one or more multifamily properties. As used in this section, unless the context otherwise requires, "we," "us," and "our company" mean our predecessor for the periods presented together with Morgan Properties Trust, a Maryland real estate investment trust and its consolidated subsidiaries which will acquire the predecessor entities upon completion of this offering and the formation transactions. Where appropriate, the following discussion includes analysis of the effects of the formation transactions, certain other transactions and this offering. These effects are reflected in the pro forma combined financial statements located elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or elsewhere in this prospectus. See "Risk Factors" and "Forward-Looking Statements."

Overview

Our Company

              We are a fully integrated REIT specializing in the acquisition, ownership, management and repositioning of well-located multifamily properties in high-barrier-to-entry markets. We are headquartered in King of Prussia, Pennsylvania. We were formed to succeed to Mitchell L. Morgan's multifamily real estate business founded in 1985 and, as such, we have significant experience, longstanding relationships and extensive knowledge of our core markets. Our strategy is to acquire, reposition and professionally manage well-located multifamily properties located in supply constrained, high-barrier-to-entry markets in the suburban Philadelphia, New York-New Jersey and Baltimore-Washington, D.C. metropolitan areas, which we consider our core markets. We own a portfolio of 94 properties, consisting of approximately 21,518 apartment homes, and we own equity interests in five additional properties, consisting of approximately 1,573 apartment homes, through unconsolidated joint ventures. Our properties are primarily located in our core markets and had an average occupancy of 94.4% for the quarter ended March 31, 2011.

Our Organization

              We were formed as a Maryland real estate investment trust on June 24, 2011 and will conduct all of our business activities through our operating partnership, Morgan Properties Operating Partnership, L.P. of which we are the sole general partner. We expect to hold a                        interest in our operating partnership upon completion of this offering. We will not have any operating activity until the completion of this offering and the formation transactions. Accordingly, we believe that a discussion regarding the historical operations of Morgan Properties Trust would not be meaningful, and we have therefore set forth a discussion regarding the historical results of operations of our predecessor only.

              We intend to elect to be taxed and to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2011. We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. As a REIT, we generally will not be subject to federal income tax on REIT taxable income that we distribute to our shareholders during the year in which we earn the income. If we fail to qualify as a REIT in any taxable year, and the statutory relief provisions of the Code do not apply, we will be subject to federal income tax on all of our taxable income at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income or property. In addition, the income of any taxable REIT subsidiary that we own will be subject to taxation at regular corporate rates. See "Material U.S. Federal Income Tax Considerations."

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Formation Transactions

              Prior to or concurrently with the completion of this offering, we will engage in certain formation transactions, which are designed to:

              As a result of our formation transactions, our future financial condition and results of operations may differ significantly from, and will not be comparable with, the historical financial position and results of operations of our predecessor.

Our Predecessor

              Our predecessor means the combination of (i) all entities or interests in entities currently controlled by Mitchell L. Morgan and his affiliates that own interests in certain properties, which interests we will own after the completion of our formation transactions described elsewhere in this prospectus, which we refer to as the "existing entities," and (ii) Mitchell L. Morgan Management, Inc., which we refer to as "our management company" and Morgan Properties Payroll Services, Inc., which we refer to as our "payroll company."

              In particular, our predecessor includes 3 property groups: (1) owned properties, (2) acquired properties and (3) our management company and payroll company, which are 100% owned by Mitchell L. Morgan. The financial statements presented herein summarize the combined results of operations for these property groups. All significant intercompany transactions and balances between the combined entities have been eliminated, which are primarily service and management fees incurred between the properties and our management company and payroll company.

              Owned properties are defined as properties that were held by us for the entire periods being compared where comparable operating results are available. For the fiscal year ended December 31, 2009 compared to the fiscal year ended December 31, 2008, the owned properties consisted of seven properties that were controlled by Mitchell L. Morgan for both periods. For the fiscal year ended December 31, 2010 compared to the fiscal year December 31, 2009, the owned properties consisted of 11 properties. For the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010, the owned properties increased to 18 properties, as Mitchell Morgan acquired controlling interest in additional properties.

              The acquired properties are defined as properties where Mitchell L. Morgan acquired the controlling interests in multifamily properties in which he previously held a non-controlling interest. These properties become part of our predecessor upon acquiring control. See "Acquisitions" below for further information regarding the acquisitions that occurred during the periods 2008 through 2010.

Acquisitions

              On June 23, 2008 and December 18, 2008, certain entities controlled by Mitchell L. Morgan and other affiliates acquired his partners' 60% interest in four partnerships, each holding an individual multifamily property, and Mitchell L. Morgan obtained 100% effective control of the partnerships. Two

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of these partnerships are referred to as the UDRT Portfolio and the remaining two are referred to as the Avalon Portfolio. These four properties totaled approximately 1,018 apartment homes. These properties are included as acquired properties for the fiscal years ended December 31, 2008 and 2009, and are included as owned properties thereafter.

              On October 22, 2009, certain entities controlled by Mitchell L. Morgan and other affiliates acquired his partners' 50% interest in MPM Venture Associates, LP ("MPM") and, Mitchell L. Morgan obtained 100% effective control of MPM. MPM holds seven multifamily properties with approximately 3,061 apartment homes. These properties are included as acquired properties for the fiscal years ended December 31, 2009 and 2010 and are included as owned properties for the three months ended March 31, 2010 and 2011.

              On October 27, 2010, the MLM EC Investor, LP ("MLMEC"), an entity controlled by Mitchell L. Morgan and other affiliates, acquired his partner's 95.72% interest in 55 properties and Mitchell L. Morgan obtained 100% effective control of the properties. MLMEC holds 55 multifamily properties with approximately 9,548 apartment homes. These properties are included as acquired properties for all periods presented.

              On November 23, 2010, MLM Forest Heights Investor LLC ("MLM Forest Heights"), an entity controlled by Mitchell L. Morgan and other affiliates, acquired his partner's 90% interest in MLM Forest Heights and Mitchell L. Morgan obtained 100% effective control. MLM Forest Heights holds one multifamily property located in Maryland with approximately 322 apartment homes. This property is included as an acquired property for all periods presented.

              On December 31, 2010, FMP/MLM Associates LP, FMP/MLM Associates II, LP and FMP/MLM Associates III, LP (collectively, "FMP/MLM") entities controlled by Mitchell L. Morgan and other affiliates, acquired his partner's 60% interest in 20 multifamily properties and Mitchell L. Morgan obtained 100% effective control of the properties. FMP/MLM holds 20 multifamily properties with approximately 5,084 apartment homes. These properties are included as acquired properties for all periods presented.

Internal Controls

              In connection with the preparation of our financial statements included elsewhere in this prospectus, our independent registered public accounting firm identified and communicated to us certain deficiencies in our internal controls which constituted a material weakness. The material weakness was that our predecessor did not maintain effective internal controls over the recording of certain complex or non-standard transactions. Our management believes that the underlying cause of the deficiencies in our internal controls relates to our transition from a private company to a public company that must meet the applicable reporting and control standards. To remediate the material weakness noted by our independent registered public accounting firm, we expect to hire a chief accounting officer with appropriate SEC reporting skills and experience, concurrently with, or shortly following, the completion of this offering. See "Risk Factors—We have a material weakness in our internal control over financial reporting."

Factors That May Influence Our Business

              The primary source of our operating revenue is rents received from tenants under leases at our properties, including reimbursements from tenants for certain operating costs. Substantially all of the leases at our multifamily properties are for a term of one year or less, which generally enables us to seek increased rents upon renewal of existing leases or commencement of new leases. These short-term leases minimize the potential adverse effect of inflation or deflation on rental income, although residents may leave without penalty at the end of their lease terms and may do so if rents are increased significantly. Thus, increased resident vacancies, defaults and lease terminations may adversely affect

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our operations and could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common shares.

              We seek earnings growth primarily through increasing rents and occupancy at existing properties and acquiring additional properties in markets complementing our existing portfolio locations. Our multifamily properties are primarily concentrated in suburban submarkets of the Philadelphia, New York-New Jersey and Baltimore-Washington, D.C. metropolitan areas, which make us more susceptible to adverse developments in those markets. As a result, we are particularly dependent upon the local economic conditions in these markets, including but not limited to, changes in supply of or demand for apartment units in an area, competition for real property investments in these submarkets, changes in government rules, regulations and fiscal policies, including those governing real estate usage and tax, and any environmental risks related to the presence of hazardous or toxic substances or materials at or in the vicinity of our properties, which will negatively impact our overall performance. All of these markets experienced economic downturns in recent years. If there is a further downturn in the economy in any of these markets, our operations and our revenue and cash available for distribution, including cash available to pay distributions to our shareholders, could be materially adversely affected.

              We may be unable to accurately predict future changes in national, regional or local economic, demographic or real estate market conditions. For example, a continued recession or rise in interest rates could make it more difficult for us to lease apartments, may require us to lease our apartments at lower rental rates than projected and may lead to an increase in resident defaults. In addition, these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices. These conditions, or others we cannot predict, could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common shares.

Results of Operations

              Unless the context otherwise requires or indicates, references in this "Results of Operations" section to (i) "we," "our" and "us" refer to our predecessor and the information is given for our predecessor and (ii) net operating income, or NOI, means total revenue less rental operations and general and administrative costs, including all property management fees. Dollars in this "Results of Operations" section are in thousands.

Comparison of Three Months Ended March 31, 2011 to Three Months Ended March 31, 2010

              We owned 18 multifamily properties throughout the quarters ended March 31, 2011 and 2010 where comparable operating results are available, consisting of approximately 6,564 apartment homes ("2011 Owned Properties").

              During 2010, we acquired the remaining interests in 76 multifamily properties consisting of approximately 14,954 apartment homes (the "2011 Acquired Properties") in which we previously had a non-controlling interest. Prior to these acquisitions, we actively managed each property and prepared the operating results for each of the periods presented in this prospectus, while reporting them as an equity method investment. The inclusion of these acquired properties accounted for the significant changes in operating results for the combined consolidated predecessor entities, as presented in the table below. For the three months ended March 31, 2011, total revenue generated by the 2011 Acquired Properties increased 5% over the total revenue generated by the Acquired Properties for the three months ended March 31, 2010, primarily due to annual rent increases. Rental operations and general and administrative costs decreased 2%, when compared to the three months ended March 31, 2010, primarily due to the decrease in natural gas pricing.

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              A summary of the NOI for the combined consolidated predecessor entities is as follows:

 
  Three
Months Ended
March 31, 2011
  Three
Months Ended
March 31, 2010
  $ Change   %  

Revenue

                         

Rental income

  $ 59,476   $ 15,639   $ 43,837     280.3 %

Operating expense reimbursements

    2,894     1,348     1,546     114.7 %

Other income

    6,837     9,955     (3,118 )   (31.3 )%
                   

Total revenue

    69,207     26,942     42,265     156.9 %

Rental operations and general and administrative

    37,856     17,855     (20,001 )   112.0 %
                   

Net operating income

    31,351     9,087     22,264     245.0 %
                   

Interest expense

    24,765     4,668     (20,097 )   (430.5 )%

Depreciation and amortization

    18,543     5,346     (13,197 )   (246.9 )%

Net loss on derivative

    144     197     53     26.9 %

Equity in (income) unconsolidated entities

    (4 )   (62 )   (58 )   93.5 %
                   

Net income (loss)

  $ (12,097 ) $ (1,062 ) $ (11,035 )   1,039.1 %
                   

              The following tables summarize the combined results of operations for the 2011 Owned Properties, the 2011 Acquired Properties and our management and payroll companies for the three months ended March 31, 2011 and the three months ended March 31, 2010. This presentation reconciles and eliminates intercompany transactions that are primarily service and management fees incurred between the properties.

 
  Three Months Ended March 31, 2011  
 
  Owned
Properties
  Acquired
Properties
  Management
and Payroll
Companies
  Elimination
Entries
  Total
Combined
 

Number of Properties

    18     76             94  

Revenue

                               

Rental income

  $ 16,222   $ 43,336   $   $ (82 ) $ 59,476  

Operating expense reimbursements

    1,372     1,526     1     (5 )   2,894  

Other income

    1,343     2,317     11,712     (8,543 )   6,829  

Interest income

        8             8  
                       

Total revenue

    18,937     47,187     11,713     (8,630 )   69,207  

Rental operations and general and administrative

    9,251     25,658     11,569     (8,622 )   37,856  
                       

Net operating income

    9,686     21,529     144     (8 )   31,351  

Interest expense

    4,691     20,074             24,765  

Depreciation and amortization

    3,309     15,188     46         18,543  

Net loss on derivative

    43     101             144  

Equity in (income) loss of unconsolidated entities

    4             (8 )   (4 )
                       

Net income (loss)

  $ 1,639   $ (13,834 ) $ 98   $   $ (12,097 )
                       

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  Three Months Ended March 31, 2010  
 
  Owned
Properties
  Acquired
Properties
  Management
and Payroll
Companies
  Elimination
Entries
  Total
Combined
 

Number of Properties

    18                 18  

Revenue

                               

Rental income

  $ 15,722   $   $   $ (83 ) $ 15,639  

Operating expense reimbursements

    1,356             (8 )   1,348  

Other income

    1,325         11,076     (2,466 )   9,935  

Interest income

    20                 20  
                       

Total revenue

    18,423         11,076     (2,557 )   26,942  
                       

Rental operations and general and administrative

    9,582         10,773     (2,500 )   17,855  
                       

Net operating income

    8,841         303     (57 )   9,087  

Interest expense

   
4,668
   
   
   
   
4,668
 

Depreciation and amortization

    5,303         43         5,346  

Net loss on derivative

    197                 197  

Equity in (income) loss of unconsolidated entities

    (5 )           (57 )   (62 )
                       

Net income (loss)

 
$

(1,322

)

$

 
$

260
 
$

 
$

(1,062

)
                       

2011 Owned Properties

              For the three months ended March 31, 2011, total revenue was $18,937, which increased by $514, or 2.8%, over the revenue generated during the three months ended March 31, 2010. The increase was attributable to the increase in rental income, as discussed below. Rental operations and general and administrative costs were $9,251, which decreased by $331, or 3.5%, when compared to the three months ended March 31, 2010. Net operating income was $9,686, which increased by $845, or 9.6%, when compared to the three months ended March 31, 2010. Depreciation and amortization decreased by $1,994, or 37.6%, as discussed below.

              Rental income increased $500, or 3.2%, due to increased occupancy and a substantial decrease in concessions, which was directly impacted by the implementation of a third-party revenue management system. During the first half of 2011 we completed the implementation of this system for substantially all of our properties. This revenue management system uses advanced mathematical modeling and statistical methods to accurately forecast availability and demand at the apartment home type level, resulting in optimal pricing for both new leases and renewals. Due to rising rents and demand in our strengthening markets we were able to decrease the use of concessions. Under the new revenue management system, market rents are set on a daily basis based on apartment availability, local supply of and demand for apartment homes, and pricing. Rent concessions are still used, but on a limited basis, in specific locations.

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              Further breakdown of the rental operations and general and administrative expenses for the 2011 Owned Properties by line item is listed below:

 
  Three Months
Ended
March 31, 2011
  Three Months
Ended
March 31, 2010
  $ Variance   %  

Electricity

  $ 412   $ 501   $ 89     17.8 %

Gas & Oil

    952     1,308     356     27.2 %

Water & Sewer

    901     793     (108 )   (13.6 )%

Repairs & Maintenance

    1,074     1,060     (14 )   (1.3 )%

Personnel Expense

    1,967     2,010     43     2.1 %

Advertising

    240     222     (18 )   (8.1 )%

Legal & Professional

    91     93     2     2.2 %

Office & Telephone

    64     73     9     12.3 %

Property Insurance

    194     236     42     17.8 %

Real Estate Taxes

    1,720     1,614     (106 )   (6.6 )%

Snow Removal

    155     244     89     36.5 %

Trash Removal

    130     134     4     3.0 %

Property Management General and Administrative

    1,351     1,294     (57 )   (4.4 )%
                   

Total

  $ 9,251   $ 9,582   $ 331     3.5 %
                   

              Electricity costs decreased $89, or 17.8%, primarily due to decreases in the average electric cost per apartment home and average amount of kilowatts used. Beginning in January 2011, we secured contracts to lock-in rates at our larger properties to offset the expiration of rate caps.

              Natural gas heating costs decreased $356, or 27.2%, primarily due to decreases in average natural gas prices.

              Water and sewer costs increased $108, or 13.6%, primarily due to increased sewer usage.

              Real estate taxes increased $106, or 6.6%, primarily due to increased assessments and rate increases in our markets.

              Snow removal costs decreased $89, or 36.5%, due to the re-negotiation of all inclusive contracts for the 2010–2011 seasons.

              Depreciation and amortization decreased by $1,994, or 37.6%, due to a decrease in amortization of intangibles identified in purchase accounting for recently acquired properties including leasehold interest, customer relationships, and in place leases.

              The operating expense ratio for the 2011 Owned Properties for the three months ended March 31, 2011 and 2010 was 41.7% and 45%, respectively. This ratio is the rental operations and general and administrative costs, excluding property management general and administrative expense, compared to total revenue. The ratio was lower during the three months ended March 31, 2011 primarily due to an increase in rental income and a decrease in natural gas prices.

Management and Payroll Companies for the Quarter Ended March 31, 2011

              Our management company and payroll company provides services to our properties, joint ventures and multifamily properties owned by former partners. The total revenue of $11,713 consists of approximately $2,793 of management fees and $8,920 of reimbursements from properties for payroll for the onsite staff. Rental operations and general and administrative expense of $11,569 consists of payroll costs for onsite staff of $9,026, payroll costs for our management company employees of $2,131 and

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general and administrative costs of $412, which are primarily comprised of professional fees, travel, phone expense, and due diligence costs. All of these line items approximate the same line items from the prior year's quarter since the number of properties we managed was consistent for both periods. Although our predecessor increased as a result of our acquisition activity, the total number of properties managed was the same in both periods. All eliminations between our predecessor properties and our equity investments in the predecessor have been reflected in the combined results.

NOI following this Offering

              The following table presents net operating income and net income (loss) of our company as it will be presented following this offering. As calculated in the following table, net operating income means total rental revenues less property operating expenses which include the direct costs of regional managers and regional facility managers at the property level.

 
  Three Months
Ended
March 31, 2011
 

Total revenue

  $ 66,124  

Property operating expenses

    33,135  
       

Net operating income

    32,989  
       

Interest expense

    24,909  

Depreciation and amortization

    18,497  

Corporate, general and administrative

    1,410  

Other expenses

    364  
       

Net income (loss)

  $ (12,191 )
       

Comparison of Year Ended December 31, 2010 to Year Ended December 31, 2009.

              We owned 11 multifamily properties, consisting of approximately 4,079 apartment homes, throughout 2010 and 2009 where comparable operating results are available for the years presented (the "2010 Owned Properties"). For the year ended December 31, 2010, the 2010 Owned Properties showed an increase in total revenues of 0.2% and a net operating income decrease of 3.2% over the prior year. Rental operations and general and administrative costs increased 3.9%. Average physical occupancy for the 2010 Owned Properties was 92.7% at December 31, 2010, up from 92.0% at December 31, 2009.

              During 2009 and 2010, we acquired 63 multifamily properties, consisting of approximately 12,931 apartment homes (the "2010 Acquired Properties") in which we previously had a non-controlling interest. Prior to these acquisitions, we actively managed each property and prepared the operating results for each of the periods presented in this prospectus, while reporting them as an equity method investment. The inclusion of the 2010 Acquired Properties accounted for the significant changes in operating results for the combined consolidated predecessor entities, as presented in the table below, for the year ended December 31, 2010 compared to the year ended December 31, 2009. For the year ended December 31, 2010, total revenue generated by these properties increased by 3% over the total revenue generated during the year ended December 31, 2009, due to annual rent increases. Rental operations and general and administrative costs increased by 6% over the previous year due to an increase in real estate taxes.

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              A summary of the NOI for the combined consolidated predecessor entities is as follows:

 
  Year Ended
December 31,
2010
  Year Ended
December 31,
2009
  $ Change   %  

Revenue

                         

Rental income

  $ 84,544   $ 42,567   $ 41,977     98.6 %

Operating expense reimbursements

    4,626     2,734     1,892     69.2 %

Other income

    41,690     43,551     (1,861 )   (4.3 )%
                   

Total revenue

    130,860     88,852     42,008     47.3 %

Rental operations and general and administrative

    85,981     61,249     (24,732 )   40.4 %
                   

Net operating income

    44,879     27,603     17,276     62.6 %
                   

Interest expense

    30,048     10,633     (19,415 )   (182.6 )%

Depreciation and amortization

    23,250     10,544     (12,706 )   (120.5 )%

Net (gain) on derivative

    (39 )   (28 )   11     (39.3 )%

Equity in (income) unconsolidated entities

    (499 )   (322 )   177     (55.0 )%

Gain on previously held equity investment

    (110,292 )   (13,033 )   97,259     (746.3 )%
                   

Net income (loss)

  $ 102,411   $ 19,809   $ 82,602     417 %
                   

              The following tables summarize the combined results of operations for the 2010 Owned Properties, the 2011 Acquired Properties and our management and payroll companies for the years ended December 31, 2010, and December 31, 2009. This presentation reconciles and eliminates intercompany transactions that are primarily service and management fees incurred between the predecessor entities and our management company.

 
  Year Ended December 31, 2010  
 
  Owned
Properties
  Acquired
Properties
  Management
and Payroll
Companies
  Elimination
Entries
  Total
Combined
 

Number of Properties

    11     63             74  

Revenue

                               

Rental income

  $ 37,989   $ 46,886   $   $ (331 ) $ 84,544  

Operating expense reimbursements

    2,728     1,931     4     (37 )   4,626  

Other income

    3,865     3,427     47,177     (12,822 )   41,647  

Interest income

    40     3             43  
                       

Total revenue

    44,622     52,247     47,181     (13,190 )   130,860  
                       

Rental operations and general and administrative

    21,694     30,176     47,064     (12,953 )   85,981  
                       

Net operating income

    22,928     22,071     117     (237 )   44,879  
                       

Interest expense

    8,452     21,596             30,048  

Depreciation and amortization

    7,955     15,115     180         23,250  

Net loss on derivative

    198     (237 )           (39 )

Equity in (income) loss of unconsolidated entities

        (262 )       (237 )   (499 )

Gain on previously held equity investment

        (110,292 )           (110,292 )
                       

Net income (loss)

  $ 6,323   $ 96,151   $ (63 ) $   $ 102,411  
                       

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  Year Ended December 31, 2009  
 
  Owned
Properties
  Acquired
Properties
  Management
& Payroll
Companies
  Elimination
Entries
  Total
Combined
 

Number of Properties

    11     7             18  

Revenue

                               

Rental income

  $ 38,380   $ 4,399   $   $ (212 ) $ 42,567  

Operating expense reimbursements

    2,523     228     9     (26 )   2,734  

Other income

    3,635     403     46,348     (6,848 )   43,538  

Interest income

    12         1         13  
                       

Total revenue

    44,550     5,030     46,358     (7,086 )   88,852  

Rental operations and general and administrative

    20,871     2,537     44,500     (6,659 )   61,249  
                       

Net operating income

    23,679     2,493     1,858     (427 )   27,603  

Interest expense

    8,784     1,849             10,633  

Depreciation and amortization

    8,067     2,307     170         10,544  

Net loss on derivative

    (28 )               (28 )

Equity in (income) loss of unconsolidated entities

        105         (427 )   (322 )

Gain on previously held equity investment

        (13,033 )           (13,033 )
                       

Net income (loss)

  $ 6,856   $ 11,265   $ 1,688   $   $ 19,809  
                       

2010 Owned Properties

              For the year ended December 31, 2010, total revenue was $44,622, which increased by $72 over the year ended December 31, 2009. Rental operations and general and administrative costs were $21,694, which increased by $823, or 3.9%, over the year ended December 31, 2009. Net operating income was $22,928, which decreased by $751, or 3.2%, for the year ended December 31, 2009. Interest expense decreased by $332, or 3.8%, depreciation and amortization decreased by $112, or 1.4%, and the net loss on the sales of derivatives was $226 unfavorable compared to the year ended December 31, 2009.

              Rental income decreased by $391, or 1%, primarily due to decreased market rents in the suburban Philadelphia market.

              Operating expense reimbursements increased by $205, or 8.1%, due to an increase in utility reimbursements, primarily from water and service fees.

              Other income increased by $230, or 6.3%, as a result of increased temporary corporate unit lease income.

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              Further breakdown of the rental operations and general and administrative expenses for the 2010 Owned Properties and 2009 Owned Properties is listed below:

 
  Year Ended
December 31,
2010
  Year Ended
December 31,
2009
  $ Variance   %  

Electricity

  $ 1,543   $ 1,383   $ (160 )   (11.6 )%

Gas & Oil

    1,154     1,141     (13 )   (1.1 )%

Water & Sewer

    1,815     1,820     5     0.3 %

Repairs & Maintenance

    3,413     3,444     31     0.9 %

Personnel Expense

    4,383     4,206     (177 )   (4.2 )%

Advertising

    575     552     (23 )   (4.2 )%

Legal & Professional

    231     200     (31 )   (15.5 )%

Office & Telephone

    173     184     11     6.0 %

Property Insurance

    463     509     46     9.0 %

Real Estate Taxes

    3,526     3,286     (240 )   (7.3 )%

Snow Removal

    218     131     (87 )   (66.4 )%

Trash Removal

    378     362     (16 )   (4.4 )%

Property Management General and Administrative

    3,822     3,653     (169 )   (4.6 )%
                   

Total

  $ 21,694   $ 20,871   $ (823 )   (3.9 )%
                   

              Electricity costs increased $160, or 11.6%, over the prior year due mostly to rate increases by energy providers.

              Personnel expenses increased $177, or 4.2%, over the prior year driven by a cost savings initiative to use in-house employees to perform routine painting, plastering and concrete repairs rather than hiring more expensive outside contractors.

              Real estate taxes increased $240, or 7.3%, over the prior year, primarily due to typical annual rate increases in our markets. Four percent of the total increase is attributable to the suburban Philadelphia market.

              Snow removal costs increased $87, or 66.4%, due to higher snowfall levels in 2010 compared to snowfall levels in 2009.

              Property management general and administrative costs increased $169, or 4.6%, in 2010. This was partially due to frequent furniture rentals for corporate suites, which increased $49 due to higher rental volume. Additionally, computer software expenses increased $47 due to expenses incurred for upgrades to our accounting software. These software programs are all part of an ongoing effort to increase efficiency and promote the availability of key information for decision-making across all sites.

              Interest expense decreased by $332, or 3.8%, as a result of lower variable interest rates.

              Depreciation and amortization decreased by $112, or 1.4%, due to a decrease in amortization of intangibles identified in purchase accounting for recently acquired properties.

              The operating expense ratio for the owned properties for the years ended December 31, 2010 and 2009 was 40.1% and 38.6%, respectively. This ratio is the rental operations and general and administrative costs, excluding property management general and administrative expense, compared to total revenue. The ratio was higher for the fiscal year ended 2010 due to total revenue remaining flat year-over-year as the rental rate increases were offset by increases in vacancies and concessions. Furthermore, rental operations and general and administrative costs increased as discussed above.

Management and Payroll Companies for the Year Ended December 31, 2010

              Our management company and payroll company provides services to our properties, joint ventures and properties owned by former partners. The revenue of $47,181 consists of approximately $12,285 of management fees and $34,896 of reimbursements from properties for payroll for the onsite

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staff. Rental operations and general and administrative expense of $47,064 consists of payroll costs for onsite staff of $35,287, payroll costs for our management company employees of $8,685 and administrative costs of $3,092, which is comprised of professional fees, travel, phone expense, office supplies, computer expenses, and due diligence costs. All of the line items approximate the same line items from the prior year since the number of properties we managed was consistent for both periods. Although the number of properties we owned increased as a result of our acquisition activity, the total number of properties we managed was the same in both periods. All eliminations between our predecessor properties and our equity investments in the predecessor have been reflected in the combined results.

Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008.

              We owned seven multifamily properties, consisting of approximately 2,485 apartment homes, throughout 2009 and 2008 where comparable operating results are available for the years presented (the "2009 Owned Properties"). For the year ended December 31, 2009, the 2009 Owned Properties showed an increase in total revenues of 2.4% and a net operating income decrease of 2% over the prior year. Rental operations and general and administrative costs increased 7.4%. Average physical occupancy for the 2009 Owned Properties was 91.3%, up from 90.8% in 2008.

              During 2008 and 2009, we acquired 11 multifamily properties, consisting of approximately 4,079 apartment homes (the "2009 Acquired Properties") in which we previously had a non-controlling interest. Prior to these acquisitions, we actively managed each property and prepared the operating results for each of the periods covered in this filing, while reporting them as an equity method investment. The inclusion of the 2009 Acquired Properties accounted for the significant changes in operating results for the combined consolidated predecessor entities, as presented in the table below, for the year ended December 31, 2009 compared to the year ended December 31, 2008. For the year ended December 31, 2009, total revenue generated by the 2009 Acquired Properties increased by 1.5% over the revenue generated during the year ended December 31, 2008. Rental operations and general and administrative costs increased by 0.4% over the year ended December 31, 2008.

              A summary of the NOI for the combined consolidated predecessor entities is as follows:

 
  Year Ended
December 31,
2009
  Year Ended
December 31,
2008
  $ Change   %  

Revenue

                         

Rental income

  $ 42,567   $ 31,536   $ 11,031     35.0 %

Operating expense reimbursements

    2,734     1,822     912     50.1 %

Other income

    43,551     41,287     2,264     5.5 %
                   

Total revenue

    88,852     74,645     14,207     19.0 %

Rental operations and general and administrative

    61,249     52,930     (8,319 )   15.7 %
                   

Net operating income

    27,603     21,715     5,888     27.1 %
                   

Interest expense

    10,633     9,249     (1,384 )   (15.0 )%

Depreciation and amortization

    10,544     6,110     (4,434 )   (72.6 )%

Net (gain) loss on derivative

    (28 )   73     101     138.4 %

Equity in (income) unconsolidated entities

    (322 )   789     1,111     140.8 %

Gain on previously held equity investment

    (13,033 )       13,033      
                   

Net income (loss)

  $ 19,809   $ 5,494   $ 14,315     260.6 %
                   

              The following tables summarize the combined results of operations for the 2009 and 2008 Owned Properties, the 2009 and 2008 Acquired Properties and our management and payroll companies

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for the years ended December 31, 2009, and December 31, 2008. This presentation reconciles and eliminates intercompany transactions that are primarily service and management fees incurred between the predecessor entities and our management company.

 
  Year Ended December 31, 2009  
 
  Owned
Properties
  Acquired
Properties
  Management
and Payroll
Companies
  Elimination
Entries
  Total
Combined
 

Number of Properties

    7     11             18  

Revenue

                               

Rental income

  $ 29,233   $ 13,546   $   $ (212 ) $ 42,567  

Operating expense reimbursements

    2,200     551     9     (26 )   2,734  

Other income

    2,454     1,584     46,348     (6,848 )   43,538  

Interest income

    6     6     1         13  
                       

Total revenue

    33,893     15,687     46,358     (7,086 )   88,852  

Rental operations and general and administrative

    15,679     7,729     44,500     (6,659 )   61,249  
                       

Net operating income

    18,214     7,958     1,858     (427 )   27,603  

Interest expense

    6,593     4,040             10,633  

Depreciation and amortization

    5,559     4,815     170         10,544  

Net loss on derivative

    (99 )   71             (28 )

Equity in (income) loss of unconsolidated entities

        105         (427 )   (322 )

Gain on previously held equity investment

        (13,033 )           (13,033 )
                       

Net income (loss)

  $ 6,161   $ 11,960   $ 1,688   $   $ 19,809  
                       

 

 
  Year Ended December 31, 2008  
 
  Owned
Properties
  Acquired
Properties
  Management
and Payroll
Companies
  Elimination
Entries
  Total
Combined
 

Number of Properties

    7     2             9  

Revenue

                               

Rental income

  $ 29,015   $ 2,622   $   $ (101 ) $ 31,536  

Operating expense reimbursements

    1,750     73         (1 )   1,822  

Other income

    2,246     263     43,476     (4,809 )   41,176  

Interest income

    89     8     14         111  
                       

Total revenue

    33,100     2,966     43,490     (4,911 )   74,645  

Rental operations and general and administrative

    14,606     1,067     41,690     (4,433 )   52,930  
                       

Net operating income

    18,494     1,899     1,800     (478 )   21,715  

Interest expense

    8,527     722             9,249  

Depreciation and amortization

    5,280     747     83         6,110  

Net loss on derivative

    73                 73  

Equity in (income) loss of unconsolidated entities

        1,267         (478 )   789  
                       

Net income (loss)

  $ 4,614   $ (837 ) $ 1,717   $   $ 5,494  
                       

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2009 Owned Properties

              For the year ended December 31, 2009, total revenue was $33,893, which increased by $793, or 2.4%, over the year ended December 31, 2008. Rental operations and general and administrative costs were $15,679, which increased by $1,073, or 7.3%, over the year ended December 31, 2008. Net operating income was $18,214, which decreased by $280, or 1.5%, for the year ended December 31, 2008. Interest expense decreased by $1,934, or 22.7%, depreciation & amortization increased by $279, or 5.3%, and the net gain on the sale of derivatives was $172 favorable compared to 2008. Each of the items are discussed in more detail below.

              Rental income increased by $218, or 0.8%. This was primarily driven by the suburban Philadelphia market.

              Operating expense reimbursements increased by $450, or 25.7%, due to increased utility reimbursements, especially in water and utility reimbursement flat rate programs. In 2009 selected properties implemented a flat rate utility charge and phased out of the Utility Reimbursement program. The purpose of the program was to reduce Utility Reimbursement bad debt and eliminate the need to switch utility bills into residents' names.

              Further breakdown of the rental operations and general and administrative costs for the 2009 Owned Properties by line item is listed below:

 
  Year Ended
December 31,
2009
  Year Ended
December 31,
2008
  $ Variance   %  

Electricity

  $ 1,204   $ 1,161   $ (43 )   (3.7 )%

Gas & Oil

    1,128     1,472     344     23.4 %

Water & Sewer

    1,477     1,295     (182 )   (14.1 )%

Repairs & Maintenance

    2,579     2,447     (132 )   (5.4 )%

Personnel Expense

    2,979     2,863     (116 )   (4.1 )%

Advertising

    391     341     (50 )   (14.7 )%

Legal & Professional

    168     123     (45 )   (36.6 )%

Office & Telephone

    128     135     7     5.2 %

Property Insurance

    327     417     90     21.6 %

Real Estate Taxes

    2,521     2,401     (120 )   (5.0 )%

Snow Removal

    90     20     (70 )   (350.0 )%

Trash Removal

    282     277     (5 )   (1.8 )%

Property Management General and Administrative

    2,405     1,654     (751 )   (45.4 )%
                   

Total

  $ 15,679   $ 14,606   $ (1,073 )   (7.3 )%
                   

              Gas & oil costs decreased $344, or 23.4%, due to lower natural gas prices and a decrease in consumption.

              Water & sewer costs increased $182, or 14.1%, due mainly to increased water usage.

              Repairs & maintenance costs increased $132, or 5.4%, primarily due to an increase in exterminating, grounds maintenance, roof repairs and HVAC repairs when compared to 2008.

              Personnel expenses increased $116, or 4.1%, primarily due to a $74 increase in expenses related to an increase in the number of employees residing at company properties at a discounted rate when compared to 2008.

              Property insurance expenses decreased by $90, or 21.6%, due to lower premiums as a result of the favorable impact of having lower loss claims than previously estimated for 2009.

              Real estate taxes increased $120, or 5%, over the prior year, primarily due to typical annual rate increases in our markets. Three percent of the increase is attributable to the Baltimore-Washington, D.C. submarket.

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              Rental operations and general and administrative costs increased $751, or 45.4%, over the prior year primarily due to the inclusion of outstanding rent owed by former tenants, which in prior years, was presented as a reduction in rental revenues.

              Interest expense decreased by $1,934, or 22.7%, as a result of lower variable interest rates.

              Depreciation and amortization increased $279, or 5.3%, due to an increase in amortization of intangibles identified in purchase accounting for acquired properties.

              The operating expense ratio for the owned properties for the years ended December 31, 2009 and 2008 was 39.2% and 39.1%, respectively. This ratio is the rental operations and general and administrative costs, excluding property management general and administrative expenses, compared to total revenue.

Management and Payroll Companies for the Year Ended December 31, 2009

              Our management and payroll company provides services to our properties, joint ventures and properties owned by former partners. The revenue of $46,358 consists of approximately $12,384 of management fees and $33,974 of reimbursements from properties for payroll for the onsite staff. Rental operations and general and administrative costs of $44,500 consists of payroll costs for onsite staff of $34,252, payroll costs for our management company employees of $8,417 and administrative costs of $1,831, which consists of professional fees, travel, meals, phone expenses, and office supplies. All of these line items approximate the same line items from the prior year since the number of properties we managed was consistent for both periods. Although our predecessor increased as a result of our acquisition activity, the total number of properties managed was the same in both periods. All eliminations between our predecessor properties and our equity investments in the predecessor have been reflected in the combined results.

Liquidity and Capital Resources

              Our short-term liquidity requirements consist primarily of operating expenses, capital improvements, including repositioning and redevelopment activities in which we are currently engaged, the payment of dividends required to maintain our REIT status and potentially acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by our operations, the net proceeds of this offering, and if necessary, borrowings under a new credit facility, which we expect to enter into concurrently with, or shortly after the completion of this offering.

              Our long-term liquidity needs consist primarily of funds necessary to pay for the repayment of debt at maturity, property acquisitions and non-recurring capital requirements through net cash provided by our operations, a new credit facility, which we expect to enter into concurrently with, or shortly after the completion of this offering, mortgage financings, debt issuances and common and/or preferred equity issuances.

              We believe that, upon completion of this offering, and as a publicly traded REIT, the net cash provided by our operations will be adequate to fund our operating requirements, debt service, repositioning and redevelopment activity in which we are currently engaged and the payment of dividends required for us to qualify as a REIT.

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              Factors affecting our liquidity and capital resources are our cash flows from operations and financing activities as well as general economic and market conditions. Operating cash flow has historically been determined by: (i) the number of apartment homes currently owned, (ii) rental rates, (iii) occupancy levels and (iv) operating expenses with respect to apartment homes. The timing and type of capital markets activity in which we engage, as well as our plans for redevelopment, acquisition and disposition activity, are affected by changes in the capital markets environment, such as changes in interest rates or the availability of cost effective capital. We regularly review our liquidity needs, the adequacy of cash flows from operations and other expected liquidity sources to meet these needs.

Capital Improvements

              On average over the last three fiscal years, we have spent approximately $920 per unit per year on recurring, non-revenue generating maintenance capital expenditures. Our policy is to capitalize costs related to acquisition, development, rehabilitation and improvement of properties. Capital improvements are costs that increase the value and extend the useful life of an asset. Ordinary repair and maintenance costs that do not extend the useful life of the asset are expensed as the units are turned. Turnover costs due to normal wear and tear by the residents are expensed as the units are turned. Our recurring maintenance capital expenditures include appliances, carpeting and flooring, window replacements, HVAC, kitchen and bath cabinets, roof replacements, site improvements and exterior building improvements. Our revenue enhancing capital expenditures include upgrades to kitchens and bathrooms and installations, where possible, of in-unit washers and dryers. Our disciplined approach to revenue enhancing capital expenditures include a targeted cash-on-cash return of 12% as well as our policy to test our residents' acceptance of renovated unit features and related rental premiums on a select number of apartment homes before fully implementing a renovation program on an entire multifamily community.

              As part of our capital forecasting we focus on generating cost savings through proactive implementation of energy efficiency upgrades which seek to optimize building systems in order to reduce utility and maintenance expenses. Examples of these energy conservation projects include window replacements, HVAC system upgrades, common area lighting upgrades and water usage management projects, such as installation of low water usage toilets, faucets and showerheads.

              We continually look to identify enhancement programs where there is a third party, generally a utility provider that participates in the cost of the project or provides incentives/rebates for us to reduce our energy usage. Utility providers and municipalities have been mandated to reduce the overall utility usage. We are currently partnering with the New Jersey Board of Public Utilities as part of their New Jersey Clean Energy Program. Their program, Pay for Performance, offers incentives to qualifying utility customers who can implement energy-efficient measures that achieve an overall energy savings of at least 15%. Qualifying utility customers may receive up to 50% of the total cost of the energy-efficient measures performed based on the actual utility savings achieved. Utilities are tracked for a period of one year after completion of the enhancement to determine the level of contribution from the state. For 2011, we have received, or are applying to receive, incentives/rebates on six multifamily communities. Examples of the energy saving measures we plan to focus on are common area lighting, boilers, variable speed drives and attic insulation. The projected cost for these enhancements is approximately $3.9 million. Based on the modeling that was required for the application process, we anticipate utility savings in excess of the minimum 15% requirement and we are estimating reimbursements from the state of approximately $1 million.

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