Monogram Residential Trust (BHORL) 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to  

Commission File Number: 000-53195

Behringer Harvard Multifamily REIT I, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	20-5383745
(State or other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

15601 Dallas Parkway, Suite 600, Addison, Texas 75001

(Address of Principal Executive Offices) (ZIP Code)

(866) 655-3600

(Registrant’s Telephone Number, Including Area Code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No x

As of April 30, 2014, the Registrant had 168,598,107 shares of common stock outstanding.

BEHRINGER HARVARD MULTIFAMILY REIT I, INC.

Form 10-Q

Quarter Ended March 31, 2014

		Page
PART I
FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	3
	Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013	4
	Consolidated Statements of Equity for the three months ended March 31, 2014 and 2013	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	67
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
Signature		72

2

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

	March 31, 2014			December 31, 2013
Assets
Real estate
Land	$	350,847		$	337,295
Buildings and improvements	1,820,841			1,833,452
	2,171,688			2,170,747
Less accumulated depreciation	(212,958		)	(195,048		)
Net operating real estate	1,958,730			1,975,699
Construction in progress, including land ($460,132 and $279,554 related to VIEs as of March 31, 2014 and December 31, 2013, respectively)	539,349			479,214
Total real estate, net	2,498,079			2,454,913
Cash and cash equivalents	302,077			319,368
Intangibles, net	24,618			25,753
Other assets, net	98,543			98,567
Total assets	$	2,923,317		$	2,898,601
Liabilities and equity
Liabilities
Mortgages and notes payable ($55,088 and $32,168 related to VIEs as of March 31, 2014 and December 31, 2013, respectively)	$	1,032,468		$	1,029,111
Credit facility payable	10,000			10,000
Construction costs payable ($46,208 and $27,054 related to VIEs as of March 31, 2014 and December 31, 2013, respectively)	54,112			44,684
Accounts payable and other liabilities	24,150			30,972
Deferred revenues, primarily lease revenues, net	18,043			18,382
Distributions payable	5,090			5,023
Tenant security deposits	4,134			4,122
Total liabilities	1,147,997			1,142,294
Commitments and contingencies
Redeemable noncontrolling interests ($22,251 and $13,007 related to VIEs as of March 31, 2014 and December 31, 2013, respectively)	27,401			21,984
Equity
Preferred stock, $0.0001 par value per share; 124,999,000 shares authorized:
7.0% Series A non-participating, voting, cumulative, convertible preferred stock, liquidation preference $10 per share, 10,000 shares issued and outstanding as of March 31, 2014 and December 31, 2013	—			—
Non-participating, non-voting convertible stock, $0.0001 par value per share; 1,000 shares authorized, none issued and outstanding as of March 31, 2014 and December 31, 2013	—			—
Common stock, $0.0001 par value per share; 875,000,000 shares authorized, 168,323,691 and 168,320,207 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively	17			17
Additional paid-in capital	1,508,589			1,508,655
Cumulative distributions and net income (loss)	(237,690		)	(230,554		)
Total equity attributable to common stockholders	1,270,916			1,278,118
Non-redeemable noncontrolling interests	477,003			456,205
Total equity	1,747,919			1,734,323
Total liabilities and equity	$	2,923,317		$	2,898,601

See Notes to Consolidated Financial Statements.

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Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended   March 31,
	2014			2013
Rental revenues	$	50,182		$	45,744
Expenses
Property operating expenses	13,041			12,000
Real estate taxes	7,153			5,872
Asset management fees	1,880			1,794
General and administrative expenses	3,360			2,253
Acquisition expenses	(17		)	—
Transition expenses	520			133
Investment and development expenses	248			—
Interest expense	5,331			6,408
Depreciation and amortization	22,977			20,699
Total expenses	54,493			49,159
Interest income	2,446			2,017
Loss on early extinguishment of debt	(230		)	—
Equity in income of investments in unconsolidated real estate joint ventures	204			130
Other income	200			61
Loss from continuing operations before gain on sale of real estate	(1,691		)	(1,207		)
Gain on sale of real estate	16,167			—
Income (loss) from continuing operations	14,476			(1,207		)
Discontinued operations:
Loss from discontinued operations	—			(124		)
Gain on sale of real estate in discontinued operations	—			6,853
Income from discontinued operations	—			6,729
Net income	14,476			5,522
Net (income) loss attributable to noncontrolling interests:
Non-redeemable noncontrolling interests in continuing operations	(7,051		)	1,233
Non-redeemable noncontrolling interests in discontinued operations	—			(2,311		)
Net income available to the Company	7,425			4,444
Dividends to preferred stockholders	(2		)	—
Net income attributable to common stockholders	$	7,423		$	4,444
Weighted average number of common shares outstanding - basic	168,714			168,084
Weighted average number of common shares outstanding - diluted	168,919			168,084
Basic and diluted earnings per common share:
Continuing operations	$	0.04		$	—
Discontinued operations	—			0.03
Basic and diluted earnings per common share	$	0.04		$	0.03
Amounts attributable to common stockholders:
Continuing operations	$	7,423		$	26
Discontinued operations	—			4,418
Net income attributable to common stockholders	$	7,423		$	4,444

See Notes to Consolidated Financial Statements.

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Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Equity

(in thousands)

(Unaudited)

																	Cumulative Distributions and Net
	Preferred Stock			Convertible Stock			Common Stock				Additional						Income (Loss)
	Number	Par		Number	Par		Number		Par		Paid-in			Noncontrolling			available to			Total
	of Shares	Value		of Shares	Value		of Shares		Value		Capital			Interests			the Company			Equity
Balance at January 1, 2013	—	$	—	1	$	—	167,542		$	17	$	1,523,646		$	365,350		$	(201,211	)	$	1,687,802
Net income	—	—		—	—		—		—		—			1,078			4,444			5,522
Sale of noncontrolling interest	—	—		—	—		—		—		—			(1,374		)	—			(1,374		)
Contributions by noncontrolling interests	—	—		—	—		—		—		—			(62		)	—			(62		)
Distributions:
Common stock - regular	—	—		—	—		—		—		—			—			(14,507		)	(14,507		)
Noncontrolling interests	—	—		—	—		—		—		—			(12,430		)	—			(12,430		)
Stock issued pursuant to distribution reinvestment plan, net	—	—		—	—		813		—		7,678			—			—			7,678
Balance at March 31, 2013	—	$	—	1	$	—	168,355		$	17	$	1,531,324		$	352,562		$	(211,274	)	$	1,672,629
Balance at January 1, 2014	10	$	—	—	$	—	168,320		$	17	$	1,508,655		$	456,205		$	(230,554	)	$	1,734,323
Net income	—	—		—	—		—		—		—			7,051			7,425			14,476
Redemptions of common stock	—	—		—	—		(794	)	—		(7,000		)	—			—			(7,000		)
Sale of noncontrolling interests	—	—		—	—		—		—		(842		)	15,008			—			14,166
Contributions by noncontrolling interests	—	—		—	—		—		—		—			19,453			—			19,453
Amortization of stock-based compensation	—	—		—	—		—		—		174			—			—			174
Distributions:
Common stock - regular	—	—		—	—		—		—		—			—			(14,561		)	(14,561		)
Noncontrolling interests	—	—		—	—		—		—		—			(20,714		)	—			(20,714		)
Stock issued pursuant to distribution reinvestment plan, net	—	—		—	—		798		—		7,602			—			—			7,602
Balance at March 31, 2014	10	$	—	—	$	—	168,324		$	17	$	1,508,589		$	477,003		$	(237,690	)	$	1,747,919

See Notes to Consolidated Financial Statements.

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Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	For the Three Months Ended   March 31,
	2014			2013
Cash flows from operating activities
Net income	$	14,476		$	5,522
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of real estate	(16,167		)	(6,853		)
Loss on early extinguishment of debt	230			—
Equity in income of investments in unconsolidated real estate joint ventures	(204		)	(130		)
Distributions received from investment in unconsolidated real estate joint venture	—			101
Depreciation	21,371			21,689
Amortization of deferred financing costs and debt premium/discount	(126		)	(308		)
Amortization of intangibles	1,051			423
Amortization of deferred revenues, primarily lease revenues, net	(357		)	(354		)
Amortization of stock-based compensation	174			—
Other, net	34			305
Changes in operating assets and liabilities:
Accounts payable and other liabilities	(7,527		)	(2,186		)
Other assets	(2,278		)	2,257
Cash provided by operating activities	10,677			20,466
Cash flows from investing activities
Additions to real estate:
Additions to existing real estate	(1,232		)	(1,270		)
Construction in progress, including land	(77,572		)	(56,812		)
Proceeds from sale of real estate, net	33,134			33,263
Investments in unconsolidated real estate joint ventures	—			(1,609		)
Acquisitions of noncontrolling interests	(3,898		)	(525		)
Advances on notes receivable	(3,608		)	(11,072		)
Escrow deposits	3,669			(942		)
Other, net	(87		)	(156		)
Cash used in investing activities	(49,594		)	(39,123		)
Cash flows from financing activities
Mortgage proceeds	24,356			4,056
Mortgage principal payments	(1,132		)	(23,873		)
Contributions from noncontrolling interests	33,681			2,834
Distributions paid on common stock - regular	(6,963		)	(6,804		)
Distributions paid to noncontrolling interests	(20,638		)	(12,378		)
Redemptions of common stock	(7,000		)	—
Other, net	(678		)	(953		)
Cash provided by (used in) financing activities	21,626			(37,118		)
Net change in cash and cash equivalents	(17,291		)	(55,775		)
Cash and cash equivalents at beginning of period	319,368			450,644
Cash and cash equivalents at end of period	$	302,077		$	394,869

See Notes to Consolidated Financial Statements.

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Behringer Harvard Multifamily REIT I, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1.Organization and Business

Organization

Behringer Harvard Multifamily REIT I, Inc. (which, together with its subsidiaries as the context requires, may be referred to as the “Company,” “we,” “us,” or “our”) was organized in Maryland on August 4, 2006.  We invest in, develop and operate high quality multifamily communities. These multifamily communities include conventional multifamily assets, such as mid-rise, high-rise, garden style, and age-restricted properties, typically requiring residents to be age 55 or older.  Our targeted communities include existing “core” properties, which we define as properties that are already stabilized and producing rental income, as well as properties in various phases of development, redevelopment, lease up or repositioning with the intent to transition those properties to core properties.  Further, we may invest in other types of commercial real estate, real estate-related securities, and mortgage, bridge, mezzanine or other loans, or in entities that make investments similar to the foregoing.  We completed our first investment in April 2007.

From our inception to July 31, 2013, we had no employees and were externally managed by Behringer Harvard Multifamily Advisors I, LLC (the “Advisor”) and were supported by related party service agreements with the Advisor and its affiliates (collectively “Behringer”). Through July 31, 2013, we exclusively relied on Behringer to provide certain services and personnel for management and day-to-day operations, including advisory services performed by the Advisor and property management services provided by Behringer Harvard Multifamily Management Services, LLC and its affiliates (“BHM Management” or the “Property Manager”). 

Effective July 31, 2013, we entered into a series of agreements with Behringer in order to begin our transition to self-management (the “Self-Management Transition Agreements”). In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of Behringer and subsequently began hiring additional employees. See further discussion at Note 12, “Transition to Self-Management.”

We invest in multifamily communities that may be wholly owned by us or held through joint venture arrangements with third-party institutional or other national or regional real estate developers/owners which we define as “Co-Investment Ventures” or “CO-JVs.”  These are predominately equity investments but also include debt investments, consisting of mezzanine and land loans.  If a Co-Investment Venture makes an equity or debt investment in a separate entity with additional third parties, we refer to such a separate entity as a “Property Entity” and when applicable may name the multifamily community related to the Property Entity or CO-JV.

As of March 31, 2014, we have equity and debt investments in 54 multifamily communities, of which 33 are stabilized operating properties, two are developments in lease up and 19 are in various stages of pre-development and construction. Of the 54 multifamily communities, we wholly own seven multifamily communities and three debt investments for a total of 10 wholly owned investments.  The remaining 44 investments are held through Co-Investment Ventures, 43 of which are consolidated and one is reported on the equity method of accounting. The one unconsolidated Co-Investment Venture holds a debt investment. 

As of March 31, 2014, we are the general partner and/or managing member for each of the separate Co-Investment Ventures. Our two largest Co-Investment Venture partners are Stichting Depositary PGGM Private Real Estate Fund, a Dutch foundation acting in its capacity as depositary of and for the account and risk of PGGM Private Real Estate Fund and its affiliates, a real estate investment vehicle for Dutch pension funds (“PGGM” or the “PGGM Co-Investment Partner”), and Milky Way Partners, L.P. (the “MW Co-Investment Partner”), the primary partner of which is Korea Exchange Bank, as Trustee for and on behalf of National Pension Service (acting for and on behalf of the National Pension Fund of the Republic of Korea Government) (“NPS”). Our other Co-Investment Venture partners include national or regional real estate developers/owners (“Developer Partners.”) When applicable, we refer to individual investments by referencing the individual co-investment partner or the underlying multifamily community. We refer to our Co-Investment Ventures with the PGGM Co-Investment Partner as “PGGM CO-JVs,” those with the MW Co-Investment Partner as “MW CO-JVs,” and those with Developer Partners as “Developer CO-JVs.” Certain PGGM CO-JVs that also include Developer Partners are referred to as PGGM CO-JVs.

Prior to July 31, 2013, PGGM’s interest in the PGGM CO-JVs was held through Monogram Residential Master Partnership I LP (the “Master Partnership”), in which PGGM held a 99% limited partner interest and an affiliate of Behringer held the 1% general partner interest (the “GP Master Interest”). Our interest in the PGGM CO-JVs was generally 55% and the

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Master Partnership’s interest was generally 45%. On July 31, 2013, we acquired the GP Master Interest from Behringer for $23.1 million (effectively increasing our ownership interest in each applicable PGGM CO-JV) and consolidated the Master Partnership. Our acquisition of the BHMP GP Interest on July 31, 2013, resulted in the PGGM Co-Investment Partner becoming our partner in these Co-Investment Ventures as of July 31, 2013.  Due to PGGM’s existing 99% ownership interest in the Master Partnership and because this transaction did not have a significant effect on the amount of noncontrolling interests in such Co-Investment Ventures, PGGM’s ownership interest in each applicable Co-Investment Venture was unchanged. Accordingly, we now consider PGGM to be our co-investment partner in these Co-Investment Ventures. We now refer to these Co-Investment Ventures as “PGGM CO-JVs” and to PGGM as the “PGGM Co-Investment Partner.” In addition, on December 20, 2013, the Master Partnership was restructured to increase the maximum potential capital commitment of PGGM by $300 million (plus any amount distributed to PGGM from sales or financings of new PGGM CO-JVs) and we sold a noncontrolling interest in 13 Developer CO-JVs to PGGM for $146.4 million. For the three months ended March 31, 2014, we also sold a non-controlling interest in two additional Developer CO-JVs to PGGM for $13.2 million and sold a controlling interest in the Tupelo PGGM CO-JV to an unaffiliated third party.

The table below presents a summary of our Co-Investment Ventures. The effective ownership ranges are based on our share of contributed capital in the multifamily investment. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements for each respective Co-Investment Venture.  Unless otherwise noted, all are reported on the consolidated basis of accounting.

	March 31, 2014		December 31, 2013
Co-Investment Structure	Number of Multifamily Communities	Our Effective Ownership	Number of Multifamily Communities	Our Effective Ownership
PGGM CO-JVs (a)	28	44% to 74%	27	44% to 74%
MW CO-JVs	14	55%	14	55%
Developer CO-JVs	2	90% to 100%	4	90% to 100%
Total	44		45

(a) Includes one unconsolidated investment as of March 31, 2014 and December 31, 2013. Also, as of March 31, 2014 and December 31, 2013, includes Developer Partners in 18 and 16 multifamily communities, respectively.

We have elected to be taxed, and currently qualify, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes.  To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders.  If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates.  As of March 31, 2014, we believe we are in compliance with all applicable REIT requirements.

2.Summary of Significant Accounting Policies

Interim Unaudited Financial Information

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 which was filed with the Securities and Exchange Commission (“SEC”) on March 12, 2014. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from this report.

The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying consolidated balance sheet as of March 31, 2014 and consolidated statements of operations, equity and cash flows for the periods ended March 31, 2014 and 2013 have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial position as of March 31, 2014 and December 31, 2013 and our consolidated results of operations and cash flows for the periods ended March 31, 2014 and 2013. Such adjustments are of a normal recurring nature.

8

We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements include our consolidated accounts and the accounts of our wholly owned subsidiaries.  We also consolidate other entities in which we have a controlling financial interest or other entities (referred to as variable interest entities or “VIEs”) where we are determined to be the primary beneficiary.  VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability.  The primary beneficiary is required to consolidate a VIE for financial reporting purposes.  The determination of the primary beneficiary requires management to make significant estimates and judgments about our rights, obligations, and economic interests in such entities as well as the same of the other owners.  See Note 5, “Variable Interest Entities” for further information about our VIEs.  For entities in which we have less than a controlling financial interest or entities with respect to which we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting.  Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income.  See Note 6, “Other Assets” for further information on our unconsolidated investment.  All inter-company accounts and transactions have been eliminated in consolidation.

Real Estate and Other Related Intangibles

Acquisitions

For real estate properties acquired by us or our Co-Investment Ventures classified as business combinations, we determine the purchase price, after adjusting for contingent consideration and settlement of any pre-existing relationships. We record the acquired assets and liabilities based on their fair values, including tangible assets (consisting of land, any associated rights, buildings and improvements), identified intangible assets and liabilities, asset retirement obligations, assumed debt, other liabilities and noncontrolling interests.  Identified intangible assets and liabilities primarily consist of the fair value of in-place leases and contractual rights.  Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree over the fair value of identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree are less than the fair value of the identifiable net assets acquired.

The fair value of any tangible real estate assets acquired is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, buildings and improvements.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  When we acquire rights to use land or improvements through contractual rights rather than fee simple interests, we determine the value of the use of these assets based on the relative fair value of the assets after considering the contractual rights and the fair value of similar assets. Assets acquired under these contractual rights are classified as intangibles and amortized on a straight-line basis over the shorter of the contractual term or the estimated useful life of the asset. Contractual rights related to land or air rights that are substantively separated from depreciating assets are amortized over the life of the contractual term or, if no term is provided, are classified as indefinite-lived intangibles.  Intangible assets are evaluated at each reporting period to determine whether the indefinite and finite useful lives are appropriate.

We determine the value of in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease up periods for the respective leasable area considering current market conditions.  In estimating fair value of in-place leases, we consider items such as real estate taxes, insurance, leasing commissions, tenant improvements and other operating expenses to execute similar deals as well as projected rental revenue and carrying costs during the expected lease up period.  The estimate of the fair value of tenant relationships also includes our estimate of the likelihood of renewal. We amortize the value of in-place leases acquired to expense over the remaining term of the leases. The value of tenant relationship intangibles will be amortized to expense over the initial term and any anticipated renewal periods, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of the building. The in-place leases are amortized over the remaining term of the in-place leases, approximately a six month term for multifamily in-place leases and terms ranging from three to 20 years for retail in-place leases.   

We determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the

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contractual amounts to be paid pursuant to the in-place leases and (2) estimates of current market lease rates for the corresponding in-place leases, measured over a period equal to (i) the remaining non-cancelable lease term for above-market leases, or (ii) the remaining non-cancelable lease term plus any fixed rate renewal options for below-market leases. We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.  Given the short-term nature of multifamily leases, the value of above-market or below-market in-place leases are generally not material.

We determine the value of other contractual rights based on our evaluation of the specific characteristics of the underlying contracts and by applying a fair value model to the projected cash flows or usage rights that considers the timing and risks associated with the cash flows or usage. We amortize the value of finite contractual rights over the remaining contract period. Indefinite-lived contractual rights are not amortized but are evaluated for impairment.

We determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan.

Initial valuations are subject to change until our information is finalized, which is no later than 12 months from the acquisition date.  We have had no significant valuation changes for acquisitions prior to March 31, 2014.

Developments

We capitalize project costs related to the development and construction of real estate (including interest, property taxes, insurance, and other direct costs associated with the development) as a cost of the development. Indirect project costs not clearly related to development and construction are expensed as incurred.  Indirect project costs that clearly relate to development and construction are capitalized and allocated to the developments to which they relate.  For each development, capitalization begins when we determine that the development is probable and significant development activities are underway.  We suspend capitalization at such time as significant development activity ceases, but future development is still probable.  We cease capitalization when the developments or other improvements, including any portion, are completed and ready for their intended use, or if the intended use changes such that capitalization is no longer appropriate.  Developments or improvements are generally considered ready for intended use when the certificates of occupancy have been issued and the units become ready for occupancy.

Depreciation

Buildings are depreciated over their estimated useful lives ranging from 25 to 35 years using the straight-line method.  Improvements are depreciated over their estimated useful lives ranging from 3 to 15 years using the straight-line method.  Properties classified as held for sale are not depreciated.  Depreciation of developments begins when the development is substantially completed and ready for its intended use.

Repairs and Maintenance

Expenditures for ordinary repairs and maintenance costs are charged to expense as incurred.

Investment in Unconsolidated Real Estate Joint Venture

We and our Co-Investment Ventures account for investments in unconsolidated real estate joint ventures using the equity method of accounting because we exercise significant influence over, but do not control, these entities.  These investments are initially recorded at cost, including any acquisition costs, and are adjusted for our share of equity in earnings and distributions.  We report our share of income and losses based on our economic interests in the entities.

We capitalize interest expense to investments in unconsolidated real estate joint ventures for our share of qualified expenditures during their development phase. We did not capitalize any interest expense related to investments in unconsolidated real estate joint ventures for the three months ended March 31, 2014 or 2013.

We amortize any excess of the carrying value of our investments in joint ventures over the book value of the underlying equity over the estimated useful lives of the underlying operating property, which represents the assets to which the excess is most clearly related.

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When we or our Co-Investment Ventures acquire a controlling interest in a previously noncontrolled investment, a gain or loss on revaluation of equity is recognized for the differences between the investment’s carrying value and fair value.

Impairment of Real Estate Related Assets and Investments in Unconsolidated Real Estate Joint Ventures

If events or circumstances indicate that the carrying amount of the property may not be recoverable, we make an assessment of the property’s recoverability by comparing the carrying amount of the asset to our estimate of the undiscounted future operating cash flows expected to be generated over the holding period of the asset including its eventual disposition.  If the carrying amount exceeds the aggregate undiscounted future operating cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.  In addition, we evaluate indefinite-lived intangible assets for possible impairment at least annually by comparing the fair values with the carrying values.  The fair value of intangibles is generally estimated by valuation of similar assets.

For real estate we own through an investment in an unconsolidated real estate joint venture or other similar real estate investment structure, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value.  An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline. 

We did not record any impairment losses for the three months ended March 31, 2014 or 2013.

Assets Held for Sale and Discontinued Operations

Prior to January 1, 2014, when we had no involvement after the sale of a multifamily community, the multifamily community sold was reported as a discontinued operation.  Effective as of January 1, 2014, we have adopted the revised guidance regarding discontinued operations as further discussed in Note 3, “New Accounting Pronouncements.” For sales of real estate or assets classified as held for sale after January 1, 2014, we will evaluate whether the disposal transaction meets the criteria of a strategic shift and will have a major effect on our operations and financial results to determine if the results of operations and gains on sale of real estate will be presented as part of our continuing operations or as discontinued operations in our consolidated statements of operations. If the disposal represents a strategic shift, it will be classified as discontinued operations for all periods presented; if not, it will be presented in continuing operations.

Cash and Cash Equivalents

We consider investments in bank deposits, money market funds and highly-liquid cash investments with original maturities of three months or less to be cash equivalents.

As of March 31, 2014 and December 31, 2013, cash and cash equivalents include $22.0 million and $25.6 million, respectively, held by the Master Partnership and individual Co-Investment Ventures that are available only for use in the business of the Master Partnership and the related Co-Investment Venture.  Cash held by individual Co-Investment Ventures is not restricted to specific uses within those entities. However, the terms of the joint venture agreements limit the ability to distribute those funds to us or use them for our general corporate purposes.  Cash held by individual Co-Investment Ventures is distributed from time to time to the Company and to the other Co-Investment Venture partners in accordance with the applicable Co-Investment Venture governing agreement, which may not be the same as the stated effective ownership interest.  Cash distributions received by the Company from the individual Co-Investment Ventures are then available for our general corporate purposes.

Noncontrolling Interests

Redeemable noncontrolling interests are comprised of our consolidated Co-Investment Venture partners’ interests in multifamily communities where we believe it is probable that we will be required to purchase the partner’s noncontrolling interest.  We record obligations under the redeemable noncontrolling interest initially at the higher of (a) fair value, increased or decreased for the noncontrolling interest’s share of net income or loss and equity contributions and distributions or (b) the redemption value.  The redeemable noncontrolling interests are temporary equity not within our control, and presented in our consolidated balance sheet outside of permanent equity between debt and equity.  The determination of the redeemable classification requires analysis of contractual provisions and judgments of redemption probabilities.

Non-redeemable noncontrolling interests are comprised of our consolidated Co-Investment Venture partners’ interests in multifamily communities as well as Class A, preferred cumulative, non-voting membership units (“Preferred Units”) issued by subsidiary REITs.  We record these noncontrolling interests at their initial fair value, adjusting the basis prospectively for

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their share of the respective consolidated investments’ net income or loss or equity contributions and distributions.  These noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the noncontrolling interest holder based on its economic interests.

Transactions involving a partial sale or acquisition of a noncontrolling interest that does not result in a change of control are recorded at carrying value with no recognition of gain or loss.  Any differences between the cash received or paid (net of any direct expenses) and the change in noncontrolling interest is recorded as a direct charge to additional paid-in capital.  Transactions involving a partial sale or acquisition of a controlling interest resulting in a change in control are recorded at fair value with recognition of a gain or loss.

Other Assets

Other assets primarily include deferred financing costs, notes receivable, equity method investments, accounts receivable, restricted cash, interest rate caps, prepaid assets and deposits.  Deferred financing costs are recorded at cost and are amortized using a straight-line method that approximates the effective interest method over the life of the related debt.  We evaluate whether notes receivable are loans, investments in joint ventures or acquisitions of real estate based on a review of any rights to participate in expected residual profits and other equity and loan characteristics.  As of and for the three months ended March 31, 2014 and 2013, all of our notes receivable were appropriately accounted for as loans.  We account for our derivative financial instruments, all of which are interest rate caps, at fair value.  We use interest rate cap arrangements to manage our exposure to interest rate changes.  We have not designated any of these derivatives as hedges for accounting purposes, and accordingly, changes in fair value are recognized in earnings.

Revenue Recognition

Rental income related to leases is recognized on an accrual basis when due from residents or commercial tenants, generally on a monthly basis.  Rental revenues for leases with uneven payments and terms greater than one year are recognized on a straight-line basis over the term of the lease.  Any deferred revenue is classified as a liability on the consolidated balance sheet and recognized on a straight-line basis as income over its contractual term.

Interest income is generated primarily on notes receivable and cash balances. Interest income is recorded on an accrual basis as earned.

Acquisition Costs

Acquisition costs for business combinations, which are expected to include most consolidated property acquisitions other than land acquisitions, are expensed when it is probable that the transaction will be accounted for as a business combination and the purchase will be consummated. Our acquisition costs related to investments in unconsolidated real estate joint ventures are capitalized as a part of our basis in the investment. Acquisition costs related to unimproved or non-operating land, primarily related to developments, are capitalized.  Pursuant to our Advisory Management Agreement (as defined below), our Advisor is obligated to reimburse us for all investment-related expenses that the Company pursues but ultimately does not consummate.  Prior to the determination of its status, amounts incurred are recorded in other assets.  Acquisition costs and expenses include amounts incurred with our Advisor and with third parties.

Transition Expenses

Transition expenses include expenses related to our transition to self-management, primarily including legal, financial advisors, consultants, costs of the Company’s special committee of the board of directors, comprised of all of the Company’s independent directors (the “Special Committee”), general transition services (primarily related to staffing, information technology and facilities) and payments to Behringer in connection with the transition to self-management discussed further in Note 12, “Transition to Self-Management.”

Income Taxes

We have elected to be taxed as a REIT under the Code and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We intend to operate in such a manner as to continue to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT.

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Beginning in 2013, taxable income from certain non-REIT activities is managed through a taxable REIT subsidiary (“TRS”) and is subject to applicable federal, state, and local income and margin taxes. We have no significant taxable income associated with our TRS for the three months ended March 31, 2014 or 2013.

We have evaluated the current and deferred income tax related to state taxes, with respect to which we do not have a REIT exemption, and we have no significant tax liability or benefit as of March 31, 2014 or December 31, 2013.

The carrying amounts of our assets and liabilities for financial statement purposes differ from our basis for federal income taxes due to tax accounting in Co-Investment Ventures, fair value accounting for business combinations, straight lining of lease and related agreements and differing depreciation methods.  The primary asset and liability balance sheet accounts with differences are real estate, assets and liabilities held for sale, intangibles, other assets, mortgages and notes payable and deferred revenues, primarily lease revenues, net.

We recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. As of March 31, 2014 and December 31, 2013, we had no significant uncertain tax positions.

Concentration of Credit Risk

We invest our cash and cash equivalents among several banking institutions and money market accounts in an attempt to minimize exposure to any one of these entities.  As of March 31, 2014 and December 31, 2013, we had cash and cash equivalents deposited in certain financial institutions in excess of federally-insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents.

Share-based Compensation

We have a stock-based incentive award plan for our employees and directors. Compensation expense associated with restricted stock units is recognized in general and administrative expenses in our consolidated statements of operations. We measure stock-based compensation at the estimated fair value on the grant date, net of estimated forfeitures, and recognize the amortization of compensation expense over the requisite service period.

Earnings per Share

Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by adjusting basic earnings per share for the dilutive effect of the assumed exercise of securities, including the effect of shares issuable under our preferred stock and our stock-based incentive plans.  Our unvested share-based awards are considered participating securities and are reflected in the calculation of diluted earnings per share. During periods of net loss, the assumed exercise of securities is anti-dilutive and is not included in the calculation of earnings per share. During 2014, the dilutive impact was less than $0.01 and during 2013 any common stock equivalents were anti-dilutive.

For all periods presented, the preferred stock and the convertible stock, with respect to periods each were outstanding, were excluded from the calculation of earnings per share because the effect would not be dilutive. However, based on changing market conditions, the outstanding preferred stock could be dilutive in future periods.

Redemptions of Common Stock

We account for the possible redemption of our shares by classifying securities that are convertible for cash at the option of the holder outside of equity.  We do not reclassify the shares to be redeemed from equity to a liability until such time as the redemption has been formally approved by our board of directors.  The portion of the redeemed common stock in excess of the par value is charged to additional paid-in capital.

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Reportable Segments

Our current business primarily consists of investing in and operating multifamily communities. Substantially all of our consolidated net income (loss) is from investments in real estate properties that we wholly own or own through Co-Investment Ventures, the latter of which may be accounted for under the equity method of accounting. Our management evaluates operating performance on an individual investment level. However, as each of our investments has similar economic characteristics in our consolidated financial statements, the Company is managed on an enterprise-wide basis with one reportable segment.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes to consolidated financial statements.  These estimates include such items as: the purchase price allocations for real estate and other acquisitions; impairment of long-lived assets, notes receivable and equity-method real estate investments; fair value evaluations; earning recognition of note receivable interest income, noncontrolling interests and equity in earnings of investments in unconsolidated real estate joint ventures; depreciation and amortization; share-based compensation measurements; and recognition and timing of transition expenses.  Actual results could differ from those estimates.

3.New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance for the reporting of discontinued operations and disposals of components of an entity. The guidance revised the definition of a discontinued operation to include those disposals that represent a strategic shift that has or will have a major effect on an entity’s operations and financial results when a component of an entity or a group of components of an entity are classified as held for sale or disposed of by sale or by means other than a sale, such as an abandonment. Examples of a strategic shift could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity. We have adopted this guidance as of January 1, 2014. As a result of this adoption, the results of operations and gains on sales of real estate from January 1, 2014 forward which do not meet the criteria of a strategic shift that has or will have a major effect on our operations and financial results will be presented as continuing operations in our consolidated statements of operations. Any sales of real estate prior to January 1, 2014 which have been reported in discontinued operations in prior reporting periods will continue to be reported as discontinued operations. We believe future sales of our individual operating properties will no longer qualify as discontinued operations.

4.Real Estate Investments

Real Estate Investments and Intangibles and Related Depreciation and Amortization

As of March 31, 2014 and December 31, 2013, major components of our real estate investments and intangibles and related accumulated depreciation and amortization were as follows (in millions):

	March 31, 2014									December 31, 2013
	Buildings			Intangibles						Buildings			Intangibles
	and			In-Place			Other			and			In-Place			Other
	Improvements			Leases			Contractual			Improvements			Leases			Contractual
Cost	$	1,820.8		$	41.0		$	25.6		$	1,833.4		$	41.9		$	25.6
Less: accumulated depreciation and amortization	(212.9		)	(38.4		)	(3.6		)	(195.0		)	(39.1		)	(2.6		)
Net	$	1,607.9		$	2.6		$	22.0		$	1,638.4		$	2.8		$	23.0

Depreciation expense for the three months ended March 31, 2014 and 2013 was approximately $21.4 million and $19.8 million, respectively.

Cost of intangibles relates to the value of in-place leases and other contractual intangibles.  Other contractual intangibles as of March 31, 2014 and December 31, 2013 include $9.2 million of intangibles, primarily asset management and related fee revenue services and contracts related to our acquisition of the GP Master Interest on July 31, 2013, and $6.8 million

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related to the use rights of a parking garage and site improvements and $9.5 million of indefinite-lived contractual rights related to land air rights.

Amortization expense associated with our lease and other contractual intangibles for the three months ended March 31, 2014 and 2013 was approximately $1.1 million and $0.4 million, respectively.

Anticipated amortization associated with lease and other contractual intangibles for each of the following five years is as follows (in millions):

	Anticipated Amortization
Year	of Intangibles
April through December 2014	$	3.1
2015	2.8
2016	1.4
2017	1.4
2018	0.5

Developments

For the three months ended March 31, 2014 and 2013, we capitalized the following amounts of interest and real estate taxes related to our developments (in millions):

	For the Three Months Ended   March 31,
	2014		2013
Interest	$	4.1	$	1.7
Real estate taxes	1.5		0.6

Sales of Real Estate Reported in Continuing Operations

The following table presents our sale of real estate for the three months ended March 31, 2014 (in millions):

Date of Sale	Multifamily Community	Sales Contract Price		Net Cash Proceeds		Gain on Sale of Real Estate
February 2014	Tupelo Alley	$	52.9	$	33.1	$	16.2

The following table presents net income related to the Tupelo Alley multifamily community sold in 2014 for the three months ended March 31, 2014 and 2013. Net income for the three months ended March 31, 2014 includes the gain on sale of real estate (in millions):

	For the Three Months Ended   March 31,
	2014			2013
Net income (loss) from multifamily community sold in 2014	$	15.8		$	(0.1	)
Less: net income attributable to noncontrolling interest	(7.2		)	—
Net income (loss) attributable to common stockholders	$	8.6		$	(0.1	)

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Discontinued Operations

As discussed in Note 3, “New Accounting Pronouncements,” we have adopted the provisions of the recently issued FASB guidance regarding the reporting of discontinued operations. Accordingly, we have no discontinued operations for thethree months ended March 31, 2014. The following table presents our sale of real estate for the three months ended March 31, 2013 (in millions):

Date of Sale	Multifamily Community	Sales Contract Price		Net Cash Proceeds		Gain on Sale of Real Estate
March 2013	The Reserve at John’s Creek Walk (“Johns Creek”)	$	37.3	$	33.3	$	6.9

During 2013, the following multifamily communities were sold and classified as discontinued operations: Johns Creek in March 2013; Cyan/PDX in May 2013; Halstead in June 2013; and Grand Reserve Orange in September 2013. The table below includes the major classes of line items constituting net loss from discontinued operations, gains on sale of real estate, and depreciation and amortization and capital expenditures for the three months ended March 31, 2013 for these communities (in millions):

	For the Three Months Ended   March 31, 2013
Rental revenue	$	4.3
Expenses
Property operating expenses	1.3
Real estate taxes	0.5
Interest expense	0.7
Depreciation and amortization	1.9
Total expenses	4.4
Loss from discontinued operations	(0.1		)
Income attributable to noncontrolling interests	(2.3		)
Loss from discontinued operations attributable to common stockholders	$	(2.4	)
Gain on sale of real estate	$	6.9
Capital expenditures	$	0.1

Changes in operating and investing noncash items related to discontinued operations were not significant for the three months ended March 31, 2013.

5.Variable Interest Entities

As of March 31, 2014 and December 31, 2013, we have concluded that we are the primary beneficiary of 13 and 10 VIEs, respectively.  All of these VIEs are the property entities of PGGM CO-JVs or Developer CO-JVs created for the purpose of developing and operating multifamily communities. At inception, we had determined that none of the Co-Investment Ventures were VIEs and because we were the general partner (directly or indirectly) of each Co-Investment Venture and had control of their operations and business affairs, we consolidated each Co-Investment Venture.  After separate reconsideration events during 2012 through 2014, all of which were related to capital restructuring, we have concluded that all of these Co-Investment Ventures are now VIEs.  Because these Co-Investment Ventures were previously consolidated, the VIE determination did not affect our financial position, financial operations or cash flows.  Our ownership interest in each of the Co-Investment Ventures based upon contributed capital ranges from 55% to 100%.

Any significant amounts of assets and liabilities related to our consolidated VIEs are identified parenthetically on our accompanying consolidated balance sheets. Five VIEs, all of which are actively developing multifamily communities, have

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closed aggregate construction financing of $136.5 million as of March 31, 2014, which will be drawn on during the construction of the developments. As of March 31, 2014, $55.1 million has been drawn under the construction loans. We have provided partial payment guarantees for three of the construction loans with a total commitment of $83.3 million, of which $22.7 million is outstanding as of March 31, 2014. Each guarantee may terminate or be reduced upon completion of the development or if the development achieves certain operating results. On the other construction loans, the lenders have no recourse to us other than a guaranty provided by the Company with respect to the construction of the project (a completion guaranty). The construction loans are secured by a first mortgage in each development. See Note 8, “Mortgages and Notes Payable” for further information on our construction loans.  The total assets of the VIEs are $515.4 million and $288.0 million as of March 31, 2014 and December 31, 2013, respectively, $460.1 million and $279.6 million of which is reflected in construction in progress. 

6.Other Assets

The components of other assets are as follows (in millions):

	March 31, 2014		December 31, 2013
Notes receivable, net (a)	$	56.5	$	52.8
Escrows and restricted cash	8.4		12.4
Deferred financing costs, net	11.8		12.1
Resident, tenant and other receivables (b)	8.8		8.3
Prepaid assets, deposits and other assets	7.1		7.3
Investment in unconsolidated real estate joint venture	5.7		5.5
Interest rate caps	0.2		0.2
Total other assets	$	98.5	$	98.6

(a) Notes receivable include mezzanine and land loans, primarily related to multifamily development projects.  As of March 31, 2014, the weighted average interest rate is 14.7% and the remaining years to scheduled maturity is 1.8 years.

(b) Includes a receivable from the Advisor of $1.8 million as of December 31, 2013. The balance was repaid in February 2014.

As of March 31, 2014 and December 31, 2013, we have a $5.7 million and $5.5 million, respectively, investment in an unconsolidated joint venture, the Custer PGGM CO-JV, in which our effective ownership is 55%. Distributions are made pro rata in accordance with ownership interests. The primary asset of the Custer PGGM CO-JV is a mezzanine loan collateralized by the development of a 444 unit multifamily community in Allen, Texas, a suburb of Dallas.  The mezzanine loan, which as of March 31, 2014 has been fully funded, has an interest rate of 14.5% and matures in 2015. 

We enter into interest rate cap agreements for interest rate risk management purposes and not for trading or other speculative purposes.  These interest rate cap agreements have not been designated as hedges. The following table provides a summary of our interest rate caps as of March 31, 2014 (in millions):

Notional amount	$	162.7
Range of LIBOR cap rate	2.0% to 4.0%
Range of maturity dates	2016 to 2017
Estimated fair value	$	0.2

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7.Leasing Activity

In addition to multifamily resident units, certain of our consolidated multifamily communities have retail areas, representing approximately 2% of total rentable area of our consolidated multifamily communities.  Future minimum base rental receipts due to us under these non-cancelable retail leases in effect as of March 31, 2014 are as follows (in millions): 

	Future Minimum
Year	Lease Receipts
April through December 2014	$	2.7
2015	3.6
2016	3.5
2017	3.5
2018	3.3
Thereafter	29.0
Total	$	45.6

8.Mortgages and Notes Payable

The following table summarizes the carrying amounts of the mortgages and notes payable classified by whether the obligation is ours or that of the applicable consolidated Co-Investment Venture as of March 31, 2014 and December 31, 2013 (amounts in millions and monthly LIBOR at March 31, 2014 is 0.15%):

					As of March 31, 2014
	March 31,		December 31,		Wtd. Average
	2014		2013		Interest Rates	Maturity Dates
Company Level (a)
Fixed rate mortgage payable	$	87.3	$	87.3	3.95%	2018 to 2020
Variable rate mortgage payable	24.0		24.0		Monthly LIBOR + 2.45%	2014
Variable rate construction loans payable (b)	22.7		12.2		Monthly LIBOR + 2.15%	2017 to 2018
Total Company Level	134.0		123.5
Co-Investment Venture Level - Consolidated (c)
Fixed rate mortgages payable	832.0		852.3		3.73%	2015 to 2020
Variable rate mortgage payable	12.1		12.2		Monthly LIBOR + 2.35%	2017
Fixed rate construction loans payable (d)	33.6		24.6		4.16%	2016 to 2018
Variable rate construction loan payable (e)	14.6		9.8		Monthly LIBOR + 2.25%	2016
	892.3		898.9
Plus: unamortized adjustments from business combinations	6.2		6.7
Total Co-Investment Venture Level - Consolidated	898.5		905.6
Total consolidated mortgages and notes payable	$	1,032.5	$	1,029.1

(a) Company level debt is defined as debt that is a direct or indirect obligation of the Company or its wholly owned subsidiaries. Company level debt includes Co-Investment debt where the Company has provided guarantees for the repayment of the debt.

(b) Includes three loans with total commitments of $83.3 million. These loans include one to two year extension options.

(c)    Co-Investment Venture level debt is defined as debt that is an obligation of the Co-Investment Venture and

not an obligation or contingency for us.

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(d) Includes two loans with total commitments of $84.8 million. One of the construction loans has an option to convert into a permanent loan with a maturity of 2023.

(e) Includes one loan with a total commitment of $21.9 million. This loan includes two one year extension options.

As of March 31, 2014, $1.9 billion of the net consolidated carrying value of real estate collateralized the mortgages and notes payable.  We believe we are in compliance with all financial covenants as of March 31, 2014.

As of March 31, 2014, contractual principal payments for our mortgages and notes payable for the five subsequent years and thereafter are as follows (in millions):

			Co-Investment		Total
Year	Company Level		Venture Level		Consolidated
April through December 2014	$	24.0	$	4.4	$	28.4
2015	0.2		83.6		83.8
2016	0.6		168.1		168.7
2017	19.5		200.7		220.2
2018	34.7		142.2		176.9
Thereafter	55.0		293.3		348.3
Total	$	134.0	$	892.3	1,026.3
Add: unamortized adjustments from business combinations					6.2
Total mortgages and notes payable					$	1,032.5

9.Credit Facility Payable

The $150.0 million credit facility matures on April 1, 2017, when all unpaid principal and interest is due.  Borrowing tranches under the credit facility bear interest at a “base rate” based on either the one-month or three-month LIBOR rate, selected at our option, plus an applicable margin which adjusts based on the facility’s debt service requirements. As of March 31, 2014, the applicable margin was 2.08% and the base rate was 0.16% based on one-month LIBOR.  The credit facility also provides for fees based on unutilized amounts and minimum usage.  The unused facility fee is equal to 1% per annum of the total commitment less the greater of 75% of the total commitment or the actual amount outstanding. The minimum usage fee is equal to 75% of the total credit facility times the lowest applicable margin less the margin portion of interest paid during the calculation period.  The loan requires minimum borrowing of $10.0 million and monthly interest-only payments and monthly or annual payment of fees.  We may prepay borrowing tranches at the expiration of the LIBOR interest rate period without any penalty.  Prepayments during a LIBOR interest rate period are subject to a prepayment penalty generally equal to the interest due for the remaining term of the LIBOR interest rate period.

Draws under the credit facility are secured by a pool of certain wholly owned multifamily communities.  We have the ability to add and remove multifamily communities from the collateral pool, pursuant to the requirements under the credit facility agreement. We may also add multifamily communities in our discretion in order to increase amounts available for borrowing.  As of March 31, 2014, $169.5 million of the net carrying value of real estate collateralized the credit facility.  The aggregate borrowings under the credit facility are limited to 70% of the value of the collateral pool, which may be different than the carrying value for financial statement reporting.  As of March 31, 2014, available but undrawn amounts under the credit facility are approximately $138.1 million.

The credit facility agreement contains customary provisions with respect to events of default, covenants and borrowing conditions.  In particular, the credit facility agreement requires us to maintain a consolidated net worth of at least $150.0 million, liquidity of at least $15.0 million and net operating income of the collateral pool to be no less than 155% of the facility debt service cost. Certain prepayments may be required upon a breach of covenants or borrowing conditions.  We believe we are in compliance with all provisions as of March 31, 2014.

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10.Noncontrolling Interests

Non-redeemable Noncontrolling Interests

Non-redeemable noncontrolling interests for the Co-Investment Venture partners represent their proportionate share of the equity in consolidated real estate ventures.  Income and losses are allocated to the noncontrolling interest holders based on their effective ownership percentage.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.  Each noncontrolling interest is not redeemable by the holder and, accordingly, is reported as equity. 

As of March 31, 2014 and December 31, 2013, non-redeemable noncontrolling interests (“NCI”) consisted of the following, including the direct and non-direct noncontrolling interests ownership ranges where applicable (in millions):

	March 31, 2014			December 31, 2013
			Effective			Effective
	Amount		NCI %(a)	Amount		NCI %(a)
PGGM Co-Investment Partner	$	301.8	26% to 45%	$	293.5	26% to 45%
MW Co-Investment Partner	154.8		45%	157.8		45%
Developer Partners	18.5		0% to 6%	3.5		0% to 6%
Subsidiary preferred units	1.9		N/A	1.4		N/A
Total non-redeemable NCI	$	477.0		$	456.2

(a)        Effective noncontrolling percentage is based upon the noncontrolling interest’s share of contributed capital. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

Each noncontrolling interest relates to ownership interests in CO-JVs where we have substantial operational control rights. In the case of the PGGM Co-Investment Partner, their noncontrolling interest includes an interest in the Master Partnership and the PGGM CO-JVs. For PGGM CO-JVs and MW CO-JVs, capital contributions and distributions are generally made pro rata in accordance with these ownership interests; however, PGGM CO-JV’s pro rata interest is subject to a promoted interest to us if certain performance returns are achieved. Developer CO-JVs generally have limited participation in contributions and generally only participate in distributions after certain preferred returns are collected by us or the PGGM CO-JVs, as applicable, which in some cases may not be until we have received all of our investment capital. None of these Co-Investment Venture partners have any rights to put or redeem their ownership interest; however, they generally provide for buy/sell rights after certain periods. In certain circumstances the governing documents of the PGGM CO-JV or MW CO-JV may require a sale of the Co-Investment Venture or its subsidiary REIT rather than as an asset sale. For PGGM CO-JVs we have rights in limited circumstances generally related to a listing of our shares or a merger to acquire the PGGM Co-Investment Partner’s interest at the greater of fair value or an amount that would provide the PGGM Co-Investment Partner certain minimum returns on its invested equity.

Noncontrolling interests also include between 121 to 125  preferred units issued by a subsidiary of each of the PGGM CO-JVs and the MW CO-JVs in order for such subsidiaries to qualify as a REIT for federal income tax purposes.  The preferred units pay an annual distribution of 12.5% on their face value and are senior in priority to all other members’ equity.  The PGGM CO-JVs and MW CO-JVs may cause the subsidiary REIT, at their option, to redeem the preferred units in whole or in part, at any time for cash at a redemption price of $500 per unit (the face value), plus all accrued and unpaid distributions thereon to and including the date fixed for redemption, plus a premium per unit generally of $50 to $100 for the first year which generally declines in value $25 per unit each year until there is no redemption premium remaining.  The preferred units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.  Accordingly, these noncontrolling interests are reported as equity.

For the three months ended March 31, 2014, we paid distributions to noncontrolling interests of $20.6 million, of which $5.7 million was related to operating activity.  For the three months ended March 31, 2013, we paid distributions to noncontrolling interests of $12.4 million, of which $6.8 million was related to operating activity.

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On February 28, 2014, we sold approximately 37% noncontrolling interest in two Developer CO-JVs to PGGM for $13.2 million. No gain or loss was recognized in recording these transactions, but a net decrease to additional paid-in capital of $0.8 million was recorded.

Redeemable Noncontrolling Interests

As of March 31, 2014 and December 31, 2013, redeemable noncontrolling interests (“NCI”) consisted of the following (in millions):

	March 31, 2014			December 31, 2013
			Effective			Effective
	Amount		NCI %(a)	Amount		NCI %(a)
Developer Partners	$	27.4	0% to 20%	$	22.0	0% to 20%

(a) Effective noncontrolling interest percentage is based upon the noncontrolling interest’s share of contributed capital.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements. For Co-Investment Ventures where the developer’s equity has been returned, the effective noncontrolling interest percentage is shown as zero.

Developer CO-JVs included in redeemable noncontrolling interests represent ownership interests by regional or national multifamily developers, which may require that we pay or reimburse our Developer Partners upon certain events.  These amounts include reimbursing partners once certain development milestones are achieved, generally related to entitlements, permits or final budgeted construction costs. They also generally have put options, usually exercisable one year after completion of the development and thereafter, pursuant to which we would be required to acquire their ownership interest at a set price and options to require a sale of the development generally after the seventh year after completion of the development at the then current fair value.  These Developer CO-JVs also include buy/sell provisions, generally available after the tenth year after completion of the development.  Each of these Developer CO-JVs is managed by a subsidiary of ours. As manager, we have substantial operational control rights.  These Developer CO-JVs generally provide that we have a preferred cash flow distribution until we receive certain returns on and of our investment.  All of these Developer Partners also have a back end interest, generally only attributable to distributions related to a property sale or financing. Generally, these noncontrolling interests have no obligation to make any additional capital contributions.

11.Stockholders’ Equity

Capitalization

As of March 31, 2014 and December 31, 2013, we had 168.3 million shares of common stock outstanding, respectively, including 6,000 shares of restricted stock issued to our independent directors for no cash, and 24,969 shares issued to Behringer for cash of approximately $0.2 million. For the three months ended March 31, 2014 and 2013, all of these shares of restricted stock have been included in the basic and dilutive earnings per share calculation.

Prior to July 31, 2013, we had 1,000 shares of convertible stock owned by Behringer, issued for cash of $1,000.  In connection with our transition to self-management, Behringer surrendered all the 1,000 shares of convertible stock on July 31, 2013, which we immediately canceled.

Also in connection with our transition to self-management, on July 31, 2013, we issued 10,000 shares of a new Series A non-participating, voting, cumulative, 7.0% convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”), to Behringer. The shares of Series A Preferred Stock entitle the holder to one vote per share on all matters submitted to the holders of the common stock, a liquidation preference equal to $10.00 per share before the holders of common stock are paid any liquidation proceeds, and 7.0% cumulative cash dividends on the liquidation preference and any accrued and unpaid dividends.

As determined and limited pursuant to the Articles Supplementary establishing the Series A Preferred Stock, the Series A Preferred Stock will automatically convert into shares of our common stock upon any of the following triggering events: (a) in connection with a listing of our common stock on a national exchange, (b) upon a change of control of the Company or (c) upon election by the holders of a majority of the then outstanding shares of Series A Preferred Stock on or before July 31, 2018. Notwithstanding the foregoing, if a listing occurs prior to December 31, 2016, such listing (and the related triggering event)

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will be deemed to occur on December 31, 2016 and if a change of control transaction occurs prior to December 31, 2016, such change of control transaction will not result in a change of control triggering event. Upon a triggering event, all of the shares of Series A Preferred Stock will, in total, generally convert into an amount of shares of our common stock equal in value to 15% of the excess of (i) (a) the per share value of our common stock at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary establishing the Series A Preferred Stock and assuming no shares of the Series A Preferred Stock are outstanding, multiplied by the number of shares of common stock outstanding on July 31, 2013, plus (b) the aggregate value of distributions (including distributions constituting a return of capital) paid through such time on the shares of common stock outstanding on July 31, 2013 over (ii) the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares. In the case of a triggering event based on a listing or change of control only, this amount will be multiplied by another 1.15 to arrive at the conversion value.

We are offering a maximum of 100 million total shares pursuant to our DRIP at a DRIP offering price set by our board of directors. Since March 1, 2013, the DRIP offering price has been $9.53 per share, based on approximately 95% of our estimated per share value which was last established as of March 1, 2013.  For the three months ended March 31, 2014 and 2013, the DRIP offering price averaged $9.53 and $9.45, respectively. As of March 31, 2014, we have sold approximately 16.8 million shares under our DRIP for gross proceeds of approximately $159.7 million.  There are approximately 83.2 million shares remaining to be sold under the DRIP as of March 31, 2014.

Stock Plans

The Behringer Harvard Multifamily REIT I, Inc. Amended and Restated 2006 Incentive Award Plan (the “Incentive Award Plan”) authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards.  A total of 10 million shares has been authorized and reserved for issuance under the Incentive Award Plan. As of December 31, 2013, no equity awards under the Incentive Award Plan had been issued except for 6,000 shares of restricted stock granted to our independent directors.

On January 13, 2014, our independent directors and certain executive employees were granted 239,220 restricted stock units. These restricted stock units generally vest over a three year period. Compensation cost is measured at the grant date based on the estimated fair value of the award ($10.03 per share) and will be recognized as expense over the service period based on the tiered lapse schedule and estimated forfeiture rates.

For the three months ended March 31, 2014, we had approximately $0.2 million in compensation costs related to share-based payments including dividend equivalent payments. For the three months ended March 31, 2013, we had no compensation cost related to share-based payments.

Distributions

Distributions, including those paid by issuing shares under the DRIP for the three months ended March 31, 2014 and 2013 were as follows (amounts in millions):  

	For the Three Months Ended March 31,
	2014				2013
	Declared(a)		Paid(b)		Declared(a)		Paid(b)
First Quarter Distributions
Regular distributions	$	14.6	$	14.6	$	14.5	$	14.5
Total	$	14.6	$	14.6	$	14.5	$	14.5

(a)         Represents distributions accruing during the period on a daily basis.

(b)         The regular distributions that accrue each month are paid in the following month.  Amounts paid include both distributions paid in cash and reinvested pursuant to our DRIP.

We calculate annualized rates as if the shares were outstanding for a full year based on a $10 per share purchase price.

Our board of directors has authorized distributions at a daily amount of $0.000958904 per share of common stock, an annualized rate of 3.5% through June 30, 2014.

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Share Redemption Program

From the inception of our share redemption program (“SRP”) in 2008, all redemption requests properly submitted and approved through the first quarter of 2012 were fulfilled.  Effective from April 1, 2012 through February 28, 2013, our board of directors suspended our SRP.  In connection with its determination of the estimated value of our shares effective March 1, 2013, our board of directors modified and reinstated our SRP, which permits our stockholders to sell their shares back to us subject to the significant conditions and limitations of the program.  The modified and reinstated SRP was effective as of March 1, 2013, and the first time period redemptions were considered under the modified and reinstated SRP was at the end of the second quarter 2013.

As modified, for redemptions other than those sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Ordinary Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of (i) 85% of the current estimated share value pursuant to our valuation policy and (ii) the average price per share the original purchaser or purchasers of shares paid to us for all of their shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) (the “Original Share Price”) less the aggregate of any special distributions so designated by our board of directors, distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed shares (the “Special Distributions”).  For redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Exceptional Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of: (i) the current estimated share value pursuant to our valuation policy and (ii) the Original Share Price less any Special Distributions.  A quarterly funding limit has been established of $7 million per quarter (which our board of directors may increase or decrease from time to time).  Redemptions are also limited by our charter to no more than 5% of the weighted average of shares outstanding during the preceding twelve months immediately prior to the date of redemption.

In March 2014, we redeemed approximately 794,188 common shares at an average price of $8.81 per share for $7.0 million. We fulfilled all Exceptional Redemption requests properly submitted in accordance with the terms of the SRP. As of March 31, 2014, there were unfulfilled Ordinary Redemption requests of approximately 2.4 million common shares, for approximately $20.3 million.

12.Transition to Self-Management

On July 31, 2013 (the “Initial Closing”), we entered into a series of agreements and amendments to our existing agreements and arrangements with Behringer, setting forth various terms of and conditions to the modification of the business relationships between us and Behringer. We collectively refer to these agreements as the “Self-Management Transition Agreements.” With the entry into these transactions and the progression to self-management, over time, the Company expects to incur higher direct costs related to compensation and other administration and less reliance on and cost related to Behringer management agreements.

In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of Behringer and subsequently began hiring other employees. The completion of the remainder of the self-management transactions will occur at a second closing (the “Self-Management Closing”), which is expected to occur on June 30, 2014, and where we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. We also expect to hire other employees as we complete our transition to self-management. The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions.

As discussed in Note 11, “Stockholders’ Equity,” we issued 10,000 shares of Series A Preferred Stock to Behringer at the Initial Closing. As part of the consideration for issuing the Series A Preferred Stock, Behringer surrendered all existing 1,000 convertible shares of non-participating, non-voting stock, par value $0.0001 per share, of the Company, which we immediately canceled.

At the Initial Closing, we acquired from Behringer the GP Master Interest in the PGGM Co-Investment Partner for a purchase price of $23.1 million. This acquisition entitles us to a 1% ownership interest and a promoted interest in the cash flows of the Master Partnership and the advisory and incentive fees specified in the PGGM Co-Investment Partner agreements that Behringer would have otherwise been entitled to receive.

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At the Initial Closing, we also paid Behringer $2.5 million as reimbursement for its costs and expenses related to the negotiation of the Self-Management Transition Agreements. These expenses are in addition to the expenses that we have incurred on our own behalf for legal and financial advisors in connection with this transaction, which are described below.

Commencing at the Initial Closing and lasting through the six month anniversary of the Self-Management Closing, Behringer will be entitled to additional fees with respect to any new investment arrangements between us and certain specified funds or programs pursuant to which we receive an asset management or any similar fee and/or a promote interest or similar security, excluding PGGM (each, a “New Platform”). For each New Platform with certain specified potential future investors, Behringer will be entitled to a fee equal to 2.5% of the total aggregate amount of capital committed by such investor or its affiliates. We will not be obligated to pay any fees with respect to a New Platform unless and until the Self-Management Closing occurs. For the three months ended March 31, 2014, no New Platform fees were incurred.

Commencing at the Initial Closing, the Self-Management Transition Agreements provide that in certain circumstances, Behringer will rebate to us, or may provide us a credit with respect to, (a) acquisition fees paid pursuant to the amended and restated advisory management agreement and (b) acquisition and development fees paid pursuant to the Self-Management Transition Agreements, in the event that certain existing investments are subsequently structured as a joint venture or co-investment. For the three months ended March 31, 2014, $2.5 million of acquisition fees was repaid to us.

During the period from the Initial Closing through September 30, 2014, Behringer will provide general transition services in support of our transition to self-management. For these services we will pay Behringer (a) the sum of approximately $0.4 million per month during the period beginning on the Initial Closing and ending on September 30, 2014 and (b) an amount equal to $1.25 million at the Self-Management Closing. For the three months ended March 31, 2014, $1.3 million was incurred and paid.

Upon the Self-Management Closing, we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. From now through the Self-Management Closing, Behringer will continue to be paid fees and reimbursements under the terms of amended advisory and property management agreements that include a reduction of certain fees and expenses paid to Behringer under the prior agreements, which are described in Note 15, “Related Party Arrangements.” Regarding asset management fees and property management expense reimbursements, we will receive a monthly reduction of approximately $150,000 and $50,000, respectively, from the amount that otherwise would have been payable, through June 30, 2014.

At the Self-Management Closing, we will pay Behringer $3.5 million for certain intangible assets, rights and contracts. Behringer will also transfer to us certain furnishings, fixtures and equipment.

From the Initial Closing and through and following the Self-Management Closing, certain fees generally similar to fees under the amended and restated advisory management agreement as described in Note 15, “Related Party Arrangements” will be due with respect to acquisitions, financing and asset management. Regarding acquisition and advisory fees, we will pay the Advisor a fee (1) at the current rate of 1.75% of the defined costs for acquisitions that were identified and agreed to as of the Initial Closing and (2) at a rate of 1.575% of the defined costs for other acquisitions generally through the Self-Management Closing, but which may also include acquisitions approved prior to the Self-Management Closing that have closed within six months following the Self-Management Closing. The non-accountable acquisition expense reimbursement of 0.25% was not changed. Regarding debt financing fees, debt financings projected and identified as of the Initial Closing will continue to incur fees based on our pro rata share of the debt at a rate of 1% and other debt financings will incur fees at a rate of 0.9%. In addition, we will reimburse the Advisor for third party financing fees paid on our behalf which were previously included in the debt financing fee. After the Self-Management Closing, the Advisor will provide the debt financing services through June 30, 2015.

Behringer will also provide shareholder services for an initial two year term, commencing on the Self-Management Closing at a cost to us based on the then monthly number of stockholder accounts. We estimate the monthly amount based on current stockholder accounts to be approximately $0.1 million. The monthly number of stockholder accounts is subject to adjustments based on future activity related to our DRIP and SRP. In addition, we will pay approximately $0.3 million over the term of the agreement with Behringer for a limited right to use certain office space. We may also contract with Behringer for additional services.

In addition to the above transactions, the Company incurred other expenses related to our transition to self-management, primarily related to Special Committee and Company legal and financial advisors and general transition services (primarily staffing, information technology and facilities).

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The components of our transition expenses are as follows (in millions):

	For the Three Months Ended March 31, 2014		For the Three Months Ended March 31, 2013
Special Committee and Company legal and financial advisors	$	0.2	$	0.1
General transition services:
Behringer	0.2		—
Other service providers	0.1		—
Total transition expenses	$	0.5	$	0.1

As of March 31, 2014, $4.6 million of the transition costs was an accrued liability to Behringer.

13.Commitments and Contingencies

All of our Co-Investment Ventures include buy/sell provisions.  Under most of these provisions and during specific periods, a partner could make an offer to purchase the interest of the other partner and the other partner would have the option to accept the offer or purchase the offering partner’s interest at that price.  As of March 31, 2014, no such buy/sell offers are outstanding.

In the ordinary course of business, the multifamily communities in which we have investments may have commitments to provide affordable housing. Under these arrangements, we generally receive from the resident a below market rent, which is determined by a local or national authority. In certain arrangements, a local or national housing authority makes payments covering some or substantially all of the difference between the restricted rent paid by residents and market rents. In connection with our acquisition of The Gallery at NoHo Commons, we assumed an obligation to provide affordable housing through 2048. As partial reimbursement for this obligation, the California housing authority will make level annual payments of approximately $2.0 million through 2028 and no reimbursement for the remaining 20-year period. We may also be required to reimburse the California housing authority if certain operating results are achieved on a cumulative basis during the term of the agreement. At the acquisition, we recorded a liability of $14.0 million based on the fair value of the terms over the life of the agreement.  In addition, we will record rental revenue from the California housing authority on a straight-line basis, deferring a portion of the collections as deferred lease revenues. As of March 31, 2014 and December 31, 2013, we have approximately $17.3 million and $17.6 million, respectively, of carrying value for deferred lease revenues related to The Gallery at NoHo Commons.

As of March 31, 2014, we have entered into construction and development contracts with $574.8 million remaining to be paid.  These construction costs are expected to be paid during the completion of the development and construction period, generally within 24 months.

Future minimum lease payments due on our lease commitment payables, primarily related to our corporate office lease which we expect to commence in May 2014 and which expires in 2024, are as follows (in millions):

	Future Minimum Lease Payments
April 2014 through December 2014	$	0.2
2015	0.6
2016	0.6
2017	0.8
2018	0.8
Thereafter	4.6
Total	$	7.6

See Note 12, “Transition to Self-Management” for discussion of commitments of the Company regarding its transition to self-management.  

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14.Fair Value of Derivatives and Financial Instruments

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access.  Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity.  In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

In connection with our measurements of fair value related to many real estate assets, noncontrolling interests, financial instruments and contractual rights, there are generally not available observable market price inputs for substantially the same items.  Accordingly, each of these are classified as Level 3, and we make assumptions and use various estimates and pricing models, including, but not limited to, the estimated cash flows, discount and interest rates used to determine present values, market capitalization rates, sales of comparable investments, rental rates, costs to lease properties, useful lives of the assets, the cost of replacing certain assets, and equity valuations. These estimates are from the perspective of market participants and may also be obtained from independent third-party appraisals. However, we are responsible for the source and use of these estimates. A change in these estimates and assumptions could be material to our results of operations and financial condition.

Financial Instruments Carried at Fair Value on a Recurring Basis

We currently use interest rate cap arrangements with financial institutions to manage our exposure to interest rate changes for our loans that utilize floating interest rates.  The fair value of these interest rate caps are determined using Level 2 inputs as defined above.  These inputs include quoted prices for similar interest rate cap arrangements, including consideration of the remaining term, the current yield curve, and interest rate volatility.  Because our interest rate caps are on standard, commercial terms with national financial institutions, credit issues are not considered significant.  As of March 31, 2014 and December 31, 2013, we have $0.2 million of interest rate caps that are carried at fair value on a recurring basis.  See further discussion of these interest rate caps in Note 6, “Other Assets.”

The following fair value hierarchy table presents information about our assets measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 (in millions):

	Balance Sheet Location	Level 1		Level 2		Level 3		Fair Value as of Reporting Date		Gain (Loss) for the Three Months Ended March 31
Assets
Interest rate caps	Other assets
As of March 31, 2014		$	—	$	0.2	$	—	$	0.2	$	—
As of December 31, 2013		$	—	$	0.2	$	—	$	0.2	$	—

Nonrecurring Basis — Fair Value Adjustments

For the three months ended March 31, 2014 and 2013, we had no fair value adjustments on a nonrecurring basis.

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Financial Instruments Not Carried at Fair Value

Financial instruments held as of March 31, 2014 and December 31, 2013 and not measured at fair value on a recurring basis include cash and cash equivalents, notes receivable, credit facility payable and mortgages and notes payable.  With the exception of our mortgages and notes payable, the financial statement carrying amounts of these items approximate their fair values due to their short-term nature.  Because the credit facility payable bears interest at a variable rate and has a prepayment option, we believe its carrying amount approximates its fair value.

Estimated fair values for mortgages and notes payable have been determined using market pricing for similar mortgages payable, which are classified as Level 2 in the fair value hierarchy.  Carrying amounts and the related estimated fair value of our mortgages and notes payable as of March 31, 2014 and December 31, 2013 are as follows (in millions):  

	March 31, 2014				December 31, 2013
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Mortgages and notes payable	$	1,032.5	$	1,032.9	$	1,029.1	$	1,015.4

15.Related Party Arrangements

From our inception to July 31, 2013, we had no employees, were externally managed by Behringer and were supported by related party service agreements, as further described below.  Through July 31, 2013, we exclusively relied on Behringer to provide certain services and personnel for management and day-to-day operations, including advisory services and property management services provided or performed by Behringer. 

Effective July 31, 2013, we entered into a series of agreements with Behringer in order to begin our transition to self-management. On August 1, 2013, we hired five executives who were previously employees of Behringer. See further discussion of the transaction and amounts paid to Behringer in relation to the transition at Note 12, “Transition to Self-Management.”

Upon the Self-Management Closing, most of the remaining professionals and staff providing advisory and property management services that are currently employed by Behringer will also become our employees. From now through the Self-Management Closing, Behringer will continue to be paid fees and reimbursements under the terms of amended advisory and property management agreements that include a reduction of certain fees and expenses paid to Behringer under the prior agreements as discussed further below. At the Self-Management Closing, the amended advisory and property management agreements will effectively be terminated (with the property management agreement being assigned to us) and except as otherwise noted, our obligation to pay fees and reimbursement costs will cease.

The Advisor continues to provide us with day-to-day management services pursuant to our advisory management agreement (the “Advisory Management Agreement”), as it has been amended and restated. Our board of directors has a duty to evaluate the performance of our Advisor annually before the parties can agree to renew the agreement. The Advisory Management Agreement will currently expire on June 30, 2014, unless extended or renewed. Below we describe the principal fee and expense reimbursement terms of the Advisory Management Agreement.

Prior to July 31, 2013, the Advisor and its affiliates received acquisition and advisory fees of 1.75%, based on our stated or back-end ownership percentage, of (1) the contract purchase price paid or allocated in respect of the development, construction or improvement of each asset acquired directly by us, including any debt attributable to these assets, or (2) when we make an investment indirectly through another entity, our pro rata share, based on our stated or back-end ownership percentage, of the gross asset value of real estate investments held by that entity. Fees due in connection with a development or improvements are based on amounts approved by our board of directors and reconciled to actual amounts at the completion of the development or improvement.  The Advisor and its affiliates also received a fee based on 1.75% of the funds advanced in respect of a loan or other investment. Effective August 1, 2013, the rate of 1.75% remains unchanged for acquisitions that were identified and agreed to as of the Initial Closing. For other acquisitions, the rate is reduced to 1.575% of the defined costs.

Additionally, the Advisor receives a non-accountable acquisition expense reimbursement in the amount of 0.25%, based on our stated or back-end ownership percentage, of (1) the funds paid for purchasing an asset, including any debt attributable to the asset, plus the funds budgeted for development, construction or improvement in the case of assets that we acquire and intend to develop, construct or improve, and (2) funds advanced in respect of a loan or other investment.  We will also pay third parties, or reimburse the Advisor, for any investment-related expenses due to third parties in the case of a

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completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses and other closing costs.  In addition, to the extent our Advisor or its affiliates directly provide services formerly provided or usually provided by third parties, including, without limitation, accounting services related to the preparation of audits required by the SEC, property condition reports, title services, title insurance, insurance brokerage or environmental services related to the preparation of environmental assessments in connection with a completed investment, the direct employee costs and burden to our Advisor of providing these services are acquisition expenses for which we reimburse the Advisor. In addition, acquisition expenses for which we reimburse the Advisor include any payments made to (1) a prospective seller of an asset, (2) an agent of a prospective seller of an asset, or (3) a party that has the right to control the sale of an asset intended for investment by us that are not refundable and that are not ultimately applied against the purchase price for such asset. Except as described above with respect to services customarily or previously provided by third parties, our Advisor is responsible for paying all of the expenses it incurs associated with persons employed by the Advisor to the extent dedicated to making investments for us, such as wages and benefits of the investment personnel. The Advisor is also responsible for paying all of the investment-related expenses that we or our Advisor incur that are due to third parties or related to the additional services provided by the Advisor as described above with respect to investments we do not make, other than certain non-refundable payments made in connection with any acquisition.

For the three months ended March 31, 2014 and 2013, the Advisor earned acquisition and advisory fees, including the acquisition expense reimbursement and net of credits provided to us per the Self-Management Transition Agreements, of approximately $1.8 million and $3.4 million, respectively. We capitalized all of the fees to our development projects as construction in progress for the three months ended March 31, 2014 and 2013. As of March 31, 2014, acquisition and advisory fees related to all of our developments were subject to final reconciliation to actual amounts as described above.

Prior to July 31, 2013, the Advisor received debt financing fees of 1% of the amount available to us under debt financing which was originated, assumed or refinanced by or for us. Subsequent to July 31, 2013, the Advisor will continue to receive debt financing fees based on our pro rata share of the debt at a rate of 1% on debt financings identified as of the Initial Closing and other debt financings will incur fees at a rate of 0.9%. For any debt financing other than financing related to our CO-JVs, the Advisor may pay some or all of these fees to third parties with whom it subcontracts to coordinate financing for us. For the three months ended March 31, 2014 and 2013, our Advisor has earned debt financing fees of approximately $0.2 million and $0.3 million, respectively. 

The Advisor receives a monthly asset management fee for each real estate related asset held by us.  The monthly asset management fee, based on our pro rata share, is equal to 1/12th of 0.50% of the sum of the higher of the cost of investment or the value of the investment for each and every asset. Prior to July 1, 2013, the Advisor, although under no contractual obligation to do so, waived the difference between asset management fees calculated on the basis of appraised value of our investments and asset management fees calculated on the basis of cost of our investments. Effective July 1, 2013, the Advisor is no longer waiving this difference. Beginning August 1, 2013, we receive a monthly reduction of $150,000 per month from the amount that otherwise would have been paid in asset management fees in recognition of the transfer of the executives to the Company and the associated reduction in the duties of the Advisor. For the three months ended March 31, 2014 and 2013, our Advisor earned asset management fees of approximately $1.9 million and $1.8 million, respectively.

We will pay a development fee to our Advisor in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project; provided, however, we will not pay a development fee to an affiliate of our Advisor if our Advisor or any of its affiliates elects to receive an acquisition and advisory fee based on the cost of such development. Our Advisor has earned no development fees since our inception.

Property management services are provided by BHM Management and its affiliates through a property management agreement (the “Property Management Agreement”) for multifamily communities with respect to which we have control over the selection of the property manager and choose to hire BHM Management.  The Property Management Agreement, if not assigned to us on Self-Management Closing, expires on June 30, 2015.

Property management fees are equal to 3.75% of gross revenues for each community, based on our pro rata ownership of each community.  In the event that we contract directly with a non-affiliated third party property manager in respect to a property, we pay BHM Management or its affiliates an oversight fee equal to 0.5% of gross rental revenues of the property managed.  In no event will we pay both a property management fee and an oversight fee to BHM Management or its affiliates with respect to a particular property. We reimburse certain costs and expenses incurred by BHM Management on our behalf, including the wages and salaries and other employee-related expenses of all on-site employees of BHM Management and other out-of-pocket expenses that are directly related to the management of specific properties. Since August 1, 2013, we receive a monthly reduction of $50,000 per month in property management expense reimbursements.

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For the three months ended March 31, 2014 and 2013, BHM Management or its affiliates earned property management fees, including reimbursements to BHM Management, of $5.5 million and $5.7 million, respectively.

As part of our reimbursement of administrative expenses, we reimburse the Advisor for any direct expenses and costs of salaries and benefits of persons employed by the Advisor performing advisory services for us, provided, however, we will not reimburse the Advisor for personnel and related costs incurred by the Advisor in performing services under the Advisory Management Agreement to the extent that the employees perform services for which the Advisor receives a separate fee other than with respect to acquisition services formerly provided or usually provided by third parties. We also do not reimburse our Advisor for the salary or other compensation of our executive officers who are employed by our Advisor or its affiliates. 

For the three months ended March 31, 2014 and 2013, the Advisor was reimbursed approximately $0.4 million for each respective period. As of March 31, 2014 and December 31, 2013, our payables to the Advisor and its affiliates were $1.5 million and $1.9 million, respectively.

16.Supplemental Disclosures of Cash Flow Information

Supplemental cash flow information is summarized below (amounts in millions):

	For the Three Months Ended   March 31,
	2014		2013
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized of $4.1 million and $1.7 million in 2014 and 2013, respectively	$	6.8	$	8.8
Non-cash investing and financing activities:
Transfer of real estate from construction in progress to operating real estate	$	39.4	$	—
Stock issued pursuant to our DRIP	$	7.6	$	7.7
Distributions payable - regular	$	5.0	$	5.0
Construction costs and other related payables	$	50.8	$	22.1

17.Subsequent Events

We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements and noted no subsequent events that would require an adjustment to the consolidated financial statements or additional disclosures, other than the ones disclosed herein.

Distributions Paid

On April 1, 2014, we paid total distributions of approximately $5.0 million, of which $2.4 million was cash distributions and $2.6 million was funded by issuing shares pursuant to our DRIP, relating to distributions declared each day in the month of March 2014. 

On May 1, 2014, we paid total distributions of approximately $4.9 million, of which $2.3 million was cash distributions and $2.6 million was funded by issuing shares pursuant to our DRIP, relating to distributions declared each day in the month of April 2014.

Acquisition of Development

On April 24, 2014, we acquired land for a purchase price of $33.7 million, excluding closing costs, in Huntington Beach, California for a future development of a 510 unit multifamily community. This development is held through a PGGM CO-JV with a Developer Partner.

 * * * * *

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

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements include discussion and analysis of the financial condition of Behringer Harvard Multifamily REIT I, Inc. and its subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including, but not limited to, our ability to make accretive investments, our ability to generate cash flow to support cash distributions to our stockholders, our ability to obtain favorable debt financing, our ability to secure leases at favorable rental rates, our assessment of market rental rate trends, capital markets, and other matters.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions.  These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements.  Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 12, 2014, and the factors described below:

• market and economic challenges experienced by the U.S. economy or real estate industry as a whole and the local economic conditions in the markets in which our properties are located;

• our ability to make accretive investments in a diversified portfolio of assets;

• future changes in market factors that could affect the ultimate performance of our development projects, including but not limited to delays in obtaining all necessary entitlements, increased construction costs, plan or design changes, schedule delays, availability of construction financing, performance of developers, contractors and consultants and growth in rental rates and operating costs;

• our level of co-investments and the terms and limitations imposed on us by co-investment agreements, including the availability of and timing related to cash flow from operations and our realization of our investments;

• the availability of cash flow from operating activities for distributions to our stockholders;

• our level of debt and the terms and limitations imposed on us by our debt agreements;

• the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt;

• our ability to secure resident leases at favorable rental rates;

• our ability to successfully transition to a self-managed company;

• our ability to retain our executive officers and other key personnel, whether employees of ours, our advisor, our property manager or their affiliates;

• conflicts of interest arising out of our relationships with our advisor and its affiliates;

• unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and

• factors that could affect our ability to qualify as a real estate investment trust.

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Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect or false.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

Cautionary Note

The agreements filed as exhibits to this Quarterly Report on Form 10-Q have been included to provide stockholders with information regarding their terms.  They are not intended to provide via their terms any other factual information about us.  The representations, warranties, and covenants made by us in any such agreement are made solely for the benefit of the parties to the agreement as of the specific dates, including, in some cases, for the purpose of allocating risk among the parties to the agreement, may be subject to limitations agreed upon by the contracting parties and should not be deemed to be representations, warranties, or covenants to or with any other parties.  Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.  Any mention or description of any document contained herein does not purport to be complete and is qualified in its entirety by reference to such agreements.

Overview

General

We were incorporated on August 4, 2006 as a Maryland corporation and operate as a real estate investment trust (“REIT”) for federal income tax purposes. We make investments in, develop and operate high quality multifamily communities that we believe have desirable locations, personalized amenities, and high quality construction. We began making investments in multifamily communities in April 2007.  As of March 31, 2014, all but one of our investments have been made in multifamily communities located in the top 50 metropolitan statistical areas located in the United States (“MSAs”).  We invest in multifamily communities that may be wholly owned by us or held through joint venture arrangements with third-party institutional or other national or regional real estate developers/owners which we define as “Co-Investment Ventures” or “CO-JVs.”

We have investments in 54 multifamily communities as of March 31, 2014.  Of the 54 multifamily communities, we wholly own seven multifamily communities and three debt investments, consisting of mezzanine and land loans, for a total of 10 wholly owned investments. The remaining 44 multifamily communities are held through Co-Investment Ventures, all reported as consolidated but one, which is reported on the equity method of accounting.  The one unconsolidated multifamily community holds a debt investment. We have funded these investments and intend to fund future investments with a combination of sources, including available cash, dispositions, mortgage debt and unsecured or secured debt facilities.  As discussed below, we have and will continue to utilize available Co-Investment Ventures when it is favorable for us.

Our investment strategy is designed to provide our stockholders with a diversified portfolio, and our management and board of directors have extensive experience in investing in numerous types of real estate, loans and other investments to execute this strategy. We intend to focus on acquiring and developing high quality multifamily communities that will produce increasing rental revenue and will appreciate in value within our targeted life. Our targeted communities include existing core properties, as well as properties in various phases of development, redevelopment, lease up or repositioning which we intend to transition to core properties.  Further, we may invest in other types of commercial real estate, real estate-related securities and mortgage, bridge, mezzanine, land or other loans, or in entities that make investments similar to the foregoing. Although we intend to primarily invest in real estate assets located in the United States, in the future, we may make investments in real estate assets located outside the United States.

Our multifamily community investment strategy concentrates on multifamily communities located in the top 50 MSAs across the United States. The U.S. Census population estimates are used to determine the largest MSAs. Our top 50 MSA strategy focuses on acquiring communities and other real estate assets that provide us with broad geographic diversity.  We believe these types of investments, particularly those in submarkets with significant barriers of entry, are in demand by institutional investors which can result in better exit pricing.  We also believe that economic conditions in the major U.S. metropolitan markets will continue to provide adequate demand for properly positioned multifamily communities; such conditions include job and salary growth to support revenue growth and household formation, lifestyle trends that attract renters, as well as higher single-family home pricing and constrained credit which tends to increase the supply of renters.

Investments in multifamily communities have benefited from changing demographic, housing and supply trends. These demographic trends include the echo-boomer generation coming of age and entering the rental market, growth in non-

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traditional households, and increased immigration, all groups that have high proportions of renters. Demand for multifamily communities is also affected by tighter standards for single family financing where changes in underwriting have affected the cost, availability and affordability of single family homes.  Consequently, single family home ownership has declined from peaks in the last decade.  Furthermore, supply of new multifamily communities had been limited coming out of the last recession. Accordingly, the multifamily sector has experienced increased rental rates and occupancy, particularly in the last two years, which have been greater than historical averages.  While we believe these trends will still be relatively favorable for multifamily demand in the foreseeable future as the key demographic population increases and single family housing options continue to be more restrictive, we also believe the near term absorption of supply in certain markets could affect future rental rate growth rates. Because the period required to develop new multifamily communities is 18 to 36 months and because local economic growth is generally expected to support the new supply, we believe the effect on our multifamily communities will be incremental over time, resulting in growth rates moving closer to historical averages, and less likely to result in declines.  However, the timing and magnitude of these trends are affected by many factors some of which will vary by each local market.  

We have and expect to continue to utilize Co-Investment Ventures in our investment strategy. Co-Investment Ventures’ equity allows us to expand the number and size of our investments, allowing us to obtain interests in multifamily communities we might otherwise not have access to. With a larger portfolio of investments we believe we are also diversifying and managing our risk.  Accordingly, we have used Co-Investment Ventures in many of our different types of investments, including stabilized and development communities and loan investments. While co-investments can provide us with a cost effective source of capital, this strategy may prolong the period to deploy our available cash balances and realize returns on investments.

We currently have available cash balances, primarily from dispositions and financings, which we are seeking to invest on attractive terms.  In the current acquisition environment, we believe that investing in multifamily developments may be more attractive than investing in stabilized multifamily communities. In particular, investing in developments is projected to allow ownership at a lower cost per unit and higher stabilized yield. Competition for new developments is increasing but our available liquidity may be a competitive advantage in sourcing new investments. Developments also provide an advantage due to updated amenities resulting in higher resident appeal and in fewer capital expenditures as compared to older multifamily communities.

In pursuing a development focus, we will generally partner with experienced developers and obtain guaranteed maximum construction contracts whenever possible. The developers will receive a promoted interest after we receive certain minimum annual returns. We have or generally expect to have substantial control over property operations, financing and sale decisions, but the developers may have rights to sell their interests at a set price after a prescribed period, usually one or two years after substantial completion.

Similar to our co-investment strategy, the decision to focus primarily on developments rather than acquisitions will affect our near-term operating cash flow. Developments require a period to entitle, permit, plan, construct and lease up before realizing cash flow from operations. We will attempt to minimize these risks by selecting development projects that have already completed a portion of the early development stages; however, the time from investment to stabilized operations could be two to three years. During these periods, we may use available cash or other liquidity sources to fund our non-operating requirements, including a portion of distributions paid to our common stockholders. The use of these proceeds could reduce the amount available for other new investments.

Developments also include risks related to development schedules, costs and lease up. Local governmental entities have approval rights over new developments, where the permitting process and other approvals can result in delays and additional costs. Estimated construction costs are based on labor, material and other market conditions at the time budgets are prepared, and we intend to use guaranteed maximum construction contracts when possible; however, actual costs may differ due to the available supply of labor and materials and as market conditions change. Rental rates at lease up are subject to local economic factors and demand, competition and absorption trends, which could be different than the assumptions used to underwrite the development. Accordingly, there can be no assurance that all development projects will be completed at all and/or completed in accordance with the projected schedule, cost estimates or revenue projections.

We may also invest our available cash in multifamily-related debt investments. Because government-sponsored entities (“GSEs”) typically do not lend on development properties during construction and banks and other debt providers tend to limit financing to approximately 70% of total costs, we may have lending opportunities with creditworthy borrowers that would provide favorable short-term returns (one to five years). We will seek out these loan investments either as mezzanine or land loans. For mezzanine loans, we will provide financing that is subordinate to the developer’s senior construction loan but senior to the developer’s equity, which we expect to be in the range of 10% to 15% of the total development cost. The mezzanine loans are secured by a pledge, typically of ownership interests in the respective multifamily community

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development, and will carry interest rates ranging from 12% to 15% for a base term of three years. These loans generally require one to six months to fully fund the loan commitment with interest payments fully or partially deferred until operations have stabilized or the loan is paid off. For land loans, we will finance the developer’s acquisition of the land, usually for a period of approximately one to two years at interest rates ranging from 10% to 13% and require a first lien mortgage as collateral. Similar to mezzanine loans, we will also generally require 10% to 15% of developer equity for each land loan.

While the recent investing trends have positively benefited our multifamily valuations and operations, these trends have also led to increased competition for stabilized multifamily investments, particularly in the markets and with the quality and characteristics that we target, which has resulted in multifamily acquisition prices increasing faster than their underlying returns, a characteristic referred to as capitalization rate compression.  During these periods of capitalization rate compression, we will still continue to evaluate stabilized acquisitions and seek out properties and structures where our liquidity, financial strength and experience allow us to differentiate our offers from other buyers. Although we do not expect stabilized acquisitions to be our primary investment strategy, we will take advantage of such opportunities when they meet our targeted return objectives.

When appropriate, we may also incorporate into our investment portfolio lease up properties, generally newly completed multifamily developments that have not started or just started leasing, which may provide for more timely realization of operating cash flow than value-add redevelopments or traditional developments. Additionally, we may also invest in value-added multifamily communities. Generally, we would make other capital improvements to aesthetically improve the asset and its amenities, increase rents, and stabilize occupancy with the goal of adding an attractive increase in yield and improving total returns.

The demand for multifamily acquisitions may also provide opportunities to selectively monetize our existing portfolio and potentially make new investments in multifamily communities with greater total return prospects.  In reviewing a sale opportunity, we may evaluate total return prospects on an individual property basis, which would include specific property characteristics such as current market value, rental rate growth, operating costs or competition.  We may also make an evaluation based on the sub-market or region, which would include factors related to macro-economic conditions, overall multifamily supply trends or investor demand and our own assessment of our critical mass in a market which may result in our decision to exit an entire region.  Because older properties have higher capital and maintenance requirements and may not attract higher rents, we will also monitor the overall age of our portfolio, selling certain communities to maintain targeted age characteristics. 

Transition to Self-Management

As previously disclosed in our Current Report on Form 8-K filed with the SEC on August 6, 2013 and our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013, on July 31, 2013 (the “Initial Closing”), we entered into a series of agreements and amendments to our existing agreements and arrangements with Behringer Harvard Multifamily Advisors I, LLC, our external advisor (the “Advisor”) and its affiliates (collectively “Behringer”) beginning the process of becoming self-managed. We collectively refer to these agreements as the “Self-Management Transition Agreements.” Effective July 31, 2013, we and Behringer entered into a Master Modification Agreement (the “Modification Agreement”), which set forth various terms of and conditions to the modification of the business relationships between us and Behringer. In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of Behringer and began hiring other employees. The completion of the remainder of the self-management transactions will occur at a second closing (the “Self-Management Closing”), which is expected to occur on June 30, 2014, and where we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. As of March 31, 2014, we have hired two additional employees and intend to hire other employees both before and after June 30, 2014 in our transition to self-management. The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions.

For more information regarding these arrangements, please refer to exhibits filed with our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013, and our Current Report on Form 8-K filed with the SEC on August 6, 2013, each available at www.sec.gov or the website maintained for us at www.behringerinvestments.com.

Offerings of Our Common Stock

We terminated offering shares of common stock in our Initial Public Offering on September 2, 2011, having aggregate gross primary offering proceeds of approximately $1.46 billion. Upon termination of our Initial Public Offering, we reallocated 50 million unsold shares remaining from our Initial Public Offering to our distribution reinvestment plan (“DRIP”).  As a result, we are offering a maximum of 100 million total shares pursuant to our DRIP at a DRIP offering price set by our board of

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directors, which as of March 1, 2013 is $9.53 per share, based on approximately 95% of our estimated per share value as of March 1, 2013.  Prior to March 1, 2013, the DRIP offering price was $9.45 per share, based on approximately 95% of our previous estimated per share value.  For the three months ended March 31, 2014 and 2013, the DRIP offering price averaged $9.53 and $9.45, respectively.  As of March 31, 2014, we have sold approximately 16.8 million shares under our DRIP for gross proceeds of approximately $159.7 million.  There are approximately 83.2 million shares remaining to be sold under the DRIP as of March 31, 2014.

Per the terms of the DRIP, we currently expect to offer shares for approximately the next four years through 2018, which would be the sixth anniversary of the termination of our Initial Public Offering, although our board of directors has the discretion to extend the DRIP beyond that date, in which case we will notify participants of such extension.  We may suspend or terminate the DRIP at any time by providing ten days’ prior written notice to participants, and we may amend or supplement the DRIP at any time by delivering notice to participants at least 30 days prior to the effective date of the amendment or supplement.  Notice may be delivered by use of U.S. mail, electronic means or by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all of which are filed with the SEC.

Shares of our common stock are not currently listed on a national securities exchange.  Depending upon then-prevailing market conditions, we intend to begin to consider the process of listing or liquidation within the next two to four years, which is unchanged from the four to six years after the date of the termination of our Initial Public Offering as disclosed in the related offering documents.

Distributions

Our board of directors, after considering the current and expected operations of the Company and other market and economic factors, authorized regular distributions payable to stockholders equal to an annual rate of 3.5% (based on a purchase price of $10.00 per share) for the period from April 1, 2012 through June 30, 2014.  See further discussion under “Distribution Activity” below.

Co-Investment Ventures

As of March 31, 2014, we are the general partner and/or managing member for each of the separate Co-Investment Ventures. Our two largest Co-Investment Venture partners are Stichting Depositary PGGM Private Real Estate Fund, a Dutch foundation acting in its capacity as depositary of and for the account and risk of PGGM Private Real Estate Fund, and its affiliates, a real estate investment vehicle for Dutch pension funds (“PGGM” or the “PGGM Co-Investment Partner”) and Milky Way Partners, L.P. (the “MW Co-Investment Partner”), the primary partner of which is Korea Exchange Bank, as Trustee for and on behalf of National Pension Service (acting for and on behalf of the National Pension Fund of the Republic of Korea Government) (“NPS”). Our other Co-Investment Venture partners include third-party national or regional real estate developers/owners (“Developer Partners.”) When applicable, we refer to individual investments by referencing the individual co-investment partner or the underlying multifamily community. We refer to our Co-Investment Ventures with the PGGM Co-Investment Partner as “PGGM CO-JVs,” those with the MW Co-Investment Partner as “MW CO-JVs,” and those with Developer Partners as “Developer CO-JVs.”

The table below presents a summary of our Co-Investment Ventures.  The effective ownership ranges are based on our share of contributed capital in the multifamily investment. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements for each respective Co-Investment Venture. Unless otherwise noted, all of our Co-Investment Ventures are reported on the consolidated basis of accounting (dollars in millions).

	March 31, 2014		December 31, 2013
Co-Investment Structure	Number of Multifamily Communities	Our Effective Ownership	Number of Multifamily Communities	Our Effective Ownership
PGGM CO-JVs (a)	28	44% to 74%	27	44% to 74%
MW CO-JVs	14	55%	14	55%
Developer CO-JVs	2	90% to 100%	4	90% to 100%
	44		45

(a) Includes one unconsolidated investment as of March 31, 2014 and December 31, 2013. Also, as of March 31, 2014 and December 31, 2013, includes Developer Partners in 18 and 16 multifamily communities, respectively.

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Structure of Co-Investment Ventures

We are the general partner and/or managing member of each of the separate Co-Investment Ventures. With respect to PGGM CO-JVs and MW CO-JVs, our management rights are subject to operating plans prepared by us and approved by our partners, who retain approval rights with respect to certain major decisions. In each of our PGGM CO-JVs and MW CO-JVs, we and, under certain circumstances, our partners have buy/sell rights which, if exercised by us, may require us to acquire the respective Co-Investment Partner’s ownership interest, or if exercised by our respective Co-Investment Partner, may require us to sell our ownership interest. Alternatively, in the event of a dispute, the governing documents may require (or the partners may agree to) a sale of the underlying property to a third party. For tax purposes relating to the status of PGGM and NPS as foreign investors, the underlying properties of PGGM CO-JVs and MW CO-JVs are held through subsidiary REITs, and the agreements may require the investments to be sold by selling the interests in the subsidiary REIT rather than as property sales.

PGGM invests with us in PGGM CO-JVs through the Master Partnership, a joint venture with Stichting Depositary PGGM Private Real Estate Fund. Capital contributions are made pro rata in accordance with the partner’s respective ownership interest in the PGGM CO-JV. Distributions of net cash flow are generally distributed monthly in accordance with the partner’s respective ownership. As the general partner of the Master Partnership, we are entitled to a promoted interest if PGGM’s investments exceed certain performance returns. We also receive fees related to asset management, and for certain financing and disposition transactions. As of March 31, 2014, PGGM has unfunded commitments of approximately $48.7 million related to PGGM CO-JVs in which they have already invested of which our share is approximately $65.2 million. In addition to capital already committed by PGGM through this arrangement, they may commit up to an additional $72.5 million plus any amounts distributed to PGGM from sales or financings of PGGM CO-JVs entered into on or after December 20, 2013. If PGGM were to invest the additional $72.5 million, our share would be approximately $88.3 million assuming a standard 45% ownership of each investment by PGGM. The Master Partnership intends to make new co-investments in traditional “Class A” multifamily residential properties, such as garden apartments, mid-rise apartments or high-rise apartment complexes, that either are to be developed or are in the process of being developed, or for which development has been completed and a certificate of occupancy has been issued not more than ten years prior to the PGGM CO-JV’s acquisition of an interest in such co-investment. Subject to certain limitations, prior to making, or permitting any of our affiliates or entities formed or advised by us to make, an investment that fits within these parameters, we must first offer the PGGM an opportunity to co-invest until PGGM’s maximum potential capital commitment is reached.

As of March 31, 2014, the MW Co-Investment Partner has invested in 14 joint ventures with us. We do not currently have an arrangement with the MW Co-Investment Partner for additional investments with us. Distributions of net cash flow are generally distributed monthly in accordance with the partner’s respective ownership interest.

Distributions of net cash flow from the PGGM CO-JVs and MW CO-JVs are distributed to the members no less than quarterly in accordance with the members’ ownership interests.  PGGM CO-JV and MW CO-JV capital contributions and distributions are made pro rata in accordance with ownership interests.

With respect to Developer CO-JVs, during the development stage of the multifamily investment, the Developer Partners generally provide development and construction services, including guarantees over certain development costs and development completion requirements. As the general partner or managing member of each Developer CO-JV, we set operating budgets, select property management, place financing and approve disposition of the multifamily communities, among other governance controls. The Developer Partners, who are typically providing development and general contractor services through affiliated entities, have very limited approval rights, generally related to protective rights concerning admittance or transfer of owners, changes in the business purpose of the Co-Investment Venture and bankruptcy.  Generally, these developers have initial capital requirements until certain milestones are achieved, at which point their initial capital contributions will be returned to them.  These Developer Partners have a back-end interest, generally only attributable to distributions related to a property sale or financing, and accordingly, we would expect to receive substantially all net cash flow prior to such events.  The Developer Partners, generally, also have put options, one year after completion of the development, pursuant to which we would be required to acquire their back-end interest at a set price as well as options to require a sale of the development after the seventh year after completion of the development at the then current fair value. These Developer CO-JVs also include buy/sell provisions, generally available after the tenth year after completion of the development.  We generally provide substantially all of the equity capital, and accordingly, these Developer CO-JVs are not a significant source of equity capital for us.

In a number of instances, rather than make an investment in a Developer CO-JV on our own, we may make such an investment with PGGM through a PGGM CO-JV. The PGGM CO-JV is then the direct beneficiary and obligor for the Developer CO-JV, where we and PGGM participate through our respective ownership interests. As the general partner of the

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Master Partnership and each PGGM CO-JV, we continue to exercise our control rights, subject to the provisions of the Master Partnership as discussed above. Accordingly, for simplicity, we continue to refer to such investments as PGGM CO-JVs. As of March 31, 2014, we and PGGM are partners in 18 such development projects through PGGM CO-JVs that have, in turn, partnered with Developer Partners. Of these 18 projects, as of March 31, 2014, five are operating properties, two are in lease up and 11 are in development.

Certain PGGM CO-JVs have made and may make equity and/or debt investments in property entities (“Property Entities”) with third-party developers/owners. These Property Entities own multifamily operating communities or development communities. Each Property Entity is a separate legal entity for the sole purpose of holding its respective operating property or development project and obtaining legally separated debt and equity financing. These Property Entities are specifically structured but generally have structures in which the PGGM CO-JV is the managing member or general partner and the other owners have certain approval rights over protective decisions, which effectively require all owners to agree before these actions can be taken. These decisions usually include actions pertaining to admittance or transfer of owners, sale of the property, and financing. The PGGM CO-JV generally provides the greater proportion of the equity capital, which generally ranges from 60% to 90%, but in some instances can be 100% of the equity capital. The third party equity owners in Property Entities generally have buy/sell rights with respect to the ownership interest in the Property Entities.

Co-Investment Venture Partners

PGGM is an investment vehicle for Dutch pension funds.  According to the website of PGGM’s sponsor as of April 2014, PGGM’s sponsor managed approximately 159 billion euro (approximately $218 billion, based on exchange rates as of March 31, 2014) in pension assets for over 2.5 million people. 

The MW Co-Investment Partner is a partnership between Heitman Capital Management LLC (“Heitman”) and NPS.  NPS is the 99.9% limited partner and Heitman is indirectly the 0.1% general partner of the MW Co-Investment Partner. NPS is one of the largest pension funds in the world, which generally covers all citizens of South Korea ages 18 to 59.  NPS was established to provide pension benefits in contingency of old-age, disability or death of the primary income provider for a household with a view to contributing to the livelihood stabilization for the promotion of the welfare of South Korea.  According to the NPS website, as of January 2014, the NPS fund estimated its total value at 426 trillion won (approximately $400 billion, based on exchange rates as of March 31, 2014), and counted over 3.3 million people in its beneficiary base.  The 0.1% general partner of our MW Co-Investment Partner is Heitman, an international investment advisory firm. The MW Co-Investment Partner does not have a commitment for additional investments with us or our sponsor.  We entered into Co-Investment Ventures with the MW Co-Investment Partner in December 2011. 

For our Developer CO-JVs, the Developer Partners are third party national or regional domestic developers.

As of March 31, 2014, we believe all of our Co-Investment Venture partners and Developer Partners are in compliance with their contractual obligations, and we are not aware of factors that would indicate their inability to meet their obligations.

Market Outlook

For the first two of months of 2014, the economy suffered from the effects of an unseasonably harsh winter, as people stayed indoors and businesses and consumers delayed expenditures. Exports, home sales, auto sales and sales of other big ticket items were also down. As a result, the increase in the gross domestic product (“GDP”) was only 0.1% for the quarter, compared to a growth of 2.6% in the fourth quarter of 2013, and was well below the average for the last three years. However, as the weather improved, the economy picked up. Employment improved, adding 192,000 nonfarm employment in March 2014 and 298,000 in April 2014. While this reduced April unemployment to 6.3%, the employment participation rate fell to a 30-year low. As of March 2014, consumer confidence is now at the highest level since the beginning of the 2008 recession and there continues to be favorable trends in consumer spending and manufacturing production. The post-recession expansion is now approaching the end of its sixth year. Given the sluggish recovery in the labor markets and housing sector, as well the lack of inflation signs, many analysts are projecting a relatively stable economy for the near term. The economy should also begin to benefit from the bottoming out of federal and state spending and hiring, as tax revenue increases should allow for increased government activity. In this environment, pent up demand should slowly add to the job markets, production and spending but still not enough to spur the U.S. Federal Reserve to dramatically change its stimulus program.

While the U.S. economy maintains a modest recovery, the multifamily sector continues to generate growth in rental rates while holding good occupancy levels. This is a function of positive demand, supply and local economic fundamentals. While we believe these factors will continue to be favorable factors through 2014 or perhaps longer, there are signs that performance may be moving closer to historical averages.

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From a demand perspective, the demographics for the targeted multifamily renter, the age group from 20 to 34 years old, are still positive in the sector. This group is growing in size and while many other age segments have experienced employment declines or stagnation, the 20 to 34 year old segment’s aggregate employment has increased. Their improving economic status is leading to new household formation as this group moves out from their parent’s home or other shared living arrangements. Further, while this age group in previous economic cycles experienced increasing single family home ownership, higher credit standards for single family mortgages and more reluctance to commit to home ownership are currently leading to increasing rental demand.  Also affecting home ownership is a national trend toward delayed marriage. Since 1990, the average age for first time marriages has increased by over 2 years. Given that first time home ownership often follows marriage, this delay is also delaying home ownership. As a result, single family home ownership, which peaked at 69.2% in late 2004, has now reduced to approximately 64.8% as of March 31, 2014.  Historical home ownership figures from pre-1995 hovered around 64%, which is where many analysts predict ownership will eventually settle. Analysts expect that single family housing will become more competitive in certain areas, particularly where the cost of home ownership is less than comparable rentals, but we believe the overall positive effects of such an important component of the economy will still be a net benefit to the multifamily sector.

On the supply side, after a substantial decline in new developments of multifamily communities from 2008, supply trends are increasing. Preliminary data for the first quarter of 2014 indicated that multifamily permitting, the early indicator of potential new supply, has surpassed the 25-year average by 15%. Although the growth rate in permits was still up over 10% from the same period in the prior year, the first quarter growth rate is less than 2013 averages and the rate of increase seems to be plateauing. We do believe that the new supply will affect certain markets and sub markets, to a greater or lesser extent, where factors such as the strength of the local economy, population and job growth and absolute inventory level of units will allow certain markets to better absorb certain levels of supply. Accordingly, for most major markets, absorption and demand seem to be reasonably in balance. However, capital continues to flow into multifamily and accordingly, supply levels will be a key factor in future multifamily fundamentals. The Washington, D.C. region is an area in particular where new investment and new supply may be outpacing current absorption.

In evaluating all of these factors, many analysts are still projecting continued multifamily rental growth, albeit at a slower pace particularly in markets with favorable job and income growth, where the demand fundamentals can absorb the supply. However, some analysts’ reports are already starting to indicate for certain markets that renting is starting to lose its cost advantage over home ownership and that rental increases will eventually hit limits in relation to disposable income.  While the overall factors noted above should still position the multifamily sector to perform better in a slow growth environment, eventually the multifamily sector will need continued improvements in employment, disposable consumer income and household formation to maintain rental growth.

For the Company, our emphasis on coastal and higher employment growth markets has resulted in our investments performing somewhat better than the national averages.  While national employment gains were sluggish, in our geographic markets, job growth for the most part was greater than the national average or was positive as compared to the prior year.  Below is a chart showing for each of our defined geographic regions with operating properties the annual percent changes in population, employment and supply trends for the first quarter of 2014. (See “Property Portfolio” below for definitions of our regions).

Geographic Region	Population		Employment		Supply of New Units
Florida	0.4	%	0.7	%	0.5	%
Georgia	0.3	%	0.2	%	0.1	%
Mid-Atlantic	0.4	%	—	%	0.3	%
Mid-West	0.1	%	(0.6	)%	—	%
Mountain	0.4	%	0.5	%	0.6	%
New England	0.2	%	0.4	%	0.3	%
Northern California	0.2	%	0.6	%	0.3	%
Southern California	0.2	%	0.4	%	0.1	%
Texas	0.5	%	0.7	%	0.3	%
Portfolio Average	0.4	%	0.4	%	0.3	%
United States Average	0.2	%	0.3	%	0.3	%

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As the chart shows, our regions generally have a balance between population or employment trends as compared to the increase in supply, where there is a general correlation of higher supply in regions with higher population and employment. While the Mid-West, which for us is the Chicago MSA, had disappointing employment for the quarter, likely due to the winter conditions, supply is also below the national average. An area that we are monitoring is our Mid-Atlantic region, which is primarily comprised of the Washington, D.C. MSA. We believe there will likely be short term pressure on rental rates and occupancy in the Mid-Atlantic Region, where beginning in the first quarter of 2014 we are reporting a small decline in rental rates; however, we believe the region’s economic drivers will restore fundamentals over the long term. Overall our portfolio had population and employment growth in excess of the U. S. averages, while reporting supply generally consistent with the U.S. average.

These positive local economic factors for our markets have been favorable contributors to our revenue growth.  The Company has equity interests in 30 communities that were stabilized and held for the comparable periods in 2014 and 2013.  These 30 communities produced year over year total revenue increases of approximately 4%.  Since March 31, 2013, we have increased our residential monthly rent per unit for these 30 stabilized communities by 3%, where the national average was approximately 3.1%.  We have been able to achieve these results, while still maintaining our occupancy for these 30 communities at 95% which is also the national average as of March 31, 2014.

Financing has also been a favorable factor for the multifamily sector. As of the end of March 2014, five and ten year treasury rates, key benchmarks for multifamily financings, are approximately 1.7% and 2.7%, respectively. While these are up about 1% and 2%, respectively, from their recession lows, they are still over 1% below the average over the last 10 years. In addition to favorable general interest rates, GSEs have been a core source for multifamily financing, providing a favorable base level of support for the sector.  Further, the positive multifamily fundamentals, particularly in high quality, stabilized communities such as ours, have brought in other lending sources. In addition to GSEs, insurance companies and commercial banks have been aggressive lenders in our sector.  The Company has taken advantage of these financing opportunities in the last year. During 2014, we closed one floating rate construction loan at a margin over 30-day LIBOR of 1.95%. During 2013, we closed three loans with a weighted average fixed interest rate of 3.6%. Additionally, we also closed two fixed rate construction loans with a weighted average interest rate of 4.1% and three floating rate construction loans at an average margin over 30-day LIBOR of 2.2%. As of both March 31, 2014 and December 31, 2013, our weighted average fixed interest rate was 3.8%.

Although the current outlook on these financing trends appears relatively stable, there are risks.  Potential changes in the U.S. Federal Reserve’s monetary policy could further affect interest rates, while the U.S. political deadlock over the debt ceiling, tax policy and government spending levels can affect the overall level of domestic economic growth. Any of these domestic issues or the resurfacing of global issues, including consequences of the recent events in Ukraine, could slow domestic growth, which could affect the amount of capital available or the costs charged for financings.  Specifically related to the multifamily sector, the U.S. Congress is beginning to hold hearings on legislation to revamp the nation’s housing-financing, possibly by eliminating or restructuring the GSE’s. While we believe our lower leverage and high quality communities would somewhat insulate us from many of these effects, the legislation has the potential to reduce the amount of debt capital available for the multifamily sector which could potentially lead to higher borrowing costs for the entire sector.

In the event of changing financial market conditions, we believe the Company is reasonably positioned to execute our strategy.  As of March 31, 2014, we held cash and cash equivalents of approximately $302.1 million and had borrowing capacity from our line of credit of $138.1 million. Our cash position is over 28% of our total debt balance and greater than all of our variable rate debt. Should there be an increase in interest rates, approximately 92% of our share of debt is at fixed rates with average maturities of 4.0 years. In addition, the Company owns $162.7 million of LIBOR based interest rate caps providing protection for the notional amount for LIBOR Rates in excess of 2.0% to 4.0% for approximately two more years.  We believe these factors will give us flexibility to manage our interest rate exposure should interest rates in general increase, and our liquidity position may be a competitive advantage over other multifamily companies who are not so positioned.  However, with the volatility and uncertainty noted above, there is no assurance that our liquidity position would maintain our competitive position in all circumstances or that our liquidity would still be available or sufficient at such future time.  If interest rates significantly increase and remain higher for prolonged periods, we would expect to incur higher interest expenses on new or refinanced debt. Because the amount of debt is based, in part, on our ability to pay the debt service, higher interest rates could also reduce our overall debt leverage. In addition, our development strategy is dependent on the availability of development financing at reasonable interest rates.  While development financing is currently available, there is also no assurance such financing or the refinancing of the development debt would be available in the future.

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Property Portfolio

We invest in a geographically diversified equity and debt multifamily portfolio which includes operating and development investments.  Our geographic regions are defined by state or by region. Our portfolio is comprised of the following geographic regions and MSAs (with respect to MSAs, we only identify the largest city for each MSA):

• Florida — Includes communities in Miami, FL MSA, and Orlando, FL MSA.

• Georgia — Includes communities in Atlanta, GA MSA.

• Mid-Atlantic — Includes the states of Virginia, Maryland and New Jersey.  Includes communities in Washington, DC MSA and Philadelphia, PA MSA.

• Mid-West — Includes the state of Illinois.  Includes a community in Chicago, IL MSA.

• Mountain — Includes the states of Arizona, Colorado and Nevada.  Includes communities in Phoenix, AZ MSA, Denver, CO MSA, and Las Vegas, NV MSA.

• New England — Includes the states of Connecticut and Massachusetts.  Includes communities in New Haven, CT MSA and Boston, MA MSA.

• Northern California — Includes communities in San Francisco, CA MSA and Santa Rosa, CA MSA. 

• Southern California — Includes communities in Los Angeles, CA MSA and San Diego, CA MSA.

• Texas — Includes communities in Austin, TX MSA, Dallas, TX MSA, and Houston, TX MSA.

The table below presents physical occupancy and monthly rental rate per unit by geographic region for our stabilized multifamily communities as of March 31, 2014 and December 31, 2013. Physical occupancy rates and monthly rental rates per unit as of December 31, 2013 exclude data for multifamily communities sold in 2014:

	March 31, 2014		Physical Occupancy Rates (a)				Monthly Rental Rate per Unit (b)
	Number of	Number of	March 31,		December 31,		March 31,		December 31,
Geographic Region	Communities	Units	2014		2013		2014		2013
Florida	3	884	95	%	94	%	$	1,551	$	1,509
Georgia	1	283	96	%	96	%	1,343		1,334
Mid-Atlantic	5	1,412	94	%	94	%	1,946		1,959
Mid-West	1	298	98	%	94	%	2,260		2,254
Mountain	5	1,594	94	%	93	%	1,365		1,360
New England	3	772	96	%	96	%	1,515		1,513
Northern California	5	953	96	%	95	%	2,486		2,335
Southern California	4	889	95	%	95	%	2,044		2,029
Texas	6	2,068	95	%	95	%	1,462		1,454
Totals	33	9,153	95	%	95	%	$	1,718	$	1,685

(a)       Physical occupancy is defined as the residential units occupied for stabilized multifamily communities as of March 31, 2014 or December 31, 2013 divided by the total number of residential units.  Not considered in the physical occupancy rate is rental space designed for other than residential use, which is primarily retail space.  As of March 31, 2014, the total gross leasable area of retail space for all of these communities is approximately 157,000 square feet, which is approximately 2% of total rentable area.  As of March 31, 2014, all of the communities with retail space are stabilized, and approximately 76% of the 157,000 square feet of retail space was occupied.  The calculation of physical occupancy rates by geographic region and total average physical occupancy rates are based upon weighted average number of residential units.

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(b)       Monthly rental revenue per unit has been calculated based on the leases in effect as of March 31, 2014 and December 31, 2013 for stabilized multifamily communities.  Monthly rental revenue per unit only includes base rents for the occupied units, including affordable housing payments and subsidies, and does not include other charges for storage, parking, pets, cleaning, clubhouse or other miscellaneous amounts. For the three months ended March 31, 2014 and 2013, these other charges were approximately $4.2 million and $4.1 million, respectively, approximately 8% of total revenues for both periods. The monthly rental revenue per unit also does not include unleased units or non-residential rental areas, which are primarily related to retail space.

The table below presents the number of communities and units by geographic region that are currently in development and in which we have an equity or debt investment, as of March 31, 2014. There have been no significant changes since December 31, 2013:

	March 31, 2014
	Number of	Number of
Geographic Region	Communities	Units
Equity investments:
Florida	2	564
Georgia	1	329
Mid-Atlantic	2	827
Mountain	1	212
New England	2	578
Northern California	1	180
Southern California	2	557
Texas	6	1,762
Total equity investments	17	5,009
Debt investments:
Florida	1	321
Mountain (a)	1	388
Southern California	—	—
Texas (b)	2	804
Total debt investments	4	1,513
Total developments	21	6,522

(a)         As of March 31, 2014 and December 31, 2013, the multifamily community underlying the loan investment has been completed and is currently in lease up.

(b) Includes both an unconsolidated loan investment and a loan investment in a multifamily community completed in 2013 and currently in lease up as of March 31, 2014 and December 31, 2013.

Results of Operations

Because of our investment of proceeds from our Initial Public Offering and other capital sources, we have experienced significant increases in our real estate investment activity since our inception.  Also, as certain investments have been sold and the status of our lease up and development communities have progressed, our total investments have fluctuated over time, further changing the proportion of our stabilized multifamily communities or development communities to our total investments. Also, our transition to a self-managed company will affect our operations in future periods. The following information may be helpful in evaluating current and future fluctuations in our overall results of operations.

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Real Estate Investment Activity

During the last two years, the Company has made significant new investments in multifamily communities, primarily investments in developments. As development investments are made and progress through lease up, we have experienced changes in operating results. Of our 14 developments under construction as of March 31, 2014, we expect to commence leasing for eight communities in 2014 and six communities in 2015. Further, as we have sold certain investments and invested the proceeds in developments and debt investments in developments, the mix of our investments has changed, which also contributed to other fluctuations in operations.

These portfolio changes have contributed to significant fluctuations in many of our financial results.  A summary of our investments in multifamily communities as of March 31, 2014, December 31, 2013, and March 31, 2013 is as follows:

	March 31, 2014	December 31, 2013	March 31, 2013
Reporting Classifications:
Consolidated investments	53	54	51
Investments in unconsolidated real estate joint ventures	1	1	1
Total investments	54	55	52
Investment Classifications:
Equity investments
Stabilized communities	33	32	35
Lease up (including developments in lease up)	2	2	—
Development (pre-development and under development and construction)	15	17	13
Total equity investments	50	51	48
Debt investments
Mezzanine loans (including one stabilized community)	4	4	4
Total debt investments	4	4	4
Total investments	54	55	52

Transition to Self-Management

As discussed in “Overview — Commencement of Transition to Self-Management” above, on the Initial Closing, we entered into the Self-Management Transition Agreements and have begun our transition to become a fully integrated self-managed company. As a result of these arrangements, we would expect to begin to have higher direct costs of administration, primarily related to compensation, office and transition costs, and reductions in management fees and expenses. Each of these is separately addressed below.

Prior to August 1, 2013, the Company had no employees and was supported solely by related party service and management agreements. Following the Initial Closing, the Company hired its first five employees, all executive positions which are under employment contracts. As we approach and reach the Self-Management Closing, we would expect to hire employees to fully staff our corporate and property management operations. As of March 31, 2014, we had seven employees. Accordingly, beginning in the third quarter of 2013 and through the Self-Management Closing, we expect our compensation and related costs to increase. For the three months ended March 31, 2014, we incurred $1.0 million of compensation and related expenses. We did not incur any such compensation expenses during the same period of 2013. After the Self-Management Closing, we expect to benefit from eliminated or reduced advisory and property management fees and cost reimbursements. Going forward, our new expenses are subject to the number of our properties, particularly as it relates to property management compensation, but also our administrative and operational requirements at that time.

We currently reimburse our Advisor for a portion of its office space and office support costs related to our operations. Upon the Self-Management Closing, our office costs will largely be a function of our new office arrangement and our lease for a new corporate headquarters, which may commence prior to the Self-Management Closing. See further discussion of our corporate office lease at Note 13, “Commitments and Contingencies” to the consolidated financial statements in Item 1. We also anticipate incurring costs for office equipment, supplies, consultants and related administrative expenses. These increases in costs could be recognized directly as general and administrative expenses or included in depreciation and amortization expense.

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The Self-Management Transition Agreements provide for transition services and related costs, which will be paid through September 30, 2014 to Behringer. These primarily include (1) transition services paid through September 30, 2014 totaling approximately $0.4 million per month for the period from the Initial Closing to September 30, 2014 and $1.25 million paid on the Self-Management Closing and (2) $3.5 million for certain intangible assets, rights and contracts paid at the Self-Management Closing. We expect portions of the future payments to be expensed in future periods with the amount per period dependent on the level and timing of each service and the accounting allocation to each period. Certain of these expenses could be direct transition expenses while others may be included as amortization or depreciation expense. For the three months ended March 31, 2014, we incurred $0.2 million of expenses with Behringer in connection with the Self-Management Transition Agreements. For the three months ended March 31, 2014 and 2013, we also incurred, on our own account, approximately $0.3 million and $0.1 million, respectively, of transition costs, primarily related to legal and financial consulting costs, and costs of the Company’s special committee of the board of directors, comprised of all of the Company’s independent directors (the “Special Committee”).

For the three months ended March 31, 2013, before entering into the Self-Management Transition Agreements, the Company incurred $1.8 million in quarterly asset management expenses paid to the Advisor and its affiliates, and an additional quarterly reimbursement to the Advisor and its affiliates of approximately $0.4 million. Under the Self-Management Transition Agreements, we received a reduction of $0.5 million per quarter through the Self-Management Closing, at which point we expect that all asset management fees will be eliminated. For the three months ended March 31, 2014, we incurred $1.9 million in quarterly asset management fees and $0.4 million in reimbursements. Additionally, should the Company increase its real estate assets, either in cost or in appreciated value, the primary basis for the calculation of the asset management fee, (as has occurred and may continue in the future), the actual amount of asset management fees through the Self-Management Closing could actually be higher, despite the reductions just discussed. Regardless of property activity, we would still expect the asset management fees to be eliminated upon the Self-Management Closing as a result of the Self-Management Transition Agreements. As discussed above, we expect an increase in employee compensation expense, which will in part help us manage our assets, as a result of our entry into the Self-Management Transition Agreements.

Similarly, for the three months ended March 31, 2013, before entering into the Self-Management Transition Agreements, the Company incurred $5.7 million in quarterly property management fees paid to the Property Manager and its affiliates. For the three months ended March 31, 2014, these amounts decreased to $5.5 million. Upon the Self-Management Closing, we expect these costs to be eliminated similar to the asset management expense, but the full amount of the savings will be dependent on future operations. We will also benefit from the collection of property management fees which are attributable to the noncontrolling interest owners. In addition, the Company paid to the Property Manager and its affiliates reimbursement of expenses related to the property management agreement. These reimbursements to the Property Manager and its affiliates will also be eliminated upon the Self-Management Closing; however, many of these expenses will then become our responsibility, the largest portion being compensation for on-site and corporate property management personnel and related overhead.

The items noted above will be included in our reported consolidated net income (loss). In addition, the purchase of the 1% general partner interest (the “GP Master Interest”) in Monogram Residential Master Partnership I LP (the “Master Partnership”, which was formerly named Behringer Harvard Master Partnership I LP) at the Initial Closing for $23.1 million which has been eliminated in preparing our consolidated financial statements, has had and is expected in the future to have a positive impact on our net income (loss) attributable to noncontrolling interests. This is primarily related to the asset management fee income we will begin to receive. While this is eliminated in the consolidated net income (loss), this benefit will increase the net income (or reduce the net loss) attributable to common stockholders by approximately $0.2 million to $0.3 million per quarter, based on current operations.

The above discussions related to investment activity and the transition to self-management have affected the comparability of our financial statements as of and for the three months ended March 31, 2014 as compared to the same period of 2013. We expect that these items and our transition to a self-managed company will also affect our trends in future periods. In the following sections, where we compare one period to another or comment on potential trends, we may refer to these items to explain the fluctuations.

Net Operating Income

In our review of operations, we define net operating income (“NOI”) as consolidated rental revenue, less consolidated property operating expenses, real estate taxes and property management fees.  We believe that NOI provides a supplemental measure of our operating performance because NOI reflects the operating performance of our properties and excludes items that are not associated with property operations of the Company, such as general and administrative expenses, asset management fees and interest expense.  NOI also excludes revenues not associated with property operations, such as interest

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income and other non-property related revenues.  In addition, we review our stabilized multifamily communities on a comparable basis between periods, referred to as “Same Store.”  Our Same Store multifamily communities are defined as those that are stabilized and comparable for both the current and the prior reporting year.  We consider a property to be stabilized upon the earlier of 90% occupancy or one year after completion.

The table below reflects the number of communities and units as of March 31, 2014 and 2013 and rental revenues, property operating expenses and NOI for the three months ended March 31, 2014 and 2013 for our Same Store operating portfolio as well as other properties in continuing operations:

	For the Three Months Ended   March 31,
	2014		2013		Change
Rental revenue
Same Store	$	45.3	$	43.6	$	1.7
2013 acquisition	1.9		—		1.9
Developments	2.7		1.3		1.4
Multifamily community sold in 2014	0.3		0.8		(0.5		)
Total rental revenue	50.2		45.7		4.5
Property operating expenses, including real estate taxes
Same Store	17.7		16.9		0.8
2013 acquisition	0.7		—		0.7
Developments	1.6		0.6		1.0
Multifamily community sold in 2014	0.2		0.3		(0.1		)
Total property operating expenses, including real estate taxes	20.2		17.8		2.4
NOI
Same Store	27.6		26.7		0.9
2013 acquisition	1.2		—		1.2
Developments	1.1		0.7		0.4
Multifamily community sold in 2014	0.1		0.5		(0.4		)
Total NOI	$	30.0	$	27.9	$	2.1

	March 31,
	2014	2013	Change
Number of Communities
Same Store	30	30	—
2013 acquisition	1	—	1
Developments	2	1	1
Multifamily community sold in 2014	—	1	(1	)
Total Number of Communities	33	32	1
Number of Units
Same Store	8,378	8,378	—
2013 acquisition	202	—	202
Developments	573	272	301
Multifamily community sold in 2014	—	188	(188	)
Total Number of Units	9,153	8,838	315

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See reconciliation of NOI to income from continuing operations at “Non-GAAP Performance Financial Measures — NOI.”

The three months ended March 31, 2014 as compared to the three months ended March 31, 2013

Rental Revenues. Rental revenues for the three months ended March 31, 2014 were $50.2 million compared to $45.7 million for the three months ended March 31, 2013.  Same Store revenues, which accounted for approximately 90% of total rental revenues for 2014 increased approximately 4% or $1.7 million.  The majority of this increase is related to a 3% increase in the monthly rental revenue per unit from $1,653 as of March 31, 2013 to $1,701 as of March 31, 2014. The remaining net increase of $2.8 million in total rental revenue for the three months ended March 31, 2014 as compared to comparable period of 2013 is attributable to our 2013 acquisition of $1.9 million and developments of $1.4 million which reported rental revenues for a full quarter in 2014 less $0.5 million related to the change in revenue for a multifamily community sold in 2014.

Property Operating and Real Estate Tax Expenses. Property operating and real estate tax expenses for the three months ended March 31, 2014 and 2013 were $20.2 million and $17.8 million, respectively.  Same Store property operating expenses and real estate taxes, which accounted for approximately 88% of total property operating expenses and real estate taxes for 2014, increased approximately $0.8 million.  Increases in Same Store real estate taxes of approximately $0.6 million were driven by increased tax values on our multifamily communities.  Our 2013 acquisition and developments which were held for a full quarter in 2014 accounted for $1.7 million of the increase in total property operating and real estate tax expenses.

Asset Management Fees. Asset management fees for the three months ended March 31, 2014 increased by $0.1 million compared to the same period of 2013. Increase in our gross real estate costs and investment values, the primary input to the calculation of asset management fees, resulted in an approximate increase of $0.5 million. Prior to July 1, 2013, the Advisor waived the difference between asset management fees calculated on the basis of appraised value of our investments and asset management fees calculated on the basis of cost of our investments. Effective July 1, 2013, the Advisor is no longer waiving this difference. Offsetting the increase for the three months ended March 31, 2014, we received a reduction of $0.5 million from the Advisor as a part of the Self-Management Transition Agreements. 

General and Administrative Expenses. General and administrative expenses increased by $1.1 million for the three months ended March 31, 2014 compared to the same period of 2013. Substantially all of the increase related to compensation and related expenses for five executives who became employees of the Company effective July 1, 2013 and two employees hired thereafter. We did not incur any compensation expense for the comparable period of 2013.

Transition Expenses. During the three months ended March 31, 2014, we incurred $0.5 million of transition expenses related to our transition to becoming a self-managed company. See further discussion above under “Transition to Self-Management.” These expenses relate to amounts paid and/or due to Behringer in connection with the self-management transaction of approximately $0.2 million and other expenses, primarily legal, financial advisors, consultants and costs of the Special Committee of the board of directors.

Interest Expense. For the three months ended March 31, 2014 and 2013, we incurred total interest charges of $9.4 million and $8.1 million, respectively. For the three months ended March 31, 2014 and 2013, we capitalized interest expense of $4.1 million and $1.7 million, respectively, and accordingly, recognized net interest expense for the three months ended March 31, 2014 and 2013 of approximately $5.3 million and $6.4 million, respectively. The decrease in net interest expense was principally due to a $2.4 million increase in capitalized interest as a result of increased development activity.

Depreciation and Amortization. Depreciation and amortization expense for the three months ended March 31, 2014 and 2013 was approximately $23.0 million and $20.7 million, respectively.  Depreciation and amortization primarily includes depreciation of our consolidated multifamily communities and amortization of acquired in-place leases and other contractual intangibles.  The increase is principally the result of the depreciation expense related to the San Francisco multifamily operating community acquired in July 2013 as well as depreciation expense related to two multifamily communities completed in 2013 and transferred to operating real estate in the fourth quarter of 2013.

Gain on Sale of Real Estate. Gain on sale of real estate for the three months ended March 31, 2014 represents the gain recognized from the sale of the Tupelo Alley multifamily community (“Tupelo Alley”). As discussed in Note 4, “Real Estate Investments,” to the consolidated financial statements in Item 1, the disposition of Tupelo Alley was not considered a discontinued operation. Sales of real estate during 2013 were considered discontinued operations, and accordingly are discussed in the paragraph below.  

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Discontinued Operations. Loss from discontinued operations for the three months ended March 31, 2013 include the operating results of the four multifamily communities sold in 2013. The gain of $6.9 million for the three months ended March 31, 2013 represents the gain recognized from the sale of The Reserve at Johns Creek Walk multifamily community (“Johns Creek”).  Other income related to these communities during the applicable periods was not significant.  There were no discontinued operations for the three months ended March 31, 2014.

We review our investments for impairments in accordance with accounting principles generally accepted in the United States of America (“GAAP”). For the three months ended March 31, 2014 and 2013, we have not recorded any impairment losses. However, this conclusion could change in future periods based on changes in market conditions, primarily market rents, occupancy, the availability and terms of capital, investor demand for multifamily investments and U.S. economic trends. 

Significant Balance Sheet Fluctuations

The discussion below relates to significant fluctuations in certain line items of our consolidated balance sheets from December 31, 2013 to March 31, 2014.

Total real estate, net increased approximately $43.2 million principally as a result of $128.4 million of expenditures related to our development portfolio during 2014. This increase was partially offset by the sale of a multifamily community carried at a net book value of $36.5 million in 2014 and depreciation expense of $21.4 million for the three months ended March 31, 2014. See “Liquidity and Capital Resources — Long-Term Liquidity, Acquisition and Property Financing” for further information regarding our development portfolio.

Cash and cash equivalents decreased $17.3 million principally as a result of the cash portion of expenditures related to the development program of $77.6 million. This decrease was partially offset by the receipt of our share of the net sales proceeds of $18.5 million from the sale of real estate during the three months ended March 31, 2014. Additionally, during the three months ended March 31, 2014, we sold noncontrolling interests in two developments to PGGM for cash proceeds of $14.2 million. We also received proceeds of $24.4 million from draws under our construction loans which primarily were used to pay construction costs or to reimburse us for prior construction expenditures.

Cash Flow Analysis

Similar to our discussion above related to “Results of Operations,” many of our cash flow results are affected by our 2013 acquisition activity and the transition of many of our multifamily communities from lease up to stabilized operations, along with changes in the number of our developments.  We anticipate investing a significant portion of our available cash in multifamily investments.  We currently expect developments to constitute one of our primary investment focuses.  Due to the longer periods required to deploy funds during a development and the timing of possible construction financing, we expect that the investment period will extend through parts of 2014 and 2015; however, once the available cash is invested, we expect a decline in our acquisition and development activity.  Accordingly, our sources and uses of funds may not be comparable in future periods.

For the three months ended March 31, 2014 as compared to the three months ended March 31, 2013

Cash flows provided by operating activities for the three months ended March 31, 2014 were $10.7 million as compared to cash flows provided by operating activities of $20.5 million for the same period in 2013.  The decrease in cash provided by operating activities is primarily attributable to the increase and the timing of $4.3 million in real estate tax payments. In 2014, the real estate tax payments were made in March as compared to April in 2013. Additionally, payments related to our transition to self-management, which included compensation expense, transition payments to Behringer in accordance with the Self-Management Transition Agreements, corporate furniture, fixtures and equipment and other general and administrative expenses related to our transition were $2.9 million. For the three months ended March 31, 2013, we did not incur compensation expense and only incurred $0.1 million of transition expenses. Interest collections for the three months ended March 31, 2013 exceeded interest collections for the three months ended March 31, 2014 by $2.0 million.

Cash flows used in investing activities for the three months ended March 31, 2014 were $49.6 million compared to cash flow used in investing activities of $39.1 million during the comparable period of 2013.  The increase in cash used in investing activities was principally due to the increase of $20.8 million in expenditures related to our development portfolio during the three months ended March 31, 2014 compared to the same period of 2013. We expect capital expenditures related to our development program to be a significant use of cash during the remainder of 2014 and through 2015. This increase was

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partially offset by a $7.5 million decrease in advances on notes receivable for the three months ended March 31, 2014 compared to the same period in 2013.

Cash flows provided by financing activities for the three months ended March 31, 2014 were $21.6 million compared to cash flows used in financing activities of $37.1 million for the three months ended March 31, 2013.  During the three months ended March 31, 2014, we received proceeds from draws under construction loans of $24.4 million.  During the three months ended March 31, 2013, we repaid a mortgage payable of $23.0 million in preparation of the sale of Johns Creek and received mortgage proceeds of $4.1 million related to other financings. During the three months ended March 31, 2014, we distributed $20.6 million to noncontrolling interests as compared to $12.4 million for the comparable period of 2013 due to the increased noncontrolling interests with PGGM. Redemptions of $7.0 million were paid during the three months ended March 31, 2014. No redemptions were paid during the comparable period of 2013. 

Liquidity and Capital Resources

The Company has cash and cash equivalents of $302.1 million as of March 31, 2014.  We intend to deploy these funds for additional investments in multifamily communities, primarily development investments, to refinance existing mortgage and construction financings which may benefit from the lower interest environment, to fund costs associated with our transition to a self-managed company, and, to the extent necessary, for distributions to our common stockholders. We anticipate supplementing our investable cash with capital from Co-Investment Ventures, real estate financing, our credit facility, and possibly other equity and debt offerings. Our investments may include wholly owned and joint venture equity interests in operating or development multifamily communities and loans secured directly or indirectly by multifamily communities.  Once we have deployed these proceeds, we would expect a significant reduction in the use of funds for acquisitions, developments, other real estate and real estate-related investments.

Generally, operating cash needs include our operating expenses, general administrative expenses, asset management fees and transition expenses.  We expect to meet these requirements from our share of the operations of our existing investments and anticipated new investments.  However, as we currently intend to focus on development investments, which require time to develop, permit, construct and lease up, there will be a delay before development investments are providing positive cash flows.

Based on our current distribution levels and anticipated redemptions of our common stock, our current operating cash flow, net of the cash requirements noted above, is insufficient to meet our total distributions and redemptions, and we will be dependent on our current cash balances, the continued level of DRIP participation and on the returns from our anticipated investments to increase our operating cash flow. There is no assurance that we will be able to achieve these required returns. During these periods, as we invest and attempt to produce stabilized cash flows, we may use portions of our available cash balances to fund redemptions and the distributions paid to our common stockholders, which could reduce the amount available for new investments.  Lower returns may affect our ability to make distributions or the amount actually disbursed.  We may also refinance or dispose of our investments and use the proceeds to reinvest in new investments, refinance or finance unencumbered properties, or use for other obligations, including distributions on our common stock.

We expect to utilize our cash balances, cash flow from operating activities and our credit facility predominantly for the uses described above.  Accordingly, we expect our available cash balances to decrease as we execute our strategy.

Short-Term Liquidity

Currently, our primary indicators of short-term liquidity are our cash and cash equivalents and our credit facility.  As of March 31, 2014, our cash and cash equivalents balance was $302.1 million, compared to $319.4 million as of December 31, 2013. The decrease is primarily due to the development expenditures of $77.6 million for the three months ended March 31, 2014, partially offset by our share of the sales proceeds of $18.5 million from the sale of a multifamily community in 2014.

Our consolidated cash and cash equivalent balance of $302.1 million as of March 31, 2014 includes approximately $22.0 million held by the Master Partnership and individual Co-Investment Ventures.  These funds are held for the benefit of the Master Partnership and individual Co-Investment Ventures, including amounts for their specific operating requirements, as well as amounts available for distributions to us and our Co-Investment Venture partners. Accordingly, these amounts are only available to us for general corporate purposes after distributions to us.

Our cash and cash equivalents are invested in bank demand deposits and money market accounts. We manage these credit exposures by diversifying our investments over several financial institutions.  However, because of the degree of our

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cash balances, a substantial portion of our holdings are in excess of U.S. federally insured limits, requiring us to rely on the credit worthiness of our deposit holders and our diversification strategy.

With the termination of our Initial Public Offering on September 2, 2011, we are more dependent on our cash flow from operating activities, our available cash balances and the other sources discussed herein.  Cash flow from operating activities was $10.7 million for the three months ended March 31, 2014 compared to $20.5 million for the comparable period in 2013.  As most of our investments are accounted for under the consolidated method of accounting, we show our cash flow from operating activities gross, which includes amounts available to us and to Co-Investment Venture partners.  Included in our distributions to noncontrolling interests are discretionary distributions related to ordinary operations (i.e., excluding distributions related to capital activity, primarily debt financings, to these Co-Investment Venture partners).  Distributions related to operating activities to these Co-Investment Venture partners were $5.7 million and $6.8 million for the three months ended March 31, 2014 and 2013, respectively.

With our positive consolidated cash flow from operating activities, we are able to fund operating costs of our multifamily communities, interest expense, general and administrative costs and fees and expense reimbursements to Behringer. Our residents generally pay rents monthly, which generally coincides with the payment cycle for most of our operating expenses and interest and general and administrative expenses.  Real estate taxes and insurance costs, the most significant exceptions to our 30 day payment cycle, are either paid from lender escrows, which are funded by us monthly, or from elective internal cash reserves.  Further, we expect our share of operating cash flows to benefit from our recent acquisitions and anticipated lease up of our development properties.  Accordingly, we do not expect to have to rely on other funding sources to meet our recurring operating, financing and administrative expenses.

We expect to fund our transition expenses through the Self-Management Closing from existing cash balances (including cash available as a result of reduced fees and expense reimbursements related to our advisory and property management agreements). Thereafter, we expect to fund our increased general and administrative expenses, primarily increased staff and facility expenses, from increased operating cash flows as a result of the elimination or reductions of advisory and property management fees.

Because we evaluate the performance and returns of our investments loaded for all acquisition costs, including acquisition fees paid to our Advisor, we have and expect to primarily fund acquisition expenses from available cash balances, capital contributions of Co-Investment Venture partners and property related debt financing.  However, acquisition costs are a use of operating cash, and in accordance with GAAP, acquisition expenses are a deduction to cash flow from operating activities. Accordingly, as our acquisition activity continues, we expect our GAAP reported cash flow from operating activities to be affected by the magnitude of our acquisitions.

Our board of directors, after considering the current and expected operations of the Company and other market and economic factors, authorized regular distributions payable to stockholders equal to an annual rate of 3.5% (based on a purchase price of $10.00 per share), from April 1, 2012 to June 30, 2014. We expect to fund distributions from multiple sources including (1) cash flow from our current investments, (2) our available cash balances, (3) financings and (4) dispositions.  In addition, to the extent that stockholders elect to reinvest their regular distributions under our DRIP, less cash is needed to fund distributions. During 2014 and 2013, the percentage of our regular distributions that has been reinvested has averaged approximately 52% and 53%, respectively.

Our board of directors has modified and reinstated our share redemption program (“SRP”) effective March 1, 2013.  (See Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for a description of our SRP.) The SRP currently provides a limit of $7.0 million of redemptions per quarter. At that funding limit, this amount generally corresponds to the average participation in our DRIP, substantially balancing our current funding requirements. However, the board of directors may modify the funding limit in its discretion. Accordingly, there is no assurance that the board of directors will not modify the redemption funding limit or that the redemptions or the level of stockholder participation in the DRIP will continue in the future in the same relative ranges.

After the March 2014 redemption payments made in accordance with the SRP, the Company has unfulfilled redemption requests of approximately $20.3 million, representing 2.4 million shares at an average price of $8.53 per share. The funding for share redemptions could be from our available cash, which could affect amounts available for investment. If borrowings are used to fund redemptions, this could affect the amount and terms of our debt financing. If we dispose of investments to fund redemptions, this could affect our future operating performance. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for further discussion of our SRP.

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We have a $150.0 million credit facility which we intend to use to provide greater flexibility in our cash management and to provide funding on an interim basis for our other short-term needs.  The credit facility matures on April 1, 2017, when all unpaid principal and interest is due, and provides for fees based on unutilized amounts and minimum usage.  The loan requires minimum borrowing of $10.0 million and monthly interest-only payments and monthly or annual payment of fees.  Draws under the credit facility are secured by a pool of certain wholly owned multifamily communities, and we may add and remove multifamily communities from the collateral pool, pursuant to the requirements under the credit facility agreement.  The aggregate borrowings under the credit facility are limited to 70% of the value of the collateral pool, which may be different than the carrying value for financial statement reporting.  We may elect to add multifamily communities to the collateral pool in order to increase amounts available for borrowing.  Conversely, dispositions of multifamily communities in the collateral pool that are not replaced would result in decreases in amounts available for borrowing or require repayment of outstanding draws to comply with borrowing limits.

The credit facility agreement contains customary provisions with respect to events of default, covenants and borrowing conditions.  In particular, the credit facility agreement requires us to maintain a consolidated net worth of at least $150.0 million, liquidity of at least $15.0 million and net operating income of the collateral pool to be no less than 155% of the facility debt service cost.  Certain prepayments may be required upon a breach of covenants or borrowing conditions.  We believe we are in compliance with all provisions as of March 31, 2014.

If circumstances provide us with incentives to acquire investments in all-cash transactions, we may draw on the credit facility for the funding.  We may also use the credit facility for interim construction financing, which could then be repaid from permanent financing at stabilization of each development.  When we have excess cash, we have the option to pay down the facility, which we have done currently. The total borrowings we are eligible to draw depend upon the value of the collateral we have pledged.  As of March 31, 2014, we may make additional draws of approximately $138.1 million.  Future borrowings under the credit facility are subject to periodic revaluations, either increasing or decreasing available borrowings.

The carrying amount of the credit facility and the average interest rate for different periods is summarized as follows (amounts in millions):

	March 31, 2014				For the Three Months Ended   March 31, 2014
	Balance Outstanding		Interest Rate		Average Balance Outstanding		Average Interest Rate (a)		Maximum Balance Outstanding
Borrowings	$	10.0	2.24	%	$	10.0	2.24	%	$	10.0

(a)The average rate is based on month-end interest rates for the period.

As we utilize our cash balances as described in this section, we expect to use the credit facility more frequently.

Long-Term Liquidity, Acquisition and Property Financing

Currently, our primary funding source for investments is our available cash balances, joint venture arrangements, debt financings and dispositions. Our Initial Public Offering terminated on September 2, 2011, with gross and net proceeds from our Initial Public Offering of $1.46 billion and $1.30 billion, respectively.  As our Initial Public Offering is closed, we are dependent on the short-term and long-term liquidity sources discussed in this section.

As discussed above, we expect to use a substantial portion of our available cash for additional investments in multifamily communities, primarily developments, and to a lesser extent multifamily operating and debt investments.  The actual amount invested will depend on the extent to which we are able to supplement these funds with other long-term sources as discussed below or the extent to which we utilize funds for distributions and redemptions related to our common stock or other uses. If our primary investments are developments, the time period to invest the funds and achieve a stabilized return could be longer.  Accordingly, our cash requirements during this period may reduce the amounts otherwise available for investment.

We may make equity or debt investments in individual multifamily communities, portfolios or mergers with other real estate companies. 

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We may also increase the number and diversity of our investments by entering into Co-Investment Ventures, as we have done with our existing partners. During 2013, the PGGM arrangement was restructured, and as of March 31, 2014, PGGM has unfunded commitments of approximately $48.7 million related to PGGM CO-JVs in which they have already invested of which our share is approximately $65.2 million. In addition to capital already committed by PGGM through this arrangement, they may commit up to an additional $72.5 million plus any amounts distributed to PGGM from sales or financings of PGGM CO-JVs entered into on or after December 20, 2013. If PGGM were to invest the additional $72.5 million, our share would be approximately $88.3 million assuming a 45% ownership in the investment by PGGM. PGGM is an investment vehicle for Dutch pension funds.  According to the website of PGGM’s sponsor, PGGM’s sponsor managed approximately 159 billion euro (approximately $218 billion, based on exchange rates as of March 31, 2014) in pension assets for over 2.5 million people as of April 2014.  Accordingly, we believe PGGM has adequate financial resources to meet its funding commitments and its PGGM CO-JV obligations.

We anticipate using our available cash and other sources described in this section to fund any amounts required. We expect that most of these fundings will be in PGGM CO-JVs, where we will be the controlling partner with partial economic interests.

 The MW Co-Investment Partner does not have any commitment for any additional investments.

As of March 31, 2014, we have 20 Developer CO-JVs, 18 of these through PGGM CO-JVs. These Developer CO-JVs were established for the development of multifamily communities, where the Developer Partners are providing development services for a fee and a back-end interest in the development but are not expected to be a significant source of capital.  Of these 20 Developer CO-JVs, five are operating, two are in lease up and 13 are in development. Other than the developments described in the development table below, we do not have any firm commitments to fund any other Co-Investment Ventures.

We make debt investments in multifamily developments for the interest earnings and/or to have options to participate in the equity returns of the development.  As of March 31, 2014, we have three wholly owned debt investments and one unconsolidated debt investment through a PGGM CO-JV.  There is $2.4 million remaining to be funded on the wholly owned debt investments. The unconsolidated debt investment is fully funded. We believe each of the borrowers is in compliance with our debt agreements.

For each equity investment, we evaluate the use of new or existing debt, including our $150.0 million credit facility. Accordingly, depending on how the investment is structured, we may utilize financing at our company level (primarily related to our wholly owned investments) or at the Co-Investment Venture level, where the specific property owning entities are the borrowers.  For wholly owned acquisitions, we may acquire communities with all cash and then later or once a sufficient portfolio of unsecured communities is in place, obtain secured or unsecured financing. During 2013, we completed such an acquisition, acquiring the Vara multifamily community initially for all cash in July 2013 and placing mortgage financing on the property in December 2013. We may also use our credit facility to fully or partially fund development costs, which we may later finance with construction or permanent financing. If debt is used, we generally expect it to be secured by the property (either individually or pooled for the credit facility), including rents and leases. As of March 31, 2014, all but three of our loans, other than borrowings under our credit facility, are individually secured property debt.

Company level debt is defined as debt that is a direct or indirect obligation of the Company or its wholly owned subsidiaries.  Co-Investment Venture level debt is defined as debt that is an obligation of the Co-Investment Venture and is not an obligation or contingency for us but does allow us to increase our access to capital. Lenders for these Co-Investment Venture mortgages and notes payable have no recourse to us other than carve-out guarantees for certain matters such as environmental conditions, misuse of funds and material misrepresentations.  If we have provided partial guarantees for the repayment of debt, that debt is considered a company level debt. As of March 31, 2014, there are three construction loans with such partial guarantees with total commitments of $83.3 million, $22.7 million of which is outstanding.

Even with recent increases in interest rates, in relation to historical averages, favorable long-term, fixed rate financing terms remain available for high quality multifamily communities. As of March 31, 2014, the weighted average interest rate on our company level and Co-Investment Venture level communities fixed interest rate financings was 4.0% and 3.7%, respectively.  During 2013, we and Co-Investment Ventures closed mortgage financings of $107.0 million at a weighted average interest rate of 3.6%.  As of March 31, 2014, the remaining maturity term on our company level and Co-Investment Venture level fixed interest rate financings was approximately four years.

Based on current market conditions and our investment and borrowing policies, we would expect our share of operating property debt financing to be in the range of approximately 50% to 60% following the investment of our available cash and upon stabilization and permanent financing of our portfolio.  As part of the PGGM CO-JV and MW CO-JV governing

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agreements, the PGGM CO-JVs and MW CO-JVs shall not have individual permanent financing leverage greater than 65% or aggregate permanent financing leverage greater than 50% of the Co-Investment Venture’s property fair values unless the respective Co-Investment Venture partner approves a greater leverage rate.  Our other Co-Investment Ventures also restrict overall leverage, ranging between 55% and 70%. These limitations may be removed with the consent of the Co-Investment Venture partners.

We also anticipate using construction financing for our developments as an additional source of capital. These financings may be structured as conventional construction loans or so-called construction to permanent loans. Conventional construction loans are usually floating rate with terms of three to four years, with extension options of one to two years. These loan amounts usually range between 50% and 70% of total costs. Construction to permanent loans are usually fixed rate and for a longer term of seven to ten years.  Accordingly, these loans are best suited when we are looking to lock in long term financing rates. Both types of development financing require granting the lender a full security interest in the development property and may require that we provide recourse guarantees to the lender regarding the completion of the development within a specified time and cost and a repayment of all or a portion of the financing. We expect to obtain construction financing separately for each development, generally when we have entered into general contractor construction contracts and obtained necessary local permits. As of March 31, 2014, we have closed six conventional construction loans and expect to close additional loans which may include different structures. See the development tables below for additional discussion of our existing development activity.

As of March 31, 2014, the total carrying amount of all of our debt and our approximate pro rata share is summarized as follows (amounts in millions; LIBOR at March 31, 2014 was 0.15%): 

	Total Carrying Amount		Weighted Average Interest Rate	Maturity Dates	Our Approximate Share (a)
Company Level
Permanent mortgage - fixed interest rate	$	87.3	3.95%	2018 to 2020	$	87.3
Permanent mortgage - variable interest rate	24.0		Monthly LIBOR + 2.45%	2014 (b)	24.0
Construction loans - variable interest rates (c)	22.7		Monthly LIBOR + 2.15%	2017 to 2018 (b)	12.6
Credit facility	10.0		Monthly LIBOR + 2.08%	2017	10.0
Total Company Level	144.0				133.9
Co-Investment Venture Level - Consolidated:
Permanent mortgages - fixed interest rates	832.0		3.73%	2015 to 2020	458.3
Permanent mortgage - variable interest rate	12.1		Monthly LIBOR + 2.35%	2017	6.7
Construction loans - fixed interest rate (c)	33.6		4.16%	2016 to 2018	25.6
Construction loans - variable interest rates (c)	14.6		Monthly LIBOR + 2.25%	2016 (b)	8.1
	892.3				498.7
Plus: Unamortized adjustments from business combinations	6.2
Total Co-Investment Venture Level - Consolidated	898.5
Total all levels	$	1,042.5			$	632.6

(a) Our approximate share for Co-Investment Ventures and Property Entities is calculated based on our share of contributed capital, as applicable.  These amounts are the contractual amounts and exclude unamortized adjustments from business combinations.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

(b) Includes loan(s) with one or two-year extension options for a fee of generally 0.25% of outstanding principal.

(c) The construction loans relate to six multifamily community developments with combined committed financing of $190.0 million and total estimated costs of $349.2 million. Draws under the commitment are generally available after we have funded a certain amount of equity, approximately 40% to 50% of the total costs, and are limited to prescribed percentages of the final cost, approximately 50% to 60% of the total costs. See the section below for additional information on our development activity.

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Certain of these debts contain covenants requiring the maintenance of certain operating performance levels.  As of March 31, 2014, we believe the respective borrowers were in compliance with these covenants.  The above table does not include debt of Property Entities in which a Co-Investment Venture has not made an equity investment.

As of March 31, 2014, contractual principal payments for our mortgages and notes payable for each of the five subsequent years and thereafter are as follows (in millions): 

Years	Company Level		Consolidated Co-Investment Venture Level		Our Share
April through December 2014	$	24.0	$	4.4	$	26.5
2015	0.2		83.6		46.2
2016	0.6		168.1		101.1
2017	29.5		200.7		130.3
2018	34.7		142.2		110.6
Thereafter	55.0		293.3		217.9

We would expect to refinance these borrowings at or prior to their respective maturity dates and to refinance the conventional construction loans with longer term, permanent mortgages upon stabilization of the development.  There is no assurance that at those times market terms would allow financings at comparable interest rates or leverage levels. In addition, we would anticipate that for some of these communities, lower leverage levels may be necessary or beneficial and may require additional equity or capital contributions from us or the Co-Investment Venture partners. We expect to use our available cash or other sources discussed in this section to fund any such additional capital contributions.

GSEs have been an important financing source for multifamily communities.  The U.S. government continues to discuss potential restructurings of the GSEs including partial or full privatizations.  Accordingly, we have and will continue to maintain other lending relationships.  As of March 31, 2014, approximately 69% of all permanent financings currently outstanding by us, the Co-Investment Ventures and Property Entities were originated by GSEs. None of our construction financing is being provided by GSEs. Furthermore, other loan providers, primarily insurance companies and to a lesser extent banks and collateralized mortgages (“CMBs”), have been a significant source for multifamily community financing, and we expect this trend to continue, particularly for our type of multifamily communities and our leverage levels.  Accordingly, if the GSEs are restructured, we believe there are or will be sufficient other lending sources to provide financing to the multifamily sector; however in such an event, the cost of financing could increase.

Additional sources of long-term liquidity may be increased leverage on our existing investments.  As of March 31, 2014, the leverage on our operating portfolio, as measured by GAAP property cost, was approximately 45%. Through refinancings, we may be able to generate additional liquidity by increasing this leverage to our target leverage of between 50 and 60%.  In certain circumstances we could be charged with prepayment penalties in executing this strategy. In addition, as of March 31, 2014, three multifamily communities (one of which is wholly owned and two of which are held through our Co-Investment Ventures) with combined total carrying values of approximately $118.5 million were not encumbered by any secured debt. If the multifamily community is held in a Co-Investment Venture, we will generally need partner approval to obtain or increase leverage.

We may use our credit facility to provide bridge or long-term financing for our wholly owned communities.  Where the credit facility is used as bridge financing, we would use proceeds on a temporary basis until we could secure permanent financing. The proceeds of such permanent financing would then be available to repay borrowings under the credit facility. However, the credit facility may also be used on a longer term basis, similar to permanent financing.

Other potential future sources of capital may include proceeds from arrangements with other joint venture partners, proceeds from the sale of our investments, if and when they are sold, and undistributed cash flow from operating activities.  We may also sell our debt or equity securities.  We anticipate that within four to six years after the termination of our Initial Public Offering we will begin the process of either listing our common stock on a national securities exchange or liquidating our assets, depending on the then current market conditions.

Dispositions may be a source of capital which may be recycled into investments in multifamily communities with higher long-term growth potential or into other investments with more favorable earnings prospects.  We may also use sales proceeds for other uses, including distributions on or redemptions of our common stock.  Any such dispositions will be on a selective basis as opportunities present themselves, where we believe current investments have achieved attractive pricing and alternative multifamily investments may provide for higher total returns. Other selection factors may include the age of the

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community, our critical mass of operating properties in the market where we would look to dispose of properties before major improvements are required, increasing risk of competition, changing sub-market fundamentals, and compliance with applicable federal REIT tax requirements.  For all PGGM CO-JVs and MW CO-JVs, we need approval from the other partner to dispose of an investment.  In 2014, we completed the disposition of Tupelo Alley generating total cash proceeds of $33.1 million and gain on sale of $16.2 million.

Our development investment activity includes both equity and loan investments (including one unconsolidated loan investment through a PGGM CO-JV). Equity investments are structured on our own account or with Co-Investment Venture partners.  Loan investments include mezzanine loans and land loans.

We classify our development investments as follows:

• Lease up - A multifamily community is considered in lease up when the community has begun leasing. A certificate of occupancy may be obtained as units are completed, and accordingly, lease up may occur prior to final completion of the building. A multifamily community is considered complete when substantially constructed and capable of generating all significant revenue sources.

• Under development and construction - A multifamily community is considered under development and construction once we have signed a general contractors agreement and vertical construction has begun and ends once lease up has started.

• Pre-development - A multifamily community is considered in pre-development during finalization of budgets, permits and plans and ends once a general contractor agreement has been signed and vertical construction has begun.

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The following table, which may be subject to finalization of budgets, permits and plans, summarizes our equity multifamily development investments as of March 31, 2014, all of which are investments in consolidated Co-Investment Ventures (amounts in millions):  

				Total Costs Incurred					Estimated				Estimated Quarter	Occupancy
Community	Location	Effective Ownership (a)	Units	as of March 31, 2014 (b)			Total Estimated Costs		Percent Complete (c)		Committed Development Financing (d)		(“Q”) of Completion(e)	as of March 31, 2014
Lease up:
Arpeggio Victory Park	Dallas, TX	55%	377	$	51.6		$	61.7	84	%	$	31.3	3Q 2014	8%
Allusion West University	Houston, TX	55%	231	37.8			43.2		88	%	21.9		4Q 2014	17%
Under development and construction:
4110 Fairmount	Dallas, TX	55%	299	39.2			47.9		82	%	26.2		3Q 2014	N/A
Blue Sol	Costa Mesa, CA	100%	113	30.7			40.0		77	%	—		4Q 2014	N/A
SEVEN	Austin, TX	55%	220	30.3			62.3		49	%	—		4Q 2014	N/A
Point 21	Denver, CO	55%	212	26.1			50.7		51	%	28.6		1Q 2015	N/A
Everly	Wakefield, MA	55%	186	30.0			51.8		58	%	—		1Q 2015	N/A
Muse Museum District	Houston, TX	55%	270	37.2			51.3		73	%	28.5		2Q 2015	N/A
SoMa (f)	Miami, FL	55%	418	40.1			104.9		38	%	—		4Q 2015	N/A
Cyan on Peachtree (f)	Atlanta, GA	44%	329	15.6			71.1		22	%	—		4Q 2015	N/A
Zinc	Cambridge, MA	55%	392	61.0			191.4		32	%	—		3Q 2015	N/A
The Alexan	Dallas, TX	50%	365	32.2			94.4		34	%	53.5		1Q 2016	N/A
Mission Gorge (f)	San Diego, CA	70%	444	48.0			130.2		37	%	—		1Q 2016	N/A
Nouvelle (f)	Tysons Corner, VA	55%	461	64.2			212.8		30	%	—		1Q 2016	N/A
Pre-development:
Uptown Delray	Delray Beach, FL	55%	146	4.6			39.6		12	%	—		1Q 2016	N/A
Renaissance Phase II	Concord, CA	55%	180	9.4			63.7		15	%	—		3Q 2016	N/A
The Marlowe (f)	Rockville, MD	90%	366	20.7			96.2		22	%	—		4Q 2016	N/A
Total equity investments			5,009	578.7			$	1,413.2	41	%	$	190.0		12%
Less: Construction in progress transferred to operating real estate				(39.4		)
Total equity investment per consolidated balance sheet				$	539.3

(a) Our effective ownership represents our share of contributed capital and may change over time as certain milestones related to budgets, plans and completion are achieved.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

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(b) Our share of total estimated costs, net of the Co-Investment Venture partner’s share (calculated as described in (a)), is approximately $840 million as of March 31, 2014.

(c) Estimated percent complete is calculated as total costs incurred as a percentage of total estimated costs. Such percentage is only an approximation and does not include other factors related to timing and completion, such as permitting and entitlement requirements, staging of construction and other items where cost and schedule are not directly proportionate. We consider a multifamily community complete when the community is substantially constructed or renovated and capable of generating all significant revenue sources.

(d) Committed development financing includes the total amount of construction or other loans secured by the development. Draws under the commitment are generally available after we have funded a certain amount of equity, approximately 40% to 50% of the total costs, and are limited to prescribed percentages of the final cost, approximately 50% to 60% of the total costs. See above for additional information regarding our development financing, where we expect to obtain development financing in addition to those currently listed.

(e) The estimated quarter of completion is primarily based on contractual completion schedules adjusted for reasonably known conditions. The dates may be subject to further adjustment, both accelerations or delays, due to elective changes in the project or conditions beyond our control, such as weather, availability of materials and labor or other force majeure events.

(f) If the development achieves certain milestones primarily related to approved budgets less than maximum amounts, we will reimburse the Developer Partner for their equity ownership and we and the PGGM Co-Investment Partner will be responsible for all of the development costs. The Developer Partner would then be entitled to back end interests based on the development achieving certain total returns.

As of March 31, 2014, we have entered into construction and development contracts with $574.8 million remaining to be paid.  These construction costs are expected to be paid during the completion of the development and construction period, generally within 24 months.  These construction contracts provide for guaranteed maximum pricing from the general contractor or cost overrun guarantees from the developer partners for a portion but not all of the construction and development costs, which will serve to provide some protection to us from pricing increases or cost overruns.  We expect to enter into additional construction contracts on similar terms during 2014 and 2015 on our existing developments and additional developments in our pipeline.

Developments classified as pre-development, where we have not entered into final construction contracts, are further subject to market conditions. Depending on such factors as material and labor costs, anticipated supply, projected rents and the state of the local economy, the cost and completion projections could be adjusted, including adjusting the plans and cost or deferring the development until market fundamentals are more favorable.

In April 2014, we acquired land for future development of a 510 unit multifamily community in Huntington Beach, California for cash of $32.5 million. This development is held through a PGGM CO-JV with a Developer Partner.

Based on current market information, we believe construction financing is available for each of these current developments; however, with our liquidity position, we may elect to wait until the communities are stabilized to obtain financing, particularly for smaller developments.  Since the beginning of 2013, we have entered into four floating rate construction loans for approximately $105.2 million of financing at a weighted average interest rate of LIBOR plus 2.2% and two fixed rate construction to permanent loans for approximately $84.8 million of financing at a weighted average interest rate of 4.2%. We are currently in discussions with lenders on obtaining other construction financing.  We believe other construction financings would be obtained at 50-60% of cost and at floating rates in the range of 200 basis points to 225 basis points over 30-day LIBOR.  (As of March 31, 2014, 30-day LIBOR was 0.15%.)  There is no assurance that any of these terms would still be available at the time of any future financing.  We expect to utilize the liquidity sources noted above to fund the non-financed portions of the developments.

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The following table summarizes our debt investments in developments as of March 31, 2014: 

Community	Location	Units	Total Commitment		Amounts Advanced at March 31, 2014		Fixed Interest Rate		Maturity Date (a)	Effective Ownership (b)
Mezzanine loans:
Jefferson at One Scottsdale	Scottsdale, AZ	388	$	22.7	$	22.7	14.5	%	December 2015	100	%
Kendall Square	Miami Dade County, FL	321	12.3		12.3		15.0	%	January 2016	100	%
Jefferson Creekside (c)	Allen, TX	444	14.1		14.1		14.5	%	August 2015	55	%
Jefferson Center	Richardson, TX	360	15.0		12.6		15.0	%	September 2016	100	%
Total loans		1,513	$	64.1	$	61.7	14.7	%

(a) The maturity date may be extended for one year at the option of the borrower after meeting certain conditions, generally with the payment of an extension fee of 0.50% of the applicable loan balance.    

(b) Effective ownership represents our current ownership percentage in the loan.

(c) Of the total amounts advanced at March 31, 2014, $5.1 million is reflected as an investment in an unconsolidated real estate joint venture.

At the repayment of these loan investments, we may invest in other loan investments or use the proceeds for other uses as described above. During 2013, one loan investment for $10.5 million was repaid.

Due to their recent construction, non-recurring property capital expenditures for our multifamily communities are not expected to be significant in the near term. The average age of our operating communities since substantial completion or redevelopment is five years. We would expect operating capital expenditures to be funded from the Co-Investment Ventures or our cash flow from operating activities. For the three months ended March 31, 2014 and 2013, we spent approximately $1.4 million and $1.5 million, respectively, in recurring and non-recurring capital expenditures on existing communities. We currently expect our annual recurring and non-recurring non-development capital expenditures going forward, based on our current stabilized multifamily communities, to be in the range of $7.0 million to $10.0 million for the next three to five years.

Distribution Policy

Distributions are authorized at the discretion of our board of directors based on its analysis of our prior performance, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, dispositions, general financial condition and other factors that our board of directors deems relevant.  The board’s decision will be influenced, in part, by its obligation to ensure that we maintain our status as a REIT. 

In addition, with our focus on development investments, there may be a lag before receiving the income from such investments.  During this period, we may use portions of our available cash balances and other sources to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments.  There is no assurance that these future investments will achieve our targeted returns necessary to maintain our current level of distributions. However, as development, lease up or redevelopment projects are completed and begin to generate income, we would expect to have additional funds available to distribute to our stockholders.

Accordingly, we cannot assure as to when we will consistently generate sufficient cash flow solely from operating activities to fully fund distributions.  Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future cash flow will support paying our currently established distributions or maintaining distributions at any particular level or at all.

During periods when our operations have not generated sufficient operating cash flow to fully fund the payment of distributions on our common stock, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow.  As noted above, we may use portions of our available cash balances to fund a portion of the

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distributions paid to our common stockholders, which could reduce the amount available for new investments. We may also refinance or dispose of our investments and use the proceeds to fund distributions on our common stock or reinvest the proceeds in new investments to generate additional operating cash flow.  The participation in our DRIP will also reduce the cash portion of our distributions. There is no assurance that these sources will be available in future periods, which could result in temporary or permanent adjustments to our distributions.

Distribution Activity

The following table shows the regular distributions paid and declared for the three months ended March 31, 2014 and 2013 and cash flow from operating activities over the same periods (in millions, except per share amounts):

	Distributions Paid in Cash (a)		Distributions Reinvested (DRIP)		Total Distributions		Funds from Operations (b)		Cash Flow from Operating Activities (c)		Total Distributions Declared (d)		Declared Distributions Per Share (d)
2014
First Quarter	$	7.0	$	7.6	$	14.6	$	12.9	$	10.7	$	14.6	$	0.086
Total	$	7.0	$	7.6	$	14.6	$	12.9	$	10.7	$	14.6	$	0.086
2013
First Quarter	$	6.8	$	7.7	$	14.5	$	13.7	$	20.5	$	14.5	$	0.086
Total	$	6.8	$	7.7	$	14.5	$	13.7	$	20.5	$	14.5	$	0.086

(a)         Regular distributions accrue on a daily basis and are paid in the following month.

(b)         Funds from operations (“FFO”) represents our net income (loss) adjusted primarily for depreciation and amortization expense and excludes gains on sale of real estate.  For a reconciliation of our net income (loss) to FFO, see “Non-GAAP Performance Financial Measures — Funds from Operations and Modified Funds from Operations” below.

(c) Cash flow from operating activities has not been reduced by distributions to noncontrolling interests for operating activities of $5.7 million and $6.8 million for the three months ended March 31, 2014 and 2013, respectively. See paragraph below for additional discussion.

(d)          Represents distributions accruing during the period.

Regular distributions exceeded cash flow from operating activities by $3.9 million for the three months ended March 31, 2014 while cash flow from operating activities exceeded regular distributions by $6.0 million for the three months ended March 31, 2013.  By reporting our investments on the consolidated method of accounting, our cash flow from operating activities includes not only our share of cash flow from operating activities but also the share related to noncontrolling interests.  Accordingly, our reported cash flow from operating activities includes cash flow attributable to our consolidated joint venture investments.  During the three months ended March 31, 2014, we distributed an estimated $5.7 million of cash flow from operating activities to these noncontrolling interests, effectively reducing the share of cash flow from operating activities available to us to approximately $5.0 million, which was less than our regular distributions by $9.6 million.  For the three months ended March 31, 2013, we distributed an estimated $6.8 million of cash flow from operating activities to noncontrolling interests, effectively reducing the share of cash flow from operating activities to approximately $13.7 million, which was less than our regular distributions by $0.8 million.  Further, our regular distributions exceeded our funds from operations by $1.7 million and $0.8 million for the three month periods ended March 31, 2014 and 2013, respectively. 

During the three months ended March 31, 2014 and 2013, our regular cash distributions in excess of our cash flow from operations, as adjusted, were funded from the DRIP and our available cash.  The primary sources of our available cash were our share of proceeds from the sale of multifamily communities and the sale of noncontrolling interests.  As of March 31, 2014, we had cash and cash equivalents balances of $302.1 million, a significant portion of which related to the sale of noncontrolling interests to PGGM in December 2013 and February 2014 and our share of 2013 and 2014 property sales.

Over the long-term, as we continue to make additional investments in income producing multifamily communities and as our development investments are completed and leased up, we expect that more of our regular distributions will be paid from our share of cash flow from operating activities.  However, operating performance cannot be accurately predicted due to

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numerous factors, including our ability to invest capital at favorable accretive yields, the financial performance of our investments, including our developments once operating, spreads between capitalization and financing rates, and the types and mix of assets available for investment.  As a result, future distribution rates may change over time and future distributions declared and paid may continue to exceed cash flow from operating activities.

Off-Balance Sheet Arrangements

We generally do not use or seek out off-balance sheet arrangements. Currently, off-balance sheet arrangements are limited to investments in unconsolidated real estate joint ventures by us or through consolidated Co-Investment Ventures.  As of March 31, 2014, we had one investment of $5.7 million in an unconsolidated joint venture which was made through the Custer PGGM CO-JV.  In August 2012, the Custer PGGM CO-JV made a commitment to fund up to $14.1 million under a mezzanine loan to the Custer Property Entity, a development with an unaffiliated third party developer, to develop a 444 unit multifamily community in Allen, Texas, a suburb of Dallas.  The mezzanine loan has an interest rate of 14.5% and matures in 2015, subject to extension options by the borrower. As of March 31, 2014, the total commitment has been advanced under the mezzanine loan.  The Custer PGGM CO-JV does not have an equity investment in the development.  This PGGM CO-JV is a separate legal entity formed for the sole purpose of holding its respective joint venture investment with no other significant operations.  Our effective ownership in the Custer PGGM CO-JV is 55%.  Distributions are made pro rata in accordance with ownership interests.  The Custer PGGM CO-JV has no debt, and its sole operating asset is the mezzanine loan. 

We have no other off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

All of our Co-Investment Ventures include buy/sell provisions. Under most of these provisions and during specific periods, a partner could make an offer to purchase the interest of the other partner and the other partner would have the option to accept the offer or purchase the offering partner’s interest at that price.  As of March 31, 2014, no buy/sell arrangements exist; however, we may need additional liquidity sources in order to meet our obligations under any future buy/sell arrangements.

Most of our Developer CO-JVs include put provisions for the Developer Partner.  The put provisions are available generally one to two years after substantial completion of the project for a specified purchase price which at March 31, 2014, have a contractual total of approximately $30.2 million for all such Co-Investment Ventures.  The put provisions are recorded as redeemable noncontrolling interests in our consolidated balance sheets at the point they become probable of redemption, and as of March 31, 2014, we have recorded approximately $25.2 million as redeemable noncontrolling interests.  These Co-Investment Ventures also generally include (i) options to require a sale of the development after the seventh year after completion of the development, and (ii) buy/sell provisions available after the tenth year after completion of the development.   Separate from put provisions, we have recorded in our March 31, 2014 consolidated balance sheets redeemable noncontrolling interests of $2.2 million which are probable of being redeemed at their stated amounts if the developments achieve certain milestones primarily related to approved budgets at less than the maximum amounts.

The multifamily communities in which we have investments may have commitments to provide affordable housing. Under these arrangements, we generally receive from the resident a below-market rent, which is determined by a local or national authority. In certain arrangements, a local or national housing authority makes payments covering some or substantially all of the difference between the restricted rent paid by residents and market rents. In connection with our acquisition of The Gallery at NoHo Commons, we assumed an obligation to provide affordable housing through 2048. As partial reimbursement for this obligation, the California housing authority will make level annual payments of approximately $2.0 million through 2028 and no reimbursement for the remaining 20-year period. We may also be required to reimburse the California housing authority if certain operating results are achieved on a cumulative basis during the term of the agreement. At the acquisition, we recorded a liability of $14.0 million based on the fair value of terms over the life of the agreement.  We will record rental revenue from the California housing authority on a straight-line basis, deferring a portion of the collections as deferred lease revenues. As of March 31, 2014 and December 31, 2013, we have approximately $17.3 million and $17.6 million, respectively, of carrying value for deferred lease revenues related to The Gallery at NoHo Commons.

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Estimated Per Share Value

On March 1, 2013, our board of directors established an estimated per share value of the Company’s common stock effective as of March 1, 2013 equal to $10.03 per share.  See Part II, Item 5 of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 1, 2013, for additional information on this estimated per share value. Our current intention is to update our estimated per share value in connection with the filing of our second quarter 2014 Form 10-Q, but in any event, no later than 18 months from March 1, 2013 and we do not anticipate publishing any new estimated per share value prior to the board of directors establishing such estimated per share value. Prior to such updated estimated per share value, we provide the following cautions and limitations:

The estimated value of our shares was calculated as of a specific date.  The estimated value of our shares is expected to fluctuate over time in response to, including but not limited to, changes in multifamily capitalization rates, rental and growth rates, progress and market conditions related to developments, financing interest rates, returns on competing investments, changes in administrative expenses and other costs affecting working capital, amounts of distributions on our common stock, redemptions of our common stock, changes in the amount of common shares outstanding, the proceeds obtained for any common stock transactions and local and national economic factors. Further, as we are actively investing, including initiating and completing our development projects, the composition of our portfolio and the related multifamily fundamentals could change over time.

While the Company believes the methodologies utilized in calculating its estimated per share value were standard in the multifamily real estate sector to determine fair value, the estimated values may or may not represent fair value determined in accordance with GAAP.  The estimated value should not be considered as an alternative to total stockholders’ equity calculated in accordance with GAAP.

As with any valuation methodology, the methodologies used to determine the estimated per share value are based upon a number of estimates and assumptions that may prove later to be inaccurate or incomplete. Further, different market participants using different assumptions and estimates could derive different estimated values or estimated values per share. The estimated per share value may also not represent the amount that our shares would trade at on a national exchange, the amount that would be realized in the sale or liquidation of the Company or what a common stockholder would realize in a sale of shares.

There is no assurance that our methodologies used to estimate per share value would be acceptable to FINRA with respect to its reporting requirements or in compliance with the annual valuation requirements under ERISA and the Code.

Accordingly, stockholders and others are cautioned in the use of our estimated per share value in future periods; any such use should be reviewed in connection with other GAAP measurements presented subsequent to March 1, 2013.

Non-GAAP Performance Financial Measures

In addition to our net income (loss) which is presented in accordance with GAAP, we also present certain supplemental non-GAAP performance measurements.  These measurements are not to be considered more relevant or accurate than the performance measurements presented in accordance with GAAP.  In compliance with SEC requirements, our non-GAAP measurements are reconciled to net income, the most directly comparable GAAP performance measure.  As with other non-GAAP performance measures, neither the SEC nor any other regulatory body has passed judgment on these non-GAAP performance measures.

Net Operating Income and Same Store Net Operating Income

We define NOI as consolidated rental revenue, less consolidated property operating expenses, real estate taxes and property management fees.  We believe that NOI provides a supplemental measure of our operating performance because NOI reflects the operating performance of our properties and excludes items that are not associated with property operations of the Company, such as general and administrative expenses, asset management fees and interest expense.  NOI also excludes revenues not associated with property operations, such as interest income and other non-property related revenues.  NOI may be helpful in evaluating all of our multifamily operations and providing comparability to other real estate companies.

We define Same Store NOI as NOI for our stabilized multifamily communities that are comparable between periods.  We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods under review.

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NOI and Same Store NOI should not be considered a replacement for GAAP net income as they exclude certain income and expenses that are material to our operations.  Additionally, NOI and Same Store NOI may not be useful in evaluating net asset value or impairments as they also exclude certain GAAP income and expenses and non-comparable properties.  Investors are cautioned that NOI and Same Store NOI should only be used to assess the operating performance trends for the properties included within the definition.

The following table presents a reconciliation of our income (loss) from continuing operations to NOI and Same Store NOI for our multifamily communities for the three months ended March 31, 2014 and 2013 (in millions):

	For the Three Months Ended   March 31,
	2014			2013
Income (loss) from continuing operations	$	14.5		$	(1.2	)
Adjustments to reconcile income (loss) from continuing operations to NOI:
Asset management fees	1.9			1.8
General and administrative expenses	3.4			2.3
Transition expenses	0.5			0.1
Investment and development expenses	0.2			—
Interest expense	5.3			6.4
Depreciation and amortization	23.0			20.7
Interest income	(2.4		)	(2.0		)
Gain on sale of real estate	(16.2		)	—
Loss on early extinguishment of debt	0.2			—
Equity in income of investments in unconsolidated real estate joint ventures	(0.2		)	(0.1		)
Other income	(0.2		)	(0.1		)
NOI	30.0			27.9
Less non-comparable:
Revenue	(4.9		)	(2.1		)
Operating expenses	2.5			0.9
Same Store NOI	$	27.6		$	26.7

Funds from Operations and Modified Funds from Operations

Funds from operations (“FFO”) is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance.  We use FFO as currently defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be net income (loss), computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property (including deemed sales and settlements of pre-existing relationships), plus depreciation and amortization on real estate assets, impairment write-downs of depreciable real estate or of investments in unconsolidated real estate partnerships, joint ventures and subsidiaries that are driven by measurable decreases in the fair value of depreciable real estate assets, and after related adjustments for unconsolidated partnerships, joint ventures and subsidiaries and noncontrolling interests.  We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes real estate-related depreciation and amortization, impairments of depreciable real estate, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, highlights the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities (including capitalized interest and other costs during the development period), general and administrative expenses, and interest costs, which may not be immediately apparent from net income.  Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate and intangibles diminishes predictably over time independent of market conditions or the physical condition of the asset.  Since real estate values have historically risen or fallen with market conditions (which includes property level factors such as rental rates, occupancy, capital improvements, status of developments and competition, as well as macro-economic factors such as economic growth, interest rates, demand and supply for real estate and inflation), many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient.  As a result, our management believes that the use of FFO, together with the required GAAP presentations, is helpful for our investors in understanding our performance.  Factors that impact FFO include start-up

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costs, fixed costs, delay in buying assets, acquisition expenses, lower yields on cash held in accounts, income from portfolio properties, operating costs during the lease up of developments, interest rates on acquisition financing and operating expenses.  In addition, FFO will be affected by the types of investments in our and our Co-Investment Ventures’ portfolios, which include, but are not limited to, equity and mezzanine, mortgage and bridge loan investments in existing operating properties and properties in various stages of development and the accounting treatment of the investments in accordance with our accounting policies.

Since FFO was promulgated, GAAP has adopted several new accounting pronouncements, such that management, investors and analysts have considered the presentation of FFO alone to be insufficient. Real estate companies are particularly affected by acquisition activity due to the capital nature of their business, especially in their initial life cycle when sustainable operations have not been achieved, and in other periods when capital is being deployed. While other start-up entities and other industries may also experience significant acquisition activity, other industries’ acquisitions tend to be more asset focused. Under GAAP, most acquisition costs related to acquisitions of a controlling interest in real estate are expensed, while asset acquisition costs or costs related to investments in noncontrolling interests are capitalized.

Accordingly, in addition to FFO, we use modified funds from operations (“Modified Funds from Operations” or “MFFO”) as currently defined by the Investment Program Association (“IPA”).  The IPA’s Guideline 2010-01, “Supplemental Performance Measure for Publicly Registered, Non-Listed REITs:  Modified Funds from Operations” defines MFFO as FFO further adjusted for the following items:

(1) acquisition fees and expenses;

(2) straight-line rent amounts, both income and expense;

(3) amortization of above or below market intangible lease assets and liabilities;

(4) amortization of discounts and premiums on debt investments;

(5) gains or losses from the early extinguishment of debt;

(6) gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;

(7) gains or losses related to fair value adjustments for derivatives not qualifying for hedge accounting, including interest rate and foreign exchange derivatives;

(8) gains or losses related to consolidation from, or deconsolidation to, equity accounting;

(9) gains or losses related to contingent purchase price adjustments; and

(10) adjustments related to the above items for unconsolidated entities in the application of equity accounting.

In October 2011, NAREIT clarified its definition of FFO to exclude impairment charges related to depreciable property and investments in unconsolidated real estate partnerships and joint ventures.  Although IPA has not formally modified its definition of MFFO, with this clarification, we have deleted impairment charges as an adjustment to MFFO.  As we have not recognized any impairment charges, this change in definition has not affected our historical reporting of FFO or MFFO.

We believe that MFFO is helpful in assisting management assess the sustainability of operating performance in future periods and, in particular, after our investment stage is completed, primarily because it excludes acquisition expenses that affect property operations only in the period in which the property is acquired.  Although MFFO includes other adjustments, the exclusion of acquisition expense and other adjustments related to business combinations are generally the most significant adjustments to us at the present time, as we are currently in our acquisition stage.  Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition or business combination activity and to compare our operating performance to other real estate companies that are not incurring acquisition expenses.

As explained below, management’s evaluation of our operating performance excludes the items considered in the calculation based on the following economic considerations:

• Acquisition expenses. In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analyses differentiate costs to acquire the investment from the operations derived from the investment. Both of these acquisition costs have been funded from our available cash and other financing sources and not from operations.  We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management’s analysis of the investing and operating performance of our properties.  Acquisition expenses include those paid to our Advisor or third parties.

• Gains or losses related to fair value adjustments for derivatives not qualifying for hedge accounting and gains or losses related to contingent purchase price adjustments.  Each of these items relates to a fair value adjustment, which

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is based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, which may not be directly attributable to our current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, management believes MFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals rather than changes that may reflect anticipated gains or losses.

• Adjustments for amortization of above or below market intangible lease assets.  Similar to depreciation and amortization of other real estate related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes predictably over time and that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate.

• Adjustments for straight-line rents and amortization of discounts and premiums on debt investments.  In the proper application of GAAP, rental receipts and discounts and premiums on debt investments are allocated to periods using various systematic methodologies. This application will result in income recognition that could be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with management’s analysis of operating performance.

• Adjustment for gains or losses related to early extinguishment of hedges and debt, consolidation or deconsolidation and contingent purchase price.  Similar to extraordinary items excluded from FFO, these adjustments are not related to our continuing operations.  By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators. This adjustment excludes both gains and losses.

Many of these adjustments are similar to adjustments required by SEC rules for the presentation of pro forma business combination disclosures, particularly acquisition expenses, gains or losses recognized in business combinations and other activity not representative of future activities.  However, investors are cautioned that neither FFO nor MFFO is a pro forma measurement.

By providing MFFO, we believe we are presenting useful information that also assists investors and analysts to better assess the sustainability of our operating performance after our acquisition stage is completed.  We also believe MFFO is a recognized measure of sustainable operating performance by the real estate industry.  MFFO is useful in comparing the sustainability of our operating performance after our acquisition stage is completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities or as affected by other MFFO adjustments.  However, investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our acquisition stage is completed, as it excludes acquisition costs that have a negative effect on our operating performance and the reported book value of our common stock and stockholders’ equity during the periods in which properties are acquired.

FFO or MFFO should not be considered as an alternative to net income (loss), nor as an indication of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to fund distributions.  In particular, as we are still investing available cash in new investments and developments, acquisition costs and other adjustments which are increases to MFFO are, and may continue to be, a significant use of cash, an expense in the determination of our GAAP net income, and a use of our cash flow from operating activities.  FFO and MFFO are also not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.  Although the Company has not historically incurred any impairment charges, investors are cautioned that we may not recover any impairment charges in the future.  MFFO also excludes rental revenue adjustments and unrealized gains and losses related to certain other fair value adjustments.  Although the related holdings are not held for sale or used in trading activities, if the holdings were sold currently, it could affect our operating results and any fair value losses may not be recoverable from future operations.  Accordingly, both FFO and MFFO should be reviewed in connection with other GAAP measurements.  Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs.

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The following table presents our calculation of FFO and MFFO, net of noncontrolling interests, and provides additional information related to our operations (in millions, except per share amounts):

	For the Three Months Ended   March 31,
	2014			2013
Net income attributable to common stockholders	$	7.4		$	4.4
Real estate depreciation and amortization (a)	14.5			13.7
Gain on sale of real estate	(9.0		)	(4.4		)
FFO attributable to common stockholders	12.9			13.7
Straight-line rents	0.1			0.1
Loss on early extinguishment of debt	0.1			—
Loss on derivative fair value adjustment	0.1			—
MFFO attributable to common stockholders	$	13.2		$	13.8
GAAP weighted average common shares outstanding - basic	168.7			168.1
GAAP weighted average common shares outstanding - diluted	168.9			168.1
Net income per common share - basic and diluted	$	0.04		$	0.03
FFO per common share - basic and diluted	$	0.08		$	0.08
MFFO per common share - basic and diluted	$	0.08		$	0.08

(a)         The real estate depreciation and amortization amount includes our share of consolidated real estate-related depreciation and amortization of intangibles, less amounts attributable to noncontrolling interests, and our similar estimated share of unconsolidated Co-Investment Venture depreciation and amortization, which is included in earnings of unconsolidated real estate joint venture investments.

The following additional information is presented in evaluating the presentation of net income (loss) attributable to common stockholders in accordance with GAAP and our calculations of FFO and MFFO:

• For the three months ended March 31, 2014 and 2013, we capitalized interest of $4.1 million and $1.7 million, respectively, on our real estate developments.  These amounts are included as an addition in presenting net income (loss), FFO and MFFO attributable to common stockholders.

• For the three months ended March 31, 2014 and 2013, we incurred $0.5 million and $0.1 million, respectively, of transition expenses related to our transition to self-management, primarily including legal, financial advisors, consultants and costs of the Special Committee, general transition services (primarily related to staffing, information technology and facilities), and payments to the Advisor in connection with the transition to self-management.

As noted above, we believe FFO is helpful to investors as measures of operating performance and MFFO is useful to investors to assess the sustainability of our operating performance after our acquisition stage is completed.  FFO and MFFO are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures and principal payment of debt related to investments in unconsolidated real estate joint ventures, are not deducted when calculating FFO and MFFO.

We believe the current definition of MFFO is consistent with industry standards for our operations and provides useful information to investors and management, subject to the limitations described above. However, MFFO is not a replacement for financial information presented in conformity with GAAP and should be reviewed in connection with other GAAP measurements.

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Critical Accounting Policies and Estimates

The following critical accounting policies and estimates apply to both us and our Co-Investment Ventures.

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes which would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Our significant judgments, assumptions and estimates include the evaluation and consolidation of variable interest entities (“VIEs”), the allocation of the purchase price of acquired properties, income recognition for investments in unconsolidated real estate joint ventures, the evaluation of our real estate-related investments for impairment, the classification and income recognition for noncontrolling interests and the determination of fair value.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our consolidated accounts and the accounts of our wholly owned subsidiaries.  We also consolidate other entities in which we have a controlling financial interest or VIEs where we are determined to be the primary beneficiary.  VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability.  The primary beneficiary is required to consolidate a VIE for financial reporting purposes.  The determination of the primary beneficiary requires management to make significant estimates and judgments about our rights, obligations, and economic interests in such entities as well as the same of the other owners.  For entities in which we have less than a controlling financial interest or entities with respect to which we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting.  Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. 

Real Estate and Other Related Intangibles

Acquisitions

For real estate properties acquired by us or our Co-Investment Ventures classified as business combinations, we determine the purchase price, after adjusting for contingent consideration and settlement of any pre-existing relationships.  We record the tangible assets acquired, consisting of land, inclusive of associated rights, and buildings, any assumed debt, identified intangible assets and liabilities, asset retirement obligations and noncontrolling interests based on their fair values.  Identified intangible assets and liabilities primarily consist of the fair value of in-place leases and contractual rights.  Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree over the fair value of identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree are less than the fair value of the identifiable net assets acquired.

The fair value of any tangible assets acquired, expected to consist of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, buildings and improvements.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  When we acquire rights to use land or improvements through contractual rights rather than fee simple interests, we determine the value of the use of these assets based on the relative fair value of the assets after considering the contractual rights and the fair value of similar assets. Assets acquired under these contractual rights are classified as intangibles and amortized on a straight-line basis over the shorter of the contractual term or the estimated useful life of the asset. Contractual rights related to land or air rights that are substantively separated from depreciating assets are amortized over the life of the contractual term or, if no term is provided, are classified as indefinite-lived intangibles.  Intangible assets are evaluated at each reporting period to determine whether the indefinite and finite useful lives are appropriate.

We determine the value of in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant and by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease up periods for the respective leasable area considering current market conditions.  In estimating fair value of in-place leases, we consider items

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such as real estate taxes, insurance, leasing commissions, tenant improvements and other operating expenses to execute similar deals as well as projected rental revenue and carrying costs during the expected lease up period.  The estimate of the fair value of tenant relationships also includes our estimate of the likelihood of renewal. We amortize the value of in-place leases acquired to expense over the remaining term of the leases. The value of tenant relationship intangibles will be amortized to expense over the initial term and any anticipated renewal periods, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of the building. 

We determine the value of other contractual rights based on our evaluation of the specific characteristics of the underlying contracts and by applying a fair value model to the projected cash flows or usage rights that considers the timing and risks associated with the cash flows or usage. We amortize the value of finite contractual rights over the remaining contract period. Indefinite-lived contractual rights are not amortized but are evaluated for impairment.

We determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan.

Developments

We capitalize project costs related to the development and construction of real estate (including interest, property taxes, insurance, and other direct costs associated with the development) as a cost of the development.  Indirect project costs, not clearly related to development and construction, are expensed as incurred. Indirect project costs clearly related to development and construction are capitalized and allocated to the developments to which they relate.  For each development, capitalization begins when we determine that the development is probable and significant development activities are underway.  We suspend capitalization at such time as significant development activity ceases, but future development is still probable.  We cease capitalization when the developments or other improvements, including any portion, are completed and ready for their intended use, or if the intended use changes such that capitalization is no longer appropriate.  Developments or improvements are generally considered ready for intended use when the certificates of occupancy have been issued and the units become ready for occupancy.

Noncontrolling Interests

Redeemable noncontrolling interests are comprised of our consolidated Co-Investment Venture partners’ interests in multifamily communities where we believe it is probable that we will be required to purchase the partner’s noncontrolling interest.  We record obligations under the redeemable noncontrolling interests initially at the higher of (a) fair value, increased or decreased for the noncontrolling interest’s share of net income or loss and equity contributions and distributions or (b) the redemption value.  The redeemable noncontrolling interests are temporary equity not within our control, and presented in our consolidated balance sheet outside of permanent equity between debt and equity.  The determination of the redeemable classification requires analysis of contractual provisions and judgments of redemption probabilities.

The calculation of the noncontrolling interest’s share of net income or loss is based on the economic interests held by all of the owners.

Investment Impairments

If events or circumstances indicate that the carrying amount of the property may not be recoverable, we make an assessment of the property’s recoverability by comparing the carrying amount of the asset to our estimate of the undiscounted future operating cash flows, expected to be generated over the life of the asset including its eventual disposition.  If the carrying amount exceeds the aggregate undiscounted future operating cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.  In addition, we evaluate indefinite-lived intangible assets for possible impairment at least annually by comparing the fair values with the carrying values.  Fair value is generally estimated by valuation of similar assets.

For real estate we own through an investment in an unconsolidated real estate joint venture or other similar real estate investment structure, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value.  An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.  We did not record any impairment losses for the three months ended March 31, 2014 and 2013.

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Fair Value

In connection with our GAAP assessments and determinations of fair value for many real estate assets and liabilities, noncontrolling interests and financial instruments, there are generally not available observable market price inputs for substantially the same items.  Accordingly, we make assumptions and use various estimates and pricing models, including, but not limited to, estimated cash flows, costs to lease properties, useful lives of the assets, costs of replacing certain assets, discount and interest rates used to determine present values, market capitalization rates, sales of comparable investments, rental rates, and equity valuations. Many of these estimates are from the perspective of market participants and will also be obtained from independent third-party appraisals. However, we are responsible for the source and use of these estimates. A change in these estimates and assumptions could be material to our results of operations and financial condition.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate.  The majority of our fixed-lease terms are less than 12 months and reset to market if renewed.  The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities.  Should inflation return, due to the short-term nature of our leases, multifamily investments are considered good inflation hedges.

Inflation may affect the costs of developments we invest in, primarily related to construction commodity prices, particularly lumber, steel and concrete. Inflation for these materials has also recently been low due to lower overall construction as a result of the effects of the U.S. and global recessions. However, inflation could be become an issue due to current U.S. monetary policies or accelerated growth in American, Chinese or other global construction activities. We intend to mitigate these inflation consequences through guaranteed maximum construction contracts, developer cost overrun guarantees and pre-buying materials when reasonable to do so. Increases in construction prices could lower our return on the developments and reduce amounts available for other investments.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. Currently, interest rates are less than historical averages. However, if the Federal Reserve institutes new monetary policies, tightening credit in response to or in anticipation of inflation concerns, interest rates could rise. We intend to mitigate these risks through long term fixed interest rate loans and interest rate hedges, which to date have included interest rate caps.

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve the financing objectives, we borrow primarily at fixed rates or variable rates with what we believe are the lowest margins available and in some cases, the ability to convert variable rates to fixed rates either directly or through interest rate hedges.  With regard to variable rate financing, we manage interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities, which to date have included interest rate caps.

As of March 31, 2014, we had approximately $952.9 million of outstanding consolidated mortgage and construction debt at a weighted average fixed interest rate of approximately 3.8%, $73.4 million of variable rate consolidated mortgage and construction debt at a variable interest rate of monthly LIBOR plus 2.453%, and the outstanding amount under our credit facility was $10.0 million with a weighted average of monthly LIBOR plus 2.08%.  As of March 31, 2014, we have consolidated notes receivable with a carrying value of approximately $56.5 million, a weighted average fixed interest rate of 14.7%, and a weighted average remaining maturity of 1.8 years.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt or fixed rate real estate notes receivable unless such instruments are traded or are otherwise terminated prior to maturity. However, interest rate changes will affect the fair value of our fixed rate instruments. As we do not expect to trade or sell our fixed rate debt

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instruments prior to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt, loans receivable and real estate-related securities would change our future earnings and cash flows, but not significantly affect the fair value of those instruments.  As of March 31, 2014, we did not have any loans receivable or real estate-related securities with variable interest rates.  We are exposed to interest rate changes primarily as a result of our variable rate debt for investments in operating and development multifamily communities and our consolidated cash investments. We quantify our exposure to interest rate risk based on how changes in interest rates affect our net income.  We consider changes in the 30-day LIBOR rate to be most indicative of our interest rate exposure as it is a function of the base rate for our credit facility and is reasonably correlated to changes in our earnings rate on our cash investments. We consider increases of 0.5% to 2.0% in the 30-day LIBOR rate to be reflective of reasonable changes we may experience in the current interest rate environment. The table below reflects the annual effect of an increase in the 30-day LIBOR to our net income related to our significant variable interest rate exposures for our wholly owned assets and liabilities as of March 31, 2014 (amounts in millions, where positive amounts reflect an increase in income and bracketed amounts reflect a decrease in income):

	Increases in Interest Rates
	2.0%			1.5%			1.0%			0.5%
Variable rate mortgage debt and credit facility interest expense	$	(1.7	)	$	(1.3	)	$	(0.8	)	$	(0.4	)
Interest rate caps	0.1			—			—			—
Cash investments	6.0			4.5			3.0			1.5
Total	$	4.4		$	3.2		$	2.2		$	1.1

There is no assurance that we would realize such income or expense as such changes in interest rates could alter our asset or liability positions or strategies in response to such changes. Also, where variable rate debt is used to finance development projects, the cost of the development is also impacted. If these costs exceed interest reserves, we may be required to fund the excess out of other capital sources. The table also does not reflect changes in operations related to any unconsolidated investments in real estate joint ventures, where we may not have control over financing matters and substantial portions of variable rate debt related to multifamily development projects where interest is capitalized.

As of March 31, 2014, we have four separate interest rate caps with a total notional amount of $162.7 million.  Each of these interest rate caps has a single 30 day LIBOR cap rate.  If during its term future market LIBOR interest rates exceed the 30 day LIBOR cap rate, we will be due a payment equal to the excess LIBOR rate over the cap rate multiplied by the notional amount.  In no event will we owe any future amounts in connection with the interest rate caps.  Accordingly, interest rate caps can be an effective instrument to mitigate increases in short-term interest rates without incurring additional costs while interest rates are below the cap rate.  Although not specifically identified to any specific interest rate exposure, we plan to use these instruments related to our developments, credit facility and variable rate mortgage debt.  Because the counterparties providing the interest rate cap agreements are major financial institutions which have investment grade ratings by the Standard & Poor’s Ratings Group, we do not believe there is significant exposure at this time to a default by a counterparty provider. 

A summary of our interest rate caps as of March 31, 2014 is as follows (amounts in millions):

		LIBOR		Maturity	Carrying and
Notional Amount		Cap Rate		Date	Estimated Fair Value
$	50.0	2.5	%	April 2016	$	—
50.0		2.5	%	April 2016	0.1
50.0		2.0	%	April 2016	0.1
12.7		4.0	%	March 2017	—
$	162.7				$	0.2

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations as of March 31, 2014.

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Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of March 31, 2014, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2014 to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.  Legal Proceedings.

We are not party to, and none of our communities are subject to, any material pending legal proceeding nor are we aware of any material legal or regulatory proceedings contemplated by governmental authorities.

Item 1A.  Risk Factors.

The following risk factor supplements the risk factors contained in Part I, Item 1A set forth in our Annual Report on Form 10-K, filed with the SEC on March 12, 2014.

Stockholders that are participating or intend to participate in our SRP or DRIP should consider that there will be potential price changes in connection with a new estimated value per share in August 2014.

On March 1, 2013, our board of directors established an estimated per share value of the Company’s common stock effective as of March 1, 2013 equal to $10.03 per share. Our current intention is to update our estimated per share value in connection with the filing of our second quarter 2014 Form 10-Q in August 2014. We expect that if our estimated value per share increases from $10.03 per share, the pricing under our SRP and DRIP would increase as well, and that if our estimated value per share decreases from $10.03 per share, the pricing under our SRP and DRIP would decrease as well. Stockholders that are participating or intend to participate in our SRP or DRIP should consider that there will be potential price changes in connection with a new estimated value per share in August 2014.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Recent Sales of Unregistered Securities

During the period covered by this Quarterly Report on Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Share Redemption Program

As we previously announced in the Current Report on Form 8-K filed with the SEC on June 22, 2012 in connection with the Company’s consideration of a strategic review, the Company came into possession of material non-public information.  Based on the advice of outside legal counsel, our board of directors decided that suspending our share redemption program (“SRP”) was in the best interests of the Company and its stockholders.  Accordingly, effective as of June 18, 2012, our board of directors indefinitely suspended our SRP effective for redemptions being sought for the second quarter of 2012.  However, in connection with its determination of the estimated value of our shares, our board of directors modified and reinstated our SRP, which permits our stockholders to sell their shares back to us subject to the significant conditions and limitations of the program.  The modified and reinstated SRP was effective as of March 1, 2013 and the first time period redemptions were considered under the modified and reinstated SRP was at the end of the second quarter of 2013 with respect to redemptions to be made in the third quarter of 2013.

The following is a summary of the significant terms of the SRP:

• For redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Exceptional Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of: (i) the current estimated share value pursuant to our valuation policy and (ii) the average price per share the original purchaser or purchasers of shares paid to us for all of their shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) (the “Original Share Price”) less the aggregate of any special distributions so designated by our board of directors, distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed shares (the “Special Distributions”).  Exceptional Redemptions will generally have priority over Ordinary Redemptions (as defined below).

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• For redemptions other than those sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Ordinary Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of (i) 85% of the current estimated share value pursuant to our valuation policy and (ii) the Original Share Price less any Special Distributions.

• A quarterly funding limit has been established of $7 million per quarter (which our board of directors may increase or decrease from time to time).

• If we do not redeem all shares presented for redemption during any period in which we are redeeming shares, then all shares will generally be redeemed on a pro rata basis during the relevant period.  With respect to any pro rata treatment, requests for Exceptional Redemptions will be considered first, as a group, with any remaining available funds allocated pro rata among requests for Ordinary Redemptions.  Generally, no outstanding requests for Ordinary Redemptions will be satisfied until all outstanding requests for Exceptional Redemptions are satisfied in full.

• There is no time limitation for those seeking an Exceptional Redemption.

• The effective date of any redemption will be the fifth business day following the date the board of directors approves the redemption.

Notwithstanding the redemption prices established above, our board of directors may determine, whether pursuant to formulae or processes approved by our board of directors or otherwise set by our board of directors, the redemption price of the shares, which may differ between Ordinary Redemptions and Exceptional Redemptions; provided, however, that we must provide at least 30 days’ notice to stockholders before applying the new price.

The SRP is generally available only for stockholders who have held their shares for at least one year. Any shares approved for redemption will be redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually.  In addition to the $7 million per quarter funding limit discussed above, which the board of directors may modify, we will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.

Our board of directors reserves the right in its sole discretion at any time and from time to time to (1) waive the one-year holding requirement in the event of other exigent circumstances such as bankruptcy, a mandatory distribution requirement under a stockholder’s IRA or with respect to shares purchased under or through our DRIP, (2) reject any request for redemption, (3) change the purchase price for redemptions, (4) limit the funds to be used for redemptions hereunder or otherwise change the redemption limitations or (5) amend, suspend (in whole or in part) or terminate the SRP. If we suspend our SRP (in whole or in part), except as otherwise provided by the board of directors, until the suspension is lifted, we will not accept any requests for redemption in respect of shares to which such suspension applies in subsequent periods and any such requests and all pending requests that are subject to the suspension will not be honored or retained, but will be returned to the requestor. Our Advisor and its affiliates will defer their own redemption requests, if any, until all other requests for redemption have been satisfied in any particular period. If a request for an Exceptional Redemption is made, we will waive the one-year holding requirement (1) upon the request of the estate, heir or beneficiary of a deceased stockholder or (2) upon the qualifying disability of a stockholder or upon a stockholder’s confinement to a long-term care facility, provided that the condition causing such disability or need for long-term care was not preexisting on the date that such person became a stockholder.

During the first quarter ended March 31, 2014, we redeemed and purchased shares as follows:

	Total Number of Shares Redeemed	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Be Purchased Under the Plans or Programs (a)
January	—	$	—	—	—
February	—	—		—	—
March	794,188	8.81		794,188	—
	794,188	$	8.81	794,188	—

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(a) A description of the maximum number of shares that may generally be purchased under our SRP is included in the narrative preceding this table.

Since the Company reinstated the SRP, because of the SRP’s funding limits, the Company has not been redeeming all properly submitted redemption requests and has been satisfying requests for Ordinary Redemptions on a pro rata basis. Beginning with the second quarter of 2013 (the quarter the SRP was reinstated), the tables below show the number of shares related to the quarterly redemption requests and paid redemptions for Ordinary Redemptions and Exceptional Redemptions. Generally, unfulfilled redemption requests from one quarter are carried forward to the following quarter. The column amount of new redemption requests in the table do not include carried forward redemption requests.

	Carried Forward Unfulfilled Redemption Requests	New Redemption Requests	Paid Redemptions		Unfulfilled Redemption Requests at End of Quarter
Ordinary Redemptions:
2nd Qtr 2013	—	2,476,064	—		2,476,064
3rd Qtr 2013	2,476,064	610,336	(521,470	)	2,564,930
4th Qtr 2013	2,564,930	735,757	(651,928	)	2,648,759
1st Qtr 2014	2,648,759	345,182	(615,443	)	2,378,498
Exceptional Redemptions:
2nd Qtr 2013	—	904,393	(904,393	)	—
3rd Qtr 2013	—	259,099	(259,099	)	—
4th Qtr 2013	—	145,658	(145,658	)	—
1st Qtr 2014	—	178,745	(178,745	)	—

As of March 31, 2014, we have 2.4 million total shares of unfulfilled redemption requests, all of which are Ordinary Redemption requests. Based on our current SRP redemption price for Ordinary Redemptions of $8.53 per share, this represents a redemption value of approximately $20.3 million.

Stock-Based Compensation

On January 13, 2014, our independent directors and certain executive employees were granted 239,220 restricted stock units. These restricted stock units generally vest over a three year period. Compensation cost is measured at the grant date based on the estimated fair value of the award ($10.03 per share) and will be recognized as expense over the service period based on the tiered lapse schedule and estimated forfeiture rates.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.   Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

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Item 6.  Exhibits.

Exhibit Number	Description
3.1	Articles of Restatement, incorporated by reference to Exhibit 3.1.2 to the Company’s Form 8-K filed on September 8, 2008
3.2	Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on August 6, 2013
3.3	Fourth Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company's Form 8-K filed on March 1, 2010
4.1	Third Amended and Restated Distribution Reinvestment Plan, incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K filed on March 29, 2012
4.2	Third Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 4.4 to the Company's Form 10-K filed on March 1, 2013
4.3	Statement regarding Restrictions on Transferability of Shares of Common Stock, incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-11/A filed on May 9, 2008
10.1	Form of Restricted Stock Unit Award Agreement under the Company’s Amended and Restated Incentive Award Plan, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 14, 2014
10.2	Form of Deferral Election Form, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 14, 2014
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002**
99.1	Second Amended and Restated Policy for Estimation of Common Stock Value, incorporated by reference to Exhibit 99.1 to the Company’s Form 10-K filed on March 29, 2012
101*	The following information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders’ Equity and (iv) Consolidated Statements of Cash Flows

* Filed or furnished herewith

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BEHRINGER HARVARD MULTIFAMILY REIT I, INC.
Dated: May 6, 2014		/s/ Howard S. Garfield
		Howard S. Garfield
		Chief Financial Officer
		(Principal Financial Officer)

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