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 nine months ended September 30, 2014. Financial highlights for the three and nine months ended September 30, 2014 include:

- Same Property Net Operating Income ("Same Property NOI") increased 11.1% for the three months ended September 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") as well as a decrease in repairs and maintenance and real estate taxes. The Same Property Portfolio had a total revenue increase of approximately 5.2% for the three months ended September 30, 2014 compared to the same period a year ago primarily driven by increase in average monthly rental rates from $1,273 to $1,315. Average physical occupancy for the Same Property Portfolio improved slightly to 96% for the nine months ended September 30, 2014 from 95% for the nine months ended September 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 $1.0 million for the three months ended September 30, 2014. - The Company's FFO, a non-GAAP financial measure, for the quarter ended September 30, 2014 was $1,764,694 compared with $2,808,885 for the quarter ended September 30, 2013. The decrease is mainly attributable to higher incentive advisory fees and, to a lesser degree, loss on the extinguishment of debt related to properties sold during the current quarter, 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 the new acquisitions and the development completed in the first quarter of 2013. FFO for the nine months ended September 30, 2014, decreased approximately $6.7 million as compared to the same period ended September 30, 2013 due primarily to costs related to the acquisition of Pavilion Townplace and EON at Lindbergh completed in the first quarter of 2014, loss on the extinguishment of debt and loss of operating income provided by properties sold in the second quarter of 2014, in addition to current quarter 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 (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. For the three months ended September 30, 2014 and 2013, the Company's net income (loss) was $29,596,498 and $(2,897,836), respectively. For the nine months ended September 30, 2014 and 2013, the Company's net income was $80,275,421 and $7,636,791, respectively.

- Development Activities - During the nine months ended September 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 pre-development planning, secured approvals, permits and financing, and commenced construction activities in July.

- Acquisition of properties - During the nine months ended September 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 combined purchase prices for Pavilion Townplace and EON at Lindbergh totaled $120,000,000.

- Disposition of properties - During the nine months ended September 30, 2014, the Company sold seven 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 on the Lake located in Hampton, Virginia and The Reserves at Arboretum Place located in Newport News, Virginia. The sales prices for the seven properties totaled $161,200,000 and gains recognized from the sales totaled $84,113,807. Subsequent to September 30, 2014, the Company sold three additional properties, Yorktowne located in Millersville, Maryland and Country Place I and Country Place II, both located in Burtonsville, Maryland. The sales prices for the three properties totaled $90,300,000.

Chuck Leitner, President and Chairman of the Company, commented: "Overall performance of the Same Property Portfolio continued to show strong revenue and net operating income growth over the prior year.The current quarter Same Property Portfolio revenue increased 5.2% over the comparable quarter of 2013.Further, improvements in operating expenses, due mainly to savings in repairs and maintenance costs, contributed to the Same Property Portfolio NOI increase of 11.1% over 2013 and a year-to-date increase of 3.0%.We continued with our strategy to improve the quality of the portfolio through the sale of three assets in the third quarter and an additional three subsequent to the quarter end.The Aura Prestonwood development project is on pace to deliver its first units in the first quarter of 2015 and construction of the Walnut Creek development project, which commenced in the third quarter of 2014, is well under way.”

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 (loss) to FFO for the three- and nine-month periods ended September 30, 2014 and 2013:

           
Three months ended Nine months ended
September 30, September 30,
2014     2013 2014     2013
Net income (loss) $ 29,596,498 $ (2,897,836 ) $ 80,275,421 $ 7,636,791
Add:
Depreciation of real property 5,519,674 5,563,785 17,316,651 16,739,010
Depreciation of real property included in results of discontinued operations — — — 513,336
Amortization of acquired in-place leases and tenant relationships 406,797 — 1,152,000 5,377
Equity in loss of unconsolidated multifamily entities — 24,499 — 1,655,602
Funds from operations of unconsolidated multifamily entities, net of impairments 1,409,184 307,279 1,122,749 1,107,675
Less:
Noncontrolling interest in properties' share of funds from operations (77,980 ) (188,842 ) (595,030 ) (526,830 )
Gain on disposition of real estate assets (34,593,815 ) — (84,113,807 ) (18,689,058 )
Equity in income of unconsolidated multifamily entities (495,664 ) —   (13,471,100 ) —  
Funds from Operations $ 1,764,694   $ 2,808,885   $ 1,686,884   $ 8,441,903  
 

FFO decreased for the three- and nine-month periods ended September 30, 2014 as compared to the three- and nine-month periods ended September 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, increased interest expense incurred on the Credit Facility and loss on extinguishment of debt for properties sold during the nine-month period ended September 30, 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, 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, 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 10 properties acquired or placed in service on or prior to January 1, 2013 and owned through September 30, 2014.

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

             
Three months ended Nine months ended
September 30, September 30,
2014     2013 2014     2013
Net income (loss) $ 29,596,498 $ (2,897,836 ) $ 80,275,421 $ 7,636,791
Add:
Depreciation 6,310,170 6,397,609 19,839,493 19,157,233
Interest, inclusive of amortization of deferred financing fees 6,896,115 6,784,545 21,957,455 19,841,847
Loss on extinguishment of debt 336,749 — 2,080,401 —
Amortization of acquired in-place leases and tenant relationships 406,797 — 1,152,000 5,377
Net (income) loss from discontinued operations — 12,444 114,216 (18,736,394 )
Gain on disposition of real estate assets (34,593,815 ) — (84,113,807 ) —
Equity in (income) loss of unconsolidated multifamily entities (495,664 ) 24,499   (13,471,100 ) 1,655,602  
Net operating income 8,456,850 10,321,261 27,834,079 29,560,456
Add:
Net operating income related to properties acquired or placed in service after January 1, 2013 and non-property activities 250,152   (2,485,597 ) (3,236,715 ) (5,685,249 )
Same Property net operating income $ 8,707,002   $ 7,835,664   $ 24,597,364   $ 23,875,207  
 

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 twelve 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; and Denver, Colorado. The Company also owns interests in three 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
 
       

September 30,
2014

     

December 31,
2013

 
ASSETS
Multifamily apartment communities, net of accumulated depreciation of $200,046,571 and $242,291,624, respectively $ 429,463,144 $ 381,663,433
Cash and cash equivalents 12,624,959 15,254,613
Cash restricted for tenant security deposits 1,291,663 1,321,895
Cash held in escrow for 1031 exchange — —
Replacement reserve escrow 1,348,646 1,121,258
Prepaid expenses and other assets 9,152,113 10,675,302
Investments in unconsolidated multifamily entities 9,887,214 14,294,474
Acquired in-place leases and tenant relationships, net of accumulated amortization of $1,152,000 and $0, respectively 490,098 —
Deferred expenses, net of accumulated amortization of $2,220,236 and $2,953,066, respectively 5,881,557   2,977,939  
Total assets $ 470,139,394   $ 427,308,914  
 
LIABILITIES AND DEFICIT
 
Liabilities:
Mortgage notes payable $ 451,660,736 $ 475,525,480
Credit Facility 5,000,000 —
Note payable - other 1,250,000 1,250,000
Due to affiliates, net 2,678,796 2,454,167
Due to affiliate, incentive advisory fees 12,759,433 8,289,617
Dividend and distributions payable 837,607 837,607
Accrued expenses and other liabilities 14,107,312 10,968,053
Tenant security deposits 1,515,873   1,531,472  
Total liabilities 489,809,757   500,856,396  
 
Commitments and contingencies — —
 
Deficit:
Noncontrolling interest in properties 136,530 879,785
Noncontrolling interest in Operating Partnership (48,993,123 ) (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 September 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 September 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 September 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 September 30, 2014 and December 31, 2013, respectively

— —
Accumulated deficit (41,038,662 ) (42,354,222 )
Total deficit (19,670,363 ) (73,547,482 )
 
Total liabilities and deficit $ 470,139,394   $ 427,308,914  
 

 
BERKSHIRE INCOME REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
        Three months ended       Nine months ended
September 30, September 30,
2014     2013 2014     2013
Revenue:
Rental $ 17,847,848 $ 18,468,549 $ 58,305,011 $ 54,397,584
Utility reimbursement 893,495 866,346 2,920,743 2,556,845
Other 1,020,923   867,340   3,119,315   2,518,973  
Total revenue 19,762,266   20,202,235   64,345,069   59,473,402  
Expenses:
Operating 4,162,979 4,587,613 15,479,524 13,662,836
Maintenance 1,178,896 1,384,633 3,752,651 3,497,705
Real estate taxes 1,864,041 1,770,935 6,597,822 5,606,147
General and administrative 554,511 505,702 1,897,296 1,743,601
Management fees 1,177,690 1,208,938 3,742,979 3,605,724
Incentive advisory fees 2,367,299 423,153 5,040,718 1,796,933
Depreciation 6,310,170 6,397,609 19,839,493 19,157,233
Interest, inclusive of amortization of deferred financing fees 6,896,115 6,784,545 21,957,455 19,841,847
Loss on extinguishment of debt 336,749 — 2,080,401 —
Amortization of acquired in-place leases and tenant relationships 406,797   —   1,152,000   5,377  
Total expenses 25,255,247   23,063,128   81,540,339   68,917,403  
Loss before equity in income (loss) of unconsolidated multifamily entities (5,492,981 ) (2,860,893 ) (17,195,270 ) (9,444,001 )
Equity in income (loss) of unconsolidated multifamily entities 495,664 (24,499 ) 13,471,100 (1,655,602 )
Gain on disposition of real estate assets 34,593,815   —   84,113,807   —  
Income (loss) from continuing operations 29,596,498   (2,885,392 ) 80,389,637   (11,099,603 )
Discontinued operations:
Income (loss) from discontinued operations — (12,444 ) (114,216 ) 47,336
Gain on disposition of real estate assets, net —   —   —   18,689,058  
Net income (loss) from discontinued operations —   (12,444 ) (114,216 ) 18,736,394  
Net income (loss) 29,596,498   (2,897,836 ) 80,275,421   7,636,791  
Net income attributable to noncontrolling interest in properties (14,734 ) (25,553 ) (205,457 ) (40,361 )
Net (income) loss attributable to noncontrolling interest in Operating Partnership (27,239,605 ) 4,488,677   (73,250,824 ) (2,509,405 )
Net income attributable to the Company 2,342,159 1,565,288 6,819,140 5,087,025
Preferred dividend (1,675,193 ) (1,675,194 ) (5,025,580 ) (5,025,582 )
Net income (loss) available to common shareholders $ 666,966   $ (109,906 ) $ 1,793,560   $ 61,443  
Net income (loss) from continuing operations attributable to the Company per common share, basic and diluted 0.47   (0.07 ) 1.36   (13.28 )
Net income (loss) from discontinued operations attributable to the Company per common share, basic and diluted —   (0.01 ) (0.08 ) 13.32  
Net income (loss) available to common shareholders per common share, basic and diluted 0.47   (0.08 ) 1.28   0.04  
Weighted average number of common shares outstanding, basic and diluted 1,406,196   1,406,196   1,406,196   1,406,196