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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 JUNE 30, 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 JUNE 30, 2004
PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003..............................3
Consolidated Statements of Operations for the three and six months ended June 30, 2004 and
June 30, 2003...................................................................................4
Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and June 30,
2003............................................................................................5
Notes to Consolidated Financial Statements.........................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................20
ITEM 4. CONTROLS AND PROCEDURES...........................................................................21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................22
ITEM 2. CHANGES IN SECURITIES USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES...................22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................22
ITEM 5. OTHER INFORMATION.................................................................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................22
SIGNATURE..................................................................................................24
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
Consolidated Balance Sheets
(Unaudited)
JUNE 30, DECEMBER 31,
2004 2003
--------------- ---------------
ASSETS
REAL ESTATE
Land $ 2,913,451 $ -
Buildings, net 6,207,964 -
Real estate intangibles, net 1,466,863 -
--------------- ---------------
TOTAL REAL ESTATE 10,588,278 -
Cash and cash equivalents 12,197,722 4,572,566
Restricted cash 2,257,099 4,314
Accounts receivable 28,450 -
Prepaid expenses and other assets 565,323 31,590
Deferred financing fees, net of accumulated
amortization of $6,570 229,965 -
--------------- ---------------
TOTAL ASSETS $ 25,866,837 $ 4,608,470
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 8,788 $ 11,062
Payables to affiliates 6,473 50,760
Distributions payable 47,775 -
Accrued liabilities 402,926 59,825
Subscriptions for limited partnership units 2,257,096 4,000
Mortgage note payable 6,000,000 -
--------------- ---------------
TOTAL LIABILITIES 8,723,058 125,647
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
Limited partners - 11,000,000 units authorized; 2,024,140 units
and 522,219 units issued and outstanding at June 30, 2004 and
December 31, 2003, respectively 17,143,300 4,482,335
General partners 479 488
--------------- ---------------
TOTAL PARTNERS' CAPITAL 17,143,779 4,482,823
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 25,866,837 $ 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 SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
--------------- --------------- --------------- ---------------
REVENUE
Rental revenue $ 379,327 $ - $ 584,060 $ -
--------------- --------------- --------------- ---------------
TOTAL REVENUES 379,327 - 584,060 -
EXPENSES
Property operating expenses 105,998 - 177,828 -
Property repairs and maintenance 5,583 - 11,083 -
Ground rent 76,374 - 117,633 -
Real estate taxes 61,052 - 90,544 -
Property and asset management fees 31,071 - 45,759 -
General and administrative 77,090 - 126,346 -
Interest expense 106,191 - 154,224 -
Depreciation and amortization 165,380 - 236,258 -
--------------- --------------- --------------- ---------------
TOTAL EXPENSES 628,739 - 959,675 -
OTHER INCOME 24,749 - 38,996 -
--------------- --------------- --------------- ---------------
NET LOSS $ (224,663) $ - $ (336,619) $ -
=============== =============== =============== ===============
ALLOCATION OF NET LOSS:
Net loss allocated to general partners $ (4) $ - $ (9) $ -
=============== =============== =============== ===============
Net loss allocated to limited partners $ (224,659) $ - $ (336,610) $ -
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 1,677,826 - 1,376,478 -
=============== =============== =============== ===============
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (0.13) $ - $ (0.24) $ -
=============== =============== =============== ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2004 JUNE 30, 2003
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (336,619) $ -
Adjustments to reconcile net loss to
net cash flows provided by operating activities
Depreciation and amortization 336,529 -
Change in accounts receivable (28,450) -
Change in prepaid expenses and other assets 2,437 -
Change in accounts payable (2,274) -
Change in accrued liabilities 152,840 -
------------------- -------------------
CASH PROVIDED BY OPERATING ACTIVITIES 124,463 -
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate (10,714,625) -
Escrow deposits on properties to be acquired (500,000) -
------------------- -------------------
CASH USED IN INVESTING ACTIVITIES (11,214,625) -
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage note 9,600,000 -
Payment of mortgage note (3,600,000) -
Financing costs (286,056) -
Limited partners' contributions 14,581,786 284,105
Offering costs (1,448,243) -
Distributions (88,193) -
Change in limited partners' subscriptions 2,253,096 -
Change in restricted cash (2,252,785) (284,105)
Change in payables to affiliates (44,287) -
------------------- -------------------
CASH PROVIDED BY FINANCING ACTIVITIES 18,715,318 -
------------------- -------------------
Net change in cash and cash equivalents 7,625,156 -
Cash and cash equivalents at beginning of period 4,572,566 600
------------------- -------------------
Cash and cash equivalents at end of period $ 12,197,722 $ 600
=================== ===================
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 98,133 $ -
=================== ===================
NON-CASH FINANCING ACTIVITIES:
Limited partnership units issued
under distribution reinvestment plan $ 98,820 $ -
Distributions payable in limited partnership units
under distribution reinvestment plan $ 26,914 $ -
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's Partnership Agreement (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 June 30, 2004, the Partnership had accepted subscriptions for
2,024,140 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 information and footnote disclosures normally included in
financial statements prepared in accordance with
6
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 June 30, 2004 and
June 30, 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 June 30, 2004 and
December 31, 2003 and the results of its operations and cash flows for the
periods ended June 30, 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. 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 original 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, which occurs at least monthly, 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 circumstances 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.
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
7
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,
in-place tenant leasing commissions 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 includes 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 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 related lease 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 are 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 the 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 June 30, 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 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 "Woodall Rodgers
Improved Property"). The Partnership also acquired approximately 1.6 acres of
undeveloped land adjoining the Woodall Rodgers Improved Property (the "Woodall
Rodgers Development Property," and together with the Woodall Rodgers 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 "Woodall Rodgers Property Loan") with Benchmark
Bank to pay a portion of the purchase price and paid the remaining purchase
price from proceeds of the Offering. On May 20, 2004, the Partnership completed
its refinancing of the Woodall Rodgers Property Loan when it entered into a loan
agreement with First American Bank, SSB (the "Woodall Rodgers Property Mortgage
Note"). The Woodall Rodgers Property Mortgage Note has an interest rate of the
prime rate of interest as listed by The Wall Street Journal, with a floor of 4%
per annum and is secured by the building, drive-thru motor bank, and development
land at the Woodall Rodgers Property. 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, an
unaffiliated third party, is the Class B Limited Partner. The purchase price has
been allocated to the assets acquired and liabilities assumed as follows:
Estimated
Description Allocation Useful Life
------------------------------ -------------------------------
Land $ 2,913,451 -
Building 6,312,480 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 $ 10,714,625
==============
The purchase price of the Woodall Rodgers Property was increased by $41,500 in
the second quarter of 2004 to include professional fees incurred in conjunction
with the acquisition.
GROUND LEASE
The ground lease assumed for the land on which the Woodall Rodgers
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. Beginning July 1, 2004, the monthly lease
payment was increased to $29,279. Rent escalations on June 30, 2012, 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:
10
Period
--------------------------------- Minimum
From Through Payments
--------------------------------- --------------
7/1/2004 6/30/2005 $ 351,348
7/1/2005 6/30/2006 351,348
7/1/2006 6/30/2007 351,348
7/1/2007 6/30/2008 351,348
7/1/2008 6/30/2009 351,348
Thereafter 31,006,461
------------
Total Contractual Obligations $ 32,763,201
============
PRO FORMA RESULTS OF OPERATIONS
The following summary presents the results of operations for the three
and six months ended June 30, 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 Six months
ended June 30, ended June 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Total revenues $ 379,327 $ 357,389 $ 788,793 $ 714,778
Total expenses (628,739) (513,564) (1,241,355) (1,027,128)
Other income 24,749 - 38,996 -
--------------- --------------- --------------- ---------------
Net (loss) $ (224,663) $ (156,175) $ (413,566) $ (312,350)
=============== =============== =============== ===============
6. MORTGAGE PAYABLE
In conjunction with the Partnership's acquisition of the Woodall Rodgers
Property on February 11, 2004, the Partnership used an interim financing
mortgage note of $3,600,000 with Benchmark Bank, (the "Woodall Rodgers Property
Interim Note") to pay a portion of the purchase price of the property and paid
the remaining purchase price from proceeds of the Offering. The Woodall Rodgers
Property Interim Note had an interest rate of 7.0% per annum with a maturity
date of August 9, 2004. On May 20, 2004, the Partnership completed its
refinancing of the Woodall Rodgers Property Interim Note when it entered into a
loan agreement with First American Bank, SSB (the "Woodall Rodgers Property
Mortgage Note"). The Woodall Rodgers Property Mortgage Note has an interest rate
of the prime rate of interest as listed by The Wall Street Journal, with a floor
of 4% per annum and is secured by the building, drive-thru motor bank, and
development land at the Woodall Rodgers Property.
The Woodall Rodgers Property Mortgage Note has two facilities. Facility
A has a maximum limit of $5,300,000, with $4,300,000 for refinancing the Woodall
Rodgers Property Interim Note and $1,000,000 for tenant improvements. Facility A
requires interest only payments through December 1, 2005 and principal and
interest, based on a 25 year amortization period, from January 1, 2006 through
the original maturity date of June 1, 2007. The Partnership has two one-year
extensions available. Facility B has a maximum limit of $1,700,000 with proceeds
used for the financing of the development land associated with the Woodall
Rodgers Property. Facility B requires interest only payments through May 1, 2007
with principal payments of $170,000 on June 1, 2005 and June 1, 2006. All
outstanding interest and principal is due at maturity, June 1, 2007. There are
no extensions available to the Partnership for Facility B. On May 20, 2004, the
Partnership borrowed $4,300,000 under Facility A and $1,700,000 from Facility B.
The
11
remaining $1,000,000 available for tenant improvements under Facility A may be
drawn down through December 1, 2005. As of June 30, 2004, the outstanding
balance on Facility A and Facility B was $4,300,000 and $1,700,000,
respectively. Proceeds from the May 20, 2004 draws were used to pay off the
Woodall Rodgers Property Interim Note and to pay costs associated with the
Woodall Rodgers Property Mortgage Note with the balance on deposit with
financial institutions to be used for future acquisitions.
7. PARTNERS' CAPITAL
The Partnership initiated the declaration of monthly distributions in
March 2004 in the amount of a 3% annualized rate of return, based on an
investment in the Partnership's limited partnership unit of $10 per unit. The
Partnership has a distribution reinvestment plan ("DRIP") whereby unit holders
may elect to receive additional limited partnership units in lieu of a cash
distribution. The Partnership records all distributions when declared, except
that the units issued through the DRIP are recorded when the units are actually
issued. The following are the distributions and the DRIP units issued during the
six months ended June 30, 2004.
Distributions
Declared ----------------------------------------------------- DRIP
in 2004 Total Cash DRIP Units
- ----------------- --------------- --------------- --------------- ---------------
1st Quarter $ 109,005 $ 51,705 $ 57,300 5,730
2nd Quarter 125,783 57,349 68,434 4,152
--------------- --------------- --------------- ---------------
$ 234,788 $ 109,054 $ 125,734 9,882
=============== =============== =============== ===============
In July 2004, the Partnership issued 2,691 limited partnership units
valued at $26,914 to participants in the DRIP in lieu of cash distributions
declared for June 2004.
8. RELATED PARTY ARRANGEMENTS
The General Partners and certain of their affiliates receive fees and
compensation in connection with the Offering, and 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 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 six months ended June 30, 2004, Behringer Securities' commissions and
dealer manager fees totaled $733,213 and $352,382, 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
June 30, 2004, $1,229,022 of organization and offering expenses had been
incurred by Behringer Advisors II on behalf of the Partnership, of which
$494,275 had been reimbursed by the Partnership and the balance of $734,747 will
be reimbursed at a rate of 2.5% of future equity raised. Of the $494,275 of
organization and offering costs reimbursed by the Partnership as of June 30,
2004, $490,792 had been capitalized as offering costs in "Partners' capital" on
the Partnership's balance sheet and $3,483 had been expensed as organizational
costs. For the six months ended June 30, 2004, $364,570 of organization and
offering expenses were reimbursed by the Partnership, of which $361,982 was
capitalized as offering costs in "Partners' capital" on the Partnership's
12
balance sheet and $2,588 was 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 the assets
acquired by the Partnership for reimbursement of expenses related to making
investments. During the six months ended June 30, 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 six months ended June 30, 2004 the Partnership incurred $25,458 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 the 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 six months ended June 30, 2004, the
Partnership incurred $20,301 of asset management fees.
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 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.
13
9. SUBSEQUENT EVENTS
On July 2, 2004, the Partnership acquired a seven-story office building
containing approximately 133,799 rentable square feet, parking garage and
nine-lane drive-thru bank facility, located on approximately 3.9 acres of land
(the "Quorum Property"). The Quorum Property is located in Addison, Texas, a
suburb of Dallas, Texas. The contract purchase price of the Quorum Property was
$9,100,000 plus preliminary closing costs of approximately $538,469. The
Partnership used an advance of $4,550,000 on a loan amount of up to $7,000,000
(the "Quorum Property Loan") with First American Bank, SSB to pay a portion of
the purchase price and paid the remaining amount from proceeds of the
Partnership's public offering of its partnership units. Of the remaining
$2,450,000 available under the Quorum Property Loan, $2,250,000 may be used
solely to provide funds for tenant improvement expenses and leasing commissions
associated with the Quorum Property and $200,000 may be used as a general
contingency fund for capital expenditures. The Quorum Property is held by
Behringer Harvard Quorum I LP, in which Behringer Harvard Quorum I GP, LLC, a
wholly-owned subsidiary of the Partnership is the general partner and the
Partnership is the limited partner.
The Quorum Property Loan, which is unconditionally guaranteed by the
Partnership, has an interest rate of the prime rate of interest as listed by The
Wall Street Journal, with a floor of 4% per annum. The Quorum Property Loan has
a maturity date of June 30, 2007, with two one-year extensions possible. The
Quorum Property Loan requires monthly interest payments beginning August 1,
2004. Principal and interest (in arrears) are due and payable in eleven monthly
installments beginning August 1, 2006, calculated so as to fully amortize the
balance of the Quorum Property Loan over the remaining term of the initial
twenty-five (25) year amortization period. Then, the entire unpaid principal
balance of the Quorum Property Loan, together with accrued unpaid interest
thereon, shall be due and payable in one installment on July 1, 2007. The
Partnership may at any time prepay in whole or in part the unpaid principal of
the Quorum Property Loan without premium or penalty, and the interest shall
immediately cease on any amounts so prepaid.
On July 23, 2004, the Partnership acquired an approximate 85% interest
in the ownership of a neighborhood shopping/service center containing
approximately 98,764 rentable square feet, located on approximately 7.3 acres of
land at the southeast corner of Skillman Street and Audelia Road in Dallas,
Texas (the "Skillman Property"). The property is leased to a variety of retail
and service oriented tenants, with retail concerns concentrated on the first
floor. The contract purchase price of the Skillman Property was $13,650,000,
exclusive of closing costs. The Partnership assumed the existing mortgage loan
on the property with a current principal balance of $10,138,846 (the "Skillman
Property Loan") with LaSalle Bank National Association, in its capacity as
Trustee for the Registered Holders of LB-UBS Commercial Mortgage Trust 2001-C3,
Commercial Mortgage Pass-Through Certificates, Series 2001-C3 (the "Skillman
Property Lender") to pay a portion of the purchase price and paid the remaining
amount from proceeds of the Partnership's public offering of its partnership
units. The Skillman Property Loan has an interest rate of 7.34% per annum and
matures on April 11, 2011.
14
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 of the quarterly report 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 management based on their knowledge and understanding of the
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 that 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. The
Partnership's most sensitive estimates involve the allocation of the purchase
price of acquired properties and evaluating its real estate related investments
for impairment.
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.
15
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 that 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 includes 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 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.
RESULTS OF OPERATIONS
The Partnership commenced active operations when it made its first real
estate acquisition on February 11, 2004 with the purchase of a property in
Dallas, Texas (the "Woodall Rodgers Property"). As a result, the Partnership's
results of operations for the three and six month periods ended June 30, 2004
are not comparable to the results of operations for the three and six month
periods ended June 30, 2003.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 TO THE THREE MONTHS ENDED
JUNE 30, 2003
Rental revenue for the three months ended June 30, 2004 was $379,327 and
was comprised of revenue, including adjustments for straight line rent and
amortization of above and below market leases, from the Woodall Rodgers
Property. During the three months ended June 30, 2003, the Partnership did not
own any real estate.
16
With the acquisition of the Quorum Property in July 2004 and future anticipated
acquisitions, management believes there will be significant future increases in
rental revenue.
Property operating expenses for the three months ended June 30, 2004
were $105,998 and were comprised of operating expenses from the Woodall Rodgers
Property. During the three months ended June 30, 2003, the Partnership did not
own any real estate. With the acquisition of the Quorum Property in July 2004
and future anticipated acquisitions, management believes there will be
significant future increases in property operating expenses.
Property repairs and maintenance expenses for the three months ended
June 30, 2004 were $5,583 and were comprised of operating expenses from the
Woodall Rodgers Property. During the three months ended June 30, 2003, the
Partnership did not own any real estate. With the acquisition of the Quorum
Property in July 2004 and future anticipated acquisitions, management believes
there will be significant future increases in property repairs and maintenance
expenses.
Ground rent expense for the three months ended June 30, 2004 was $76,374
and represents the operating lease on the developed land included in the Woodall
Rodgers Property. During the three months ended June 30, 2003, the Partnership
did not own any real estate.
Real estate taxes for the three months ended June 30, 2004 were $61,052
and were comprised of real estate taxes from the Woodall Rodgers Property.
During the three months ended June 30, 2003, the Partnership did not own any
real estate. With the acquisition of the Quorum Property in July 2004 and future
anticipated acquisitions, management believes there will be significant future
increases in real estate taxes.
Property and asset management fees for the three months ended June 30,
2004 were $31,071 and were comprised of property and asset management fees from
the Woodall Rodgers Property. During the three months ended June 30, 2003, the
Partnership did not own any real estate. With the acquisition of the Quorum
Property in July 2004 and future anticipated acquisitions, management believes
there will be significant future increases in property and asset management
fees.
General and administrative expenses for the three months ended June 30,
2004 were $77,090 and were comprised of general and administrative expenses from
the Woodall Rodgers Property 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 June 30, 2003, the Partnership did not own any real estate
and there was a lack of corporate activity. With the acquisition of the Quorum
Property in July 2004, future anticipated acquisitions, and future growth in the
number of limited partners, management believes there will be future increases
in general and administrative expenses.
Interest expense for the three months ended June 30, 2004 was $106,191
and was comprised of interest expense and amortization of deferred financing
fees associated with the Partnership's interim financing and mortgage note
obtained in connection with the acquisition of the Woodall Rodgers Property.
During the three months ended June 30, 2003, the Partnership did not own any
real estate and there was no outstanding debt. With the acquisition of the
Quorum Property in July 2004 and future anticipated acquisitions, management
believes there will be significant increases in interest expense.
Depreciation and amortization expense for the three months ended June
30, 2004 was $165,380 and was comprised of depreciation and amortization of the
Woodall Rodgers Property. During the three months ended June 30, 2003, the
Partnership did not own any real estate. With the acquisition of the Quorum
Property in July 2004 and future anticipated acquisitions, management believes
there will be significant increases in depreciation and amortization expense.
Other income for the three months ended June 30, 2004 was $24,749 and
was comprised primarily of interest income associated with funds on deposit with
banks. As the Partnership admits new unit holders, 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
17
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 June 30, 2003, the Partnership had lower
cash balances on deposit with banks.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2004 TO THE SIX MONTHS ENDED JUNE
30, 2003
Rental revenue for the six months ended June 30, 2004 was $584,060 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 June 30, 2004. During the
six months ended June 30, 2003, the Partnership did not own any real estate.
With the acquisition of the Quorum Property in July 2004 and future anticipated
acquisitions, management believes there will be significant future increases in
rental revenue.
Property operating expenses for the six months ended June 30, 2004 were
$177,828 and were comprised of operating expenses from the Woodall Rodgers
Property from date of acquisition, February 11, 2004, through June 30, 2004.
During the six months ended June 30, 2003, the Partnership did not own any real
estate. With the acquisition of the Quorum Property in July 2004 and future
anticipated acquisitions, management believes there will be significant future
increases in property operating expenses.
Property repairs and maintenance expenses for the six months ended June
30, 2004 were $11,083 and were comprised of operating expenses from the Woodall
Rodgers Property from date of acquisition, February 11, 2004, through June 30,
2004. During the six months ended June 30, 2003, the Partnership did not own any
real estate. With the acquisition of the Quorum Property in July 2004 and future
anticipated acquisitions, management believes there will be significant future
increases in property repairs and maintenance expenses.
Ground rent expense for the six months ended June 30, 2004 was $117,633
and represents the operating lease on the developed land included in the Woodall
Rodgers Property. During the six months ended June 30, 2003, the Partnership did
not own any real estate.
Real estate taxes for the six months ended June 30, 2004 were $90,544
and were comprised of real estate taxes from the Woodall Rodgers Property from
date of acquisition, February 11, 2004, through June 30, 2004. During the six
months ended June 30, 2003, the Partnership did not own any real estate. With
the acquisition of the Quorum Property in July 2004 and future anticipated
acquisitions, management believes there will be significant future increases in
real estate taxes.
Property and asset management fees for the six months ended June 30,
2004 were $45,759 and were comprised of property and asset management fees from
the Woodall Rodgers Property from date of acquisition, February 11, 2004,
through June 30, 2004. During the six months ended June 30, 2003, the
Partnership did not own any real estate. With the acquisition of the Quorum
Property in July 2004 and future anticipated acquisitions, management believes
there will be significant future increases in property and asset management
fees.
General and administrative expenses for the six months ended June 30,
2004 were $126,346 and were comprised of general and administrative expenses
from the Woodall Rodgers Property from date of acquisition, February 11, 2004,
through June 30, 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
six months ended June 30, 2003, the Partnership did not own any real estate and
there was a lack of corporate activity. With the acquisition of the Quorum
Property in July 2004, future anticipated acquisitions, and future growth in the
number of limited partners, management believes there will be future increases
in general and administrative expenses.
Interest expense for the six months ended June 30, 2004 was $154,224 and
was comprised of interest expense and amortization of deferred financing fees
associated with the Partnership's interim financing and mortgage note obtained
in connection with the acquisition of the Woodall Rodgers Property from date of
acquisition, February 11, 2004, through June 30, 2004. During the six months
ended June 30, 2003, the
18
Partnership did not own any real estate and there was no outstanding debt. With
the acquisition of the Quorum Property in July 2004 and future anticipated
acquisitions, management believes there will be significant increases in
interest expense.
Depreciation and amortization expense for the six months ended June 30,
2004 was $236,258 and was comprised of depreciation and amortization of the
Woodall Rodgers Property from date of acquisition, February 11, 2004, through
June 30, 2004. During the six months ended June 30, 2003, the Partnership did
not own any real estate. With the acquisition of the Quorum Property in July
2004 and future anticipated acquisitions, management believes there will be
significant increases in depreciation and amortization expense.
Other income for the six months ended June 30, 2004 was $38,996 and was
comprised primarily of interest income associated with funds on deposit with
banks. As the Partnership admits new unit holders, 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 six months ended June 30, 2003,
the Partnership had lower cash balances on deposit with banks.
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 six months ended
June 30, 2004 are not comparable to the cash flows for the six months ended June
30, 2003.
Cash flows from operating activities for the six months ended June 30,
2004 were $124,463 and were primarily comprised of the net loss of $(336,619)
and changes in working capital accounts of $124,553 and depreciation and
amortization of $336,529. There were no cash flows from operating activities for
the six months ended June 30, 2003, due to the lack of real estate investments
and corporate activity.
Cash flows from investing activities for the six months ended June 30,
2004 were $(11,214,625) and were comprised of the Partnership's acquisition of
the Woodall Rodgers Property and an earnest money deposit of $500,000 on the
Quorum Property, which was acquired on July 2, 2004. During the six months ended
June 30, 2003, the Partnership did not own any real estate investments.
Cash flows from financing activities for the six months ended June 30,
2004 were $18,715,318 and were comprised primarily of funds received from the
issuance of limited partnership units and proceeds from the interim financing
and permanent mortgage loans associated with the Woodall Rodgers Property,
partially offset by the repayment of the interim financing mortgage note. During
the six months ended June, 2003, the Partnership had not accepted any
subscriptions for limited partnership units.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's principal demands for funds will continue to 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
19
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.
As of June 30, 2004, the Partnership made deposits in the amount of
$500,000 for the purchase of the Quorum Property in a suburb of Dallas, Texas
that closed on July 2, 2004. During July 2004, the Partnership acquired an
approximate 85% interest in the ownership of the Skillman Property in Dallas,
Texas. The total contract purchase price of the Skillman Property was
$13,650,000, excluding closing costs. In July 2004, the Partnership also made
deposits of $262,500 for two properties to be acquired which are located in the
Dallas/Fort Worth metropolitan area.
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 June 30, 2004:
Payments due by period
---------------------------------------------------
Less than 1-3 3-5 More than
Total 1 year years years 5 years
------------------------------------------------------------------
Mortgage note payable
Facility A $ 4,300,000 $ - $ 4,300,000 $ - $ -
Facility B 1,700,000 170,000 1,530,000 - -
Operating lease 32,763,201 351,348 702,696 702,696 31,006,461
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, except as
noted below. The Partnership's only borrowing is a mortgage note payable at a
variable rate of interest based on the prime rate of interest as listed by The
Wall Street Journal, with a floor of 4% per annum. A hypothetical 10% increase
or decrease in interest rates would not result in a material increase or
decrease in interest expense. Management believes that the carrying amount of
this mortgage note of $6,000,000 is similar to the fair value of the mortgage
note based on its variable interest rate.
20
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 June 30, 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.
21
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 USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
As of June 30, 2004, the Partnership had sold 2,024,140 of limited
partnership units pursuant to the Offering for gross proceeds of $19,868,808.
Through June 30, 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 $ 2,041,138
Other expenses to non-affiliates 7,387
---------------
Total expenses $ 2,048,525
===============
The net offering proceeds to the Partnership, after deducting the total
expenses paid and accrued described above, are $17,820,283.
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 June 30, 2004, the Partnership had used $7,114,625 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
22
b) Reports on Form 8-K
The Partnership filed the following Current Report on Form 8-K
during the second quarter of 2004:
1. On April 26, 2004, the Partnership filed Amendment No. 1
to the Current Report on Form 8-K reporting the
acquisition of the Woodall Rodgers Property. This
amendment contained the required financial statements
relating to the acquisition by the Partnership of the
Woodall Rodgers Property.
23
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: August 16, 2004 By: /s/ Gary S. Bresky
----------------------
Gary S. Bresky
Chief Financial Officer and Treasurer
24
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