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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] 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: 333-91532 (1933 ACT)
BEHRINGER HARVARD REIT I, INC.
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 68-0509956
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1323 NORTH STEMMONS FREEWAY, SUITE 210, DALLAS, TEXAS 75207
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (866) 655-1605
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 15, 2003, Behringer Harvard REIT I, Inc. had 20,000 shares of common
stock, $.0001 par value, outstanding.
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BEHRINGER HARVARD REIT I, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002...................2
Condensed Consolidated Statements of Operations for the three months ended March 31, 2003
and from inception (June 26, 2002) through March 31, 2003.......................................3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003
and from inception (June 26, 2002) through March 31, 2003.......................................4
Notes to Condensed Consolidated Financial Statements...............................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................12
ITEM 4. CONTROLS AND PROCEDURES...........................................................................12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................13
ITEM 5. OTHER INFORMATION.................................................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................13
SIGNATURE....................................................................................................14
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BEHRINGER HARVARD REIT I, INC.
(A DEVELOPMENT STAGE MARYLAND CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
Cash and cash equivalents $ 196,776 $ 196,290
Deferred charges and other assets 450 1,005
------------- -------------
TOTAL ASSETS $ 197,226 $ 197,295
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
TOTAL LIABILITIES $ -- $ --
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value per share;
50,000,000 shares authorized, none outstanding -- --
Common stock, $.0001 par value per share;
350,000,000 shares authorized, 20,000 outstanding 2 2
Additional paid-in capital 199,998 199,998
Deficit accumulated during development stage (2,774) (2,705)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 197,226 197,295
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 197,226 $ 197,295
============= =============
See Notes to Condensed Consolidated Financial Statements.
2
BEHRINGER HARVARD REIT I, INC.
(A DEVELOPMENT STAGE MARYLAND CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FROM INCEPTION
THREE MONTHS (JUNE 26, 2002)
ENDED THROUGH
MARCH 31, 2003 MARCH 31, 2003
-------------- ---------------
TOTAL REVENUES: $ - $ -
EXPENSES:
General and administrative 1,596 5,401
------------ ------------
TOTAL EXPENSES: 1,596 5,401
------------ ------------
OTHER INCOME:
Interest income 2 1,102
Other income 1,525 1,525
------------ ------------
TOTAL OTHER INCOME: 1,527 2,627
------------ ------------
NET LOSS: $ (69) $ (2,774)
============ ============
Basic and diluted weighted average shares outstanding 20,000 20,000
Basic and diluted loss per share $ (0.00) $ (0.14)
See Notes to Condensed Consolidated Financial Statements.
3
BEHRINGER HARVARD REIT I, INC.
(A DEVELOPMENT STAGE MARYLAND CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM INCEPTION
THREE MONTHS (JUNE 26, 2002)
ENDED THROUGH
MARCH 31, 2003 MARCH 31, 2003
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (69) $ (2,774)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Changes in deferred charges and other assets 555 (450)
-------------- --------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: 486 (3,224)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES: -- --
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 200,000
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES: -- 200,000
-------------- --------------
Net change in cash and cash equivalents 486 196,776
Cash and cash equivalents at beginning of period 196,290 --
-------------- --------------
Cash and cash equivalents at end of period $ 196,776 $ 196,776
============== ==============
See Notes to Condensed Consolidated Financial Statements.
4
BEHRINGER HARVARD REIT I, INC.
(A DEVELOPMENT STAGE MARYLAND CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Behringer Harvard REIT I, Inc. (the "Company") was organized in
Maryland on June 26, 2002 and intends to qualify as a real estate investment
trust ("REIT") and invest in commercial real estate properties, generally
institutional quality office buildings and other commercial properties, and
lease each such property to one or more tenants. BHR Partners, LLC ("BHR
Partners") and Behringer Harvard Operating Partnership I, LP ("Behringer Harvard
OP I") are wholly owned subsidiaries of the Company, organized on June 27, 2002.
BHR Partners is the limited partner and owner of 99.9% of the limited
partnership interest of Behringer Harvard OP I. The Company is the general
partner and owner of the remaining 0.1% of the limited partnership interest of
Behringer Harvard OP I.
The Company's advisor is Behringer Advisors LP ("Behringer Advisors"),
a Texas limited partnership formed in 2002, which is responsible for managing
the Company's affairs on a day-to-day basis and for identifying and making
acquisitions and investments on its behalf.
As of March 31, 2003, 20,000 shares of the Company's common stock were
issued and outstanding and owned by Behringer Harvard Holdings, LLC, the
Company's parent company, and no shares of preferred stock were issued and
outstanding. The Company currently has no common stock equivalents, such as
stock options, outstanding.
The Company is in the development stage and has not begun real estate
operations.
2. PUBLIC OFFERING
On February 19, 2003, the Company's Registration Statement on Form
S-11, covering a public offering (the "Offering") of up to 80,000,000 shares of
common stock to be offered at a price of $10 per share was declared effective
under the Securities Act of 1933. The Registration Statement also covers up to
8,000,000 shares available pursuant to the Company's dividend reinvestment plan
and up to 3,520,000 shares issuable to broker-dealers pursuant to warrants
whereby participating broker-dealers will have the right to purchase one share
for every 25 shares they sell pursuant to the Offering.
The Company will not commence active operations until it receives and
accepts subscriptions for a minimum of 250,000 shares for gross offering
proceeds of $2,500,000. After the initial 250,000 shares are sold, subscription
proceeds will be held in escrow until investors are admitted as stockholders.
The Company intends to admit new stockholders at least monthly. At that time,
subscription proceeds may be released to the Company from escrow and applied to
the making of investments and the payment or reimbursement of the dealer manager
fee, selling commissions and other organization and offering expenses. Until
required for such purposes, net offering proceeds will be held in short-term,
liquid investments.
3. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements should be
read in conjunction with the Company's Registration Statement on Form S-11, as
amended, which was filed with the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
in the United States of America ("GAAP"), have been condensed or omitted in this
report on Form 10-Q pursuant to the rules and regulations of the SEC. In the
opinion of management, the disclosures contained in this report are adequate to
make the information presented not misleading.
5
The results for the interim period shown in this report are not necessarily
indicative of future financial results. The accompanying condensed consolidated
financial statements of the Company, as of March 31, 2003, have not been audited
by independent accountants. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements include all adjustments
(of a normal recurring nature) necessary to present fairly the consolidated
financial position of the Company as of March 31, 2003 and the consolidated
results of its operations and cash flows for the period then ended.
Amounts in previous periods have been reclassified to conform to
current period presentation.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
Below is a discussion of the accounting policies that the Company
considers to be critical in that they may require complex judgment in their
application or require estimates about matters that are inherently uncertain.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions, balances, and profits have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and highly liquid
investments purchased with original maturities of three months or less.
REAL ESTATE
As the Company commences its operations to acquire real estate,
management will continually monitor events and changes in circumstances
indicating that the carrying amounts of the real estate assets in which it
obtains an ownership interest, either directly or through investments in joint
ventures, may not be recoverable. When such events or changes in circumstances
are present, the Company assesses potential impairment by comparing estimated
future undiscounted operating cash flows expected to be generated from tenants
over the life of the asset and from its eventual disposition, to the carrying
value of the asset. In the event that the carrying amount exceeds the estimated
future undiscounted operating cash flows, the Company would recognize an
impairment loss to adjust the carrying amount of the asset to its fair market
value.
INCOME TAXES
The Company currently accounts for income taxes in accordance with
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
("SFAS 109"). Under the liability method of SFAS 109, deferred taxes are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect in the years
the differences are expected to reverse. Currently, the Company has a deferred
tax asset related to a loss carryforward of less than $1,000. This deferred tax
asset has been fully reserved for as the Company anticipates qualifying as a
REIT.
The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code, effective for the
Company's taxable year ending December 31, 2003. The Company believes that,
commencing with such taxable year, it will be organized and will operate in such
a manner as to qualify for taxation as a REIT under the Internal Revenue Code,
and it intends to continue to operate in such a manner, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified as a
REIT.
6
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income taxes on income that it distributes
currently to its stockholders.
REVENUE RECOGNITION
The Company will recognize rental income generated from all leases on
real estate assets in which it will have an ownership interest, either directly
or through investments in joint ventures, on a straight-line basis over the
terms of the respective leases.
OPERATING COST REIMBURSEMENTS
The Company will generally bill tenants for operating cost
reimbursements, either directly or through investments in joint ventures, on a
monthly basis at amounts estimated largely based on actual prior period activity
and the respective lease terms. Such billings will be generally adjusted on an
annual basis to reflect reimbursements owed to the landlord based on the actual
costs incurred during the period and the respective lease terms.
DEFERRED PROJECT COSTS
The Company's advisor will be paid an acquisition and advisory fee of
3% of the contract price of each investment. In addition, the Company's advisor
will fund all of the Company's investment acquisition expenses. The Company's
advisor will be reimbursed by the Company for such investment acquisition
expenses in an amount of up to 0.5% of the contract price of the Company's
investments (subject to certain overall limitations described in the Company's
Registration Statement on Form S-11). The Company's advisor will bear such
investment acquisition expenses to the extent that such expenses exceed 0.5% of
the contract price of the Company's investments. As the Company invests its
capital proceeds, deferred project costs will be applied to real estate assets,
either directly or through contributions to joint ventures, at an amount up to
3.5% of the contract price of each investment in respect of the acquisition and
advisory fee and acquisition expenses and depreciated over the useful lives of
the respective real estate assets in respect of such acquisition and advisory
fees and acquisition expenses.
DEFERRED OFFERING COSTS
The Company's advisor expects to continue to fund, on the Company's
behalf, all of the organization and offering costs and will be reimbursed for
such organization and offering costs only to the extent that such costs exceed
2.5% of cumulative capital raised by the Company in its current public offering.
Organization and offering costs include items such as legal and accounting fees,
marketing, promotional and printing costs, and specifically exclude sales costs
and underwriting commissions. The Company will be liable to repay the Company's
advisor, at an amount equal to the lesser of 2.5% of cumulative capital raised
or actual costs incurred from third parties less previous reimbursements paid to
the advisor. As capital is raised, the Company will reverse the deferred
offering costs accrual and recognize a charge to stockholders' equity upon
reimbursing the advisor.
CONCENTRATION OF CREDIT RISK
At March 31, 2003, the Company had cash on deposit in one financial
institution in excess of federally insured levels; however, the Company has not
experienced any losses in such account. The Company limits investments to
financial institutions with a high credit standing; therefore, the Company
believes it is not exposed to any significant credit risk on cash.
5. RELATED PARTY ARRANGEMENTS
Certain affiliates of the Company will receive fees and compensation in
connection with the Offering, and the acquisition, management and sale of the
assets of the Company. Behringer Securities LP ("Behringer Securities"), the
affiliated dealer-manager, will receive a commission of up to 7% of gross
offering proceeds before
7
reallowance of commissions earned by participating broker-dealers. In addition,
up to 2.5% of gross proceeds before reallowance to participating broker-dealers
will be paid to Behringer Securities as a dealer manager fee; provided that
Behringer Securities will receive 1% of the gross proceeds of purchases pursuant
to the Company's dividend reinvestment plan. Behringer Securities will reallow
all of its commission of 7% of gross offering proceeds to participating
broker-dealers and may reallow a portion of its dealer manager fee of up to 1.5%
of the gross offering proceeds to be paid to such participating broker-dealers
as marketing fees, including bona fide conference fees incurred, and due
diligence expense reimbursement.
Behringer Advisors, the affiliated advisor for the Company, or its
affiliates, may receive up to 2.5% of gross offering proceeds for reimbursement
of organization and offering expenses. All organization and offering expenses
(excluding selling commissions and the dealer manager fee) are being funded by
Behringer Advisors or its affiliates and may be reimbursed by the Company to the
extent of up to 2.5% of gross offering proceeds. As of March 31, 2003, Behringer
Advisors or its affiliates had paid $2,440,002 of organization and offering
expenses on behalf of the Company. Behringer Advisors or its affiliates also
will receive acquisition and advisory fees of up to 3% of the contract purchase
price of each asset for the acquisition, development or construction of real
property or, with respect to any mortgage loan, up to 3% of the funds advanced
for the purchase or making of a mortgage. Behringer Advisors or its affiliates
may also receive up to 0.5% of the contract purchase price of each asset or,
with respect to the making or purchase of a mortgage loan, up to 0.5% of the
funds advanced, for reimbursement of expenses related to the Company costs of
making investments.
The Company expects to pay HPT Management LP, its property manager,
fees for the management and leasing of the Company's properties. Such fees are
expected to equal 3% of gross revenues plus leasing commissions based upon the
customary leasing commission applicable to the geographic location of the
respective property.
The Company will pay Behringer Advisors an annual advisor asset
management fee of 0.5% of aggregate asset value. Any portion of the asset
management fee may be deferred and paid in a subsequent year.
Behringer Advisors or its affiliates also will be paid fees if the
advisor provides a substantial amount of services, as determined by the
Company's independent directors, in connection with the sale of one or more
properties. In such event, the Company will pay the advisor an amount not
exceeding the lesser of: (A) one-half of the brokerage commission paid, or (B)
3% of the sales price of each property sold, provided that such fee will be
subordinated to distributions to investors from sale proceeds of an amount
which, together with prior distributions to the investors, will equal (1) 100%
of their capital contributions plus (2) a 9% annual, cumulative, non-compounded
return on their capital contributions. Subordinated disposition fees that are
not payable at the date of sale, because investors have not yet received their
required minimum distributions, will be deferred and paid at such time as these
subordination conditions have been satisfied. In addition, after investors have
received a return on their net capital contributions and a 9% annual,
cumulative, non-compounded return, then Behringer Advisors is entitled to 15% of
remaining net sale proceeds. Subordinated participation in net sale proceeds
that are not payable at the date of sale, because investors have not yet
received their required minimum distribution, will be deferred and paid at such
times as the subordination conditions have been satisfied.
Upon listing of the Company's common stock on a national securities
exchange or included for quotation on the Nasdaq Stock Market, a listing fee
equal to 15% of the amount by which the market value of the Company's
outstanding stock plus distributions paid by the Company prior to listing,
exceeds the sum of the total amount of capital raised from investors and the
amount of cash flow necessary to generate a 9% annual, cumulative,
non-compounded return to investors will be paid to Behringer Advisors. Upon
termination of the Advisory Agreement with Behringer Advisors, a performance fee
of 15% of the amount by which the Company's appraised asset value at the time of
such termination exceeds the aggregate capital contributions contributed by
investors plus payment to investors of a 9% annual, cumulative, non-compounded
return on the capital contributed by investors will be paid to Behringer
Advisors as a performance fee. No performance fee will be paid if the Company
has already paid or become obligated to pay Behringer Advisors a listing fee.
8
The Company will reimburse Behringer Advisors for all expenses it pays
or incurs in connection with the services it provides to the Company, subject to
the limitation that the Company will not reimburse for any amount by which the
advisor's operating expenses (including the asset management fee) at the end of
the four preceding fiscal quarters exceeds the greater of: (i) 2% of the
Company's average invested assets, or (ii) 25% of the Company's net income other
than any additions to reserves for depreciation, bad debts or other similar
non-cash reserves and any gain from the sale of the Company's assets for that
period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the accompanying financial statements of the Company and the notes thereto:
FORWARD-LOOKING STATEMENTS
This section contains forward-looking statements, including discussion
and analysis of the Company's financial condition, anticipated capital
expenditures required to complete projects, amounts of anticipated cash
distributions to the Company's stockholders in the future and other matters.
These forward-looking statements are not historical facts but are the intent,
belief or current expectations of the Company's business and industry. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates" and variations of these words and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
the future performance and are subject to risks, uncertainties and other
factors, some of which are beyond the Company's control, are difficult to
predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may
ultimately prove to be incorrect or false. You are cautioned to not place undue
reliance on forward-looking statements, which reflect the Company's management's
view only as of the date of this Form 10-Q. The Company undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results.
Factors that could cause actual results to differ materially from any
forward-looking statements made in this Form 10-Q include changes in general
economic conditions, changes in real estate conditions, construction costs which
may exceed estimates, construction delays, increases in interest rates, lease-up
risks, inability to obtain new tenants upon the expiration of existing leases,
and the potential need to fund tenant improvements or other capital expenditures
out of operating cash flow. The forward-looking statements should be read in
light of these factors and the factors identified in the "Risk Factors" section
of the Company's Registration Statement on Form S-11 filed with the Securities
and Exchange Commission.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
Below is a discussion of the accounting policies that the Company
considers to be critical in that they may require complex judgment in their
application or require estimates about matters that are inherently uncertain.
REAL ESTATE
As the Company commences its operations to acquire real estate,
management will continually monitor events and changes in circumstances
indicating that the carrying amounts of the real estate assets in which it
obtains an ownership interest, either directly or through investments in joint
ventures, may not be recoverable. When such events or changes in circumstances
are present, the Company assesses potential impairment by comparing estimated
future undiscounted operating cash flows expected to be generated from tenants
over the life of the asset
9
and from its eventual disposition, to the carrying value of the asset. In the
event that the carrying amount exceeds the estimated future undiscounted
operating cash flows, the Company would recognize an impairment loss to adjust
the carrying amount of the asset to its fair market value.
INCOME TAXES
The Company currently accounts for income taxes in accordance with
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
("SFAS 109"). Under the liability method of SFAS 109, deferred taxes are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect in the years
the differences are expected to reverse. Currently, the Company has a deferred
tax asset related to a loss carryforward of less than $1,000. This deferred tax
asset has been fully reserved for as the Company anticipates qualifying as a
REIT.
The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code, effective for the
Company's taxable year ending December 31, 2003. The Company believes that,
commencing with such taxable year, it will be organized and will operate in such
a manner as to qualify for taxation as a REIT under the Internal Revenue Code,
and it intends to continue to operate in such a manner, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified as a
REIT.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income taxes on income that it distributes
currently to its stockholders.
REVENUE RECOGNITION
The Company will recognize rental income generated from all leases on
real estate assets in which it will have an ownership interest, either directly
or through investments in joint ventures, on a straight-line basis over the
terms of the respective leases.
OPERATING COST REIMBURSEMENTS
The Company will generally bill tenants for operating cost
reimbursements, either directly or through investments in joint ventures, on a
monthly basis at amounts estimated largely based on actual prior period activity
and the respective lease terms. Such billings will be generally adjusted on an
annual basis to reflect reimbursements owed to the landlord based on the actual
costs incurred during the period and the respective lease terms.
DEFERRED PROJECT COSTS
The Company's advisor will be paid an acquisition and advisory fee of
3% of the contract price of each investment. In addition, the Company's advisor
will fund all of the Company's investment acquisition expenses. The Company's
advisor will be reimbursed by the Company for such investment acquisition
expenses in an amount of up to 0.5% of the contract price of the Company's
investments (subject to certain overall limitations described in the Company's
Registration Statement on Form S-11). The Company's advisor will bear such
investment acquisition expenses to the extent that such expenses exceed 0.5% of
the contract price of the Company's investments. As the Company invests its
capital proceeds, deferred project costs will be applied to real estate assets,
either directly or through contributions to joint ventures, at an amount up to
3.5% of the contract price of each investment in respect of the acquisition and
advisory fee and acquisition expenses and depreciated over the useful lives of
the respective real estate assets in respect of such acquisition and advisory
fees and acquisition expenses.
10
DEFERRED OFFERING COSTS
The Company's advisor expects to continue to fund, on the Company's
behalf, all of the organization and offering costs and will be reimbursed for
such organization and offering costs only to the extent that such costs exceed
2.5% of cumulative capital raised by the Company in its current public offering.
Organization and offering costs include items such as legal and accounting fees,
marketing, promotional and printing costs, and specifically exclude sales costs
and underwriting commissions. The Company will be liable to repay the Company's
advisor, at an amount equal to the lesser of 2.5% of cumulative capital raised
or actual costs incurred from third parties less previous reimbursements paid to
the advisor. As capital is raised, the Company will reverse the deferred
offering costs accrual and recognize a charge to stockholders' equity upon
reimbursing the advisor.
LIQUIDITY AND CAPITAL RESOURCES
The amount of dividends to be distributed to the Company's stockholders
will be determined by its board of directors and is dependent on a number of
factors, including funds available for payment of dividends, financial
condition, capital expenditure requirements and annual distribution requirements
needed to maintain the Company status as a REIT under the Internal Revenue Code.
Operating cash flows are expected to increase as additional properties are added
to the Company's investment portfolio.
The Company principal demands for funds will be for property
acquisitions, either directly or through investment interests, for mortgage loan
investments, for the payment of operating expenses and dividends, and for the
payment of interest on the Company's outstanding indebtedness and other
investments. Generally, cash needs for items other than property acquisitions
and mortgage loan investments will be met from operations, and cash needs for
property acquisitions will be met from public offerings of the Company's shares.
However, there may be a delay between the sale of the Company's shares and its
purchase of properties and mortgage loan investments, which could result in a
delay in the benefits to its stockholders, if any, of returns generated from the
Company's operations. The Company's advisor evaluates potential additional
property acquisitions and mortgage loan investments and engages in negotiations
with sellers and borrowers on the Company's behalf. Investors should be aware
that after a purchase contract is executed that contains specific terms, the
property will not be purchased until the successful completion of due diligence
and negotiation of final binding agreements. During this period, the Company may
decide to temporarily invest any unused proceeds from the Offering in certain
investments that could yield lower returns than the properties. These lower
returns may affect the Company's ability to make distributions.
Potential future sources of capital include proceeds from secured or
unsecured financings from banks or other lenders, proceeds from the sale of
properties and undistributed funds from operations. If necessary, the Company
may use financings or other sources of capital in the event of unforeseen
significant capital expenditures.
RESULTS OF OPERATIONS
As of the date of this Form 10-Q, no significant operations have
commenced because the Company is in its development stage. No operations will
commence until the Company has sold at least 250,000 shares of its common stock
with gross proceeds of $2,500,000 pursuant to its Registration Statement filed
on Form S-11 with the Securities and Exchange Commission ("Form S-11"). The
Company's management is not aware of any material trends or uncertainties, other
that national economic conditions affecting real estate generally, that may
reasonably be expected to have a material impact, favorable or unfavorable, on
revenues or income from the acquisition and operations of real properties and
mortgage loans, other than those referred to in this Form 10-Q and the Company's
Form S-11.
INFLATION
The real estate market has not been affected significantly by inflation
in the past several years due to the relatively low inflation rate. However, the
Company intends to include provisions in the majority of its tenant leases that
would protect it from the impact of inflation. These provisions include
reimbursement billings for
11
common area maintenance charges, real estate tax and insurance reimbursements on
a per square foot basis, or in some cases, annual reimbursement of operating
expenses above a certain per square foot allowance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has limited exposure to financial market risks, including
changes in interest rates and other relevant market prices. The Company does not
have any foreign operations and is not exposed to foreign currency fluctuations.
Currently, the Company's cash balances at banks represent the majority
of the Company's assets and there are no liabilities. A 10% increase or decrease
in interest rates would have no material affect on the Company's financial
position and results of operations.
ITEM 4. CONTROLS AND PROCEDURES.
The Chief Executive Officer and Chief Financial Officer of the Company
have concluded, based on their evaluation as of a date within 90 days prior to
the date of the filing of this Report, that the Company's disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in the reports filed or submitted by it under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time period specified in the SEC's rules and forms, and
include controls and procedures designed to ensure that information required to
be disclosed by the Company in such reports is accumulated and communicated to
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of such evaluation.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On February 19, 2003, the Company's Registration Statement on Form S-11
(File No. 333-91532), covering a public offering (the "Offering") of up to
80,000,000 shares of common stock to be offered at a price of $10 per share was
declared effective under the Securities Act of 1933. The Registration Statement
also covers up to 8,000,000 shares available pursuant to the Company's dividend
reinvestment plan and up to 3,520,000 shares issuable to broker-dealers pursuant
to warrants whereby participating broker-dealers will have the right to purchase
one share for every 25 shares they sell pursuant to the Offering.
The Company will not commence active operations until it receives and
accepts subscriptions for a minimum of 250,000 shares for gross offering
proceeds of $2,500,000. Until such time, subscription proceeds will be held in
escrow and the Company may not confirm the sale of any shares nor apply
subscription proceeds to the payment or reimbursement of the dealer manager fee,
selling commissions and other organization and offering expenses. After
subscriptions are released from escrow and until invested by the Company, the
net offering proceeds therefrom will be held in short-term, liquid investments.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 3, 2003, prior to the offering of the Company's shares to
the public, its sole stockholder, pursuant to a written consent in lieu of an
annual meeting, approved the adoption of the Company's Fifth Articles of
Amendment and Restatement and the election of the following persons to serve on
the Company's board of directors, to hold office until the next annual meeting
of stockholders and until their successors are elected and qualified:
Robert M. Behringer
Douglas L. Courtney
Charles G. Dannis
Jon L. Dooley
Charles B. Nolen
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit 99.1 - Certificate of Chief Executive and Financial
Officers
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2003.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEHRINGER HARVARD REIT I, INC.
Dated: May 15, 2003 By: /s/ Gary S. Bresky
--------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer
14
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Robert M. Behringer, President, Chief Executive Officer and Chairman of the
Board of Directors of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Behringer
Harvard REIT I, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
fulfilling the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other facts that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated this 15th day of May, 2003.
/s/ Robert M. Behringer
----------------------------------------
Robert M. Behringer
President, Chief Executive Officer and
Chairman of the Board of Directors
15
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Gary S. Bresky, Chief Financial Officer and Treasurer of the registrant,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Behringer
Harvard REIT I, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
fulfilling the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other facts that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated this 15th day of May, 2003.
/s/ Gary S. Bresky
----------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer
16
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
99.1 Certificate of Chief Executive and Financial Officers