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, 2014. Financial highlights for the year ended December 31, 2014 include:

- Same Property Net Operating Income ("Same Property NOI") increased 5.3% for the year ended December 31, 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. The Same Property Portfolio had a total revenue increase of approximately 4.1% for the year ended December 31, 2014 compared to the same period a year ago, primarily driven by increase in average monthly rental rates from $1,266 to $1,308. Average physical occupancy for the Same Property Portfolio improved slightly to 96% for the year ended December 31, 2014 from 95% for the year ended December 31, 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 $8.7 million for the year ended December 31, 2014 - The Company's FFO, a non-GAAP financial measure, for the year ended December 31, 2014 was $2,254,358 compared with $10,907,025 for the year ended December 31, 2013. The decrease is mainly attributable to higher incentive advisory fees, costs related to Pavilion Townplace, EON at Lindbergh and Elan Redmond Town Center acquisitions, loss on the extinguishment of debt related to properties sold during the year, interest expense on the credit facility, and loss of operating income provided by properties sold during the comparative periods. The decrease was partially offset by higher net operating income from the remaining properties in the portfolio driven by higher rents and incremental operating income from new acquisitions during the year and the 2020 Lawrence development project, which was completed in early 2013. 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 3 and 4 of this press release. For the year ended December 31, 2014, 2013 and 2012, the Company's net income was $123,508,112, $7,209,633 and $29,021,154, respectively.

- Development activities - During the year ended December 31, 2014, the Company owned interests in two joint venture development projects. Acquired early in 2014, 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 pre-development planning, secured approvals, permits and financing, and commenced construction activities in July of 2014.

- Acquisition of properties - During the year ended December 31, 2014, the Company acquired three properties, Pavilion Townplace, a 236-unit property located in Dallas, Texas; EON at Lindbergh, a 352-unit property located in Atlanta, Georgia; and Elan Redmond Town Center, a 134-unit property located in Redmond, Washington. The combined purchase prices for Pavilion Townplace, EON at Lindbergh and Elan Redmond Town Center totaled $169,975,000.

- Disposition of properties - During the year ended December 31, 2014, the Company sold ten properties - Chisholm Place and Bear Creek, both located in Dallas, Texas; Laurel Woods located in Austin, Texas; Berkshires on Brompton located in Houston, Texas; Lakeridge and Bridgewater located in Hampton, Virginia; Reserves at Arboretum Place located in Newport News, Virginia; Yorktowne located in Millersville, Maryland; and Country Place I and Country Place II, both located in Burtonsville, Maryland. The sales prices for the ten properties totaled $251,500,000 and gains recognized from the sales totaled $100,106,577.

Chuck Leitner, President and Chairman of the Company, commented: "The Company continued to achieve positive operating results evidenced by the performance of the Same Property Portfolio, which continued to show strong revenue and net operating income growth in the fourth quarter.The Same Property Portfolio net operating income increased 5.3% over the prior year, which is mainly a result of revenue increases of 4.1% over 2013.We continued to implement our business plan of strategic acquisitions and dispositions to improve the overall quality of the portfolio.During the fourth quarter, we sold three additional assets and acquired one Class A replacement property.Developments, a key component of our investment strategy, are progressing well with Aura Prestonwood on pace to deliver its first units early in the second quarter of 2015 and construction of the Walnut Creek development project well underway.”

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 years ended December 31, 2014, 2013 and 2012:

       
For the years ended December 31,
2014     2013     2012
Net income $ 123,508,112 $ 7,209,633 $ 29,021,154
Add:
Depreciation of real property 22,451,389 22,207,591 22,127,308
Depreciation of real property included in results of discontinued operations — 472,807 2,614,306
Amortization of acquired in-place leases and tenant relationships 1,518,971 5,377 68,280
Equity in loss of unconsolidated multifamily entities — — 268,921
Funds from operations of unconsolidated multifamily entities, net of impairments 1,105,488 1,304,723 1,100,467
Less:
Funds from operations of noncontrolling interest in properties (623,051 ) (755,803 ) (1,015,799 )
Gain on disposition of real estate assets (100,106,577 ) (18,648,525 ) (43,582,865 )
Equity in income of unconsolidated multifamily entities (45,599,974 ) (888,778 ) —  
Funds from Operations $ 2,254,358   $ 10,907,025   $ 10,601,772  
 

FFO for the year ended December 31, 2014 decreased as compared to FFO for the year ended December 31, 2013. The decrease in FFO is mainly attributable to the increased incentive advisory fee, acquisition costs related to Pavilion Townplace, EON at Lindbergh and Elan Redmond Town Center expensed pursuant to the guidance of Accounting Standards Codification 805-10, increased interest expense incurred on the Credit Facility and loss on extinguishment of debt for properties sold during the year ended December 31, 2014. Further, 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 to 2014, which were partially offset by higher net operating income from the balance of the portfolio driven by higher rents and added operations from the 2020 Lawrence Project, Pavilion Townplace and EON at Lindbergh.

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 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 9 properties acquired or placed in service on or prior to January 1, 2013 and owned through December 31, 2014.

The following table represents the reconciliation of GAAP net income to the other non-GAAP measures presented for the year ended December 31, 2014, 2013 and 2012:

       
For the years ended December 31,
2014     2013     2012
Net income $ 123,508,112 $ 7,209,633 $ 29,021,154
Add:
Depreciation 25,719,316 25,481,041 24,421,521
Interest, inclusive of amortization of deferred financing fees 27,630,370 26,459,722 23,937,305
Loss on extinguishment of debt 2,359,624 — —
Amortization of acquired in-place leases and tenant relationships 1,518,971 5,377 68,280
Net (income) loss from discontinued operations 114,216 (18,684,966 ) (42,210,823 )
Gain on disposition of real estate assets (100,106,577 ) — —
Equity in (income) loss of unconsolidated multifamily entities (45,599,974 ) (888,778 ) 268,921  
Net operating income 35,144,058 39,582,029 35,506,358
Add:
Net operating income related to properties acquired or placed in service after January 1, 2013 and non-property activities (3,967,304 ) (9,979,157 ) (7,371,751 )
Same Property net operating income $ 31,176,754   $ 29,602,872   $ 28,134,607  
 

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

 
December 31,
2014 		December 31,
2013
 
ASSETS
Multifamily apartment communities, net of accumulated depreciation of $190,993,267 and $242,291,624, respectively $ 472,942,656 $ 381,663,433
Cash and cash equivalents 4,369,626 15,254,613
Cash restricted for tenant security deposits 1,202,884 1,321,895
Cash held in escrow for 1031 exchange 11,920,578 —
Replacement reserve escrow 1,425,007 1,121,258
Prepaid expenses and other assets 8,807,199 10,675,302
Investments in unconsolidated multifamily entities 14,078,222 14,294,474
Acquired in-place leases and tenant relationships, net of accumulated amortization of $1,518,971 and $0, respectively 1,219,543 —
Deferred expenses, net of accumulated amortization of $2,239,550 and $2,953,066, respectively 5,706,855   2,977,939  
Total assets $ 521,672,570   $ 427,308,914  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 436,785,408 $ 475,525,480
Credit Facility 41,000,000 —
Note payable - other 1,250,000 1,250,000
Due to affiliates, net 3,085,668 2,454,167
Due to affiliate, incentive advisory fees 13,698,562 8,289,617
Dividend and distributions payable 837,607 837,607
Accrued expenses and other liabilities 12,889,999 10,968,053
Tenant security deposits 1,451,751   1,531,472  
Total liabilities 510,998,995   500,856,396  
 
Commitments and contingencies — —
 
Equity (deficit):
Noncontrolling interest in properties (25,658 ) 879,785
Noncontrolling interest in Operating Partnership (19,217,779 ) (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 December 31, 2014 and 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 December 31, 2014 and 2013, respectively — —
Class B common stock, $.01 par value, 5,000,000 shares authorized, 1,406,196 shares issued and outstanding at December 31, 2014 and 2013, respectively 14,062 14,062
Excess stock, $.01 par value, 15,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2014 and 2013, respectively — —
Accumulated deficit (40,307,880 ) (42,354,222 )
Total equity (deficit) 10,673,575   (73,547,482 )
 
Total liabilities and equity (deficit) $ 521,672,570   $ 427,308,914  
 
       

BERKSHIRE INCOME REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 
For the year ended December 31,
2014     2013     2012
Revenue:
Rental $ 74,525,374 $ 73,191,622 $ 68,545,521
Utility reimbursement 3,695,364 3,441,604 2,954,366
Other 3,960,370   3,398,904   3,013,758  
Total revenue 82,181,108   80,032,130   74,513,645  
Expenses:
Operating 19,651,436 18,433,143 17,585,096
Maintenance 4,541,209 4,516,367 4,396,133
Real estate taxes 8,676,000 7,677,392 6,845,669
General and administrative 2,863,965 2,504,227 2,424,966
Management fees 5,161,658 4,824,959 4,642,323
Incentive advisory fees 6,142,782 2,494,013 3,113,100
Depreciation 25,719,316 25,481,041 24,421,521
Interest, inclusive of amortization of deferred financing fees 27,630,370 26,459,722 23,937,305
Loss on extinguishment of debt 2,359,624 — —
Amortization of acquired in-place leases and tenant relationships 1,518,971   5,377   68,280  
Total expenses 104,265,331   92,396,241   87,434,393  
Loss before equity in income (loss) of unconsolidated multifamily entities (22,084,223 ) (12,364,111 ) (12,920,748 )
Equity in income (loss) of unconsolidated multifamily entities 45,599,974 888,778 (268,921 )
Gain on disposition of real estate assets 100,106,577   —   —  
Income (loss) from continuing operations 123,622,328   (11,475,333 ) (13,189,669 )
Discontinued operations:
Income (loss) from discontinued operations (114,216 ) 36,441 (1,372,042 )
Gain on disposition of real estate assets, net —   18,648,525   43,582,865  
Net income (loss) from discontinued operations (114,216 ) 18,684,966   42,210,823  
Net income 123,508,112 7,209,633 29,021,154
Net income attributable to noncontrolling interest in properties (186,328 ) (107,292 ) (9,797,304 )
Net income attributable to noncontrolling interest in Operating Partnership (113,833,768 ) (391,968 ) (12,223,771 )
Net income attributable to the Company 9,488,016 6,710,373 7,000,079
Preferred dividend (6,700,774 ) (6,700,775 ) (6,700,777 )
Net income available to common shareholders $ 2,787,242   $ 9,598   $ 299,302  
Net income (loss) from continuing operations attributable to the Company per common share, basic and diluted 1.98   (0.31 ) (0.34 )
Net income (loss) from discontinued operations attributable to the Company per common share, basic and diluted —   0.32   0.55  
Net income available to common shareholders per common share, basic and diluted 1.98   0.01   0.21  
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196