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 three and six months ended June 30, 2014. Financial highlights for the three and six months ended June 30, 2014 include:

- Same Property Net Operating Income ("Same Property NOI") increased 1.5% for the three months ended June 30, 2014 - 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, 2013 ("Same Property Portfolio") that was partially offset by higher repairs and maintenance and higher real estate taxes. The Same Property portfolio had a total revenue increase of approximately 2.8% for the three months ended June 30, 2014 compared to the same period a year ago primarily driven by increase in average monthly rental rates from $1,282 to $1,319. Average physical occupancy for the Same Property Portfolio remained consistent at 96% for the six month periods ended June 30, 2014 and June 30, 2013. 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") decreased approximately $4.5 million for the three months ended June 30, 2014. - The Company's FFO, a non-GAAP financial measure, for the quarter ended June 30, 2014 was $(1,619,373) compared with $2,839,413 at June 30, 2013. The decrease is mainly attributable to loss on extinguishment of debt for properties sold during the quarter ended June 30, 2014, higher incentive advisory fees, and increased interest expenses incurred on the credit facility, and the loss of operating income provided by properties sold in comparative periods. The decrease was partially offset by higher net operating income from the balance of the portfolio which in turn was driven by higher rents and added operations from the new acquisitions and the development completed in the first quarter of 2013. FFO for the six months ended June 30, 2014, decreased approximately $5.7 million as compared to the same period ended June 30, 2013 and is due primarily to costs related to the acquisition of Pavilion Townplace and Eon at Lindbergh completed in the first quarter of 2014, in addition to the activity previously mentioned. A reconciliation of GAAP net income to FFO is included in the financial data accompanying this release.

- A presentation and reconciliation of net income, 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 to 4 of this press release. For the three months ended June 30, 2014 and 2013, the Company's net income was $54,062,703 and $14,531,303, respectively. For the six months ended June 30, 2014 and 2013, the Company's net income was $50,678,923 and $10,534,627, respectively.

- Development Activities - During the six months ended June 30, 2014, the Company owned interests in two joint venture development projects. The Company continued construction activities on the Aura Prestonwood development project located in Dallas, Texas. The Walnut Creek development project, located in Walnut Creek, California, completed predevelopment planning, secured approvals, permits and financing, and commenced construction activities in July.

- Acquisition of properties - During the six months ended June 30, 2014, the Company acquired two properties, Pavilion Townplace located in Dallas, Texas, a 236-unit property, and EON of Lindbergh located in Atlanta Georgia, a 352-unit property. The purchase prices were $56,000,000 for Pavilion Townplace $64,000,000 for EON at Lindbergh.

- Disposition of properties - During the six months ended June 30, 2014, the Company sold four properties - Chisholm Place and Bear Creek, both located in Dallas, Texas; Laurel Woods located in Austin, Texas; and Berkshires on Brompton located in Houston, Texas. The sale price for Chisholm Place, Bear Creek, Laurel Woods and Berkshires on Brompton were $15,000,000 $9,500,000, $13,200,000 and $38,500,000, respectively. Total gain recognized from the sale of the four assets was $49,519,992.

Chuck Leitner, President and Chairman of the Company, commented: "Second quarter Same Property Portfolio operating results reflect strong revenue growth of 2.8% over the second quarter of 2013.Revenue was partially offset by increased operating expenses and resulted in an increase in Same Property NOI of 1.5%.Gains on the sale of four assets contributed significantly to our positive results and strong financial position, which continues to allow us to execute our strategic plan to improve the quality of the real estate portfolio.Development activities at Aura Prestonwood, a Class A 322-unit multifamily apartment property being developed in Dallas, Texas continues as scheduled.Walnut Creek development project, a Class A 141-unit mixed use multifamily apartment property in Walnut Creek, California, closed on a construction loan and commenced development activity subsequent to the quarter ended June 30, 2014.”

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 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 three- and six-month periods ended June 30, 2014 and 2013:

                 
 
Three months ended
June 30, 		Six months ended
June 30,
2014       2013 2014       2013
Net income $ 54,062,703 $ 14,531,303 $ 50,678,923 $ 10,534,627
Add:
Depreciation of real property 6,339,996 5,615,658 11,796,977 11,175,225
Depreciation of real property included in results of discontinued operations — 256,118 — 513,336
Amortization of acquired in-place leases and tenant relationships 745,203 — 745,203 5,377
Equity in loss of unconsolidated multifamily entities — 855,136 — 1,631,103
Funds from operations of unconsolidated multifamily entities, net of impairments (664,672 ) 431,695 (286,435 ) 800,396
Less:
Noncontrolling interest in properties' share of funds from operations (289,667 ) (161,439 ) (517,050 ) (337,988 )
Gain on disposition of real estate assets (49,519,992 ) (18,689,058 ) (49,519,992 ) (18,689,058 )
Equity in income of unconsolidated multifamily entities (12,292,944 ) —   (12,975,436 ) —  
Funds from Operations $ (1,619,373 ) $ 2,839,413   $ (77,810 ) $ 5,633,018  
 
 

FFO decreased for the three- and six-month periods ended June 30, 2014 as compared to the three- and six-month periods ended June 30, 2013. The decrease in FFO is mainly attributable to the acquisition costs related to Pavilion Townplace and EON at Lindbergh expensed pursuant to the guidance of ASC 805-10, loss on extinguishment of debt for properties sold during the six-month period ended June 30, 2014, increased incentive advisory fees, and increased interest expenses incurred on the credit facility. Furthermore, the decrease in FFO is also attributable to the loss of operating income provided by assets that were sold in 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 2020 Lawrence, a recently completed development project, Pavilion Townplace and EON at Lindbergh, recently acquired properties.

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. 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 15 properties acquired or placed in service on or prior to January 1, 2013 and owned through June 30, 2014.

The following table represents the reconciliation of GAAP net income to the other non-GAAP measures presented for the three- and six- month periods ended June 30, 2014 and 2013:

                 
 
Three months ended
June 30, 		Six months ended
June 30,
2014       2013 2014       2013
Net income $ 54,062,703 $ 14,531,303 $ 50,678,923 $ 10,534,627
Add:
Depreciation 7,243,111 6,432,388 13,529,323 12,759,624
Interest, inclusive of amortization of deferred financing fees 7,967,522 6,647,682 15,061,340 13,057,302
Loss on extinguishment of debt 1,743,652 — 1,743,652 —
Amortization of acquired in-place leases and tenant relationships 745,203 — 745,203 5,377
Net (income) loss from discontinued operations — (18,630,988 ) 114,216 (18,748,838 )
Gain on disposition of real estate assets (49,519,992 ) — (49,519,992 ) —
Equity in (income) loss of unconsolidated multifamily entities (12,292,944 ) 855,136   (12,975,436 ) 1,631,103  
Net operating income 9,949,255 9,835,521 19,377,229 19,239,195
Add:

Net operating income related to properties acquired or
placed in service after January 1, 2013 and non-property activities

489,069   448,903   981,495   1,291,998  
Same Property net operating income $ 10,438,324   $ 10,284,424   $ 20,358,724   $ 20,531,193  
 
 

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 fifteen 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 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; and Denver, Colorado. 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, 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.

               
 

BERKSHIRE INCOME REALTY, INC.
CONSOLIDATED BALANCE SHEETS

 

 
June 30,
2014 		December 31,
2013
 
ASSETS

Multifamily apartment communities, net of accumulated depreciation of
$232,057,518 and $242,291,624, respectively

$ 486,124,326 $ 381,663,433
Cash and cash equivalents 17,591,612 15,254,613
Cash restricted for tenant security deposits 1,499,541 1,321,895
Cash held in escrow for 1031 exchange 40,835,011 —
Replacement reserve escrow 1,394,116 1,121,258
Prepaid expenses and other assets 9,326,085 10,675,302
Investments in unconsolidated multifamily entities 14,689,566 14,294,474

Acquired in-place leases and tenant relationships, net of accumulated
amortization of $745,203 and $0, respectively

896,895 —
Deferred expenses, net of accumulated amortization of $2,989,868 and $2,953,066, respectively 6,765,645   2,977,939  
Total assets $ 579,122,797   $ 427,308,914  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 517,873,498 $ 475,525,480
Credit Facility 80,000,000 —
Note payable - other 1,250,000 1,250,000
Due to affiliates, net 2,166,157 2,454,167
Due to affiliate, incentive advisory fees 10,566,401 8,289,617
Dividend and distributions payable 837,607 837,607
Accrued expenses and other liabilities 11,623,784 10,968,053
Tenant security deposits 1,720,489   1,531,472  
Total liabilities 626,037,936   500,856,396  
 
Commitments and contingencies — —
 
Deficit:
Noncontrolling interest in properties 695,975 879,785
Noncontrolling interest in Operating Partnership (76,130,378 ) (102,297,937 )

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, 2014 and December 31, 2013, 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, 2014 and December 31, 2013, respectively

— —

Class B common stock, $.01 par value, 5,000,000 shares authorized, 1,406,196
shares issued and outstanding at June 30, 2014 and December 31, 2013,
respectively

14,062 14,062

Excess stock, $.01 par value, 15,000,000 shares authorized, 0 shares issued
and outstanding at June 30, 2014 and December 31, 2013, respectively

— —
Accumulated deficit (41,705,628 ) (42,354,222 )
Total deficit (46,915,139 ) (73,547,482 )
 
Total liabilities and deficit $ 579,122,797   $ 427,308,914  
 
 
               
 

BERKSHIRE INCOME REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

 

 
Three months ended
June 30, 		Six months ended
June 30,
2014       2013 2014       2013
Revenue:
Rental $ 21,167,877 $ 18,154,499 $ 40,457,163 $ 35,929,035
Utility reimbursement 1,108,411 852,825 2,027,248 1,690,499
Other 1,129,850   843,754   2,098,392   1,651,633  
Total revenue 23,406,138   19,851,078   44,582,803   39,271,167  
Expenses:
Operating 4,995,317 4,425,981 11,316,545 9,075,223
Maintenance 1,440,932 1,230,171 2,573,755 2,113,072
Real estate taxes 2,550,600 2,024,714 4,733,781 3,835,212
General and administrative 721,624 507,809 1,342,785 1,237,899
Management fees 1,339,036 1,203,974 2,565,289 2,396,786
Incentive advisory fees 2,409,374 622,908 2,673,419 1,373,780
Depreciation 7,243,111 6,432,388 13,529,323 12,759,624
Interest, inclusive of amortization of deferred financing fees 7,967,522 6,647,682 15,061,340 13,057,302
Loss on extinguishment of debt 1,743,652 — 1,743,652 —
Amortization of acquired in-place leases and tenant relationships 745,203   —   745,203   5,377  
Total expenses 31,156,371   23,095,627   56,285,092   45,854,275  
Loss before equity in income (loss) of unconsolidated multifamily entities (7,750,233 ) (3,244,549 ) (11,702,289 ) (6,583,108 )
Equity in income (loss) of unconsolidated multifamily entities 12,292,944 (855,136 ) 12,975,436 (1,631,103 )
Gain on disposition of real estate assets 49,519,992   —   49,519,992   —  
Income (loss) from continuing operations 54,062,703   (4,099,685 ) 50,793,139   (8,214,211 )
Discontinued operations:
Income (loss) from discontinued operations — (58,070 ) (114,216 ) 59,780
Gain on disposition of real estate assets, net —   18,689,058   —   18,689,058  
Net income (loss) from discontinued operations —   18,630,988   (114,216 ) 18,748,838  
Net income 54,062,703   14,531,303   50,678,923   10,534,627  
Net (income) loss attributable to noncontrolling interest in properties (125,887 ) 4,724 (190,723 ) (14,808 )
Net income attributable to noncontrolling interest in Operating Partnership (51,012,570 ) (12,553,460 ) (46,011,219 ) (6,998,082 )
Net income attributable to the Company 2,924,246 1,982,567 4,476,981 3,521,737
Preferred dividend (1,675,193 ) (1,675,194 ) (3,350,387 ) (3,350,388 )
Net income available to common shareholders $ 1,249,053   $ 307,373   $ 1,126,594   $ 171,349  
Net income (loss) from continuing operations attributable to the Company per common share, basic and diluted 0.89   (13.03 ) 0.88   (13.21 )
Net income (loss) from discontinued operations attributable to the Company per common share, basic and diluted —   13.25   (0.08 ) 13.33  
Net income available to common shareholders per common share, basic and diluted 0.89   0.22   0.80   0.12  
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196   1,406,196