Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 0-6201

BRESLER & REINER, INC.
(Exact name of registrant as specified in its charter)

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 ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 2,738,606 shares of Common Stock $0.01 par value, as of May 14, 2004.

BRESLER & REINER, INC.

FORM 10-Q
MARCH 31, 2004

TABLE OF CONTENTS

Bresler & Reiner, Inc.

Consolidated Balance Sheets
March 31, 2004 and December 31, 2003

See Notes to Consolidated Financial Statements

1

Bresler & Reiner, Inc.

Consolidated Statements of Operations
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)

See Notes to Consolidated Financial Statements

2

Bresler & Reiner, Inc.

Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)

See Notes to Consolidated Financial Statements

3

PART I—FINANCIAL INFORMATION

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND ORGANIZATION

Bresler & Reiner, Inc. ("B&R" and, together with its subsidiaries and affiliates, "we," the "Company" or "us") engages in the acquisition, development, ownership, and management of commercial and residential real estate located in the Washington, DC, Orlando, Florida and Philadelphia, Pennsylvania metropolitan areas. In addition, we participate in hotel ownership and management activities in the Washington, DC area.

The accompanying unaudited consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in conformity with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2004, are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto, included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2003.

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include the accounts of Bresler & Reiner, Inc., our wholly owned subsidiaries, and entities which we control or, entities that are required to be consolidated under Financial Accounting Standards Board Interpretation No. 46 ("FIN 46"). Entities which we do not control or entities that are not required to be consolidated under FIN 46, are accounted for under the equity method.

All significant intercompany balances and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

Real estate sales—Gains on sales of homes and land parcels are recognized pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate". Revenues and cost of sales are recorded at the time each home or land parcel is closed and title and possession have been transferred to the buyer. Homebuilding and related costs are charged to the cost of the homes closed under the specific identification method. Land development costs are charged to the cost of land parcels closed on a relative sales value basis.

Leasing operations—We recognize revenue in accordance with SFAS No. 13, "Accounting for Leases." SFAS No. 13 requires that revenue be recognized on a straight-line basis over the term of the lease.

Hospitality revenue—We recognize hospitality revenue as services are provided.

Rental, construction and management fees—We generally recognize rental, construction and management fees as services are provided.

RENTAL PROPERTY AND EQUIPMENT

Rental property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, generally 40 years for buildings and three to 10 years for furniture, fixtures and equipment. Replacements and renovations that extend the useful life of an asset are capitalized and depreciated over their estimated useful lives. Tenant improvements are capitalized and depreciated over the shorter of the terms of the respective tenant's lease or estimated useful life. Depreciation expense for the three months ended 2004 and 2003 was $1,622,000 and $1,148,000, respectively.

PROPERTY AND LAND DEVELOPMENT

When construction commences, costs are transferred to property and land development where they are accumulated by project. Project costs included in property and land development include interest on construction loans, property taxes, materials and labor. These costs are charged to costs of homes and lots sold on a pro rata basis as properties and lots are sold, in accordance with SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects."

4

We review our accumulated costs to ensure that any costs in excess of net realizable value are charged to operations when identified. For the three months ended March 31, 2004, we capitalized $292,000 of interest.

LAND HELD FOR INVESTMENT

Land held for investment is recorded at the lower of cost or estimated fair value less cost to sell.

INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS

For entities that are not deemed to be variable interest entities ("VIE's"), as set forth in FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), we account for our investments in partnerships and joint ventures in accordance with Statement of Position 78-9, "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." For entities in which we have a controlling interest, we consolidate the investment and a minority interest is recognized in our consolidated financial statements. Minority interest in the balance sheet represents the minority owners' share of equity as of the balance sheet date; minority interest expense in the income statement represents the minority owners' share of the income or loss of the consolidated joint venture. For entities in which we do not have a controlling interest, we account for our investment using the equity method of accounting and do not consolidate the investment. We evaluate control primarily based on the investors' relative voting rights in the joint venture.

For entities that are deemed to be VIE's, as set forth in FIN 46, we account for our investments in joint ventures based on a determination of the entity's primary beneficiary. If we are the primary beneficiary through being subject to a majority of the potential variability in gains or losses of the VIE (with the primary focus on losses), then we consolidate our investment in the joint venture. If we are not the primary beneficiary, then we account for our investment by the equity method.

DEFERRED CHARGES AND OTHER ASSETS

Included in deferred charges are fees incurred in connection with obtaining financing for our real estate. These fees are deferred and amortized as a part of interest expense over the term of the related debt instrument on a straight-line basis, which approximates the effective interest method. In addition, deferred costs include leasing charges, comprised of tenant allowances and lease commissions incurred to originate a lease, which are amortized on a straight-line basis over the term of the related lease.

The application of SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" (together "SFAS Nos. 141 and 142") to real estate acquisitions requires us to allocate the purchase price of acquisitions to acquired in-place leases in addition to land, building and improvements. In order to determine the value to be allocated to the acquired leases, we are required to make several assumptions regarding the relative value of the in-place leases when compared to the current market. Some of the judgments required as a part of this exercise include (1) determining the market rental rates of the acquired leases, (2) estimating the market value of concessions (rent abatements, tenant improvement allowances, etc.) and leasing commissions to be paid on new leases, (3) estimating the lease-up period required to achieve the occupancy levels that the property has at the time of the acquisition, and (4) applying an estimated risk-adjusted discount rate to the existing tenants. As a result of adopting SFAS Nos. 141 and 142, we have intangible lease assets totaling $14,461,000 and $6,911,000 at March 31, 2004 and December 31, 2003, respectively, related to the fair value of acquired leases. The lease intangibles are amortized on a straight-line basis over the lives of the acquired leases. The amortization of in-place leases totaled $1,064,000 and $270,000 for the three months ended March 31, 2004 and 2003, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the stated amounts of assets, liabilities, revenues, and expenses presented in the financial statements, as well as the disclosures relating to contingent liabilities. Consequently, actual results could differ from those estimates that have been reported in our financial statements.

RECLASSIFICATIONS

Certain amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.

5

EARNINGS PER SHARE

We have no dilutive securities; therefore, basic and fully diluted earnings per share are identical. Earnings per common share are based upon the weighted-average number of shares outstanding during the quarter (2,738,606 shares in both the first quarter of 2004 and 2003).

COMPREHENSIVE INCOME

Except for net income, we do not have any items impacting comprehensive income. Therefore, comprehensive income and net income are the same.

2.     NEW ACCOUNTING PRONOUNCEMENTS

FASB Interpretation No. 46—In December 2003, the FASB issued the revised FIN 46, "Consolidation of Variable Interest Entities" to expand upon and strengthen existing accounting guidance that address when a company should include the assets, liabilities and activities of another entity in its financial statements. To improve financial reporting by companies involved with variable interest entities ("VIEs"), FIN 46 requires that a VIE be consolidated by a company if that company is the primary beneficiary through being subject to a majority of the potential variability in gains or losses of the VIE (with the primary focus on losses). Prior to FIN 46, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. We had previously adopted the provisions of FIN 46 for variable interest entities created after January 31, 2003. However, the adoption of FIN 46 for variable interest entities created on or before January 31, 2003 is required for periods ended after March 15, 2004. We have adopted the final provisions of FIN 46 as of March 31, 2004, resulting in the consolidation of one entity, previously classified in investments in and advances to joint ventures, in which a 54% owned subsidiary of the Company owns a 92% interest. The consolidation of this entity resulted in an increase in assets (consisting primarily of property and land development), liabilities (consisting primarily of accounts payable and accrued expenses), and minority interest of $10,600,000, $1,700,000 and $8,9000,000, respectively at March 31, 2004.

3.     SIGNIFICANT ACQUISITIONS AND INVESTMENTS

During the first quarter of 2004, we entered into several material transactions as described below. All acquisitions of real estate and investments in joint ventures have been included in our accompanying statements of operations from the date of the transaction forward.

Laguna Vista On March 25, 2004 we entered into a Stock Purchase Agreement with two unaffiliated third parties for the purchase of 100% of the stock of Laguna Vista Company ("Laguna Vista"). Laguna Vista is developing 41 luxury condominium units in Ocean City, Maryland and has obtained a $15,100,000 construction loan. Based on the terms of the agreement, we are required to purchase the stock for a total price of $8,000,000 by March 31, 2005, should the project attain certain sales targets. At the time we entered into the agreement, we advanced $3,000,000 as a deposit for the purchase of the stock. In addition to the stock purchase deposit we have provided a total of $3,000,000 in loans to Laguna Vista. The loans, which were advanced in September 2003, November 2003, and March 2004, each bear interest at 10% per annum and mature one year from the loan date. The borrower has an option to extend the maturity date on each of the loans for one year. We will account for the project as a consolidated joint venture due to the financing we have provided and our participation in the anticipated profits in the project.

Fort Washington Executive Center On February 26, 2004, a joint venture, in which we own a 96.5% interest and two unaffiliated third parties own the balance, acquired an executive center located in Fort Washington, Pennsylvania, consisting of three commercial buildings containing a total of approximately 393,000 square feet of office space. The purchase price of the property was $52,664,000. At the time of the acquisition, the joint venture placed a $33,300,000 mortgage loan on two of the buildings and a $15,700,000 mortgage loan on the third building. Each of the loans, bear a fixed-interest rate of 5.6% and matures in ten years. As a condition of financing, we executed conditional master lease agreements as tenant, on each of the loans for certain periods and space within the properties. We invested $7,000,000 for our 96.5% interest in the joint venture. We have consolidated the entity's assets and liabilities and results of operations in our unaudited consolidated financial statements.

One Northbrook On February 18, 2004, we acquired an approximately 95,000 square foot office building located in a commercial office park in Trevose, Pennsylvania, for a purchase price of $16,900,000. On February 19, 2004, we placed a ten-year, 5.75% fixed-rate mortgage of $15,300,000 on the property. As a condition of financing, we executed a master lease agreement as tenant for certain periods and space within the property.

6

220 West Germantown Pike On February 5, 2004, a joint venture, in which we own a 97.5% interest and two unaffiliated third parties own the balance, acquired an office complex containing two commercial office buildings, in Plymouth Meeting, Pennsylvania comprising a total of approximately 115,000 square feet. The total purchase price of the office buildings was $20,500,000. In connection with the acquisition, the joint venture assumed a 5.9% fixed-rate mortgage loan on the buildings. The loan, which had an outstanding principal balance of $16,246,000 at the time of the assumption, matures in 2013. The loan was recorded at the assumed balance since it approximated market value at the time of the acquisition. We invested $4,875,000 for our 97.5% interest in the joint venture. We have consolidated the entity's assets and liabilities and results of operations in our unaudited consolidated financial statements.

640 North Broad On January 14, 2004, a joint venture in which we own a 86.5% interest and two unaffiliated third parties own the balance, acquired a historic property in Philadelphia, PA, comprising two buildings, for a purchase price of $9,050,000. At the time of the acquisition, the joint venture placed a $6,000,000 loan on the buildings. The loan, which bears a variable-interest rate of one month LIBOR plus 175 basis points, matures in one year. The joint venture plans to redevelop the buildings into an approximately 266 unit apartment property. We invested $3,200,000 for our 86.5% interest in the joint venture. We have consolidated the entity's assets and liabilities in our unaudited consolidated financial statements.

Pro-Forma Results of Operations    The following unaudited pro-forma statements reflect our results of operations as if the acquisition of Fort Washington Executive Center had occurred on the first day of the periods presented (in thousands, except earnings per share amounts):

4.     INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS

At March 31, 2004, our investments in non-consolidated joint ventures and partnerships consisted of the following:

7

Below are condensed unaudited balance sheets for our unconsolidated joint venture entities as of March 31, 2004 and December 31, 2003 (in thousands):

(1)

Represents the combined balance sheets of Third Street SW Investors, Tech-High Leasing, Builders Leasing, Selborne House and Redwood Commercial Management.

(1)

Represents the combined balance sheets of Third Street SW Investors, Tech-High Leasing, Builders Leasing, Selborne House and Redwood Commercial Management.

8

Below are condensed unaudited statements of operations for our unconsolidated joint venture entities for the periods indicated (in thousands):

(1)

Represents the combined results of Third Street SW Investors, Tech-High Leasing, Builders Leasing and Redwood Commercial.

(1)

Represents the combined results of Third Street SW Investors, Tech-High Leasing, Builders Leasing and Redwood Commercial.

The difference between the carrying value of our investment in unconsolidated joint ventures and partnerships and our interest in member's equity noted above is primarily due to advances to the joint ventures and capitalized interest on our investment balance in joint ventures that own real estate under development.

Waterfront Associates In October 2002, following the expiration of the GSA lease at the Waterfront Complex, BRW, a 54% owned subsidiary of ours, entered into a joint venture with K/FCE Investment LLC ("K/FCE"), a joint venture between the Washington DC based developer, The Kaempfer Company, Inc., and the national developer, Forest City Enterprises, Inc., to redevelop and reposition the Waterfront Complex. The joint venture is called Waterfront Associates LLC ("WALLC"). BRW contributed the leasehold improvements relating to the Waterfront Complex to WALLC. Affiliates of K/FCE are marketing, leasing, redeveloping, and managing the complex. K/FCE is the managing member of WALLC and has sole responsibility for the management, control, and operation of the WALLC, as well as for the formulation and execution of its business and investment policy. Since BRW did not have a controlling interest in WALLC, it accounted for its investment under the equity method and did not consolidate the assets, liabilities and operations of WALLC from the period beginning the formation of the partnership and ending March 30, 2004. Upon the adoption of FIN 46 effective March 31, 2004, the assets and liabilities of WALLC are consolidated by BRW and are included in B&R's March 31, 2004 consolidated balance sheet, since WALLC is considered to be a variable interest entity as defined by FIN 46 and BRW is deemed to be the primary beneficiary of the entity. (See Footnote 9, Subsequent Events).

9

5.     COMMITMENTS AND CONTINGENCIES

FINANCIAL COMMITMENTS

At March 31, 2004, we had approximately $156,000 of outstanding letters of credit representing performance guarantees for land improvements in home building and land development operations.

GUARANTEES

We have provided an unconditional and irrevocable payment guaranty of $5,500,000 to Wachovia Bank, N.A in connection with a $20,000,000 loan made to 1925K Associates, LLC (1925K) in February 2004. The loan matures in April 2007, but may be extended for up to an additional two years at the option of the borrower.

We have provided an unconditional and irrevocable payment guaranty to Riggs Bank for 33.3% of the loan balance outstanding under the $7,100,000 construction loan, made to Selborne House at St. Mark's Owner, LLC ("Selborne House"). The other members of Selborne House have guaranteed the remaining balance under the loan. The loan matures in January 2006 and has an extension option of 5 years. Our payment guarantee will be reduced to 16.7% of the outstanding loan balance, upon Selborne House maintaining a debt service ratio of 1.25 to 1.0 for a period of one year. Additionally, along with the other members of Selborne House, we have jointly and severally guaranteed the completion of the project prior to July 2005. At March 31, 2004, the outstanding loan balance totaled $3,148,000.

We have guaranteed repayment of 66.6% of the loan balance outstanding under the $5,370,000 acquisition and construction loan made by Citizen's Bank of Pennsylvania to Cigar Factory Apartments, L.P. ("Cigar Factory"). The remainder of the outstanding balance under the loan has been guaranteed by the other members of Cigar Factory. The loan matures in July 2005, but may be extended for an additional year at the option of the borrower. Together with the other members of Cigar Factory, we have also guaranteed completion of construction of improvements to Cigar Factory on or before the maturity date of the loan, or if the loan is extended, the extended maturity date. At March 31, 2004, the outstanding loan balance totaled $1,725,000.

In connection with the $15,100,000 construction loan Laguna Vista has obtained, we have guaranteed the purchase of half of all unpurchased condominium units at Laguna Vista at September 30, 2005 at a total acquisition price that will equate to one half of the outstanding loan balance at that date.

LITIGATION

We are not presently involved in any litigation nor to our knowledge is any litigation threatened against us or our subsidiaries that, in management's opinion, would result in any material adverse effect on our ownership, financial condition, management, or operation of our properties.

6.     DISCONTINUED OPERATIONS

In December 2003, we sold 95% of our interest in Town Square Commons, LLC ("The Commons"), to an unaffiliated third party. The Commons owns a 116 unit apartment complex in Washington DC. The purchaser has a call option to purchase, and we have a corresponding put option to sell, the remaining 5% interest in The Commons, beginning in December 2004. We have recorded the results of operations of The Commons as part of discontinued operations, in the accompanying consolidated financial statements.

In May 2003, we sold to a third party our Maplewood Manor nursing home in Lakewood, New Jersey. We have recorded the operating results of the nursing home as part of discontinued operations in the accompanying consolidated financial statements.

We are currently holding for sale the 7800 Building, which is a commercial office building containing approximately 15,000 square feet of space, and five commercial properties currently leased to convenience store operators. The net assets and liabilities of these properties are classified as assets held for sale and the operating results are classified as discontinued operations in the accompanying consolidated financial statements.

10

The following summary presents the combined operating results of properties we have classified as discontinued operations (in thousands):

7.     INCOME TAXES

SFAS No. 109, "Accounting for Income Taxes," establishes financial accounting and reporting standards for the effects of income taxes that result from our activities during the current and preceding years. It requires an asset and liability approach to accounting for income taxes. Balance sheet accruals for income taxes are adjusted to reflect changes in tax rates in the period such changes are enacted. The Company and its subsidiaries file a consolidated income tax return.

Our provision for income taxes for the three months ended March 31, 2004 and 2003, includes a provision for income taxes on the income from continuing operations as well as a provision for income taxes on the discontinued operations. The provision for income taxes is calculated by applying the estimated full year effective tax rate to our year to date earnings through March 31, 2004 and 2003.

8.     SEGMENT INFORMATION:

In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," the Company reports segment information for the following four categories:

Commercial Rental Property

This segment includes the rental income derived by commercial properties from leases of office, industrial and retail space and other related revenue sources. Commercial leases generally provide for a fixed monthly rental over terms that range from three to 10 years.

Also included in this segment is income generated from management and leasing activities associated with our 50% ownership interest in Redwood Commercial Management, LLC ("Redwood"), a commercial management company.

Residential Rental Property

This segment includes the rental income derived from residential properties from leases of apartment units and other related revenue sources. Apartment leases generally provide for a fixed monthly rental over a one-year term.

Hospitality Properties

This segment includes revenue and income from two hospitality properties: The Inn at the Colonnade located in Baltimore, Maryland and the Holiday Inn Express located in Camp Springs, Maryland. The Inn at the Colonnade, which is a Doubletree branded property, is managed by a third party manager, while the Holiday Inn Express is managed by our wholly-owned subsidiary.

Commercial, Residential and Land Development

This segment primarily includes the development and sale of homes and residential condominium units, the development of commercial buildings and the development of lots as part of residential subdivisions. Also included are the revenues and costs associated with undeveloped commercial land sales, and other construction activity.

We are not involved in any operations in countries other than the United States.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based upon revenues less operating expenses of the combined properties in each segment.

11

Our reportable segments are a consolidation of related subsidiaries that are managed separately as each segment requires different operating, pricing, and leasing strategies.

Following is a summary of the Company's reportable segments.

Three months ended March 31, 2004
(in thousands, unaudited)

12

Three months ended March 31, 2003
(in thousands, unaudited)

9.     SUBSEQUENT EVENTS:

On April 7, 2004 a joint venture in which we own a 50% interest and an unaffiliated third party owns the balance, acquired a 144 unit mid-rise residential rental complex located in St. Petersburg, Florida, for a purchase price of $10,800,000. The joint venture plans to convert the complex into 140 for-sale residential condominium units. In connection with the purchase the joint venture obtained a $14,000,000 acquisition and construction loan, approximately $7,200,000 of which was drawn down for the funding of the acquisition. The loan, which bears a variable-interest rate of one month LIBOR plus 175 basis points, matures in one year. We invested $3,664,000 for our interest in the joint venture.

On April 22, 2004, the Federal National Mortgage Association entered into a non-binding Letter of Intent with Waterfront Associates, LLC ("WALLC"), an affiliate of ours, for the lease of up to 1.5 million square feet of new office space for more than 20 years in the Waterfront Complex. WALLC is currently redeveloping the Waterfront Complex, which is located in the Southwest Washington, D.C Urban Renewal Area.

13

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The four segments in which we operate: commercial rental property; residential rental property; hospitality; and commercial, residential and land development, provide us with a diversified portfolio of assets across the real estate spectrum. Our strategy revolves around using our strong liquidity position to invest in commercial and residential real estate through acquisitions of both operational and development properties. We also acquire other forms of real estate, such as undeveloped commercial and residential land, as such opportunities arise. We are an active owner of our real estate assets, focusing on maximizing profitability throughout our portfolio. We work closely with the third party management companies that manage our properties to increase profitability through identifying revenue generation and expense reduction opportunities.

In 2003 and the first quarter of 2004 we took advantage of a low-interest rate environment to acquire through both wholly owned subsidiaries and joint venture entities with unaffiliated third parties that we consolidate in our financial statements, a total of approximately $209,000,000 of real estate assets. With interest rates anticipated to increase, we will be challenged going forward to continue to utilize our cash and other sources of financing available to purchase real estate that has the potential to generate strong cash returns on our investment, since higher interest rates raise our cost of capital, negatively impacting our potential returns on invested capital.

The discussion that follows is based primarily on our consolidated balance sheets as of March 31, 2004 and December 31, 2003, and the results of operations for the three months ended March 31, 2004 and 2003 and should be read along with our consolidated financial statements and related notes. The ability to compare one period to another may be significantly affected by acquisitions and dispositions of commercial and residential properties and the acquisition and subsequent partial development and sale of residential lots.

Application of Critical Accounting Policies

We apply certain significant accounting policies when preparing our consolidated financial statements. A summary of these policies is included in our latest annual report on Form 10-K/A for the period ended December 31, 2003. The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expense, and the related disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions, and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form our basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may differ from these estimates.

We believe that estimates, assumptions and judgments involved in the accounting policies described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our most recent annual report on Form 10-K/A have the greatest potential impact on our financial statements.

Forward Looking Statements

This Form 10-Q contains forward-looking statements that are based on current estimates, expectations, forecasts and projections about us, our future performance, the industry in which we operate, our beliefs and management's assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of us. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," or "would be," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties include:

•

our ability to compete effectively;

•

our exposure to the credit risks of our tenants;

•

our ability to recruit and retain key personnel;

•

adverse changes in the local or general economy and market conditions;

•

our ability to obtain necessary governmental permits and approvals;

•

our ability to complete development projects in a timely manner and within budget;

•

our ability to secure tenants for our projects and properties;

14

•

our ability to sustain occupancy levels at our properties through keeping existing tenants and securing new ones;

•

our ability to secure tenants for the residential and commercial properties that we develop;

•

our ability to obtain mortgage financing on acceptable terms;

•

future litigation; and

•

changes in environmental health and safety laws.