Berkshire Income Realty Announces Third Quarter Funds from Operations of $2,808,885

BOSTON--()--Berkshire Income Realty, Inc. (NYSE MKT: BIR_pa), (NYSE MKT: BIRPRA), (NYSE MKT: BIR-A), (NYSE MKT: BIR.PR.A) ("Berkshire" or the "Company") reported its results for the quarter ended September 30, 2013. Financial highlights for the three- and nine-month periods ended September 30, 2013 include:

- Same Property Net Operating Income ("Same Property NOI") increased approximately 6.4% for the quarter ended September 30, 2013. Same Property NOI, a non-GAAP financial measure, increased primarily as a result of growth in comparative revenue for properties acquired or placed in service prior to January 1, 2012 and owned through September 30, 2013 ("Same Property Portfolio"). The Same Property Portfolio had total revenue increases of approximately 3.6% for the three months ended September 30, 2013 as compared to the same period a year ago. Growth in market rents and increases in utility recoveries were the main factors contributing to higher revenue. Average monthly rental rates for the three-month period ended September 30, 2013 of $1,207 per apartment unit increased by 3.07% over the 2012 rental rates of $1,171 for the same period, contributing to an increase of approximately $565,000 in rental revenue. Average physical occupancy for the 2013 Same Property Portfolio was 95.96%, which increased from the 95.62% average in 2012, and resulted in an overall increase in revenue of approximately $9,000.

- The Company's Funds From Operations ("FFO"), a non-GAAP financial measure, for the three months ended September 30, 2013 was $2,808,885 compared to $4,025,319 for the three months ended September 30, 2012. The Company's FFO decreased $1,216,434 for the three months ended September 30, 2013. The decrease in FFO is mainly attributable to higher interest expense resulting from the treatment of interest for the 2020 Lawrence Project and Trilogy NoMa development. Both properties are now operational and interest was expensed in the current period compared to the prior comparative period where interest was capitalized during the construction phase of the projects. The decrease in FFO is also attributable to the loss of operating income provided by assets that were sold in the fourth quarter of 2012 and the second quarter of 2013, which were partially offset by higher net operating income from the balance of the portfolio, driven by higher rents and added operations from the 2020 Lawrence Project. FFO for the nine months ended September 30, 2013 decreased by $66,168 as compared to the same period ended September 30, 2012 and is due primarily to higher interest costs fees during the nine-month period. A reconciliation of GAAP net income to FFO is included in the financial data accompanying this news release.

- A presentation and reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), to FFO and Same Property NOI is set forth on pages 3 and 4 of this press release. For the three months ended September 30, 2013 and 2012, the net income (loss) was $(2,897,836) and $(2,702,352), respectively. For the nine months ended September 30, 2013 and 2012, the net income (loss) was $7,636,791 and $(3,973,000), respectively.

- Development Activities - During the nine months ended September 30, 2013, the Company owned or had interests in three development joint ventures, two of which have completed construction and are currently in lease up. Construction of the 2020 Lawrence Project, a 231-unit LEED-gold certified mid-rise multifamily building, located in downtown Denver, Colorado was completed earlier this year and is being well received by the Denver rental market. Current physical occupancy is approximately 77% with total leased units of approximately 80%. Construction of the Trilogy NoMa development project, a 603-unit multifamily community in downtown Washington, D.C., was completed mid year and current physical occupancy is approximately 49% with leased units of approximately 53%. Construction activities of the Walnut Creek development project, located in Walnut Creek, California, is anticipated to begin in early 2014. Regulatory and environmental entitlement approvals are complete and construction plans and budgets are being finalized.

- Sale of properties - During the nine months ended September 30, 2013, the Company sold two properties located in Houston, Texas: Walden Pond and Gables of Texas. The Company recognized gains of approximately $18,700,000 on an aggregate sales price of $31,500,000. Cash from the transaction was used to pay down the outstanding revolving credit facility debt associated with the funding of ongoing development projects and to fund distributions to common shareholders.

- Economic Conditions - During 2013, the multifamily sector continues to exhibit strong fundamentals and improved performance due to continued increases in rents as well as stable occupancies as a result of ongoing favorable apartment unit supply and demand dynamics. The continued trend of contraction in homeownership levels has increased demand in the apartment sector, while low levels of construction of new units during the recession has contributed to a 10-year low in the national vacancy rate. Capital markets improvements have had a favorable impact on sales of multifamily assets with transaction volumes reaching five-year highs in the latter part of 2012. With sustained improvement in the economy, the Company will continue its program of implementing rental rate increases to drive growth in revenue and net operating income.

David Quade, President of the Company, comments: "The Company continues to generate strong operating results which can be attributed to continued revenue growth and a strong focus on controlling operating expenses throughout the portfolio. We are pleased that year-to-date Same Property rental rate increases averaged almost 4% which has resulted in an increase in Same Property NOI of approximately 7%. The Company's two developments, which are in the lease up phase, are doing well and their increasing lease up is providing an incremental increase to the net operating income of the Total Property Portfolio. Overall, we are very pleased with the Company's operating results which are the result of our efforts to significantly upgrade the quality of the portfolio."

Funds From Operations

The Company has adopted the revised definition of FFO adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). FFO falls within the definition of a "non-GAAP financial measure" as stated in Item 10(e) of Regulation S-K promulgated by the Securities and Exchange Commission (the "SEC"). Management considers FFO to be an appropriate measure of performance of an equity Real Estate Investment Trust ("REIT"). We calculate FFO by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items), for gains (or losses) from sales of properties, impairments, real estate related depreciation and amortization, and adjustment for unconsolidated partnerships and ventures. Management believes that in order to facilitate a clear understanding of the historical operating results of the Company, FFO should be considered in conjunction with net income (loss) as presented in the consolidated financial statements included elsewhere herein. Management considers FFO to be a useful measure for reviewing the comparative operating and financial performance of the Company because, by excluding gains and losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies.

The Company's calculation of FFO may not be directly comparable to FFO reported by other REITs or similar real estate companies that have not adopted the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO is not a GAAP financial measure and should not be considered as an alternative to net income (loss), the most directly comparable financial measure of our performance calculated and presented in accordance with GAAP, as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance; FFO should be compared with our reported net income (loss) and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.

The following table presents a reconciliation of net income (loss) to FFO for the three and nine months ended September 30, 2013 and 2012:

  Three months ended   Nine months ended
September 30, September 30,
2013   2012 2013   2012
Net income (loss) $ (2,897,836 ) $ (2,702,352 ) $ 7,636,791 $ (3,973,000 )
Add:
Depreciation of real property 5,563,785 5,417,852 16,739,010 16,777,332
Depreciation of real property included in results of discontinued operations 668,825 513,336 2,143,299
Amortization of acquired in-place leases and tenant relationships 16,104 5,377 52,176
Equity in loss of unconsolidated multifamily entities 24,499 653,110 1,655,602 245,871
Funds from operations of unconsolidated multifamily entities, net of impairments 307,279 315,832 1,107,675 893,487
Less:
Funds from operations of noncontrolling interest in properties (188,842 ) (344,052 ) (526,830 ) (1,008,884 )
Gain on disposition of real estate assets     (18,689,058 ) (6,622,210 )
Funds from Operations $ 2,808,885   $ 4,025,319   $ 8,441,903   $ 8,508,071  
 

FFO decreased for the three and nine month periods ended September 30, 2013 as compared to the same three and nine month periods ended September 30, 2012. The decrease in FFO is mainly attributable to higher interest expense resulting from the treatment of interest for the 2020 Lawrence Project and the Trilogy NoMa development project. Both properties are now operational and interest was expensed in the current period as opposed to the prior comparative period where interest was capitalized during the construction phase of the projects. The decrease in FFO is also attributable to the loss of operating income provided by assets that were sold in the fourth quarter of 2012 and the second quarter of 2013, which were partially offset by higher net operating income from the balance of the portfolio driven by higher rents and added operations from the 2020 Lawrence Project.

Other Non-GAAP Measures

The Company believes that the use of certain other non-GAAP measures for comparative presentation between reporting periods allows for more meaningful comparisons of the periods presented.

Same Property NOI falls within the definition of a "non-GAAP financial measure" as stated in Item 10(e) of Regulation S-K promulgated by the SEC and should not be considered as an alternative to net income (loss), the most directly comparable financial measure of our performance calculated and presented in accordance with GAAP. The Company believes Same Property NOI is a measure of operating results that is useful to investors to analyze the performance of a real estate company because it provides a direct measure of the operating results of the Company's multifamily apartment communities. The Company also believes it is a useful measure to facilitate the comparison of operating performance among competitors. The calculation of Same Property NOI requires classification of income statement items between operating and non-operating expenses, where operating items include only those items of revenue and expense which are directly related to the income producing activities of the properties. We believe that to achieve a more complete understanding of the Company's performance, Same Property NOI should be compared with our reported net income (loss). Management uses Same Property NOI to evaluate the operating results of properties without reflecting the effect of investing and financing activities such as mortgage debt and capital expenditures which, have an impact on interest expense and depreciation and amortization. The Same Property portfolio consists of 19 properties acquired or placed in service on or prior to January 1, 2012 and owned through September 30, 2013.

The following table represents the reconciliation of GAAP net income (loss) to the other non-GAAP measures presented for the three and nine months ended September 30, 2013 and 2012:

  Three months ended   Nine months ended
September 30, September 30,
2013   2012 2013   2012
Net income (loss) $ (2,897,836 ) $ (2,702,352 ) $ 7,636,791 $ (3,973,000 )
Add:
Depreciation 6,397,609 5,984,472 19,157,233 18,483,621
Interest, inclusive of amortization of deferred financing fees 6,784,545 5,680,646 19,841,847 17,986,913
Amortization of acquired in-place leases and tenant relationships 16,104 5,377 52,176
Net income from discontinued operations 12,444 (223,502 ) (18,736,394 ) (6,137,438 )
Equity in (income) loss of unconsolidated multifamily entities 24,499   653,110   1,655,602   245,871  
Net operating income 10,321,261 9,408,478 29,560,456 26,658,143
Add:
Net operating income related to properties acquired or placed in service after January 1, 2012 and non-property activities 1,025,695   1,260,605   4,583,728   5,289,240  
Same Property net operating income $ 11,346,956   $ 10,669,083   $ 34,144,184   $ 31,947,383  
 

The Company

The Company is a Real Estate Investment Trust ("REIT") whose objective is to acquire, own, operate, develop and rehabilitate multifamily apartment communities. The Company owns interests in twenty multifamily apartment communities and one multifamily development project, of which six are located in the Baltimore/Washington, D.C. metropolitan area; three are located in Dallas, Texas; three are located in Virginia; two are located in Houston, Texas; and one is located in each of Austin, Texas; Atlanta, Georgia; Sherwood, Oregon; Tampa, Florida; Philadelphia, Pennsylvania; Walnut Creek, California; and Denver, Colorado. The Company also own interests in two unconsolidated multifamily entities.

Forward Looking Statements

With the exception of the historical information contained in this release, the matters described herein may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including statements about apartment rental demand and fundamentals, involve a number of risks, uncertainties or other factors beyond the Company's control, which may cause material differences in actual results, performance or other expectations. These factors include, but are not limited to, changes in economic conditions generally and the real estate and bond markets specifically, especially as they may affect rental markets, legislative/regulatory changes (including changes to laws governing the taxation of REITs), possible sales of assets, the acquisition restrictions placed on the Company by an affiliated entity Berkshire Multifamily Value Plus Fund III, LP, availability of capital, interest rates and interest rate spreads, changes in accounting principles generally accepted in the United States of America and policies and guidelines applicable to REITs, those set forth in Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and other risks and uncertainties as may be detailed from time to time in the Company's public announcements and SEC filings. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update such information.

BERKSHIRE INCOME REALTY, INC.

CONSOLIDATED BALANCE SHEETS

   
September 30,
2013
December 31,
2012
 
ASSETS
Multifamily apartment communities, net of accumulated depreciation of $235,968,144 and $235,825,752, respectively $ 379,127,145 $ 402,999,104
Cash and cash equivalents 9,312,414 12,224,361
Cash restricted for tenant security deposits 1,267,396 1,332,178
Replacement reserve escrow 1,086,540 986,790
Prepaid expenses and other assets 8,275,848 9,545,966
Investments in unconsolidated multifamily entities 14,655,404 16,873,924
Acquired in-place leases and tenant relationships, net of accumulated amortization of $0 and $599,702, respectively 5,377
Deferred expenses, net of accumulated amortization of $3,252,650 and $3,096,284, respectively 2,838,489   3,210,510  
Total assets $ 416,563,236   $ 447,178,210  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 461,726,623 $ 478,185,998
Note payable - other 1,250,000 1,250,000
Due to affiliates, net 2,051,898 3,446,460
Due to affiliate, incentive advisory fees 7,592,536 6,634,261
Dividend and distributions payable 3,637,607 1,137,607
Accrued expenses and other liabilities 9,882,792 15,081,550
Tenant security deposits 1,549,398   1,475,298  
Total liabilities 487,690,854   507,211,174  
 
Commitments and contingencies
 
Deficit:
Noncontrolling interest in properties 1,046,067 1,527,431
Noncontrolling interest in Operating Partnership (100,096,200 ) (89,708,267 )
Series A 9% Cumulative Redeemable Preferred Stock, no par value, $25 stated value, 5,000,000 shares authorized, 2,978,110 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 70,210,830 70,210,830
Class A common stock, $.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively
Class B common stock, $.01 par value, 5,000,000 shares authorized, 1,406,196 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 14,062 14,062
Excess stock, $.01 par value, 15,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively
Accumulated deficit (42,302,377 ) (42,077,020 )
Total deficit (71,127,618 ) (60,032,964 )
 
Total liabilities and deficit $ 416,563,236   $ 447,178,210  
 

BERKSHIRE INCOME REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

   
Three months ended Nine months ended
September 30, September 30,
2013   2012 2013   2012
Revenue:
Rental $ 18,468,549 $ 17,303,581 $ 54,397,584 $ 51,217,005
Utility reimbursement 866,346 722,752 2,556,845 2,176,382
Other 867,340   768,984   2,518,973   2,285,058  
Total revenue 20,202,235   18,795,317   59,473,402   55,678,445  
Expenses:
Operating 4,587,613 4,473,126 13,662,836 13,034,206
Maintenance 1,384,633 1,321,345 3,497,705 3,556,043
Real estate taxes 1,770,935 1,694,010 5,606,147 5,119,712
General and administrative 505,702 554,381 1,743,601 1,878,723
Management fees 1,208,938 1,170,760 3,605,724 3,458,423
Incentive advisory fees 423,153 173,217 1,796,933 1,973,195
Depreciation 6,397,609 5,984,472 19,157,233 18,483,621
Interest, inclusive of amortization of deferred financing fees 6,784,545 5,680,646 19,841,847 17,986,913
Amortization of acquired in-place leases and tenant relationships   16,104   5,377   52,176  
Total expenses 23,063,128   21,068,061   68,917,403   65,543,012  
Loss before equity in loss of unconsolidated multifamily entities (2,860,893 ) (2,272,744 ) (9,444,001 ) (9,864,567 )
Equity in loss of unconsolidated multifamily entities (24,499 ) (653,110 ) (1,655,602 ) (245,871 )
Loss from continuing operations (2,885,392 ) (2,925,854 ) (11,099,603 ) (10,110,438 )
Discontinued operations:
Income (loss) from discontinued operations (12,444 ) 223,502 47,336 (484,772 )
Gain on disposition of real estate assets     18,689,058   6,622,210  
Net income (loss) from discontinued operations (12,444 ) 223,502   18,736,394   6,137,438  
Net income (loss) (2,897,836 ) (2,702,352 ) 7,636,791 (3,973,000 )
Net income attributable to noncontrolling interest in properties (25,553 ) (127,684 ) (40,361 ) (345,990 )
Net (income) loss attributable to noncontrolling interest in Operating Partnership 4,488,677   4,397,555   (2,509,405 ) 9,121,238  
Net income attributable to the Company 1,565,288 1,567,519 5,087,025 4,802,248
Preferred dividend (1,675,194 ) (1,675,194 ) (5,025,582 ) (5,025,583 )
Net income (loss) available to common shareholders $ (109,906 ) $ (107,675 ) $ 61,443   $ (223,335 )
Net loss from continuing operations attributable to the Company per common share, basic and diluted (0.07 ) (0.24 ) (13.28 ) (4.52 )
Net income (loss) from discontinued operations attributable to the Company per common share, basic and diluted (0.01 ) 0.16   13.32   4.36  
Net income (loss) available to common shareholders per common share, basic and diluted (0.08 ) (0.08 ) 0.04   (0.16 )
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196   1,406,196  

Contacts

Berkshire Income Realty, Inc.
Stephen Lyons, 1-617-574-8367
stephen.lyons@bpadv.com
Facsimile: 1-617-574-8312

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Contacts

Berkshire Income Realty, Inc.
Stephen Lyons, 1-617-574-8367
stephen.lyons@bpadv.com
Facsimile: 1-617-574-8312