Berkshire Income Realty Announces Operating Results and Funds from Operations for the Quarter Ended

Berkshire Income Realty Announces Operating Results and Funds from Operations for the Quarter Ended September 30, 2012

BOSTON--(BUSINESS WIRE)-- Berkshire Income Realty, Inc. (NYSE AMEX: BIR_pa), (NYSE AMEX: BIRPRA), (NYSE AMEX: BIR-A), (NYSE AMEX: BIR.PR.A) ("Berkshire" or the "Company") reported its results for the periods ended September 30, 2012. Financial highlights for the three- and nine-month period ended September 30, 2012 include:

- Funds From Operations ("FFO") increased by 59.3% for the three months ended September 30, 2012 - The Company's FFO, a non-GAAP financial measure, for the three months ended September 30, 2012, was $4,026,058, an increase of $1,498,466 or 59.3%, as compared to $2,527,592 for the three months ended September 30, 2011. The increase in FFO is due primarily to increased rental revenue across the portfolio, lower interest expenses as a result of reduced revolving credit facility balance outstanding during the comparative periods, and lower incentive advisory fees recorded during the three months ended September 30, 2012, compared to the same period ended September 30, 2011. FFO for the nine months ended September 30, 2012, was $8,508,686 compared to $7,071,264 for the comparable nine-month period ended September 30, 2011.


- Same Property Net Operating Income ("Same Property NOI") increased by 8.3% for the three months ended September 30, 2012 - Same Property NOI, a non-GAAP financial measure, increased as a result of growth in comparative revenues of properties acquired or placed in service prior to January 1, 2011 ("Same Property"), which had total revenue increases of approximately 4.5% for the three months ended September 30, 2012, as compared to the same period a year ago due mainly to increases in average monthly rental rates which were offset by slight reduction in comparative average occupancy levels. Overall operating expenses were consistent with the comparative three-month period ended September 30, 2011, with increases in insurance, advertising, maintenance and management fees offset by reductions in payroll and utilities and to a lesser degree, real estate taxes.

A presentation and reconciliation of net 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-month periods ended September 30, 2012 and 2011, the net loss was $(2,702,352) and $(5,390,296), respectively. For the nine months ended September 30, 2012 and 2011, the net loss was $(3,973,000) and $(16,945,447), respectively.

On a national basis, the multifamily sector continues to exhibit strong fundamentals and improved performance due to sustained increases in rents and stable occupancies resulting from continued favorable apartment unit supply and demand dynamics. Decreased levels of new units constructed and weakened home ownership have contributed to a 10-year low in the national vacancy rate and continuing demand for the apartment sector. 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.

David Quade, President of Berkshire, comments: "We continue to see improvement in BIR's real estate portfolio and operating results.The strong operating results for the third quarter were largely due to revenue increases, a continued high level of occupancy, and strength of the property sub-market locations.Despite the slow economic recovery, the multifamily markets nationally continue to exhibit strong fundamentals.

Strategically, we are looking to improve the quality of the real estate portfolio by selectively selling some older assets, while adding Class A properties through new developments. In that regard, BIR has two developments that are progressing well, with both beginning their early leasing stage. Our development in downtown Denver has model units complete, its leasing is being well received, and the first tenants are expected to take occupancy by year end. The second development is located in downtown Washington, D.C., construction of its first phase is substantially complete and pre-leasing is underway. Overall, we feel very good about the progress of these developments and the strength of the overall 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, 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 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 loss to FFO for the three and nine months ended September 30, 2012 and 2011:

    Three months ended   Nine months ended
September 30, September 30,
2012   2011 2012   2011
Net loss $ (2,702,352 ) $ (5,390,296 ) $ (3,973,000 ) $ (16,945,447 )
Add:
Depreciation of real property 6,086,677 6,602,044 18,799,193 19,931,403
Depreciation of real property included in results of discontinued operations 393,388 121,438 990,435
Amortization of acquired in-place leases and tenant relationships 16,104 95,950 52,176 476,900
Amortization of acquired in-place leases and tenant relationships included in discontinued operations 8,916
Equity in loss of Multifamily Venture Limited Partnership 588,242 768,597 73,472 2,554,451
Equity in loss of Multifamily Limited Liability Company 64,868 33,420 172,399 80,144
Funds from operations of Multifamily Venture Limited Partnership and Multifamily Limited Liability Company, net of impairments 315,832 365,905 893,487 928,266
Less:
Equity in income of Multifamily Venture Limited Partnership
Noncontrolling interest in properties share of funds from operations (343,313 ) (341,416 ) (1,008,269 ) (953,804 )
Gain on disposition of real estate assets     (6,622,210 )  
Funds from Operations $ 4,026,058   $ 2,527,592   $ 8,508,686   $ 7,071,264  
 

FFO for the three and nine months ended September 30, 2012, increased as compared to FFO for the three and nine months ended September 30, 2011. The increase in FFO is due primarily to increased revenue and lower interest expenses as a result of reduced revolving credit facility balance outstanding partially offset by higher incentive advisory fees and losses from discontinued operations during the nine months ended September 30, 2012, compared to the same period ended September 30, 2011. Also, offsetting the increases were transaction costs of $620,779 for the acquisition of the Estancia property incurred during the nine months ended September 30, 2011, for which there was no comparative expense recorded in 2012.

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 capital decisions such as the issuance of mortgage debt and investments in capital items; in turn, these capital decisions have an impact on interest expense and depreciation and amortization.

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, 2012 and 2011:

    Three months ended   Nine months ended
September 30, September 30,
2012   2011 2012   2011
Net loss $ (2,702,352 ) $ (5,390,296 ) $ (3,973,000 ) $ (16,945,447 )
Adjust:
Depreciation 6,769,117 7,423,920 20,851,711 22,354,424
Interest 6,230,659 7,102,022 19,636,029 21,124,847
Amortization of intangible assets 16,104 95,950 52,176 476,900
Net (income) loss in equity method investments 653,110 802,017 245,871 2,634,595
Discontinued operations 30,772   (63,786 ) (5,537,000 ) (437,776 )
Net operating income 10,997,410 9,969,827 31,275,787 29,207,543
Add:
Net operating loss related to properties acquired after January 1, 2011, and non-property activities 582,135   725,247   3,344,562   2,862,792  
Same property net operating income $ 11,579,545   $ 10,695,074   $ 34,620,349   $ 32,070,335  
 

The Company

The Company is a REIT whose objective is to acquire, own, operate, develop and rehabilitate multifamily apartment communities. The Company owns interests in 23 multifamily apartment communities and two multifamily development projects, of which six are located in the Baltimore/Washington, D.C. metropolitan area; three are located in Virginia; four are located in Houston, Texas; three are located in Dallas, Texas; two are located in the Chicago, Illinois area; 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 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 its investment in Berkshire Multifamily Equity Fund, 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, 2011, 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,
2012

   

December 31,
2011

 
(unaudited) (audited)
ASSETS
Multifamily apartment communities, net of accumulated depreciation of $244,530,688 and $227,600,092, respectively $ 425,911,439 $ 422,662,237
Cash and cash equivalents 7,067,186 9,645,420
Cash restricted for tenant security deposits 1,361,563 1,455,751
Replacement reserve escrow 1,496,201 1,361,997
Prepaid expenses and other assets 10,364,222 11,786,836
Investment in Multifamily Venture Limited Partnership and Multifamily Limited Liability Company 17,357,043 17,721,959
Acquired in-place leases and tenant relationships, net of accumulated amortization of $583,598 and $531,422, respectively 21,481 73,657
Deferred expenses, net of accumulated amortization of $3,245,143 and $2,840,437, respectively   3,755,156     4,041,785  
Total assets $ 467,334,291   $ 468,749,642  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 497,840,041 $ 484,748,358
Note payable, affiliate 2,691,000 8,349,422
Due to affiliates, net 2,779,809 1,245,147
Due to affiliate - incentive advisory fees 5,494,356 3,904,280
Dividend and distributions payable 837,607 837,607
Accrued expenses and other liabilities 15,711,370 16,030,287
Tenant security deposits   1,685,092     1,651,665  
Total liabilities   527,039,275     516,766,766  
 
Commitments and contingencies (Note 9)
 
Deficit:
Noncontrolling interest in properties (310,967 ) 346,524
Noncontrolling interest in Operating Partnership (Note 10) (85,907,056 ) (76,785,818 )
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, 2012, and December 31, 2011, 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, 2012, and December 31, 2011, respectively
Class B common stock, $.01 par value, 5,000,000 shares authorized, 1,406,196 shares issued and outstanding at September 30, 2012, and December 31, 2011, respectively 14,062 14,062
Excess stock, $.01 par value, 15,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2012, and December 31, 2011, respectively
Accumulated deficit   (43,711,853 )   (41,802,722 )
Total deficit   (59,704,984 )   (48,017,124 )
 
Total liabilities and deficit $ 467,334,291   $ 468,749,642  
 


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BERKSHIRE INCOME REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
    Three months ended   Nine months ended
September 30,   September 30,  
2012       2011   2012     2011  
Revenue:
Rental $ 20,206,463 $ 19,340,273 $ 59,912,660 $ 57,042,054
Utility reimbursement 881,874 806,196 2,617,014 2,402,474
Other 909,052     849,508   2,702,976   2,442,074  
Total revenue 21,997,389     20,995,977   65,232,650   61,886,602  
Expenses:
Operating 5,613,721 5,591,808 16,564,374 16,911,084
Maintenance 1,581,412 1,540,424 4,248,516 4,158,187
Real estate taxes 2,011,232 2,034,067 6,172,981 5,921,199
General and administrative 321,690 311,500 1,159,853 1,336,714
Management fees 1,298,707 1,229,277 3,837,944 3,645,135
Incentive advisory fees 173,217 319,074 1,973,195 706,740
Depreciation 6,769,117 7,423,920 20,851,711 22,354,424
TWX -0.43 75.21

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