Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of Earliest event reported) December 29, 2004
| Maryland |
001-31659 |
32-0024337 | |||
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| One Beacon Street, Boston, Massachusetts |
02108 |
|||
| (Address of principal executive offices) | (Zip Code) | |||
(Former name or former address, if changes since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
- 1 -
Berkshire Income Realty, Inc. (the “Registrant”) hereby amends its Report on Form 8-K (the “Form 8-K”), filed with the Securities and Exchange Commission on January 4, 2005, to amend Item 9.01 therein to include required financial statements, pro forma financial information and certain exhibits.
At the time of filing of the Form 8-K disclosing the acquisition of Arrowhead Apartments, Moorings Apartments, Country Place I Apartments and Country Place II Apartments, (collectively the “Combined Properties”) by the Registrant, the financial statements of the acquired properties were not available. The Registrant indicated that it would file the necessary financial information within seventy-one days after the initial filing date.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements under Rule 3–14 of Regulation S-X for the Combined Properties:
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1. |
Report of Independent Registered Public Accounting Firm. |
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2. |
Combined Statements of Revenue and Certain Expenses of the Combined Properties for nine months ended September 30, 2004 and 2003 (unaudited) and the year ended December 31, 2003. |
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3. |
Notes to Combined Statements of Revenue and Certain Expenses of the Combined Properties. | ||||||
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4. |
Statement of Estimated Taxable Operating Results and Estimated Cash to be Made Available |
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by Operations of the Combined Properties. |
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(b) |
Pro Forma Financial Information under Article 11 of Regulation S-X for the Combined Properties: |
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1. |
Unaudited Pro Forma Consolidated Balance Sheet of Berkshire Income Realty, Inc. September 30, 2004. |
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2. |
Unaudited Pro Forma Consolidated Statements of Operations of Berkshire Income Realty, Inc. for the nine months ended September 30, 2004 and 2003 and the year ended December 31, 2003. |
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3. |
Notes to the Unaudited Pro Forma Consolidated Financial Statements of Berkshire Income Realty, Inc. |
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(c) |
Exhibits |
EXHIBIT NO.
|
10.1 |
Purchase and Sale Agreement dated September 14, 2004, related to Arrowhead Apartments Associates Limited Partnership, between Capital Realty Investors-II Limited Partnership, C.R.H.C., Incorporated, BIR/ERI LP Arrowhead, L.L.C. and BIR/ERI GP Arrowhead, L.L.C. * |
|
10.2 |
Purchase and Sale Agreement dated September 14, 2004, related to Moorings Apartments Associates Limited Partnership, between Capital Realty Investors-II Limited Partnership, C.R.H.C., Incorporated, BIR/ERI LP The Moorings, L.L.C. and BIR/ERI GP The Moorings, L.L.C. * |
|
10.3 |
Purchase and Sale Agreement dated September 14, 2004, related to Blackburn Limited Partnership, between Capital Realty Investors-II Limited Partnership, CRICO Limited Partnership of Burtonsville, BIR/ERI LP Country Place I, L.L.C. and CIR/ERI GP Country Place I, L.L.C. * |
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10.4 |
Purchase and Sale Agreement dated September 14, 2004, related to Second Blackburn Limited Partnership, between Capital Realty Investors-II Limited Partnership, CRICO Limited Partnership of Burtonsville, BIR/ERI LP Country Place II, L.L.C. and CIR/ERI GP Country Place II, L.L.C. * |
* Previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Securities
|
and Exchange Commission on September 21, 2004. |
- 2 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BERKSHIRE INCOME REALTY, INC. | |
| March 16, 2005 | /s/ David C. Quade |
| David C. Quade | |
| President and Chief Financial Officer |
- 3 -
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Berkshire Income Realty, Inc.
We have audited the accompanying Combined Statement of Revenue and Certain Expenses of the Arrowhead Apartments, Palatine, Illinois, Moorings Apartments, Roselle, Illinois and Country Place I and Country Place II Apartments, Burtonsville, Maryland (collectively the "Combined Properties") for the year ended December 31, 2003. These Combined Statements are the responsibility of the Combined Properties’ management. Our responsibility is to express an opinion on these Combined Statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Statements. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Combined Statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the Form 8-K/A of Berkshire Income Realty, Inc.) as described in Note 1 and are not intended to be a complete presentation of the Combined Properties’ revenue and expenses.
In our opinion, the Combined Statements referred to above present fairly, in all material respects, the revenue and certain expenses described in Note 1 of the Combined Properties for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
March 14, 2005
- 4 -
ARROWHEAD APARTMENTS, MOORINGS APARTMENTS, COUNTRY PLACE I APARTMENTS, COUNTRY PLACE II APARTMENTS,
COLLECTIVELY THE “COMBINED PROPERTIES”
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
|
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For the Nine Months Ended September 30, |
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For the Year Ended | ||
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2004 (unaudited) |
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2003 (unaudited) |
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December 31, 2003 |
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Revenue |
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|
|
|
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Rental |
$ 5,854,727 |
|
$ 5,884,789 |
|
$ 7,780,220 |
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Utility reimbursement |
22,754 |
|
16,193 |
|
22,841 |
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Other |
124,836 |
|
136,778 |
|
202,389 |
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Total revenue |
6,002,317 |
|
6,037,760 |
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8,005,450 |
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Certain expenses |
|
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Operating |
1,405,964 |
|
1,349,189 |
|
1,834,564 |
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Repairs and maintenance |
460,867 |
|
511,794 |
|
774,953 |
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General and administrative |
70,982 |
|
73,239 |
|
118,199 |
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Real estate taxes |
782,498 |
|
874,337 |
|
1,147,061 |
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Total certain expenses |
2,720,311 |
|
2,808,559 |
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3,874,777 |
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Revenue in excess of certain expenses |
$ 3,282,006 |
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$ 3,229,201 |
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$ 4,130,673 |
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The accompanying notes are an integral part of this financial statement.
- 5 -
ARROWHEAD APARTMENTS, MOORINGS APARTMENTS, COUNTRY PLACE I APARTMENTS, COUNTRY PLACE II APARTMENTS,
COLLECTIVELY THE “COMBINED PROPERTIES”
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
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1. |
Operations, Basis of Presentation and Summary of Significant Accounting Policies |
Operations
The accompanying Combined Statements of Revenue and Certain Expenses include the operations (see “Basis of Presentation” below) of Arrowhead Apartments, Moorings Apartments, Country Place I Apartments and Country Place II Apartments (the “Combined Properties”), four multifamily apartment communities owned and managed by a third party not related to Berkshire Income Realty, Inc. (the “Company”).
On November 17, 2004 and December 29, 2004, Berkshire Income Realty – OP, L.P. (“BIR-OP”), the operating subsidiary of the Company, through a newly formed joint venture with an affiliate of Equity Resources Investments, L.L.C. (“ERI”), purchased the following:
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- 100% of the outstanding limited and general partner interests of the Arrowhead Apartments Associates Limited |
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Partnership (Palatine, IL) and C.R.H.C., Incorporated, the general partner, for $1,313,392. |
The limited and |
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general partners owned a 100% interest in Arrowhead Apartments, a 200 unit multifamily apartment community | |||||
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located in Palatine, Illinois. |
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- 100% of the outstanding limited and general partner interests of the Moorings Apartments Associates Limited
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Partnership (Roselle, IL) and C.R.H.C., Incorporated, the general partner, for $416,455. |
The limited and general | |
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partners owned a 100% interest in Moorings Apartments, a 216 unit multifamily apartment community located in | |||
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Roselle, Illinois. |
| |
- 100% of the outstanding limited and general partner interests of the Blackburn Associates Limited Partnership
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(Burtonsville, MD) and C.R.I.C.O. Limited Partnership of Burtonsville, the general partner, for $7,769,720. The | ||
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limited and general partners owned a 100% interest in Country Place I Apartments, a 192 unit multifamily |
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apartment community located in Burtonsville, Maryland. |
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- 100% of the outstanding limited and general partner interests of the Second Blackburn Associates Limited
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Partnership (Burtonsville, MD) and C.R.I.C.O. Limited Partnership of Burtonsville, the general partner, for |
| |
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$5,054,677. The limited and general partners owned a 100% interest in Country Place II Apartments, a 120 unit | ||
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multifamily apartment community located in Burtonsville, Maryland. |
| |
The properties acquired were subject to existing mortgages at the time of the purchase. The mortgages were recorded at the fair value of the amounts to be paid under the obligations. Two of the mortgages contained rights of defeasance and two mortgages contained rights of prepayment. On the purchase date the Company exercised its rights of defeasance and prepayment on the related mortgages and extinguished the outstanding debt obligations of approximately $16,232,000 and $10,806,000, respectively.
Under the terms of the joint venture, BIR-OP will own a 58% interest as the managing member and ERI will own the remaining 42%. All profits and losses of the joint venture will be shared on a pro rata basis.
- 6 -
Basis of Presentation
The accompanying Combined Statements of Revenue and Certain Expenses have been prepared on the accrual basis of accounting.
The accompanying Combined Statements of Revenue and Certain Expenses are not representative of the actual operations of the Combined Properties for the periods presented. As required by the Securities and Exchange Commission, Regulation S-X Rule 3-14, certain expenses, which may not be comparable to the expenses to be incurred by the Company in future operations of the Combined Properties, have been excluded. Expenses excluded relate to Combined Properties management fees, ownership fees, interest expense, depreciation and amortization expense. The Company is not aware of any material factors relating to the Combined Properties that would cause the reported financial information not to be indicative of future operating results.
Summary of Significant Accounting Policies
Real Estate
Costs related to the acquisition and improvement of property and related equipment are capitalized.
Expenditures for repairs and maintenance items are expensed as incurred.
Revenue Recognition
Rental income attributable to residential leases is recorded when due from residents. Leases are generally for terms of one year. Other revenue includes application, relet, pet, laundry, late, cable and damage fees.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Rental Assistance Payment Contract
The Combined Properties are party to Housing Assistance Payments contracts with I.H.D.A. and the Federal Housing Commissioner providing for payments for units leased to eligible lower-income families pursuant to Section 8 of the US Housing Act of 1937. The maximum amount of commitment for housing assistance payments under such contracts are $321,781 per annum. The initial term of the contracts commenced on May 31, 1976 for five-year terms, with seven five-year renewal options.
Interim Unaudited Financial Statements
The accompanying combined interim statements of revenue and certain expenses for the periods from January 1, 2004 and 2003 through September 30, 2004 and 2003 are unaudited and together with the combined statement of revenues and certain expenses for the year ended December 31, 2003 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission described above. These financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for fair statements for the period. The results of such periods are not necessarily indicative of the results for the full years.
- 7 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On November 17, 2004 and December 29, 2004, the operating partnership subsidiary of the Company through the newly formed consolidated joint venture, JV BIR/ERI, L.L.C., purchased the following limited and general partner interests (collectively the “Interests”) in the following limited partnerships:
|
Property Name |
Limited Partnership |
General Partner |
Purchase Date |
Purchase Price |
Units |
|
|
|
|
|
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|
|
Arrowhead Apartments
|
Arrowhead Apartments Associates Limited Partnership (Palatine, IL) |
C.R.H.C., Inc. |
11-17-2004 |
$ 1,313,392 |
200 |
|
|
|
|
|
|
|
|
Moorings Apartments
|
Moorings Apartments Associates Limited Partnership (Roselle, IL)
|
C.R.H.C., Inc |
11-17-2004 |
416,455 |
216 |
|
|
|
|
|
|
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|
Country Place I Apartments
|
Blackburn Associates Limited Partnership (Burtonsville, MD)
|
C.R.I.C.O., LP |
12-29-2004 |
7,769,720 |
192 |
|
|
|
|
|
|
|
|
Country Place II Apartments
|
Second Blackburn Associates Limited Partnership (Burtonsville, MD)
|
C.R.I.C.O., LP |
12-29-2004 |
5,054,677 |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
$ 14,554,244 |
728 |
The Company paid the purchase price for the Interests in the multifamily apartment communities from available working capital and contributions from ERI. Additionally the Company assumed debt on the properties acquired. The mortgages were recorded at the fair value of the amounts to be paid under the obligations. Two of the mortgages contained rights of defeasance and two mortgages contained rights of prepayment. On the purchase date the Company exercised its rights of defeasance and prepayment of the related mortgages and extinguished the outstanding debt obligation of approximately $27,038,000. Following the closing on the purchase of the Interests in the Combined Properties, the Company obtained financing in the form first mortgage debt which is collateralized by each of the properties. The loans require payments of interest only for the first 24 months, the rates of interest are fixed for the term of the loan and there is an extension option for a one year adjustable rate mortgage at the end of the original loan term. The amount and terms of the new mortgage debt is as follows:
|
Property Name |
New Mortgage |
Interest Rate |
Maturity Date |
|
Arrowhead Apartments |
$ 5,510,000 |
5.00% |
01-01-2014 |
|
Moorings Apartments |
5,775,000 |
5.00% |
01-01-2014 |
|
Country Place I and II Apartments |
15,520,000 |
5.01% |
01-01-2015 |
|
|
|
|
|
|
|
$ 26,805,000 |
|
|
- 8 -
The Combined Properties’ source of revenue is primarily its tenant rental revenue. Other revenue includes application, relet, pet, laundry, late, cable and damage fees. The Company believes the Combined Properties are located in two distinct markets and appeal to different tenancy with the four distinct products. For the Arrowhead and Mooring properties, the Chicago Metropolitan Statistical Area (“MSA”), in the Company’s opinion, is a fundamentally sound and stable market. According to the Company’s research, over the past six years, rent growth has averaged 1.6% with an average vacancy of 5.6%. Relative to the Country Place I and Country Place II properties, the Baltimore MSA , in the Company’s opinion, is also a fundamentally sound, well-occupied market with positive trends in population, vacancy rates and rent increases for garden style apartments.
Each properties’ historical average physical occupancy and occupancy at acquisition are reflected in the following table:
|
Property Name |
|
2004 Average Physical Occupancy |
|
2003 Average Physical Occupancy |
|
|
Arrowhead Apartments |
|
88% |
|
90% |
|
|
Moorings Apartments |
|
97% |
|
93% |
|
|
Country Place I |
|
95% |
|
96% |
|
|
Country Place II |
|
93% |
|
97% |
|
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The Company currently expects to spend approximately $2,250,000 over the next year, or an average of $3,096 per apartment unit, for interior and exterior capital improvements at the Combined Properties.
The Company, after reasonable inquiry, is not aware of any material factors relating to the Combined Properties other than those stated above that would cause the reported financial information not to be indicative of future operating results.
The following unaudited pro forma financial statements give effect to the acquisition by the Company of the Interests in the Combined Properties. The unaudited pro forma balance sheet as of September 30, 2004 presents the financial position of the Company as if the acquisition of the Combined Properties, which occurred subsequent to September 30, 2004, had occurred on September 30, 2004. The unaudited pro forma statements of operations for the nine months ended September 30, 2004 and 2003 and the year ended December 31, 2003 reflect the results of operations of the Combined Properties as if the acquisition of the Combined Properties had been completed as of January 1, 2003.
These unaudited pro forma financial statements do not represent the Company’s financial condition or results of operations for any future date or period. Actual future results could be materially different from these pro forma results. The unaudited pro forma financial statements should be read in conjunction with the audited financial statements of the Company and the related management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2003. In addition, in conjunction with these unaudited pro forma financial statements, you should read the combined statements of revenue and certain expenses on the Combined Properties contained elsewhere in this Form 8-K/A.
- 9 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2004
(unaudited)
|
|
Berkshire Income Realty, Inc. |
|
Combined Properties (a) |
Notes |
Pro Forma |
|
ASSETS |
|
|
|
|
|
|
Multifamily apartment communities, net of accumulated depreciation of $110,520,391 |
$ 154,399,789 |
|
$ 40,481,487 |
|
$ 194,881,276 |
|
Cash and cash equivalents |
34,904,628 |
|
(8,386,208) |
(b) |
26,518,420 |
|
Available for sale securities |
18,610,841 |
|
- |
|
18,610,841 |
|
Cash restricted for tenant security deposits |
857,735 |
|
190,226 |
|
1,047,961 |
|
Replacement reserve escrow |
478,247 |
|
859,800 |
|
1,338,047 |
|
Prepaid expenses and other assets |
7,839,526 |
|
887,526 |
|
8,727,052 |
|
Investment in Mortgage Funds |
13,027,092 |
|
- |
|
13,027,092 |
|
Investment in Multifamily Joint Venture |
2,306,847 |
|
- |
|
2,306,847 |
|
Acquired in place leases and tenant relationships, net of accumulated amortization of $1,253,003 |
226,471 |
|
1,057,654 |
|
1,284,125 |
|
Deferred expenses, net of accumulated amortization of $540,567 |
1,529,684 |
|
461,386 |
|
1,991,070 |
|
|
|
|
|
|
|
|
Total assets |
$ 234,180,860 |
|
$ 35,551,871 |
|
$ 269,732,731 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
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Liabilities: |
|
|
|
|
|
|
Mortgage notes payable |
$ 186,092,756 |
|
$ 26,805,000 |
|
$ 212,897,756 |
|
Due to affiliates |
1,221,154 |
|
- |
|
1,221,154 |
|
Dividends and distributions payable |
1,087,607 |
|
- |
|
1,087,607 |
|
Accrued expenses and other liabilities |
3,874,790 |
|
1,176,197 |
|
5,050,987 |
|
Tenant security deposits |
1,074,738 |
|
208,953 |
|
1,283,691 |
|
|
|
|
|
|
|
|
Total liabilities |
193,351,045 |
|
28,190,150 |
|
221,541,195 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
- |
|
- |
|
- |
|
Minority interest in properties |
- |
|
7,422,482 |
|
7,422,482 |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
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, 2004 |
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, 2004 |
- |
|
- |
|
- |
|
Class B common stock, $.01 par value, 5,000,000 shares authorized; 1,283,313 shares issued and outstanding at September 30, 2004 |
12,833 |
|
- |
|
12,833 |
|
Excess stock, $.01 par value, 15,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2004 |
- |
|
- |
|
- |
|
Accumulated deficit |
(29,393,848) |
|
(60,761) |
|
(29,454,609) |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
40,829,815 |
|
(60,761) |
|
40,769,054 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
$ 234,180,860 |
|
$ 35,551,871 |
|
$ 269,732,731 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
- 10 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months ended September 30, 2004
(unaudited)
|
|
Berkshire Income Realty, Inc. |
|
Combined Properties (g) |
Notes |
Pro Forma |
|
Revenue: |
|
|
|
|
|
|
Rental |
$ 27,079,335 |
|
$ 5,854,727 |
|
$ 32,934,062 |
|
Interest |
640,010 |
|
- |
|
640,010 |
|
Utility reimbursement |
395,860 |
|
22,754 |
|
418,614 |
|
Other |
1,159,968 |
|
124,836 |
|
1,284,804 |
|
Total revenue |
29,275,173 |
|
6,002,317 |
|
35,277,490 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
Operating |
7,304,839 |
|
1,405,964 |
|
8,710,803 |
|
Maintenance |
2,102,462 |
|
460,867 |
|
2,563,329 |
|
Real estate taxes |
3,236,604 |
|
782,498 |
|
4,019,102 |
|
General and administrative |
1,074,150 |
|
70,982 |
|
1,145,132 |
|
Management fees |
1,922,754 |
|
336,851 |
(c) |
2,259,605 |
|
Depreciation |
8,194,823 |
|
1,433,045 |
(d) |
9,627,868 |
|
Loss on extinguishment of debt |
- |
|
- |
|
- |
|
Organizational costs |
- |
|
- |
|
- |
|
Interest |
8,093,230 |
|
1,006,352 |
(e) |
9,099,582 |
|
Loss on sale of securities |
163,630 |
|
- |
|
163,630 |
|
Amortization of acquired in-place leases and tenant relationships |
1,134,188 |
|
98,173 |
(f) |
1,232,361 |
|
|
|
|
|
|
|
|
Total expenses |
33,226,680 |
|
5,594,732 |
|
38,821,412 |
|
|
|
|
|
|
|
|
Loss before minority interest in properties, equity in loss of Multifamily Joint Venture, Equity in income of Mortgage Funds and minority common interest in Operating Partnership
|
(3,951,507) |
|
407,585 |
|
(3,543,922) |
|
Minority interest in properties |
(111,228) |
|
(171,186) |
|
(282,414) |
|
Equity in loss of Multifamily Joint Venture |
(160,778) |
|
- |
|
(160,778) |
|
Equity in income of Mortgage Funds |
2,824,714 |
|
- |
|
2,824,714 |
|
Minority common interest in Operating Partnership |
(732,075) |
|
- |
|
(732,075) |
|
Loss before gain on transfer of property |
(2,130,874) |
|
236,399 |
|
(1,894,475) |
|
Gain on transfer of property to Multifamily Joint Venture |
232,704 |
|
- |
|
232,704 |
|
Net income (loss) |
(1,898,170) |
|
$ 236,399 |
|
(1,661,771) |
|
Preferred dividend |
(5,025,638) |
|
|
|
(5,025,638) |
|
Net loss available to common shareholders |
$ (6,923,808) |
|
|
|
$ (6,687,409) |
|
Loss per common share, basic and diluted |
$(5.40) |
|
|
|
$(5.21) |
|
Weighted average number of common shares outstanding |
1,283,313 |
|
|
|
1,283,313 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
- 11 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months ended September 30, 2003
(unaudited)
|
|
Berkshire Income Realty, Inc. |
|
Combined Properties (g) |
Notes |
Pro Forma |
|
Revenue: |
|
|
|
|
|
|
Rental |
$ 20,597,848 |
|
$ 5,884,789 |
|
$ 26,482,637 |
|
Interest |
78,235 |
|
- |
|
78,235 |
|
Utility reimbursement |
339,975 |
|
16,193 |
|
356,168 |
|
Other |
926,784 |
|
136,778 |
|
1,063,562 |
|
Total revenue |
21,942,842 |
|
6,037,760 |
|
27,980,602 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
Operating |
5,187,303 |
|
1,349,189 |
|
6,536,492 |
|
Maintenance |
1,783,680 |
|
511,794 |
|
2,295,474 |
|
Real estate taxes |
1,817,100 |
|
874,337 |
|
2,691,437 |
|
General and administrative |
1,148,700 |
|
73,239 |
|
1,221,939 |
|
Management fees |
1,572,990 |
|
338,268 |
(c) |
1,911,258 |
|
Depreciation |
5,453,969 |
|
1,433,045 |
(d) |
6,887,014 |
|
Loss on extinguishment of debt |
337,832 |
|
- |
|
337,832 |
|
Organizational costs |
213,428 |
|
60,761 |
|
274,189 |
|
Interest |
5,580,719 |
|
1,006,352 |
(e) |
6,587,071 |
|
Loss on sale of securities |
- |
|
- |
|
- |
|
Amortization of acquired in-place leases and tenant relationships |
- |
|
862,329 |
(f) |
862,329 |
|
|
|
|
|
|
|
|
Total expenses |
23,095,721 |
|
6,509,314 |
|
29,605,035 |
|
|
|
|
|
|
|
|
Loss before minority interest in properties, equity in loss of Multifamily Joint Venture, Equity in income of Mortgage Funds and minority common interest in Operating Partnership |
(1,152,879) |
|
(471,554) |
|
(1,624,433) |
|
Minority interest in properties |
(125,228) |
|
198,053 |
|
72,825 |
|
Equity in loss of Multifamily Joint Venture |
- |
|
- |
|
- |
|
Equity in income of Mortgage Funds |
4,882,802 |
|
- |
|
4,882,802 |
|
Minority common interest in Operating Partnership |
(488,050) |
|
- |
|
(488,050) |
|
Loss before gain on transfer of property |
3,116,645 |
|
(273,501) |
|
2,843,144 |
|
Gain on transfer of property to Multifamily Joint Venture |
- |
|
- |
|
- |
|
Net income (loss) |
3,116,645 |
|
$ (273,501) |
|
2,843,144 |
|
Preferred dividend |
(3,276,089) |
|
|
|
(3,276,089) |
|
Net loss available to common shareholders |
$ (159,444) |
|
|
|
$ (432,945) |
|
Loss per common share, basic and diluted |
$(0.19) |
|
|
|
$(0.52) |
|
Weighted average number of common shares outstanding |
837,207 |
|
|
|
837,207 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
- 12 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
(unaudited)
|
|
Berkshire Income Realty, Inc. |
|
Combined Properties (g) |
Notes |
Pro Forma |
|
Revenue: |
|
|
|
|
|
|
Rental |
$ 28,464,951 |
|
$ 7,780,220 |
|
$ 36,245,171 |
|
Interest |
128,522 |
|
- |
|
128,522 |
|
Utility reimbursement |
449,820 |
|
22,841 |
|
472,661 |
|
Other |
1,197,901 |
|
202,389 |
|
1,400,290 |
|
Total revenue |
30,241,194 |
|
8,005,450 |
|
38,246,644 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
Operating |
7,240,455 |
|
1,834,564 |
|
9,075,019 |
|
Maintenance |
2,387,846 |
|
774,953 |
|
3,162,799 |
|
Real estate taxes |
2,631,511 |
|
1,147,061 |
|
3,778,572 |
|
General and administrative |
1,514,389 |
|
118,199 |
|
1,632,588 |
|
Management fees |
2,113,869 |
|
449,227 |
(c) |
2,563,096 |
|
Depreciation |
7,897,623 |
|
1,910,727 |
(d) |
9,808,350 |
|
Loss on extinguishment of debt |
353,044 |
|
- |
|
353,044 |
|
Organizational costs |
213,000 |
|
60,761 |
|
273,761 |
|
Interest |
7,880,150 |
|
1,341,802 |
(e) |
9,221,952 |
|
Loss on sale of securities |
- |
|
- |
|
- |
|
Amortization of acquired in-place leases and tenant relationships |
212,200 |
|
926,758 |
(f) |
1,138,958 |
|
|
|
|
|
|
|
|
Total expenses |
32,444,087 |
|
8,564,052 |
|
41,008,139 |
|
|
|
|
|
|
|
|
Loss before minority interest in properties, equity in loss of Multifamily Joint Venture, Equity in income of Mortgage Funds and minority common interest in Operating Partnership |
(2,202,893) |
|
(558,602) |
|
(2,761,495) |
|
Minority interest in properties |
(143,518) |
|
234,613 |
|
91,095 |
|
Equity in loss of Multifamily Joint Venture |
- |
|
- |
|
- |
|
Equity in income of Mortgage Funds |
6,720,746 |
|
- |
|
6,720,746 |
|
Minority common interest in Operating Partnership |
(732,075) |
|
- |
|
(732,075) |
|
Loss before gain on transfer of property |
3,642,260 |
|
(323,989) |
|
3,318,271 |
|
Gain on transfer of property to Multifamily Joint Venture |
- |
|
- |
|
- |
|
Net income (loss) |
3,642,260 |
|
$ (323,989) |
|
3,318,271 |
|
Preferred dividend |
(4,951,258) |
|
|
|
(4,951,258) |
|
Net loss available to common shareholders |
$ (1,308,998) |
|
|
|
$ (1,632,987) |
|
Loss per common share, basic and diluted |
$(1.38) |
|
|
|
$(1.72) |
|
Weighted average number of common shares outstanding |
948,773 |
|
|
|
948,773 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
- 13 -
BERKSHIRE INCOME REALTY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA FINANCIAL STATEMENT ADJUSTMENTS
The following pro forma adjustments summarize the adjustments made to the September 30, 2004 balance sheet of the Company:
|
(a) |
The assets have been reflected as if the acquisitions of the Combined Properties had occurred on September 30, 2004. |
Purchase accounting was applied for the acquisition of the Combined Properties consistent with provisions of Statement of Financial Accounting Standards No. 141 (“SFAS 141”), Business Combinations. In accordance with SFAS 141, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and personal property, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on their fair values. The Company currently believes that it has not received all invoices for expenses related to the acquisition of the Combined Properties and that the allocation of the purchase price, net of acquired
in-place leases and tenant relationships, is preliminary until which time all final costs have been accumulated. The Company currently anticipates that the allocation of the purchase price will be finalized no later than March 31, 2005.
The Company purchased the net Interests in the partnerships totaling $42,613,690, including closing costs and acquisition fees. The Company also assumed liabilities relating to normal operations, such as security deposits and other miscellaneous accrued expenses and deferred revenue.
The net purchase price, including closing costs and acquisition fees, was allocated as follows:
|
|
Total |
|
Multifamily apartment communities |
$ 40,481,487 |
|
In-place leases and tenant relationships |
1,057,654 |
|
Cash restricted for tenant security deposits |
190,226 |
|
Replacement reserve accounts |
859,800 |
|
Deferred expenses |
461,386 |
|
Organizational costs |
60,761 |
|
Prepaid expenses and other assets |
887,526 |
|
Deferred revenue and other liabilities |
(1,385,150) |
|
Cash from joint venture partner |
(7,422,482) |
|
New first mortgage |
(26,805,000) |
|
|
|
|
Cash Paid |
$ 8,386,208 |
The Company paid acquisition fees of $380,904 for the purchase of the Combined properties. The fees were paid to an affiliate of the Company.
|
(b) |
The Company purchased the combined Interests for a total purchase price, including closing costs and acquisition fees, of $43,998,840, net of new first mortgages in the amount of $26,805,000, other liabilities of $1,385,150 and cash from joint venture partner of $7,422,482, resulting in a pro forma net cash adjustments of $(8,386,208) at September 30, 2004. |
- 14 -
The following pro forma adjustments summarize the adjustments made to the Statements of Operations of the Company and the Berkshire Income Realty Predecessor Group for the nine months ended September 30, 2004 and 2003 and the year ended December 31, 2003, respectively. The pro forma adjustments reflect activity as if the acquisition of the Combined Properties had been completed as of January 1, 2003.
|
(c) |
Reflects an increase in management fees based on the asset and property management fee agreements entered into with affiliates of the Company and the joint venture partner, calculated as follows: |
Asset Management Fees:
|
Portion based on multifamily apartment communities: |
|
|
Combined Properties |
|
|
|
|
Multifamily apartment communities value |
$ 38,090,425 |
|
BIR - OP ownership percentage |
58% |
|
BIR - OP basis for asset management fee |
22,092,449 |
|
Asset management fee |
0.40% |
|
|
|
|
Annual fee |
$ 88,370 |
|
Nine months ended fee |
$ 66,278 |
Portion based on equity:
|
|
Combined Properties |
|
|
|
|
Multifamily apartment communities |
$ 19,352,709 |
|
Minority interest ownership percentage |
42% |
|
Minority interest basis for asset management fee |
28,128,138 |
|
Asset management fee |
0.50% |
|
|
|
|
Annual fee |
$ 40,641 |
|
Nine months ended fee |
$ 30,481 |
Total asset management fees:
|
Annual fee |
$ 129,011 |
|
Nine months ended fee |
$ 96,759 |
Property Management Fees:
|
Nine months ended September 30, 2004: |
|
|
Combined Properties |
|
Revenue |
$ 6,002,317 |
|
|
4.0% |
|
Property management fee |
240,092 |
|
Asset management fee |
96,759 |
|
Total management fees |
$ 336,851 |
- 15 -
|
Nine months ended September 30, 2003: |
|
|
Combined Properties |
|
Revenue |
$ 6,037,760 |
|
|
4.0% |
|
Property management fee |
241,509 |
|
Asset management fee |
96,759 |
|
Total management fees |
$ 338,268 |
|
Year ended December 31, 2003: |
|
|
Combined Properties |
|
Revenue |
$ 8,005,450 |
|
|
4.0% |
|
Property management fee |
320,216 |
|
Asset management fee |
129,011 |
|
Total management fees |
$ 449,227 |
|
(d) |
The depreciation expense adjustment is to reflect the expense as if the acquisition of the Combined Properties had been completed as of January 1, 2003. Depreciation is computed on the straight line basis over the estimated useful lives of the assets, as follows: |
|
Rental property |
25 years |
| |||
|
Improvements |
5 to 20 years | ||||
|
Appliances, carpeting and equipment |
3 to 8 years |
| |||
Allocation of the purchase price net of acquired in-place leases and tenant relationships to land, building, built-in components, improvements, carpeting, furniture and fixtures are as follows:
|
Assets |
Allocation % |
Combined Properties |
|
|
|
|
|
Land |
12% |
$ 4,857,777 |
|
Building |
66% |
26,717,781 |
|
Built-in components |
7% |
2,833,705 |
|
Site improvements |
9% |
3,643,334 |
|
Fixtures |
2% |
809,630 |
|
Appliances |
2% |
809,630 |
|
Carpeting |
2% |
809,630 |
|
|
|
|
|
Total |
100% |
$ 40,481,487 |
Charge to depreciation expense as if the acquisition of the Combined Properties had occurred at the beginning of the year:
- 16 -
|
Assets |
Depreciable Life |
Combined Properties |
|
|
|
|
|
Building |
25 |
$ 1,068,711 |
|
Built-in components |
25 |
113,348 |
|
Site improvements |
15 |
242,889 |
|
Fixtures |
15 |
53,975 |
|
Appliances |
5 |
161,927 |
|
Carpeting |
3 |
269,877 |
|
|
|
|
|
Annual expense |
|
$ 1,910,727 |
|
|
|
|
|
Nine months ended expense |
|
$ 1,433,045 |
|
(e) |
Reflects the charge to interest expense as if the acquisition and financing of the Combined Properties and the related mortgage notes payable occurred at the beginning of the period, as follows: |
|
|
Combined Properties |
|
|
|
|
Mortgage note |
$ 26,805,000 |
|
Average interest rate |
5.01% |
|
|
|
|
Annual interest expense |
$ 1,341,802 |
|
|
|
|
Nine months ended interest expense |
$ 1,006,352 |
|
(f) |
Reflects an increase in amortization expense related to acquired in-place leases and tenant relationships, calculated as follows: |
|
|
Combined Properties |
|
|
|
|
Acquired in-place leases |
$ 795,859 |
|
Amortization period (in months) |
12 |
|
|
|
|
Annual amortization expense |
$ 795,859 |
|
|
|
|
Acquired tenant relationships |
$ 261,795 |
|
Amortization period (in months) |
24 |
|
|
|
|
Annual amortization expense |
$ 130,899 |
|
|
|
Nine months ended September 30, 2004:
|
|
Combined Properties |
|
|
|
|
Amortization of acquired in-place leases (1) |
$ - |
|
Amortization of tenant relationships (2) |
98,173 |
|
|
|
|
Amortization expense |
$ 98,173 |
- 17 -
Nine months ended September 30, 2003:
|
|
Combined Properties |
|
|
|
|
Amortization of acquired in-place leases (2) |
$ 764,156 |
|
Amortization of tenant relationships (2) |
98,173 |
|
|
|
|
Amortization expense |
$ 862,329 |
|
Year ended December 31, 2003: |
|
|
Combined Properties |
|
|
|
|
Amortization of acquired in-place leases |
$ 795,859 |
|
Amortization of tenant relationships |
130,899 |
|
|
|
|
Amortization expense |
$ 926,758 |
|
(1) |
Assumes acquired in-place leases were fully amortized as of December 31, 2003. | |
|
(2) |
Represents 9 months of amortization. |
|
|
(g) |
Unless otherwise indicated by specific reference to the notes to pro forma consolidated financial statements, the results of operations presented in the Pro Forma Consolidated Statements of Operations for the Combined Properties was obtained from historical financial statements provided by the respective seller of the applicable acquired property. |
- 18 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
PRO FORMA STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS AND CASH TO BE MADE AVAILABLE BY OPERATIONS
(unaudited)
The following represents an estimate of the taxable operating results and cash to be made available by operations by the Company (including the Combined Properties) based upon the pro forma consolidated statement of operations for the year ended December 31, 2003. These estimated results do not purport to represent results of operations for these Combined Properties in the future and were prepared based on the assumptions outlined in the following notes, which should be read in conjunction with this statement.
|
|
Proforma |
|
|
|
|
Revenue |
$ 38,246,644 |
|
|
|
|
Expenses: |
|
|
Operating |
9,075,019 |
|
Maintenance |
3,162,799 |
|
Real estate taxes |
3,778,572 |
|
General and administrative |
1,632,588 |
|
Management fees |
2,563,096 |
|
Depreciation |
9,808,350 |
|
Loss on extinguishment of debt |
353,044 |
|
Organizational costs |
273,761 |
|
Interest |
9,221,952 |
|
Amortization of acquired in-place leases and tenant relationships |
84,758 |
|
|
|
|
Total expenses |
39,953,939 |
|
|
|
|
Estimated taxable operating loss before estimated taxable |
|
|
income from investments in mortgage funds |
(1,707,295) |
|
|
|
|
Estimated taxable income from investments in mortgage funds |
2,632,252 |
|
|
|
|
Estimated taxable operating income |
924,957 |
|
|
|
|
Adjustments: |
|
|
Add - |
|
|
Depreciation |
9,808,350 |
|
Amortization of acquired in-place leases and tenant relationships |
84,758 |
|
Loss on extinguishment of debt |
353,044 |
|
|
|
|
Estimated cash to be made available by operations |
$ 11,171,109 |
- 19 -
BERKSHIRE INCOME REALTY, INC.
(FORMERLY BERKSHIRE INCOME REALTY PREDECESSOR GROUP)
NOTE TO PRO FORMA STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS AND CASH TO BE MADE AVAILABLE BY OPERATIONS
(unaudited)
|
1. |
Basis of Presentation |
The pro forma results for December 31, 2003 presented in the Statement of Estimated Taxable Operating Results and Cash to be Made Available by Operations summarize the adjustments made to the results of operations of the Company for the year ended December 31, 2003. The pro forma adjustments reflect activity as if the acquisition of the Combined Properties had been completed as of January 1, 2003.
No income taxes have been provided in the statement because the Company is organized and operates in a manner so as to qualify as a Real Estate Investment Trust (“REIT”) under the provisions of the Internal Revenue Code (the “Code”). Accordingly, the Company generally will not pay Federal income taxes on its income provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code.
The Company believes that due to its structure and the terms of the partnership agreement of the BIR-OP, the taxable income would be allocated to the preferred partners of BIR-OP and in turn be allocated to the preferred shareholders. Generally income is allocated to the preferred shareholders equal to their preferred distribution with the remaining net income, or effective net loss, allocated to the common partners of BIR-OP and the common shareholders.
- 20 -