Berkshire Income Realty Announces Year End Funds from Operations of $10,907,025

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 year ended December 31, 2013. Financial highlights for the year ended December 31, 2013 include:

- Same Property Net Operating Income ("Same Property NOI") increased approximately 5.4% - Same Property NOI, a non-GAAP financial measure, increased as a result of growth in revenue for properties acquired or placed in service prior to January 1, 2012 ("Same Property"). The Same Property portfolio had a total revenue increase of approximately 4.1% for the year ended December 31, 2013 compared to the same period a year ago. The strong revenue growth outpaced the increase in operating expenses for the Same Property portfolio. Average physical occupancy for the 2013 Same Property Portfolio was 95.87%, which was substantially unchanged from the 95.44% average in 2012. A reconciliation of accounting principles generally accepted in the United States of America ("GAAP") net income to Same Property NOI is included in the financial data accompanying this release.

- The Company's Funds From Operations ("FFO") grew approximately 2.9% for the year ended December 31, 2013 - The Company's FFO, a non-GAAP financial measure, for the year ended December 31, 2013 was $10,907,025 compared to $10,601,772 for the year ended December 31, 2012. Solid gains in rental revenue and incremental operations from 2020 Lawrence, on which construction was completed in the first quarter of 2013, helped drive the Company's FFO growth. The growth was partially offset by both higher interest expense, resulting from less capitalized interest as two developments were completed in 2013, and the loss of operating income provided by properties sold in the comparative periods. A reconciliation of GAAP net income to FFO is included in the financial data accompanying this release.

- A presentation and reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO and Same Property NOI is set forth on pages 2 and 3 of this press release. For the years ended December 31, 2013, 2012, and 2011, the Company's net income was $7,209,633, $29,021,154 and $1,922,299, respectively.

- Development Activities - During the year ended December 31, 2013, the Company owned or had interests in three development joint ventures, two of which have completed construction and are currently completing lease up. Construction of 2020 Lawrence, a 231-unit LEED-gold certified, mid-rise multifamily building, located in downtown Denver, Colorado, was completed early in 2013 and is in lease up as the property continues to be well-received in the Denver rental market. Current physical occupancy is approximately 91% with total leased units of approximately 98%. Construction of the Trilogy NoMa development project, a 603-unit multifamily community in downtown Washington, D.C., was completed in the middle of 2013 and current physical occupancy is approximately 65% with leased units of approximately 69%. Regulatory and environmental entitlement approvals are complete for the Walnut Creek development project, located in Walnut Creek, California, and construction plans and budgets continue to be reviewed and finalized.

- Sale of properties - During the year ended December 31, 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 both to pay down the outstanding revolving credit facility debt related to funding ongoing development activities and to fund distributions to common shareholders.

- Economic Conditions - In 2013, the multifamily sector continued to exhibit improved performance and strong fundamentals on a national basis due to sustained higher rent levels and continued stable occupancies due to ongoing favorable apartment unit supply and demand mix. Continued reduced levels of new unit construction and home ownership rates in the apartment sector have driven demand in recent years to a 10-year low national vacancy rate. Improved capital markets have had a favorable impact on the sale of multifamily assets with transaction volumes reaching five-year highs in recent years.

David Quade, President of the Company, commented: "We were pleased with the Company's strong fourth quarter operating results, which contributed to the increase in net operating income for the year. The positive results can be attributed to revenue growth and our continued focus on controlling operating expenses. In addition, Same Property revenue increased 4.1%, which resulted in the Same Property NOI increase of 5.4%. The Company's financial position remains strong as we head into 2014, with a continued focus on improving the quality of the real estate portfolio through acquisitions, development, and dispositions. In the first quarter of 2014, we acquired two Class-A properties, Pavilion Townplace, located in Dallas, Texas, and Eon of Lindbergh, located in Atlanta, Georgia, and invested in a joint venture to develop Aura Prestonwood, a 322-unit multifamily apartment property located in Dallas, Texas."

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 to FFO for the years ended December 31, 2013, 2012 and 2011:

     
Year ended
December 31,
2013     2012     2011
Net income $ 7,209,633 $ 29,021,154 $ 1,922,299
Add:
Depreciation of real property 22,207,591 22,127,308 23,782,722

Depreciation of real property included in results of discontinued operations

472,807 2,614,306 4,043,822
Amortization of acquired in-place leases and tenant relationships 5,377 68,280 531,422
Amortization of acquired in-place leases and tenant relationships included in discontinued operations 8,916
Equity in loss of unconsolidated multifamily entities 268,921 3,430,015

Funds from operations of unconsolidated multifamily entities, net of impairments

1,304,723 1,100,467 1,124,125
Less:
Noncontrolling interest in properties' share of funds from operations (755,803 ) (1,015,799 ) (1,322,049 )
Gain on disposition of real estate assets (18,648,525 ) (43,582,865 ) (23,916,947 )

Equity in income of unconsolidated multifamily entities

(888,778 )    
Funds from Operations $ 10,907,025   $ 10,601,772   $ 9,604,325  
 

FFO for the year ended December 31, 2013 increased 2.9% as compared to FFO for the year ended December 31, 2012. The increase in FFO is due primarily to growth in net operating income driven by higher rental revenue, incremental operating income from 2020 Lawrence, which completed construction in the first quarter of 2013, as well as lower incentive advisory fees. The increase was partially offset by higher interest expense, resulting from less capitalized interest for 2020 Lawrence and NoMa, as construction was completed in 2013, and the loss of operating income provided by assets sold during 2012 and the second quarter of 2013.

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 December 31, 2013.

The following table represents the reconciliation of GAAP net income (loss) to the other non-GAAP measures presented for the years ended December 31, 2013, 2012 and 2011:

     
Year ended
December 31,
2013     2012     2011
Net income $ 7,209,633 $ 29,021,154 $ 1,922,299

Add:

Depreciation 25,481,041 24,421,521 26,460,715
Interest, inclusive of amortization of deferred financing fees 26,459,722 23,937,305 26,030,877
Amortization of acquired in-place leases and tenant relationships 5,377 68,280 531,422
Net income from discontinued operations (18,684,966 ) (42,210,823 ) (24,541,499 )
Equity in (income) loss of unconsolidated multifamily entities (888,778 ) 268,921   3,430,015  
Net operating income 39,582,029 35,506,358 33,833,829
Add:

Net operating income related to properties acquired or placed in service after January 1, 2012 and non-property activities

5,811,875   7,545,214   3,740,979  
Same Property net operating income $ 45,393,904   $ 43,051,572   $ 37,574,808  
 

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 two multifamily development projects, of which six are located in the Baltimore/Washington, D.C. metropolitan area; four 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, 2013 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.

- tables to follow-

         
BERKSHIRE INCOME REALTY, INC.
CONSOLIDATED BALANCE SHEETS
 

December 31,

December 31,

2013

2012

 
ASSETS

Multifamily apartment communities, net of accumulated depreciation of $242,291,624 and $235,825,752, respectively

$ 381,663,433 $ 402,999,104
Cash and cash equivalents 15,254,613 12,224,361
Cash restricted for tenant security deposits 1,321,895 1,332,178
Replacement reserve escrow 1,121,258 986,790
Prepaid expenses and other assets 10,675,302 9,545,966
Investments in unconsolidated multifamily entities 14,294,474 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 $2,953,066 and $3,096,284, respectively 2,977,939   3,210,510  
Total assets $ 427,308,914   $ 447,178,210  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 475,525,480 $ 478,185,998
Revolving credit facility - affiliate
Note payable - other 1,250,000 1,250,000
Due to affiliates, net 2,454,167 3,446,460
Due to affiliate, incentive advisory fees 8,289,617 6,634,261
Dividend and distributions payable 837,607 1,137,607
Accrued expenses and other liabilities 10,968,053 15,081,550
Tenant security deposits 1,531,472   1,475,298  
Total liabilities 500,856,396   507,211,174  
 
Commitments and contingencies
 
Deficit:
Noncontrolling interest in properties 879,785 1,527,431
Noncontrolling interest in Operating Partnership (102,297,937 ) (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 December 31, 2013 and 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 December 31, 2013 and 2012, respectively

Class B common stock, $.01 par value, 5,000,000 shares authorized, 1,406,196 shares issued and outstanding at December 31, 2013 and 2012, respectively

14,062 14,062

Excess stock, $.01 par value, 15,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2013 and 2012, respectively

Accumulated deficit (42,354,222 ) (42,077,020 )
Total deficit (73,547,482 ) (60,032,964 )
 
Total liabilities and deficit $ 427,308,914   $ 447,178,210  
 
     
BERKSHIRE INCOME REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year ended
December 31,
2013     2012     2011
Revenue:
Rental $ 73,191,622 $ 68,545,521 $ 65,240,687
Utility reimbursement 3,441,604 2,954,366 2,714,358
Other 3,398,904   3,013,758   2,732,821  
Total revenue 80,032,130   74,513,645   70,687,866  
Expenses:
Operating 18,433,143 17,585,096 17,268,329
Maintenance 4,516,367 4,396,133 4,456,806
Real estate taxes 7,677,392 6,845,669 6,688,309
General and administrative 2,504,227 2,424,966 2,337,435
Management fees 4,824,959 4,642,323 4,406,673
Incentive advisory fees 2,494,013 3,113,100 1,696,485
Depreciation 25,481,041 24,421,521 26,460,715
Interest, inclusive of amortization of deferred financing fees 26,459,722 23,937,305 26,030,877
Amortization of acquired in-place leases and tenant relationships 5,377   68,280   531,422  
Total expenses 92,396,241   87,434,393   89,877,051  
Loss before equity in income (loss) of unconsolidated multifamily entities (12,364,111 ) (12,920,748 ) (19,189,185 )
Equity in income (loss) of unconsolidated multifamily entities 888,778   (268,921 ) (3,430,015 )
Loss from continuing operations (11,475,333 ) (13,189,669 ) (22,619,200 )
Discontinued operations:
Income (loss) from discontinued operations 36,441 (1,372,042 ) 624,552
Gain on disposition of real estate assets, net 18,648,525   43,582,865   23,916,947  
Net income from discontinued operations 18,684,966   42,210,823   24,541,499  
Net income 7,209,633 29,021,154 1,922,299
Net income attributable to noncontrolling interest in properties (107,292 ) (9,797,304 ) (6,306,178 )
Net (income) loss attributable to noncontrolling interest in Operating Partnership (391,968 ) (12,223,771 ) 10,819,718  
Net income attributable to the Company 6,710,373 7,000,079 6,435,839
Preferred dividend (6,700,775 ) (6,700,777 ) (6,700,763 )
Net income (loss) available to common shareholders $ 9,598   $ 299,302   $ (264,924 )
Net loss from continuing operations attributable to the Company per common share, basic and diluted (13.28 ) (29.81 ) (17.64 )
Net income from discontinued operations attributable to the Company per common share, basic and diluted 13.29   30.02   17.45  
Net income (loss) available to common shareholders per common share, basic and diluted 0.01   0.21   (0.19 )
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196  
 

Contacts

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

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Contacts

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