UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2007

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		(I.R.S. Employer
incorporation or organization)		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 o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. 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 x

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

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 June 20, 2007.

EXPLANATORY NOTE

As described in Note 14 to our condensed consolidated financial statements, this Form 10-Q for the period ended March 31, 2007, includes a restatement of our condensed consolidated statement of cash flows for the three months ended March 31, 2006.

We have not amended and do not intend to amend our previously filed periodic report for the period ended March 31, 2006 on Form 10-Q as the period affected by the restatement described above has been amended in this filing. For this reason the previously issued condensed consolidated financial statements for the period indicated should no longer be relied upon.

BRESLER & REINER, INC.

FORM 10 Q

March 31, 2007

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (As Restated)	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II. OTHER INFORMATION		35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Submission of Matters to Vote of the Security Holders	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
	Signatures	36

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements and Notes

CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND DECEMBER 31, 2006
(UNAUDITED)

	2007			2006
ASSETS
Real Estate:
Rental property and equipment	$	574,205,000		$	513,631,000
Property and land development	132,458,000			167,521,000
Real estate, at cost	706,663,000			681,152,000
Less: Accumulated depreciation	(47,294,000		)	(42,700,000		)
Total real estate, net	659,369,000			638,452,000
Assets held for sale	—			25,927,000
Receivables:
Income taxes receivable	648,000			644,000
Mortgage and notes receivable	5,136,000			5,438,000
Other receivables, net	6,832,000			6,996,000
Cash and cash equivalents	18,343,000			18,191,000
Restricted cash and deposits held in escrow	34,489,000			46,953,000
Investments, principally available-for-sale securities	87,212,000			36,829,000
Investments in and advances to joint ventures	43,864,000			30,403,000
Deferred charges and other assets, net	41,829,000			45,788,000
Total assets	$	897,722,000		$	855,621,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Mortgage and construction loans and other debt	$	666,349,000		$	582,435,000
Liabilities of assets held for sale	—			29,704,000
Accounts payable, trade and accrued expenses	15,148,000			19,358,000
Deferred income taxes payable	13,645,000			11,146,000
Other liabilities	28,652,000			28,258,000
Total liabilities	723,794,000			670,901,000
Minority interest	29,743,000			43,496,000
SHAREHOLDERS’ EQUITY
Common shares, $0.01 par value; 7,000,000 shares authorized, 5,477,212 shares issued and outstanding as of March 31, 2007 and December 31, 2006.	55,000			55,000
Additional paid-in capital	5,721,000			5,721,000
Retained earnings	138,612,000			135,651,000
Accumulated other comprehensive loss	(203,000		)	(203,000		)
Total shareholders’ equity	144,185,000			141,224,000
Total liabilities and shareholders’ equity	$	897,722,000		$	855,621,000

See notes to condensed consolidated financial statements.

BRESLER & REINER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)

	2007			2006
OPERATING REVENUES
Development sales	$	952,000		$	5,962,000
Rentals—commercial	16,254,000			11,497,000
Rentals—residential	3,675,000			2,477,000
Hospitality	753,000			739,000
Other	132,000			118,000
Total operating revenues	21,766,000			20,793,000
COSTS AND EXPENSES
Cost of development sales	847,000			5,083,000
Rental expense—commercial
Operating expenses	7,859,000			4,580,000
Depreciation and amortization expense	6,243,000			3,901,000
Rental expense—residential
Operating expenses	1,917,000			989,000
Depreciation and amortization expense	1,228,000			541,000
Hospitality expense
Operating expenses	578,000			511,000
Depreciation and amortization expense	80,000			33,000
General and administrative expense	3,761,000			3,787,000
Loss on impairment of assets	1,105,000			—
Other expenses	13,000			—
Total operating expenses	23,631,000			19,425,000
Total operating (loss) income	(1,865,000		)	1,368,000
OTHER INCOME (EXPENSES)
Interest income	837,000			375,000
Interest expense	(8,617,000		)	(5,529,000		)
Debt extinguishment costs	(4,048,000		)	—
Gain on sale of investments in joint ventures	21,541,000			—
Income (loss) before income taxes, income from investments in joint ventures, minority interest and income from discontinued operations	7,848,000			(3,786,000		)
Income from investments in joint ventures	127,000			142,000
Minority interest	(8,084,000		)	(356,000		)
Loss before income taxes and discontinued operations	(109,000		)	(4,000,000		)
Benefit for income taxes	49,000			1,419,000
Loss from continuing operations	(60,000		)	(2,581,000		)
Income from discontinued operations, net of tax and minority interest	3,843,000			179,000
Net income (loss)	$	3,783,000		$	(2,402,000	)
INCOME PER SHARE OF COMMON STOCK
Basic and Diluted:
Loss from continuing operations	$	(0.01	)	$	(0.47	)
Income from discontinued operations, net of tax and minority interest	0.70			0.03
Net income (loss)	$	0.69		$	(0.44	)
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, 2007 AND 2006
(UNAUDITED)

	2007			2006
				(As Restated See Note 14)
OPERATING ACTIVITIES:
Net income (loss)	$	3,783,000		$	(2,402,000	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	7,293,000			5,202,000
Gain on sale of properties and investments in joint ventures	(30,077,000		)	(6,354,000		)
Income from investments in joint ventures	(127,000		)	(142,000		)
Minority interest expense (including discontinued operations)	8,084,000			5,222,000
Deferred income taxes	2,499,000			681,000
Loss on impairment of assets (including discontinued operations)	1,612,000			—
Amortization of finance costs	216,000			175,000
Bad debt expense	631,000			142,000
Property and land development	(2,639,000		)	(141,000		)
Distributions of income from investments in joint ventures	48,000			74,000
Debt extinguishment costs (including discontinued operations)	5,175,000			—
Changes in assets and liabilities:
Receivables	(899,000		)	(1,017,000		)
Other assets	1,981,000			(893,000		)
Other liabilities	(489,000		)	4,551,000
Total adjustments	(6,692,000		)	7,500,000
Net cash (used in) provided by operating activities	(2,909,000		)	5,098,000
INVESTING ACTIVITIES:
Investment in joint ventures	(1,458,000		)	(125,000		)
Distributions from joint ventures in excess of income	1,574,000			7,000
Deposits for property acquisitions	(500,000		)	(1,963,000		)
Decrease (increase) in restricted cash and deposits held in escrow	12,464,000			(7,710,000		)
Net (increase) decrease in investments principally available-for-sale securities	(50,383,000		)	26,192,000
Purchase of rental property and equipment	(59,280,000		)	(67,820,000		)
Purchase of property and land development	(7,010,000		)	(2,020,000		)
Proceeds from sale of properties and investments in joint ventures	61,651,000			21,771,000
Net cash used in investing activities	(42,942,000		)	(31,668,000		)
FINANCING ACTIVITIES:
Proceeds from mortgage and construction loans and other debt	167,195,000			61,360,000
Repayment of mortgage and construction loans and other debt	(47,469,000		)	(28,811,000		)
Purchase of marketable securities in connection with the legal defeasance of mortgage notes payable	(68,774,000		)	—
Contributions from minority partners	2,589,000			1,757,000
Distributions to minority partners	(4,505,000		)	(4,516,000		)
Debt financing charges	(2,211,000		)	(938,000		)
Dividends paid	(822,000		)	—
Net cash provided by financing activities	46,003,000			28,852,000
Net increase in cash and cash equivalents	152,000			2,282,000
Cash and cash equivalents, beginning of the period	18,191,000			10,820,000
Cash and cash equivalents, end of the period	$	18,343,000		$	13,102,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)	$	9,232,000		$	5,230,000
Income taxes (current and estimated)	5,000			25,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt assumed on acquisitions	$	—		$	23,117,000
Marketable securities transferred in connection with the legal defeasance of mortgage notes payable	68,774,000			—
Mortgage notes payable legally defeased	64,279,000			—
Liabilities related to loan guaranties	(87,000		)	369,000
Accrued purchases of real estate	4,714,000			5,013,000

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; Washington, DC; Wilmington, Delaware; Baltimore, Maryland; Delaware and Maryland Eastern Shore; 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 (“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, 2007, 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/A for the year ended December 31, 2006.

PRINCIPLES OF CONSOLIDATION

Our condensed consolidated financial statements include the accounts of the Company, our wholly owned subsidiaries, and entities which we control or, entities that are required to be consolidated under Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46R Consolidation of Variable Interest Entities. 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 GAAP requires management to make estimates and assumptions that affect the stated amounts of assets, liabilities, revenues, and expenses presented in the financial statements, as well as the disclosures relating to contingent liabilities. Consequently, actual results could differ from those estimates that have been reported in our 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 guarantees related to debt on entities that we do not consolidate; and the recording of impairment losses if applicable.

RECLASSIFICATIONS

Certain amounts reported in the 2006 consolidated financial statements have been reclassified to conform to the current year presentation related to assets held for sale and discontinued operations.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

2. NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement No. 157 Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for, among other things, the definition of fair value, establishes a framework for measuring fair value and provides guidance on additional required disclosures of fair value measurement. The provisions of SFAS No. 157 are effective for us on January 1, 2008. Management will evaluate the impact of this new standard on our consolidated financial statements at the time of adoption.

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. SFAS No. 159 is effective for us on January 1, 2008. Management will evaluate the impact of this new standard on our consolidated financial statements at the time of adoption.

3. SIGNIFICANT TRANSACTIONS, ACQUISITIONS AND DISPOSITIONS

During the three months ended March 31, 2007, we entered into several significant transactions as described below. All acquisitions of real estate and investments in joint ventures have been included in our accompanying statements of operations from the date of the transaction forward and any gain or loss on sale of assets has been calculated and recorded as of the date of the disposal. All the acquisitions have been consolidated into our condensed consolidated financial statements.

ACQUISITIONS—COMMERCIAL & RESIDENTIAL

Westbury In January 2007, we acquired a 366 unit resident apartment community located in Lake Brandon, Florida for a purchase price of $42,050,000. In February 2007, we placed a ten-year $36,000,000 mortgage loan on the property, bearing interest at 6.03%. Approximately $7,100,000 of the loan proceeds were held back by the lender and will be released upon the property achieving certain occupancy levels and debt service coverage ratio results. Interest-only payments are due during the first five years of the loan term.

14800 St. Mary’s Lane In February 2007, we acquired an 85,000 square foot commercial office building located in Houston, Texas for a purchase price of $9,650,000. Subsequent to the purchase in February 2007, we placed a ten-year $8,200,000 mortgage loan on the building bearing a fixed interest rate of 5.75%. The loan requires interest-only payments during the first five years of the loan term.

14825 St. Mary’s Lane In February 2007, we acquired a 45,000 square foot commercial office building located in Houston, Texas for a purchase price of $4,845,000. In March 2007, we placed a ten-year $4,200,000 mortgage loan on the building bearing a fixed interest rate of 5.67%. The loan requires interest-only payments during the first three years.

SIGNIFICANT TRANSACTION

Waterfront Complex In October 2002, B&R Waterfront Properties LLC (“BRW”), a 54% owned subsidiary of ours, formed a joint venture, called Waterfront Associates LLC (“WALLC”), with K/FCE Investment LLC (“K/FCE”), to redevelop and reposition the Waterfront Complex. BRW contributed the leasehold improvements and a ground lease expiring in 2058, relating to the Waterfront Complex to

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

3. SIGNIFICANT TRANSACTIONS, ACQUISITIONS AND DISPOSITIONS (Continued)

WALLC. Based on the terms of the agreement K/FCE has the right, subject to certain conditions, to increase its ownership in the joint venture up to 50% by the making of capital contributions or by causing the joint venture to make capital distributions. K/FCE, as the managing member of WALLC, has sole responsibility for the management, control, and operation of the WALLC, as well as for the formulation and execution of its business and investment policy.

In March 2007, in accordance with an amended and restated operating agreement of WALLC, K/FCE exercised its right to increase its ownership interest in the joint venture to 50% by making a $25,000,000 contribution to WALLC with such amount distributed by WALLC to BRW (“equalization payment”). The equalization payment is in addition to $23,000,000 that K/FCE has either contributed or has committed to contribute to WALLC. BRW recorded an $18,721,000 gain related to the equalization payment, representing the difference between the proceeds received and the proportionate cost of the real estate underlying the partnership interest that was effectively sold to K/FCE. The gain is included in gain on sale of investments in joint ventures with an offsetting minority interest expense of $8,612,000 in the accompanying consolidated statements of operations.

DISPOSITIONS

Inn at the Colonnade In January 2007, we sold the Inn at the Colonnade, a 125 room hotel located in Baltimore, Maryland, for $15,000,000 and recorded a pre-tax gain on sale of $7,409,000, net of debt extinguishment costs. The sale generated net proceeds of approximately $4,194,000 after defeasance of the existing debt.

1105 Market Street In February 2007, we sold 1105 Market Street, a 173,000 square foot commercial office building located in Wilmington, Delaware, for $18,500,000. At the time of the sale the sales price approximated the carrying value of the property, as adjusted for impairment. The sale proceeds were used to help repay the outstanding loan on the property of $19,000,000.

Madison Building In February 2007, we sold our 25% interest in Madison Building, an 82,000 square foot commercial office building located in McLean, Virginia, for $4,000,000 and recorded a pre-tax gain on sale of $2,820,000 that is included in gain on sale of investments in joint ventures in the accompanying condensed consolidated statements of operations.

4. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

At March 31, 2007, our investments in non-consolidated joint ventures and partnerships consisted of the following:

Joint Venture	Ownership Percentage(1)
Guilford Properties Master LLC (“Guilford Properties”)		51%
Holliday Properties Master LLC (“Holliday Properties”)		51%
Redwood Commercial Management, LLC (“Redwood Commercial”)		50%
Tech-High Leasing Company (“Tech-High Leasing”)		50%
Selborne House at St. Marks Owner, LLC (“Arbor Crest”)		33%
Waterfront Associates, LLC (“WALLC”)(2)		27%	(3)
Venice Lofts Associates LP (“Venice Lofts”)		22%
Symphony House Associates LP (“Symphony House”)		22%
B&R Devon Square Owner, LP (“Devon Square”)		6%

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

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

4. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (Continued)

(2) Beginning March 31, 2004, BRW consolidated the assets, liabilities and operations of WALLC, in accordance with FIN 46R because WALLC was deemed to be a variable interest entity and we were deemed to be the primary beneficiary of the entity. Subsequent to the equalization payment, as described above, we reassessed the designation of primary beneficiary of WALLC and determined that BRW was no longer the primary beneficiary since K/FCE is subject to a majority of the potential variability in gains and losses of the entity. We have therefore accounted for BRW’s investment in WALLC under the equity method as of March 1, 2007. As a result, total assets in our consolidated balance sheet decreased by $26,913,000, total liabilities decreased by $713,000 and minority interest liability decreased by $26,200,000.

(3) The Company owns a 54% interest in BRW, which owns a 50% interest in WALLC.

Below are condensed combined balance sheets for our unconsolidated joint venture entities as of March 31, 2007 and December 31, 2006 (in thousands):

	March 31, 2007		December 31, 2006
ASSETS
Cash	$	3,106		$	3,138
Property under development	202,840			141,601
Rental property and equipment	29,981			39,588
Other assets	3,982			4,391
Total assets	$	239,909		$	188,718
LIABILITIES AND MEMBERS’ EQUITY
Mortgages and notes	$	151,195		$	137,677
Other liabilities	20,589			18,498
Total liabilities	171,784			156,175
Members’ equity	68,125			32,543
Total liabilities and members’ equity	$	239,909		$	188,718
Company’s interest in members’ equity(1)	$	40,163		$	29,366

(1) Included in the Company’s interest in members’ equity is $2,199,000 at March 31, 2007 and $2,202,000 at December 31, 2006 of equity from the Trust Preferred Securities.

The difference between the carrying amount of our investment in joint ventures and our accumulated membership interest noted above is primarily due to 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 capitalized interest is expensed as the development units are sold.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

4. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (Continued)

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

	Three Months Ended March 31,
	2007			2006
Operating revenues		$	1,496		$	3,096
Operating expenses		818			1,546
Interest expense		234			872
Depreciation and amortization expense		298			648
Net income		$	146		$	30
Company’s equity in earnings of unconsolidated joint ventures		$	127		$	142

5. OTHER ASSETS AND OTHER LIABILITIES

In recording our acquisitions of rental properties, we have established intangible assets and intangible liabilities. The following table summarizes these intangible assets and liabilities as of the dates presented (in thousands):

	March 31, 2007					December 31, 2006
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired in-place lease assets	$	47,233		$	24,211	$	47,408		$	21,626
Acquired in-place lease liabilities	11,305			4,639		12,182			4,446

The amortization of acquired in-place lease assets included in depreciation and amortization expense, totaled $2,686,000 and $2,264,000 for the three months ended March 31, 2007 and 2006, respectively.

The amortization of acquired above and below-market-in-place leases, included as a net increase in revenues, totaled $322,000 and $446,000 for the three months ended March 31, 2007 and 2006, respectively.

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):

2008	$	755
2009	928
2010	478
2011	409
2012	193

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):

2008	$	5,382
2009	3,534
2010	2,111
2011	1,517
2012	676

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

6. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT

Property(1)	Interest Rate(2)	Maturity		March 31, 2007(3)			December 31, 2006(3)
Fort Washington	5.60%		2014		$	47,066		$	47,249
Victoria Place Apartments(4)	5.73%		2017		46,000			32,341
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			—
919 Market Street	5.52%		2015		35,600			35,600
Blue Bell Plaza	5.65%		2016		29,800			29,800
Red Mill Pond—Development Loans	Lender’s Prime		2008		25,719			24,488
Red Mill Pond—Promissory Note	6.00%		2012		8,115			8,115
Sudley N. Bldgs. A, B, C, and Bank Bldg.(4)	5.75%		2017		18,500			11,108
Versar Center	6.18%		2013		17,559			17,626
Mearns Park	6.17%		2016		16,500			16,500
West Germantown Pike	5.90%		2033		15,565			15,626
One Northbrook	5.75%		2014		14,714			14,770
Cross Keys	6.33%		2016		14,500			14,500
Huntington at Sundance(5)	7.28%		2039		14,425			14,454
Wynwood	5.62%		2016		11,800			11,800
510 Township Road	LIBOR + 200 basis pts.		2009		10,760			10,760
900 Northbrook	5.98%		2013		10,752			10,792
10333 Harwin Drive	5.78%		2016		10,497			10,532
Sudley N. Building D(4)	5.75%		2017		10,400			6,114
Fort Hill(4)	5.75%		2017		10,400			5,428
Crisfield	LIBOR + 200 basis pts.		2008		10,289			11,700
102 Pickering Way(5)	6.50%		2013		9,904			9,940
Seaside	Lender’s Prime Rate		2007		9,554			12,813
Commerce Park North	6.14%		2016		9,400			9,400
1150 Northbrook Development	LIBOR + 170 basis pts.		2009		8,219			4,103
14800 St. Mary’s Lane	5.75%		2017		8,200			—
400 South Philadelphia Avenue	Lender’s Prime + 100 basis pts.		2007		6,400			6,400
9950 Westpark	6.37%		2016		6,324			6,342
1120 NASA Parkway(5)	5.41%		2015		5,189			5,208
17043-49 El Camino	5.78%		2016		5,007			5,024
950 Threadneedle	5.75%		2017		4,300			—
14825 St. Mary’s Lane	5.67%		2017		4,200			—
8700 Commerce Drive(5)	5.24%		2015		3,795			3,809
Sudley South Building No. III	LIBOR + 165 basis pts.		2008		3,701			2,855
Holiday Inn Express	7.88%		2011		3,482			3,500
1110 NASA Parkway(5)	5.55%		2014		3,395			3,408
1100 NASA Parkway(5)	6.12%		2012		2,819			2,830
1717 Portway Plaza(5)	5.75%		2013		2,700			2,711
Total mortgage and construction loans					$588,550			$	504,646
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	LIBOR + 250 basis pts.		2009		4,000			4,000
Other	(6)		(6)		1,409			1,409
Total mortgage and construction loans and other debt before debt related to assets held for sale					$	666,127		$	582,223
Debt Related to Assets Held For Sale
1105 Market Street	LIBOR + 195 basis pts.		2007		—			19,000
Inn at the Colonnade	7.45%		2011		—			9,458
Total mortgage and construction loans and other debt and debt related to assets held for sale					$	666,127		$	610,681

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

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

6. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT (Continued)

(2) LIBOR rate is the one-Month LIBOR rate which was 5.32% and 5.35% at March 31, 2007 and December 31, 2006 respectively.

(3) Generally our mortgage loans have 10-year terms and 30-year amortization schedules.

(4) Note was defeased and new financing was obtained in 2007. The interest rate and maturity date reflect the terms of the new loan.

(5) The debt shown for these properties does not include the related premium or discount.

(6) Represents a deferred purchase money promissory note.

LOAN FINANCINGS

950 Threadneedle In February 2007, we placed a ten-year $4,300,000 mortgage loan on 950 Threadneedle, bearing interest at 5.75%. Interest-only payments are due during the first five years of the loan term.

LOAN DEFEASANCES

In the first quarter of 2007 we defeased three mortgage loans collateralized by our properties by purchasing US Treasury Securities (“Securities”). These Securities, whose cash flow is structured to match the principal and interest payments due under the respective mortgage notes, were placed in trusts for the sole purpose of funding these payments under the mortgage notes. Since the transactions were structured as legal defeasances, in accordance with SFAS No. 140, Accounting for Transfers on Servicing of Financial Assets and Liabilities, the mortgage notes payable were accounted for as having been extinguished. Following is a description of the mortgage loans that were defeased:

Victoria Place In February 2007, we defeased the $32,249,000 loan collateralized by Victoria Place Apartments and placed a $46,000,000 ten-year mortgage loan on the property bearing an interest rate of 5.73%. Interest-only payments are due during the first five years of the loan term. We recorded debt extinguishment costs, net of minority interest, of $684,000 related to the defeasance.

Ft. Hill In March 2007, we defeased the $5,418,000 loan collateralized by Ft. Hill and placed a $10,400,000 ten-year mortgage loan on the property bearing a fixed interest rate of 5.75%. Interest-only payments are due during the first five years of the loan term. We recorded debt extinguishment costs, net of minority interest, of $592,054 related to the defeasance.

Sudley North In March 2007, we defeased the $17,192,000 loan collateralized by Sudley Buildings A,B,C&D and the Bank Building and placed an $18,500,000 mortgage loan on Sudley Buildings A,B&C and the Bank Building and a $10,400,000 mortgage loan on Sudley Building D. Both the new loans mature in 2017, bear interest at 5.75% and require interest-only payments during the first five years of the loan term. We recorded debt extinguishment costs, net of minority interest, of $2,139,000 related to the defeasance.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

6. MORTGAGE AND CONSTRUCTION LOANS AND OTHER DEBT (Continued)

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.

We have a $50,000,000 line of credit that had no amounts outstanding as of March 31, 2007.

Several of our loans contain financial covenants. The most stringent of these covenants require that we maintain a minimum net worth of $130,000,000, a minimum liquidity of $30,000,000, and a minimum annual Funds From Operations as defined by the National Association of Real Estate Investment Trusts and adjusted for income tax expense on property sales, of $15,000,000.

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 $222,000 at March 31, 2007 and $213,000 at December 31, 2006.

As part of our construction and development activities, we capitalized $1,800,000 and $1,706,000 of interest for the three months ended March 31, 2007 and 2006, respectively.

7. DISCONTINUED OPERATIONS

The results of operations and gains on sale for 1105 Market Street and the Inn at the Colonnade are included in income from discontinued operations, net of tax and minority interest, for the three months ended March 31, 2007. For the three months ended March 31, 2006, income from discontinued operations, net of tax and minority interest include the results of operations and gains on sale, net of minority interest of the Washington Business Park portfolio, 7800 Building, Charlestown North, and the four remaining properties in the Baltimore Portfolio all of which were sold in 2006, as well as the results of operations of 1105 Market Street and the Inn at the Colonnade.

In January 2007, we sold the Inn at the Colonnade for $15,000,000 and recorded a pre-tax gain on sale of $7,409,000, net of debt extinguishment costs. The sale generated net proceeds of approximately $4,194,000 after defeasance of the existing debt.

In February 2007, we sold 1105 Market Street, for $18,500,000. At the time of the sale the sales price approximated the carrying value of the property, as adjusted for impairment. The sale proceeds were used to help repay the outstanding loan on the property of $19,000,000.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

7. DISCONTINUED OPERATIONS (Continued)

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

	Three Months Ended March 31,
	2007			2006
Revenues	$	7,680		$	11,021
Loss before gain on sale, loss on impairment of assets, minority interest, debt extinguishment costs, and provision for income taxes	$	(497	)	$	(1,189	)
Gain on sale	8,536			6,353
Debt extinguishment costs	(1,127		)	—
Loss on impairment of assets	(507		)	—
Minority interest	—			(4,866		)
Provision for income taxes	(2,562		)	(119		)
Income from discontinued operations, net of tax and minority interest	$	3,843		$	179

8. COMMITMENTS AND CONTINGENCIES

GUARANTIES

Together with our joint venture partner, we have guarantied repayment of up to $39,240,000 under the $98,100,000 primary construction loan for the Symphony House construction project (in which affiliates of the Company are investors). In addition, we have guarantied repayment of the full amount outstanding under the $16,900,000 mezzanine construction loan for the same project. The guarantied repayment under the primary loan was reduced to $24,525,000 in the first quarter of 2006 upon the joint venture obtaining in excess of $83,500,000 in sales contracts and will be further reduced to $9,810,000 once net sales proceeds reach 110% of the outstanding principal balance of the loan. Both the primary construction loan and the mezzanine loan mature in 2008. Funding of the guaranty would increase our equity participation in the venture. We have a liability of $84,000 included in other liabilities, which is our estimate of the fair value of this guaranty at March 31, 2007.

We have provided a guarantee to the lender on a $8,500,000 mezzanine construction loan for Venice Lofts (in which affiliates of the Company are investors), that should the interest rate on the project’s $30,000,000 variable-rate senior construction loan exceed 6.5%, the difference between the interest due and a calculation of interest due based on 6.5% interest rate, will be kept current. The amount outstanding under the senior loan totaled $23,004,000 at March 31, 2007 and all the loan interest payments were current as of that date.

We have guarantied repayment of the entire loan balance outstanding under a $21,350,000 acquisition and construction loan obtained by Devon Square. Our equity partner in the venture has provided the same guaranty. Funding of the guaranty would increase our equity participation in the venture. The loan matures in August 2007. At March 31, 2007, the balance outstanding under the loan totaled $17,213,000. We have a liability of $3,000 included in other liabilities, which is our estimate of the fair value of this guaranty at March 31, 2007.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

8. COMMITMENTS AND CONTINGENCIES (Continued)

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 guarantee.

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, 2007, the balance outstanding under the loan totaled $6,312,000.

We have guarantied repayment of the entire loan balance outstanding under a $9,116,000 acquisition and development loan obtained by Holliday Properties. Funding of the guaranty would increase our equity participation in the venture. The loan matures in 2009. At March 31, 2007, the balance outstanding under the loan totaled $3,397,000.

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.

9. 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 plans include the following components (in thousands):

	Three Months Ended March 31,
	2007				2006
Defined benefit pension plan
Service cost		$	45			$	29
Interest cost		34				36
Expected return on plan assets		(32		)		(55		)
Amortization of prior service cost		4				17
Recognized net actuarial losses		—				22
Total net pension expense		$	51			$	49

In 2007, we are required to contribute approximately $42,000 to our defined benefit pension plan (our “Plan”). We do not expect that there will be any additional required contributions to our Plan. There were no contributions in the first quarter of 2007.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

10. DIVIDENDS

In January 2007, our Board of Directors declared an annual cash dividend of $0.60 per share of common stock to be paid quarterly. The first payment was made on March 15, 2007 to record holders of our common stock as of March 1, 2007. The remainder of the cash dividend will be paid quarterly on June 15, September 17, and December 17, 2007 to record holders of our common stock as of June 1, September 3, and December 3, 2007, respectively.

11. INCOME TAXES

We adopted FIN 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with 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 2003 through 2006.

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

Our provision for income taxes for the three months ended March 31, 2007 and 2006 includes a provision for income taxes on the income from continuing operations as well as a provision for income taxes on the discontinued operations. The provision for income taxes is calculated by applying the estimated full year effective tax rate to our year-to-date earnings through March 31, 2007 and 2006, respectively.

12. 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.

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.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

12. SEGMENT INFORMATION (Continued)

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:

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

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
Assets:
Real estate at cost		$ 92,020		$	21,038		$	19,400		$	417,991			$	148,706			$	7,508			$	—	$	706,663
Accumulated depreciation		—		—			—			(33,156		)		(8,655		)		(5,483		)		—		(47,294		)
Investments in joint ventures		—		18,986			22,344			641				(306		)		—				2,199		43,864
Cash, cash equivalents and restricted cash		—		—			—			—				—				—				52,832		52,832
Investments		—		—			—			—				—				—				87,212		87,212
Other (inc. assets held for sale)		400		48			610			38,476				2,762				271				11,878		54,445
		$ 92,420		$	40,072		$	42,354		$	423,952			$	142,507			$	2,296			$	154,121	$	897,722

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

12. SEGMENT INFORMATION (Continued)

March 31, 2006 (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		$ 3,524			$	2,438			$	—			$	11,497			$	2,477			$	739			$	118		$	20,793
Cost of development sales		(3,084	)		(1,963		)		(36		)		—				—				—				—			(5,083		)
Operating expenses		—			—				—				(4,580		)		(989		)		(511		)		—			(6,080		)
Depreciation and amortization expense		—			—				—				(3,901		)		(541		)		(33		)		—			(4,475		)
Interest expense		—			—				—				(3,658		)		(959		)		(76		)		(836		)	(5,529		)
Gain on sale of investments in joint ventures		—			—				—				—				—				—				—			—
Income (loss) from investments in joint ventures		—			2				—				136				(22		)		—				26			142
Minority interest		(225	)		—				(79		)		(35		)		(17		)		—				—			(356		)
Debt extinguishment costs		—			—				—				—				—				—				—			—
General, administrative and other expenses		—			—				—				—				—				—				(3,787		)	(3,787		)
Interest income		—			—				—				—				—				—				375			375
Net income (loss) before taxes and discontinued operations		$ 215			$	477			$	(115	)		$	(541	)		$	(51	)		$	119			$	(4,104	)	$	(4,000	)

December 31, 2006 (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		$ 90,031		$	21,995		$	55,494		$	401,519			$	104,590			$	7,498			$	25	$	681,152
Accumulated depreciation		—		—			—			(29,744		)		(7,554		)		(5,402		)		—		(42,700		)
Investments in joint ventures		—		18,918			—			9,563				(280		)		—				2,202		30,403
Cash, cash equivalents and restricted cash		—		—			—			—				—				—				65,144		65,144
Investments		—		—			—			—				—				—				36,829		36,829
Other (inc. assets held for sale)		404		—			512			59,849				1,217				6,852				15,959		84,793
		$ 90,435		$	40,913		$	56,006		$	441,187			$	97,973			$	8,948			$	120,159	$	855,621

13. SUBSEQUENT EVENTS

510 Township Line Road In May 2007, we repaid the loan collateralized by 510 Township Line Road, which had an outstanding balance of $10,760,000, and placed a ten-year $14,000,000 mortgage loan on the property bearing a fixed interest rate of 5.71%. Interest only payments are due during the first five years of the loan term.

Arbor Crest In April 2007, we sold our 33% interest in an unconsolidated entity that owned Arbor Crest, an 80 unit age-restricted residential property. We received $1,000,000 from the sale and will record a pre-tax gain on sale of $1,387,000. The gain in excess of the cash received is the result of a negative basis that arose from distributions we received upon a refinancing of the property.

Intercontinental Building In May 2007 we invested $3,643,000 for a 71.2% interest in a joint venture that acquired a 197,000 square foot commercial office building located in Houston, Texas for a purchase price of $24,200,000. The joint venture placed a ten-year $20,500,000 mortgage loan on the property bearing a fixed interest rate of 6.18%. Interest-only payments are due during the first three years of the loan term.

Tender Offer In May 2007, we issued a tender offer for the purchase of the outstanding limited partnership interests in Trilon Plaza Company (“Trilon”) for $543,000 per one percent interest and for the

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

13. SUBSEQUENT EVENTS (Continued)

outstanding membership interests in West Office, LLC (“West Office”) for $154,795 per one percent interest. The assets of both Trilon and West Office consist primarily of their interests in BRW, a 54% owned subsidiary of the Company, in which Trilon owns 36.8% and West Office owns 9.2%.

Affiliates of the Company own an 88.3% interest in Trilon and a 31.5% interest in West Office. Should these affiliates tender their membership interests in Trilon, they will receive a total of $46,851,000, of which $11,712,000 will be paid in cash and $35,138,000 in the form of a three-year promissory note from the Company bearing an interest rate of 7.5%. All the other partners in Trilon and all the members of West Office, including affiliates of the Company, will receive cash for their respective interests.

The Company will use the existing cash of Trilon and West Office together with these entities’ share of BRW’s cash, totaling approximately $38,633,000 at the time of the tender offer, to fund the cash portion of the purchase, which would total $34,642,000 should all the partners and members tender their respective interests.

14. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIALS STATEMENTS

Subsequent to the issuance of our consolidated financial statements for the fiscal year ended December 31, 2006 and prior to the issuance of our periodic report on Form 10-Q for the period ended March 31, 2007, we identified the following errors in our condensed consolidated statement of cash flows for the three months ended March 31, 2006:

Properties developed with the intention of leasing the related space are classified as an investing activity while the development of condominiums and land parcels that is intended to be sold are classified as an operating activity. During the first quarter of 2006, the Company changed its intent with regards to certain properties from leasing space to selling units, however, we did not properly account for the resulting classification change. As a result we overstated net cash used in operating activities and understated net cash used in investing activities by $5,492,000.

Capitalized interest of $317,000 related to our equity investments in development projects that are considered investing activities was reflected in error in operating activities rather than in investing activities.

We did not properly account for accrued expenditures related to development projects categorized as investing activities. As a result, net cash used in operating activities was overstated and net cash used in investing activities was understated by $82,000.

We did not properly reflect cash received upon the sale of assets that was used to repay or defease the underlying debt and other liabilities. As a result net cash used in operating activities was understated by $1,114,000, net cash used in investing activities was overstated by $8,085,000 and net cash provided by financing activities was overstated by $6,971,000.

We did not properly reflect the cash activity related to deposits for property acquisitions. As a result we overstated net cash used in operating activities and understated net cash used in investing activities by $2,232,000.

In addition to restating the statement of cash flows, we have also made the following corrections to the supplemental disclosures to the statement of cash flows:

· Decreased the amount disclosed as cash paid during the year for interest (net of amount capitalized) by $466,000.

· Increased the amount disclosed for accrued purchases of real estate by $4,403,000.

BRESLER & REINER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UNAUDITED

14. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIALS STATEMENTS (Continued)

A summary of the effects of the restatement to correct the errors identified above, in addition to other errors considered immaterial, on our condensed consolidated statement of cash flows and the related disclosures in our supplemental disclosures is shown below (in thousands).

	Three Months Ended March 31, 2006
	As Previously Reported			Adjustment			As Restated
Consolidated Statement of Cash Flows
OPERATING ACTIVITIES:
Amortization of finance costs	$	(270,000	)	$	445,000		$	175,000
Bad debt expense	—			142,000			142,000
Property and land development	(5,991,000		)	5,850,000			(141,000		)
Receivables	194,000			(1,211,000		)	(1,017,000		)
Other assets	(3,194,000		)	2,301,000			(893,000		)
Other liabilities	5,057,000			(506,000		)	4,551,000
Total adjustments	479,000			7,021,000			7,500,000
Net cash (used in) provided by operating activities	(1,923,000		)	7,021,000			5,098,000
INVESTING ACTIVITIES:
Investments in joint ventures	—			(125,000		)	(125,000		)
Deposits for property acquisitions	1,116,000			(3,079,000		)	(1,963,000		)
Purchases of rental property and equipment	(68,668,000		)	848,000			(67,820,000		)
Purchase of property and land development	3,757,000			(5,777,000		)	(2,020,000		)
Proceeds from sale of properties and investments in joint ventures	13,686,000			8,085,000			21,771,000
Net cash used in investing activities	(31,618,000		)	(50,000		)	(31,668,000		)
FINANCING ACTIVITIES:
Proceeds from mortgage and construction loans and other debt	60,248,000			1,112,000			61,360,000
Repayment of mortgage and construction loans and other debt	(20,728,000		)	(8,083,000		)	(28,811,000		)
(Distributions to) contributions from minority partners	(2,759,000		)	2,759,000			—
Contributions from minority partners	—			1,757,000			1,757,000
Distributions to minority partners	—			(4,516,000		)	(4,516,000		)
Net cash provided by financing activities	35,823,000			(6,971,000		)	28,852,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized)	$	5,696,000		$	(466,000	)	$	5,230,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued purchases of real estate	610,000			4,403,000			5,013,000

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 obtain necessary governmental permits and approvals;

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

· our ability to sustain occupancy levels at our properties;

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

· changes in the interest rate environment which 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 consolidated balance sheets as of March 31, 2007 and December 31, 2006 and the results of operations for the three months ended March 31, 2007 and 2006 and should be read along with our consolidated financial statements and related notes included elsewhere herein. The ability to compare one period to another may be significantly affected by acquisitions of commercial properties and the development and sale of 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 properties; 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.

In the first quarter of 2007 we continued to be impacted by a soft residential housing market. We did not record any sales of our residential condominiums located on the Maryland and Delaware Eastern Shore and as a result recorded an impairment charge of $1,105,000 to reduce the carrying amount of one of these residential condominium projects. We have also restructured sales contracts with homebuilders at

our residential subdivisions to accommodate a slowdown in home sales, primarily delaying the dates on which these takedowns occur.

Development—Condominium and Land Sales and Rental Properties

Commercial and Residential Condominiums This segment primarily includes the revenues and costs associated with the development and sale of 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 revenues and costs associated with the development and sale of land parcels and lots as part of residential subdivisions and undeveloped commercial land sales. 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, 2007:

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		25			100.0	%
400 S Philadelphia Ave.	Ocean City, MD		2004	Residential Condominiums		20 units		—			51.0	%
Sudley South (Buildings I & III)	Manassas, VA		1991	Commercial Office Condominiums		108,000 sq. ft.		50,075 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	%
*Rental Properties Development*
Waterfront	Washington, DC		1964	Commercial Office, Residential and Retail		2,166,000 sq ft	(4)	—	(5)		27.0	%
1150 Northbrook	Trevose, PA		2003	Commercial Office Building		108,000 sq. ft.		—	(5)		100.0	%
Unconsolidated Properties(3)
Guilford Properties	Baltimore, MD		2006		(6)		(6)	—			51.0	%
Holliday Development	Baltimore, MD		2006		(6)		(6)	—			51.0	%
Symphony House	Philadelphia, PA		2005	Residential Condominiums		163 units	(7)	—			22.3	%
Venice Lofts(8)	Philadelphia, PA		2005	Residential Apartments		128 units		2			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, 2007.

(3) 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 accounting principles generally accepted in the United States of America (“GAAP”).

(4) Represents the anticipated size of the Waterfront Complex.

(5) Upon completion, the space will be leased to tenants.

(6) The type of development and size of the project has yet to be determined.

(7) Project also includes a theatre containing 35,000 square feet of space, a parking garage and retail space.

(8) In April 2007, the partners decided to convert this project into a residential apartment community and repurchased the two units sold in 2006.

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, 2007:

Consolidated Properties(1)	Location	Date of Acquisition/ Opening		Number of Buildings		Square Feet	Occupancy at March 31, 2007			B&R Ownership
						(in 000’s)
Philadelphia, Pennsylvania metropolitan area:
Fort Washington Executive Center	Ft. Washington, PA		2004		3	393		100.0	%		97.5	%(2)
Mearns Park	Warminster, PA		2006		1	300		98.7	%		97.0	%(3)
Valley Square	Plymouth Meeting, PA		2006		5	294		86.7	%		97.0	%(3)
Blue Bell Plaza	Plymouth Meeting, PA		2006		2	155		100.0	%		100.0	%(3)
West Germantown Pike	Plymouth Meeting, PA		2004		2	115		100.0	%		98.0	%(2)
One Northbrook	Trevose, PA		2004		1	95		78.9	%		100.0	%(3)
510 Township Road	Plymouth Meeting, PA		2006		1	87		83.6	%		100.0	%(3)
Cross Keys	Doylestown, PA		2005		1	82		90.9	%		100.0	%(3)
102 Pickering Way	Exton, PA		2005		1	80		96.4	%		100.0	%(3)
900 Northbrook	Trevose, PA		2003		1	66		94.0	%		90.0	%(2)
Houston, Texas metropolitan area:
Commerce Park North	Houston, TX		2006		2	164		90.6	%		100.0	%
10333 Harwin Drive	Houston, TX		2006		1	148		57.2	%		100.0	%
9950 Westpark	Houston, TX		2006		1	111		66.0	%		100.0	%
14800 St. Mary’s Lane	Houston, TX		2007		1	85		95.4	%		100.0	%
17043-49 El Camino	Houston, TX		2006		4	82		74.6	%		100.0	%
1120 NASA Road	Houston, TX		2006		1	80		85.8	%		100.0	%
8700 Commerce Drive	Houston, TX		2006		1	77		73.8	%		100.0	%
1717 Portway Plaza	Houston, TX		2006		1	67		76.3	%		100.0	%
1110 NASA Road	Houston, TX		2006		1	60		89.3	%		100.0	%
950 Threadneedle	Houston, TX		2006		1	59		100.0	%		100.0	%
1100 NASA Road	Houston, TX		2006		1	57		95.0	%		100.0	%
14825 St. Mary’s Lane	Houston, TX		2007		1	45		94.2	%		100.0	%
Washington, DC metropolitan area:
Versar Center	Springfield, VA		2002		2	217		88.2	%		100.0	%
Sudley North (Buildings A, B & C)	Manassas, VA		1987		3	116		80.8	%		100.0	%
Wynwood	Chantilly, VA		2005		2	88		69.2	%		100.0	%
Sudley North (Building D)	Manassas, VA		1987		1	69		100.0	%		50.0	%
Fort Hill	Centreville, VA		2000		1	66		96.2	%		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		93.3	%		100.0	%(4)
Total consolidated properties					45	3,484		87.2	%
Unconsolidated Properties(1)
Devon Square	Devon, PA		2002		2	140		44.9	%		5.5	%
Total unconsolidated properties					2	140
Total consolidated and unconsolidated properties					47	3,624

NOTES:

(1) Consolidated properties represent properties whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated properties represent properties that are 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 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.

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, 2007:

Consolidated Properties(1)	Location	Date of Acquisition/ Opening		Apt. Units	Occupancy at March 31, 2007			B&R Ownership
The Fountains	Orlando, FL		2003	400		91.0	%		100.0	%(2)
Westbury Apartments at Lake Brandon	Lake Brandon, FL		2007	366		67.8	%(3)		100.0	%(2)
Victoria Place	Orlando, FL		2003	364		88.2	%		85.0	%
Huntington at Sundance	Lakeland, FL		2006	292		95.2	%		100.0	%(2)
Total consolidated properties				1,422		92.2	%
Unconsolidated Properties(1)
Arbor Crest(4)	Silver Spring, MD		2004	80		91.3	%		33.3	%
Total consolidated and unconsolidated properties				1,502

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) 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.

(3) Property is in its initial lease-up.

(4) Our interest in this property was sold in April 2007.

Hospitality Property

This segment includes revenue and income from our hospitality property, the Holiday Inn Express located in Camp Springs, Maryland. The Holiday Inn Express has 151 rooms and is managed by a third party manager. REVPAR for the period ended March 31, 2007 was $53.99 and the average room rate for the same period was $91.87. Ave

BRESLER & REINER INC 10-Q