Berkshire Income Realty Announces Second Quarter Funds from Operations of $2,839,413

Business Wire

BOSTON--(BUSINESS WIRE)--

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 June 30, 2013. Financial highlights for the three- and six-month periods ended June 30, 2013 include:

- Same Property Net Operating Income ("Same Property NOI") increased approximately 6.4% - 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 June 30, 2013 ("Same Property"). The Same Property Portfolio had total revenue increases of approximately 4.6% for the three months ended June 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. The increase in revenue was partially offset by increased expenses related to higher real estate taxes at various properties in the portfolio and increased property management fees driven by higher revenue.

- The Company's Funds From Operations ("FFO") decreased approximately $771,800 for the three months ended June 30, 2013. The Company's FFO, a non-GAAP financial measure, for the three months ended June 30, 2013 was $2,839,413 compared to $3,611,215 for the comparable three months ended June 30, 2012. The decrease in the Company's FFO during the three month period is due to increased expenses, specifically incentive advisory fees, real estate taxes and interest expense, which exceeded the increase in revenue for the comparable periods. FFO for the six months ended June 30, 2013 increased by $1,150,266 as compared to the same period ended June 30, 2012 and is due primarily to higher revenue and lower incentive advisory fees during the six month period.

- 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 2 and 3 of this press release. For the three months ended June 30, 2013 and 2012, the net income (loss) was $14,531,303 and $(3,282,604), respectively. For the six months ended June 30, 2013 and 2012, the net income (loss) was $10,534,627 and $(1,270,648), respectively.

- Development Activities - The Company owns interests in three development joint ventures of which two have completed construction during the six month period ended June 30, 2013 and are currently being leased. Construction of the 2020 Lawrence project, a 231-unit LEED-gold certified mid-rise multifamily building, located in downtown Denver, Colorado, completed earlier this year, has been well received by the Denver rental market. Move-in of residents began late in 2012 and current physical occupancy is approximately 58% with total leased units of approximately 68%. Construction of the Trilogy NoMa development project, a 603-unit multifamily community in downtown Washington, D.C., was completed during the quarter ended June 30, 2013. Current physical occupancy is approximately 37% while leased units total approximately 43%. Construction activities of the Walnut Creek development project, located in Walnut Creek, California, is anticipated to begin in late 2013. Regulatory and environmental entitlement approvals are complete and development budgets are being finalized.

- Sale of properties - During the six months ended June 30, 2013, the Company sold two properties located in Houston, Texas; Walden Pond and Gables of Texas. The Company was able to take advantage of the strong capital markets to obtain favorable pricing for these assets. 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 debt associated with the funding of ongoing development projects and will be used to fund distributions to common shareholders.

- Economic Conditions - During 2013, on a national basis, the multifamily sector continued to exhibit strong fundamentals and improved performance due to continued increases in rents and stable occupancies resulting from continued favorable apartment unit supply and demand dynamics. Reduced homeownership 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 third quarter of 2012. With the benefit of the improvement in the economy, the Company will continue to implement its program of increasing rental rates to drive growth in revenue and net operating income.

David Quade, President of the Company, comments: "The Company generated strong operating results in the second quarter which were the result of our program of increasing rental rates and controlling operating expenses within the portfolio. Same Property rental rate increases averaged over 4% and contributed to an increase in Same Property NOI of approximately 6%. Development activities, which continue to be a focus of the Company, were highlighted in the second quarter by the completion of construction at the Trilogy NoMa project. Located in downtown Washington, D.C., Trilogy NoMa is being well received by the local rental market with current leasing levels reaching approximately 43%. We are pleased with the Company's operating results which demonstrate strong growth resulting from our efforts over the past few years to significantly upgrade the overall quality of the real estate 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 six months ended June 30, 2013 and 2012:

    Three months ended     Six months ended
June 30, June 30,
2013     2012 2013     2012
Net income (loss) 14,531,303 (3,282,604 ) 10,534,627 (1,270,648 )
Add:
Depreciation of real property 5,615,658 5,561,784 11,175,225 11,359,480
Depreciation of real property included in results of discontinued operations 256,118 673,904 513,336 1,474,474
Amortization of acquired in-place leases and tenant relationships 16,104 5,377 36,072
Equity in loss of unconsolidated multifamily entities 855,136 715,572 1,631,103
Funds from operations of unconsolidated multifamily entities, net of impairments 431,695 312,207 800,396 577,655
Less:
Funds from operations of noncontrolling interest in properties (161,439 ) (352,865 ) (337,988 ) (664,832 )
Gain on disposition of real estate assets (18,689,058 ) (32,887 ) (18,689,058 ) (6,622,210 )
Equity in income of unconsolidated multifamily entities       (407,239 )
Funds from Operations $ 2,839,413   $ 3,611,215   $ 5,633,018   $ 4,482,752  
 

FFO for the three months ended June 30, 2013 decreased as compared to the same period ended June 30, 2012 and increased for the six months ended June 30, 2013 as compared to the six-month period ended June 30, 2012. The decrease in FFO for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 is mainly attributable to increased expenses, specifically incentive advisory fees, real estate taxes and interest expenses, which exceeded the increase in revenue for the comparable periods. The increase in FFO for the six months ended June 30, 2013 compared to the same period ended June 30, 2012 is due primarily to increased revenue and lower incentive advisory fees, which were partially offset by higher real estate taxes and interest expense as the 2020 Lawrence Project was completed in the first 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 June 30, 2013.

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

    Three months ended     Six months ended
June 30,   June 30,
2013     2012 2013     2012
Net income (loss) 14,531,303 (3,282,604 ) $ 10,534,627 $ (1,270,648 )
Add:
Depreciation 6,432,388 6,120,855 12,759,624 12,499,149
Interest, inclusive of amortization of deferred financing fees 6,647,682 6,093,443 13,057,302 12,306,267
Amortization of acquired in-place leases and tenant relationships 16,104 5,377 36,072
Net income from discontinued operations (18,630,988 ) (248,001 ) (18,748,838 ) (5,913,936 )
Equity in (income) loss of unconsolidated multifamily entities 855,136   715,572   1,631,103   (407,239 )
Net operating income 9,835,521 9,415,369 19,239,195 17,249,665
Add:
Net operating income related to properties acquired or placed in service after January 1, 2012 and non-property activities 1,613,602   1,344,801   3,558,033   4,028,635  
Same Property net operating income 11,449,123   10,760,170   $ 22,797,228   $ 21,278,300  
 

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.

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

       
June 30,
2013
December 31,
2012
 
ASSETS
Multifamily apartment communities, net of accumulated depreciation of $229,570,535 and $235,825,752, respectively $ 382,660,242 $ 402,999,104
Cash and cash equivalents 20,782,083 12,224,361
Cash restricted for tenant security deposits 1,245,211 1,332,178
Replacement reserve escrow 1,042,391 986,790
Prepaid expenses and other assets 8,026,311 9,545,966
Investments in unconsolidated multifamily entities 15,547,996 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 $3,112,602 and $3,096,284, respectively 2,975,532   3,210,510  
Total assets $ 432,279,766   $ 447,178,210  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 463,075,489 $ 478,185,998
Note payable - other 1,250,000 1,250,000
Due to affiliates, net 1,935,146 3,446,460
Due to affiliate, incentive advisory fees 7,317,372 6,634,261
Dividend and distributions payable 837,607 1,137,607
Accrued expenses and other liabilities 10,967,445 15,081,550
Tenant security deposits 1,540,907   1,475,298  
Total liabilities 486,923,966   507,211,174  
 
Commitments and contingencies
 
Deficit:
Noncontrolling interest in properties 885,514 1,527,431
Noncontrolling interest in Operating Partnership (83,848,935 ) (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 June 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 June 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 June 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 June 30, 2013 and December 31, 2012, respectively
Accumulated deficit (41,905,671 ) (42,077,020 )
Total deficit (54,644,200 ) (60,032,964 )
 
Total liabilities and deficit $ 432,279,766   $ 447,178,210  
 

BERKSHIRE INCOME REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

       
Three months ended Six months ended
June 30, June 30,
2013     2012 2013     2012
Revenue:
Rental $ 18,154,499 $ 17,044,839 $ 35,929,035 $ 33,913,424
Utility reimbursement 852,825 721,711 1,690,499 1,453,630
Other 843,754   775,531   1,651,633   1,516,074  
Total revenue 19,851,078   18,542,081   39,271,167   36,883,128  
Expenses:
Operating 4,425,981 4,200,119 9,075,223 8,561,080
Maintenance 1,230,171 1,176,245 2,113,072 2,234,698
Real estate taxes 2,024,714 1,695,820 3,835,212 3,425,702
General and administrative 507,809 557,173 1,237,899 1,324,342
Management fees 1,203,974 1,152,971 2,396,786 2,287,663
Incentive advisory fees 622,908 344,384 1,373,780 1,799,978
Depreciation 6,432,388 6,120,855 12,759,624 12,499,149
Interest, inclusive of amortization of deferred financing fees 6,647,682 6,093,443 13,057,302 12,306,267
Amortization of acquired in-place leases and tenant relationships   16,104   5,377   36,072  
Total expenses 23,095,627   21,357,114   45,854,275   44,474,951  
Loss before equity in income (loss) of unconsolidated multifamily entities (3,244,549 ) (2,815,033 ) (6,583,108 ) (7,591,823 )
Equity in income (loss) of unconsolidated multifamily entities (855,136 ) (715,572 ) (1,631,103 ) 407,239  
Loss from continuing operations (4,099,685 ) (3,530,605 ) (8,214,211 ) (7,184,584 )
Discontinued operations:
Income (loss) from discontinued operations (58,070 ) 215,114 59,780 (708,274 )
Gain on disposition of real estate assets 18,689,058   32,887   18,689,058   6,622,210  
Net income from discontinued operations 18,630,988   248,001   18,748,838   5,913,936  
Net income (loss) 14,531,303 (3,282,604 ) 10,534,627 (1,270,648 )
Net (income) loss attributable to noncontrolling interest in properties 4,724 (130,281 ) (14,808 ) (218,306 )
Net (income) loss attributable to noncontrolling interest in Operating Partnership (12,553,460 ) 4,966,475   (6,998,082 ) 4,723,683  
Net income attributable to the Company 1,982,567 1,553,590 3,521,737 3,234,729
Preferred dividend (1,675,194 ) (1,675,195 ) (3,350,388 ) (3,350,389 )
Net income (loss) available to common shareholders $ 307,373   $ (121,605 ) $ 171,349   $ (115,660 )
Net loss from continuing operations attributable to the Company per common share, basic and diluted (13.03 ) (0.27 ) (13.21 ) (4.29 )
Net income from discontinued operations attributable to the Company per common share, basic and diluted 13.25   0.18   13.33   4.21  
Net income (loss) available to common shareholders per common share, basic and diluted 0.22   (0.09 ) 0.12   (0.08 )
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196   1,406,196  
 

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