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 six months ended June 30, 2015. Financial highlights for the six months ended June 30, 2015 include:

- Same Property Net Operating Income ("Same Property NOI") increased 7.7% for the six months ended June 30, 2015 - Same Property NOI, a non-GAAP financial measure, primarily increased as a result of growth in revenue. The Same Property Portfolio had a total revenue increase of approximately 4.9% for the six months ended June 30, 2015 compared to the same period a year ago primarily driven by increase in average monthly rental rates from $1,313 to $1,368. Average physical occupancy for the Same Property Portfolio remained consistent at 95.5% for the year ended June 30, 2015 as compared to the six months ended June 30, 2014. A reconciliation of accounting principles generally accepted in the United States of America ("GAAP") net income (loss) to Same Property NOI is included in the financial data accompanying this release. For the six months ended June 30, 2015 and 2014, the Company's net income (loss) was $(8,714,144) and $50,678,923, respectively.

- The Company's Funds From Operations ("FFO") increased approximately $5.4 million for the six months ended June 30, 2015 - The Company's FFO, a non-GAAP financial measure, for the six months ended June 30, 2015 was $5,345,013 compared with $(77,810) for the six months ended June 30, 2014. The increase in FFO is mainly attributable to reduced operating expenses, interest and loss on extinguishment of debt incurred on assets that were sold in 2014, lower acquisition costs related to Gatehouse 75 expensed during the six-month periods ended June 30, 2015 as compared to acquisition costs related to Pavilion Townplace and EON at Lindbergh expensed in the same period in 2014, added operations from assets acquired in 2014 and the first quarter of 2015, and lower incentive advisory fees. The increase was partially offset by the loss of operating income from assets that were sold in 2014. A reconciliation of GAAP net income (loss) 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 3 and 4 of this press release.

- Development activities - During the six months ended June 30, 2015, the Company owned interests in two joint venture development projects. Acquired in the first quarter of 2014, the Company continued construction activities on the Aura Prestonwood development project located in Dallas, Texas achieving delivery of approximately 70% of all units and substantial completion of internal and external common areas. Construction activities on the Lyric development project (formerly known as the Walnut Creek project), located in Walnut Creek, California, advanced during the period with significant progress on the foundation and parking levels.

- Acquisition of properties - During the six months ended June 30, 2015, the Company acquired Gatehouse 75, a 99-unit property located in the Charlestown neighborhood of Boston, Massachusetts. The purchase price for Gatehouse 75 was $54,125,000.

Chuck Leitner, President and Chairman of the Company, commented: "Operating results remained strong during the current period.Same Property Portfolio revenue for the period ended June 30, 2015 increased 4.9% due to higher rental rates and resulted in increased net operating income of 7.7% over the comparable period of 2014.Construction of the Lyric development located in Walnut Creek, California advanced with significant progress on the foundation and parking levels while the Aura Prestonwood development in Dallas, Texas approached completion with the delivery of approximately 70% of all units and with the substantial completion of internal and exterior common areas.We continue to assess the quality of our portfolio and will continue to make strategic investment decisions as opportunities are identified."

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 for 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-month periods ended June 30, 2015 and 2014:

  Three months ended June 30,   Six months ended June 30,
2015   2014 2015   2014
Net income (loss) $ (4,485,115 ) $ 54,062,703 $ (8,714,144 ) $ 50,678,923
Add:
Depreciation of real property 6,185,456 6,339,996 11,866,986 11,796,977
Amortization of acquired in-place leases and tenant relationships 527,916 745,203 1,150,147 745,203
Equity in loss of unconsolidated multifamily entities 1,354 — — —
Funds from operations of unconsolidated multifamily entities, net of impairments 550,961 (664,672 ) 1,128,627 (286,435 )
Less:
Funds from operations of noncontrolling interest in properties (31,521 ) (289,667 ) (62,325 ) (517,050 )
Gain on disposition of real estate assets — (49,519,992 ) — (49,519,992 )
Equity in income of unconsolidated multifamily entities —   (12,292,944 ) (24,278 ) (12,975,436 )
Funds from Operations $ 2,749,051   $ (1,619,373 ) $ 5,345,013   $ (77,810 )
 

FFO increased for the three and six-month periods ended June 30, 2015 as compared to the same period in 2014. The increase in FFO is mainly attributable to reduced operating, interest and loss on extinguishment expenses of debt as a result of assets that were sold in 2014, lower acquisition costs related to Gatehouse 75 expensed during the six-month periods ended June 30, 2015 as compared to acquisition costs related to Pavilion Townplace and EON at Lindbergh expensed in the same period in 2014, added operations from assets acquired in 2014 and the first quarter of 2015, and lower incentive advisory fees. The increase was partially offset by the loss of operating income from assets that were sold in 2014.

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 its properties without reflecting 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 10 properties acquired or placed in service on or prior to January 1, 2014 and owned through June 30, 2015.

The following table represents the reconciliation of GAAP net income (loss) to the other non-GAAP measures presented for the three and six-month periods ended June 30, 2015 and 2014:

  Three months ended June 30,   Six months ended June 30,
2015   2014 2015   2014
Net income (loss) $ (4,485,115 ) $ 54,062,703 $ (8,714,144 ) $ 50,678,923
Adjust:
Depreciation 7,131,907 7,243,111 13,618,163 13,529,323
Interest, inclusive of amortization of deferred financing fees 6,214,603 7,967,522 12,011,087 15,061,340
Loss on extinguishment of debt — 1,743,652 — 1,743,652
Amortization of acquired in-place leases and tenant relationships 527,916 745,203 1,150,147 745,203
Net loss from discontinued operations — — — 114,216
Gain on disposition of real estate assets — (49,519,992 ) — (49,519,992 )
Equity in income (loss) of unconsolidated multifamily entities 1,354   (12,292,944 ) (24,278 ) (12,975,436 )
Net operating income 9,390,665 9,949,255 18,040,975 19,377,229
Subtract:
Net operating income related to properties acquired or placed in service after January 1, 2014 and non-property activities (317,459 ) (1,530,635 ) (396,353 ) (2,990,736 )
Same Property net operating income $ 9,073,206   $ 8,418,620   $ 17,644,622   $ 16,386,493  
 

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 fourteen multifamily apartment communities and two multifamily development projects, of which three are located in the Baltimore/Washington, D.C. metropolitan area; three are located in Dallas, Texas; two are located in Atlanta, Georgia; and one is located in each of Houston, Texas; Sherwood, Oregon; Tampa, Florida; Philadelphia, Pennsylvania; Walnut Creek, California; Denver, Colorado; Redmond, Washington; and Boston, Massachusetts. The Company also owns 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, 2014 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,
2015 		  December 31,
2014
 
ASSETS
Multifamily apartment communities, net of accumulated depreciation of $204,611,430 and $190,993,267, respectively $ 540,979,970 $ 472,942,656
Cash and cash equivalents 11,030,065 4,369,626
Cash restricted for tenant security deposits 1,306,246 1,202,884
Cash held in escrow for 1031 exchange — 11,920,578
Replacement reserve escrow 1,568,888 1,425,007
Prepaid expenses and other assets 8,616,935 8,807,199
Investments in unconsolidated multifamily entities 12,769,167 14,078,222
Acquired in-place leases and tenant relationships, net of accumulated amortization of $2,669,118 and $1,518,971, respectively 708,521 1,219,543
Deferred expenses, net of accumulated amortization of $2,935,443 and $2,239,550, respectively 5,477,522   5,706,855  
Total assets $ 582,457,314   $ 521,672,570  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 514,880,027 $ 436,785,408
Credit Facility 26,000,000 41,000,000
Note payable - affiliate 5,800,000 —
Note payable - other 1,231,455 1,250,000
Due to affiliates, net 3,110,047 3,085,668
Due to affiliate, incentive advisory fees 14,691,377 13,698,562
Dividend and distributions payable 837,607 837,607
Accrued expenses and other liabilities 16,615,060 12,889,999
Tenant security deposits 1,653,503   1,451,751  
Total liabilities 584,819,076   510,998,995  
 
Commitments and contingencies — —
 
Equity (deficit):
Noncontrolling interest in properties (88,560 ) (25,658 )
Noncontrolling interest in Operating Partnership (31,902,772 ) (19,217,779 )
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, 2015 and December 31, 2014, 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, 2015 and December 31, 2014, respectively — —
Class B common stock, $.01 par value, 5,000,000 shares authorized, 1,406,196 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively 14,062 14,062
Excess stock, $.01 par value, 15,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively — —
Accumulated deficit (40,595,322 ) (40,307,880 )
Total equity (deficit) (2,361,762 ) 10,673,575  
 
Total liabilities and equity (deficit) $ 582,457,314   $ 521,672,570  
 
 

BERKSHIRE INCOME REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 
  Three months ended June 30,   Six months ended June 30,
2015   2014 2015   2014
Revenue:
Rental $ 17,875,856 $ 21,167,877 $ 34,804,530 $ 40,457,163
Utility reimbursement 816,042 1,108,411 1,568,439 2,027,248
Other 1,050,889   1,129,850   2,035,471   2,098,392  
Total revenue 19,742,787   23,406,138   38,408,440   44,582,803  
Expenses:
Operating 4,123,622 4,995,317 8,896,356 11,316,545
Maintenance 1,023,892 1,440,932 1,945,530 2,573,755
Real estate taxes 2,253,680 2,550,600 4,368,355 4,733,781
General and administrative 707,699 721,624 1,422,927 1,342,785
Management fees 1,190,621 1,339,036 2,343,084 2,565,289
Incentive advisory fees 1,052,608 2,409,374 1,391,213 2,673,419
Depreciation 7,131,907 7,243,111 13,618,163 13,529,323
Interest, inclusive of amortization of deferred financing fees 6,214,603 7,967,522 12,011,087 15,061,340
Loss on extinguishment of debt — 1,743,652 — 1,743,652
Amortization of acquired in-place leases and tenant relationships 527,916   745,203   1,150,147   745,203  
Total expenses 24,226,548   31,156,371   47,146,862   56,285,092  
Loss before equity in income (loss) of unconsolidated multifamily entities (4,483,761 ) (7,750,233 ) (8,738,422 ) (11,702,289 )
Equity in income (loss) of unconsolidated multifamily entities (1,354 ) 12,292,944 24,278 12,975,436
Gain on disposition of real estate assets —   49,519,992   —   49,519,992  
Income (loss) from continuing operations (4,485,115 ) 54,062,703 (8,714,144 ) 50,793,139
Net loss from discontinued operations —   —   —   (114,216 )
Net income (loss) (4,485,115 ) 54,062,703   (8,714,144 ) 50,678,923  
Net (income) loss attributable to noncontrolling interest in properties 21,059 (125,887 ) 37,795 (190,723 )
Net (income) loss attributable to noncontrolling interest in Operating Partnership 5,992,521   (51,012,570 ) 11,739,293   (46,011,219 )
Net income attributable to the Company 1,528,465 2,924,246 3,062,944 4,476,981
Preferred dividend (1,675,193 ) (1,675,193 ) (3,350,386 ) (3,350,387 )
Net income (loss) available to common shareholders $ (146,728 ) $ 1,249,053   $ (287,442 ) $ 1,126,594  
Net income (loss) from continuing operations attributable to the Company per common share, basic and diluted (0.10 ) 0.89   $ (0.20 ) $ 0.80  
Net loss from discontinued operations attributable to the Company per common share, basic and diluted —   —   $ —   $ —  
Net income (loss) available to common shareholders per common share, basic and diluted (0.10 ) 0.89   $ (0.20 ) $ 0.80  
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196   1,406,196