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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 SEPTEMBER 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.)
15601 DALLAS PARKWAY, SUITE 600, ADDISON, TEXAS 75001
(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 SEPTEMBER 30, 2004
PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2004
and December 31, 2003...............................................3
Consolidated Statements of Operations for the three
and nine months ended September 30, 2004 and September 30, 2003.....4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and September 30, 2003..............5
Notes to Consolidated Financial Statements.............................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................................18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............23
ITEM 4. CONTROLS AND PROCEDURES...............................................23
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.....................................................24
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS...........24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................24
ITEM 5. OTHER INFORMATION.....................................................24
ITEM 6. EXHIBITS..............................................................26
SIGNATURE.....................................................................27
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
Consolidated Balance Sheets
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2004 2003
--------------- ---------------
ASSETS
REAL ESTATE
Land $ 5,110,149 $ -
Buildings, net 12,890,999 -
Real estate intangibles, net 2,059,495 -
--------------- ---------------
TOTAL REAL ESTATE 20,060,643 -
Cash and cash equivalents 12,213,978 4,572,566
Restricted cash 1,682,753 4,314
Accounts receivable 79,025 -
Prepaid expenses and other assets 1,402,487 31,590
Investments in joint ventures 5,055,518 -
Deferred financing fees, net of accumulated
amortization of $32,824 261,816 -
--------------- ---------------
TOTAL ASSETS $ 40,756,220 $ 4,608,470
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage notes payable $ 10,550,000 $ -
Accounts payable 1,845 11,062
Payables to affiliates 29,589 50,760
Distributions payable 75,787 -
Accrued liabilities 867,047 59,825
Subscriptions for limited partnership units 1,575,187 4,000
--------------- ---------------
TOTAL LIABILITIES 13,099,455 125,647
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
Limited partners - 11,000,000 units authorized;
3,294,040 units and 522,219 units issued
and outstanding at September 30, 2004 and
December 31, 2003, respectively 27,656,289 4,482,335
General partners 476 488
--------------- ---------------
TOTAL PARTNERS' CAPITAL 27,656,765 4,482,823
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 40,756,220 $ 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 NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
------------------- ------------------- ------------------- -------------------
REVENUE
Rental revenue $ 748,566 $ - $ 1,332,626 $ -
------------------- ------------------- ------------------- -------------------
TOTAL REVENUES 748,566 - 1,332,626 -
EXPENSES
Property operating expenses 287,147 - 476,058 -
Ground rent 87,837 - 205,470 -
Real estate taxes 77,088 - 167,632 -
Property and asset management
fees 59,314 - 105,073 -
General and administrative 177,263 31,654 303,609 31,654
Interest expense 157,546 - 311,770 -
Depreciation and amortization 260,291 - 496,549 -
------------------- ------------------- ------------------- -------------------
TOTAL EXPENSES 1,106,486 31,654 2,066,161 31,654
OTHER INCOME 31,345 - 70,341 -
------------------- ------------------- ------------------- -------------------
NET LOSS BEFORE EQUITY IN EARNINGS OF
INVESTMENTS IN JOINT VENTURES $ (326,575) $ (31,654) $ (663,194) $ (31,654)
EQUITY IN LOSSES OF INVESTMENTS
IN JOINT VENTURES (151,993) - (151,993) -
------------------- ------------------- ------------------- -------------------
NET LOSS $ (478,568) $ (31,654) $ (815,187) $ (31,654)
=================== =================== =================== ===================
ALLOCATION OF NET LOSS:
Net loss allocated to general partners $ (4) $ - $ (13) $ -
=================== =================== =================== ===================
Net loss allocated to limited partners $ (478,564) $ (31,654) $ (815,174) $ (31,654)
=================== =================== =================== ===================
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 2,660,469 24,582 1,807,592 8,224
=================== =================== =================== ===================
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (0.18) $ (1.29) $ (0.45) $ (3.85)
=================== =================== =================== ===================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (815,187) $ (31,654)
Adjustments to reconcile net loss to net cash
flows provided by (used in) operating activities
Equity in losses of investments in joint ventures 151,993 -
Depreciation and amortization 651,434 -
Change in accounts receivable (79,025) -
Change in prepaid expenses and other assets (42,226) (10,000)
Change in accounts payable (9,217) -
Change in accrued liabilities 377,124 19,634
------------------ ------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 234,896 (22,020)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of real estate (20,025,190) -
Purchases of investments in joint ventures (5,207,511) -
Purchases of property and equipment, net (210,616) -
Escrow deposits on properties to be acquired (1,292,500) -
------------------ ------------------
CASH USED IN INVESTING ACTIVITIES (26,735,817) -
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage notes 14,150,000 -
Payment of mortgage note (3,600,000) -
Financing costs (344,161) -
Limited partners' contributions 27,175,576 1,590,884
Offering costs (2,948,926) (188,878)
Distributions (161,733) -
Change in limited partners' subscriptions 1,571,187 630,587
Change in restricted cash (1,678,439) (630,587)
Change in payables to affiliates (21,171) 16,465
------------------ ------------------
CASH PROVIDED BY FINANCING ACTIVITIES 34,142,333 1,418,471
------------------ ------------------
Net change in cash and cash equivalents 7,641,412 1,396,451
Cash and cash equivalents at beginning of period 4,572,566 600
------------------ ------------------
Cash and cash equivalents at end of period $ 12,213,978 $ 1,397,051
================== ==================
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 229,426 $ -
================== ==================
NON-CASH FINANCING ACTIVITIES:
Limited partnership units issued
under distribution reinvestment plan $ 198,954 $ -
Distributions payable in limited partnership units
under distribution reinvestment plan $ 44,039 $ -
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 (collectively 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") which is further 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 September 30, 2004, the Partnership had accepted subscriptions for
3,294,040 limited partnership units.
6
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 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.
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 September 30, 2004
and September 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 September 30,
2004 and December 31, 2003 and the results of its operations and cash flows for
the periods ended September 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 GAAP 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.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include prepaid insurance and deposits
for the purchase of ownership interests in an office building located in Plano,
Texas which closed on October 4, 2004 and in a hotel located in Dallas, Texas
which closed on November 8, 2004.
INVESTMENTS IN JOINT VENTURES
As of September 30, 2004, the "Investments in joint ventures" on the
Partnership's balance sheet consists of the Partnership's 85.71% ownership
interest in a neighborhood shopping/service center (the "Skillman Property") and
the Partnership's 50% ownership interest in a six story office building (the
"Central Property"), both located in Dallas, Texas.
The Partnership consolidates certain entities in which it owns less than
a 100% equity interest if it is deemed to be the primary beneficiary of a
variable interest entity ("VIE"), as defined in Financial Accounting Standards
Board Interpretation No. 46 "Consolidation of Variable Interest Entities" ("FIN
46"). The Partnership also consolidates entities in which it has a controlling
direct or indirect voting interest. The equity method of
7
accounting is applied to entities in which the Partnership does not have a
controlling direct or indirect voting interest, but can exercise influence over
the entity with respect to its operations and major decisions.
The Partnership determined that the Skillman and Central Properties are
not VIEs. Accordingly, the Partnership accounts for these investments using the
equity method of accounting.
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.
For real estate owned by the Partnership through an investment in a
joint venture, tenant in common interest or other similar investment structure,
at each reporting date management will compare the estimated fair value of its
investment to the carrying value. An impairment charge is recorded to the extent
the fair value of its investment is less than the carrying amount and the
decline in value is determined to be other than a temporary decline.
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 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. 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
8
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.
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 the
General Partners or their affiliates 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.
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
9
(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 GAAP. 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 September 30, 2004, the Partnership had cash and cash equivalents and
restricted cash on deposit in four 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.
5. REAL ESTATE
ACQUISITIONS
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 approximately $10,700,000. 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 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) -
----------------
Total $ 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.
10
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 purchase price of the Quorum Property was
approximately $9,300,000. 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. The
purchase price has been allocated to the assets acquired and liabilities assumed
as follows
DESCRIPTION ALLOCATION ESTIMATED USEFUL LIFE
- -------------------------------------------- ----------------------------------------
Land $ 2,196,698 -
Building 6,660,281 25 years
Above/below market leases, net (75,370) 3.2 years
Tenant improvements, leasing commissions
& legal fees 163,465 3.2 years
In-place leases 320,984 3.2 years
Tenant relationships 284,343 8.2 years
Other assets 230 -
Other liabilities (240,066) -
-------------
$ 9,310,565
=============
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
was $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:
Period
-------------------------------- Minimum
From Through Payments
-------------------------------- ----------------
10/1/2004 9/30/2005 $ 351,348
10/1/2005 9/30/2006 351,348
10/1/2006 9/30/2007 351,348
10/1/2007 9/30/2008 351,348
10/1/2008 9/30/2009 351,348
Thereafter 30,918,624
----------------
Total Contractual Obligations $ 32,675,364
================
PRO FORMA RESULTS OF OPERATIONS
The following summary presents the results of operations for the three
and nine months ended September 30, 2004 and 2003, on an unaudited pro forma
basis, as if the acquisition of the Woodall Rodgers and Quorum Properties 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 transactions been consummated as of
January 1, of the respective year, nor are they indicative of results of
operations which may occur in the future.
11
Three months Nine months
ended September 30, ended September 30,
---------------------------------------- --------------------------------------
2004 2003 2004 2003
------------------ ----------------- ------------------ -----------------
Total revenues $ 748,566 $ 732,136 $ 2,163,949 $ 2,196,409
Total expenses (1,106,486) (997,017) (3,295,430) (2,991,052)
Other income 31,345 902 44,653 2,706
Equity in losses of
investments in
joint ventures (151,993) - (151,993) -
------------------ ----------------- ------------------ -----------------
Net loss $ (478,568) $ (263,979) $ (1,238,821) $ (791,937)
================== ================= ================== =================
6. INVESTMENTS IN JOINT VENTURES
The following is a summary of the Partnership's investments in joint
ventures as of September 30, 2004:
Carrying
Date Value of
Property Name Acquired % Interest Investment
----------------------- ------------ ------------ -----------------
Skillman Property 7/23/2004 85.71% $ 3,616,177
Central Property 8/17/2004 50.00% 1,439,341
-----------------
Total $ 5,055,518
=================
The Partnership's investments in joint ventures as of September 30, 2004
consisted of its proportionate share of the following assets and liabilities:
Skillman Central
Property Property
---------------- --------------
Land $ 3,169,952 $ 633,824
Buildings, net 7,659,785 6,623,001
Real estate intangibles, net 3,274,338 1,023,521
Cash and cash eqivalents 42,516 52,370
Restricted cash 507,376 177,270
Accounts receivable and other assets 110,651 180,704
---------------- ----------------
Total assets $ 14,764,618 $ 8,690,690
================ ================
Total liabilities $ 10,545,535 $ 5,812,008
Equity 4,219,083 2,878,682
---------------- ----------------
Total liabilities and equity $ 14,764,618 $ 8,690,690
================ ================
12
In the nine months ended September 30, 2004, the Partnership recorded
$151,993 of equity in losses from its investments in joint ventures. The
Partnership's equity in earnings from these joint venture investments is its
proportionate share of the following earnings of the Skillman and Central
Properties from the date of acquisition through the nine months ended September
30, 2004:
Skillman Central
Property Property
----------------- -----------------
Revenue $ 356,682 $ 138,004
Operating expenses:
Operating expenses 100,849 58,099
Property taxes 63,870 25,825
----------------- -----------------
Total operating expenses 164,719 83,924
----------------- -----------------
Operating income 191,963 54,080
----------------- -----------------
Non-operating (income) expenses:
Depreciation and amortization 177,073 61,090
(Interest income)/bank fees, net 167,647 35,120
----------------- -----------------
Total non-operating (income) expenses 344,720 96,210
----------------- -----------------
Net loss $ (152,757) $ (42,130)
================= =================
Partnership's share of net loss $ (130,928) $ (21,065)
================= =================
7. MORTGAGES PAYABLE
In connection 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 collateralized 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 remaining $1,000,000 available for tenant improvements under Facility A may
be drawn down through December 1, 2005. As of September 30, 2004, the
outstanding balances on Facility A and Facility B were $4,300,000 and
$1,700,000, respectively. Proceeds from the May 20,
13
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.
In connection with the Partnership's acquisition of the Quorum Property
on July 2, 2004, the Partnership used an advance of $4,550,000 on a loan amount
of up to $7,000,000 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.
8. 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 units 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 declarations for the nine months
ended September 30, 2004.
Distributions
Declared ---------------------------------------------------------
in 2004 Total Cash DRIP
------------- ------------------ ------------------ ------------------
1st Quarter $ 109,005 $ 51,705 $ 57,300
2nd Quarter 125,783 57,349 68,434
3rd Quarter 201,686 84,427 117,259
------------------ ------------------ ------------------
$ 436,474 $ 193,481 $ 242,993
================== ================== ==================
In October 2004, the Partnership issued 4,415 limited partnership units
valued at $44,039 to participants in the DRIP in lieu of cash distributions
declared for September 2004. Distributions payable at September 30, 2004 were
$75,787.
9. 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. The following
is a summary of the related party fees and compensation incurred by the
Partnership during the nine months ended September 30, 2004.
14
Total capitalized
Total capitalized to real estate and
Total to offering investmeents in Total
incurred costs properties and expensed
------------------------------------------------------------------
Behringer Securities, commissions and dealer manager fees $ 2,273,668 $ 2,273,668 $ - $ -
Behringer Advisors II, reimbursement of organization and
offering expenses 679,415 674,591 - 4,824
Behringer Advisors II, acquisition, advisory fees and expenses 1,223,886 - 1,223,886 -
HPT Management LP, property management and leasing fees 59,300 - - 59,300
Behringer Advisors II, asset management fees 45,773 - - 45,773
------------- ----------------- --------------------- ------------
Total $ 4,282,042 $ 2,948,259 $ 1,223,886 $ 109,897
============= ================= ===================== ============
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 nine months ended September 30, 2004, Behringer Securities'
commissions and dealer manager fees totaled $1,605,439 and $668,229,
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
September 30, 2004, $1,407,905 of organization and offering expenses had been
incurred by Behringer Advisors II on behalf of the Partnership, of which
$809,120 had been reimbursed by the Partnership and the balance of $598,785 will
be reimbursed at a rate of 2.5% of future equity raised. Of the $809,120 of
organization and offering costs reimbursed by the Partnership as of September
30, 2004, $803,401 had been capitalized as offering costs in "Partners' capital"
on the Partnership's balance sheet and $5,719 had been expensed as
organizational costs. For the nine months ended September 30, 2004, $679,415 of
organization and offering expenses were reimbursed by the Partnership, of which
$674,591 was capitalized as offering costs in "Partners' capital" on the
Partnership's balance sheet and $4,824 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
15
investments. During the nine months ended September 30, 2004, Behringer Advisors
II earned $1,049,045 of acquisition and advisory fees and was reimbused $174,841
for acquisition 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 nine months ended September 30, 2004 the Partnership incurred $59,300
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 nine months ended September 30, 2004,
the Partnership incurred $45,773 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.
10. SUBSEQUENT EVENTS
On October 4, 2004, the Partnership acquired a 90% interest in the
ownership of a two-story office building containing approximately 105,030
rentable square feet, located on approximately 12.3 acres of land in Plano,
Texas, a suburb of Dallas, Texas (the "Coit Property") through its direct and
indirect partnership interests in Behringer Harvard 1221 Coit LP (the "Coit
Partnership"). The contract purchase price of the Coit Property was $10,700,000,
exclusive of closing costs. The Partnership acquired its 90% interest in the
Coit Partnership with $4,500,000 of equity from proceeds of the Partnership's
public offering of its partnership units. The Coit Property
16
is held by the Coit Partnership, in which Behringer Harvard 1221 Coit GP, LLC, a
wholly owned subsidiary of the Partnership is the general partner. The
Partnership and Realty America Group (1221 Coit Road), L.P., an unaffiliated
third party, are the limited partners.
The Coit Property was acquired by the Coit Partnership with proceeds
under a loan agreement with Washington Mutual Bank, F.A. (the "Coit Lender") of
$6,000,000 (the "Coit Loan") which Loan is further evidenced by a promissory
note from the Coit Partnership to the Coit Lender in the amount of $6,000,000
(the "Coit Note"). The Coit Note provides the ability for the Coit Partnership
to elect as the interest rate per annum under the Coit Note (i) a fixed rate for
the initial disbursement, (ii) to convert prime rate advances to a fixed rate
portion; or (iii) to convert a matured fixed rate portion into a new fixed rate
portion. A fixed rate has been obtained at 3.34% through April 2005. The entire
principal balance of the Coit Loan is due and payable in full on October 4,
2007. However, an option is available to the Coit Partnership to extend the
maturity date for two successive periods of twelve months each, if certain
conditions are met. The Coit Property is subject to a deed of trust to
collateralize payment of the Coit Loan.
On November 8, 2004, the Partnership acquired a 70% interest in the
ownership of a nine-story hotel located on approximately 5.4 acres of land in
Dallas, Texas (the "Mockingbird Commons Property"), through its direct and
indirect partnership interests in Behringer Harvard Mockingbird Commons LP (the
"Mockingbird Commons Partnership"). The site is planned for redevelopment as a
475,000 square foot mixed-use project with a boutique hotel, high-rise luxury
condominiums and retail stores. The Mockingbird Commons Property currently has
no significant operations and no operations are planned until the redevelopment
process has been completed. The contract price for the Mockingbird Commons was
$17,000,000, excluding closing costs.
The Mockingbird Commons Property was acquired by the Mockingbird Commons
Partnership using borrowings of $13,000,000 (the "Mockingbird Commons Loan")
under a loan agreement with Texans Commercial Capital, LLC (the "Mockingbird
Commons Loan Agreement") to pay a portion of such purchase price. Additional
borrowings of $4,000,000 are available under the Mockingbird Commons Loan
Agreement for certain preliminary development costs, including engineering and
asbestos abatement. The Mockingbird Commons Loan is further evidenced by a
promissory note from the Partnership to Texans Commercial Capital, LLC in the
amount of $17,000,000 with a fixed interest rate of 6% per annum. The
Mockingbird Commons Loan Agreement has a two-year term and allows for prepayment
of the principal balance, in whole or in part, with no prepayment penalty fee,
with at least 5 business days written notice. The Mockingbird Commons Property
is subject to a deed of trust to collateralize payment of the Mockingbird
Commons Loan. The Partnership has guaranteed the Mockingbird Commons Loan. Under
the guarantee, the Partnership's obligation is limited to 70% of the unpaid
balance. In addition, under the guarantee, obligations from the Mockingbird
Commons Partnership to the Partnership are subordinated to the Mockingbird
Commons Loan.
The Mockingbird Commons Property is held by the Mockingbird Commons
Partnership in which Behringer Harvard Mockingbird Commons GP, LLC, a
wholly-owned subsidiary of the Partnership (the "Mockingbird Commons
Subsidiary"), is the general partner. Behringer Harvard Mockingbird Commons
Investors LP ("BH Investors") and Realty America Group (Mockingbird Commons),
LP, ("Realty') an unaffiliated third party, are the limited partners. The
purchase price for the transaction was determined through negotiations between
the seller of the property, Maharishi Global Development Fund (the "Seller"), an
unaffiliated third party, Realty and Behringer Harvard Advisors II LP, the
Partnership's general partner. In evaluating the Mockingbird Commons Property as
a potential acquisition and determining whether the amount of consideration to
be paid was appropriate, a variety of factors were considered, including overall
valuation of the future net income, expected capital expenditures, costs of
physical plant maintenance, location, environmental issues, demographics,
alternative uses of the property, and price per square foot.
The Mockingbird Commons Partnership was formed on November 8, 2004. The
initial contributions to the Partnership were $100 from the Mockingbird Commons
Subsidiary, $10,247,463 from BH Investors and $4,391,813 from Realty. The
General Partner of BH Investors, owning a 0.1% interest in BH Investors is
Behringer Harvard Mockingbird Commons Investors GP, LLC, a wholly-owned
subsidiary of the Partnership. The Partnership is the limited partner of BH
Investors owning a 99.9% interest of BH Investors.
The Partnership issued 1,013,029 units of limited partnership between
October 1, 2004 and November 1, 2004. resulting in gross proceeds of $10,099,278
to the Partnership. Units of limited partnership outstanding as of November 1,
2004 totaled 4,307,069 units.
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:
17
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 GAAP. 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.
For real estate owned by the Partnership through an investment in a
joint venture, tenant in common interest or other similar investment structure,
at each reporting date management will compare the estimated fair value of its
investment to the carrying value. An impairment charge is recorded to the extent
the fair value of its investment is less than the carrying amount and the
decline in value is determined to be other than a temporary decline.
18
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. 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 nine month periods ended September 30,
2004 are not comparable to the results of operations for the three and nine
month periods ended September 30, 2003.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2004 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2003
Rental revenue for the three months ended September 30, 2004 was
$748,566 and was comprised of revenue, including adjustments for straight line
rent and amortization of above and below market leases, from the Woodall Rodgers
and Quorum Properties. During the three months ended September 30, 2003, the
19
Partnership did not own any real estate. Management believes there will be
future increases in rental revenue as the Partnership continues to acquire
additional real estate properties.
Property operating expenses for the three months ended September 30,
2004 were $287,147 and were comprised of operating expenses from the Woodall
Rodgers and Quorum Properties. During the three months ended September 30, 2003,
the Partnership did not own any real estate. Management believes there will be
future increases in property operating expenses as the Partnership continues to
acquire additional real estate properties.
Ground rent expense for the three months ended September 30, 2004 was
$87,837 and represents the operating lease on the developed land included in the
Woodall Rodgers Property. During the three months ended September 30, 2003, the
Partnership did not own any real estate.
Real estate taxes for the three months ended September 30, 2004 were
$77,088 and were comprised of real estate taxes from the Woodall Rodgers and
Quorum Properties. During the three months ended September 30, 2003, the
Partnership did not own any real estate. Management believes there will be
future increases in real estate taxes as the Partnership continues to acquire
additional real estate properties.
Property and asset management fees for the three months ended September
30, 2004 were $59,314 and were comprised of property and asset management fees
from the Woodall Rodgers and Quorum Properties. During the three months ended
September 30, 2003, the Partnership did not own any real estate. Management
believes there will be future increases in property and asset management as the
Partnership continues to acquire additional real estate properties.
General and administrative expenses for the three months ended September
30, 2004 were $177,263 and were comprised of general and administrative expenses
from the Woodall Rodgers and Quorum Properties 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 September 30, 2003, the
Partnership did not own any real estate and there was minimal corporate
activity. Management believes there will be future increases in general and
administrative expenses as the Partnership continues to acquire additional real
estate properties and add limited partners.
Interest expense for the three months ended September 30, 2004 was
$157,546 and was comprised of interest expense and amortization of deferred
financing fees associated with the Partnership's mortgage notes obtained in
connection with the acquisitions of the Woodall Rodgers and Quorum Properties.
During the three months ended September 30, 2003, the Partnership did not own
any real estate and there was no outstanding debt. Management believes there
will be future increases in interest expense as the Partnership continues to
acquire additional real estate properties.
Depreciation and amortization expense for the three months ended
September 30, 2004 was $260,291 and was comprised of depreciation and
amortization of the Woodall Rodgers and Quorum Properties. During the three
months ended September 30, 2003, the Partnership did not own any real estate.
Management believes there will be future increases in depreciation and
amortization expense as the Partnership continues to acquire additional real
estate properties.
Other income for the three months ended September 30, 2004 was $31,345
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 three months ended September
30, 2003, the Partnership had lower cash balances on deposit with banks.
Equity in losses of investments in joint ventures for the three months
ended September 30, 2004 was $151,993 and was comprised of the Partnership's
share of equity in the losses of the Skillman Property and the
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Central Property. During the three months ended September 30, 2003, the
Partnership did not have any investments in joint ventures.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2004 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
Rental revenue for the nine months ended September 30, 2004 was
$1,332,626 and was comprised of revenue, including adjustments for straight line
rent and amortization of above and below market leases, from the Woodall Rodgers
and Quorum Properties. During the nine months ended September 30, 2003, the
Partnership did not own any real estate. Management believes there will be
future increases in rental revenue as the Partnership continues to acquire
additional real estate properties.
Property operating expenses for the nine months ended September 30, 2004
were $476,058 and were comprised of operating expenses from the Woodall Rodgers
and Quorum Properties. During the nine months ended September 30, 2003, the
Partnership did not own any real estate. Management believes there will be
future increases in property operating expenses as the Partnership continues to
acquire additional real estate properties.
Ground rent expense for the nine months ended September 30, 2004 was
$205,470 and represents the operating lease on the developed land included in
the Woodall Rodgers Property. During the nine months ended September 30, 2003,
the Partnership did not own any real estate.
Real estate taxes for the nine months ended September 30, 2004 were
$167,632 and were comprised of real estate taxes from the Woodall Rodgers and
Quorum Properties. During the nine months ended September 30, 2003, the
Partnership did not own any real estate. Management believes there will be
future increases in real estate taxes as the Partnership continues to acquire
additional real estate properties.
Property and asset management fees for the nine months ended September
30, 2004 were $105,073 and were comprised of property and asset management fees
from the Woodall Rodgers and Quorum Properties. During the nine months ended
September 30, 2003, the Partnership did not own any real estate. Management
believes there will be future increases in property and asset management fees as
the Partnership continues to acquire additional real estate properties.
General and administrative expenses for the nine months ended September
30, 2004 were $303,609 and were comprised of general and administrative expenses
from the Woodall Rodgers and Quorum Properties 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 nine months ended September 30, 2003, the
Partnership did not own any real estate and there was minimal corporate
activity. Management believes there will be future increases in general and
administrative expenses as the Partnership continues to acquire additional real
estate properties and add limited partners.
Interest expense for the nine months ended September 30, 2004 was
$311,770 and was comprised of interest expense and amortization of deferred
financing fees associated with the Partnership's mortgage notes obtained in
connection with the acquisitions of the Woodall Rodgers and Quorum Properties.
During the nine months ended September 30, 2003, the Partnership did not own any
real estate and there was no outstanding debt. Management believes there will be
future increases in interest expense as the Partnership continues to acquire
additional real estate properties.
Depreciation and amortization expense for the nine months ended
September 30, 2004 was $496,549 and was comprised of depreciation and
amortization of the Woodall Rodgers and Quorum Properties. During the nine
months ended September 30, 2003, the Partnership did not own any real estate.
Management believes there will be future increases in rental revenue as the
Partnership continues to acquire additional real estate properties.
Other income for the nine months ended September 30, 2004 was $70,341
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
21
short-term liquid investments and earn interest income. During the nine months
ended September 30, 2003, the Partnership had lower cash balances on deposit
with banks.
Equity in losses of investments in joint ventures for the nine months
ended September 30, 2004 was $151,993 and was comprised of the Partnership's
share of equity in the losses of the Skillman Property and the Central Property.
During the nine months ended September 30, 2003, the Partnership did not have
any investments in joint ventures.
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 nine months ended
September 30, 2004 are not comparable to the cash flows for the nine months
ended September 30, 2003.
Cash flows from operating activities for the nine months ended September
30, 2004 were $234,896 and were primarily comprised of the net loss of
$(815,187), changes in working capital accounts of $246,656 and depreciation and
amortization of $651,434. Cash flows from operating activities for the nine
months ended September 30, 2003, were substantially lower at $(22,020) due to
the lack of real estate investments and corporate activity.
Cash flows from investing activities for the nine months ended September
30, 2004 were $(26,735,817) and were primarily comprised of the Partnership's
acquisition of the Woodall Rodgers and Quorum Properties for a combined total of
$20,025,190 and the purchase of investments in joint ventures of $5,207,511 for
the Skillman and Central Properties. During the nine months ended September 30,
2003, the Partnership did not own any real estate investments.
Cash flows from financing activities for the nine months ended September
30, 2004 were $34,142,333 and were comprised primarily of funds received from
the issuance of limited partnership units and proceeds from the mortgage loans
associated with the Woodall Rodgers and Quorum Properties, partially offset by
the repayment of the interim financing mortgage note associated with the Woodall
Rodgers property. During the nine months ended September 30, 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 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.
22
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 current
properties and those 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. Currently, a
portion of the distributions are paid from cash provided by operations and a
portion is paid from sales of securities. 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.
As of September 30, 2004, the Partnership had cash on deposit in the
amount of $1,030,000 for the purchase of the Coit Property located in Plano,
Texas, a suburb of Dallas that closed on October 4, 2004 and $262,500 for the
purchase of the Mockingbird Commons Property located in Dallas, Texas that
closed on November 8, 2004.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Partnership's contractual obligations
as of September 30, 2004:
Payments due by period
--------------------------------------------------------------
Less than 1-3 3-5 More than
Total 1 year years years 5 years
--------------------------------------------------------------------------
Mortgage notes payable
Woodall Rogers Facility A $ 4,300,000 $ - $4,300,000 $ - $ -
Woodall Rogers Facility B 1,700,000 170,000 1,530,000 - -
Quorum 4,550,000 - 374,238 4,175,762 -
Operating lease 32,675,364 351,348 702,696 702,696 30,918,624
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 has no investments that would be materially
affected by a 1% increase or decrease in interest expense. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources." The Partnership does not have any foreign
operations and thus is not exposed to foreign currency fluctuations.
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 September 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.
23
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
As of September 30, 2004, the Partnership had sold 3,294,040 of limited
partnership units pursuant to the Offering for gross proceeds of $32,562,731.
Through September 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 $ 3,544,055
Other expenses to non-affiliates 7,387
----------------
Total expenses $ 3,551,442
================
The net offering proceeds to the Partnership, after deducting the total
expenses paid and accrued described above were $29,011,289.
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 September 30, 2004, the Partnership had used $17,012,701 of such
net offering proceeds to purchase the Woodall Rodgers and Quorum Properties, net
of the mortgages payable, and the investments in joint ventures for the Skillman
and Central Properties. Of the amount used for the purchase of these
investments, $1,223,886 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.
On November 8, 2004, the Partnership acquired a 70% interest in the
ownership of a nine-story hotel located on approximately 5.4 acres of land in
Dallas, Texas (the "Mockingbird Commons Property"), through its direct and
indirect partnership interests in Behringer Harvard Mockingbird Commons LP (the
"Mockingbird Commons Partnership"). The site is planned for redevelopment as a
475,000 square foot mixed-use project with a boutique hotel, high-rise luxury
condominiums and retail stores. The Mockingbird Commons Property currently has
no significant operations and no operations are planned until the redevelopment
process has been completed. The contract price for the Mockingbird Commons was
$17,000,000, excluding closing costs.
The Mockingbird Commons Property was acquired by the Mockingbird Commons
Partnership using borrowings of $13,000,000 (the "Mockingbird Commons Loan")
under a loan agreement with Texans Commercial Capital, LLC (the "Mockingbird
Commons Loan Agreement") to pay a portion of such purchase price. Additional
borrowings of $4,000,000 are available under the Mockingbird Commons Loan
Agreement for
24
preliminary development costs, including engineering and asbestos abatement. The
Mockingbird Commons Loan is further evidenced by a promissory note from the
Partnership to Texans Commercial Capital, LLC in the amount of $17,000,000 with
a fixed interest rate of 6% per annum. The Mockingbird Commons Loan Agreement
has a two-year term and allows for prepayment of the principal balance, in whole
or in part; with no prepayment penalty fee, with at least 5 business days
written notice. The Mockingbird Commons Property is subject to a deed of trust
to collateralize payment of the Mockingbird Commons Loan. The Partnership has
guaranteed the Mockingbird Commons Loan. Under the guarantee, the Partnership's
obligation is limited to 70% of the unpaid balance. In addition, under the
guarantee, obligations from the Mockingbird Commons Partnership to the
Partnership are subordinated to the Mockingbird Commons Loan.
The Mockingbird Commons Property is held by the Mockingbird Commons
Partnership in which Behringer Harvard Mockingbird Commons GP, LLC, a
wholly-owned subsidiary of the Partnership (the "Mockingbird Commons
Subsidiary"), is the general partner. Behringer Harvard Mockingbird Commons
Investors LP ("BH Investors") and Realty America Group (Mockingbird Commons),
LP, ("Realty') an unaffiliated third party, are the limited partners. The
purchase price for the transaction was determined through negotiations between
the seller of the property, Maharishi Global Development Fund (the "Seller"), an
unaffiliated third party, Realty and Behringer Harvard Advisors II LP, the
Partnership's general partner. In evaluating the Mockingbird Commons Property as
a potential acquisition and determining whether the amount of consideration to
be paid was appropriate, a variety of factors were considered, including overall
valuation of the future net income, expected capital expenditures, costs of
physical plant maintenance, location, environmental issues, demographics,
alternative uses of the property, and price per square foot.
The Mockingbird Commons Partnership was formed on November 8, 2004. The
initial contributions to the Partnership were $100 from the Mockingbird Commons
Subsidiary, $10,247,463 from BH Investors and $4,391,813 from Realty. The
General Partner of BH Investors, owning a 0.1% interest in BH Investors is
Behringer Harvard Mockingbird Commons Investors GP, LLC, a wholly-owned
subsidiary of the Partnership. The Partnership is the limited partner of BH
Investors owning a 99.9% interest in BH Investors.
Distributions of cash from operations from the Mockingbird Commons
Partnership are to be made on a monthly basis to the partners in their
respective percentages (being 0.1% for the Mockingbird Commons Subsidiary, 69.9%
for BH Investors, and 30% for Realty) until the partners capital accounts are
reduced to zero. Thereafter, distributions of cash are to be made in the
following percentages: 0.1% to the Mockingbird Commons Subsidiary, 49.9% to BH
Investors, and 50% to Realty.
On the date of acquisition of the Mockingbird Commons Property, Realty
was paid a brokerage fee equal to 1% of the contract purchase price for the
Mockingbird Commons Property.
The Mockingbird Commons Partnership has agreed to enter into a
Development Agreement with Realty America Development LP (the "Developer") to
perform development services in respect of the Property, pursuant to which the
Developer will receive a development fee from the Mockingbird Commons
Partnership of up to 4% of the costs of developing the Property.
HPT Management Services, LP (the "Property Manager"), an affiliate of
the Partnership, has the sole and exclusive right to manage, operate, lease, and
supervise the overall maintenance of the Mockingbird Commons Property. Among
other things, the Property Manager has the authority to negotiate and enter into
leases of the property on behalf of the Partnership, to incur costs and
expenses, to pay property operating costs and expenses from property cash flow
or reserves and to require that the Partnership provide sufficient funds for the
payment of operating expenses.
As compensation, the Property Manager receives a property management fee
equal to 4.5% of the monthly gross revenues (as defined in the Amended and
Restated Property Management and Leasing Agreement dated June 2, 2003). The
Property Manager will subcontract certain of its on-site management services to
an affiliate of Realty. The Mockingbird Commons Partnership also pays an asset
management fee to Behringer Harvard Advisors II LP equal to 0.5% of the
aggregate book value of the assets of the Mockingbird Commons Partnership. The
asset management fee shall be up to 1% of the costs of developing the Property.
The Mockingbird Commons Partnership shall pay to Realty America and
Behringer Harvard Advisors II LP (or its designated Affiliate) a market rate
sales commission upon the sale of the Property, payable if and when the closing
of the sale of the Property occurs, with 80% of such fee being paid to Realty
America and 20% of such fee being paid to Behringer Harvard Advisors II LP (or
its designated Affiliate).
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ITEM 6. EXHIBITS.
The exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
26
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: November 12, 2004 By: /s/ Gary S. Bresky
-------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
10.1 Contract of Purchase and Sale by and between Maharishi Global
Development Fund and Realty America Group, L.P. regarding the
Mockingbird Commons Property
10.2 Agreement of Limited Partnership of Behringer Harvard
Mockingbird Commons GP, LLC, Behringer Harvard Mockingbird
Commons Investors LP and Realty America Group
10.3 Loan Agreement made between Texans Commercial Capital, LLC and
Behringer Harvard Mockingbird Commons LP
10.4 Guaranty Agreement made by Behringer Harvard Short-Term
Opportunity Fund I LP to Texans Commercial Capital, LLC
10.5 Deed of Trust, Security Agreement and Financing Statement by
Behringer Harvard Mockingbird Commons LP, as grantor, to Gerald
W. Gurney and/or John C. O'Shea as Trustee for the benefit of
Texans Commercial Capital, LLC
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
99.1 Press Release dated November 8, 2004 announcing the acquisition
of the Mockingbird Commons