Bresler & Reiner Inc - Quarterly Report (10-Q)

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

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
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 0-6201

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

Delaware		52-0903424
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
11200 Rockville Pike, Suite 502 Rockville, MD 20852 (Address of principal executive offices)
(301) 945-4300 Registrant's telephone number, including area code
n/a (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 ý 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 definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller
reporting company)

Smaller reporting company ý

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 5,477,212 shares of Common Stock $0.01 par value, as of May 12, 2008.

BRESLER & REINER, INC.

FORM 10-Q

MARCH 31, 2008

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements and Notes (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to Vote of the Security Holders	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
	Signatures	29

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements and Notes

BRESLER & REINER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2008 AND DECEMBER 31, 2007

			2008			2007
			(Unaudited)
ASSETS
Real Estate:
	Rental property and equipment		$	631,491,000		$	627,810,000
	Property and land development			113,345,000			113,534,000

Real estate, at cost				744,836,000			741,344,000
Less: accumulated depreciation and amortization				(67,945,000	)		(62,785,000	)

		Total real estate, net		676,891,000			678,559,000
Receivables:
	Income taxes receivable			3,321,000			3,326,000
	Mortgages and notes receivable			4,647,000			4,650,000
	Other receivables, net of allowance for doubtful accounts			7,772,000			7,979,000
Cash and cash equivalents				32,990,000			26,966,000
Restricted cash and deposits held in escrow				39,282,000			39,054,000
Investments, principally available-for-sale securities				3,770,000			22,158,000
Investments in joint ventures				94,297,000			99,247,000
Deferred charges and other assets, net				40,664,000			40,203,000

		Total assets	$	903,634,000		$	922,142,000

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and construction loans and other debt			$	682,742,000		$	688,449,000
Notes due to related parties				34,203,000			36,785,000
Accounts payable, trade and accrued expenses				14,531,000			18,023,000
Deferred income taxes payable				11,342,000			11,753,000
Other liabilities				21,452,000			21,686,000

		Total liabilities		764,270,000			776,696,000
Minority interest				16,396,000			16,651,000
SHAREHOLDERS' EQUITY
Common shares, $0.01 par value; 7,000,000 shares authorized, 5,477,212 shares issued and outstanding as of March 31, 2008 and December 31, 2007				55,000			55,000
Additional paid-in capital				5,721,000			5,721,000
Retained earnings				117,250,000			123,077,000
Accumulated other comprehensive loss				(58,000	)		(58,000	)

		Total shareholders' equity		122,968,000			128,795,000

		Total liabilities and shareholders' equity	$	903,634,000		$	922,142,000

See notes to condensed consolidated financial statements.

BRESLER & REINER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

			2008			2007
OPERATING REVENUES
Development sales			$	2,714,000		$	952,000
Rentals—commercial				16,843,000			16,254,000
Rentals—residential				4,387,000			3,675,000
Hospitality				548,000			753,000
Other				2,000			132,000

		Total operating revenues		24,494,000			21,766,000

OPERATING COSTS AND EXPENSES
Cost of development sales				2,531,000			847,000
Rental expense—commercial
	Operating expenses			8,624,000			7,859,000
	Depreciation and amortization expense			5,800,000			6,243,000
Rental expense—residential
	Operating expenses			2,463,000			1,917,000
	Depreciation and amortization expense			1,198,000			1,228,000
Hospitality expense
	Operating expenses			419,000			578,000
	Depreciation and amortization expense			84,000			80,000
General and administrative expense				1,865,000			3,761,000
Loss on impairment of assets				—			1,105,000
Other operating expenses, net				1,000			13,000

		Total operating costs and expenses		22,985,000			23,631,000

		Total operating income (loss)		1,509,000			(1,865,000	)
OTHER INCOME (EXPENSES)
Interest income				329,000			837,000
Interest expense				(10,092,000	)		(8,617,000	)
Interest expense on notes due to related parties				(731,000	)		—
Debt extinguishment costs				—			(4,048,000	)
Gain on sale of investments in joint ventures				—			21,541,000

(Loss) income before income taxes, income from investments in joint ventures, minority interest and income from discontinued operations				(8,985,000	)		7,848,000
Income from investments in joint ventures				459,000			127,000
Minority interest				254,000			(8,084,000	)

Loss before income taxes and discontinued operations				(8,272,000	)		(109,000	)
Benefit of income taxes				3,267,000			49,000

Loss from continuing operations				(5,005,000	)		(60,000	)
Income from discontinued operations, net of income taxes and minority interest				—			3,843,000

Net (loss) income			$	(5,005,000	)	$	3,783,000

(LOSS) EARNINGS PER SHARE OF COMMON STOCK
Basic and Diluted:
	Loss from continuing operations		$	(0.91	)	$	(0.01	)
	Income from discontinued operations, net of income taxes and minority interest			—			0.70

	Net (loss) income		$	(0.91	)	$	0.69

Weighted average number of common shares outstanding				5,477,212			5,477,212

See notes to condensed consolidated financial statements.

BRESLER & REINER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

					2008			2007
OPERATING ACTIVITIES:
Net (loss) income					$	(5,005,000	)	$	3,783,000
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
	Depreciation and amortization (including discontinued operations)					6,794,000			7,293,000
	Gain on sale of properties and investments in joint ventures (including discontinued operations)					—			(30,077,000	)
	Income from investments in joint ventures					(459,000	)		(127,000	)
	Minority interest share of loss (income) (including discontinued operations)					(254,000	)		8,084,000
	Deferred income taxes (including discontinued operations)					(411,000	)		2,499,000
	Loss on impairment of assets (including discontinued operations)					—			1,612,000
	Amortization of finance costs					251,000			216,000
	Bad debt expense					939,000			631,000
	Property and land development					(547,000	)		(2,639,000	)
	Distribution of income from investments in joint ventures					5,803,000			48,000
	Debt extinguishment costs (including discontinued operations)					—			5,175,000
	Changes in assets and liabilities:
		Receivables				(727,000	)		(899,000	)
		Other assets				(2,836,000	)		1,981,000
		Other liabilities				(602,000	)		(489,000	)

			Total adjustments			7,951,000			(6,692,000	)

				Net cash provided by (used in) operating activities		2,946,000			(2,909,000	)

INVESTING ACTIVITIES:
	Investments in joint ventures					(606,000	)		(1,458,000	)
	Distributions from joint ventures in excess of income					212,000			1,574,000
	Deposits for property acquisitions					—			(500,000	)
	(Increase) decrease in restricted cash and deposits held in escrow					(228,000	)		12,464,000
	Decrease (increase) in investments principally available-for-sale securities					18,388,000			(50,383,000	)
	Purchase of rental property and equipment					(5,503,000	)		(59,280,000	)
	Purchase of property and land development					(68,000	)		(7,010,000	)
	Decrease in mortgages and notes receivable					3,000			—
	Proceeds from sale of properties and investments in joint ventures					—			61,651,000

				Net cash provided by (used in) investing activities		12,198,000			(42,942,000	)

FINANCING ACTIVITIES:
	Proceeds from mortgage and construction loans and other debt					1,773,000			167,195,000
	Proceeds from notes due to related parties					96,000			—
	Repayment of mortgage and construction loans and other debt					(7,489,000	)		(47,469,000	)
	Repayment of notes due to related parties					(2,678,000	)		—
	Purchase of marketable securities in connection with the legal defeasance of mortgage notes payable					—			(68,774,000	)
	Contributions from minority partners					—			2,589,000
	Distributions to minority partners					—			(4,505,000	)
	Debt financing charges					—			(2,211,000	)
	Dividends paid					(822,000	)		(822,000	)

				Net cash (used in) provided by financing activities		(9,120,000	)		46,003,000

Net increase in cash and cash equivalents						6,024,000			152,000
Cash and cash equivalents, beginning of year						26,966,000			18,191,000

Cash and cash equivalents, end of year					$	32,990,000		$	18,343,000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid during the year for:
		Interest (net of amount capitalized)			$	10,237,000		$	9,232,000
		Income taxes (current and estimated)				—			5,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Marketable securities transferred in connection with the legal defeasance of mortgage notes payable				$	—		$	68,774,000
	Mortgage notes payable legally defeased					—			64,279,000
	Accrued purchases of real estate					1,706,000			4,714,000

See notes to condensed consolidated financial statements.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND ORGANIZATION

Bresler & Reiner, Inc. ("B&R" and, together with its subsidiaries and affiliates, "we," the "Company" or "us") engages in the acquisition, development, and ownership of commercial, residential and hospitality real estate in the Philadelphia, Pennsylvania; Wilmington, Delaware; Delaware and Maryland Eastern Shore; Baltimore, Maryland; Washington, DC; Houston, Texas; and the Tampa and Orlando, Florida, metropolitan areas.

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the full year.

These condensed consolidated financial statements should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2007.

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include the accounts of Bresler & Reiner, Inc., our wholly owned subsidiaries, and entities which we control or, entities that are required to be consolidated under Financial Accounting Standards Board ("FASB") Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R"). Entities which we do not control or entities that are not to be consolidated under FIN 46R and over whom we exercise significant influence are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the stated amounts of assets, liabilities, revenues, and expenses presented in the financial statements, as well as the disclosures. Consequently, actual results could differ from those estimates that have been reported in our consolidated financial statements. Critical accounting policies that require the use of estimates and significant judgment include: the allocation of purchase prices and assignment of useful lives for property acquisitions; the recording of cost of sales for development projects; the determination of consolidation methodology for joint ventures; the valuation of assumed debt; the valuation of guaranties related to debt on entities that we do not consolidate; the recording of impairment losses if applicable; and the fair value of financial instruments.

2. NEW ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities . ("SFAS No. 161"). SFAS No. 161 requires enhanced disclosures about derivative

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

2. NEW ACCOUNTING PRONOUNCEMENTS (Continued)

instruments and hedging activities to enable investors to better understand their effects on financial position, financial performance, and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We are currently evaluating the impact SFAS No. 161 will have on our consolidated financial statement disclosures.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 ("SFAS 160"). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent's ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective for us on January 1, 2009. We are currently evaluating the impact that SFAS 160 will have on our consolidated financial statements upon adoption.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R broadens the guidance of SFAS No. 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required disclosures to improve the statement users' abilities to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for any business combinations we enter into on or after January 1, 2009.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159") which provides companies with an option to report selected financial assets and liabilities at fair value. The standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. For companies electing adoption, SFAS No. 159 is effective on January 1, 2008. We elected not to adopt SFAS No. 159.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157"), which defines fair value, establishes guidelines for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in fair value guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for our financial assets and liabilities on January 1, 2008. We adopted this standard January 1, 2008, and the adoption did not have an impact on our financial position or results of operations. In February 2008, the FASB issued Staff Position No. 157-2, which provides a one-year delayed application of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We must adopt these new requirements no later than January 1, 2009.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

3. INVESTMENTS IN JOINT VENTURES

At March 31, 2008, our investments in non-consolidated joint ventures and partnerships consisted of the following:

Joint Venture	Ownership Percentage(1)
Guilford Properties	51	%
Holliday Properties	51	%
Redwood Commercial Management, LLC ("Redwood Commercial")	50	%
Tech-High Leasing Company ("Tech-High Leasing")	50	%
Waterfront Associates, LLC ("WALLC")	50	%
Venice Lofts Associates, LLC ("Venice Lofts")	22	%
Symphony House Associates LP ("Symphony House")	22	%
B&R Devon Square Owner, LP ("Devon Square")	6	%
Waterside Towers, LLC ("Waterside Towers")	5	%
Trilon Townhouses, LLC ("Trilon Townhouses")	5	%

(1): Represents our effective ownership of the underlying property.

Below are condensed combined balance sheets for our unconsolidated joint venture entities as of March 31, 2008 and December 31, 2007 (in thousands):

		March 31, 2008		December 31, 2007
ASSETS
Cash and cash equivalents		$	33,545	$	43,401
Property and land development			118,183		116,001
Rental property and equipment			120,885		121,494
Other assets			7,996		7,695

	Total assets	$	280,609	$	288,591

LIABILITIES AND EQUITY
Mortgages and construction loans and other debt		$	93,555	$	88,337
Other liabilities			13,525		18,537

	Total liabilities		107,080		106,874
Equity			173,529		181,717

	Total liabilities and equity	$	280,609	$	288,591

Company's interest in equity(1)		$	62,395	$	67,605

(1): Bresler & Reiner Statutory Trust I and Bresler & Reiner Statutory Trust II ("the Trusts"), wholly owned subsidiaries of the Company, have $70,000,000 of trust preferred securities outstanding as of March 31, 2008. Since we are not the primary beneficiary in either of the Trusts, we account for our investment in these Trusts under the equity method in accordance with FIN46R. Included in our interest in equity at March 31, 2008 and at December 31, 2007 is $2,199,000 of equity in the Trusts.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

3. INVESTMENTS IN JOINT VENTURES (Continued)

The difference between the carrying amount of our investment in joint ventures and the Company's interest in equity noted above is primarily due to a $27,200,000 increase in our investment in WALLC as a result of our purchase of Trilon and West Office, as well as capitalized interest on our investment balance in joint ventures that own real estate under development, and the fair value of loan guaranties we have provided. The increase in our investment in WALLC will be expensed as developed condominium units are sold or depreciated over the useful lives of commercial and residential assets after they have been placed in service. The capitalized interest is expensed as the development units are sold or depreciated over the useful life of the asset after it has been placed in service.

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

	Three Months Ended March 31,
	2008		2007
Operating revenues	$	13,628	$	1,496
Operating expenses		10,250		818
Interest expense		915		234
Depreciation and amortization expense		1,097		298

Net income	$	1,366	$	146

Company's equity in earnings of unconsolidated joint ventures	$	459	$	127

4. OTHER ASSETS AND OTHER LIABILITIES

Included in other assets and other liabilities are deferred financing fees, base commissions, prepaid expenses and intangible assets and liabilities recorded at the time of a rental property acquisition. The following table summarizes these intangible assets and liabilities as of the dates presented (in thousands):

	March 31, 2008				December 31, 2007
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Acquired in-place lease assets	$	49,866	$	34,362	$	49,866	$	32,652
Acquired in-place lease liabilities		12,499		6,745		12,499		6,246

The amortization of acquired in-place lease assets included in depreciation and amortization expense, totaled $1,527,000 and $2,686,000 for the three months ended March 31, 2008 and 2007, respectively.

The amortization of acquired above and below-market-in-place leases, included as a net increase in revenues, totaled $315,000 and $322,000 for the three months ended March 31, 2008 and 2007, respectively.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

4. OTHER ASSETS AND OTHER LIABILITIES (Continued)

The estimated annual amortization of acquired above and below-market in-place leases to be included as a net increase in revenues for each of the next five fiscal years is as follows (in thousands):

2009	$	1,079
2010		630
2011		564
2012		368
2013		310

The estimated annual amortization of acquired in-place lease assets to be included in depreciation and amortization expense for each of the next five fiscal years is as follows (in thousands):

2009	$	3,722
2010		2,310
2011		1,701
2012		943
2013		653

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

5. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT (in thousands):

Property(1)		Interest Rate(2)	Maturity	March 31, 2008(3)		December 31 2007(3)
Fort Washington		5.60%	2014	$	46,351	$	46,538
Victoria Place Apartments		5.73%	2017		46,000		46,000
The Fountains at Waterford Lakes		5.45%	2010		39,500		39,500
Valley Square		6.30%	2016		37,500		37,500
Westbury		6.03%	2017		36,000		36,000
919 Market Street		5.52%	2015		35,600		35,600
Blue Bell Plaza		5.65%	2016		29,764		29,800
Versar Center		6.41%	2017		28,000		28,000
Red Mill Pond—Development Loans		LIBOR + 325 basis pts.(8)	2010		24,481		23,774
Red Mill Pond—Promissory Note		6.0%	2012		8,115		8,115
Intercontinental		6.18%	2017		20,500		20,500
Sudley N. Bldgs. A, B, C and Bank Bldg.		5.75%	2017		18,500		18,500
Mearns Park		6.17%	2016		16,500		16,500
West Germantown Pike		5.90%	2033		15,325		15,387
One Northbrook		5.75%	2014		14,497		14,553
Cross Keys		6.33%	2016		14,500		14,500
Huntington at Sundance(4)		7.28%	2039		14,306		14,337
510 Township Road		5.71%	2017		14,000		14,000
Wynwood		5.62%	2016		11,785		11,800
1150 Northbrook Commercial Bldg.		LIBOR + 170 basis pts.	2009		11,715		11,546
900 Northbrook		5.98%	2013		10,597		10,638
Fort Hill		5.75%	2017		10,400		10,400
Sudley N. Bldg. D		5.75%	2017		10,400		10,400
10333 Harwin Drive		5.78%	2016		10,363		10,398
102 Pickering Way(4)		6.50%	2013		9,766		9,802
Commerce Park North		6.14%	2016		9,340		9,367
14800 St. Mary's Lane		5.75%	2017		8,200		8,200
Crisfield		LIBOR + 200 basis pts.	2009		6,402		9,080
9950 Westpark		6.37%	2016		6,255		6,273
1120 NASA Parkway(4)		5.41%	2015		5,115		5,134
17043-49 El Camino		5.78%	2016		4,943		4,960
Seaside		Lender's Prime Rate	2008		4,483		6,177
950 Threadneedle		5.75%	2017		4,300		4,300
14825 St. Mary's Lane		5.67%	2017		4,200		4,200
8700 Commerce Drive(4)		5.24%	2015		3,740		3,754
Quality Inn		7.88%	2011		3,410		3,429
1110 NASA Parkway(4)		5.55%	2014		3,347		3,359
1100 NASA Parkway(4)		6.12%	2012		2,776		2,788
1717 Portway Plaza(4)		5.75%	2013		2,658		2,669
400 South Philadelphia Avenue		Lender's Prime + 100 basis pts.	2008		780		1,515
Sudley South Building No. III		LIBOR + 165 basis pts.	2008		618		1,455

	Total mortgage and construction loans				605,032		610,748
Junior subordinated notes—Series I (unsecured)		8.37%	2035		41,238		41,238
Junior subordinated notes—Series II (unsecured)		9.02%	2036		30,930		30,930
Corporate-Due to Related Parties(6)		7.50%	2010		29,803		32,481
B&R Philadelphia Condo Investors—Due to Related Parties(7)		15%	2008		4,400		4,304
Corporate		LIBOR + 250 basis pts.	2009		4,000		4,000
Other		(5)	(5)		1,284		1,284

	Total mortgage and construction loans and other debt			$	716,687	$	724,985

(1): Note is secured by the property, unless otherwise noted.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

5. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT (in thousands): (Continued)

(2): Unless noted otherwise LIBOR rate is the one-month LIBOR rate which was 2.70% and 4.60% at March 31, 2008 and December 31, 2007, respectively.
(3): Generally our mortgage loans have 10-year terms and 30-year amortization schedules.
(4): The debt shown for these properties does not include the related premium or discount.
(5): Represents a deferred purchase money promissory note.
(6): Loans relate to promissory notes issued to our affiliates in connection with the purchase of the equity interests in Trilon Plaza Company and West Office LLC.
(7): Loan relates to a promissory note issued to an affiliate in connection with the refinancing of the Venice Lofts.
(8): LIBOR rate for this loan is three-month LIBOR rate which was 2.69% and 4.70% at March 31, 2008 and December 31, 2007, respectively.

We have guarantied the debt of certain consolidated subsidiaries. Such guaranties do not increase our consolidated obligations. However, they may under certain conditions provide for accelerated repayments, if requested by the lender.

In May 2008 we amended the financial covenant terms under our $30,000,000 Trust Preferred Securities issuance (the "Securities"). Under the amended terms, effective for the reporting period beginning December 31, 2007 and ending June 30, 2009, we are required to maintain a minimum net worth of $105,000,000 and a ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense of 1.05 to 1 for either the applicable quarterly period or the prior twelve month period. Under the amended terms, we are not permitted to make dividend payments subsequent to March 31, 2008 through June 30, 2009. In connection with the amendment we are required to post letters of credit with the lender totaling $6,054,000. Such letters of credit may be drawn upon by the lender and applied against the principal balance of the Securities should there occur an event of default under the Securities.

Several of our loans contain financial covenants, including requirements that we maintain a minimum liquidity consisting of cash, cash equivalents and investments in principally available-for-sale securities) of $30,000,000, a minimum net worth of $110,000,000, minimum annual funds from operations, as defined, of $15,000,000 and several interest coverage ratios. For the three month period ended March 31, 2008, we were in violation of the interest coverage ratio test related to loans with a total of $37,700,000 outstanding as of March 31, 2008. We have obtained covenant waivers from all the respective lenders for the period of non-compliance.

Included in mortgage and construction loans and other debt on the balance sheets are fair value adjustments on assumed debt. The net unamortized fair value premium was $258,000 at March 31, 2008 and $249,000 at December 31, 2007.

As part of our construction and development activities, we capitalized $1,205,000 and $1,800,000 of interest for the three months ended March 31, 2008 and 2007, respectively.

6. COMMITMENTS AND CONTINGENCIES

Devon Square We have guarantied repayment of up to $21,350,000 of an acquisition and construction loan obtained by Devon Square. The loan matures in August 2008. At March 31, 2008, the balance outstanding under the loan totaled $20,337,000. Funding of the guaranty would increase our equity participation in the venture.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

6. COMMITMENTS AND CONTINGENCIES (Continued)

640 North Broad In conjunction with the sale of 640 North Broad, we guarantied a $6,000,000 loan obtained by the buyer and secured in part by a $3,000,000 certificate of deposit that we purchased from the lender. We have recorded a liability of $300,000, our estimate of the fair value of this guaranty. We have also recorded a deferred gain of $257,000 associated with the sale. Both the liability associated with the loan guaranty and the deferred gain are included in other liabilities in our consolidated financial statements.

Guilford Properties We have guarantied repayment of the entire loan balance outstanding under a $7,480,000 acquisition and development loan obtained by Guilford Properties. Funding of the guaranty would increase our equity participation in the venture. The loan matures in 2009. At March 31, 2008, the balance outstanding under the loan totaled $6,759,000.

Holliday Properties We have guarantied repayment of the entire loan balance outstanding under a $9,116,000 acquisition and development loan obtained by Holliday Properties that matures in 2009. Funding of the guaranty would increase our equity participation in the venture. At March 31, 2008, the balance outstanding under the loan totaled $5,030,000.

Waterfront We have guarantied the reimbursement payment to a partner in WALLC of all costs they may incur under a completion guaranty they have provided on a $45,000,000 pre-development loan obtained by the venture. Funding of the guaranty would increase our equity participation in the venture.

MASTER LEASE AGREEMENTS

In support of certain consolidated entities' mortgage loans we have entered into master lease agreements, and we have provided indemnification for certain environmental events. These agreements are entered into for the benefit of the mortgage lenders to facilitate more favorable terms.

LITIGATION

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Management believes that the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

7. BENEFIT PLAN

Our net pension cost as determined by SFAS No. 87, Employers' Accounting for Pensions , and the net postretirement benefit cost as determined by SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions , related to our plan includes the following components (in thousands):

			Three Months Ended March 31,
			2008			2007
Defined benefit pension plan
	Service cost		$	48		$	45
	Interest cost			32			34
	Expected return on plan assets			(28	)		(32	)
	Amortization of prior service cost			—			4

		Total net pension expense	$	52		$	51

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

7. BENEFIT PLAN (Continued)

In April 2008, we contributed the required contribution of approximately $90,000 to our defined benefit pension.

8. DIVIDENDS

In January 2008, our Board of Directors declared a cash dividend of $0.15 per share of common stock which was paid on March 17, 2008 to our common stock shareholders of record as of March 3, 2008.

9. INCOME TAXES

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN No. 48"), effective January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes ("SFAS No. 109"). FIN No. 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. In the event that we receive an assessment for interest and/or penalties, our policy is to recognize them as operating expenses. The adoption of this standard effective January 1, 2007 did not have a material impact on our consolidated financial statements as the total amount of unrecognized tax benefits as of the date of adoption was not material. We do not believe there will be any material changes in our unrecognized tax benefits over the next twelve months. We are subject to examination by respective taxing authorities for the tax years 2004 through 2007.

SFAS No. 109 establishes financial accounting and reporting standards for the effects of income taxes that result from our activities during the current and preceding years. It requires an asset and liability approach to accounting for income taxes. Balance sheet accruals for income taxes are adjusted to reflect changes in tax rates in the period such changes are enacted.

Our provision for income taxes for the three months ended March 31, 2008 includes an estimate for income taxes on the income from continuing operations. The provision for income taxes is calculated by applying the estimated full year effective tax rate to our year-to-date earnings through March 31, 2008 and 2007, respectively.

10. SEGMENT INFORMATION

In accordance with SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, we report segment information for the following six categories:

Commercial Rental Property This segment includes the rental income derived by commercial properties from leases of office and industrial space and other related revenue sources. Commercial leases generally provide for a fixed monthly rental over terms that range from three to 10 years. Also included in this segment is income generated from management and leasing activities associated with our 50% ownership interest in Redwood Commercial, a commercial management company.

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

10. SEGMENT INFORMATION (Continued)

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

Hospitality Property This segment includes revenue and income derived from services provided at our hospitality property.

Development—Residential and Commercial Condominiums This segment primarily includes the revenues and costs associated with commercial and residential condominium sales.

Development—Developed and Undeveloped Land This segment primarily includes the development and sale of land parcels and lots as part of residential subdivisions and undeveloped commercial land sales.

Development—Rental Properties This segment primarily includes the development and construction of commercial and residential buildings that will be leased to tenants upon completion. Costs associated with this segment are capitalized until completion, at which time the assets are placed in service and transferred to either the Residential or Commercial Rental Property segment.

Our real estate investments are located in the Washington, DC; Philadelphia, Pennsylvania; Houston, Texas; Baltimore, Maryland; Wilmington, Delaware; Maryland and Delaware Eastern Shore; and Orlando and Tampa, Florida metropolitan areas. We are not involved in any operations in countries other than the United States.

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

Following is a summary of our reportable segments:

Three Months Ended March 31, 2008 (in thousands)		Development— Developed and Undeveloped Land			Development— Residential and Commercial Condominiums			Development— Rental Properties		Commercial Rental			Residential Rental			Hospitality			Corporate			Total
Statement of Operations:
	Total operating revenues	$	—		$	2,714		$	—	$	16,843		$	4,387		$	548		$	2		$	24,494
	Cost of development sales		(112	)		(2,419	)		—														(2,531	)
	Operating expenses		—			—			—		(8,624	)		(2,463	)		(419	)					(11,506	)
	Depreciation and amortization expense		—			—			—		(5,800	)		(1,198	)		(84	)					(7,082	)
	Interest expense		(209	)		(203	)		—		(6,460	)		(2,068	)		(74	)		(1,809	)		(10,823	)
	Income (loss) from investments in joint ventures		—			852			—		—			(440	)					47			459
	Minority interest		—			(306	)		—		153			407			—			—			254
	General, administrative and other expenses		—			—			—		—			—			—			(1,866	)		(1,866	)
	Interest income		—			—			—		—			—			—			329			329

	Net (loss) income before income taxes and discontinued operations	$	(321	)	$	638		$	—	$	(3,888	)	$	(1,375	)	$	(29	)	$	(3,297	)	$	(8,272	)

BRESLER & REINER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

10. SEGMENT INFORMATION (Continued)

Assets as of March 31, 2008 (in thousands)		Development— Developed and Undeveloped Land		Development— Residential and Commercial Condominiums		Development— Rental Properties		Commercial Rental			Residential Rental			Hospitality			Corporate		Total
Assets:
	Real estate at cost	$	97,764	$	10,233	$	5,348	$	472,971		$	150,812		$	7,708		$	—	$	744,836
	Accumulated depreciation		—						(48,839	)		(13,296	)		(5,810	)		—		(67,945	)
	Investments in joint ventures		—		23,515		53,050		283			15,250			—			2,199		94,297
	Cash, cash equivalents and restricted cash		—		—		—		—			—			—			72,272		72,272
	Investments		—		—		—		—			—			—			3,770		3,770
	Other		555		62		3		34,410			2,055			260			19,059		56,404

		$	98,319	$	33,810	$	58,401	$	458,825		$	154,821		$	2,158		$	97,300	$	903,634

Three Months Ended March 31, 2007 (in thousands)		Development— Developed and Undeveloped Land		Development— Residential and Commercial Condominiums			Development— Rental Properties			Commercial Rental			Residential Rental			Hospitality			Corporate			Total
Statement of Operations:
	Total operating revenues	$	—	$	952		$	—		$	16,254		$	3,675		$	753		$	132		$	21,766
	Cost of development sales		—		(847	)		—			—			—			—			—			(847	)
	Operating expenses		—					—			(7,859	)		(1,917	)		(578	)		—			(10,354	)
	Depreciation and amortization expense		—					—			(6,243	)		(1,228	)		(80	)		—			(7,551	)
	Interest expense		—		(148	)		—			(5,445	)		(1,657	)		(75	)		(1,292	)		(8,617	)
	Gain on sale of investments in joint ventures		—					18,721			2,820			—			—			—			21,541
	Income (loss) from investments in joint ventures		—		14			—			88			(19	)		—			44			127
	Minority interest		—		(65	)		(8,699	)		558			122			—			—			(8,084	)
	Debt extinguishment costs		—					—			(3,332	)		(716	)		—			—			(4,048	)
	Loss on impairment of assets		—		(1,105	)		—			—			—			—			—			(1,105	)
	General, administrative and other expenses		—		—			—			—			—			—			(3,774	)		(3,774	)
	Interest income		—		—			—			—			—			—			837			837

	Net (loss) income before income taxes and discontinued operations	$	—	$	(1,199	)	$	10,022		$	(3,159	)	$	(1,740	)	$	20		$	(4,053	)	$	(109	)

	Development— Developed and Undeveloped Land		Development— Residential and Commercial Condominiums		Development— Rental Properties		Commercial Rental			Residential Rental			Hospitality			Corporate		Total
Real estate at cost	$	96,002	$	12,218	$	5,314	$	469,414		$	150,754		$	7,642		$	—	$	741,344
Accumulated depreciation		—		—		—		(44,959	)		(12,100	)		(5,726	)		—		(62,785	)
Investments in joint ventures		—		28,277		52,599		483			15,690			—			2,198		99,247
Cash, cash equivalents and restricted cash		—		—		—		—			—			—			66,020		66,020
Investments		—		—		—		—			—			—			22,158		22,158
Other		459		515		5		36,449			1,992			412			16,326		56,158

	$	96,461	$	41,010	$	57,918	$	461,387		$	156,336		$	2,328		$	106,702	$	922,142

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

Forward-Looking Statements.

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

•: our exposure to the credit risks of our tenants;
•: our ability to recruit and retain key personnel;
•: adverse changes in the local or general economy and market conditions;
•: our ability to maintain occupancy levels at our properties;
•: our ability to obtain necessary governmental permits and approvals;
•: our ability to complete development projects in a timely manner and within budget;
•: our ability to sell condominium units and land parcels that we develop;
•: our ability to secure tenants for the residential and commercial properties that we develop;
•: changes in the interest rate environment which and tighter underwriting standards will affect our ability to obtain mortgage financing on acceptable terms;
•: our exposure to interest rate risk on our variable-rate debt;
•: future litigation; and
•: changes in environmental health and safety laws.

The discussion that follows is based primarily on our condensed consolidated balance sheets as of March 31, 2008 and December 31, 2007 and the results of operations for the three months ended March 31, 2008 and 2007 and should be read along with our condensed consolidated financial statements and related notes included elsewhere herein. The ability to compare one period to another may be significantly affected by acquisitions and dispositions of commercial properties and the development and sale of commercial and residential condominiums and residential lots.

Overview.

We are a real estate owner and developer with a portfolio that includes commercial, residential and hospitality properties as well as undeveloped and developed land. We earn our revenues and profits primarily from leasing commercial office space and residential apartment units; providing services at our hospitality property; selling residential and commercial properties and selling both developed and undeveloped land. Our real estate investments are located in the Philadelphia, Pennsylvania; Washington, DC; Wilmington, Delaware; Baltimore Maryland; Delaware and Maryland Eastern Shore; Houston, Texas and Tampa and Orlando, Florida, metropolitan areas.

Due to the continued softness in the housing market and the continued challenges presented by the credit markets as a result of the sub-prime lending crisis, we have continued to experience a slowdown in sales of our residential condominium units and recorded no sales of developed land in the

first quarter of this year. We had predicted this slowdown in activity and have determined that no further impairment charges are required for our development projects to reduce the carrying amount of these projects to their estimated fair values less costs to sell.

Our biggest challenges over the remainder of the year revolve around trying to generate sales at our development projects while maintaining occupancy rates at our commercial operating properties in this difficult economic environment.

Development—Condominium and Land Sales and Rental Properties

Commercial and Residential Condominiums This segment primarily includes the development of and revenues and costs associated with commercial and residential condominiums. This activity is conducted in the Washington, DC; Philadelphia, Pennsylvania; and Baltimore, Maryland metropolitan markets.

Developed and Undeveloped Land This segment includes the development of and revenues and costs associated with land parcels and lots as part of residential subdivisions. The residential subdivisions are located on the Maryland and Delaware Eastern Shore, and the undeveloped commercial land is located in the Washington, DC metropolitan area.

Development of Rental Properties This segment primarily includes the development and construction of commercial and residential buildings that will be leased to tenants upon completion. Costs associated with this segment are capitalized until completion, at which time the assets are placed in service and transferred to either the residential or commercial rental property segment. This activity is conducted in the Washington, DC and Philadelphia, Pennsylvania metropolitan markets.

We owned or had an ownership interest in the following development projects at March 31, 2008:

Project Name	Location	Date of Acquisition	Development Type	Size(1)	Number sold(2)	B&R Ownership %
Consolidated Properties(3)
*Commercial & Residential Condominiums*
Laguna Vista	Ocean City, MD	2003	Residential Condominiums	41 units	28	100.0	%
400 S Philadelphia Ave.	Ocean City, MD	2004	Residential Condominiums	20 units	16	51.0	%
Sudley South (Buildings I & III)	Manassas, VA	1991	Commercial Office Condominiums	108,000 sq. ft.	75,062 sq. ft.	100.0	%
*Developed and Undeveloped Land*
Crisfield	Crisfield, MD	2005	Residential Lots	232 lots	16	51.0	%
Red Mill Pond	Lewes, DE	2005	Residential Lots	520 lots	—	51.0	%
Seaside	Ocean City, MD	2004	Residential Lots	137 lots	58	51.0	%
Unconsolidated Properties(3)
Waterfront	Washington, DC	1964	Commercial Office, Residential and Retail	2,166,000 sq ft(4)	—	50.0	%
Guilford Properties	Baltimore, MD	2006	(5)	(5)	—	51.0	%
Holliday Development	Baltimore, MD	2006	(5)	(5)	—	51.0	%
Symphony House	Philadelphia, PA	2005	Residential Condominiums	163 units(6)	123	22.3	%

NOTES:

(1): Represents the actual or planned size of the project.
(2): Represents number of sales that had closed as of March 31, 2008.
(3): Consolidated properties represent projects whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated properties represent projects that are accounted for under the equity method of accounting, in accordance with accounting principles generally accepted in the United States of America ("GAAP").
(4): Represents the anticipated size of the Waterfront Complex.
(5): The type of development and size of the project has yet to be determined.
(6): Project also includes a theatre containing 35,000 square feet of space, a parking garage, retail space and two townhomes used as administrative office space.

Commercial Rental Property

This segment includes the rental income derived by commercial properties from leases of office and industrial space and other related revenue sources. We owned or held an ownership interest in the following commercial office properties at March 31, 2008:

		Location	Date of Acquisition/ Opening	Number of Buildings	Square Feet	Occupancy at 3/31/08		B&R Ownership
					(in 000's)
Consolidated Properties(1)
Philadelphia, Pennsylvania metropolitan area:
	Fort Washington Executive Center	Ft. Washington, PA	2004	3	393	100.0	%	97.6	%(2)
	Mearns Park	Warminster, PA	2006	1	300	98.7	%	97.0	%(3)
	Valley Square	Plymouth Meeting, PA	2006	5	294	79.5	%	96.3	%(3)
	Blue Bell Plaza	Plymouth Meeting, PA	2006	2	155	67.2	%	100.0	%(3)
	West Germantown Pike	Plymouth Meeting, PA	2004	2	115	100.0	%	98.1	%(2)
	1150 Northbrook	Trevose, PA	2007	1	107	0.0	%(4)	100.0	%(3)
	One Northbrook	Trevose, PA	2004	1	95	76.8	%	100.0	%(3)
	510 Township Road	Plymouth Meeting, PA	2006	1	87	82.2	%	95.0	%(3)
	Cross Keys	Doylestown, PA	2005	1	82	78.2	%	100.0	%(3)
	102 Pickering Way	Exton, PA	2005	1	80	82.8	%	100.0	%(3)
	900 Northbrook	Trevose, PA	2003	1	66	100.0	%	90.6	%(2)
Houston, Texas metropolitan area:
	Intercontinental	Houston, TX	2007	1	197	96.7	%	71.2	%
	Commerce Park North	Houston, TX	2006	2	164	93.3	%	100.0	%
	10333 Harwin Drive	Houston, TX	2006	1	148	39.6	%	100.0	%
	9950 Westpark	Houston, TX	2006	1	111	50.9	%	100.0	%
	14800 St. Mary's Lane	Houston, TX	2007	1	85	95.9	%	100.0	%
	17043-49 El Camino	Houston, TX	2006	4	82	84.5	%	100.0	%
	1120 NASA Road	Houston, TX	2006	1	80	87.6	%	100.0	%
	8700 Commerce Drive	Houston, TX	2006	1	77	60.6	%	100.0	%
	1717 Portway Plaza	Houston, TX	2006	1	67	57.2	%	100.0	%
	1110 NASA Road	Houston, TX	2006	1	60	86.7	%	100.0	%
	950 Threadneedle	Houston, TX	2006	1	59	80.2	%	100.0	%
	1100 NASA Road	Houston, TX	2006	1	57	85.4	%	100.0	%
	14825 St. Mary's Lane	Houston, TX	2007	1	45	82.2	%	100.0	%
Washington, DC metropolitan area:
	Versar Center	Springfield, VA	2002	2	217	88.5	%	100.0	%
	Sudley North (Buildings A, B & C)	Manassas, VA	1987	3	116	69.1	%	100.0	%
	Wynwood	Chantilly, VA	2005	2	88	93.9	%	100.0	%
	Sudley North (Building D)	Manassas, VA	1987	1	69	100.0	%	50.0	%
	Fort Hill	Centreville, VA	2000	1	66	98.0	%	80.0	%
	Bank Building	Manassas, VA	1991	1	3	100.0	%	100.0	%
Wilmington, Delaware metropolitan area:
	919 Market Street	Wilmington, DE	2005	1	223	87.1	%	100.0	%(3)

	Total consolidated properties			47	3,788

Unconsolidated Property(1)
	Devon Square	Devon, PA	2002	2	140	64.1	%	5.5	%

	Total consolidated and unconsolidated properties			49	3,928

NOTES:

(1): Consolidated properties represent properties whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated property is accounted for under the equity method of accounting, in accordance with GAAP.
(2): Represents our share of the Class A voting membership interest in the entity. An unrelated third party owns a Class B membership interest in the joint venture that entitles this party to 15% of cash available from operations after the Class A members have received a cumulative annual 12% return on their investment in the property and 15% of cash available from a refinancing or sale of the property after the Class A members have received a full return of their investment along with a cumulative annual 12% return on their investment.
(3): We have entered into an asset supervision agreement with an unaffiliated third-party that entitles this party to 20% of cash available from operations after we have received a cumulative annual 12% return on our investment in the property, and 20% of cash available from a refinancing or sale of the property after we have received a full return of our investment along with a cumulative annual 12% return on our investment.
(4): Construction of the property has been completed and the property is in its initial lease-up phase.

Residential Rental Property

This segment includes the rental income derived by residential properties from leases of apartment units and other related revenue sources.

We owned or held an ownership interest in the following residential apartment properties at March 31, 2008:

			Location	Date of Acquisition/ Opening	Apt. Units	Occupancy at 3/31/08		B&R Ownership
Consolidated Properties(1)
	The Fountains		Orlando, FL	2003	400	91.00	%	100.0	%
	Westbury Apartments at Lake Brandon		Lake Brandon, FL	2007	366	91.80	%	100.0	%
	Victoria Place		Orlando, FL	2003	364	93.40	%	85.0	%
	Huntington at Sundance		Lakeland, FL	2006	292	91.80	%	100.0	%

		Total consolidated properties			1,422

Unconsolidated Property(1)
	Venice Lofts		Philadelphia, PA	2007	128	46.9	%(2)	22.3	%

		Total consolidated and unconsolidated properties			1,550

NOTES:

(1): Consolidated properties represent properties whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated property represents a property that is accounted for under the equity method of accounting, in accordance with GAAP.
(2): In April 2007, the property was converted from a residential condominium property to a residential apartment property at which time leasing activity commenced.

Hospitality Property

This segment includes revenue and income from our hospitality property located in Camp Springs, Maryland. The property has 151 rooms and is managed by a third party manager. Revenue per available room ("REVPAR") was $38.64, the average room rate was $83.11 and the average occupancy was 46.50% for the three month period ended March 31, 2008. For the comparable period in 2007 REVPAR was $53.99, the average room rate was $91.87 and the average occupancy was 58.8%.

Application of Critical Accounting Policies.

Our accounting policies comply with GAAP for interim financial information and are in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC"). The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties. These estimates and judgments affect our reported amounts of assets, liabilities, revenues and expense, and the related disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions, and various other assumptions that we believe to be reasonable under the circumstances. While we have made our best estimates and judgments of certain amounts included in the financial statements, actual results could differ from these estimates and a change in the facts and circumstances of the underlying transactions could significantly change the application of an accounting policy and the resulting financial statement impact.

We believe that estimates, assumptions and judgments involved in the accounting policies described in our most recent annual report on Form 10-K have the greatest potential impact on our financial statements. These critical accounting policies did not change during the first three months of 2008.

Balance Sheet Overview.

The following table reflects certain condensed balance sheet items as of the dates presented (in thousands):

		March 31, 2008		December 31, 2007		Increase (decrease)
Assets:
	Rental property and equipment, at cost	$	631,491	$	627,810	$	3,681
	Property and land development		113,345		113,534		(189	)
	Cash, cash equivalents, and investments		36,760		49,124		(12,364	)
	Investments in joint ventures		94,297		99,247		(4,950	)
	Total assets		903,634		922,142		(18,508	)
Liabilities and Shareholders' Equity:
	Mortgage and construction loans and other debt (including notes due to related parties)		716,945		725,234		(8,289	)
	Total liabilities		764,270		776,696		(12,426	)
	Shareholders' equity		122,968		128,795		(5,827	)

Material changes in assets include:

•: Rental property and equipment, at cost, increased primarily as a result of costs for building and tenant improvements.
•: Property and land development decreased slightly due to sales at our Laguna Vista and 400 S. Philadelphia projects offset by development activity at our Red Mill, Seaside and Crisfield projects.
•: Cash, cash equivalents and investments decreased in total primarily due to cash used for repayments of loans to related parties and loans on our land development projects along with capital expenditures and leasing costs at our operating properties. This decrease was partially offset by cash proceeds received from distributions from sales at our Symphony House project.
•: Investments in joint ventures decreased primarily due to distributions received from our Symphony House project.

Material changes in liabilities and shareholders' equity include:

•: Mortgage and constructions loans and other debt (including notes due to related parties) decreased primarily due to repayments on our loans to related parties and repayments of loans on our land development projects.

Financial Overview.

Results of Operations—three months ended March 31, 2008 compared to the three months ended March 31, 2007.

The following table reflects key line items from our statements of operations for the three months ended March 31, 2008 and 2007 (in thousands, except percentages):

		March 31,						$ Change			% Change
		2008			2007			2007 to 2008
								Increase/(decrease)
Operating revenues:
	Development sales	$	2,714		$	952		$	1,762		185.1	%
	Rentals—commercial		16,843			16,254			589		3.6
	Rentals—residential		4,387			3,675			712		19.4
	Hospitality		548			753			(205	)	(27.2	)
	Total operating revenues		24,494			21,766			2,728		12.5
Cost of development sales			2,531			847			1,684		198.8
Operating expenses—commercial			8,624			7,859			765		9.7
Depreciation and amortization expense—commercial			5,800			6,243			(443	)	(7.1	)
Operating expenses—residential			2,463			1,917			546		28.5
Depreciation and amortization expense—residential			1,198			1,228			(30	)	(2.4	)
Operating expenses—hospitality			419			578			(159	)	(27.5	)
General and administrative expense			1,865			3,761			(1,896	)	(50.4	)
Loss on impairment of assets			—			1,105			(1,105	)	(100.0	)
Interest income			329			837			(508	)	(60.7	)
Interest expense (including related parties)			10,823			8,617			2,206		25.6
Debt extinguishment costs			—			4,048			(4,048	)	(100.0	)
Gain on sale of investments in joint ventures			—			21,541			(21,541	)	(100.0	)
Income from investments in joint ventures			459			127			332		261.4
Minority interest			254			(8,084	)		8,338		103.1
Income from discontinued operations, net of income taxes and minority interest			—			3,843			(3,843	)	(100.0	)
Net (loss) income			(5,005	)		3,783			(8,788	)	(232.3	)

Development Sales. Development sales revenue increased by $1,762,000 compared to the prior year. During the first quarter 2008 we recorded sales for two residential condominium units at 400 S. Philadelphia, two residential condominium units at Laguna Vista and 4,372 square feet of commercial condominium space at Sudley South (Building III). Sales in the first quarter of 2007 related to 3,000 square feet of office space at Sudley South (Building I).

The cost of development sales increased by $1,684,000 when compared to the same period in 2007, due to the increased sales activity described above.

Commercial Rental Properties. The $589,000 increase in revenues compared to the prior year was primarily due to the acquisition of three commercial office buildings in 2007. Revenues from properties that we owned for a full quarter in both 2008 and 2007 decreased by $828,000 compared to the same period in 2007 due to lower occupancy at several of our commercial properties in the Houston, Texas area.

Operating expense consist of direct operating costs of the properties including property taxes and insurance, and exclude interest expense and depreciation expense. Operating expenses in 2008 increased by $765,000 due to the operation of four new commercial office properties that were acquired or developed in 2007. Operating expenses for properties that we owned for a full quarter in

both 2008 and 2007 decreased by $365,000 primarily due to lower bad debt expense and repair and maintenance costs.

Depreciation and amortization expense decreased by $443,000 in for the first quarter of 2008 compared to the prior year. In 2007 we recorded accelerated amortization expense as a result of a number of early lease terminations.

Residential Rental Properties. The $712,000 revenue increase in 2008 was primarily due to revenues from the Westbury apartment complex that we acquired during the first quarter of 2007 during its initial lease-up. Revenues from the properties that we owned for the full quarter in both 2008 and 2007 were comparable.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance, and exclude interest expense and depreciation expense. Operating expenses in 2008 increased by $546,000 mainly due to operating expenses related to the Westbury apartment complex that was acquired during the first quarter of 2007. Operating expenses for properties that we owned for the full quarter in both 2008 and 2007 increased by $251,000 primarily due to increased turnover and bad debt expense.

Hospitality Properties. Revenues from our hospitality property decreased by $205,000 during the first quarter of 2008 compared to the prior year primarily due to lower occupancy and lower average room rates in 2008.

Operating expenses, which consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense decreased by $159,000 primarily due to lower occupancy.

General and administrative expenses. The $1,896,000 decrease in general and administrative expense as compared to the prior year is primarily related to lower salaries, wages and benefit expenses resulting from a reduction in staffing levels, a decrease in the expense associated with our Stock Appreciation Rights Plan and lower audit fees.

Loss on Impairment of Assets. In 2007, we recorded $1,105,000 of impairment expense related to the reduction in the carrying value of our 400 S. Philadelphia development project to its estimated fair value less costs to sell.

Interest Income. The $508,000 decrease in interest income for the first quarter of 2008 was primarily due to lower average balances outstanding on our investments and lower interest rates.

Interest Expense. The increase in interest expense of $2,206,000 (including interest expense on loans from our related parties) for the first quarter of 2008 is primarily due to interest on new loans obtained in 2007 as a result of property acquisitions, increased interest on loans that were refinanced in 2007, and interest expense on our notes to related parties that were issued in 2007. For the three months ended March 31, 2008 and 2007, we capitalized interest of approximately $600,000 and $544,000, respectively, related to our investment in development projects.

Debt Extinguishment Costs. In 2007, we incurred $4,048,000 of costs related to the defeasance of debt secured by the Victoria Place, Ft. Hill and the Sudley ABCD & Bank properties, which were all refinanced in the first quarter of 2007.

Gain on Sale of Investments in Joint Ventures. During the first quarter of 2007, we recorded a $21,541,000 gain on sale of investments in joint ventures, consisting of an $18,721,000 gain related to the Waterfront equalization payment and a $2,820,000 gain on sale of our interest in the Madison Building.

Income from Investments in Joint Ventures. The $332,000 increase in income from our investments in joint ventures is primarily due to income related to sales recorded at our Symphony House development project. This increase was partially offset by losses related to Venice Lofts.

Minority Interest. Minority interest reflects our minority partner's share of profits and losses in joint ventures that we consolidate into our consolidated financial statements. The $8,338,000 decrease in minority interest as compared to the prior year is primarily due to the recognition in 2007 of our partners' share of income related to the Waterfront equalization payment, partially offset by our minority partners' share of the defeasance costs related to the mortgage loans we refinanced during the first quarter of 2007. Minority interest for 2008 reflects our partners' share of their respective subsidiary's net losses.

Loss from Discontinued Operations, Net of Income Taxes and Minority Interest. During the first quarter of 2007, we recorded $3,843,000 in income from discontinued operations, net of income taxes and minority interest primarily relating to the gain on sale from the Inn at the Colonnade.

Funds From Operations

We consider Funds From Operations ("FFO") to be a meaningful measure of our performance and we evaluate management based on FFO. We provide FFO as a supplemental measure for reviewing our operating performance, although FFO should be reviewed in conjunction with net income which remains the primary measure of performance. FFO is a recognized metric used extensively within the real estate industry by operators of rental properties. Accounting for real estate assets using historical cost accounting under GAAP is based on the presumption of the value of real estate assets diminishing predictably over time. Since real estate values instead have risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of real estate companies. As a result, the National Association of Real Estate Investment Trusts ("NAREIT") created the concept of FFO as a standard supplemental measure of operating performance that adjusts GAAP net income to exclude historical cost depreciation.

While we are not a real estate investment trust ("REIT"), which is generally not subject to federal income tax, our real estate operations include large amounts of depreciable and amortizable real estate assets and we compete against REITS. We therefore believe FFO to be a relevant measurement of our performance.

FFO as defined by the NAREIT is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. Our FFO measure differs from NAREIT's definition in that we also exclude income tax expense related to property sales. The exclusion of income tax expense on property sales is consistent with the objective of presenting comparative period operating performance. FFO should not be considered an alternative to net income as an indicator of our operating performance, or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. Additionally, the FFO measure presented by us may not be calculated in the same manner as FFO measures of other real estate companies and therefore may not necessarily be comparable. We believe that FFO provides relevant information about our operations and is useful, along with net income, for an understanding of our operating activities.

Our FFO was $1,915,000 for the three months ended March 31, 2008, compared to $4,420,000 for the same period in the prior year, a decrease of $2,505,000. This decrease is primarily due to our inclusion in 2007 of a $6,066,000 gain, net of taxes and minority interest related to a partial sale of our interest in Waterfront Associates LLC. This decrease was partially offset by our recording debt

extinguishment costs of approximately $2,428,000, net of taxes, in 2007, along with funds from operations generated in 2008 by properties we acquired in 2007. The following table reflects the reconciliation of FFO to net income for the periods presented (in thousands):

	Three Months Ended March 31,
	2008			2007
Net (loss) income	$	(5,005	)	$	3,783
Add: Depreciation and amortization including our share of unconsolidated real estate joint ventures		6,920			7,450
Add: Income tax expense from sale of properties and investments in joint ventures (net of minority interest share of taxes)		—			4,543
Less: Gain on sale of properties and investments in joint ventures (net of minority interest)		—			(11,356	)

Funds from operations	$	1,915		$	4,420

Net (loss) income per common share	$	(0.91	)	$	0.69

Funds from operations per common share	$	0.35		$	0.81

Liquidity and Capital Resources

General. At March 31, 2008, our consolidated current cash and cash equivalents and investments that are principally short-term totaled $36,760,000.

Short-Term Liquidity. Our most material short-term liquidity requirements for the year ending December 31, 2008 relate to interest and scheduled principal payments on our outstanding mortgage debt and required payments on our development loans. Other short-term liquidity requirements include capital improvements at our existing properties, recurring repair and maintenance necessary to adequately maintain our properties, tenant improvement allowance payments, lease commissions and general and administrative expenses. We anticipate meeting these short-term liquidity requirements from the cash provided from our operating properties, sales of condominiums and from our available cash on hand at March 31, 2008.

A number of factors could affect our cash provided from our operating properties, including a change in occupancy levels and leasing rates and rent concessions offered by competitors. Additionally, the continued slowdown in the housing market coupled with the tight credit markets could adversely affect sales of our condominium units.

Future Capital Requirements. Our future capital requirements include funds necessary to pay scheduled debt maturities and capital improvements and additional investment that could be required at our current development projects as a result of cost overruns. Our fixed-rate mortgage debt matures on average in nine years, beginning in 2010. We anticipate meeting these liquidity requirements through debt refinancings, asset dispositions and available cash on hand. None of our mortgage loans mature in 2008, allowing us to avoid having to refinance properties during this difficult credit environment.

If we default on the payment of interest or principal in connection with an existing loan or violate any loan covenant, the lender may accelerate the maturity of the debt, requiring us to repay all outstanding indebtedness along with any prepayment fees due. If we are unable to repay the debt, the lender may foreclose on any collateral for the loan.

Several of our loans contain financial covenants, including requirements that we maintain a minimum liquidity of $30,000,000, a minimum net worth of $110,000,000, minimum annual funds from

operations, as defined, of $15,000,000 and several interest coverage ratios. For the three month period ended March 31, 2008 we were in violation of the interest coverage ratio test related to loans with a total of $37,700,000 outstanding as of March 31, 2008. We have obtained covenant waivers from all the respective lenders for the period of non-compliance.

Operating Activities. For the three months ended March 31 2008, net cash provided by operating activities was $2,946,000, primarily due to distributions from our Symphony House development project.

Investing Activities. For the three months ended March 31 2008, net cash provided by investing activities totaled $12,198,000 primarily due to a net decrease in investments in principally available for sale securities, partially offset by capital expenditures and tenant improvement costs at our commercial office properties.

Financing Activities. For the three months ended March 31 2008, net cash used in financing activities totaled $9,120,000, primarily due to principal payments on our land development loans and notes to related parties.

Excess cash flow generated from our properties' operations and from distributions from joint ventures is typically invested in municipal obligations that are short-term in nature. These investments are then liquidated as needed to fund principal payments on our land development loans, capital expenditures and tenant improvements costs.

Off-Balance Sheet Commitments.

GUARANTIES

640 North Broad In conjunction with the sale of 640 North Broad we guarantied a $6,000,000 loan obtained by the buyer and secured in part by a $3,000,000 certificate of deposit that we purchased from the lender. We have recorded a liability of $300,000, our estimate of the fair value of this guaranty, which is included in other liabilities. We have also deferred the gain associated with the sale of 640 North Broad due to the guaranty. In addition, we have obtained an indemnification for any required funding.

Guilford Properties We have guarantied repayment of the entire loan balance outstanding under a $7,480,000 acquisition and development loan obtained by Guilford Properties. Funding of the guaranty would increase our equity participation in the venture. The loan matures in September 2008. At March 31, 2008, the balance outstanding under the loan totaled $6,759,000.

Holliday Properties We have guarantied repayment of the entire loan balance outstanding under a $9,116,000 acquisition and development loan obtained by Holliday Properties that matures in 2010. Funding of the guaranty would increase our equity participation in the venture. At March 31, 2008, the balance outstanding under the loan totaled $5,030,000.

MASTER LEASES

LITIGATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

No information is required to be disclosed under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures —We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2008. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of disclosure control and procedures provided reasonable assurance that the disclosure controls and procedures were effective to accomplish their objectives.

PART II.—OTHER INFORMATION

Item 1. Legal Proceedings.

Item 1A. Risk Factors.

None

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

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to Vote of the Security Holders.

None

Item 5. Other Information.

None

Item 6. Exhibits.

A. Exhibits

Exhibit Number		Description of Document
10		Letter dated May 13, 2008 amending the Junior Subordinated Indenture, dated as of May 31, 2006, by and between Bresler and Reiner, Inc. and The Bank of New York Trust Company, National Association (as successor to JPMorgan Chase Bank, National Association). (Filed herewith.)
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from Sidney M. Bresler, Chief Executive Officer. (Filed herewith.)
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from Darryl M. Edelstein, Executive Vice President—Finance and Chief Financial Officer. (Filed herewith.)
32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from Sidney M. Bresler, Chief Executive Officer and from Darryl M. Edelstein, Executive Vice President—Finance and Chief Financial Officer. (Filed herewith.)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BRESLER & REINER, INC.
May 14, 2008	By:	/s/ SIDNEY M. BRESLER Sidney M. Bresler Chief Executive Officer
	By:	/s/ DARRYL M. EDELSTEIN Darryl M. Edelstein Executive Vice President—Finance and Chief Financial Officer