UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10660
Berkshire Realty Company, Inc.
Delaware 04-3086485
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(617) 423-2233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
(Unaudited)
Real estate assets: (Note 3)
<S> <C> <C>
Multi-family apartment complexes, net of
accumulated depreciation $321,656,550 $324,752,425
Retail centers, net of accumulated depreciation 59,067,459 59,708,271
Investments in unconsolidated joint ventures
(Note 4) 41,726,157 41,689,843
Mortgage loans and other loans receivable,
net of purchase discounts (Note 5) 20,083,620 19,964,524
Land and construction in progress 5,368,143 3,744,124
Total real estate assets 447,901,929 449,859,187
Cash and cash equivalents 7,087,118 11,142,710
Mortgage-backed securities, net ("MBS") (Note 6) 10,948,895 11,576,326
Escrows 3,526,173 3,872,826
Deferred charges and other assets 11,242,260 10,517,138
Goodwill (Note 2) 13,243,557 -
Total assets $493,949,932 $486,968,187
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Credit agreements (Note 7) $ 95,140,000 $ 95,140,000
Mortgage notes payable 104,946,934 105,200,620
Repurchase agreements (Note 7) 10,950,000 10,950,000
Tenant security deposits, prepaid rents
and escrows held 2,055,018 2,043,792
Accrued real estate taxes, insurance and
other liabilities 7,701,622 7,845,744
Total liabilities 220,793,574 221,180,156
Minority Interest in Operating Partnership (Note 2) 17,887,419 5,000,414
Commitments and Contingencies (Note 8)
Shareholders' equity:
Preferred stock, $0.01 par value; 60,000,000
shares authorized, none issued -
Common stock ("Shares"), $0.01 par value;
140,000,000 Shares authorized and
25,898,950 and 25,898,426 Shares issued,
respectively 258,994 258,994
Additional paid-in capital 256,753,020 262,271,698
Retained earnings
Less common stock in treasury at cost
(506,497 Shares) (1,743,075) (1,743,075)
Total shareholders' equity 255,268,939 260,787,617
Total liabilities and shareholders' equity $493,949,932 $486,968,187
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
(Unaudited) (Unaudited)
Revenue:
<S> <C> <C>
Rental $19,365,109 $17,396,615
Interest from mortgage loans (Note 5) 584,797 372,642
Joint venture net income (Note 4) 426,754 414,250
Interest income from MBS 261,536 302,854
Other interest income 217,759 139,692
Total revenue $20,855,955 18,626,053
Expenses:
Property operating (including reimbursements
to affiliates of $402,535 and $203,918,
respectively) 4,694,077 4,281,179
Repairs and maintenance 1,339,042 1,125,742
Real estate taxes 2,233,186 1,909,017
Property management fees to an
affiliate 890,354 844,682
Depreciation and amortization 6,257,309 5,256,472
General and administrative (including fees
and reimbursements to affiliates of
$64,776 and $168,082, respectively)
(Note 2) 527,903 291,599
Interest (Note 6) 4,194,846 3,761,398
Corporate taxes 81,000 -
Professional fees 44,442 178,602
Asset management fees to an
affiliate (Note 2) 392,636 355,898
Total expenses 20,654,795 18,004,589
Income from operations 201,160 621,464
Gains on sales of properties and payoff
of mortgage loans - 5,190,117
Income before minority interest 201,160 5,811,581
Minority interest (7,375) -
Net income $ 193,785 $ 5,811,581
Net income per weighted average Share $ .01 $ .23
Weighted average Shares 25,392,952 25,392,273
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Common Additional Treasury
Stock Paid-in Retained Stock
at Par Capital Earnings at Cost Total
<S> <C> <C> <C> <C> <C>
Balance,
December 31,
1995 $258,994 $262,271,698 $ - $(1,743,075) $260,787,617
Net income 193,785 193,785
Proceeds from
the exercise of
stock warrants 968 968
Dividends (5,519,646) (193,785) (5,713,431)
Balance,
March 31,
1996 $258,994 $256,753,020 $ - $(1,743,075) $255,268,939
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income $ 193,785 $ 5,811,581
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,146,019 5,256,472
Amortization of goodwill 111,290 -
Joint venture net income (426,754) (414,250)
Distributions received from joint ventures 390,440 493,486
Gains on sales of properties and
payoff of mortgage loans - (5,190,117)
Discount amortization (191,143) (158,093)
Amortization of deferred financing costs 176,728 -
Increase in operating escrows and other
assets (351,643) (1,228,568)
Decrease in accrued real estate taxes,
insurance and other liabilities (144,133) (735,008)
Increase (decrease) in tenant security
deposits prepaid rents and escrows held 11,226 (165,790)
Minority interest in operating partnership 7,375 -
Net cash provided by operating
activities 5,923,190 3,669,713
Investing activities:
Proceeds from sale of properties - 15,463,847
Recurring capital expenditures (645,186) (404,298)
Rehabilitation and non-recurring capital (1,760,533) (1,551,336)
Proceeds from the payoff of mortgage loans - 6,596,112
Construction in progress (1,624,019) (6,062,350)
Principal collections on MBS 634,007 378,779
Principal collections on mortgage loans 65,471 42,886
Cost to acquire advisory services business (354,847) -
Net cash (used for) provided by
investing activities (3,685,107) 14,463,640
Financing activities:
Payment of financing costs (207,156) (129,886)
Payment on repurchase agreement - (500,000)
Proceeds from credit agreement - 3,000,000
Principal payments on mortgage notes payable (253,686) (182,803)
Proceeds from the exercise of stock warrants 968 5,633
Dividends (5,713,431) (5,459,397)
Distribution to minority interest (120,370) -
Net cash used for financing
activities (6,293,675) (3,266,453)
Net (decrease) increase in cash and cash
equivalents (4,055,592) 14,866,900
Cash and cash equivalents, beginning of period 11,142,710 10,492,330
Cash and cash equivalents, end of period $ 7,087,118 $25,359,230
Supplemental cash flow disclosure:
Cash paid for interest during period $ 3,909,886 $ 3,668,911
Interest capitalized during period $ 56,694 $ 259,658
Supplemental disclosure of non-cash investing
activities:
Advisory Services Business contributed by
minority interest $13,000,000 $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
These financial statements reflect the consolidated financial
position, results of operations, changes in shareholders' equity and
cash flows of the Company, its subsidiaries and the Operating
Partnership (collectively the "Company") using historical cost of
assets, liabilities and results of operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report
on Form 10-Q pursuant to the Rules and Regulations of the Securities
and Exchange Commission. In the opinion of management, the
disclosures contained in this report are adequate to make the
information presented not misleading. See Notes to the Financial
Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 for additional information relevant
to significant accounting policies followed by the Company.
In the opinion of the management, the accompanying unaudited
financial statements reflect all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Company's
financial position as of March 31, 1996 and the results of its
operations and cash flows for the three months ended March 31, 1996
and 1995.
The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results which may be expected
for the full year. See Management's Discussion and Analysis of
Financial Condition and Results of Operations included in this
report.
2. Acquisition of Advisory Services Business
On February 28, 1996, the Board of Directors, acting on the
recommendation of a Special Committee comprised of the Independent
Directors, approved the acquisition via contribution of the advisory
and development services business ("Advisor Transaction") of The
Berkshire Companies Limited Partnership in exchange for 1,300,000
newly issued Units of the Operating Partnership.
Additional Units, up to a total $7.2 million in value, may be issued
to the contributor during a six-year period if certain Share price
benchmarks are achieved. The benchmarks are achieved if the share
price is equal to or greater than the benchmarks for any fifteen
days during any twenty consecutive trading days. There are six
Share price benchmarks beginning at $11.00 and increasing every
$1.00 up to a maximum of $16.00. Upon satisfaction of each
benchmark, the contributor will receive Units equal to $1.2 million
based on the benchmark price.
The contribution was completed on March 1, 1996. As of that date,
all charges and expenses associated with the Advisory Services
Agreement ceased and the Company became a "self-administered" REIT.
The Company began incurring general and administrative expenses for
its acquired management staff including salaries, benefits, and
other overhead expenses. The Company will outsource with affiliated
companies of certain directors and officers for certain
administrative services such as shareholder relations, computer
systems and support, and human resources. Property management
services will continue to be performed by Berkshire Property
Management, an affiliated company of certain directors and officers.
The Advisor Transaction was accounted for under the purchase method.
The value of the transaction was based on 1,300,000 units at a share
price of $10, or $13,000,000 which was recorded as goodwill and is
being amortized on a straight-line method over a 10-year period.
Also, legal fees and professional services expenses associated with
the Advisor Transaction have been capitalized and will be amortized
over the same 10-year period.
In addition to the restructuring to a "self-administered" REIT, the
Committee of Independent Directors also approved the acquisition via
contribution of The Point Apartments, a 1,119-unit high-rise
apartment property located in Silver Springs, MD, an asset majority-
owned by certain Directors and Officers of the REIT. It is expected
that in May 1996 the Company will accept the contribution of the
property in exchange for 1.6 million of Operating Partnership Units
to be issued over three years and the assumption of $36 million of
non-recourse indebtedness of the property. The debt has a fixed
rate of 7 5/8% and matures in 2029. Under the contribution
agreement, the Company may not sell The Point Apartments for a
period of five years following the closing date.
3. Multi-Family and Retail Property
As of March 31, 1996, the Company had investments in 35 properties
in 10 states consisting of 28 apartment communities having in the
aggregate 9,434 units and 7 retail centers with a total of 1,673,469
square feet of leasable space. Two retail centers are owned through
joint venture investments.
The following summarizes the carrying value of the Company's multi-
family apartment complexes and retail centers, (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Land $ 67,960 $ 67,976
Buildings and improvements 338,126 337,790
Appliances, carpeting and equipment 58,422 56,336
Total multi-family and retail property 464,508 462,102
Accumulated deprecation (83,784) (77,641)
$380,724 $384,461
</TABLE>
The Company is progressing with the construction of Huntington Chase
II, a 72-unit development project adjacent to an existing property
owned by the Company in Norcross, Georgia. The project is expected
to be completed in the third quarter of 1996 and will cost
approximately $4.7 million. As of March 31, 1996 the project has
incurred $1,809,000 of construction costs.
The Company began construction of a 96-unit development project
located in Mauldin, South Carolina in the first quarter of 1996.
The project is expected to cost approximately $6.6 million when
completed. As of March 31, 1996, the project has incurred $360,000
of construction costs.
The Company also owns two parcels of land located in Durham, North
Carolina and Dallas, Texas. Development plans are under
consideration for these two sites.
4. Investments in Unconsolidated Joint Ventures
The Company holds a 50% interest in the Brookwood Village Joint
Venture and a 50.1% interest in Spring Valley Partnership.
Condensed combined financial statements for the Joint Ventures are
as follows:
<TABLE>
Condensed Combined Balance Sheets
ASSETS
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Property at cost $109,191,987 $108,888,115
Less accumulated depreciation (28,206,737) (27,248,453)
80,985,250 81,639,662
Other assets 2,822,332 2,034,197
Total assets $ 83,807,582 $ 83,673,859
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 328,786 $ 267,707
Partners' equity:
The Company 41,726,157 41,689,843
Joint venture partner 41,752,639 41,716,309
Total partners' equity 83,478,796 83,406,152
Total liabilities and partners' equity $ 83,807,582 $ 83,673,859
Condensed Combined Statements of Operations
For the Three Months
Ended March 31,
1996 1995
Revenues $ 3,404,269 $ 3,152,377
Property operating expenses (1,593,340) (1,381,353)
Depreciation (958,283) (943,420)
Net income $ 852,646 $ 827,604
Allocation of net income:
The Company $ 426,754 $ 414,250
Joint venture partner 425,892 413,354
$ 852,646 $ 827,604
</TABLE>
5. Mortgage Loans
As of March 31, 1996, the Company held three mortgage loans and a
promissory note with a total aggregate principal balance of
approximately $21,141,000. The three mortgage loans consist of two
mortgages collateralized by a 397-unit apartment complex in Miami,
Florida and a mortgage collateralized by a 120-unit apartment complex in
Palm Bay, Florida.
6. MBS
At March 31, 1996, the Company's MBS portfolio had an approximate market
value of $11,668,000 and gross unrealized gains of $719,000 with
maturity dates ranging from 2008 to 2021. At December 31, 1995, the
Company's MBS portfolio had a market value of $12,372,000 and gross
unrealized gains of $796,000. The Company does not expect to realize
these gains as it has the intention and ability to hold the MBS until
maturity.
7. Debt Agreements
At March 31, 1996, the Company had in place two lines of credit to
provide for future development, acquisitions and general business
obligations. The Company also had in effect a Repurchase Agreement to
provide for short-term borrowings.
The following summarizes the Company's borrowings on the Master Credit
Facility with the Federal National Mortgage Association as of March 31,
1996:
<TABLE>
<CAPTION>
Contract Contract
Start End Interest
Date Date Rate Amount
<S> <C> <C> <C> <C>
Credit Facility - Revolver 03/01/96 06/01/96(a)6 .00% $ 8,140,000
Credit Facility - Fixed 11/22/95 11/20/05 6.997% 50,000,000
$58,140,000
</TABLE>
The following summarizes the Company's borrowings on the Credit
Agreement with the Bank of Boston and NationsBank as of April 4, 1996:
<TABLE>
<CAPTION>
Contract Contract
Start End Interest
Date Date(a) Rate Amount
<S> <C> <C> <C> <C>
Credit Agreement 02/20/96 05/20/96 7.00% $20,000,000
Credit Agreement 04/04/96 05/04/96(b)7.1875% 17,000,000
$37,000,000
The following summarizes the Company's borrowings on the Repurchase
Agreement with CS First Boston as of March 31, 1996:
</TABLE>
<TABLE>
<CAPTION>
Contract Contract
Start End Interest
Date Date(a) Rate Amount
<S> <C> <C> <C> <C>
Repurchase 12/21/95 06/21/96 5.69% $10,950,000
</TABLE>
(a) On the Contract End Date, borrowings outstanding under
revolvers are repriced at the then current interest rates.
(b) Subsequent to March 31 1996, the Company renewed the balance at
an interest rate of 7.25%.
The Credit Agreements require the Company to maintain certain debt
service coverage ratios, liquidity and collateral coverages as further
defined in the Credit Agreements, all of which were met on March
31,1996.
In 1995 the Company entered into a five-year interest rate swap contract
with a bank as counterparty. Under the swap arrangement, the Company
will pay 6.06% on a $40 million notional amount and will receive LIBOR
(based on 90 day contracts). The swap arrangement is intended to
protect the Company from significant interest rate exposure on its
anticipated revolving facilities. The current swap amount will cover
floating rate debt under revolvers in the near term. The Company will
continually reassess its rate exposure relative to debt levels and will
execute additional interest rate protection as circumstances dictate.
8. Stock Option Plan
The Company has adopted, subject to shareholder approval, the 1996 Stock
Option Plan. Approved on May 2, 1996, the 1996 Plan provides for grants
to non-employed directors and discretionary awards of stock options to
key employees and consultants of the Company. Awards will be
administered by the Compensation Committee which is comprised of two
independent directors appointed by the Board of Directors. The purpose
of the plan is to stimulate efforts of key employees and consultants on
behalf of the Company and to attract and retain the best available
personnel for service as directors. There are 1,500,000 shares of
common stock authorized for non-qualified and incentive stock option
grants under the 1996 Plan. The plan will continue in effect until all
shares of stock available have been acquired or for a term of five years
from its effective date whichever is earlier.
9. Impairment of Long-Lives Assets
Effective 1996, the Company adopted Financial Accounting Standard 121,
"Accounting for the Impairment of Long-Lived Assets". The Company does
not expect the impact to have a material effect on the financial
condition or results of operations.
The investments in properties are carried at cost less accumulated
depreciation unless the Company believes there is a permanent impairment
in value, in which case a provision to write down investments in
properties to fair value will be charged against income. At this time,
the Company does not believe that any assets of the Company are
impaired.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview:
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere
herein.
On February 28, 1996, the Board of Directors, acting on the
recommendation of a Special Committee comprised of the Independent
Directors, approved the acquisition via contribution of the advisory and
development services business ("Advisor Transaction") of The Berkshire
Companies Limited Partnership in exchange for 1,300,000 newly issued Units
of the Operating Partnership.
Additional Units, up to a total $7.2 million in value, may be issued to
the contributor during a six-year period if certain Share price benchmarks
are achieved (see Notes to Consolidated financial statements for details).
The contribution was completed on March 1, 1996. As of that date, all
charges and expenses associated with the Advisory Services Agreement ceased
and the Company became a "self-administered" REIT. The Company began
incurring general and administrative expenses for its acquired management
staff including salaries, benefits, and other overhead expenses. The
Company will outsource with affiliated companies of certain directors and
officers for certain administrative services such as shareholder relations,
computer systems and support, and human resources. Property management
services will continue to be performed by Berkshire Property Management, an
affiliated company of certain directors and officers.
The Advisor Transaction was accounted for under the purchase method.
The value of the transaction was based on 1,300,000 units at a share price
of $10, or $13,000,000 which is being recorded as goodwill and being
amortized on a straight-line method over a 10-year period. Also, legal
fees and professional services expenses associated with the Advisor
Transaction will be amortized over the same 10-year period.
In addition to the restructuring to a "self-administered" REIT, the
Committee of Independent Directors also approved the acquisition via
contribution of The Point Apartments, a 1,119-unit high-rise apartment
property located in Silver Springs, MD, an asset majority-owned by certain
Directors and Officers of the REIT. It is expected that in May 1996 the
Company will accept the contribution of the property in exchange for 1.6
million of Operating Partnership Units to be issued over three years and
the assumption of $36 million of non-resource indebtedness of the property.
The debt has a fixed rate of 7 5/8% and self-amortizes with the last
payment in 2029. The property, which was built in 1969, is currently
undergoing an extensive $15 million rehabilitation. Approximately $11
million of the rehab will be funded by the Company.
The Company has negotiated an agreement to acquire six properties from
unaffiliated sellers for a combination of cash and units of the Operating
Partnership. The properties are located in the Dallas/Fort Worth area and
include 1,758 apartment units. The acquisition price for five of the
properties is approximately $39 million. Consideration to the seller for
their equity in the assets will be approximately $7.4 million in cash and
approximately $5.4 million in value of Operating Partnership Units. The
remainder of the acquisition price will be financed with new or assumed
indebtedness. A sixth property will be purchased separately for cash of
approximately $8.7 million. The Company expects these transactions to
close in the second and third quarters of 1996.
Results of Operations:
The results of operations from period to period are impacted by
acquisition and disposition activity within the portfolio. Comparisons
will be made with respect to the overall portfolio and constant properties.
The following analysis compares the results of operations for the three
months ended March 31, 1996 and 1995.
Net Income decreased by $5.6 million primarily as a result of a $4.4
gain on the sale of three multi-family properties or 536 apartment units in
the first quarter of 1995.
Rental Income increased $1.9 million or 11%. Overall, the increase is
partially the result of higher weighted average apartment units owned in
1996. The weighted average number of units increased by 232, from 9,202
units in 1995 to 9,434 in 1996. The remainder of the increase was due to
an 8% increase in revenues caused by rental rate increases and improved
occupancies at the constant apartment communities.
Interest from mortgage loans increased $212,155 primarily due to higher
loan balances in the first quarter of 1996. In the first quarter of 1995,
average loan balances were $8 million compared to $21.1 million in the
first quarter of 1996.
Other interest income increased $78,067 due to a $2.6 million promissory
note the Company received in conjunction with the sale of Woodland Landing
Apartments in the second quarter of 1995. The note requires monthly
interest payments at a rate of 10%.
Property operating expenses increased $412,898. Overall, the increase
was partially the result of higher weighted average units in the first
quarter of 1996. Also, in the first quarter of 1995, the Company
recognized a one-time insurance savings pertaining to prior years.
Repairs and maintenance increased $213,300 due to an overall increase in
maintenance work being performed at the multi-family properties. This work
included landscaping and interior painting.
Real estate taxes increased $324,169 due to higher property values which
is partially the result of extensive capital renovations and developments
being completed in 1994 and 1995.
Asset management fees increased in 1996 as a result of an increased
asset base. However, effective March 1, 1996, in conjunction with the
Advisor Transaction, the Company assumed the Agreement, thereby eliminating
all Advisory fees.
Depreciation and amortization increased 19% due to a higher property
asset base in 1996.
General and administrative expenses increased $298,304 due to expected
new costs incurred by the Company as a result of becoming self-administered
on March 1, 1996. These costs include employee salaries along with various
administrative and office related expenses.
Corporate taxes increased by $81,000 in 1996 due to a one-time reduction
in the first quarter of 1995 for taxes pertaining to 1994. Corporate taxes
are expected to remain stable for 1996.
Professional fees decreased $134,160 in 1996 due to reduced legal costs
along with a $78,000 one-time cost incurred in 1995 for appraisal work at
several properties.
Interest expense increased $433,448 due to higher average borrowings
under the Credit Agreements and permanent financings. The following table
summarizes the weighted average debt and interest expense for the quarters
ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Weighted average debt outstanding
Fixed Rate 155,113 88,217
Variable rate 56,090 90,650
Total 211,203 178,867
Weighted average interest rates
Fixed rate 7.63% 8.28%
Variable rate 6.87% 8.14%
</TABLE>
Gain on sales of properties and payoff of mortgage loans in 1995 were
due to a $4.4 million gain on the sales of three apartment complexes
consisting of 536 units. The remainder of the gain in 1995 was the result
of the payoff of two mortgages that the Company had previously purchased at
a discount.
Funds from Operations:
Industry analysts generally consider Funds from Operations (FFO) to be
an appropriate measure of the performance of an equity REIT. The Company
believes that in order to facilitate a clear understanding of the operating
results of the Company, FFO should be analyzed in conjunction with the net
income as presented in the consolidated financial statements included
elsewhere in this report. FFO is determined in accordance with a
resolution adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts, Inc. (NAREIT), and is defined as net income
(loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO is calculated for the
periods presented as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months ended March 31,
1996 1995
(Dollars in thousands)
<S> <C> <C>
Net income $ 194 $ 5,812
Depreciation (considers joint ventures
and minority interest) 6,373 5,728
Amortization of goodwill 111 -
Gains of sale of investments and
payoff of mortgage loans receivable - (5,190)
Funds from operations $ 6,678 $ 6,350
Weighted average shares outstanding 25,392,952 25,392,273
</TABLE>
FFO from period to period is impacted by acquisition and disposition
activity within the portfolio. Comparisons will be made as to constant
properties, communities sold and acquired during the periods as well as
development activities so as to explain the changes in the Company's Funds
from Operations.
<TABLE>
<CAPTION>
Three Months March 31,
1996 1995
(Dollars in thousands)
<S> <C> <C>
Funds from Operations from:
Constant apartment communities (a) $ 6,140 $ 5,911
Constant retail properties 2,258 2,297
Other real estate
assets (b) 3,299 2,286
Interest income 479 443
Interest expense (4,195) (3,761)
General and administrative expenses (654) (470)
Minority interest (256) -
Asset management fees (393) (356)
Funds from operations $ 6,678 $ 6,350
Weighted average shares 25,392,952 25,392,273
</TABLE>
(a) Represents apartment properties which are fully stabilized for
comparative purposes for the two most recent years.
(b) Represents other multi-family real estate assets which were not
fully stabilized for comparative purposes. Properties are not
considered fully stabilized due to purchase, sale, development
or rehabilitation during the periods presented.
Constant Apartment Communities
FFO increased 4% in 1996 over the same period in 1995. Rental rate
increases and higher occupancies increased revenues by 8% or $900,000.
Weighted average occupancies were 96% in 1996 compared to 91% in 1995.
Other Real Estate Assets
FFO increased 46% in 1996 primarily as a result of the completion of two
developments totalling 384 apartment units in the fourth quarter of 1995
which generated additional FFO of $649,000 in the first quarter of 1996.
Also, 1995 apartment acquisitions, net of 1995 apartment dispositions,
contributed additional FFO of $130,000 in 1995. In 1995, the Company
acquired 1,382 apartment units while disposing of 1,717 apartment units.
FFO from mortgage loans receivable increased due to higher loan balances
in the first quarter of 1996.
Other Income and Expenses
Interest income increased 56% due to a $2.6 million promissory note the
Company received in conjunction with the sale of Woodland Landing
Apartments in the second quarter of 1995. The note requires monthly
interest payments at a rate of 10%.
Interest expense increased 12% due to higher average borrowings as
described previously in the Results of Operations.
General and administrative expenses increased due to expected new costs
incurred by the Company as a result of becoming self-administered on March
1, 1996. These costs include employee salaries along with various
administrative and office related expenses.
Asset management fees increased in 1996 as a result of an increased
asset base. However, effective March 1, 1996, in conjunction with the
Advisor Transaction, the Company assumed the Agreement, thereby eliminating
all Advisory fees.
Liquidity and Capital Resources:
Historically, operations, debt financing and sales of assets have been
the sources of capital employed by the Company. Operating cash flows are
earmarked for the payment of dividends as well as capital expenditures of a
recurring nature. Debt financing and proceeds from asset sales has been
used to finance acquisitions, development, and rehabilitation of apartment
communities.
The Company's policy is to pay dividends to investors as a percentage of
Funds from Operations ("FFO"). For the past three years, the Company has
paid between 85% and 88% of FFO in dividends, retaining the rest for
recurring capital expenditures and working capital. The Company expects to
increase both FFO and dividends in the future but will strive to gradually
reduce the payout ratio so as to utilize some internally generated funds
for growth. On May 2, 1996 the Board approved a dividend of $.225 per
share payable on August 15, 1996 to the shareholders of record on August 1,
1996. Dividends paid were .215 in the first quarter of 1995 and .225 in
the first quarter of 1996.
The Company has a policy to maintain leverage at or below 50% of
reasonably estimated fair value of assets. By employing moderate leverage
ratios, the Company can continue to generate sufficient cash flows to
operate its business as well as sustain dividends to shareholders. Debt as
a percentage of fair value of real estate assets as estimated by management
was approximately 42% at March 31, 1996.
In 1995 the Company successfully completed the restructuring of its
balance sheet from mostly variable short-term debt to fixed rate long-term
debt and has taken advantage of very favorable interest rates over the
past several years. With regard to the variable rate debt, the Company
entered into a five year fixed interest rate swap agreement in 1995 with a
bank for a $40 million notional contract, thereby fixing variable rate
exposure on that amount at 6.06%. The swap arrangement is intended to
protect the Company from significant interest rate exposure on its
anticipated borrowing levels under revolvers in the near term. The Company
will continually reassess its rate exposure relative to debt levels and
will execute additional interest rate protection as circumstances dictate.
The Company conservatively manages both interest rate risk and maturity
risk. Through the use of the swap, the Company has hedged interest rate
risk on approximately 72% of its variable rate debt as of March 31, 1996
and has only 8% of total indebtedness as unhedged variable rate debt.
The Company has adequate sources of liquidity to meet its current cash
flow requirements including dividends, capital improvements as well as
planned acquisitions.
Business Conditions/Risks:
The Company believes that favorable economic conditions exist in
substantially all of its real estate markets. For the Company's stabilized
communities, physical occupancy was 96% in the first quarter of 1996 which
is at or above current market occupancies. In addition, the Company
continues to maintain competitive rental rates. The Company's management
team achieves this by superior service combined with well-maintained assets
which sets the Company apart from its competition. Through this management
effort, the Company expects to realize solid performances from the real
estate assets and to continue its favorable rental conditions, however, no
assurances can be made in this regard.
The Company's real estate investments are subject to some seasonal
fluctuations resulting from changes in utility consumption and seasonal
maintenance expenditures. Future performance of the Company may be
impacted by unpredictable factors which include general and local economic
and real estate market conditions, variable interest rates, environmental
concerns, energy costs, government regulations and federal and state income
tax laws. The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Company's
operations, and no adverse effects are anticipated in the future.
The Company is involved in legal actions and claims in the ordinary
course of its business. It is the opinion of management and its legal
counsel, that such litigation and claims should be resolved without
material effect on the Company's financial position.
<PAGE>
BERKSHIRE REALTY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Change in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response: None
<PAGE>
SIGNATURE
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, thereunto duly authorized.
Berkshire Realty Company, Inc.
(Registrant)
BY: /s/Marianne Pritchard
Marianne Pritchard, Senior Vice
President and Chief Financial
Officer of Berkshire Realty
Company, Inc.
DATE: May 4, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000869446
<NAME> BERKSHIRE REALTY CO INC /DE
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,087,118
<SECURITIES> 31,032,515<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 69,738,147<F2>
<PP&E> 469,876,112
<DEPRECIATION> (83,783,960)
<TOTAL-ASSETS> 493,949,932
<CURRENT-LIABILITIES> 238,680,993<F3>
<BONDS> 0
0
0
<COMMON> 255,268,939<F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 493,949,932
<SALES> 0
<TOTAL-REVENUES> 20,855,955
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,459,949<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,194,846
<INCOME-PRETAX> 201,160
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (7,375)<F6>
<CHANGES> 0
<NET-INCOME> 193,785
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
<FN>
<F1>Includes Mortgage Loans and Other Loans of $20,083,620 and Mortgage-Backed
Securities ("MBS") of $10,948,895.
<F2>Includes Investments in unconsolidated joint ventures of $41,726,157 and
goodwill of $13,243,557 and other assets and escrows of $14,768,433.
<F3>Includes mortgage notes payable of $104,946,934 and credit agreements of
$95,140,000.
<F4>Includes common stock at par of $258,994 plus additional paid-in capital of
$256,753,020 less common stock in treasury of $1,743,075.
<F5>Includes depreciation of $6,257,309.
<F6>Represents minority interest.
</FN>
</TABLE>
