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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, 2004
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: 333-100125 (1933 ACT)
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY
FUND I LP
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 71-0897614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1323 NORTH STEMMONS FREEWAY, SUITE 212, DALLAS, TEXAS 75207
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (866) 655-1620
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
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BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
FORM 10-Q
QUARTER ENDED MARCH 31, 2004
PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003................................3
Consolidated Statements of Operations for the three months ended March 31, 2004 and March
31, 2003...........................................................................................4
Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and March
31, 2003...........................................................................................5
Notes to Consolidated Financial Statements............................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................17
ITEM 4. CONTROLS AND PROCEDURES..............................................................................17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................................................18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................18
ITEM 5. OTHER INFORMATION....................................................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................................................18
SIGNATURE.......................................................................................................20
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2004 2003
-------------- --------------
ASSETS
REAL ESTATE:
Land $ 2,913,451 $ -
Buildings, net 6,240,799 -
Real estate intangibles, net 1,590,009 -
-------------- --------------
TOTAL REAL ESTATE 10,744,259 -
Cash and cash equivalents 3,746,650 4,572,566
Restricted cash 1,295,537 4,314
Accounts receivable 7,079 -
Prepaid expenses and other assets 51,149 31,590
Deferred financing fees, net of accumulated
amortization of $12,380 37,140 -
-------------- --------------
TOTAL ASSETS $ 15,881,814 $ 4,608,470
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 1,603 $ 11,062
Payables to affiliates 13,256 50,760
Distributions payable 109,005 -
Accrued liabilities 225,682 59,825
Subscriptions for limited partnership units 1,289,706 4,000
Mortgage note payable 3,600,000 -
-------------- --------------
TOTAL LIABILITIES 5,239,252 125,647
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
Limited partners - 11,000,000 units authorized;
1,246,291 units and 522,219 units issued
and outstanding at March 31, 2004 and
December 31, 2003, respectively 10,642,079 4,482,335
General partners 483 488
-------------- --------------
TOTAL PARTNERS' CAPITAL 10,642,562 4,482,823
-------------- --------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 15,881,814 $ 4,608,470
============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
----------------- -----------------
REVENUE
Rental revenue $ 204,733 $ -
----------------- -----------------
TOTAL REVENUES 204,733 -
EXPENSES
Property operating expenses 71,830 -
Property repairs and maintenance 46,759 -
Real estate taxes 29,492 -
Property and asset management fees 14,688 -
General and administrative 49,256 -
Interest expense 48,033 -
Depreciation and amortization 70,878 -
----------------- -----------------
TOTAL EXPENSES 330,936 -
OTHER INCOME 14,247 -
----------------- -----------------
NET LOSS $ (111,956) $ -
================= =================
ALLOCATION OF NET LOSS:
Net loss allocated to general partners $ (5) $ -
================= =================
Net loss allocated to limited partners $ (111,951) $ -
================= =================
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 1,075,130 -
================= =================
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (0.10) $ -
================= =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (111,956) $ -
Adjustments to reconcile net loss to
net cash flows used in operating activities
Depreciation and amortization 96,512 -
Change in accounts receivable (7,079) -
Change in prepaid expenses and other assets 16,611 -
Change in accounts payable (9,459) -
Change in accrued liabilities (24,404) -
---------------- ----------------
CASH USED IN OPERATING ACTIVITIES (39,775) -
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate (10,673,125) -
Purchases of property and equipment, net (1,175) -
---------------- ----------------
CASH USED IN INVESTING ACTIVITIES (10,674,300) -
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage note 3,600,000 -
Financing costs (49,520) -
Limited partners' contributions 6,916,382 -
Offering costs (535,682) -
Change in limited partners' subscriptions 1,285,706 -
Change in restricted cash (1,291,223) -
Change in payables to affiliates (37,504) -
---------------- ----------------
CASH PROVIDED BY FINANCING ACTIVITIES 9,888,159 -
---------------- ----------------
Net change in cash and cash equivalents (825,916) -
Cash and cash equivalents at beginning of period 4,572,566 600
---------------- ----------------
Cash and cash equivalents at end of period $ 3,746,650 $ 600
================ ================
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 35,653 $ -
================ ================
NON-CASH FINANCING ACTIVITIES:
Distributions payable in limited partnership units
under distribution reinvestment plan $ 57,300 $ -
================ ================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Behringer Harvard Short-Term Opportunity Fund I LP (the "Partnership") is
a limited partnership formed in Texas on July 30, 2002. The general partners of
the Partnership are Behringer Harvard Advisors II LP ("Behringer Advisors II")
and Robert M. Behringer (the "General Partners"). The Partnership was funded
through capital contributions from its General Partners and initial limited
partner on September 20, 2002 (date of inception) and is currently offering its
limited partnership units pursuant to the public offering which commenced on
February 19, 2003 ("the Offering") and is described below. The Partnership
intends to use the proceeds from the Offering, after deducting offering
expenses, primarily to acquire income-producing properties.
An advisory board has been established to provide the General Partners
with advice and guidance with respect to (i) the identification of assets for
acquisition; (ii) general economic and market conditions, general business
principles, specific business principles relating to the Partnership's business
plan; (iii) inroads to establishing beneficial strategic partners, customers,
and suppliers; (iv) opportunities within and related to the industry; and (v)
other assistance as may be determined by the General Partners or their
representatives from time to time. The Partnership Agreement provides that it
will continue in existence until the earlier of December 31, 2017 or termination
of the Partnership by written consent of all the Partners.
The Partnership was in the development stage through February 10, 2004.
On February 11, 2004, the Partnership commenced operations with its acquisition
of a property in Dallas, Texas.
2. PUBLIC OFFERING
On February 19, 2003, the Partnership commenced the Offering of up to
10,000,000 units of limited partnership interest to be offered at a price of $10
per unit pursuant to a Registration Statement on Form S-11 filed under the
Securities Act of 1933. The Registration Statement also covers up to 1,000,000
units available pursuant to the Partnership's distribution reinvestment plan at
$10 per unit.
On September 16, 2003, the Partnership satisfied the minimum offering
requirement of $1,500,000 established for its Offering and accepted
subscriptions for 159,784 partnership units, from which gross proceeds of
$1,590,884 were distributed to the Partnership. In addition, special escrow
accounts were established for subscriptions from residents of New York, Nebraska
and Pennsylvania. The minimum offering requirement of $2,500,000 for the New
York escrow account was satisfied on October 16, 2003 and the Partnership
accepted subscriptions from the New York residents on that date. The minimum
offering requirement of $5,500,000 for Nebraska and Pennsylvania was satisfied
on January 2, 2004 and the Partnership accepted subscriptions from residents of
these two states on that date. All additional subscription proceeds are held in
escrow until investors are admitted as limited partners. The Partnership admits
new investors at least monthly. At that time, subscription proceeds are released
to the Partnership from escrow and utilized as consideration for investments and
the payment or reimbursement of dealer manager fees, selling commissions,
organization and offering expenses and operating expenses. Until required for
such purposes, net offering proceeds are held in short-term, liquid investments.
As of March 31, 2004, the Partnership had accepted subscriptions for
1,246,291 limited partnership units.
3. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2003, which was filed with the Securities and Exchange Commission
("SEC"). Certain
6
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.
The results for the interim periods shown in this report are not
necessarily indicative of future financial results. The accompanying
consolidated financial statements of the Partnership as of March 31, 2004 and
March 31, 2003 have not been audited by independent accountants. In the opinion
of management, the accompanying unaudited consolidated financial statements
include all adjustments (of a normal recurring nature) necessary to present
fairly the financial position of the Partnership as of March 31, 2004 and
December 31, 2003 and the results of its operations and cash flows for the
periods ended March 31, 2004 and 2003.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect (i) the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and (ii) the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries, Behringer Harvard Woodall Rodgers GP, LLC and
Behringer Harvard Woodall Rodgers LP. All intercompany transactions, balances
and profits have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Partnership considers investments in highly-liquid money market funds
with maturities of three months or less to be cash equivalents. The carrying
amount of cash and cash equivalents reported on the balance sheet approximates
fair value.
RESTRICTED CASH
Subscription proceeds are held in escrow until investors are admitted as
limited partners. The Partnership admits new limited partners at least monthly.
Upon acceptance of limited partners, limited partnership units are issued and
subscription proceeds are released to the Partnership from escrow.
INVESTMENT IMPAIRMENT
For real estate directly owned by the Partnership, management monitors
events and changes in circumstance indicating that the carrying amounts of the
real estate assets may not be recoverable. When such events or changes in
circumstances are present, the Partnership assesses potential impairment by
comparing estimated future undiscounted operating cash flows expected to be
generated over the life of the asset and from its eventual disposition, to the
carrying amount of the asset. In the event that the carrying amount exceeds the
estimated future undiscounted operating cash flows, the Partnership recognizes
an impairment loss to adjust the carrying amount of the asset to estimated fair
value.
PURCHASE PRICE ALLOCATIONS
Upon the acquisition of real estate properties, the Partnership allocates
the purchase price of those properties to the tangible assets acquired,
consisting of land and buildings, and identified intangible assets. Identified
intangible assets consist of the fair value of above-market and below-market
leases, in-place leases, in-place tenant improvements and tenant relationships.
7
The fair value of the tangible assets acquired, consisting of land and
buildings, is determined by valuing the property as if it were vacant, and the
"as-if-vacant" value is then allocated to land and buildings. Land values are
derived from appraisals and building values are calculated as replacement cost
less depreciation or management's estimates of the relative fair value of these
assets using discounted cash flow analyses or similar methods. The value of the
building is depreciated over the estimated useful life of 25 years using the
straight-line method.
The Partnership determines the value of above-market and below-market
in-place leases for acquired properties based on the present value (using an
interest rate which reflects the risks associated with the leases acquired) of
the difference between (i) the contractual amounts to be paid pursuant to the
in-place leases and (ii) management's estimate of current market lease rates for
the corresponding in-place leases, measured over a period equal to the remaining
non-cancelable terms of the respective leases. The fair value of above-market
and below-market leases are recorded by the Partnership as intangible assets and
amortized as an adjustment to rental income over the remaining non-cancelable
terms of the respective leases.
The total value of identified real estate intangible assets acquired are
further allocated to in-place lease values, in-place tenant improvements and
tenant relationships based on management's evaluation of the specific
characteristics of each tenant's lease and the Partnership's overall
relationship with that respective tenant. The aggregate value for tenant
improvements and leasing commissions are based on estimates of these costs
incurred at inception of the acquired leases, amortized through the date of
acquisition. The aggregate value of in-place leases acquired and tenant
relationships is determined by applying a fair value model. The estimates of
fair value of in-place leases includes an estimate of carrying costs during the
expected lease-up periods for the respective spaces considering current market
conditions, and the costs to execute similar leases. In estimating the carrying
costs that would have otherwise been incurred had the leases not been in place,
management included such items as real estate taxes, insurance and other
operating expenses as well as lost rental revenue during the expected lease-up
period based on current market conditions. The estimates of fair value of tenant
relationships also includes costs to execute similar leases including leasing
commissions, legal and tenant improvements as well as an estimate of the
likelihood of renewal as determined by management on a tenant-by-tenant basis.
The Partnership amortizes the value of in-place leases and in-place
tenant improvements to expense over the initial term of the respective leases.
The value of tenant relationship intangibles are amortized to expense over the
initial term and any anticipated renewal periods, but in no event does the
amortization period for intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the unamortized portion of
the in-place lease value and tenant relationship intangibles would be charged to
expense.
REVENUE RECOGNITION
The Partnership recognizes rental income generated from all leases on
real estate assets in which it has an ownership interest, either directly or
through investments in joint ventures, on a straight-line basis over the terms
of the respective leases. Some leases contain provisions for the tenant's
payment of additional rent after certain tenant sales revenue thresholds are
met. Such contingent rent is recognized as revenue after the related revenue
threshold is met.
DEFERRED OFFERING COSTS
The General Partners fund all of the organization and offering costs on
the Partnership's behalf and is reimbursed for such organization and offering
costs up to 2.5% of the cumulative capital raised by the Partnership 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 selling commissions and dealer manager fees. The
Partnership is required to repay the General Partners, at an amount equal to the
lesser of 2.5% of cumulative capital raised or actual costs incurred by third
parties less previous reimbursements paid to the General Partners. All offering
costs are recorded as an offset to partners' capital, and all organization costs
are recorded as an expense at the time the Partnership becomes liable for the
payment of these amounts.
8
CASH FLOW DISTRIBUTIONS
Net cash distributions, as defined in the Partnership Agreement, are to
be distributed to the partners as follows:
a) To the limited partners, on a per unit basis, until each of such
limited partners has received distributions of net cash from
operations with respect to such fiscal year, or applicable portion
thereof, equal to ten percent (10.0%) per annum of their net
capital contribution;
b) Then to the limited partners, on a per unit basis, until each
limited partner has received or has been deemed to have received
one hundred percent (100.0%) of their capital contribution; and
c) Thereafter, eighty-five percent (85.0%) to the limited partners,
on a per unit basis, and fifteen percent (15.0%) to the General
Partners.
Other limitations of allocated or received distributions are defined
within the Partnership Agreement.
INCOME (LOSS) ALLOCATIONS
Net income for each applicable accounting period is allocated to the
Partners as follows:
a) To the Partners to the extent of and in proportion to allocations
of net loss as noted below; and
b) Then, so as to cause the capital accounts of all Partners to
permit liquidating distributions to be made in the same manner and
priority as set forth in the Partnership Agreement with respect to
net cash distributions.
Net loss for each applicable accounting period is allocated to the
Partners as follows:
a) To the Partners having positive balances in their capital accounts
(in proportion to the aggregate positive balances in all capital
accounts) in an amount not to exceed such positive balance as of
the last day of the fiscal year; and
b) Then, eighty-five percent (85.0%) to the limited partners and
fifteen percent (15.0%) to the General Partners.
The Partnership distributes to its General Partners a share of net cash
from operations, a 15% distribution after the limited partners have received
distributions equal to their net capital contributions plus a 10.0% annual
cumulative (noncompounded) return on their net capital contributions; provided,
however, that in no event will the General Partners receive more than 10.0% of
cash available for distribution.
INCOME TAXES
The Partnership is not a taxpaying entity and, accordingly, records no
income taxes. The Partners are individually responsible for reporting their
share of the Partnership's taxable income or loss on their income tax returns.
Certain transactions of the Partnership may be subject to accounting
methods for income tax purposes which differ from the accounting methods used in
preparing these financial statements in accordance with generally accepted
accounting principles. Accordingly, the net income or loss of the Partnership
and the resulting balances in the Partners' capital accounts reported for income
tax purposes may differ from the balances reported for those same items in the
accompanying financial statements.
CONCENTRATION OF CREDIT RISK
At March 31, 2004, the Partnership had cash and cash equivalents and
restricted cash on deposit in five financial institutions in excess of federally
insured levels. The Partnership regularly monitors the financial stability of
these financial institutions and believes that it is not exposed to any
significant credit risk.
9
5. REAL ESTATE
ACQUISITION
On February 11, 2004, the Partnership acquired a five-story office
building in Dallas, Texas containing approximately 74,090 of rentable square
feet and a bank drive-thru, both located on approximately 1.7 acres of land
subject to a ground lease that expires in 2097 (collectively, the "Improved
Property"). The Partnership also acquired approximately 1.6 acres of undeveloped
land adjoining the Improved Property (the "Development Property," and together
with the Improved Property, the "Woodall Rodgers Property"). The purchase price
of the Woodall Rodgers Property was $10,300,000 plus closing costs of
approximately $527,216. In connection with the purchase, the Partnership also
acquired assets of $36,170 and assumed liabilities of $190,261. The Partnership
used an interim financing mortgage note of $3,600,000 (the "Loan") with
Benchmark Bank to pay a portion of the purchase price and paid the remaining
purchase price from proceeds of the Offering. The Woodall Rodgers Property is
held by Behringer Harvard Woodall Rodgers LP, in which Behringer Harvard Woodall
Rodgers GP, LLC, a wholly owned subsidiary of the Partnership, is the general
partner, the Partnership is the Class A Limited Partner and PRG Realty Partners,
Ltd, a third party, is the Class B Limited Partner. The purchase price has been
allocated to the assets acquired and liabilities assumed as follows:
DESCRIPTION ALLOCATION ESTIMATED USEFUL LIFE
----------- ---------- ---------------------
Land $ 2,913,451 -
Building 6,270,980 25 years
Real estate intangibles 1,642,785 4.8 years
Prepaid expenses 36,170 -
Prepaid rent, taxes & deposits (190,261) -
-----------------
Purchase of Hopkins property $ 10,673,125
=================
GROUND LEASE
The ground lease assumed for the land on which the Improved Property
portion of the Woodall Rodgers Property is situated, has an initial 99 - year
term that expires September 30, 2097. The monthly lease payment is $25,458
through June 30, 2004. Rent escalations on June 30, 2004, and every eight years
thereafter, are based on one of two alternative procedures. The first
alternative is based on an appraisal of the market value of the lease premises
and the second alternative is based on a cost of living adjustment, with maximum
monthly rents for each escalation stipulated in the lease. Under the terms of
the lease, Behringer Harvard Woodall Rodgers LP is responsible for taxes,
utilities and insurance for the leased property. The minimum payments required
over the next five years and thereafter are as follows:
Period
------------------------------ Minimum
From Through Payments
------------------------------ -----------
4/1/2004 3/31/2005 $ 339,885
4/1/2005 3/31/2006 351,348
4/1/2006 3/31/2007 351,348
4/1/2007 3/31/2008 351,348
4/1/2008 3/31/2009 351,348
Thereafter 31,094,298
-----------
Total Contractual Obligations $32,839,575
===========
10
PRO FORMA RESULTS OF OPERATIONS
The following summary presents the results of operations for the three
months ended March 31, 2004 and 2003, on an unaudited pro forma basis, as if the
acquisition of the Woodall Rodgers Property had occurred as of January 1 of the
respective years. The pro forma results are for illustrative purposes only and
do not purport to be indicative of the actual results which would have occurred
had the transaction been consummated as of January 1, of the respective year,
nor are they indicative of results of operations which may occur in the future
Three months
ended March 31,
------------------------------
2004 2003
-------------- ------------
Total revenues $ 409,466 $ 357,389
Total expenses (612,616) (513,564)
Other income 14,247 -
-------------- ------------
Net income $ (188,903) $ (156,175)
============== ============
6. MORTGAGE PAYABLE
The Loan has an interest rate of 7.0% per annum with a maturity date of
August 9, 2004. The Loan requires monthly interest payments with any outstanding
principal balance due and payable on August 6, 2004. The Partnership has the
right to prepay, at any time and without premium or penalty, the entire unpaid
principal balance of the Loan or any portion thereof. The Partnership has
received a letter of interest from a financial institution for a proposed loan,
secured by the Woodall Rodgers Property, for a maximum of $7,000,000 with an
interest rate of prime and a term of 36 months. As of March 31, 2004, the
Partnership was in compliance with all covenants under the Loan.
7. PARTNERS' CAPITAL
As a result of the Partnership's first real estate acquisition,
management announced on March 23, 2004 its intent to initiate monthly
distributions to the limited partnership unit holders at an annual rate of 3%.
The Partnership's first distribution was paid on May 3, 2004 to unit holders of
record through March 31, 2004. This first distribution totaling $109,005 was
accrued as of March 31, 2004 and consisted of $51,705 to be paid in cash and
$57,300 to be paid in limited partnership units in accordance with the
Partnership's distribution reinvestment plan. The Partnership records all
distributions when announced, except that the limited partnership units issued
through the DRIP plan are recorded when the units are actually issued.
8. RELATED PARTY ARRANGEMENTS
The General Partners and certain of their affiliates receive fees and
compensation in connection with the Offering, and will receive fees and
compensation in connection with the acquisition, management and sale of the
assets of the Partnership.
Behringer Securities LP ("Behringer Securities"), the Partnership's
affiliated dealer manager, receives commissions of up to 7.0% of gross offering
proceeds before reallowance of commissions earned by participating
broker-dealers. In addition, up to 2.5% of gross proceeds before reallowance to
participating broker-dealers are paid to Behringer Securities as a dealer
manager fee; except that this dealer manager fee is reduced to 1.0% of the gross
proceeds of purchases made pursuant to the Partnership's distribution
reinvestment plan. Behringer Securities reallows all of its commissions of up to
7.0% of gross offering proceeds to participating broker-dealers and may
11
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. During the three months ended March 31, 2004, Behringer
Securities' commissions and dealer manager fees totaled $203,599 and $159,734,
respectively and were capitalized as offering costs in "Partners' capital" on
the Partnership's balance sheet.
Behringer Advisors II, a general partner of and advisor to the
Partnership, or Behringer Advisors II's affiliates receive up to 2.5% of gross
offering proceeds for reimbursement of organization and offering expenses. As of
March 31, 2004, $1,100,118 of organization and offering expenses had been
incurred by Behringer Advisors II on behalf of the Partnership, of which
$302,615 had been reimbursed by the Partnership and the balance of $797,503 will
be reimbursed at a rate of 2.5% of future equity raised. Of the $302,615 of
organization and offering costs reimbursed by the Partnership as of March 31,
2004, $300,492 had been capitalized as offering costs in "Partners' capital" on
the Partnership's balance sheet and $2,123 had been expensed as organizational
costs. Behringer Advisors II or its affiliates determine the amount of
organization and offering expenses owed, based on specific invoice
identification as well as an allocation of costs to the Partnership, Behringer
Harvard Mid-Term Value Enhancement Fund I LP and Behringer Harvard REIT I, Inc.,
affiliates of the Partnership, based on anticipated respective equity offering
sizes of those entities. Behringer Advisors II or its affiliates receive
acquisition and advisory fees of up to 3.0% of the contract purchase price of
each asset for the acquisition, development or construction of real property.
Behringer Advisors II or its affiliates also receive up to 0.5% of the contract
purchase price of assets acquired by the Partnership for reimbursement of
expenses related to making investments. During the three months ended March 31,
2004, Behringer Advisors II acquisition and advisory fees totaled $309,000 and
$51,500 reimbursement for related expenses.
For the management and leasing of its properties, the Partnership pays
HPT Management, its property manager, property management and leasing fees equal
to the lesser of: (A) the amounts charged by unaffiliated persons rendering
comparable services in the same geographic area or (B)(1) for commercial
properties that are not leased on a long-term net lease basis, 4.5% of gross
revenues, plus separate leasing fees of up to 1.5% of gross revenues based upon
the customary leasing fees applicable to the geographic location of the
properties, and (2) in the case of commercial properties that are leased on a
long-term (10 or more years) net lease basis, 1.0% of gross revenues plus a
one-time initial leasing fee of 3.0% of gross revenues payable over the first
five years of the lease term. The Partnership reimburses the costs and expenses
incurred by HPT Management on the Partnership's behalf, including the wages and
salaries and other employee-related expenses of all on-site employees of HPT
Management who are engaged in the operation, management, maintenance and leasing
or access control of Partnership properties, including taxes, insurance and
benefits relating to such employees, and legal, travel and other out-of-pocket
expenses that are directly related to the management of specific properties.
During the three months ended March 31, 2004 the Partnership incurred $7,921 in
property management fees payable to HPT Management.
The Partnership pays Behringer Advisors II or its affiliates an annual
advisor asset management fee of 0.5% of aggregate asset value of the
Partnership's assets. Any portion of the asset management fee may be deferred
and paid in a subsequent year. During the three months ended March 31, 2004, the
Partnership accrued $6,767 in asset management fees to Behringer Advisors II.
In connection with the sale of the properties of the Partnership, the
Partnership will pay to the General Partners or their affiliates a real estate
commission in an amount not exceeding the lesser of: (A) 50.0% of the
reasonable, customary and competitive real estate brokerage commissions
customarily paid for the sale of a comparable property in light of the size,
type and location of the property, or (B) 3.0% of the gross sales price of each
property, subordinated to distributions to Limited Partners from the sale
proceeds of an amount which, together with prior distributions to the Limited
Partners, will equal (1) 100.0% of their capital contributions plus (2) a 10.0%
annual cumulative (noncompounded) return of their net capital contributions.
Subordinated real estate commissions that are not payable at the date of sale,
because Limited Partners have not yet received their
12
required minimum distributions, will be deferred and paid at such time as these
subordination conditions have been satisfied. In addition, after the limited
partners have received a return of their net capital contributions and a 10.0%
annual cumulative (noncompounded) return on their net capital contributions,
then the General Partners are entitled to receive 15.0% of the remaining
residual proceeds available for distribution (a subordinated participation in
net sale proceeds and distributions); provided, however, that in no event will
the General Partners receive in the aggregate more than 15.0% of sale proceeds
remaining after the limited partners have received a return of their net capital
contributions.
The Partnership is dependent on Behringer Advisors II, Behringer
Securities and HPT Management for certain services that are essential to the
Partnership, including the sale of the Partnership's shares of limited
partnership units, asset acquisition and disposition decisions, property
management and leasing services and other general administrative
responsibilities. In the event that these companies were unable to provide the
respective services to the Partnership, the Partnership would be required to
obtain such services from other sources.
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 Partnership and the notes thereto:
FORWARD-LOOKING STATEMENTS
This section contains forward-looking statements, including discussion
and analysis of the Partnership's financial condition, anticipated capital
expenditures required to complete projects, amounts of anticipated cash
distributions to the Partnership's limited partners in the future and other
matters. These forward-looking statements are not historical facts but are the
intent, belief or current expectations of the Partnership'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
Partnership'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 Partnership's management's view
only as of the date of this Form 10-Q. The Partnership 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 Partnership's Registration Statement on Form S-11 filed with the
Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results
of operations are based upon the Partnership's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the Partnership's management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On a
regular basis, the Partnership evaluates these estimates, including investment
impairment. These estimates are based on management's historical industry
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates.
13
INVESTMENT IMPAIRMENTS
For real estate directly owned by the Partnership, management monitors
events and changes in circumstance indicating that the carrying amounts of the
real estate assets may not be recoverable. When such events or changes in
circumstances are present, the Partnership assesses potential impairment by
comparing estimated future undiscounted operating cash flows expected to be
generated over the life of the asset and from its eventual disposition, to the
carrying amount of the asset. In the event that the carrying amount exceeds the
estimated future undiscounted operating cash flows, the Partnership recognizes
an impairment loss to adjust the carrying amount of the asset to estimated fair
value.
PURCHASE PRICE ALLOCATION
Upon the acquisition of real estate properties, the Partnership allocates
the purchase price of those properties to the tangible assets acquired,
consisting of land and buildings, and identified intangible assets. Identified
intangible assets consist of the fair value of above-market and below-market
leases, in-place leases, in-place tenant improvements and tenant relationships.
The fair value of the tangible assets acquired, consisting of land and
buildings, is determined by valuing the property as if it were vacant, and the
"as-if-vacant" value is then allocated to land and buildings. Land values are
derived from appraisals and building values are calculated as replacement cost
less depreciation or management's estimates of the relative fair value of these
assets using discounted cash flow analyses or similar methods. The value of the
building is depreciated over the estimated useful life of 25 years using the
straight-line method.
The Partnership determines the value of above-market and below-market
in-place leases for acquired properties based on the present value (using an
interest rate which reflects the risks associated with the leases acquired) of
the difference between (i) the contractual amounts to be paid pursuant to the
in-place leases and (ii) management's estimate of current market lease rates for
the corresponding in-place leases, measured over a period equal to the remaining
non-cancelable terms of the respective leases. The fair value of above-market
and below-market leases are recorded by the Partnership as intangible assets and
amortized as an adjustment to rental income over the remaining non-cancelable
terms of the respective leases.
The total value of identified real estate intangible assets acquired are
further allocated to in-place lease values, in-place tenant improvements and
tenant relationships based on management's evaluation of the specific
characteristics of each tenant's lease and the Partnership's overall
relationship with that respective tenant. The aggregate value for tenant
improvements and leasing commissions are based on estimates of these costs
incurred at inception of the acquired leases, amortized through the date of
acquisition. The aggregate value of in-place leases acquired and tenant
relationships is determined by applying a fair value model. The estimates of
fair value of in-place leases includes an estimate of carrying costs during the
expected lease-up periods for the respective spaces considering current market
conditions, and the costs to execute similar leases. In estimating the carrying
costs that would have otherwise been incurred had the leases not been in place,
management included such items as real estate taxes, insurance and other
operating expenses as well as lost rental revenue during the expected lease-up
period based on current market conditions. The estimates of fair value of tenant
relationships also include costs to execute similar leases including leasing
commissions, legal and tenant improvements as wells as an estimate of the
likelihood of renewal as determined by management on a tenant-by-tenant basis.
The Partnership amortizes the value of in-place leases and in-place
tenant improvements to expense over the initial term of the respective leases.
The value of tenant relationship intangibles are amortized to expense over the
initial term and any anticipated renewal periods, but in no event does the
amortization period for intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the unamortized portion of
the in-place lease value and tenant relationship intangibles would be charged to
expense.
14
RESULTS OF OPERATIONS
The Partnership commenced active operations when it made its first real
estate acquisition on February 11, 2004 with the purchase of the Woodall Rodgers
Property. As a result, the Partnership's results of operations for the three
months ended March 31, 2004 are not comparable to the results of operations for
the three months ended March 31, 2003.
Rental revenue for the three months ended March 31, 2004 was $204,733 and
was comprised of revenue, including adjustments for straight line rent and
amortization of above and below market leases, from the Woodall Rodgers Property
from date of acquisition, February 11, 2004, through March 31, 2004. During the
three months ended March 31, 2003, the Partnership did not own any real estate.
Property operating expenses for the three months ended March 31, 2004
were $71,830 and were comprised of operating expenses from the Woodall Rodgers
Property from date of acquisition, February 11, 2004, through March 31, 2004.
During the three months ended March 31, 2003, the Partnership did not own any
real estate.
Property repairs and maintenance expense for the three months ended March
31, 2004 was $46,759 and was comprised of repairs and maintenance expense from
the Woodall Rodgers Property from date of acquisition, February 11, 2004,
through March 31, 2004. During the three months ended March 31, 2003, the
Partnership did not own any real estate.
Real estate taxes for the three months ended March 31, 2004 were $29,492
and were comprised of real estate taxes from the Woodall Rodgers Property from
date of acquisition, February 11, 2004, through March 31, 2004. During the three
months ended March 31, 2003, the Partnership did not own any real estate.
Property and asset management fees for the three months ended March 31,
2004 were $14,688 and were comprised of property management and asset management
fees from the Woodall Rodgers Property from date of acquisition, February 11,
2004, through March 31, 2004. During the three months ended March 31, 2003, the
Partnership did not own any real estate.
General and administrative expenses for the three months ended March 31,
2004 were $49,256 and were comprised of general and administrative expenses from
the Woodall Rodgers Property from date of acquisition, February 11, 2004,
through March 31, 2004 and corporate general and administrative expenses,
including directors' and officers' insurance premiums, organizational expenses,
transfer agent fees, auditing fees, and other administrative expenses. During
the three months ended March 31, 2003, the Partnership did not own any real
estate and there was a lack of corporate activity.
Interest expense for the three months ended March 31, 2004 was $48,033
and was comprised of interest expense and amortization of deferred financing
fees associated with the Partnership's debt obtained in connection with the
acquisition of the Woodall Rodgers Property from the date of acquisition,
February 11, 2004, through March 31, 2004. During the three months ended March
31, 2003, the Partnership did not own any real estate and there was no
outstanding debt.
Depreciation and amortization expense for the three months ended March
31, 2004 was $70,878 and was comprised of depreciation and amortization of the
Woodall Rodgers Property from date of acquisition, February 11, 2004 through
March 31, 2004. During the three months ended March 31, 2003, the Partnership
did not own any real estate.
Other income for the three months ended March 31, 2004 was $14,247 and
was comprised primarily of interest income associated with funds on deposit with
banks. As the Partnership admits new unitholders, subscription proceeds are
released to the Partnership from escrow and may be utilized as consideration for
investments and the payment or reimbursement of dealer manager fees, selling
commissions, organization and offering expenses and operating expenses. Until
required for such purposes, net offering proceeds are held in short-term, liquid
investments and earn interest income. During the three months ended March 31,
2003, the Partnership had lower cash balances on deposit with banks.
15
CASH FLOW ANALYSIS
The Partnership commenced active operations when it made its first real
estate acquisition on February 11, 2004 with the purchase of the Woodall Rodgers
Property. As a result, the Partnership's cash flows for the three months ended
March 31, 2004 are not comparable to the cash flows for the three months ended
March 31, 2003.
Cash flows from operating activities for the three months ended March 31,
2004 were $(39,775) and were primarily comprised of the net loss of $(111,956)
and changes in working capital accounts of $(24,331) and depreciation and
amortization of $96,512. There were no cash flows from operating activities for
the three months ended March 31, 2003, due to the lack of real estate
investments and corporate activity.
Cash flows from investing activities for the three months ended March 31,
2004 were $(10,674,300) and were comprised of the Partnership's acquisition of
the Woodall Rodgers Property and the purchase of property and equipment for the
Woodall Rodgers Property subsequent to the acquisition. During the three months
ended March 31, 2003, the Partnership did not own any real estate investments.
Cash flows from financing activities for the three months ended March 31,
2004 were $9,888,159 and were comprised primarily of funds received from the
issuance of limited partnership units and proceeds from the mortgage loan
associated with the Woodall Rodgers Property. During the three months ended
March 31, 2003, the Partnership had not accepted any subscriptions for limited
partnership units.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal demands for funds will be for property
acquisitions, either directly or through investment interests, for the payment
of operating expenses and distributions, and for the payment of interest on the
Partnership's outstanding indebtedness. Generally, cash needs for items other
than property acquisitions and mortgage loan investments are expected to be met
from operations, and cash needs for property acquisitions are expected be met
from the net proceeds of the Offering. However, there may be a delay between the
sale of the Partnership's units and its purchase of properties and mortgage loan
investments, which could result in a delay in the benefits to its limited
partners, if any, of returns generated from the Partnership's operations. The
Partnership expects that at least 84.2% of the money that limited partners
invest in the Offering will be used to buy real estate, make or invest in
mortgage loans or make other investments and approximately 0.8% of the gross
proceeds of the offering will be set aside as initial working capital reserves
for such properties. The remaining 15.0% will be used to pay expenses and fees
for selling commissions and dealer manager fees, organization and offering
expenses, acquisition and advisory fees and acquisition expenses. The General
Partners will evaluate potential property acquisitions and mortgage loan
investments and will engage in negotiations with sellers and borrowers on the
Partnership's behalf. Investors should be aware that after a contract for the
purchase of a property is executed, the property generally will not be purchased
until the successful completion of due diligence. During this period, the
Partnership may decide to temporarily invest any unused proceeds from the
Offering in investments that could yield lower returns than the properties.
These lower returns may affect the Partnership's ability to make distributions.
The timing and amount of cash to be distributed to the Partnership's
limited partners will be determined by the General Partners and will be
dependent on a number of factors, including funds available for payment of
distributions, financial condition and capital expenditures.
The Partnership expects to meet its future short-term operating liquidity
requirements through net cash provided by the operations of properties to be
acquired in the future. Management also expects that the Partnership's
properties will generate sufficient cash flow to cover operating expenses and
the payment of a monthly distribution. Other 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 Partnership may use financings or other sources of
capital in the event of unforeseen significant capital expenditures.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Partnership's contractual obligations
as of March 31, 2004:
16
Payments due by period
----------------------------------------------------------
Less More
than 1 1-3 3-5 than 5
Total year years years years
Mortgage note payable $ 3,600,000 $ 3,600,000 $ - $ - $ -
Operating lease 32,915,949 305,496 610,992 610,992 31,388,469
INFLATION
The real estate market has not been affected significantly by inflation
in the past several years due to the relatively low inflation rate. The majority
of the Partnership's leases contain inflation protection provisions applicable
to reimbursement billings for 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 Partnership has limited exposure to financial market risks, including
changes in interest rates and other relevant market prices. The Partnership has
no investments that would be affected by an increase or decrease in interest
rates. The Partnership's only borrowing is a mortgage payable at a fixed rate of
interest of 7.0%, maturing August 2004. Management believes that the carrying
amount of this mortgage of $3,600,000 is similar to the fair value of the
mortgage based upon interest rates for mortgages with similar terms and
remaining maturities that management believes the Partnership could obtain.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, the
management of Behringer Advisors II evaluated, with the participation of its
chief executive officer and chief financial officer, the effectiveness of the
Partnership's disclosure controls and procedures as of March 31, 2004. Based on
that evaluation, the chief executive officer and chief financial officer of
Behringer Advisors II have concluded that the Partnership's disclosure controls
and procedures were effective as of the end of the period covered by this
report. To these officers' knowledge, there were no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of March 31, 2004, the Partnership had sold 1,246,291 of limited
partnership units pursuant to the Offering for gross proceeds of $12,104,584.
Through March 31, 2004, the Partnership incurred the following expenses
in connection with the issuance and distribution of the registered securities
pursuant to the Offering:
Type of Expense Amount
------------------------------------ ---------------
Other expenses to affiliates $ 1,127,215
Other expenses to non-affiliates 7,387
---------------
Total expenses $ 1,134,602
===============
The net offering proceeds to the Partnership, after deducting the total
expenses paid and accrued described above, are $10,969,982.
Other expenses to affiliates above include commissions and dealer
manager fees paid to Behringer Securities LP, an affiliate of the Partnership,
which reallowed all or a portion of the commissions and fees to soliciting
dealers.
Through March 31, 2004, the Partnership had used $7,073,125 of such net
offering proceeds to purchase the Woodall Rodgers Property, net of the mortgage
payable. Of the amount used for the purchase of the Woodall Rodgers Property,
$360,500 was paid to Behringer Advisors II, an affiliate of the Partnership, as
acquisition and advisory fees and acquisition expense reimbursement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 5. OTHER INFORMATION
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 31.1 - Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Exhibit 31.2 - Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Exhibit 32.1 - Certificate of Chief Executive and Financial
Officers
b) Reports on Form 8-K
The Partnership filed the following Current Reports on Form 8-K
during the first quarter of 2004:
18
1. On February 26, 2004, the Partnership filed a Current
Report on Form 8-K reporting the acquisition of the
Woodall Rodgers Property.
2. On March 26, 2004, the Partnership filed a Current Report
on Form 8-K reporting the distributions to its investors
at an annual rate of 3%.
19
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 Short-Term Opportunity Fund
I LP.
By: Behringer Harvard Advisors II LP
Co-General Partner
Dated: May 17, 2004 By: /s/ Gary S. Bresky
----------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer
20
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
31.1 Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of Chief Executive and Financial Officers
21