UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File number 001-31659
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Berkshire Income Realty, Inc.
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Maryland 32-0024337
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization
One Beacon Street, Boston, Massachusetts 02108
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(Address of principal executive (Zip code)
offices)
(Registrant's telephone number, including area code) (617) 523-7722
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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 No X
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Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12(b-2) of the Exchange Act).
Yes No X
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As of May 14, 2003, there were 1,283,313 shares of Class B common stock
outstanding.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
BERKSHIRE INCOME REALTY, INC.
Combined Balance Sheets at March 31, 2003 (Unaudited) and
December 31, 2002 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2
Notes to Balance Sheets - - - - - - - - - - - - - - - - - - - - - - - - - 3
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
Combined Balance Sheets at March 31, 2003 (Unaudited) and
December 31, 2002 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6
Combined Statements of Operations (Unaudited) for the three months ended
March 31, 2003 and 2002 - - - - - - - - - - - - - - - - - - - - - - - - - 7
Combined Statements of Cash Flows (Unaudited) for the three months ended
March 31, 2003 and 2002 - - - - - - - - - - - - - - - - - - - - - - - - - - 8
Notes to Combined Financial Statements (Unaudited)- - - - - - - - - - - - - 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.- - - - - - - - - - - - - - - - - - - - - - - - - - -12
Item 3. Quantitative and Qualitative Disclosures About Market Risk. - - - 20
Item 4. Controls and Procedures. - - - - - - - - - - - - - - - - - - - - - 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. - - - - - - - - - - - - - - - - 20
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
BERKSHIRE INCOME REALTY, INC.
BALANCE SHEET
ASSETS
March 31, December 31,
2003 2002
(Unaudited) (Note 2)
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Assets:
Cash $ 100 $ 100
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Total assets $ 100 $ 100
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities: $ - $ -
Stockholder's Equity:
Preferred stock, liquidation preference $25.00 per
share, 5,000,000 shares authorized, 0 shares issued
and outstanding - -
Class A common stock, $.01 par value, 5,000,000
shares authorized, 0 shares issued and outstanding - -
Class B common stock, $.01 par value, 5,000,000
shares authorized, 100 shares issued and outstanding 1 1
Additional paid in capital 99 99
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Total liabilities and stockholder's equity $ 100 $ 100
============= =============
The accompanying notes are an integral part of
this balance sheet.
-2-
BERKSHIRE INCOME REALTY, INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION AND FORMATION
Berkshire Income Realty, Inc. (the "Company "), a Maryland corporation, was
organized on July 19, 2002. The Company is in the business of acquiring, owning
and operating multi-family residential properties.
The Company filed a registration statement on Form S-11 with the Securities
and Exchange Commission with respect to its offers (the "Offering") to exchange
its 9% Series A Cumulative Redeemable Preferred Stock ("Preferred Shares") for
interests ("Interests") in the following six mortgage funds: Krupp Government
Income Trust ("GIT"), Krupp Government Income Trust II ("GIT II"), Krupp Insured
Mortgage Limited Partnership ("KIM"), Krupp Insured Plus Limited Partnership
("KIP"), Krupp Insured Plus II Limited Partnership ("KIP II"), Krupp Insured
Plus III Limited Partnership ("KIP III") (collectively, the "Mortgage Funds").
For each Interest in the Mortgage Funds validly tendered and not withdrawn in
the Offering, the Company offered to exchange its Preferred Shares based on an
exchange ratio applicable to each Mortgage Fund. The registration statement was
declared effective on January 9, 2003.
2. UNAUDITED INTERIM BALANCE SHEET
The accompanying interim balance sheet is unaudited; however, the balance
sheet has been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
in conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, it does not include all of the disclosures required by
accounting principles generally accepted in the United States of America for
complete financial statements. The year-end balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. In the
opinion of management, all adjustments (consisting solely of normal recurring
matters) necessary for a fair presentation of the balance sheet for this interim
period have been included.
3. INCOME TAXES
The Company will elect to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code upon the filing of its first income tax
return. As of April 4, 2003, to qualify as a REIT, the Company will be required
to distribute at least 90% of its REIT taxable income to its shareholders to
maintain its REIT status. REITs are subject to a number of organizational and
operational requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to Federal income tax on its taxable
income at regular corporate tax rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to state and local taxes on its
income and property and to Federal income and excise taxes on its undistributed
income.
4. DECLARATION OF DIVIDEND
On March 25, 2003, our Board of Directors declared a regular dividend of
$.2563 per share on our 9% Series A Cumulative Redeemable Preferred Stock
("Preferred Shares"), for the period ended May 15, 2003. The regular quarterly
dividend payable on the Preferred Shares is $.5625 per share. The dividend
declared on March 25, 2003 is a prorated amount, reflecting the dividend amount
accruing from the issue date of the Preferred Shares. The dividend on the
Preferred Shares is payable on May 15, 2003, to shareholders of record on May
10, 2003. This dividend is equivalent to an annualized rate of $2.25 per share.
Continued
-3-
BERKSHIRE INCOME REALTY, INC.
NOTES TO BALANCE SHEET, Continued
5. SUBSEQUENT EVENTS
On April 4, 2003 and April 18, 2003, the Company issued 2,667,717 and
310,393 shares, respectively, of its Preferred Shares, with a $25.00 liquidation
preference per share. The Preferred Shares were issued in exchange for Interests
in the six Mortgage Funds referred to above. For each Interest in the Mortgage
Funds that was validly tendered and not withdrawn in the Offering, the Company
issued its Preferred Shares based on an exchange ratio applicable to each
Mortgage Fund.
Simultaneous with the completion of the Offering on April 4, 2003, KRF
Company, L.L.C. ("KRF Company"), an affiliate of the Company, contributed its
ownership interests in five multi-family residential properties (the
"Properties") to Berkshire Income Realty-OP, L.P. (the "Operating Partnership")
in exchange for common limited partner interests in the Operating Partnership.
KRF Company then contributed an aggregate of $1,283,213 to the Company in
exchange for common stock of the Company in an amount which, together with the
$100 contributed in exchange for 100 shares of common stock of the Company prior
to the Offering, equaled 1% of the fair value of total net assets of the
Operating Partnership. This amount was contributed by the Company to its wholly
owned subsidiary, BIR GP, L.L.C., who then contributed the cash to the Operating
Partnership in exchange for the sole general partner interest in the Operating
Partnership.
As of the completion of the Offering, the Operating Partnership is the
successor to the Berkshire Income Realty Predecessor Group (the "Predecessor").
The merger of the separate businesses into the Company and the Operating
Partnership is considered a purchase business combination with the Predecessor
being the accounting acquirer. Accordingly, the acquisition or contribution of
the various Predecessor interests is accounted for at their historical cost. The
acquisition of the Interests is accounted for using purchase accounting based
upon the fair value of the Interests acquired.
On March 20, 2003, KRF Company, through a newly formed affiliate, Gables of
Texas Limited Partnership ("Gables"), whose general partner, Gables of Texas,
L.L.C., is also a newly formed affiliate, acquired The Gables Apartments, a
140-unit multi-family apartment complex located in Houston, Texas, from an
unrelated third party for a purchase price of approximately $6.9 million. On
March 25, 2003, the Audit Committee of the Company's Board of Directors approved
the purchase by the Operating Partnership of the entire equity interest in
Gables from KRF Company for cash equal to the purchase price KRF Company paid
the original seller of The Gables Apartments (including, equity payments,
transfer taxes, financing and closing costs as applicable). On April 24, 2003,
the Operating Partnership acquired Gables and Gables of Texas L.L.C. from KRF
Company for approximately $6.9 million plus closing costs of approximately
$84,000.
On April 29, 2003, the Preferred Shares began trading on the American Stock
Exchange, under the symbol "BIR.PR.A".
Continued
-4-
BERKSHIRE INCOME REALTY, INC.
NOTES TO BALANCE SHEET, Continued
5. SUBSEQUENT EVENTS, Continued
On May 6, 2003, the Audit Committee of the Company's Board of Directors
approved the acquisition by the Operating Partnership of McNab KC3 Limited
Partnership ("McNab") from affiliates of the Company's advisory company in
exchange for the issuance by the Operating Partnership of common limited partner
units. McNab is the fee simple owner of a 276-unit multi-family apartment
community located in Pompano Beach, Florida that is referred to as Windward
Lakes Apartments. The lender on this property, which is an affiliate of the
Company, engaged a third party appraisal firm to determine the value of the
property for purposes of determining the total amount payable to the lender
under the terms of its participating mortgage. The third party appraisal firm
valued the property at $19,000,000. The Company's Audit Committee and the
affiliates that own all of the general and limited partnership units in McNab
have agreed to accept this appraised value as the value for the contribution by
the affiliates of the McNab partnership units to the Operating Partnership. The
partnership units will be contributed to the Operating Partnership subject to
certain debt collateralized by the units totaling approximately $4,140,000 (the
"Additional Loan"). Such amount includes principal, accrued and unpaid base
interest and estimated participation interest due under the terms of the
Additional Loan. The property also has a first mortgage lien collateralized by
the real estate with a current balance of approximately $13,318,000, plus
approximately $684,000 in accrued interest rebates due to the lender. The lender
on both the Additional Loan and the first mortgage for McNab is Krupp Government
Income Trust ("GIT"). We intend to pay off these obligations upon the closing of
the contribution of the partnership units. As a result of the Offering described
above, the Operating Partnership owns approximately 31% of GIT and as such is
expected to receive approximately $5,600,000 as a special distribution from GIT
sometime after the payoff of this indebtedness. The affiliates will be issued
approximately $850,000 of common limited partner units, valued at $10 per unit,
of the Operating Partnership as consideration for the McNab acquisition.
-5-
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
COMBINED BALANCE SHEETS
March 31, December 31,
2003 2002
(Unaudited) (Note 2)
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(In Thousands)
ASSETS
Multi-family apartment communities, net of
accumulated depreciation of $89,314 and $88,003,
respectively $ 84,169 $ 85,157
Cash and cash equivalents 6,478 4,766
Cash restricted for tenant security deposits 777 776
Replacement reserve escrow 387 291
Prepaid expenses and other assets 2,408 3,410
Deferred expenses, net of accumulated amortization
of $203 and $155, respectively 984 1,032
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Total assets $ 95,203 $ 95,432
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LIABILITIES AND OWNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 105,475 $ 105,828
Accrued expenses and other liabilities 1,206 1,643
Tenant security deposits 871 839
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Total liabilities 107,552 108,310
Owners' deficit (12,349) (12,878)
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Total liabilities and owners' deficit $ 95,203 $ 95,432
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The accompanying notes are an integral part of these
combined financial statements.
-6-
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
COMBINED STATEMENTS OF OPERATIONS
(Unaudited, In Thousands)
For the Three Months
Ended March 31,
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2003 2002
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Revenue:
Rental $ 5,962 $ 5,796
Interest 32 24
Utility reimbursement 104 155
Other 205 188
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Total revenue 6,303 6,163
Expenses:
Operating 1,474 1,415
Maintenance 429 382
Real estate taxes 452 430
General and administrative 130 172
Management fees 412 420
Depreciation 1,311 1,300
Interest 1,566 776
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Total expenses 5,774 4,895
Income before minority interest 529 1,268
Minority interest - (54)
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Net income $ 529 $ 1,214
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The accompanying notes are an integral part of these
combined financial statements.
-7-
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited, In Thousands)
For the Three Months
Ended March 31,
----------------------------
2003 2002
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Cash flows from operating activities:
Net income $ 529 $ 1,214
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred financing costs 48 36
Depreciation 1,311 1,300
Minority interest - (54)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Tenant security deposits, net 31 5
Prepaid expenses and other assets 1,002 (1,223)
Accounts receivable affiliates - 1,738
Accrued expenses and other liabilities (437) 617
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Net cash provided by operating activities 2,484 3,633
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Cash flows from investing activities:
Capital improvements (323) (357)
Replacement reserve escrow (96) -
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Net cash used in investing activities (419) (357)
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Cash flows from financing activities:
Principal payments on mortgage notes payable (353) (325)
Deferred financing costs - (16)
Contributions from owners - 126
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Net cash used in financing activities (353) (215)
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Net increase in cash and cash equivalents 1,712 3,061
Cash and cash equivalents at beginning of year 4,766 3,990
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Cash and cash equivalents at end of year $ 6,478 $ 7,051
============= =============
Supplemental cash flow disclosure:
Cash paid for mortgage interest $ 1,511 $ 740
============= =============
The accompanying notes are an integral part of these
financial statements.
-8-
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited, Dollars in Thousands)
1. Organization and Basis of Presentation
KRF Company L.L.C., an affiliate of The Berkshire Group and controlled by
Douglas and George Krupp, through its subsidiaries KRF3 Acquisition
Company, L.L.C. and KR5 Acquisition, L.L.C. ("KRF"), at March 31, 2003 and
2002 had controlling interests in five multi-family apartment communities
consisting of 2,539 units (the "Properties") as follows:
Controlling
Description Location Units Interest
----------- --------------------- ----- -----------
Century Cockeysville, Maryland 468 75.82%
Dorsey's Forge Columbia, Maryland 251 91.38%
Hannibal Grove Columbia, Maryland 316 91.38%
Seasons of Laurel Laurel, Maryland 1,088 100.00%
Walden Pond Houston, Texas 416 100.00%
KRF acquired the Properties during 2000 and 2001 through the acquisition of
limited partner units from certain affiliates of The Berkshire Group also
controlled by Douglas and George Krupp, namely, Krupp Realty Limited
Partnership - V (Century) and Krupp Realty Fund, Ltd. - III (Dorsey's Forge
and Hannibal Grove), and through the purchase of real estate from certain
affiliates of The Berkshire Group, namely, Maryland Associates Limited
Partnership (Seasons of Laurel) and Krupp Realty Fund, Ltd. - IV (Walden
Pond); (collectively, the "Affiliates").
The activities of the Properties held by KRF and the Affiliates, the owners
of the Properties, are collectively referred to as the Berkshire Income
Realty Predecessor Group or the "Predecessor". The Properties have been
included in the financial statements of the Predecessor for all periods
presented.
The accompanying financial statements have been presented on a combined
basis because KRF and the Affiliates are under common management and
control and because KRF and the Properties became the subject of a business
combination with Berkshire Income Realty, Inc. (the Company) which was
formed in 2002 and intends to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, as amended.
Due to the affiliation of the Predecessor, these financial statements have
been presented as a reorganization of entities under common control, which
is similar to the accounting for a pooling of interests. The acquisition or
transfer of the various Predecessor interests has been accounted for at
historical cost. The acquisition of limited partner interests in the
Affiliates has been accounted for using purchase accounting based on the
cash paid for the interests, resulting in an incremental increase in the
basis of the Predecessor's real estate.
Continued
-9-
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(Unaudited, Dollars in Thousands)
2. Unaudited Interim Financial Statements
The accompanying combined interim financial statements are unaudited;
however, the financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the disclosures required by accounting principles
generally accepted in the United States of America for complete financial
statements. The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
account principles generally accepted in the United States of America. In
the opinion of management, all adjustments (consisting solely of normal
recurring matters) necessary for a fair presentation of the financial
statements for these interim periods have been included. The results of
operations for the interim periods are not necessarily indicative of the
results to be obtained for other interim periods or for the full fiscal
year.
3. Related Party Transactions
The Predecessor paid property management fees to an affiliate of The
Berkshire Group for management services. The fees are payable monthly at an
annual rate of 5% of the gross receipts from the properties under
management. The Predecessor also reimburses affiliates of The Berkshire
Group for certain expenses incurred in connection with the operation of the
properties, including administrative expenses. On May 6, 2003, the
Company's property manager agreed to reduce the property management fee
payable by the Company from 5% of gross income to 4% of gross income. This
change in the management fee will be applied prospectively effective April
1, 2003.
The Predecessor accrued asset management fees payable to an affiliate of
The Berkshire Group for asset management services. These fees were accrued
based on fees specified under the terms of the agreements governing the
various entities within the Predecessor Group. Effective April 4, 2003, an
affiliate of the Company that is its advisory company will be entitled to
receive an annual asset management fee equal to 0.40% of the purchase price
of real estate properties owned by the Company, as adjusted from time to
time to reflect the then current fair market value of the properties. The
purchase price is defined as the capitalized basis of an asset under GAAP,
including renovation or new construction costs, costs of acquisition or
other items paid or received that would be considered an adjustment to
basis.
Continued
-10-
BERKSHIRE INCOME REALTY PREDECESSOR GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(Unaudited, Dollars in Thousands)
3. Related Party Transactions, Continued
Amounts accrued or paid to The Berkshire Group's affiliates at March 31,
2003 and 2002 were as follows:
For the Three Months
Ended March 31,
----------------------------
2003 2002
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(Unaudited)
Property management fees $ 310 $ 318
Expense reimbursements - 34
Salary reimbursements 529 577
Asset management fees 102 102
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Charged to operations $ 941 $ 1,031
============= =============
Amounts due to affiliates of $192 and $115 were included in accrued
expenses and other liabilities at March 31, 2003 and December 31, 2002,
respectively.
Amounts due from affiliates of $32 and $48 were included in prepaid
expenses and other assets at March 31, 2003 and December 31, 2002,
respectively.
4. Newly Issued Accounting Standards
On April 30, 2003, the Financial Accounting Standards Board issued
Statement No. 149 (SFAS 149), Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. FAS 149 amends and clarifies the
accounting guidance on (1) derivative instruments (including certain
derivative instruments embedded in other contracts) and (2) hedging
activities that fall within the scope of FASB Statement No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 also
amends certain other existing pronouncements, which will result in more
consistent reporting of contracts that are derivatives in their entirety or
that contain embedded derivatives that warrant separate accounting. SFAS
149 is effective (1) for contracts entered into or modified after June 30,
2003, with certain exceptions, and (2) for hedging relationships designated
after June 30, 2003. The guidance is to be applied prospectively. We do not
expect the adoption of SFAS 149 to have a material impact on our financial
position, results of operations or cash flows.
-11-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF BERKSHIRE INCOME REALTY PREDECESSOR GROUP.
(In Thousands, except per share data)
You should read the following discussion in conjunction with the Berkshire
Income Realty Predecessor Group combined financial statements and their related
notes and other financial information included in this report. For further
information please refer to the combined financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 2002.
We discussed a number of significant trends and specific factors affecting the
real estate industry in general and our business in particular in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," Item
7 of our Annul Report on Form 10-K for the year ending December 31, 2002 under
several headings, including "Liquidity and Capital Resources", "Inflation and
Economic Conditions" and "Property Renovations". Those trends and factors
continue to be very relevant to the Company's performance and financial
condition.
The entities comprising Berkshire Income Realty Predecessor Group are deemed to
be our predecessor for accounting purposes. Because we did not commence
operations until after the period covered by these financial statements, the
following discussion relates to Berkshire Income Realty Predecessor Group.
Please also see the accompanying Berkshire Income Realty Predecessor Group
combined financial statements and related notes for a more detailed discussion
of the accounting methods used in preparing the financial information for
Berkshire Income Realty Predecessor Group. This discussion contains
forward-looking statements.
Overview
At March 31, 2003 and December 31, 2002, KRF Company, an affiliate of Berkshire
Income Realty, Inc., through its subsidiaries, KRF 3 Acquisition Company, L.L.C.
and KR5 Acquisition, L.L.C., which we collectively refer to as KRF, held
controlling interests in five multi-family apartment communities consisting of
2,539 units, which we refer to as the initial properties. KRF Company is an
affiliate of The Berkshire Group and as of those dates was controlled by Douglas
and George Krupp. KRF acquired the initial properties during 2000 and 2001
through the acquisition of limited partner units from certain affiliates of The
Berkshire Group also controlled by Douglas and George Krupp, namely, Krupp
Realty Limited Partnership-V (Century) and Krupp Realty Fund, Ltd.-III (Dorsey's
Forge and Hannibal Grove), and through the purchase of real estate from certain
affiliates of The Berkshire Group, namely, Maryland Associates Limited
Partnership (Seasons of Laurel) and Krupp Realty Fund, Ltd.-IV (Walden Pond),
which we refer to collectively as the Affiliates. The acquisition of the limited
partner interests or real estate from the Affiliates has been accounted for
using purchase accounting based upon the cash paid for the interests, which was
at fair value and in excess of book value of the initial properties. The step up
in basis for the five properties, Century, Dorsey's Forge, Hannibal Grove,
Seasons of Laurel and Walden Pond, was $12,214, $3,404, $5,914, $26,241, and
$8,322, respectively.
The owners of the initial properties and the activities conducted with respect
to the initial properties are collectively referred to as Berkshire Income
Realty Predecessor Group or the Predecessor.
The Predecessor has been engaged in the business of acquiring, owning and
operating multi-family residential real estate, including the initial
properties. Each of the initial properties has been managed by affiliates of the
Predecessor for over 15 years. The initial properties include Century, Dorsey's
Forge, Hannibal Grove, Seasons of Laurel and Walden Pond.
-12-
Forward Looking Statements
Certain statements contained in this report, including information with respect
to our future business plans, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements, subject to a number of risks and uncertainties that
could cause actual results to differ significantly from those described in this
report. These forward-looking statements include statements regarding, among
other things, our business strategy and operations, future expansion plans,
future prospects, financial position, anticipated revenues or losses and
projected costs, and objectives of management. Without limiting the foregoing,
the words "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms and other comparable terminology are intended to identify
forward-looking statements. There are a number of important factors that could
cause our results to differ materially from those indicated by such
forward-looking statements. These factors include, but are not limited to,
changes in economic conditions generally and the real estate and bond markets
specifically, legislative/regulatory changes (including changes to laws
governing the taxation of real estate investment trusts ("REITs"), availability
of capital, interest rates and interest rate spreads, changes in generally
accepted accounting principles and policies and guidelines applicable to REITs,
those set forth in Part I, Item 1A. "Risk Factors" of the Company's Form 10-K
and other risks and uncertainties as may be detailed from time to time in our
public announcements and SEC filings.
The risks included here are not exhaustive. Other sections of this report may
include additional factors that could adversely affect our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Critical Accounting Policies
The discussion below describes what we believe are the critical accounting
policies that affect the Predecessor's more significant judgments and the
estimates used in the preparation of its combined financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the Predecessor's combined financial statements and related
notes. We believe that the following critical accounting policies affect
significant judgments and estimates used in the preparation of the Predecessor's
combined financial statements:
Principles of Combination
The combined financial statements include the accounts of the initial
properties extracted from the books and records of KRF and the
Affiliates. To the extent parties not affiliated with The Berkshire
Group have an equity interest in the initial properties, this interest
is accounted for as minority interest in the accompanying combined
financial statements. Allocations of income, losses and distributions
are made to each minority shareholder based upon its share of the
allocations. Losses in excess of each minority shareholder's
investment basis are allocated to the Predecessor. Distributions to
each minority shareholder in excess of its investment basis are
recorded in the Predecessor's combined statements of operations as
minority interest.
-13-
Impairment of Long-Lived Assets
Effective January 1, 2002, the Predecessor adopted the provisions of
SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived
Assets, which supersedes SFAS No. 121. The Predecessor periodically
reviews its properties to determine if their carrying amounts will be
recovered from future operating cash flows. The evaluation of
anticipated cash flows is highly subjective and is based in part on
assumptions regarding future occupancy, rental rates and capital
requirements that could differ materially from actual results in
future periods. Since cash flows on properties considered to be
"long-lived assets to be held and used" as defined by SFAS No. 144 are
considered on an undiscounted basis to determine whether an asset has
been impaired, the Predecessor's established strategy of holding
properties over the long term directly decreases the likelihood of
recording an impairment loss. If the Predecessor's strategy changes or
market conditions otherwise dictate an earlier sale or disposal date,
an impairment loss may be recognized. If the Predecessor determines
that impairment has occurred, the affected assets must be reduced to
their fair value. No such impairment losses have been recognized to
date.
Capital Improvements
The Predecessor's policy is to capitalize costs related to the
acquisition, rehabilitation and improvement of properties. Capital
improvements are costs that increase the value and extend the useful
life of an asset. Ordinary repair and maintenance costs that do not
extend the useful life of the asset are expensed as incurred. Costs
incurred on a lease turnover due to normal wear and tear by the
resident are expensed on the turn. Recurring capital improvements
typically include: appliances, carpeting and flooring, HVAC equipment,
kitchen/bath cabinets, site improvements and various exterior building
improvements. Non-recurring capital improvements include kitchen/bath
upgrades, new roofs, window replacements and the development of
on-site fitness, business and community centers.
The Predecessor is required to make subjective assessments as to the
useful lives of its properties and improvements for purposes of
determining the amount of depreciation to reflect on an annual basis.
These assessments have a direct impact on the Predecessor's net
income.
Revenue Recognition
The initial properties are leased under terms of leases with terms of
generally one year or less. Rental revenue is recognized when earned.
Recoveries from tenants for utility expenses are recognized in the
period the applicable costs are incurred. Other income, which consists
primarily of income from damages, laundry, cable, phone, pool, month
to month tenants, relet fees and pet fees are recognized when earned.
Liquidity and Capital Resources
Capital Expenditures, Distributions, Cash flow and Indebtedness
As of March 31, 2003 and December 31, 2002, the Predecessor had
approximately $6,631 and $4,766 of cash and cash equivalents,
respectively.
We expect our principal liquidity demands to be capital improvements
and repairs and maintenance for the initial properties, acquisition of
additional properties, repayment of indebtedness and distributions to
the holders of our preferred stock.
We intend to meet our short-term liquidity requirements through net
cash flows provided by operating activities and through distributions
of income on the Interests tendered in the Offering. In order to
qualify as a REIT, we are required to make dividend distributions,
other than capital gain dividends, to our shareholders each year in
the amount of at least 90% of our REIT taxable income (computed
without regard to the dividends paid deductions and our net capital
gain and subject to certain other potential adjustments) for all tax
years.
-14-
We may seek a line of credit secured, at least in part, by the
Interests tendered in the Offering. We expect to use any such line of
credit primarily as a source of capital for the acquisition of new
properties.
To the extent that we do not satisfy our long-term liquidity
requirements through net cash flows provided by operating activities
and through distributions of income on the Interests tendered in the
Offering, we intend to satisfy those requirements through refinancing
or establishing secondary financing on our real estate investments and
through advances on our proposed line of credit.
As of March 31, 2003, approximately 96% of the Predecessor's mortgage
obligations were under fixed interest rates. The weighted average rate
of interest on all mortgage debt was 5.73%. During 2002, the
Predecessor took advantage of the low interest rate market to fix
rates on four of its five mortgage notes payable. We believe that this
limits the exposure to changes in interest rates, minimizing the
effect on our financial condition, results of operations and cash
flows.
As of April 4 and April 18, 2003, as a result of the completion of the
Offering, which is described more fully in "Subsequent Events", we
hold Interests in six Mortgage Funds. Each of these funds own mortgage
loans that may be prepaid and subsequently distributed by the Mortgage
Funds to the holders of Interests. We cannot predict the rate at which
these mortgage loans will be paid to the Mortgage Funds or to the
Interest holders. If the mortgage loans pay off slower than
anticipated, we may need to seek additional sources of capital,
including those discussed above, to fund the purchase of real estate.
If the mortgage loans pay off faster than anticipated, we may need to
seek alternative mid-term investments that provide a reasonable rate
of return until appropriate real estate investments can be found.
These mid-term investments would need to comply with our investment
policies and operating requirements, including requirements related to
maintaining our status as a REIT.
Acquisitions
On March 20, 2003, KRF Company, through a newly formed affiliate,
Gables of Texas Limited Partnership ("Gables"), whose general partner,
Gables of Texas, L.L.C., is also a newly formed affiliate, acquired
The Gables Apartments, a 140-unit multi-family apartment complex
located in Houston, Texas, from an unrelated third party for a
purchase price of approximately $6,925. On March 25, 2003, the Audit
Committee of the Company's Board of Directors approved the purchase by
the Operating Partnership of the entire equity interest in Gables from
KRF Company for cash equal to the purchase price KRF Company paid the
original seller of The Gables Apartments (including, equity payments,
transfer taxes, financing and closing costs as applicable). On April
24, 2003, the Operating Partnership acquired Gables and Gables of
Texas L.L.C. from KRF Company for approximately $6,925 plus closing
costs of approximately $84.
-15-
On May 6, 2003, the Audit Committee of our Board of Directors approved
the acquisition by our operating partnership, Berkshire Income
Realty-OP, L.P. (the "Operating Partnership"), of McNab KC3 Limited
Partnership ("McNab") from affiliates of our advisory company in
exchange for the issuance by the Operating Partnership of common
limited partner units. McNab is the fee simple owner of a 276-unit
multi-family apartment community located in Pompano Beach, Florida
that is referred to as Windward Lakes Apartments. The lender on this
property, which is an affiliate of ours, engaged a third party
appraisal firm to determine the value of the property for purposes of
determining the total amount payable to the lender under the terms of
its participating mortgage. The third party appraisal firm valued the
property at $19,000. Our Audit Committee and the affiliates that own
all of the general and limited partnership units in McNab have agreed
to accept this appraised value as the value for the contribution by
the affiliates of the McNab partnership units to the Operating
Partnership. The partnership units were contributed subject to certain
debt collateralized by the units totaling approximately $4,140 (the
"Additional Loan"). Such amount includes principal, accrued and unpaid
base interest and estimated participation interest. The property also
has a first mortgage lien collateralized by the real estate with a
current balance of approximately $13,318, plus approximately $684 in
accrued interest rebates due to the lender. The lender on both the
Additional Loan and the first mortgage for McNab is Krupp Government
Income Trust ("GIT"). We intend to pay off these obligations upon the
closing of the contribution of the partnership units. As a result of
the Offering described above, our Operating Partnership owns
approximately 31% of GIT and as such we expect to receive
approximately $5,600 as a special distribution from GIT sometime after
the payoff of this indebtedness. The affiliates will be issued
approximately $850 of common limited partner units, valued at $10 per
unit, of the Operating Partnership as consideration for the McNab
acquisition.
Declaration of Dividend
On March 25, 2003, our Board of Directors declared a regular dividend
of $.2563 per share on our 9% Series A Cumulative Redeemable Preferred
Stock ("Preferred Shares"), for the period ended May 15, 2003. The
regular quarterly dividend payable on the Preferred Shares is $.5625
per share. The dividend declared on March 25, 2003 is a prorated
amount, reflecting the dividend amount accruing from the issue date of
the Preferred Shares. The dividend on the Preferred Shares is payable
on May 15, 2003, to shareholders of record on May 10, 2003. This
dividend is equivalent to an annualized rate of $2.25 per share.
Results of Operations
Comparison of the three months ended March 31, 2003 to the three months ended
March 31, 2002
Rental income increased $166, or 2.86%, to $5,962. The increase was a result of
an increase of 5.2% in the weighted average rental rates, offset by a decrease
in the overall physical occupancy from 95.91% to 93.80%.
Interest income increased $8 or 33.33%, to $32. The increase was primarily the
result of an increase in the average cash and cash equivalent balances available
for investment.
Utility reimbursement decreased $51, or 32.90%, to $104. During the quarter
ended March 31, 2002, the Predecessor received reimbursements related to 2001
utility usage, which had not been billed as of the end of 2001. As a result, the
2002 revenue numbers are higher than they would otherwise be expected.
Other income increased $17, or 9.04%, to $205. This increase was related to
increases in the various fees collected and recorded as other income.
-16-
Operating expenses increased $59, or 4.17%, to $1,474. This increase was
primarily related to significant increases in our insurance costs, which were
partially offset by savings in onsite personnel costs. Insurance costs increased
$105, or 145.83%, as a result of general insurance premiums on our properties.
Insurance expense is expected to continue to rise as a result of the terrorist
attacks on September 11, 2001 and their impact on the insurance industry. onsite
personnel costs decreased $48, or 8.32%.
Maintenance expense increased $47, or 12.30%, to $429. The increase was
primarily the result of significant increases in snow removal costs associated
with significant snowfalls in the Mid-Atlantic states during February 2003.
Real estate taxes increased $22, or 5.12%, to $452. The increase was primarily
related to increases in tax rates on real property in the various jurisdictions
where the initial properties are located.
General and administrative expenses decreased $42, or 24.42%, to $130. The
decrease was primary related to the discontinuation of centralized service fees
related to expenses reimbursements to our property manager. These fees were
discontinued in early 2002 and therefore are not reflected in the March 31, 2003
operating results.
Interest expense increased $790, or 101.80%, to $1,566. In April and July of
2002, the Predecessor refinanced four of the five initial properties. The
refinancing resulted in an increase in mortgage indebtedness of approximately
$29,000. As a result of these refinancings, the weighted average interest rate
on the mortgage debt increased from approximately 3.00%, the weighted average
variable interest rate at March 31, 2002, to approximately 6.00%, the weighted
average fixed interest rate at March 31, 2003. The combination of these two
factors resulted in a significant increase in interest expense.
Mortgage Debt to Fair Market Value of Real Estate Assets
The Predecessor's total mortgage debt summary and debt maturity schedule, as of
March 31, 2003, are as follows:
Mortgage Debt Summary as of March 31, 2003
- -------------------------------------------------------------------------------
$ Thousands Weighted
Average Rate
Collateralized - Fixed Rate $ 101,090 5.85%
Collateralized - Floating Rate 4,385 2.94%
------------- -------------
Total $ 105,475 5.73%
Debt Maturity Schedule as of March 31, 2003
Year $ Thousands % of Total
---- ------------- -------------
2003 $ 965 0.9%
2004 1,399 1.3%
2005 1,482 1.4%
2006 1,571 1.5%
2007 47,455 45.0%
Thereafter 52,603 49.9%
------------- -------------
Total $ 105,475 100.0%
-17-
The Predecessor's "Consolidated Mortgage Debt-to-Fair Market Value of Real
Estate Assets" as of March 31, 2003 is presented in the following table. The
Predecessor calculates the fair market value of real estate assets based on the
most recently available third party appraisal. The following information is
presented in lieu of information regarding the "Predecessor's Consolidated
Debt-to-Total Market Capitalization Ratio", which is a commonly used measure in
our industry, because the Predecessor's market capitalization is not readily
determinable since there was no public market for its equity during the periods
presented in these financial statements.
The information regarding "Consolidated Mortgage Debt-to-Fair Market Value of
Real Estate Assets" is presented to allow investors to calculate our
Loan-to-Value ratios in a manner consistent with those used by management and
others in our industry including those used by our current and potential
lenders. Management also uses Fair Market Value information when making
decisions about selling assets as well as evaluating acquisistion opportunities
within markets where we have assets. The most directly comparable financial
measure of our property value, calculated and presented in accordance with
accounting principles generally accepted in the United States of America, is net
book value, shown on the balance sheet as Multi-family apartment communities,
net of accumulated depreciation. At March 31, 2003 the aggregate net book value
of our real estate assets was $84,169
Fair Market Value of Real Estate Assets as of March 31, 2003 ($ in Thousands)
- --------------------------------------------------------------------------------
Property Name Fair Market Value* Mortgage Debt Loan-to-Value
------------- ------------------ -------------- -------------
Dorsey's Forge $ 14,600 $ 10,512 72.00%
Hannibal Grove 22,360 15,962 71.39%
Century II 31,010 22,537 72.68%
Seasons of Laurel 71,000 52,079 73.35%
Walden Pond 13,500 4,385 32.48%
------------------ -------------- -------------
Total $ 152,470 $ 105,475 69.18%
* Based on third party appraisals dated July 2, 2002, for Dorsey's, Hannibal and
Century II, June 28, 2002 for Seasons of Laurel and June 20, 2002 for Walden
Pond.
Environmental Issues
There are no recorded amounts resulting from environmental liabilities, because
there are no known contingencies with respect to environmental liabilities.
During the past 18 months, the Predecessor has refinanced each of the initial
properties. As part of the refinancing process, the lenders obtained
environmental audits of each of the initial properties. The Predecessor was not
advised by the lenders as to any material liability for site restoration or
other costs that may be incurred with respect to any of the initial properties.
Inflation and Economic Conditions
Substantially all of the leases at the initial properties are for a term of one
year or less, which enables the Predecessor to seek increased rents for new
leases or upon renewal of existing leases. These short-term leases minimize the
potential adverse effect of inflation on rental income, although residents may
leave without penalty at the end of their lease terms and may do so if rents are
increased significantly.
Historically, real estate has been subject to a wide range of cyclical economic
conditions, which affect various real estate sectors and geographic regions with
differing intensities and at different times. In 2002 and continuing into 2003,
many regions of the United States experienced varying degrees of economic
recession and certain recessionary trends, such as the cost of obtaining
sufficient property and liability insurance coverage, short-term interest rates,
and a temporary reduction in occupancy. In light of this, we will continue to
review our business strategy, however, we believe that given our property type,
garden style residential apartment communities, and the geographic regions in
which the initial properties are located, we do not anticipate any changes in
our strategy or material effects on our financial performance.
-18-
Subsequent Events
On April 4, 2003 and April 18, 2003, we completed the Offering in which we
offered to exchange our 9% Series A Cumulative Redeemable Preferred Stock,
having a $25.00 liquidation preference per share ("Preferred Shares"), for
interests ("Interests") in the following six mortgage funds: Krupp Government
Income Trust ("GIT"), Krupp Government Income Trust II ("GIT II"), Krupp Insured
Mortgage Limited Partnership ("KIM"), Krupp Insured Plus Limited Partnership
("KIP"), Krupp Insured Plus II Limited Partnership ("KIP II"), Krupp Insured
Plus III Limited Partnership ("KIP III").
As a result of the Offering, on April 4, 2003 and April 18, 2003 we issued
2,667,717 and 310,393 shares, respectively, of our Preferred Shares. For each
Interest in the Mortgage Funds that was validly tendered and not withdrawn in
the Offering, we issued Preferred Shares based on an exchange ratio applicable
to each mortgage fund.
Simultaneous with the completion of the Offering on April 4, 2003, our
affiliate, KRF Company, L.L.C., ("KRF Company") contributed its ownership
interests in five multi-family residential properties (the "Properties") to
Berkshire Income Realty-OP, L.P. (the "Operating Partnership") in exchange for
common limited partner interests in the Operating Partnership. KRF Company then
contributed an aggregate of approximately $1,283 to us in exchange for our
common stock. This amount equals approximately 1% of the fair value of total net
assets of the Operating Partnership. This amount was contributed to our wholly
owned subsidiary, BIR GP, L.L.C., who then contributed the cash to the Operating
Partnership in exchange for the sole general partner interest in the Operating
Partnership. We contributed the Interests tendered in the Offering to the
Operating Partnership in exchange for preferred limited partner interests in the
Operating Partnership.
On April 29, 2003, the Preferred Shares began trading on the American Stock
Exchange, under the symbol "BIR.PR.A".
On April 30, 2003, Maryland's three-member Board of Public Works voted
unanimously to increase the state property tax rate from 8.4 cents to 13.2 cents
per one hundred dollars of assessed value. This represents an increase of more
than fifty percent above the previous rate. The increase is effective for
Maryland's 2004 fiscal year, which begins on July 1, 2003. We have not fully
assessed the impact of this change in the tax rate, but initial estimates
indicate that the increase in real estate tax expense could be in excess of $800
on an annualized basis. On May 6, 2003, our property manager agreed to reduce
the property management fee payable by us from 5% of gross income to 4% of gross
income. This change in the management fee will be applied prospectively
effective April 1, 2003.
Newly Issued Accounting Standards
On April 30, 2003, the Financial Accounting Standards Board issued Statement No.
149 (SFAS 149), Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. FAS 149 amends and clarifies the accounting guidance on (1)
derivative instruments (including certain derivative instruments embedded in
other contracts) and (2) hedging activities that fall within the scope of FASB
Statement No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 also amends certain other existing pronouncements, which
will result in more consistent reporting of contracts that are derivatives in
their entirety or that contain embedded derivatives that warrant separate
accounting. SFAS 149 is effective (1) for contracts entered into or modified
after June 30, 2003, with certain exceptions, and (2) for hedging relationships
designated after June 30, 2003. The guidance is to be applied prospectively. We
do not expect the adoption of SFAS 149 to have a material impact on our
financial position, results of operations or cash flows.
-19-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Our primary market risk exposure is interest rate risk. At March 31, 2003
and December 31, 2002, approximately 96% of the Predecessor's mortgage
obligations were under fixed interest rates. The weighted average rate of
interest on mortgage debt was 5.7% and 5.8% at March 31, 2003 and December 31,
2002, respectively. The Predecessor has taken advantage of the low interest rate
market to fix rates on the vast majority of its mortgage debt. We believe that
this limits the exposure to changes in interest rates, minimizing the effect on
our financial condition, results of operations and cash flows.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our management,
including the President and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act). Based upon that
evaluation, the President and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) Changes in Internal Controls.
None.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the designing of any control
system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -------
(a) Exhibits:
3.1 Articles of Amendment and Restatement of Berkshire Income Realty, Inc.
10.1 Contribution and Sale Agreement, dated as of January 9, 2003,
among KRF Company, L.L.C., KRF GP Corporation, Berkshire
Income Realty-OP, L.P. and BIR Sub, L.L.C.
10.2 Advisory Services Agreement, dated as of January 9, 2003, between
Berkshire Income Realty, Inc. and Berkshire Property
Advisors, L.L.C.
10.3 Amended and Restated Voting Agreement, dated as of December 5,
2002, among Krupp Government Income Trust, Krupp Government
Income Trust II and Berkshire Income Realty, Inc.
99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Sections 1350, as Adopted Pursuant to Sections 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this report.
-20-
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, thereunto duly authorized.
Dated: May 15, 2003
BERKSHIRE INCOME REALTY, INC.
BY: /s/ David C. Quade
----------------------------
NAME: David C. Quade
TITLE: President and Chief
Financial Officer
-21-
CERTIFICATIONS
I, David C. Quade, as Principal Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Berkshire Income
Realty, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
May 15, 2003 /s/David C. Quade
----------------------------------------------------
David C. Quade
Principal Executive Officer / Chief Financial Officer
-22-
EXHIBIT INDEX
Exhibit Document
3.1 Articles of Amendment and Restatement of Berkshire Income
Realty, Inc.
10.1 Contribution and Sale Agreement, dated as of January 9, 2003,
among KRF Company, L.L.C., KRF GP Corporation, Berkshire
Income Realty-OP, L.P. and BIR Sub, L.L.C.
10.2 Advisory Services Agreement, dated as of January 9, 2003,
between Berkshire Income Realty, Inc. and Berkshire Property
Advisors, L.L.C.
10.3 Amended and Restated Voting Agreement, dated as of December 5,
2002, among Krupp Government Income Trust, Krupp Government
Income Trust II and Berkshire Income Realty, Inc.
99.1 Certification of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Sections 1350, as Adopted Pursuant to Sections 906 of
the Sarbanes-Oxley Act of 2002.
-23-