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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[MARK ONE]
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 333-100125
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 incorporation (I.R.S. Employer
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
Securities registered pursuant to section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
NONE
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of limited partnership interests held by
nonaffiliates of the Registrant as of June 30, 2004 (the last business day of
the Registrant's most recently completed second fiscal quarter) was $20,241,400
and as of December 31, 2004 was $69,397,780, assuming a market value of $10 per
unit of limited partnership interest.
While there is no established market for the Registrant's units of limited
partnership interest, the Registrant sold units pursuant to a Form S-11
Registration Statement under the Securities Act of 1933, until the termination
of the offering on February 19, 2005, at a price of $10 per unit.
As of March 16, 2005, the Registrant had 10,994,688 units of limited partnership
interest outstanding.
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BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
FORM 10-K
YEAR ENDED DECEMBER 31, 2004
PART I
PAGE
ITEM 1. BUSINESS............................................................4
ITEM 2. PROPERTIES.........................................................13
ITEM 3. LEGAL PROCEEDINGS..................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES................15
ITEM 6. SELECTED FINANCIAL DATA............................................18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.........................................27
ITEM 9A. CONTROLS AND PROCEDURES............................................27
ITEM 9B. OTHER INFORMATION..................................................27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................28
ITEM 11. EXECUTIVE COMPENSATION.............................................31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS..................................32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................32
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................34
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.........................35
SIGNATURES....................................................................36
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements, including
discussion and analysis of Behringer Harvard Short-Term Opportunity Fund I LP
(which may be referred to as the "Partnership," "we," "us," or "our") and our
subsidiaries, our financial condition, anticipated capital expenditures required
to complete projects, amounts of anticipated cash distributions to our 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 our
management based on their knowledge and understanding of the business and
industry. Words such as "may," "will," "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," "would," "could," "should," 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 our 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. We caution you not to place undue
reliance on forward-looking statements, which reflect our management's view only
as of the date of this Form 10-K. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results. The forward-looking
statements should be read in light of the risk factors identified in the "Risk
Factors" section of our Registration Statement on Form S-11, as filed with the
Securities and Exchange Commission as well as the following selected risks and
uncertainties that could cause our actual results to differ from those presented
in our forward-looking statements:
RISKS RELATED TO INVESTMENTS IN REAL ESTATE
o Our operating results may be affected by economic and regulatory
changes that have an adverse impact on the real estate market in
general.
o Lease terminations could reduce the amount of revenue we receive
from tenants.
o We may be unable to sell a property if or when we decide to do
so.
o We may be subject to uninsured losses relating to real property
or excessively expensive premiums for insurance coverage.
o Properties that we purchase may be subject to development and
construction delays and resultant increased costs and risks.
o Competition with third parties in acquiring properties and other
investments may reduce our profitability.
o A concentration of our investments in any one property class may
leave our profitability vulnerable to a downturn in such sector.
o If we set aside insufficient working capital reserves, we may be
required to defer necessary property improvements.
o The costs of compliance with environmental laws and other
governmental laws and regulations could be significant.
o If we sell properties by providing financing to purchasers, we
will bear the risk of default by the purchaser.
RISKS ASSOCIATED WITH DEBT FINANCING
o We will incur mortgage indebtedness and other borrowings, which
will increase our business risks.
o We may be unable to secure mortgage debt at reasonable rates.
o Lenders may require us to enter into restrictive covenants
relating to our operations.
o Increases in interest rates could increase the amount of our
debt payments.
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RISKS RELATED TO CONFLICTS OF INTEREST
o Our general partners will face conflicts of interest relating to
the purchase and leasing of properties.
o Actions by a co-venturer, co-tenant or partner might have the
result of subjecting a property to additional liabilities.
o Our general partners and certain of our key personnel will face
competing demands relating to their time.
OTHER OPERATIONAL RISKS
o Adverse economic conditions would materially affect our returns
and profitability.
o We may have to make expedited decisions on whether to invest in
certain properties, including prior to receipt of detailed
information on the property.
o If we lose or are unable to obtain key personnel, our ability to
implement our investment strategies could be delayed or
hindered.
o Gains and distributions upon resale of our properties are
uncertain.
o We could be characterized as a publicly traded partnership,
which could have an adverse tax effect.
o Unrelated business taxable income, or UBTI, may be generated
with respect to tax-exempt investors.
PART I
ITEM 1. BUSINESS.
FORMATION
We are a limited partnership formed in Texas on July 30, 2002. Our
general partners are Behringer Harvard Advisors II LP ("Behringer Advisors II")
and Robert M. Behringer (collectively the "General Partners"). We were funded
through capital contributions from our General Partners and initial limited
partner on September 20, 2002 (date of inception) and offered our limited
partnership units pursuant to the public offering which commenced on February
19, 2003 and terminated on February 19, 2005 ("the Offering"). The Offering was
a best efforts continuous offering and we admitted new investors until the
termination of the Offering. We are using the proceeds from the Offering, after
deducting offering expenses, primarily to acquire income-producing properties,
including office buildings, shopping centers, business and industrial parks,
manufacturing facilities, apartment buildings, warehouses and distribution
facilities, generally in markets with higher volatility, lower barriers to entry
and high growth potential.
Our partnership agreement (the "Partnership Agreement") provides that we
will continue in existence until the earlier of December 31, 2017 or termination
of the Partnership by written consent of all the Partners.
On February 19, 2003, we commenced the Offering of up to 10,000,000
limited partnership units 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 covered up to 1,000,000 limited partnership units
available pursuant to our distribution reinvestment plan.
On January 21, 2005, we amended our Registration Statement on Form S-11
with Amendment No. 7 to increase the units of limited partnership interest being
offered to 10,950,000 and decrease the units to be issued under the distribution
reinvestment plan to 50,000 units.
As of December 31, 2004, we had accepted subscriptions for 6,939,778
limited partnership units. Our limited partnership units are not currently
listed on a national exchange, and we do not expect any public market for the
units to develop.
We were in the development stage through February 10, 2004. On February
11, 2004, we commenced operations with our acquisition of a five-story office
building in Dallas, Texas.
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INVESTMENT OBJECTIVES AND CRITERIA
Our objective is to invest in income-producing real estate properties,
including properties that have been constructed and have operating histories,
are newly constructed or are under development or construction. Our investment
objectives are:
o to preserve, protect and return investor's capital
contributions;
o to maximize cash distributions paid to investors;
o to realize growth in the value of our properties upon the
ultimate sale of such properties; and
o within five years after termination of the Offering on February
19, 2005, either (i) to make an orderly disposition of the
properties and distribute the cash to the investors or (ii) upon
the approval of the majority of the limited partners, for all
the investors to exchange their units for interests in another
Behringer Harvard program.
We cannot assure investors that we will attain these objectives or that
our capital will not decrease. We may not change our investment objectives
except with the approval of limited partners holding a majority of our units
(without regard to units owned or controlled by our General Partners). In the
event that the holders of a majority of our units approve a merger or
consolidation with another partnership or corporation, in lieu of our
liquidation, limited partners who dissent from any such merger or consolidation
will be entitled to receive cash for their units based on the appraised value of
our net assets.
Our General Partners make all decisions relating to the purchase or sale
of our properties.
ACQUISITION AND INVESTMENT POLICIES
We primarily invest in quality commercial properties, such as office,
retail, apartment, industrial and hotel properties that have been identified as
being opportunistic investments with significant possibilities for near term
capital appreciation. These properties will be identified as such because of
their property specific characteristics or their market characteristics. For
instance, properties that may benefit from unique repositioning opportunities or
that are located in markets with higher volatility, lower barriers to entry and
high growth potential (such as the southwestern United States), may present
appropriate investments for us. We intend to hold our properties three to five
years from the termination of the Offering on February 19, 2005, which we
believe is the optimal period to enable us to capitalize on the potential for
increased income and capital appreciation of our properties. However, economic
or market conditions may influence us to hold our investments for different
periods of time. Our General Partners believe that a portfolio consisting of a
preponderance of these types of properties enhances our liquidity opportunities
for investors by making the sale of individual properties, multiple properties
or our investment portfolio as a whole attractive to institutional investors.
We plan to be opportunistic in our acquisitions of properties.
Properties may be acquired in markets that are depressed or overbuilt with the
anticipation that these properties will increase in value as the markets
recover. Properties may also be acquired and repositioned by seeking to improve
the property and tenant quality and thereby increase lease revenues. Many of the
markets where we will acquire properties may have low barriers to entry.
However, we are not limited to such investments. We may invest in commercial
properties, including office buildings, shopping centers, business and
industrial parks, manufacturing facilities, apartment buildings, warehouses and
distribution facilities if our General Partners determine that it would be
advantageous to do so. Investments may also include commercial properties that
are not preleased to such tenants or in other types of commercial properties,
such as hotels or motels. We may purchase properties that have been constructed
and have operating histories, are newly constructed or are under development or
construction. We will not, however, be actively engaged in the business of
operating hotels, motels or similar properties.
We will continue to seek to invest in properties that will satisfy our
objective of providing distributions of current cash flow to our limited
partners. However, because a significant factor in the valuation of
income-producing real properties is their potential for future appreciation in
value, our General Partners anticipate that the majority of properties we
acquire will have the potential for both capital appreciation and distributions
of current cash flow to investors. To the extent feasible, we will invest in a
diversified portfolio of properties in
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terms of geography, type of property and industry of our tenants that will
satisfy our investment objectives of maximizing net cash from operations,
preserving our capital and realizing capital appreciation upon the ultimate sale
of our properties.
We will not invest more than the lesser of 25% of the gross offering
proceeds available for investment or 10% of our aggregate asset value in
non-income producing properties. If a property is expected to produce income
within two years of its acquisition, we will not consider it a non-income
producing property. In addition, we will not acquire any property in exchange
for units.
Our investment in real estate generally will continue to take the form
of holding fee title or a long-term leasehold estate, either directly or
indirectly through investments in joint ventures, partnerships, co-tenancies or
other co-ownership arrangements with the developers of the properties,
affiliates of the General Partners or other persons. In addition, we may
purchase properties and lease them back to the sellers of such properties. While
we will use our best efforts to structure any such sale-leaseback transaction
such that the lease will be characterized as a "true lease" so that we will be
treated as the owner of the property for federal income tax purposes, we cannot
assure you that the Internal Revenue Service will not challenge such
characterization. In the event that any such sale-leaseback transaction is
recharacterized as a financing transaction for federal income tax purposes,
deductions for depreciation and cost recovery relating to such property would be
disallowed, and our income therefrom could be treated as portfolio income,
rather than passive income.
We intend to continue to invest in properties that complement our
geographic diversification, although we expect to focus on markets with higher
volatility, lower barriers to entry and high growth potential (such as the
southwestern United States). Although we are not limited as to the geographic
area where we may conduct our operations, we intend to continue to invest in
properties located in the United States.
An affiliate of our General Partners has developed and uses proprietary
modeling tools that our General Partners believe will help them to identify
favorable property acquisitions, enable them to forecast growth and make
predictions at the time of the acquisition of a property as to optimal portfolio
blend, disposition timing and sales price. Using these tools in concert with our
overall strategies, including individual market monitoring and ongoing analysis
of macro- and micro-regional economic cycles, we expect to be better able to
identify favorable acquisition targets, to increase current returns and the
resultant current distributions to investors and to maintain higher relative
portfolio property values, and execute timely dispositions at appropriate sales
prices to enhance capital gains distributable to our investors.
In making investment decisions for us, our General Partners consider
relevant real estate property and financial factors, including the location of
the property, its suitability for any development contemplated or in progress,
its income-producing capacity, the prospects for long-range appreciation, and
its liquidity and income tax considerations. Our General Partners have
substantial discretion with respect to the selection of our specific
investments.
We will continue to obtain independent appraisals for each property in
which we invest. However, we will rely on our own independent analysis and not
on such appraisals in determining whether to invest in a particular property. It
should be noted that appraisals are estimates of value and should not be relied
upon as measures of true worth or realizable value. Copies of these appraisals
will be available for review and duplication by investors at our office and will
be retained for at least five years.
Our obligation to purchase any property will generally be conditioned
upon the delivery and verification of certain documents from the seller or
developer, including, where appropriate:
o plans and specifications;
o environmental reports;
o surveys;
o evidence of marketable title subject to such liens and
encumbrances as are acceptable to our General Partners;
o audited financial statements covering recent operations of
properties having operating histories; and
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o title and liability insurance policies.
We may also enter into arrangements with the seller or developer of a
property whereby the seller or developer agrees that, if during a stated period
the property does not generate a specified cash flow, the seller or developer
will pay in cash to us a sum necessary to reach the specified cash flow level,
subject in some cases to negotiated dollar limitations.
In determining whether to purchase a particular property, we may, in
accordance with customary practices, obtain an option on such property. The
amount paid for an option, if any, is normally surrendered if the property is
not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real properties, we will be
subject to risks generally incident to the ownership of real estate, including:
o changes in general economic or local conditions;
o changes in supply of or demand for similar or competing
properties in an area;
o changes in interest rates and availability of permanent mortgage
funds that may render the sale of a property difficult or
unattractive;
o changes in tax, real estate, environmental and zoning laws;
o periods of high interest rates and tight money supply that may
make the sale of properties more difficult;
o tenant turnover; and
o general overbuilding or excess supply in the market area.
We and our performance are subject to the additional risks listed in the
"Risk Factors" section of our Registration Statement on Form S-11, as filed with
the Securities and Exchange Commission. Some of these risks are listed in the
"Forward-Looking Statements" section of this Annual Report.
ACQUISITION OF PROPERTIES FROM BEHRINGER DEVELOPMENT
We have, and may in the future acquire properties, directly or through
joint ventures, with affiliated entities, including (i) Behringer Development
Company LP ("Behringer Development"), an indirect wholly owned subsidiary of
Behringer Harvard Holdings, LLC ("Behringer Holdings") and (ii) BHD, LLC, which
is a wholly owned subsidiary of Behringer Holdings. Behringer Development was
formed to (1) acquire existing income-producing commercial real estate
properties, and (2) acquire land, develop commercial real properties, secure
tenants for such properties and sell such properties upon completion to us or
other Behringer Harvard programs.
We may purchase or acquire a property from Behringer Development or any
of our affiliates only if:
o Behringer Development temporarily enters into a contract
relating to an investment property to be assigned to us or
purchases an investment property in its own name and temporarily
holds title to the property in order to facilitate our
acquisition of the property, our borrowing money or obtaining
financing to purchase the property, the completion of
construction of the property or for any other purpose related to
our business.
o The purchase price that we pay to Behringer Development for the
property will not exceed the cost to Behringer Development of
the acquisition, construction and development of the project,
including interest and other carrying costs to Behringer
Development except for acquisition and advisory fees payable to
our General Partners or their affiliates.
o All profits and losses during the period any such property is
held by Behringer Development will accrue to us, and no other
benefit will accrue to Behringer Development or its affiliates
from the sale of such property.
o Behringer Development has not held title to the property for
more than twelve months prior to the beginning of this offering.
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Except as described above, we will not contract with Behringer Development or
any of its affiliates to develop or construct our properties.
Our General Partners will not cause us to enter into a contract to
acquire property from Behringer Development if they do not reasonably anticipate
that funds will be available to purchase the property at the time of closing. If
we enter into a contract to acquire property from Behringer Development and, at
the time for closing, are unable to purchase the property because we do not have
sufficient net proceeds available for investment, we will not be required to
close the purchase of the property and will be entitled to a refund of our
earnest money deposit from Behringer Development. Because Behringer Development
is an entity without substantial assets or operations, Behringer Development's
obligation to refund our earnest money deposit will be guaranteed by HPT
Management Services LP ("HPT Management"), our property manager, which will
enter into contracts to provide property management and leasing services to
various Behringer Harvard programs, including us, for substantial monthly fees.
As of the time HPT Management may be required to perform under any guaranty, we
cannot assure you that HPT Management will have sufficient assets to refund all
of our earnest money deposit in a lump sum payment. In such a case, we would be
required to accept installment payments over time payable out of the revenues of
HPT Management's operations. We cannot assure you that we would be able to
collect the entire amount of our earnest money deposit under such circumstances.
JOINT VENTURE AND CO-TENANCY INVESTMENTS
We have, and in the future are likely to, enter into joint ventures with
affiliated entities for the acquisition, development or improvement of
properties for the purpose of diversifying our portfolio of assets. In this
connection, we will likely enter into additional joint ventures with Behringer
Harvard Mid-Term Value Enhancement Fund I LP or other Behringer Harvard
programs. Our General Partners also have the authority to enter into joint
ventures, partnerships, co-tenancies and other co-ownership arrangements or
participations with real estate developers, owners and other affiliated third
parties for the purpose of developing, owning and operating real properties in
accordance with our investment policies. In determining whether to invest in a
particular joint venture, our General Partners will evaluate the real property
that such joint venture owns or is being formed to own under the same criteria
used for the selection of real property investments. For more information on
these criteria, see "Business - Acquisition and Investment Policies" and
"Business - Conflicts of Interest."
We may enter into a partnership, joint venture or co-tenancy with
unrelated parties if:
o the management of such partnership, joint venture or co-tenancy
is under our control in that we or one of our affiliates possess
the power to direct or to cause the direction of the management
and policies of any such partnership, joint venture or
co-tenancy;
o we, as a result of such joint ownership of a property, are not
charged, directly or indirectly, more than once for the same
services;
o the joint ownership, partnership or co-tenancy agreement does
not authorize or require us to do anything as a partner, joint
venturer or co-tenant with respect to the property that we or
our General Partners could not do directly under our partnership
agreement; and
o our General Partners and their affiliates are prohibited from
receiving any compensation, fees or expenses that are not
permitted to be paid under our partnership agreement.
In the event that any such co-ownership arrangement contains a provision
giving each party a right of first refusal to purchase the other party's
interest, we may not have sufficient capital to finance the buy-out.
We intend to enter into joint ventures with other Behringer Harvard
programs for the acquisition of properties, but we may only do so provided that:
o each such program has substantially identical investment
objectives as ours with respect to the property held in the
partnership or joint venture;
o we, as a result of such joint ownership of a property, are not
charged, directly or indirectly, more than once for the same
services;
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o the compensation payable to our General Partners and their
affiliates is substantially identical in each program;
o we will have a right of first refusal to buy if such co-venturer
elects to sell its interest in the property held by the joint
venture; and \ o the investments by us and such other programs
are on substantially the same terms and conditions.
In the event that the co-venturer elects to sell property held in any
such joint venture, however, we may not have sufficient funds to exercise our
right of first refusal. In the event that any joint venture with an affiliated
entity holds interests in more than one property, the interest in each such
property may be specially allocated based upon the respective proportion of
funds invested by each co-venturer in each such property. Entering into joint
ventures with other Behringer Harvard programs will result in certain conflicts
of interest. See "Business - Conflicts of Interest."
We expect that from time to time our General Partners will be presented
with an opportunity to purchase all or a portion of a mixed-use property. In
such instances, it is possible that our General Partners would work in concert
with other Behringer Harvard programs to apportion the assets within the
property among us and the other Behringer Harvard programs in accordance with
the investment objectives of the various programs. After such apportionment, the
mixed-use property would be owned by two or more Behringer Harvard programs or
joint ventures comprised of Behringer Harvard programs. The negotiation of how
to divide the property among the various Behringer Harvard programs will not be
arm's-length and conflicts of interest will arise in the process. It is possible
that in connection with the purchase of a mixed-use property or in the course of
negotiations with other Behringer Harvard programs to allocate portions of such
mixed-use property, we may be required to purchase a property that our General
Partners would otherwise consider inappropriate for our portfolio, in order to
also purchase a property that our General Partners consider desirable. Although
independent appraisals of the assets comprising the mixed-use property will be
conducted prior to apportionment, it is possible that we could pay more for an
asset in this type of transaction than we would pay in an arm's-length
transaction with an unaffiliated third party.
BORROWING POLICIES
We intend to use debt secured by real estate as a means of providing
additional funds for the acquisition of properties and the diversification of
our portfolio. By operating on a leveraged basis, management expects that we
will have more funds available for investment in properties and other
investments. This will enable us to make more investments than would otherwise
be possible, resulting in a more diversified portfolio. Although management
expects the liability for the repayment of indebtedness to be limited to the
value of the property securing the liability and the rents or profits derived
therefrom, there can be no assurance that lender recourse will be limited to the
property financed by that lender. Furthermore, the use of leverage increases the
risk of default on the mortgage payments and a subsequent foreclosure of a
particular property. To the extent that we do not obtain mortgage loans on our
properties, our ability to acquire additional properties will be restricted.
There is no limitation on the amount we may invest in any single
improved property or other asset or on the amount we can borrow for the purchase
of any single property or other investment. Our Partnership Agreement authorizes
us to borrow funds to the extent permissible under applicable North American
Securities Administrators Association ("NASAA") Guidelines. These borrowing
limitations apply only after the termination of the Offering on February 19,
2005. Thus, during the Offering, we were able to borrow funds in any amount
necessary to enable us to invest the proceeds of the Offering in properties.
However, because we do not expect to have any loans insured, guaranteed or
provided by the federal government or any state or local government or agency or
instrumentality thereof, the total amount of indebtedness that may be incurred
by us can not exceed at any time the sum of (i) 85% of the aggregate purchase
price of all of our properties that have not been refinanced, plus (ii) 85% of
the aggregate fair value of all of our refinanced properties as determined by
the lender on the date of refinancing. We expect that at any time the total
amount of indebtedness incurred will not exceed 75% of its aggregate asset
value.
When financing the purchase of properties, we may use "all-inclusive" or
"wraparound" notes and deed of trust (referred to as an "all-inclusive note").
We will only utilize such all-inclusive notes if: (i) the sponsor (as defined
pursuant to the NASAA Guidelines) under the all-inclusive note shall not receive
interest on the
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amount of the underlying encumbrance included in the all-inclusive note in
excess of that payable to the lender on that underlying encumbrance; (ii) the
partnership shall receive credit on its obligation under the all-inclusive note
for payments made directly on the underlying encumbrance; and (iii) a paying
agent, ordinarily a bank, escrow company, or savings and loan, shall collect
payments (other than any initial payment of prepaid interest or loan points not
to be applied to the underlying encumbrance) on the all-inclusive note and make
disbursements from such payments to the holder of the underlying encumbrance
prior to making any disbursement to the holder of the all-inclusive note,
subject to the requirements of subparagraph (i) above, or, in the alternative,
all payments on the all-inclusive and underlying note shall be made directly by
the partnership.
We may borrow funds from our General Partners or their affiliates only
if the following qualifications are met:
o any such borrowing cannot constitute a "financing" as that term
is defined under the NASAA Guidelines, I.E., indebtedness
encumbering partnership properties or incurred by the
partnership, the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than
50% of the principal amount of which is scheduled to be paid
during the first 24 months;
o interest and other financing charges or fees must not exceed the
amounts that would be charged by unrelated lending institutions
on comparable financing for the same purpose in the same
locality as our principal place of business; and
o no prepayment charge or penalty shall be required.
While we will strive for diversification, the number of different
properties that we can acquire will be affected by the amount of funds available
to us. Our ability to increase our diversification through borrowing could be
adversely impacted if banks and other lending institutions reduce the amount of
funds available for loans secured by real estate. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
we may purchase certain properties for cash with the intention of obtaining a
mortgage loan for a portion of the purchase price at a later time.
We will refinance our properties during the term of a loan only in
limited circumstances, such as when a decline in interest rates makes it
beneficial to prepay an existing mortgage, when an existing mortgage matures or
if an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment. The benefits of the
refinancing may include an increased cash flow resulting from reduced debt
service requirements, an increase in cash distributions from proceeds of the
refinancing, and an increase in property ownership if refinancing proceeds are
reinvested in real estate.
CONFLICTS OF INTEREST
We are subject to various conflicts of interest arising out of our
relationship with our General Partners and their affiliates, including conflicts
related to the arrangements pursuant to which our General Partners and their
affiliates will be compensated by us. All of our agreements and arrangements
with our General Partners and their affiliates, including those relating to
compensation, are not the result of arm's-length negotiations. Some of the
conflicts of interest in our transactions with our General Partners and their
affiliates are described below.
Our General Partners are Robert M. Behringer and Behringer Advisors II.
Robert M. Behringer owns a controlling interest in Behringer Holdings, a
Delaware limited liability company that indirectly owns all of the outstanding
equity interests of Behringer Advisors II, HPT Management, our property manager,
and Behringer Securities LP, ("Behringer Securities"), our dealer manager.
Messrs. Behringer, Gerald J. Reihsen, III, Gary S. Bresky and M. Jason Mattox
are each the executive officers of Harvard Property Trust, LLC, the sole general
partner of Behringer Advisors II and Behringer Securities, HPT Management and
Behringer Securities. In addition, Mr. Robert S. Aisner is an executive officer
of Harvard Property Trust, LLC and an executive officer and a director of
Behringer Harvard REIT I, Inc., an affiliated entity.
Our General Partners will be advised by our advisory board. Although the
members of the advisory board are not permitted to serve as a general partner,
officer or employee of ours, Behringer Advisors II, our affiliates or affiliates
of Behringer Advisors II, members of our advisory board may purchase or own
securities of, or have other business relations with, such parties. One of the
members of the advisory board, Mr. Ralph G.
10
Edwards, Jr., has been an investor in a number of real estate programs sponsored
by Mr. Behringer. All of such programs have been liquidated. Another member of
our advisory board, Mr. Patrick M. Arnold, has represented prior real estate
programs sponsored by Mr. Behringer, and he or the law firm of which he is a
partner, is expected to represent us and our affiliates with respect to the real
estate transactions we enter into and other corporate matters. Mr. Arnold also
owns a nominal interest in Behringer Holdings. Any prior or current relationship
among us, our General Partners, and members of our advisory board may create
conflicts of interest. Because we were organized and will be operated by our
General Partners, conflicts of interest will not be resolved through
arm's-length negotiations but through the exercise of our General Partners'
judgment consistent with their fiduciary responsibility to the limited partners
and our investment objectives and policies. For a description of some of the
risks related to these conflicts of interest, see the "Risk Factors" section of
our Registration Statement on Form S-11, as filed with the Securities and
Exchange Commission.
INTERESTS IN OTHER REAL ESTATE PROGRAMS
Our General Partners and their affiliates are general partners of other
Behringer Harvard programs, including real estate programs that have investment
objectives similar to ours, and we expect that they will organize other such
programs in the future. Our General Partners and such affiliates have legal and
financial obligations with respect to these other programs that are similar to
their obligations to us. As general partners, they may have contingent liability
for the obligations of programs structured as partnerships as well as those of
ours, which, if such obligations were enforced against them, could result in
substantial reduction of their net worth.
In the event that an investment opportunity becomes available that is
suitable, under all of the factors considered by our General Partners, for both
us and one or more other Behringer Harvard programs, and for which more than one
of such entities has sufficient uninvested funds, then the entity that has had
the longest period of time elapse since it was offered an investment opportunity
will first be offered such investment opportunity. It shall be the duty of our
General Partners to ensure that this method is applied fairly to us. In
determining whether or not an investment opportunity is suitable for more than
one program, our General Partners shall examine, among others, the following
factors:
o the anticipated cash flow of the property to be acquired and the
cash requirements of each program;
o the effect of the acquisition both on diversification of each
program's investment by type of property and geographic area and
on diversification of the tenants of such properties;
o the income tax effects of the purchase on each such entity;
o the size of the investment;
o the amount of funds available to each program and the length of
time such funds have been available for investment; and
o in the case of Behringer Harvard REIT I, Inc. and Behringer
Harvard Mid-Term Value Enhancement Fund I LP, the potential
effect of leverage on such investment.
Robert M. Behringer and his affiliates have sponsored other privately
offered real estate programs with substantially similar investment objectives as
ours, and which are still operating and may acquire additional properties in the
future. Conflicts of interest may arise between these entities and us.
Our General Partners or their affiliates may acquire, for their own
account or for private placement, properties that they deem not suitable for
purchase by us, whether because of the greater degree of risk, the complexity of
structuring inherent in such transactions, financing considerations or for other
reasons, including properties with potential for attractive investment returns.
OTHER ACTIVITIES OF OUR GENERAL PARTNERS AND THEIR AFFILIATES
We rely on our General Partners and their affiliates for the day-to-day
operation of our business. As a result of their interests in other Behringer
Harvard programs and the fact that they have also engaged and will continue to
engage in other business activities, our General Partners and their affiliates
will have conflicts of interest in allocating their time between us and other
Behringer Harvard programs and other activities in which
11
they are involved. In addition, our partnership agreement does not specify any
minimum amount of time or level of attention that our General Partners must
devote to us. However, our General Partners believe that they and their
affiliates have sufficient personnel to discharge fully their responsibilities
to all of the Behringer Harvard programs and other ventures in which they are
involved.
We will not purchase or lease any property in which the General Partners
or any of their affiliates have an interest; provided, however, that our General
Partners or any of their affiliates may temporarily enter into contracts
relating to investment in properties to be assigned to us prior to closing or
may purchase property in their own name and temporarily hold title for us,
provided that such property is purchased by us at a price no greater than the
cost of such property, including acquisition and carrying costs, to our General
Partners or their affiliates. Further, our General Partners or such affiliates
may not have held title to any such property on our behalf for more than twelve
months prior to the commencement of this offering; our General Partners or their
affiliates will not sell property to us if the cost of the property exceeds the
funds reasonably anticipated to be available for us to purchase any such
property; and all profits and losses during the period any such property is held
by our General Partners or their affiliates will accrue to us. In no event may
we:
o sell or lease real property to our General Partners or any of
their affiliates, except under limited circumstances permissible
in the NASAA Guidelines;
o acquire property from any other program in which our General
Partners have an interest;
o make loans to our General Partners or any of their affiliates;
or
o enter into agreements with our General Partners or their
affiliates for the provision of insurance covering us or any of
our properties, except under the limited circumstances
permissible in the NASAA Guidelines.
COMPETITION IN ACQUIRING PROPERTIES
Conflicts of interest will exist to the extent that we may acquire
properties in the same geographic areas where properties owned by our General
Partners, their affiliates or other Behringer Harvard programs are located. In
such a case, a conflict could arise in the leasing of our properties in the
event that we and another Behringer Harvard program were to compete for the same
tenants in negotiating leases, or a conflict could arise in connection with the
resale of properties in the event that we and another Behringer Harvard program
were to attempt to sell similar properties at the same time. Conflicts of
interest may also exist at such time as we or our affiliates managing property
on our behalf seek to employ developers, contractors or building managers as
well as under other circumstances. Our General Partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective employees aware of all such properties seeking to
employ such persons. In addition, our General Partners will seek to reduce
conflicts that may arise with respect to properties available for sale or rent
by making prospective purchasers or tenants aware of all such properties.
However, these conflicts cannot be fully avoided in that there may be
established differing compensation arrangements for employees at different
properties or differing terms for resale or leasing of the various properties.
AFFILIATED PROPERTY MANAGER
We anticipate that properties we acquire will be managed and leased by
HPT Management, our affiliated property manager. Our agreement with HPT
Management has a three-year term ending in February 2006, which we can terminate
only in the event of gross negligence or willful misconduct on the part of HPT
Management. We expect HPT Management to also serve as property manager for
properties owned by affiliated real estate programs, some of which may be in
competition with our properties. Management fees to be paid to our property
manager are based on a percentage of the rental income received by the managed
properties.
GUIDELINES AND LIMITS IMPOSED BY OUR PARTNERSHIP AGREEMENT
The agreements and arrangements among us, our General Partners and their
affiliates have been established by our General Partners, and our General
Partners believe the amounts to be paid thereunder to be reasonable and
customary under the circumstances. In an effort to establish standards for
minimizing and
12
resolving these potential conflicts, our General Partners have agreed to the
guidelines and limitations set forth in our partnership agreement. Among other
things, these provisions:
o set forth the specific conditions under which we may own or
lease property jointly or in a partnership with an affiliate of
the General Partners;
o prohibit us from purchasing or leasing an investment property
from our General Partners or their affiliates except under
certain limited circumstances;
o prohibit loans by us to our General Partners or their
affiliates;
o prohibit the commingling of partnership funds (except in the
case of making capital contributions to joint ventures and to
the limited extent permissible under the NASAA Guidelines); and
o with certain exceptions, prohibit our General Partners from
merging or consolidating us with another partnership or a
corporation or converting us to a corporation unless the
transaction complies with certain terms and conditions including
first obtaining a majority vote of our limited partners.
In addition, as described below, our General Partners have a fiduciary
obligation to act in the best interests of both our limited partners and the
investors in other Behringer Harvard programs and will use their best efforts to
assure that we will be treated at least as favorably as any other Behringer
Harvard program.
COMPETITION
We may experience competition for tenants from owners and managers of
similar projects, which may include our affiliates. We will experience
competition in the acquisition of real estate from similar companies with access
to greater resources than those available to us. At the time we elect to dispose
of our properties, we will also be in competition with sellers of similar
properties to locate suitable purchasers for our properties.
EMPLOYEES
We have no direct employees. The employees of Behringer Advisors II and
other affiliates of us perform a full range of real estate services for us,
including acquisitions, property management, accounting, asset management,
wholesale brokerage and investor relations.
We are dependent on our affiliates for services that are essential to
us, including the sale of our limited partnership units, asset acquisition
decisions, property management and other general and administrative
responsibilities. In the event that these companies were unable to provide these
services to us, we would be required to obtain such services from other sources.
AVAILABLE INFORMATION
We electronically file an annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and all amendments to those reports
with the Securities and Exchange Commission ("SEC"). Copies of our filings with
the SEC may be obtained from our web site at HTTP://WWW.BHFUNDS.COM or at the
SEC's web site, at HTTP://WWW.SEC.GOV. Access to these filings is free of
charge.
ITEM 2. PROPERTIES.
As of December 31, 2004 we owned the following properties:
Approx. Rentable
Property Name Location Square Footage Description
---------------------------------------------------------------------------------------
Woodall Rogers Property Dallas, Texas 74,090 5-story office building
Quorum Property Dallas, Texas 133,799 7-story office building
13
As of December 31, 2004, we, through separate limited partnerships or
joint venture agreements, have acquired interests in the following properties:
Approx. Rentable Ownership
Property Name Location Square Footage Description Interest
-----------------------------------------------------------------------------------------------------------------
Skillman Property Dallas, Texas 98,764 shopping/service center 85.71%
Central Property Dallas, Texas 87,292 6-story office building 50.00%
Coit Property Dallas, Texas 105,030 2-story office building 90.00%
Mockingbird Commons Property Dallas, Texas 475,000 redevelopment property 70.00%
ITEM 3. LEGAL PROCEEDINGS.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
There is no established trading market for our limited partnership
units, and we do not expect that one will develop. This illiquidity creates a
risk that a limited partner may not be able to sell the units at a time or price
acceptable to the limited partner. It also makes it necessary for us to estimate
the value of our limited partnership units. As of March 31, 2005, we estimate
the per unit value of our limited partnership units to be $10. We base this
valuation on the fact that, as of December 31, 2004, we were selling our limited
partnership units to the public at a price of $10 per unit.
For the first three full fiscal years following the termination of the
Offering, which occurred on February 19, 2005, the value of our units will be
deemed to be $10 and no valuation or appraisal of our units will be performed.
Thereafter, we will prepare annual valuations of our units based upon the
estimated amount a limited partner would receive if all partnership assets were
sold for their estimated values as of the close of our fiscal year and all
proceeds from such sales, without reduction for selling expenses, together with
any funds held by it, were distributed to the limited partners upon liquidation.
Such estimated property values will be based upon annual valuations performed by
the General Partners, and no independent property appraisals will be obtained.
While the General Partners are required under the Partnership Agreement to
obtain the opinion of an independent third party stating that their estimates of
value are reasonable, the unit valuations provided by the General Partners may
not satisfy the technical requirements imposed on plan fiduciaries under the
Employee Retirement Income Security Act ("ERISA"). Similarly, the unit
valuations provided by the General Partners may be subject to challenge by the
Internal Revenue Service if used for any tax (income, estate and gift, or
otherwise) valuation purpose as an indicator of the fair value of the units.
UNIT REDEMPTION PROGRAM
The Partnership Agreement includes a unit redemption program. Limited
partners who have held their units for a least one year may receive the benefit
of limited liquidity by presenting for redemption all or a portion of their
units to us at any time in accordance with the procedures described below. At
that time, we may, subject to the conditions and limitations below, redeem the
units presented for redemption for cash to the extent that sufficient funds from
operations are available to fund such redemption. The purchase price for the
redeemed units for the period beginning after a limited partner has held the
units for a period of one year and ending after the first three full fiscal
years following termination of the Offering, which occurred on February 19,
2005, will generally be the lesser of (1) $9 per unit; provided, however, that
if we have sold property and have made one or more special distributions to
limited partners of all or a portion of the net proceeds from such sales, the
per unit redemption price will be 90% of the difference between the offering
price of units in our most recent offering and the amount of net sale proceeds
per unit distributed to investors prior to the redemption date as a result of
the sale of such property; or (2) the price the limited partner actually paid
for the units. Thereafter, the purchase price will be the lesser of (1) 90% of
the fair value per unit, or (2) the price the limited partner actually paid for
the units. The fair value utilized for purposes of establishing the purchase
price per unit will be the estimated value of units determined annually for
ERISA purposes. The fair value will be based on annual appraisals of our
properties performed by the General Partners and not by an independent
appraiser. The General Partners will, however, obtain annually an opinion of an
independent third party that their estimate of the fair value of each unit for
such year is reasonable and was prepared in accordance with appropriate methods
for valuing real estate. The General Partners reserve the right in their sole
discretion at any time and from time to time to (1) waive the one-year holding
period in the event of the death or bankruptcy of a limited partner or other
exigent circumstances, (2) reject any request for redemption, (3) change the
purchase price for redemptions, or (4) terminate, suspend and/or reestablish the
unit redemption program. In addition, for redemptions of units upon the death of
a limited partner or upon the permanent disability of a limited partner or such
limited partner's need for long-term care, the purchase price for units until
after the first three full fiscal years following termination of the Offering
will be equal to the price the limited partner actually paid for the units;
provided, however, that if we have sold property and have made one or more
special distributions to
15
limited partners of all or a portion of the net proceeds from such sales, the
per unit redemption price will be 90% of the difference between the offering
price of units in our most recent offering and the amount of net sale proceeds
per unit distributed to investors prior to the redemption date as a result of
the sale of such property. Thereafter, the purchase price will be the fair value
of the units as determined by estimated unit valuations. Under the terms of the
plan, during any calendar year we will not redeem in excess of 5% of the
weighted average number of units outstanding during the prior calendar year. In
addition, the General Partners will determine whether we have sufficient cash
from operations to repurchase units, and such purchases will generally be
limited to 1% of operating cash flow for the previous fiscal year plus proceeds
of our distribution reinvestment and automatic purchase plan.
We will cancel the units we purchase under the unit redemption program
and will not reissue the units unless they are first registered with the
Securities and Exchange Commission under the Securities Act and under
appropriate state securities laws or otherwise issued in compliance with or
exemption from such laws and our partnership agreement. As of December 31, 2004,
we had not repurchased any units under the unit redemption program.
HOLDERS
As of March 16, 2005, we had 10,994,688 limited partnership units
outstanding that were held by a total of approximately 4,257 limited partners.
DISTRIBUTIONS
The timing and amount of cash to be distributed to our limited partners
is determined by the General Partners and is dependent on a number of factors,
including funds available for payment of distributions, financial condition and
capital expenditures. However, the Partnership Agreement generally requires cash
distributions at least as often as quarterly. It is our intention to declare and
pay distributions on a monthly basis. In March 2004, we initiated the
declaration of monthly distributions in the amount of a 3% annualized rate of
return, based on an investment in our limited partnership units of $10 per
share. The distributions we pay to our limited partners are not necessarily
indicative of our current or future operating results. The following table shows
the distributions declared in the year ended December 31, 2004.
Distributions
----------------------------------------------------------------
2004 Total Cash DRIP
-------------------------------- --------------------- ------------------ ------------------
First Quarter $ 109,005 $ 51,705 $ 57,300
Second Quarter 125,783 57,349 68,434
Third Quarter 201,686 84,427 117,259
Fourth Quarter 372,919 145,014 227,905
--------------------- ------------------ ------------------
$ 809,393 $ 338,495 $ 470,898
===================== ================== ==================
There were no distributions declared or paid during the year ended
December 31, 2003.
There can be no assurance that future cash flow will support
distributions at the current rate. We expect to continue to distribute net cash
from operations and nonliquidating sales of properties to limited partners.
However, our General Partners, in their discretion, may defer fees payable by us
to the General Partners allowing for more cash to be available to us for
distribution to our limited partners. In addition, our General Partners may make
supplemental payments to us or to our limited partners, or otherwise support our
operations to the extent not prohibited under the NASAA Guidelines, which would
permit distributions to our limited partners in excess of net cash from
operations. Accordingly, all or some of such distributions may constitute a
return of capital to our investors to the extent that distributions exceed net
cash from operations, or may be recognized as taxable income by us or by our
investors.
RECENT SALES OF UNREGISTERED SECURITIES
We issued ten units of our limited partnership interest to our initial
limited partner at a price of $10 per unit in conjunction with our organization
in 2002. These units were not registered under the Securities Act of 1933, as
amended, and were issued in reliance on Rule 4(2) of the Securities Act.
16
USE OF PROCEEDS FROM REGISTERED SECURITIES
As of December 31, 2004, we had sold the following securities pursuant
to the Offering for the following aggregate offering prices:
o 6,903,787 limited partnership units on a best efforts basis for
$68,534,917; and
o 35,991 limited partnership units pursuant to our distribution
reinvestment plan for $371,216.
The above-stated number of units sold and the gross offering proceeds
realized pursuant to the Offering as of December 31, 2004 were 6,939,778 limited
partnership units for $68,906,133. The stated number of units sold and the gross
offering proceeds realized from such sales does not include the ten units issued
to our initial limited partner in conjunction with our organization in 2002 and
preceding the commencement of the Offering.
From the commencement of the Offering through December 31, 2004, we
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* $ 7,818,192
Other expenses to non-affiliates 7,387
--------------------
Total expenses $ 7,825,579
====================
- -----------------
*Other expenses to affiliates above include commissions and dealer manager fees
paid to Behringer Securities, our affiliate, which reallowed all or a portion of
the commissions and fees to soliciting dealers.
The net offering proceeds to us, after deducting the total expenses
incurred and described above, were $61,080,554.
From the commencement of the Offering through December 31, 2004, we had
used $25,043,437 of such net offering proceeds to purchase real estate and
investment interests, net of mortgages payable. Of the amount used for the
purchase of these investments, $1,977,436 was paid to Behringer Advisors II, our
affiliate, as acquisition and advisory fees and acquisition expense
reimbursement.
17
ITEM 6. SELECTED FINANCIAL DATA.
We were organized on September 20, 2002, and did not commence operations
until February 2004, when we made our first real estate investment. Accordingly,
the following selected financial data for the year ended December 31, 2004 is
not comparable to the year ended December 31, 2003 or the period from inception
(September 20, 2002) through December 31, 2002. The following data should be
read in conjunction with our financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report on Form 10-K. The selected
data below has been derived from our financial statements.
From inception
(September 20, 2002)
Year ended Year ended through
December 31, 2004 December 31, 2003 December 31, 2002
---------------------- ---------------------- ----------------------
Total assets $ 99,278,275 $ 4,608,470 $ 600
====================== ====================== ======================
Long-term debt obligations $ 31,235,080 $ - $ -
Other liabilities 7,488,163 125,647 -
Minority interest 1,695,362 - -
Partners' capital 58,859,670 4,482,823 600
---------------------- ---------------------- ----------------------
Total liabilities and partners' capital $ 99,278,275 $ 4,608,470 $ 600
====================== ====================== ======================
Revenues $ 2,616,051 $ - $ -
Expenses (3,660,292) (112,789) -
Interest income 149,996 3,608 -
Equity in losses of investments
in joint ventures (414,052) - -
Minority interest (6,789) - -
---------------------- ---------------------- ----------------------
Net loss $ (1,315,086) $ (109,181) $ -
====================== ====================== ======================
Net loss per limited partnership unit $ (0.51) $ (1.18) $ -
====================== ====================== ======================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
our accompanying financial statements and the notes thereto:
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results
of operations are based upon our 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 our
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, we evaluate 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.
REAL ESTATE
Upon the acquisition of real estate properties, we allocate the purchase
price of those properties to the tangible assets acquired, consisting of land
and buildings, and identified intangible assets based on their fair values in
accordance with Statement of Financial Accounting Standards No. 141, "Business
Combinations."
18
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.
We determine 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 us as intangible assets and liabilities
and are 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 is
further allocated to in-place lease values, in-place tenant improvements,
in-place leasing commissions and tenant relationships based on management's
evaluation of the specific characteristics of each tenant's lease and our
overall relationship with that respective tenant. The aggregate values 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.
We amortize 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.
INVESTMENT IMPAIRMENTS
For real estate directly owned by us, 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
occur, we will assess 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, we recognize an impairment loss to adjust the carrying
amount of the asset to estimated fair value.
For real estate owned by us through an investment in limited
partnership, joint venture, tenant-in-common interest or other similar
investment structure, at each reporting date management compares the estimated
fair value of its investment to the carrying value. An impairment charge is
recorded to the extent that the fair value of the investment is less than the
carrying amount and the decline in value is determined to be other than a
temporary decline. We did not recognize an impairment loss for the years ended
December 31, 2004 and 2003.
19
OVERVIEW
We are organized as a Texas limited partnership formed primarily to
invest in and operate commercial properties, and lease such property to one or
more tenants. We plan to be opportunistic in our acquisition of properties.
Properties may be acquired in markets that are depressed or overbuilt with the
anticipation that these properties will increase in value as the markets
recover. We purchased our first property on February 11, 2004 in Dallas, Texas.
As of December 31, 2004 we owned two properties through direct ownership and
four properties through investments in partnerships and joint ventures. Two
investments in partnerships and joint ventures are consolidated and two are
accounted for under the equity method. All of our properties are located in or
near Dallas, Texas and combined contain approximately 973,975 rentable square
footage.
RESULTS OF OPERATIONS
Although we received and accepted subscriptions for a minimum of
$1,500,000 pursuant to the Offering on September 16, 2003, we made no real
estate acquisitions in 2003. We commenced active operations with the purchase of
the Woodall Rodgers Property on February 11, 2004, our first real estate
property acquisition. At December 31, 2004 we owned two properties through
direct ownership and four properties through investments in partnerships and
joint ventures. Two investments in partnerships and joint ventures are
consolidated and two are accounted for under the equity method. As a result, our
results of operations for the year ended December 31, 2004 are not comparable to
results for the year ended December 31, 2003.
FISCAL YEAR ENDED DECEMBER 31, 2004 AS COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 2003
REVENUE. Rental revenue for the year ended December 31, 2004 was
$2,616,051 and was comprised of revenue, including adjustments for straight-line
rent and amortization of above and below market leases, from the Woodall
Rodgers, Quorum and Coit Properties that we acquired during 2004. During the
year ended December 31, 2003, we did not have any rental revenue. Management
expects future increases in rental revenue as we continue to invest in
additional real estate properties.
PROPERTY OPERATING EXPENSE. Property operating expenses for the year
ended December 31, 2004 were $868,665 and were comprised mainly of expenses
related to the daily operations of the Woodall Rodgers, Quorum and Coit
Properties. There were no property operating expenses for the year ended
December 31, 2003, as we had not yet acquired properties. Management expects
there will be significant increases in property operating expenses in the future
as we continue to invest in additional real estate properties.
GROUND RENT EXPENSE. Ground rent expense for the year ended December 31,
2004 was $293,307. There was no ground rent expense for the year ended December
31, 2003, as we acquired the Woodall Rodgers Property on February 11, 2004. The
ground rent expense for 2004 represents the operating lease on the developed
land included in the Woodall Rodgers Property. The ground lease for the
developed land is scheduled to continue until September 2097.
REAL ESTATE TAXES. Real estate taxes for the year ended December 31,
2004 were $452,836 and were comprised of real estate taxes associated with the
acquisition of the Woodall Rodgers, Quorum, and Coit Properties. There was no
real estate tax expense for the year ended December 31, 2003, as we had not yet
acquired properties. Management expects significant increases in property
operating expenses in the future as we continue to invest in additional real
estate properties.
PROPERTY AND ASSET MANAGEMENT FEES. Property and asset management fees
for the year ended December 31, 2004 were $188,524 and were comprised of
property management and asset management fees associated with the Woodall
Rodgers, Quorum and Coit Properties. There were no property management and asset
management fees for the year ended December 31, 2003, as we had not yet acquired
properties. Management expects increases in property management and asset
management fees in the future as we invest in additional real estate properties.
G&A EXPENSES. General and administrative expenses for the year ended
December 31, 2004 were $400,231 and was comprised of auditing fees, transfer
agent fees, tax preparation fees, directors' and officers' insurance premiums,
legal fees and other administrative expenses. For the year ended December 31,
2003, general and administrative expense was $112,789 and consisted of a full
year of corporate overhead and administrative start-up expenses. The increase in
general and administrative expenses year over year is
20
primarily due to increases in auditing expense of $126,792, transfer agent fees
of $60,213, directors' and officers' insurance of $32,178 and legal fees of
$38,325. The increase in auditing expense is due to additional professional
services performed in connection with the audit of our annual financial
statements and the review of financial statements included on our Form 10-Q. The
increase in transfer agent fees is due to the increase in the number of limited
partnership units issued during the year ended December 31, 2004. The increase
in directors' and officers' insurance and legal fees is due to the increase in
the number of property acquisitions during the year ended December 31, 2004.
Management expects general and administrative expenses to increase as we
continue to purchase more properties in the future.
INTEREST EXPENSE. Interest expense for the year ended December 31, 2004
was $519,848 and was comprised of interest expense and amortization of deferred
financing fees related to the mortgages associated with the acquisition of the
Woodall Rodgers, Quorum and Coit Properties. There was no interest expense for
the year ended December 31, 2003. Management expects interest expense to
increase if we continue to use borrowings in our acquisition of new properties.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the year ended December 31, 2004 was $936,881 and includes the
amortization of real estate intangibles associated with the Woodall Rodgers,
Quorum and Coit Properties. During the year ended December 31, 2003, we did not
own any real estate. Management expects future increases in depreciation and
amortization expense as we continue to acquire additional real estate
properties.
INTEREST INCOME. Interest income for the year ended December 31, 2004
was $149,996 and was comprised primarily of interest income associated with
funds on deposit with banks. As we admitted new unit holders, subscription
proceeds were released to us from escrow and could then 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. For the year ended
December 31, 2003, we earned interest income of $3,608. The increase in interest
income year over year is due to higher cash balances on deposit with banks as a
result of increased proceeds from investor subscriptions.
EQUITY IN LOSSES. Equity in losses of investments in joint ventures for
the year ended December 31, 2004 was $414,052 and was comprised of our share of
equity in the losses of the Skillman Property and the Central Property. During
the year ended December 31, 2003, we did not own any interests in joint
ventures.
FISCAL YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO THE PERIOD OF SEPTEMBER 20,
2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002
As of December 31, 2003, we were in the development stage and had not
yet commenced operations. We commenced operations on February 11, 2004 with the
purchase of the Woodall Rodgers Building, a five-story office building in
Dallas, Texas. See "Properties."
Results of operations for the year ended December 31, 2003 consisted
primarily of the following:
G&A EXPENSES. General and administrative expenses of $112,789 include a
full year of corporate overhead and administrative start-up expenses.
INTEREST INCOME. Interest income of $3,608 includes a full year of
interest income on funds held by us.
There were no revenues or expenses for the period from September 20,
2002 (date of inception) through December 31, 2002.
CASH FLOW ANALYSIS
Although we received and accepted subscriptions for a minimum of
$1,500,000 pursuant to the Offering on September 16, 2003, there were no real
estate acquisitions in 2003. We commenced active operations with the purchase of
the Woodall Rodgers Property on February 11, 2004, our first real estate
property acquisition. As a result, our cash flows for the year ended December
31, 2004 are not comparable to results for the year ended December 31, 2003.
21
Cash provided by operating activities for the year ended December 31,
2004 was $697,530 and was comprised primarily of the net loss of $1,315,086,
offset primarily by depreciation and amortization expense of $1,199,180, equity
in losses of investments in joint ventures of $414,052 and a change in working
capital accounts of $392,595. During the year ended December 31, 2003, cash used
in operating activities was $69,884 and consisted primarily of the net loss from
operations of $109,181, partially offset by changes in current assets and
liabilities of $39,297.
Cash used in investing activities for the year ended December 31, 2004
was $54,035,685 and was comprised of purchases of real estate of $30,823,161,
purchase of properties under development of $17,348,596, our investment in joint
ventures of $5,367,319 and purchases of property and equipment of $496,609.
There were no investing activities during the year ended December 31, 2003.
Cash provided by financing activities was $85,269,147 in 2004 versus
$4,641,850 in 2003. For the year ended December 31, 2004, cash flows from
financing activities consisted primarily of the issuance of limited partnership
units net of offering costs of $56,130,110, proceeds from mortgage notes payable
obtained in the acquisition of properties of $34,917,800 and additional limited
partnership subscriptions of $4,727,878. This was partially offset by an
increase in restricted cash of $4,612,450, payments on mortgage notes payable of
$3,682,720, and an increase in receivables from affiliates of $1,081,748.
Restricted cash is comprised of subscription proceeds held in escrow until
investors are admitted as limited partners. The increase in receivables from
affiliates is due primarily to the reclassification of $1,500,000 in earnest
money deposits for the future acquisition of a hotel building in Austin, Texas
(the "Lakeway Inn"). On February 22, 2005, we announced that we had assigned our
contract to purchase the Lakeway Inn to Behringer Harvard Lakeway, LP, a Texas
limited partnership wholly-owned by Behringer Harvard Strategic Opportunity Fund
I LP, an entity affiliated with our sponsor, Behringer Harvard Holdings, LLC. In
connection with this assignment to Behringer Harvard Lakeway LP, we will be
reimbursed for the costs we have incurred under the previous assignment from
Harvard Property Trust, LLC, including the $1,500,000 in earnest money deposits
previously paid by us, with interest. Cash flows of $4,641,850 in 2003 are
primarily a result of the issuance of partnership units, net of offering costs,
of $4,591,404.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $36,503,558 and $4,572,566 at
December 31, 2004 and 2003, respectively. The increase in cash for the year
ended December 31, 2004 is due to the increase in proceeds from the Offering.
Our 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 our
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 to be met from
the net proceeds of the Offering. However, there may be a delay between the sale
of our units and our purchase of properties and mortgage loan investments, which
could result in a delay in the benefits to our limited partners, if any, of
returns generated from our operations.
The timing and amount of cash to be distributed to our limited partners
is determined by the General Partners and is dependent on a number of factors,
including funds available for payment of distributions, financial condition and
capital expenditures. There can be no assurance that future cash flow will
support distributions at the current rate. We expect to continue to distribute
net cash from operations and nonliquidating sales of properties to limited
partners. However, our General Partners, in their discretion, may defer fees
payable by us to the General Partners allowing for more cash to be available to
us for distribution to our limited partners. In addition, our General Partners
may make supplemental payments to us or to our limited partners, or otherwise
support our operations to the extent not prohibited under the NASAA Guidelines,
which would permit distributions to our limited partners in excess of net cash
from operations. Accordingly, all or some of such distributions may constitute a
return of capital to our limited partners to the extent that distributions
exceed net cash from operations, or may be recognized as taxable income to our
limited partners or us.
On September 16, 2003, we satisfied the minimum offering requirement of
$1,500,000 established for the Offering. Subscription proceeds were held in
escrow until investors were admitted as limited partners. We
22
continued to admit new limited partners until the Offering was terminated on
February 19, 2005. At the time new limited partners were admitted, subscription
proceeds were released to us from escrow accounts and utilized as consideration
for investments and the payment or reimbursement of dealer manager fees, selling
commissions and other organization and offering expenses. Until required for
such purposes, net offering proceeds were held in short-term, liquid
investments. Amounts associated with non-admitted subscriptions are reflected in
"Restricted cash" and "Subscriptions for limited partnership units" on our
balance sheets.
We expect to meet our 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 our properties will
generate sufficient cash flow to cover operating expenses and the payment of a
monthly distribution. Currently, a portion of the distributions is 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, we may use
financings or other sources of capital in the event of unforeseen significant
capital expenditures.
In connection with our acquisition of the Woodall Rodgers Property on
February 11, 2004, we 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% per annum with a maturity date of August 9, 2004. On May 20,
2004, we completed our refinancing of the Woodall Rodgers Property Interim Note
when we 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. We have 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 us for Facility B. On May 20, 2004, we 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 December 31, 2004, the outstanding balances on Facility A and
Facility B were $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.
Included in our acquisition of the Woodall Rodgers Property on February
11, 2004, is approximately 1.6 acres of undeveloped land adjoining the Woodall
Rodgers Improved Property (the "Development Property"). On September 2, 2004, we
entered into a Contract of Purchase and Sale with Texas Land & Realty, LLC (the
"Purchaser") for the sale of the Development Property. The sale price of the
Development Property is expected to be approximately $4,200,000. The Contract of
Purchase and Sale required the Purchaser to make a $100,000 earnest money
deposit on September 8, 2004. We expect the sale of the Development Property to
be completed on or about April 1, 2005. At the closing of the sale of the
Development Property, we shall pay a real estate commission to third parties in
an amount equal to 6% of the first $500,000 of the purchase price and 3% of the
balance of the purchase price above $500,000. One-half of the real estate
commission paid by us shall be paid to Robert W. McMillan, a member of our
advisory board. In addition to such real estate commission, we will be obligated
to pay applicable subordinated disposition fees to our General Partner pursuant
to the terms of the Partnership Agreement.
In connection with the our acquisition of the Quorum Property on July 2,
2004, we 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,
23
SSB to pay a portion of the purchase price and paid the remaining amount from
proceeds of our public offering. 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.
As of December 31, 2004, the outstanding balance on the Quorum Property Loan was
$4,908,269. The Quorum Property is held by Behringer Harvard Quorum I LP, in
which Behringer Harvard Quorum I GP, LLC, our wholly-owned subsidiary, is the
general partner and we are the limited partner.
The Quorum Property Loan, which is unconditionally guaranteed by us, 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. We 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. The Quorum Property is subject to a deed of trust to
collateralize payment of the Quorum Property Loan.
In connection with the acquisition of the Coit Property on October 4,
2004, we used borrowings of $6,000,000 (the "Coit Loan") from Washington Mutual
Bank, F.A., which Loan is further evidenced by a promissory note from our direct
and indirect partnership interests in Behringer Harvard 1221 Coit LP (the "Coit
Partnership") to the lender in the amount of $6,000,000 ("the Coit Note"). The
remaining amount of the purchase price was paid from proceeds of our public
offering of our partnership units. 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 balance of the Coit Loan at December 31, 2004
was $5,917,280. The Coit Property is subject to a deed of trust to collateralize
payment of the Coit Loan.
On November 8, 2004, we 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 our 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 preliminary development costs, including engineering and asbestos
abatement. The Mockingbird Commons Loan is further evidenced by a promissory
note from us 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 balance of the Mockingbird Commons Loan at December 31, 2004
was $14,409,531. The Mockingbird Commons Property is subject to a deed of trust
to collateralize payment of the Mockingbird Commons Loan. We have guaranteed the
Mockingbird Commons Loan. Under the guarantee, our obligation is limited to 70%
of any unpaid balance. In addition, under the guarantee, obligations from the
Mockingbird Commons Partnership to us are subordinated to the Mockingbird
Commons Loan.
24
On March 3, 2005, we acquired an 80% interest in the ownership of
approximately 4.97 acres of land in Dallas, Texas located on the south side of
Northwest Highway and east of Midway Road (the "Northwest Highway Property"),
through our direct and indirect partnership interests in Behringer Harvard
Northwest Highway LP (the "Northwest Highway Partnership"). The site is planned
for development into high-end residential lots for the future sale to luxury
home builders. The Northwest Highway Property currently has no operations and no
operations are planned by the Northwest Highway Partnership. The total contract
purchase price for the Northwest Highway Property was $4,542,000, excluding
closing costs. We paid the entire cost of our 80% interest in the Northwest
Highway Property through our contributions to the Northwest Highway Partnership
from proceeds of the Offering.
On March 21, 2005, we entered into an assignment from Harvard Property
Trust, LLC, an affiliated entity, of a contract to purchase property located at
250/290 East John Carpenter Freeway in Irving, Texas from Martel Office
Buildings I, LLC, an unaffiliated third party. The three-building complex is
comprised of approximately 536,241 rentable square feet located on approximately
15.3 acres of land. The contract price for the property is $29,250,000,
excluding closing costs. We intend to use proceeds from the Offering to pay a
portion of the purchase price and the remaining amount will be financed. An
earnest money deposit of $1,250,000 was made by us on March 21, 2005, and an
additional earnest money deposit of $1,000,000 will be paid on or before April
4, 2005.
We were in compliance with all financial covenants and restrictions of
the loan agreements at December 31, 2004.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
The following table sets forth certain information concerning our
contractual obligations and commercial commitments as of December 31, 2004, and
outlines expected future payments to be made under such obligations and
commitments:
Principal 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 $ 88,823 $ 4,211,177 $ - $ -
Woodall Rogers Facility B 1,700,000 170,000 1,530,000 - -
Quorum Property 4,908,269 - 4,908,269 - -
Coit Property 5,917,280 496,320 5,420,960 - -
Mockingbird Commons Property 14,409,531 - 14,409,531 - -
------------------ ------------------ ------------------ ------------------ -----------------
Total mortgage notes payable 31,235,080 755,143 30,479,937 - -
Operating lease 32,587,527 351,348 702,696 702,696 30,830,787
------------------ ------------------ ------------------ ------------------ -----------------
Total contractual obligations $ 63,822,607 $ 1,106,491 $ 31,182,633 $ 702,696 $ 30,830,787
================== ================== ================== ================== =================
25
Interest 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 $ 451,238 $ 183,541 $ 267,697 $ - $ -
Woodall Rogers Facility B 161,057 69,580 91,477 - -
Quorum Property 538,358 223,381 314,977 - -
Coit Property 503,438 192,669 310,769 - -
Mockingbird Commons Property 1,681,112 878,981 802,131 - -
---------------- ---------------- ---------------- ---------------- ----------------
Total $ 3,335,203 $ 1,548,152 $ 1,787,051 $ - $ -
================ ================ ================ ================ ================
The operating lease is composed of the ground lease assumed for the land
on which the Woodall Rodgers Improved Property portion of the Woodall Rodgers
Property is situated with 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.
On March 21, 2005, we entered into an assignment from Harvard Property
Trust, LLC, an affiliated entity, of a contract to purchase property located at
250/290 East John Carpenter Freeway in Irving, Texas. The contract price for the
Property is $29,250,000, excluding closing costs. We intend to use proceeds from
the Offering to pay a portion of the purchase price and the remaining amount
will be financed. We did not incur any indebtedness with our acquisition of the
Northwest Highway Property on March 3, 2005.
NEW ACCOUNTING PRONOUNCEMENTS
None.
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 our leases will 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We may be exposed to interest rate changes primarily as a result of
long-term debt used to acquire properties and make loans and other permitted
investments. Our interest rate risk management objectives will be to limit the
impact of interest rate changes on earnings and cash flows and to lower overall
borrowing costs. To achieve these objectives, we expect to borrow primarily at
fixed rates or variable rates with the lowest margins available and in some
cases, with the ability to convert variable rates to fixed rates. With regard to
variable rate financing, we will assess interest rate cash flow risk by
continually identifying and monitoring changes in interest rate exposures that
may adversely impact expected future cash flows and by evaluating hedging
opportunities.
We do not have any foreign operations and thus are not exposed to
foreign currency fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is hereby incorporated by
reference to our Financial Statements beginning on page F-1 of this Annual
Report on Form 10-K.
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. 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 the
chief executive officer and chief financial officer of its general partner, the
effectiveness of our disclosure controls and procedures as of December 31, 2004.
Based on that evaluation, the chief executive officer and chief financial
officer of the general partner of Behringer Advisors II have concluded that our
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 our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
ITEM 9B. OTHER INFORMATION.
None.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
THE GENERAL PARTNERS
We operate under the direction of our General Partners, which are
responsible for the management and control of our affairs. The General Partners
are assisted by the employees of Harvard Property Trust, LLC ("HPT"), the
general partner of Behringer Advisors II. In addition, the General Partners are
advised by an advisory board comprised of industry professionals advises the
General Partners. We do not employ our own management personnel; rather we pay
fees to our General Partners for their services to us.
The General Partners are responsible for our direction and management,
including acquisition, construction and property management. Any action required
to be taken by the General Partners will be taken only if it is approved, in
writing or otherwise, by both General Partners, unless the General Partners
agree between themselves to a different arrangement for the approval of actions
by the General Partners.
The General Partners are Behringer Advisors II and Robert M. Behringer,
individually. Behringer Advisors II is a Texas limited partnership formed in
July 2002. The executive office of the General Partners is located at 15601
Dallas Parkway, Suite 600, Addison, Texas 75001. Behringer Advisors II is owned
by HPT, its sole general partner, and Behringer Harvard Partners, LLC
("Behringer Partners"), its sole limited partner. Behringer Holdings is the sole
owner of HPT and Behringer Partners. Mr. Behringer is the President and sole
manager of each of these companies. Mr. Behringer is the majority owner, the
President and sole manager of Behringer Holdings. Behringer Holdings also is the
indirect owner of HPT Management, our property manager, Behringer Development, a
real estate development company, and Behringer Securities, our dealer manager.
Behringer Advisors II was created in 2002 for the sole purpose of acting
as one of our General Partners. It is managed by its executive officers, namely:
Name Age Position(s)
- ---- --- -----------
Robert M. Behringer 56 Chief Executive Officer and Chief Investment
Officer
Robert S. Aisner 58 President
Gerald J. Reihsen, III 46 Executive Vice President - Corporate
Development and Legal and Secretary
Gary S. Bresky 38 Chief Financial Officer and Treasurer
M. Jason Mattox 29 Senior Vice President
ROBERT M. BEHRINGER is the Chief Executive Officer and Chief Investment
Officer of Behringer Advisors II. He is also the Chief Executive Officer,
President and Chairman of the Board of Directors of Behringer Harvard REIT I.
Mr. Behringer is the majority owner, sole manager and Chief Executive Officer
and President of Behringer Holdings. Since 2002, Mr. Behringer has also been a
general partner of Behringer Harvard Mid-Term Value Enhancement Fund I LP, a
publicly registered real estate limited partnership. Since 2001, Mr. Behringer
has also been the Chief Executive Officer and sole manager of the following:
HPT, the general partner of Behringer Advisors II; HPT Management, our property
manager; Behringer Securities, our dealer manager; IMS, LLC ("IMS"), the general
partner of HPT Management; Behringer Development, a company organized to develop
real properties; and Behringer Advisors LP ("Behringer Advisors"), a limited
partnership organized to advise Behringer Harvard REIT I. Since 2001, Mr.
Behringer has also been the Chief Executive Officer, President and a manager of
Behringer Partners, which is the limited partner of each of Behringer
Securities, HPT Management, HPT, Behringer Advisors and IMS.
From 1995 until 2001, Mr. Behringer was Chief Executive Officer of
Harvard Property Trust, Inc., a privately held REIT. Before forming Harvard
Property Trust, Inc., Mr. Behringer invested in commercial real estate as
Behringer Partners, a sole proprietorship formed in 1989 that invested in single
asset limited partnerships. From 1985 until 1993, Mr. Behringer was Vice
President and Investment Officer of Equitable
28
Real Estate Investment Management, Inc., one of the largest pension fund
advisors and owners of real estate in the United States. While at Equitable, Mr.
Behringer was responsible for its General Account Real Estate Assets located in
the South Central United States, including Texas, Louisiana, Arkansas, Oklahoma
and Mississippi. The portfolio included institutional quality office,
industrial, retail, apartment and hotel properties exceeding 17 million square
feet with a value of approximately $2.8 billion. Although Mr. Behringer was a
significant participant in acquisitions, management, leasing, redevelopment and
dispositions, his primary responsibility was to increase net operating income
and the overall value of the portfolio.
Mr. Behringer has over 26 years of experience in real estate investment,
management and finance activities, including approximately 140 different
properties with over 24 million square feet of office, retail, industrial,
apartment, hotel and recreational properties. In addition to being the Chief
Executive Officer of Behringer Advisors II, he is currently the general partner
or a co-general partner in several real estate limited partnerships formed for
the purpose of acquiring, developing and operating office buildings and other
commercial properties. Mr. Behringer is a Certified Property Manager, Real
Property Administrator, Certified Hotel Administrator and Texas Real Estate
Broker, holds Series 7, 24 and 63 securities licenses and is a member of the
Institute of Real Estate Management, the Building Owners and Managers
Association, the Urban Land Institute and the Real Estate Council. Mr. Behringer
has also been a licensed certified public accountant for over 20 years. Mr.
Behringer received a Bachelor of Science degree from the University of
Minnesota.
ROBERT S. AISNER is the President of Behringer Advisors II. He is also
Chief Operating Officer and a director of Behringer Harvard REIT I. Mr. Aisner
has over 30 years of commercial real estate experience. From 1996 until 2003,
Mr. Aisner served as (i) Executive Vice President of Amli Residential Properties
Trust, a New York Stock Exchange listed REIT that is focused on the development,
acquisition and management of upscale apartment communities and serves as
institutional advisor and asset manager for institutional investors with respect
to their multifamily real estate investment activities, (ii) President of Amli
Management Company, which oversees all of Amli's apartment operations in 80
communities, (iii) President of the Amli Corporate Homes division, which invests
in and manages corporate housing properties, (iv) Vice President of Amli
Residential Construction, a division of Amli that performs real estate
construction services, and (v) Vice President of Amli Institutional Advisors,
the Amli division that serves as institutional advisor and asset manager for
institutional investors with respect to their multifamily real estate
activities. Mr. Aisner also served on Amli's Executive Committee and Investment
Committee from 1999 until 2003. From 1994 until 1996, Mr. Aisner owned and
operated Regents Management, Inc., which had both a multifamily development and
construction group and a general commercial property management company. From
1984 to 1994, he was employed by HRW Resources, Inc., a real estate development
company, where he served as Vice President.
Mr. Aisner served as an independent director of Behringer Harvard REIT I
from June 2002 until February 2003 and currently serves as a management director
of Behringer Harvard REIT I, a position he has held since June 2003. Since
February 2003, Mr. Aisner has also served as Executive Vice President - Real
Estate Operations of Behringer Holdings and President of HPT, IMS, HPT
Management and Behringer Development. Mr. Aisner received a Bachelor of Arts
degree from Colby College and a Masters of Business Administration degree from
the University of New Hampshire.
GERALD J. REIHSEN, III is the Executive Vice President - Corporate
Development and Legal and Secretary of Behringer Advisors II. He is also
Executive Vice President - Corporate Development and Legal and Secretary of
Behringer Harvard REIT I and is the primary contact for Behringer Advisors II,
Behringer Harvard Advisors I LP, Behringer Harvard REIT I and all of their
affiliates for banks, attorneys and other service providers and contractual
relations. From their inception in 2001 until February 2003, he served as Chief
Operating Officer, Chief Legal Officer and Secretary of Behringer Securities,
Behringer Holdings, Behringer Development, HPT and Behringer Partners. From 2001
until February 2003, Mr. Reihsen served as Chief Legal Officer and Secretary of
IMS and HPT Management. Since 2002, he has served as Chief Operating Officer,
Chief Legal Officer and Secretary of Behringer Advisors. Currently, Mr. Reihsen
holds the following positions: President of Behringer Securities; Chief
Operating Officer, Chief Legal Officer and Secretary of Behringer Holdings and
Behringer Partners; and Executive Vice President - Corporate Development and
Legal and Secretary of Behringer Development, HPT, IMS and HPT Management.
29
For over 20 years, Mr. Reihsen's business and legal background has
centered on sophisticated financial and transactional matters, including
commercial real estate transactions, real estate partnerships, and public and
private securities offerings. For the period from 1985 to 2000, Mr. Reihsen
practiced as an outside corporate securities attorney. After serving from 1986
to 1995 in the corporate department of Gibson, Dunn & Crutcher, a leading
international commercial law firm, Mr. Reihsen established his own firm, Travis
& Reihsen, where he served as a corporate/securities partner until 1998. In
1998, Mr. Reihsen became the lead partner in the corporate/securities section of
the law firm Novakov Davis, where he served until 2000. In 2000, he practiced
law as a principal of Block & Balestri, a corporate and securities law firm. In
2000 and 2001, Mr. Reihsen was employed as the Vice President - Corporate
Development and Legal of Xybridge Technologies, Inc., a telecommunications
software company that Mr. Reihsen helped guide through venture funding,
strategic alliances with international telecommunications leaders and its
ultimate sale to Zhone Technologies, Inc. Mr. Reihsen holds Series 7, 24, 27 and
63 securities licenses. Mr. Reihsen received a Bachelor of Arts degree, magna
cum laude, from the University of Mississippi and a Juris Doctorate degree, cum
laude, from the University of Wisconsin.
GARY S. BRESKY is the Chief Financial Officer and Treasurer of Behringer
Advisors II. Since 2002, Mr. Bresky has also served as the Chief Financial
Officer and Treasurer of Behringer Harvard REIT I and is the primary contact for
Behringer Advisors II, Behringer Harvard Advisors I LP, Behringer Harvard REIT
I, and all of their affiliates for accountants and auditors. Since 2002, Mr.
Bresky has served as Chief Financial Officer and Treasurer of Behringer
Advisors. Since 2001, he has served as Chief Financial Officer and Treasurer of
Behringer Securities, Behringer Holdings, Behringer Development, HPT, and IMS.
From their inception in 2001 until February 2003, Mr. Bresky served as Chief
Operating Officer, Chief Financial Officer and Treasurer of HPT Management and
as Chief Financial Officer, Treasurer and a manager of Behringer Partners.
Currently, Mr. Bresky serves as Chief Financial Officer and Treasurer of HPT
Management and Treasurer and a manager of Behringer Partners.
Prior to his employment with Behringer Advisors II, Mr. Bresky served,
from 1996 to 2001, as a Senior Vice President of Finance with Harvard Property
Trust, Inc. In this capacity, Mr. Bresky was responsible for directing all
accounting and financial reporting functions and overseeing all treasury
management and banking functions. Mr. Bresky was also integral in analyzing deal
and capital structures as well as participating in all major decisions related
to any acquisition or sale of assets.
From 1995 until 1996, Mr. Bresky worked in the Real Estate Group at
Coopers & Lybrand LLP in Dallas, Texas, where he focused on finance and
accounting for both public and private REITs. His experience included conducting
annual audits, preparing quarterly and annual public securities reporting
compliance filings and public real estate securities registration statements for
his clients. From 1989 to 1994, Mr. Bresky worked with Ten West Associates, LTD
and Westwood Financial Corporation in Los Angeles, California as a real estate
analyst and asset manager for two commercial real estate portfolios totaling in
excess of $185 million. From 1988 until 1989, Mr. Bresky worked as an analysts'
assistant for both Shearson-Lehman Bros., Inc. and Hambrecht and Quist Inc.
assisting brokers in portfolio management. Mr. Bresky has been active in
commercial real estate and related financial activities for over 16 years and
holds Series 7, 24, 27 and 63 securities licenses. Mr. Bresky received a
Bachelor of Arts degree from the University of California - Berkeley and a
Masters of Business Administration degree from the University of Texas.
M. JASON MATTOX is the Senior Vice President of Behringer Advisors II.
He is also Vice President of Behringer Harvard REIT I. Since 2002, Mr. Mattox
has served as a Vice President of Behringer Advisors. Since 2001, he has served
as a Vice President of Behringer Securities. From their inception in 2001 until
February 2003, Mr. Mattox served as Vice President of Behringer Holdings,
Behringer Development, HPT, Behringer Partners, IMS and HPT Management.
Currently, Mr. Mattox serves as Senior Vice President of Behringer Holdings,
HPT, and HPT Management, and Vice President and Secretary of Behringer
Securities.
From 1997 until joining Behringer Advisors II in 2002, Mr. Mattox served
as a Vice President of Harvard Property Trust, Inc. and became a member of its
Investment Committee in 1998. From 1999 until 2001, Mr. Mattox served as Vice
President of Sun Resorts International, Inc., a recreational property investment
company coordinating marina acquisitions throughout the southern United States
and the U.S. Virgin Islands. From 1999 until 2001, in addition to providing
services related to investing, acquisition, disposition and
30
operational activities, Mr. Mattox served as an asset manager with
responsibility for over one million square feet of Harvard Property Trust,
Inc.'s commercial office assets in Texas and Minnesota, overseeing property
performance, management offices, personnel and outsourcing relationships.
Mr. Mattox is a continuing member of the Building Owners and Managers
Association and the National Association of Industrial and Office Properties.
Mr. Mattox formerly was a member of the National Association of Real Estate
Investment Trusts and the Texas Association of Builders. Mr. Mattox has been
active in commercial real estate and related financial activities for over seven
years and holds Series 7, 24 and 63 securities licenses. Mr. Mattox received a
Bachelor of Business Administration degree, with honors, and a Bachelor of
Science degree, cum laude, from Southern Methodist University.
OTHER PERSONNEL
The General Partners are assisted by the officers and employees of HPT,
which is the general partner of Behringer Advisors II. HPT and its affiliates
currently employ 91 persons, including the executive officers listed above and
32 employed by Behringer Securities. HPT and its affiliates will continue to
hire employees as needed. HPT and its affiliates also will engage the services
of non-affiliated third parties to assist with the identification of properties
for possible acquisition and management of our operations.
ADVISORY BOARD
We do not have a board of directors. The General Partners are assisted
by an advisory board. No member of the advisory board may be a general partner,
officer or employee of ours, Behringer Advisors II, or an affiliate of ours or
Behringer Advisors II, although members of the advisory board may purchase or
own securities of, or have other business relations with, such parties. The
members of the advisory board are Patrick M. Arnold, Ralph G. Edwards, Jr.,
Robert "Bobby" W. McMillan and Scott F. McMullin.
NO AUDIT COMMITTEE; NO "AUDIT COMMITTEE FINANCIAL EXPERT"
We do not have a board of directors and, as such, have no board
committees such as an audit committee. Because we do not have an audit
committee, we do not have an "audit committee financial expert." The General
Partners are responsible for managing the relationship with our Independent
Registered Public Accounting Firm.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Because we do not have a class of equity securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934, we are not yet required to
comply with beneficial ownership reporting under Section 16(a) of the Exchange
Act.
CODE OF ETHICS
Behringer Advisors II has adopted a code of ethics applicable to its
principal executive officer, principal financial officer, principal accounting
officer, controller and other employees. A copy of the code of ethics of
Behringer Advisors II may be obtained from our web site at
http://www.bhfunds.com. The web site will be updated to include any material
waivers or modifications to the code of ethics.
ITEM 11. EXECUTIVE COMPENSATION.
We operate under the direction of our General Partners, which are
responsible for the management and control of our affairs. The officers and
employees of HPT assist the General Partners. The officers and employees of HPT
do not devote all of their time to managing us, and they do not receive any
compensation from us for their services. We pay fees to Behringer Advisors II
and its other affiliates. See "Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities - Use of Proceeds
from Registered of Securities" and "Certain Relationships and Related
Transactions" for a description of the fees payable and expenses reimbursed to
our affiliates.
31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
There were no limited partners known by us who beneficially owned more
than 5% of our limited partnership units as of March 16, 2005.
We do not have any officers or directors. Our two General Partners,
Robert M. Behringer and Behringer Advisors II, each own 50% of the general
partnership interest and no units of the limited partnership interest. We do not
maintain any equity compensation plans, and no arrangements exist that would,
upon operation, result in a change in control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The compensation and fees paid or to be paid by us to our General
Partners and their affiliates in connection with our operation for the years
ended December 31, 2004 and 2003 are as follows:
Total capitalized
Total capitalized to real estate
Total to offering and investments Total
incurred costs in joint ventures expensed
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2004
Behringer Securities, commissions and dealer
manager fees $5,638,387 $ 5,638,387 $ - $ -
Behringer Advisors II, reimbursement of
organization and offering expenses 1,588,832 1,577,551 - 11,281
Behringer Advisors II, acquisition,
advisory fees and expenses 1,977,436 - 1,977,436 -
HPT Management LP, property management and
leasing fees 115,655 - - 115,655
Behringer Advisors II, asset management fees 72,869 - - 72,869
------------------ -------------------- -------------------- ---------------
Total $9,393,179 $ 7,215,938 $ 1,977,436 $199,805
================== ==================== ==================== ===============
Total capitalized
Total capitalized to real estate
Total to offering and investments Total
incurred costs in joint ventures expensed
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2003
Behringer Securities commissions and dealer
manager fees $ 461,268 $ 461,268 $ - $ -
Behringer Advisors II, reimbursement of
organization and offering expenses 129,705 128,810 - 895
Behringer Advisors II, acquisition,
advisory fees and expenses - - - -
HPT Management LP, property management and
leasing fees - - - -
Behringer Advisors II, asset management fee - - - -
------------------ -------------------- -------------------- ---------------
Total $ 590,973 $ 590,078 $ - $ 895
================== ==================== ==================== ===============
Behringer Securities, our affiliated dealer manager, receives
commissions of up to 7% 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 is paid to
Behringer Securities as a dealer manager fee; except that this dealer manager
fee is reduced to 1% of the gross proceeds of purchases made pursuant to the
distribution reinvestment feature of our distribution reinvestment and automatic
purchase plan. Behringer Securities reallows all of its commissions of up to 7%
of gross offering proceeds to participating broker-dealers and may reallow a
portion of its dealer manager fee of up to 1.5% of the gross offering proceeds
32
to be paid to such participating broker-dealers as marketing fees, including
bona fide conference fees incurred, and due diligence expense reimbursement.
Behringer Securities earned $4,059,019 in selling commissions and $1,579,368 in
dealer manager fees in the year ended December 31, 2004. In the year ended
December 31, 2003, Behringer Securities earned $331,563 in selling commissions
and $129,705 in dealer management fees. The commissions and dealer manager fees
were capitalized as offering costs in "Partners' capital" on our balance sheet
for the years ended December 31, 2004 and 2003.
Behringer Advisors II, a general partner of and advisor to us, or
Behringer Advisors II's affiliates receive up to 2.5% of gross offering proceeds
for reimbursement of organization and offering expenses. As of December 31,
2004, $1,936,297 of organization and offering expenses had been incurred by
Behringer Advisors II on our behalf, of which $1,718,537 had been reimbursed by
us and the balance of $217,760 will be reimbursed at a rate of 2.5% of future
equity raised. Of the $1,718,537 of organization and offering costs that we have
reimbursed as of December 31, 2004, $1,706,361 had been capitalized as offering
costs in "Partners' capital" on our balance sheet and $12,176 had been expensed
as organizational costs. For the year ended December 31, 2004, we reimbursed
$1,588,832 of organization and offering expenses, of which $1,577,551 was
capitalized as offering costs in "Partners' capital" on our balance sheet and
$11,281 was expensed as organizational costs. For the year ended December 31,
2003, we reimbursed $129,705 of organization and offering expenses, of which
$128,810 was capitalized as offering costs in "Partners' capital" on our balance
sheet and $895 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
us, Behringer Harvard Mid-Term Value Enhancement Fund I LP and Behringer Harvard
REIT I, Inc., our affiliates, 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% 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 we acquire for reimbursement of expenses related to making investments.
During the year ended December 31, 2004, Behringer Advisors II earned $1,694,945
of acquisition and advisory fees and was reimbursed $282,491 for
acquisition-related expenses. For the year ended December 31, 2003, Behringer
Advisors II had no acquisition and advisory fees or expense reimbursement for
related expenses.
For the management and leasing of our properties, we pay HPT Management,
our 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% of gross revenues plus a one-time initial leasing fee
of 3% of gross revenues payable over the first five years of the lease term. We
reimburse the costs and expenses incurred by HPT Management on our 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 our 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 year ended December 31, 2004, we
incurred $115,655 in property management fees payable to HPT Management. We did
not incur any property management fees payable to HPT Management during the year
ended December 31, 2003.
We pay Behringer Advisors II or its affiliates an annual advisor asset
management fee of 0.5% of the aggregate asset value of our assets. Any portion
of the asset management fee may be deferred and paid in a subsequent year.
During the year ended December 31, 2004, we incurred $72,869 of asset management
fees. We did not incur any asset management fees during the year ended December
31, 2003.
In connection with the sale of our properties, we will pay to the
General Partners or their affiliates a real estate commission in an amount not
exceeding the lesser of: (A) 50% 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% 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
33
to the limited partners, will equal (1) 100% of their capital contributions plus
(2) a 10% 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%
annual cumulative (noncompounded) return on their net capital contributions,
then the General Partners are entitled to receive 15% 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% of sale proceeds
remaining after the limited partners have received a return of their net capital
contributions.
We are dependent on Behringer Advisors II, Behringer Securities and HPT
Management for certain services that are essential to us, including the sale of
our 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 us, we would be required to obtain such services from
other sources.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Because we do not have a board of directors or any board committees,
including an audit committee, the General Partners pre-approve all auditing and
permissible non-auditing services provided by our independent registered public
accounting firm. The independent public accountants may not be retained to
perform the non-auditing services specified in Section 10A(g) of the Securities
Exchange Act of 1934.
FEES PAID TO INDEPENDENT PUBLIC REGISTERED ACCOUNTING FIRM
The following table presents fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of our annual financial
statements for the years ended December 31, 2004 and December 31, 2003, and fees
billed for other services rendered by PricewaterhouseCoopers during those
periods:
2004 2003
------------- -----------
Audit Fees (1) $ 111,100 $ 40,000
Audit-Related Fees (2) 107,692 1,367
Tax Fees (3) 9,000 5,500
All Other Fees - -
------------- -----------
Total Fees $ 227,792 $ 46,867
============= ===========
- ------------------
(1) Audit fees consisted of professional services performed in connection
with the audit of our annual financial statements and review of financial
statements included in our Form 10-Qs.
(2) Fees related to consultations concerning financial accounting and
reporting standards.
(3) Tax fees consisted principally of assistance with matters related to tax
compliance, tax planning, and tax advice.
34
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) LIST OF DOCUMENTS FILED.
1. FINANCIAL STATEMENTS
The list of the financial statements filed as part of this
Annual Report on Form 10-K is set forth on page F-1 herein.
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
Schedule III Real Estate and Accumulated Depreciation
3. EXHIBITS
The list of exhibits filed as part of this Annual Report on Form
10-K is submitted in the Exhibit Index following the financial
statements in response to Item 601 of Regulation S-K.
(b) EXHIBITS.
The exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(c) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules, except for Schedule III (see (a) 2.
above), have been omitted because the required information of such
schedules is not present, is not present in amounts sufficient to
require a schedule or is included in the financial statements.
35
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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
March 31, 2005 By: /s/ Robert M. Behringer
------------------------------------------------
Robert M. Behringer
General partner of the Registrant and Chief
Executive Officer of Harvard Property Trust,
LLC, sole general partner of Behringer Harvard
Advisors II LP
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 31, 2005 /s/ Robert M. Behringer
------------------------------------------------
Robert M. Behringer
General partner of the Registrant and Chief
Executive Officer of Harvard Property Trust,
LLC, sole general partner of Behringer Harvard
Advisors II LP (Principal Executive Officer)
March 31, 2005 /s/ Gary S. Bresky
------------------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer of
Behringer Harvard Advisors II LP, (Principal
Financial Officer)
March 31, 2005 /s/ Kimberly Arianpour
------------------------------------------------
Kimberly Arianpour
Chief Accounting Officer of Behringer Harvard
Advisors II LP, (Principal Accounting Officer)
36
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2004 and 2003 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2004 and 2003 and the period from
September 20, 2002 (date of inception) through December 31, 2002 F-4
Consolidated Statements of Partners' Capital for the Years
December 31, 2004 and 2003 and the period from
September 20, 2002 (date of inception) through December 31, 2002 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2004 and 2003 and the period from September 20, 2002
(date of inception) through December 31, 2002 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule F-25
Schedule III - Real Estate and Accumulated Depreciation F-26
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Behringer Harvard Short-Term Opportunity Fund I LP:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Behringer Harvard Short-Term Opportunity Fund I LP (the "Partnership") at
December 31, 2004 and 2003, and the results of their operations and their cash
flows for the years ended December 31, 2004 and 2003 and the period from
September 20, 2002 (date of inception) through December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
March 31, 2005
F - 2
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2004 2003
----------- -----------
ASSETS
REAL ESTATE
Land $ 8,610,149 $ -
Buildings, net 15,924,745 -
Real estate under development 18,570,740 -
Acquired in-place lease intangibles, net 6,707,687 -
Deferred leasing intangibles, net 159,717 -
----------- -----------
TOTAL REAL ESTATE 49,973,038 -
Cash and cash equivalents 36,503,558 4,572,566
Restricted cash 4,730,194 4,314
Accounts receivable, net 656,095 -
Receivables from affiliates 1,602,840 -
Prepaid expenses and other assets 136,394 31,590
Investments in unconsolidated entities 4,953,267 -
Deferred financing fees, net of accumulated
amortization of $67,670 722,889 -
----------- -----------
TOTAL ASSETS $99,278,275 $ 4,608,470
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage notes payable $31,235,080 $ -
Accounts payable 59,653 11,062
Payables to affiliates 571,852 50,760
Acquired below market lease intangibles, net 282,236 -
Distributions payable 159,960 -
Accrued liabilities 1,682,584 59,825
Subscriptions for limited partnership units 4,731,878 4,000
----------- -----------
TOTAL LIABILITIES 38,723,243 125,647
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 1,695,362 -
PARTNERS' CAPITAL
Limited partners - 11,000,000 units authorized;
6,939,778 units and 522,219 units issued
and outstanding at December 31, 2004 and
December 31, 2003, respectively 58,859,193 4,482,335
General partners 477 488
----------- -----------
TOTAL PARTNERS' CAPITAL 58,859,670 4,482,823
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $99,278,275 $ 4,608,470
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 3
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF OPERATIONS
FROM INCEPTION
YEAR YEAR (SEPTEMBER 20, 2002)
ENDED ENDED THROUGH
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------------- ----------------------- -----------------------
REVENUE
Rental revenue $ 2,616,051 $ - $ -
----------------------- ----------------------- -----------------------
TOTAL REVENUES 2,616,051 - -
EXPENSES
Property operating expenses 868,665 - -
Ground rent 293,307 - -
Real estate taxes 452,836 - -
Property and asset management fees 188,524 - -
General and administrative 400,231 112,789 -
Interest expense 519,848 - -
Depreciation and amortization 936,881 - -
----------------------- ----------------------- -----------------------
TOTAL EXPENSES 3,660,292 112,789 -
----------------------- ----------------------- -----------------------
OPERATING LOSS (1,044,241) (112,789) -
OTHER INCOME
Interest income 149,996 3,608
Equity in losses of investments in
joint ventures (414,052) - -
Minority interest (6,789) - -
----------------------- ----------------------- -----------------------
TOTAL OTHER INCOME (270,845) 3,608 -
----------------------- ----------------------- -----------------------
NET LOSS $ (1,315,086) $ (109,181) $ -
======================= ======================= =======================
ALLOCATION OF NET LOSS:
Net loss allocated to general partners $ (11) (12) -
----------------------- ----------------------- -----------------------
Net loss allocated to limited partners $ (1,315,075) $ (109,169) $ -
======================= ======================= =======================
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 2,598,846 92,143 -
======================= ======================= =======================
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (0.51) $ (1.18) $ -
======================= ======================= =======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 4
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
GENERAL PARTNERS LIMITED PARTNERS
------------------------------ -----------------------------------------------------
ACCUMULATED NUMBER OF ACCUMULATED
CONTRIBUTIONS LOSSES UNITS CONTRIBUTIONS LOSSES TOTAL
-------------- ------------ -------------- ------------------ --------------- ---------------
Beginning balance on
September 20, 2002 $ - $ - - $ - $ - $ -
Capital contributions on
September 20, 2002 500 100 600
-------------- ------------ -------------- ------------------ --------------- ---------------
Balance as
of December 31, 2002 500 - - 100 - 600
-------------- ------------ -------------- ------------------ --------------- ---------------
Issuance of units of
limited partnership
interest, net of
closing fees 522,219 4,591,404 4,591,404
Net loss (12) (109,169) (109,181)
-------------- ------------ -------------- ------------------ --------------- ---------------
Balance as of
December 31, 2003 500 (12) 522,219 4,591,504 (109,169) 4,482,823
-------------- ------------ -------------- ------------------ --------------- ---------------
Issuance of units of
limited partnership
interest, net of
closing fees 6,381,568 56,158,092 56,158,092
Distributions on limited
partnership units (809,393) (809,393)
Units issued pursuant
to Distribution
Reinvestment Plan 35,991 343,234 343,234
Net loss (11) (1,315,075) (1,315,086)
-------------- ------------ -------------- ------------------ --------------- ---------------
Balance as of
December 31, 2004 $ 500 $ (23) 6,939,778 $ 61,092,830 $ (2,233,637) $ 58,859,670
============== ============ ============== ================== =============== ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F - 5
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM INCEPTION
YEAR YEAR (SEPTEMBER 20, 2002)
ENDED ENDED THROUGH
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
------------------ ------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,315,086) $ (109,181) $ -
Adjustments to reconcile net loss to net cash
flows provided by (used in) operating activities
Minority interest 6,789 - -
Equity in losses of investments in joint ventures 414,052 - -
Depreciation and amortization 1,199,180 - -
Change in accounts receivable (656,095) - -
Change in prepaid expenses and other assets (223) (31,590) -
Change in accounts payable 48,591 11,062 -
Change in accrued liabilities 1,000,322 59,825 -
------------------ ------------------- --------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 697,530 (69,884) -
------------------ ------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of real estate (30,823,161) - -
Properties under development (17,348,596) - -
Purchases of investments in joint ventures (5,367,319) - -
Purchases of property and equipment (496,609) - -
------------------ ------------------- --------------------
CASH USED IN INVESTING ACTIVITIES (54,035,685) - -
------------------ ------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage notes 34,917,800 - -
Payment of mortgage notes (3,682,720) - -
Financing costs (840,078) - -
General partners' contributions - - 500
Limited partners' contributions 63,346,715 5,188,202 100
Offering costs (7,216,605) (596,798) -
Distributions (278,218) - -
Distribution to minority interest holders (11,427) - -
Change in limited partners' subscriptions 4,727,878 4,000 -
Change in restricted cash (4,612,450) (4,314) -
Change in receivables from and payables to affiliates (1,081,748) 50,760 -
------------------ ------------------- --------------------
CASH PROVIDED BY FINANCING ACTIVITIES 85,269,147 4,641,850 600
------------------ ------------------- --------------------
Net change in cash and cash equivalents 31,930,992 4,571,966 600
Cash and cash equivalents at beginning of period 4,572,566 600 -
------------------ ------------------- --------------------
Cash and cash equivalents at end of period $ 36,503,558 $ 4,572,566 $ 600
================== =================== ====================
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 337,634 $ - $ -
================== =================== ====================
NON-CASH FINANCING ACTIVITIES:
Limited partnership units issued
under distribution reinvestment plan $ 371,216 $ - $ -
Distributions payable in limited partnership units
under distribution reinvestment plan $ 99,683 $ - $ -
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 6
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
BUSINESS
Behringer Harvard Short-Term Opportunity Fund I LP is a limited
partnership formed in Texas on July 30, 2002. Our general partners are Behringer
Harvard Advisors II LP ("Behringer Advisors II") and Robert M. Behringer
(collectively, the "General Partners"). We were funded through capital
contributions from our General Partners and initial limited partner on September
20, 2002 (date of inception) and offered our limited partnership units pursuant
to the public offering which commenced on February 19, 2003 ("the Offering"),
terminated on February 19, 2005, and is described below. The Offering was a best
efforts continuous offering and we continued to admit new investors until the
termination of the Offering in February 2005. We are using the proceeds from the
Offering, after deducting offering expenses, primarily to acquire
income-producing properties.
We are opportunistic in our acquisition of properties. Properties may be
acquired in markets that are depressed or overbuilt with the anticipation that
these properties will increase in value as the markets recover. Properties may
also be acquired and repositioned by seeking to improve the property and tenant
quality and thereby increase lease revenues. Many of the markets where we
acquire properties have low barriers to entry. However, we are not limited to
such type investments. We will consider investments in all types of commercial
properties, including office buildings, shopping centers, business and
industrial parks, manufacturing facilities, apartment buildings, warehouses and
distribution facilities if the General Partners determine that it would be
advantageous to do so. Investments may also include commercial properties that
are not preleased to such tenants or in other types of commercial properties,
such as hotels or motels. However, we will not actively engage in the business
of operating hotels, motels or similar properties.
We may purchase properties that have been constructed and have operating
histories, are newly constructed or are under development or construction. 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 our business plan; (iii) inroads to
establishing beneficial strategic partners, customers, and suppliers; (iv)
opportunities within and related to the industry; and (v) other assistance as
may be determined by the General Partners or their representatives from time to
time. The Partnership Agreement provides that we will continue in existence
until the earlier of December 31, 2017 or termination pursuant to the
dissolution and termination provisions of the Partnership Agreement, which
includes a majority vote of the limited partners.
ORGANIZATION
On February 19, 2003, we 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 covered up to 1,000,000 units available
pursuant to the our distribution reinvestment plan at $10 per unit. We
terminated our distribution reinvestment plan on February 19, 2005 with the
termination of the Offering.
We were in the development stage through February 10, 2004. On February
11, 2004, we commenced operations with our acquisition of the Woodall Rodgers
Building, a real estate property in Dallas, Texas. As of December 31, 2004, we
had accepted subscriptions for 6,939,778 limited partnership units. As of March
16, 2005, there were 10,994,688 limited partnership units outstanding.
On January 21, 2005, we amended our Registration Statement on Form S-11
with Amendment No. 7 to increase the units of limited partnership interest being
offered to 10,950,000 and decrease the units available to be issued under the
distribution reinvestment plan to 50,000 units.
F - 7
2. 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 the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates include such items as
purchase price allocation for real estate acquisitions, impairment of long-lived
assets, depreciation and amortization and allowance for doubtful accounts.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include our accounts and the
accounts of our subsidiaries. All inter-company transactions, balances and
profits have been eliminated in consolidation. Interests in entities acquired
are evaluated based on Financial Accounting Standards Board Interpretation
("FIN") No. 46R "Consolidation of Variable Interest Entities", which requires
the consolidation of variable interest entities in which we are deemed to be the
primary beneficiary. If the interest in the entity is determined to not be a
variable interest entity under FIN No. 46R, then the entities are evaluated for
consolidation under the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 78-9 "Accounting for Investments in Real
Estate Ventures".
REAL ESTATE
Upon the acquisition of real estate properties, we allocate the purchase
price of those properties to the tangible assets acquired, consisting of land
and buildings, and identified intangible assets based on their fair values in
accordance with Statement of Financial Accounting Standards No. 141, "Business
Combinations." 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.
We determine 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. We record the fair value of
above-market and below-market leases as intangible assets and liabilities and
are 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 is
further allocated to in-place lease values, in-place tenant improvements,
in-place leasing commissions and tenant relationships based on management's
evaluation of the specific characteristics of each tenant's lease and our
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
F - 8
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.
We amortize 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.
INVESTMENT IMPAIRMENTS
For real estate directly owned by us, 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, we assess 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, we recognize an impairment loss to adjust the carrying
amount of the asset to estimated fair value.
For real estate owned by us through an investment in a joint venture,
tenant-in-common interest or other similar investment structure, at each
reporting date management compares the estimated fair value of our investment to
the carrying value. An impairment charge is recorded to the extent the fair
value of our investment is less than the carrying amount and the decline in
value is determined to be other than a temporary decline. We did not recognize
an impairment loss for the years ended December 31, 2004 and 2003.
CASH AND CASH EQUIVALENTS
We consider 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 were held in escrow until investors were admitted
as limited partners. We admitted new limited partners until the offering was
terminated on February 19, 2005. Upon acceptance of limited partners,
partnership units were issued and subscription proceeds were released to us from
escrow. Restricted cash at December 31, 2004 includes subscription proceeds,
monies held in escrow for insurance and reserves for properties acquired by and
consolidated with us. At December 31, 2003, restricted cash was comprised of
subscription proceeds for our limited partnership units.
RECEIVABLES FROM AFFILIATES
Receivables from affiliates at December 31, 2004 includes $1,500,000 due
from an affiliate for deposits paid by us for the future acquisition of the
Lakeway Inn & Resort located in Austin, Texas (the "Lakeway Inn"). On February
22, 2005, we announced that we had assigned our contract to purchase the Lakeway
Inn to Behringer Harvard Lakeway, LP, a Texas limited partnership wholly-owned
by Behringer Harvard Strategic Opportunity Fund I LP, an entity affiliated with
our sponsor, Behringer Harvard Holdings, LLC. In connection with this assignment
to Behringer Harvard Lakeway LP, we will be reimbursed for the costs we incurred
under the previous assignment from Harvard Property Trust, LLC, including the
$1,500,000 in earnest money deposits previously paid by us, with interest.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets at December 31, 2004 and 2003 includes
prepaid expenses such as prepaid insurance and prepaid ground rent.
INVESTMENTS IN JOINT VENTURES
As of December 31, 2004, "Investments in joint ventures" on our balance
sheet consists of our 85.71% ownership interest in a neighborhood
shopping/service center (the "Skillman Property") and our 50% ownership interest
in a six-story office building (the "Central Property"), both located in Dallas,
Texas.
F - 9
In connection with the acquisition of investments in joint ventures, we
incur certain acquisition and advisory fees which are paid to an affiliate.
These fees are capitalized as part of our basis in the investments in joint
ventures. We amortize any excess of the carrying value of our investments in
joint ventures over the book value of the underlying equity over the estimated
useful lives of the underlying real estate tangible assets, which represent the
assets to which the excess is most clearly related.
DEFERRED CHARGES
Leasing costs and leasehold improvements are deferred and amortized on a
straight-line basis over the terms of the related lease. Deferred financing fees
are recorded at cost and are amortized using the effective interest method over
the life of the related debt.
REVENUE RECOGNITION
We recognize rental income generated from leases on real estate assets
on the 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. For the year ended December
31, 2004, the total net increase to rental revenues due to straight-line rent
adjustments was $114,208. There were no straight-line rent adjustments during
the year ended December 31, 2003.
OFFERING COSTS
The General Partners fund all of the organization and offering costs on
our behalf. We are required to reimburse them for such organization and offering
costs up to 2.5% of the cumulative capital raised by us in the 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. All offering costs are recorded as an
offset to partners' capital, and all organization costs are recorded as an
expense at the time we become 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%) 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%) of their net capital contribution;
and
c) Thereafter, eighty-five percent (85%) to the limited partners,
on a per unit basis, and fifteen percent (15%) 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%) to the limited partners and
fifteen percent (15%) to the General Partners.
F - 10
INCOME TAXES
We are not a taxpaying entity and, accordingly, record no income taxes.
The partners are individually responsible for reporting their share of our
taxable income or loss on their income tax returns.
Certain of our transactions may be subject to accounting methods for
income tax purposes that differ from the accounting methods used in preparing
these financial statements in accordance with accounting principles generally
accepted in the United States of America. Accordingly, our net income or loss
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 December 31, 2004, we had cash and cash equivalents and restricted
cash on deposit in four financial institutions in excess of federally insured
levels. We had cash and cash equivalents and restricted cash on deposit in three
financial institutions in excess of federally insured levels at December 31,
2003. We regularly monitor the financial stability of these financial
institutions and believe that we are not exposed to any significant credit risk.
MINORITY INTEREST
Minority interest in partnerships represents the third-party partners'
proportionate share of the equity in consolidated real estate partnerships. We
hold a direct or indirect majority controlling interest in certain real estate
partnerships and thus, consolidate the accounts with and into our accounts.
Income and losses are allocated to minority interest holders based on the
weighted average percentage ownership during the year.
3. NEW ACCOUNTING PRONOUNCEMENTS
None.
4. ACQUISITIONS
On February 11, 2004, we acquired a five-story office building located
in Dallas, Texas containing approximately 74,090 rentable square feet
(unaudited) and a bank drive-thru, both located on approximately 1.7 acres of
land (unaudited) subject to a ground lease that expires in 2097 ("the "Woodall
Rodgers Improved Property"). We also acquired approximately 1.6 acres of
undeveloped land (unaudited) adjoining the Woodall Rodgers Improved Property
(the "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.
On July 2, 2004, we acquired a seven-story office building containing
approximately 133,799 rentable square feet (unaudited), parking garage and
nine-lane drive-thru bank facility, located on approximately 3.9 acres of land
(unaudited) in Addison, Texas, a suburb of Dallas, Texas ("the Quorum
Property"). The purchase price of the Quorum Property was approximately
$9,300,000.
On July 23, 2004, we entered into a joint venture whereby we acquired an
85.71% interest in the Skillman Property, a neighborhood shopping service center
containing approximately 98,764 rentable square feet (unaudited), located on
approximately 7.3 acres of land (unaudited) in Dallas, Texas. The purchase price
of the Skillman Property was approximately $13,700,000.
On August 17, 2004, we entered into a joint venture whereby we acquired
a 50% interest in the Central Property, a six-story office building containing
approximately 87,292 rentable square feet (unaudited), located on approximately
0.66 acres of land (unaudited) in Dallas, Texas. The purchase price of the
Central Property was approximately $7,700,000.
On October 4, 2004, we entered into a joint venture whereby we acquired
a 90% interest of a two-story office building containing approximately 105,030
rentable square feet (unaudited), located on approximately 12.3 acres of land
(unaudited) in Plano, Texas ("the Coit Property"), a suburb of Dallas, Texas.
The purchase price for the Coit Property was approximately $11,400,000.
F - 11
On November 8, 2004, we entered into a joint venture whereby we acquired
a 70% interest of a nine-story hotel located on approximately 5.4 acres of land
(unaudited) in Dallas, Texas ("the Mockingbird Commons Property"). 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 purchase
price for the Mockingbird Commons Property was approximately $18,900,000.
5. REAL ESTATE
ACQUISITIONS
On February 11, 2004, we acquired the Woodall Rodgers Property. The
purchase price of the Woodall Rodgers Property was approximately $10,700,000. We
used an interim financing mortgage note of $3,600,000 (the "Woodall Rodgers
Property Interim Note") 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, we completed our refinancing of the Woodall Rodgers Property
Interim Note when we entered into a loan agreement with First American Bank,
SSB. The purchase price has been allocated to the assets acquired and
liabilities assumed as follows:
Estimated
Description Allocation Useful Life
------------------------------------------------------------------------
Land held for sale $ 2,913,451
Building 6,339,542 25 years
Acquired in-place lease intangibles 1,077,486 3.5 years
Acquired customer relationship value 179,587 8.5 years
Acquired above market lease intangibles 385,713 3.5 years
Prepaid expenses 36,170
Prepaid rent, taxes & deposits (190,261)
--------------
Total $ 10,741,688
==============
The purchase price of the Woodall Rodgers Property was increased by $41,500 and
$27,062 in the second and fourth quarters of 2004, respectively, to include
professional fees incurred in conjunction with the acquisition.
On September 2, 2004, we entered into a Contract of Purchase and Sale
with Texas Land & Realty, LLC (the "Development Property Purchaser") for the
sale of the Development Property. The sale price of the Development Property is
expected to be approximately $4,200,000. The Contract of Purchase and Sale
required the Development Property Purchaser to make a $100,000 earnest money
deposit on September 8, 2004. We expect the sale of the Development Property to
be completed on or about April 1, 2005. At the closing of the sale of the
Development Property, we shall pay a real estate commission to third parties in
an amount equal to 6% of the first $500,000 of the purchase price and 3% of the
balance of the purchase price above $500,000. One-half of the real estate
commission paid by us shall be paid to Robert W. McMillan, a member of our
advisory board. In addition to such real estate commission, we will be obligated
to pay applicable subordinated disposition fees to our General Partner pursuant
to the terms of the Partnership Agreement.
On July 2, 2004, we acquired the Quorum Property. The purchase price of
the Quorum Property was approximately $9,300,000. We 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 our public offering of our partnership units. The purchase price has been
allocated to the assets acquired and liabilities assumed as follows:
F - 12
Estimated
Description Allocation Useful Life
------------------------------------------------------------------
Land $ 2,196,698
Building 6,690,581 25 years
Acquired in-place lease intangibles 484,448 3.2 years
Acquired customer relationship value 284,342 8.2 years
Acquired above market leases 248,535 3.2 years
Acquired below market leases (323,905) 3.2 years
Other assets 230
Other liabilities (240,066)
--------------
Total $ 9,340,863
==============
The purchase price of the Quorum Property was increased by $30,300 in the fourth
quarter of 2004 to include professional fees incurred in conjunction with the
acquisition.
On October 4, 2004, we acquired the Coit Property through our direct and
indirect partnership interests in Behringer Harvard 1221 Coit LP (the "Coit
Partnership"). The purchase price of the Coit Property was approximately
$11,400,000. We acquired our 90% interest in the Coit Partnership with
$4,500,000 of equity from proceeds of the Offering of our partnership units. The
Coit Property is held by the Coit Partnership, in which Behringer Harvard 1221
Coit GP, LLC, our wholly-owned subsidiary is the general partner. Realty America
Group (1221 Coit Road), L.P., an unaffiliated third party, and us 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 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. The purchase price has been allocated to
the assets acquired and liabilities assumed as follows:
Estimated
Description Allocation Useful Life
------------------------------------------------------------------
Land $ 3,500,000
Building 2,955,472 25 years
Acquired in-place lease intangibles 3,653,917 3.5 years
Acquired above market leases 1,119,575 3.5 years
Restricted cash 113,430
Other assets 139,549
Other liabilities (117,159)
--------------
Total $ 11,364,784
==============
On November 8, 2004, we acquired the Mockingbird Commons Property
through our 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 purchase 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
F - 13
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 Agreement has a
fixed rate of interest of 6%, 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 five business days written notice. The Mockingbird Commons Property is
subject to a deed of trust to collateralize payment of the Mockingbird Commons
Loan. We have guaranteed the Mockingbird Commons Loan. Under the guarantee, our
obligation is limited to 70% of any unpaid balance. In addition, under the
guarantee, obligations from the Mockingbird Commons Partnership to us 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, our
wholly-owned subsidiary (the "Mockingbird Commons Subsidiary"), is the general
partner. Behringer Harvard Mockingbird Commons Investors LP ("BH Investors"),
our wholly-owned subsidiary, and Realty America Group (Mockingbird Commons), LP,
("Realty") an unaffiliated third party, are the limited partners. The purchase
price has been allocated to the assets acquired and liabilities assumed as
follows:
Estimated
Description Allocation Useful Life
------------------------------------------------------------------
Land $ 11,067,000
Building 7,243,574 25 years
Cash 175,000
Restricted cash 22,642
Other assets 431,924
Other liabilities (53,700)
--------------
Total $ 18,886,440
==============
PRO FORMA RESULTS OF OPERATIONS
The following summary presents the results of operations for the years
ended December 31, 2004 and 2003, on an unaudited pro forma basis, as if the
acquisitions of the Woodall Rodgers, Quorum and Coit 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.
Year ended December 31,
-----------------------------------------------
2004 2003
---------------------- ----------------------
Total revenues $ 4,646,592 $ 4,525,705
Total expenses (6,303,494) (5,853,522)
Interest income 120,217 3,608
Equity in losses of joint ventures (1,054,196) (858,380)
Minority interest 9,956 20,604
---------------------- ----------------------
Net loss $ (2,580,925) $ (2,161,985)
====================== ======================
Allocation of net loss:
Net loss allocated to general partners $ (22) $ (238)
====================== ======================
Net loss allocated to limited partners $ (2,580,903) $ (2,161,747)
====================== ======================
Weighted average number of limited
partnership units outstanding 2,882,042 2,822,702
Net loss per limited partnership unit $ (0.90) $ (0.77)
====================== ======================
F - 14
6. INVESTMENTS IN JOINT VENTURES
Our investments in joint ventures as of December 31, 2004 consisted of
our proportionate share of the following assets and liabilities:
Skillman Central
Property Property
----------------- -----------------
Real estate, net $ 10,822,941 $ 6,913,861
Acquired lease intangibles, net 3,283,807 1,018,365
Cash and cash equivalents 171,925 100,624
Restricted cash 290,617 61,561
Accounts receivable, net 169,719 56,894
Receivables from affiliates 18,222 -
Prepaid expenses 4,933 8,020
Deferred financing fees, net 95,755 133,747
----------------- -----------------
Total assets $ 14,857,919 $ 8,293,072
================= =================
Note payable $ 10,740,246 $ 5,537,500
Accounts payable and accrued liabilities 148,904 414,536
Acquired below market lease intangibles, net 151,857 -
Tenant security deposits and prepaid rent 125,239 72,583
----------------- -----------------
Total liabilities 11,166,246 6,024,619
Partners' capital 3,691,673 2,268,453
----------------- -----------------
Total liabilities and partners' capital $ 14,857,919 $ 8,293,072
================= =================
In the year ended December 31, 2004, we recorded $414,052 of equity in
losses from our investments in joint ventures. Our equity in losses from these
joint venture investments is our proportionate share of the following losses of
the Skillman and Central Properties from the date of acquisition through the
year ended December 31, 2004.
Skillman Central
Property Property
----------------- -----------------
Revenue:
Rental income $ 614,146 $ 400,527
Tenant reimbursement income 262,002 17,410
----------------- -----------------
Total revenues 876,148 417,937
Operating costs and expenses:
General and operating expenses 113,359 154,120
Utilities 39,748 100,950
Property management fees, asset
management fees and accounting fees 79,738 33,063
Real estate taxes 163,220 77,618
Depreciation and amortization 452,276 272,557
Interest expense 305,149 111,276
----------------- -----------------
Total operating costs and expenses 1,153,490 749,584
----------------- -----------------
Net loss $ (277,342) $ (331,647)
================= =================
F - 15
In connection with the acquisition of the investments in Skillman and
Central, we incurred acquisition and advisory fees totaling $454,480, which were
capitalized as part of our basis in these investments. During the year ended
December 31, 2004, we recorded amortization of $11,089 related to the excess of
our carrying value of our investments in joint ventures over the underlying
equity. This amortization is included in equity in earnings of joint ventures in
the accompanying consolidated statement of operations for the year ended
December 31, 2004.
7. CAPITALIZED COSTS
On November 8, 2004, we acquired the Mockingbird Commons Property
through our partnership interests in 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.
Certain redevelopment costs associated with the Mockingbird Commons Property
have been capitalized on our balance sheet during the year ended December 31,
2004. As of December 31, 2004, we have capitalized $74,950 of interest costs,
$22,642 of property taxes, $10,561 of insurance costs and $30,713 of
amortization associated with financing fees related to the acquisition of the
property.
8. LEASING ACTIVITY
Future minimum base rental revenue due to us under non-cancelable leases
in effect as of December 31, 2004, were as follows:
Year ending December 31,
---------------------------------------------
2005 $ 2,622,108
2006 2,920,173
2007 3,007,411
2008 3,097,153
2009 2,784,709
Thereafter 6,301,601
------------
Total $ 20,733,155
============
9. CONTRACTUAL OBLIGATIONS
The following table sets forth certain information concerning our
contractual obligations and commercial commitments as of December 31, 2004, and
outlines expected future payments to be made under such obligations and
commitments:
Principal 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 $ 88,823 $ 4,211,177 $ - $ -
Woodall Rogers Facility B 1,700,000 170,000 1,530,000 - -
Quorum Property 4,908,269 - 4,908,269 - -
Coit Property 5,917,280 496,320 5,420,960 - -
Mockingbird Commons Property 14,409,531 - 14,409,531 - -
----------------- ----------------- ----------------- ----------------- ----------------
Total mortgage notes payable 31,235,080 755,143 30,479,937 - -
Operating lease 32,587,527 351,348 702,696 702,696 30,830,787
----------------- ----------------- ----------------- ----------------- ----------------
Total contractual obligations $ 63,822,607 $ 1,106,491 $ 31,182,633 $ 702,696 $ 30,830,787
================= ================= ================= ================= ================
In connection with our acquisition of the Woodall Rodgers Property on
February 11, 2004, we used 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% per annum with a maturity date of August 9, 2004. On
May 20, 2004, we completed our refinancing of the Woodall Rodgers Property
Interim Note when we entered into a loan agreement with First
F - 16
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. We have 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 us for Facility B. On May 20, 2004, we 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 December 31, 2004, the outstanding balances on Facility A and
Facility B were $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.
In connection with the our acquisition of the Quorum Property on July 2,
2004, we 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 our public
offering. 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. As of December 31,
2004, the outstanding balance on the Quorum Property Loan was $4,908,269. The
Quorum Property is held by Behringer Harvard Quorum I LP, in which Behringer
Harvard Quorum I GP, LLC, our wholly-owned subsidiary, is the general partner
and we are the limited partner.
The Quorum Property Loan, which is unconditionally guaranteed by us, 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. We 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. The Quorum Property is subject to a deed of trust to
collateralize payment of the Quorum Property Loan.
In connection with the acquisition of the Coit Property on October 4,
2004, we used borrowings of $6,000,000 (the "Coit Loan") from Washington Mutual
Bank, F.A., which Loan is further evidenced by a promissory note from our direct
and indirect partnership interests in the Coit Partnership to the lender in the
amount of $6,000,000. The remaining amount of the purchase price was paid from
proceeds of our public offering of our partnership units. 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 balance of the
Coit Loan at December 31, 2004 was $5,917,280. The Coit Property is subject to a
deed of trust to collateralize payment of the Coit Loan.
F - 17
On November 8, 2004, we acquired a 70% interest in the ownership of the
Mockingbird Commons Property, through our direct and indirect partnership
interests in 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 the Mockingbird Commons Loan under 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
preliminary development costs, including engineering and asbestos abatement. The
Mockingbird Commons Loan is further evidenced by a promissory note from us 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 balance of the Mockingbird Commons Loan at December 31, 2004 was
$14,409,531. The Mockingbird Commons Property is subject to a deed of trust to
collateralize payment of the Mockingbird Commons Loan. We have guaranteed the
Mockingbird Commons Loan. Under the guarantee, our obligation is limited to 70%
of any unpaid balance. In addition, under the guarantee, obligations from the
Mockingbird Commons Partnership to us are subordinated to the Mockingbird
Commons Loan.
The operating lease is composed of the ground lease assumed for the land
on which the Woodall Rodgers Improved Property portion of the Woodall Rodgers
Property is situated and 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.
On March 21, 2005, we entered into an assignment from Harvard Property
Trust, LLC, an affiliated entity, of a contract to purchase property located at
250/290 East John Carpenter Freeway in Irving, Texas (the "250/290 Property")
from Martel Office Buildings I, LLC, an unaffiliated third party. The 250/290
Property consists of a three-story office building built in 1976 and two
connected seven-story towers, each built in 1983. The three-building complex is
comprised of approximately 536,241 rentable square feet located on approximately
15.3 acres of land. The contract price for the 250/290 Property is $29,250,000,
excluding closing costs. We intend to use proceeds from the Offering to pay a
portion of the purchase price and the remaining amount will be financed.
We were in compliance with all financial covenants and restrictions of
the loan agreements at December 31, 2004.
F - 18
10. LEASE INTANGIBLES
We had the following lease intangibles at December 31, 2004.
Initial cost
-----------------------------------------------------------------
In-Place Leases Above Below
& Customer Market Market Deferred Accumulated
Property Name Relationship Leases Leases Leases amortization
--------------------------------------------------------------------------------------------------------------------
Woodall Rodgers $ 1,257,073 $ 385,713 $ - $ 51,141 $ 351,667
Quorum Property 768,790 248,535 (323,905) 112,542 109,237
Coit Property 3,653,917 1,119,575 - - 227,309
Mockingbird Commons - - - - -
-------------------------------------------------------------------------------------
Totals $ 5,679,780 $1,753,823 $ (323,905) $ 163,683 $ 688,213
=====================================================================================
Amortization of in-place lease intangibles and deferred leases of
$543,104 was included in amortization expense and amortization of above and
below market leases was $145,109 and was included as an adjustment to rental
income for the year ended December 31, 2004.
11. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended December 31,
2004 and 2003 consisted of the following:
Year ended December 31,
----------------------------------------
2004 2003
----------------- ----------------
Auditing expense $ 169,559 $ 42,767
Transfer agent fees 86,131 25,918
Tax preparation fees 5,500 15,750
D&O insurance 47,973 15,795
Legal fees 38,325 -
Advisory board fees 12,000 9,000
Other 40,743 3,559
----------------- ----------------
$ 400,231 $ 112,789
================= ================
Of the $400,231 of general and administrative expenses incurred in the
year ended December 31, 2004, $11,281 was paid to Behringer Harvard Advisors II
for organizational expenses. For the year ended December 31, 2003, $895 of the
$112,789 of general and administrative expense incurred, was paid to Behringer
Harvard Advisors II for organizational expenses.
F - 19
12. PARTNERS' CAPITAL
We initiated the declaration of monthly distributions in March 2004 in
the amount of a 3% annualized rate of return, based on an investment in our
limited partnership units of $10 per unit. Prior to February 19, 2005, we had a
distribution reinvestment and automatic repurchase plan ("DRIP") whereby,
pursuant to the distribution reinvestment feature of the DRIP, unit holders were
permitted to receive additional limited partnership units in lieu of a cash
distribution. We record all distributions when declared, except that the units
issued through the DRIP are recorded when the units are actually issued. The
offering of the units pursuant to the DRIP was terminated with the termination
of the Offering on February 19, 2005. The following are the distributions
declared during the year ended December 31, 2004.
Distributions
-------------------------------------------------------------
2004 Total Cash DRIP
------------------------------- -------------------- ------------------ -----------------
First Quarter $ 109,005 $ 51,705 $ 57,300
Second Quarter 125,783 57,349 68,434
Third Quarter 201,686 84,427 117,259
Fourth Quarter 372,919 145,014 227,905
-------------------- ------------------ -----------------
$ 809,393 $ 338,495 $ 470,898
==================== ================== =================
In January 2005, we issued 9,994 limited partnership units valued at
$99,547 to participants in the DRIP in lieu of cash distributions declared for
December 2004. As of December 31, 2004, distributions payable were $159,960.
There were no distributions declared or paid during the year ended December 31,
2003.
13. RELATED PARTY ARRANGEMENTS
The General Partners and certain of their affiliates receive fees and
compensation in connection with the Offering and the acquisition, management and
sale of our assets. The following is a summary of the related party fees and
compensation incurred by us during the years ended December 31, 2004 and 2003.
Total capitalized
Total capitalized to real estate
Total to offering and investments Total
incurred costs in joint ventures expensed
-----------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2004
Behringer Securities, commissions and
dealer manager fees $ 5,638,387 $ 5,638,387 $ - $ -
Behringer Advisors II, reimbursement of
organization and offering expenses 1,588,832 1,577,551 - 11,281
Behringer Advisors II, acquisition,
advisory fees and expenses 1,977,436 - 1,977,436 -
HPT Management LP, property management
and leasing fees 115,655 - - 115,655
Behringer Advisors II, asset management
fees 72,869 - - 72,869
---------------- ------------------ -------------------- --------------
Total $ 9,393,179 $ 7,215,938 $ 1,977,436 $ 199,805
================ ================== ==================== ==============
F - 20
Total capitalized
Total capitalized to real estate
Total to offering and investments Total
incurred costs in joint ventures expensed
-----------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2003
Behringer Securities commissions and
dealer manager fees $ 461,268 $ 461,268 $ - $ -
Behringer Advisors II, reimbursement of
organization and offering expenses 129,705 128,810 - 895
Behringer Advisors II, acquisition,
advisory fees and expenses - - - -
HPT Management LP, property management
and leasing fees - - - -
Behringer Advisors II, asset management
fee - - - -
---------------- ------------------ -------------------- --------------
Total $ 590,973 $ 590,078 $ - $ 895
================ ================== ==================== ==============
Behringer Securities, our affiliated dealer manager, receives
commissions of up to 7% 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 is paid to
Behringer Securities as a dealer manager fee; except that this dealer manager
fee is reduced to 1% of the gross proceeds of purchases made pursuant to the
distribution reinvestment feature of our distribution reinvestment and automatic
purchase plan. Behringer Securities reallows all of its commissions of up to 7%
of gross offering proceeds to participating broker-dealers and may reallow a
portion of its dealer manager fee of up to 1.5% of the gross offering proceeds
to be paid to such participating broker-dealers as marketing fees, including
bona fide conference fees incurred, and due diligence expense reimbursement.
Behringer Securities earned $4,059,019 in selling commissions and $1,579,368 in
dealer manager fees in the year ended December 31, 2004. In the year ended
December 31, 2003, Behringer Securities earned $331,563 in selling commissions
and $129,705 in dealer management fees. The commissions and dealer manager fees
were capitalized as offering costs in "Partners' capital" on our balance sheet
for the years ended December 31, 2004 and 2003.
Behringer Advisors II, a general partner of and advisor to us, or
Behringer Advisors II's affiliates receive up to 2.5% of gross offering proceeds
for reimbursement of organization and offering expenses. As of December 31,
2004, $1,936,297 of organization and offering expenses had been incurred by
Behringer Advisors II on our behalf, of which $1,718,537 had been reimbursed by
us and the balance of $217,760 will be reimbursed at a rate of 2.5% of future
equity raised. Of the $1,718,537 of organization and offering costs reimbursed
by us as of December 31, 2004, $1,706,361 had been capitalized as offering costs
in "Partners' capital" on our balance sheet and $12,176 had been expensed as
organizational costs. For the year ended December 31, 2004, we reimbursed
$1,588,832 of organization and offering expenses, of which $1,577,551 was
capitalized as offering costs in "Partners' capital" on our balance sheet and
$11,281, was expensed as organizational costs. For the year ended December 31,
2003, we reimbursed $129,705 of organization and offering expenses, of which
$128,810 was capitalized as offering costs in "Partners' capital" on our balance
sheet and $895, 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
us, Behringer Harvard Mid-Term Value Enhancement Fund I LP and Behringer Harvard
REIT I, Inc., our affiliates, 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% 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 us for reimbursement of expenses related to making
investments. During the year ended December 31, 2004, Behringer Advisors II
earned $1,694,945 of acquisition and advisory fees and was reimbursed $282,491
for acquisition related expenses. Behringer Advisors did not earn any
acquisition or advisory fees for the year ended December 31, 2003.
F - 21
For the management and leasing of our properties, we pay HPT Management,
our 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 (ten or more
years) net lease basis, 1% of gross revenues plus a one-time initial leasing fee
of 3% of gross revenues payable over the first five years of the lease term. We
reimburse the costs and expenses incurred by HPT Management on our 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 our 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 year ended December 31, 2004 we
incurred $115,655 in property management fees payable to HPT Management. We
incurred no property management fees payable to HPT Management for the year
ended December 31, 2003.
We pay Behringer Advisors II or its affiliates an annual advisor asset
management fee of 0.5% of the aggregate asset value of our assets. Any portion
of the asset management fee may be deferred and paid in a subsequent year.
During the year ended December 31, 2004, we incurred $72,869 of asset management
fees. We incurred no asset management fees during the year ended December 31,
2003.
In connection with the sale of our properties, we will pay to the
General Partners or their affiliates a real estate commission in an amount not
exceeding the lesser of: (A) 50% 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% 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% of their capital
contributions plus (2) a 10% 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% annual cumulative (noncompounded) return on their net capital contributions,
then the General Partners are entitled to receive 15% 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% of sale proceeds
remaining after the limited partners have received a return of their net capital
contributions.
We are dependent on Behringer Advisors II, Behringer Securities and HPT
Management for certain services that are essential to us, including the sale of
our limited partnership units, asset acquisition and disposition decisions,
property management and leasing services and other general and administrative
responsibilities. In the event that these companies were unable to provide the
respective services to us, we would be required to obtain such services from
other sources.
F - 22
14. INCOME TAX BASIS NET INCOME
Our income tax basis net income for the years ended December 31, 2004 and 2003
is recalculated as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
2004 2003
----------------- -----------------
Net loss for financial statement purposes $ (1,315,086) $ (109,181)
Adjustments:
Organization and start up costs 25,467 112,789
Bad debt expense 128,102 -
Straight line rent (117,754) -
Prepaid rent 280,116 -
Other (160,554) -
Depreciation 930,890 -
----------------- -----------------
Net income (loss) for income tax purposes $ (228,819) $ 3,608
================= =================
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair values was determined by us
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessary to interpret market data and develop
the related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and cash equivalents and restricted cash are short term and/or
highly liquid in nature. Accordingly, fair value approximates the carrying
values of these items.
The mortgages payable totaling approximately $31,200,000 as of December
31, 2004 have a fair value of approximately $30,500,000 based upon interest
rates for mortgages with similar terms and remaining maturities that management
believes the Company could obtain.
The fair value estimate presented herein is based on information
available to management as of December 31, 2004. Although management is not
aware of any factors that would significantly affect the estimated fair value
amount, such amount has not been comprehensively revalued for purposes of these
consolidated financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
F - 23
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected unaudited quarterly financial data
for each quarter during the years ended December 31, 2004 and 2003.
2004 Quarters Ended
--------------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
--------------------------------------------------------------------------------
Revenues $ 204,733 $ 379,327 $ 748,566 $ 1,283,425 $ 2,616,051
Net loss $ (111,956) $ (224,663) $ (478,568) $ (499,899) $ (1,315,086)
Weighted average number of
limited partnership units outstanding 1,075,130 1,677,826 2,660,469 4,894,646
Net loss per limited partnership unit $ (0.10) $ (0.13) $ (0.18) $ (0.10)
2003 Quarters Ended
--------------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
--------------------------------------------------------------------------------
Revenues $ - $ - $ - $ - $ -
Net loss $ - $ - $ (31,654) $ (77,527) $ (109,181)
Weighted average number of
limited partnership units outstanding - - 24,582 85,576
Net loss per limited partnership unit $ - $ - $ (1.29) $ (0.91)
17. SUBSEQUENT EVENTS
On February 22, 2005, we assigned our contract to purchase the Lakeway
Inn to Behringer Harvard Lakeway LP, a Texas limited partnership wholly-owned by
Behringer Harvard Strategic Opportunity Fund I LP, an entity affiliated with our
sponsor, Behringer Harvard Holding, LLC. In connection with this assignment to
Behringer Harvard Lakeway LP, we will be reimbursed for the costs we incurred
under the previous assignment from Harvard Property Trust, LLC, including the
$1,500,000 in earnest money deposits that we previously paid, with interest.
On March 3, 2005, we acquired an 80% interest in the ownership of
approximately 4.97 acres of land in Dallas, Texas located on the south side of
Northwest Highway and east of Midway Road (the "Northwest Highway Property"),
through our direct and indirect partnership interests in Behringer Harvard
Northwest Highway LP (the "Northwest Highway Partnership"). The site is planned
for development into high-end residential lots for the future sale to luxury
home builders. The Northwest Highway Property currently has no operations and no
operations are planned by the Northwest Highway Partnership. The total contract
purchase price for the Northwest Highway Property was $4,542,000, excluding
closing costs. We paid the entire cost of our 80% interest in the Northwest
Highway Property through our contributions to the Northwest Highway Partnership
from proceeds of the Offering.
On March 21, 2005, we entered into an assignment from Harvard Property
Trust, LLC, an affiliated entity, of a contract to purchase property located at
250/290 East John Carpenter Freeway in Irving, Texas from Martel Office
Buildings I, LLC, an unaffiliated third party. The property consists of a
three-story office building built in 1976 and two connected seven-story towers,
each built in 1983. The three-building complex is comprised of approximately
536,241 rentable square feet located on approximately 15.3 acres of land. The
contract price for the property is $29,250,000, excluding closing costs. We
intend to use proceeds from the Offering to pay a portion of the purchase price
and the remaining amount will be financed. An earnest money deposit of
$1,250,000 was made by us on March 21, 2005, and an additional earnest money
deposit of $1,000,000 will be paid on or before April 4, 2005.
F-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Partners of
Behringer Harvard Short-Term Opportunity Fund I LP:
Our audits of the consolidated financial statements referred to in our report
dated March 31, 2005, included in this Annual Report on Form 10-K, also included
an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
Dallas, Texas
March 31, 2005
F - 25
BEHRINGER HARVARD SHORT-TERM VALUE OPPORTUNITY FUND I LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
DECEMBER 31, 2004
Initial cost Cost Gross
-------------------------- capitalized amount
subsequent carried at Accumulated
Property Name Market Encumbrances Land Buildings to acquisition close of period depreciation
- ----------------------------------------------------------------------------------------------------------------------------
Woodall Rodgers Dallas $ 6,000,000 $ 2,913,451 $ 6,312,480 $ 72,313 $ 9,298,244 $ 231,205
Quorum Property Dallas 4,908,269 2,196,698 6,660,281 317,976 9,174,955 143,054
Coit Property Dallas 5,917,280 3,500,000 2,955,472 - 6,455,472 19,518
Mockingbird Commons Dallas 14,409,531 11,067,000 7,503,740 18,570,740 -
-----------------------------------------------------------------------------------------
Totals $31,235,080 $19,677,149 $23,431,973 $390,289 $ 43,499,411 $ 393,776
=========================================================================================
Year of Date Depreciable
Property Name construction acquired life
- -------------------------------------------------------------
Woodall Rodgers 1984 2/11/2004 (1)
Quorum Property 1981 7/2/2004 (1)
Coit Property 1986 10/4/2004 (1)
Mockingbird Commons 11/8/2004 (2)
Totals
(1) Building 25 years
(2) Property under development
(3) The aggregate cost for federal income tax purporses is equal to the gross amount carried at the close of the period.
F - 26
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1.1 Form of Dealer Manager Distribution Agreement between Registrant and
Behringer Securities LP (previously filed and incorporated by reference
to Pre-Effective Amendment No. 2 to Registrant's Registration Statement
on Form S-11, Commission File No. 333-100125, filed on February 11,
2003)
3.1 Form of Agreement of Limited Partnership of Registrant, as amended
(included as Exhibit B to Supplement No. 2 to the Prospectus dated
September 18, 2003)
3.2 Certificate of Limited Partnership of Registrant (previously filed and
incorporated by reference to Registrant's Registration Statement on Form
S-11, Commission File No. 333-100125, filed on September 27, 2002)
4.1 Form of Subscription Agreement and Subscription Agreement Signature Page
(included as Exhibit C to Supplement No. 1 to the Prospectus dated June
3, 2003)
5.1 Opinion of Fulbright & Jaworski L.L.P. as to legality of securities
(previously filed and incorporated by reference to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100125, filed on December 23, 2002)
8.1 Opinion of Morris, Manning & Martin, LLP as to tax matters (previously
filed and incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on February 11, 2003)
10.1 Form of Amended and Restated Property Management and Leasing Agreement
between Registrant and HPT Management Services LP (previously filed and
incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form S-11, Commission File
No.333-100125, filed on June 30, 2004)
10.2 Form of Escrow Agreement between the Registrant and Wells Fargo Bank
Iowa, N.A. (previously filed and incorporated by reference to
Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on February 11, 2003)
10.3 Distribution Reinvestment Plan (included as Exhibit D to prospectus, as
supplemented)
10.4 Agreement of Limited Partnership of Behringer Harvard Woodall Rodgers LP
(previously filed and incorporated by reference to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100125, filed on May 11, 2004)
10.5 Assignment of Purchase and Sale Agreements by PRG Realty Partners, Ltd.
and Behringer Harvard Woodall Rodgers LP (previously filed and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on May 11, 2004)
10.6 Purchase and Sale Agreement by and between Oly Uptown General
Partnership and PRG Realty Partners, Ltd., with respect to 1909 Woodall
Rodgers Freeway (previously filed and incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on May 11, 2004)
10.7 First Amendment to Purchase and Sale Agreement by and between Oly Uptown
General Partnership and PRG Realty Partners, Ltd., with respect to 1909
Woodall Rodgers Freeway (previously filed and incorporated by reference
to Post-Effective Amendment No. 3 to Registrant's Registration Statement
on Form S-11, Commission File No. 333-100125, filed on May 11, 2004)
10.8 Purchase and Sale Agreement by and between Oly McKinney, L.P. and PRG
Realty Partners, Ltd., with respect to the Oly McKinney Vacant Land
(previously filed and incorporated by reference to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100125, filed on May 11, 2004)
10.9 First Amendment to Purchase and Sale Agreement by and between Oly
McKinney, L.P. and PRG Realty Partners, Ltd., with respect to the Oly
McKinney Vacant Land (previously filed and incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on May 11, 2004)
10.10 Deed of Trust by Behringer Harvard Woodall Rodgers LP (previously filed
and incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on May 11, 2004)
10.11 Promissory Note made by Behringer Harvard Woodall Rodgers LP payable to
Benchmark Bank (previously filed and incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on May 11, 2004)
10.12 Form of Purchase and Sale Contract between Crescent Real Estate Funding
VII, L.P. and Harvard Property Trust, LLC with respect to the Quorum
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.13 Form of First Amendment to Purchase and Sale Contract by and between
Crescent Real Estate Funding VII, L.P. and Harvard Property Trust, LLC
with respect to the Quorum Property (previously filed and incorporated
by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-100125,
filed on September 30, 2004)
10.14 Form of Assignment, Assumption and Amendment of Purchase and Sale
Contract by and between Harvard Property Trust, LLC and Behringer
Harvard Quorum I LP with respect to the Quorum Property (previously
filed and incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on September 30, 2004)
10.15 Form of Loan Agreement by and between First American Bank, SSB and
Behringer Harvard Quorum I LP with respect to the Quorum Property
(previously filed and incorporated by reference to Post-Effective
Amendment No. 5 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100125, filed on September 30, 2004)
10.16 Form of Deed of Trust with respect to Quorum Property (previously filed
and incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on September 30, 2004)
10.17 Form of Agreement of Limited Partnership of Behringer Harvard Plaza
Skillman LP (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.18 Form of Purchase and Sale Agreement with respect to the Skillman
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.19 Form of First Amendment to Purchase and Sale Agreement with respect to
the Skillman Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.20 Form of Second Amendment to Purchase and Sale Agreement with respect to
the Skillman Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.21 Form of Third Amendment to Purchase and Sale Agreement with respect to
the Skillman Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.22 Form of Fourth Amendment to Purchase and Sale Agreement with respect to
the Skillman Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.23 Form of Fifth Amendment to Purchase and Sale Agreement with respect to
the Skillman Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.24 Form of Assignment of Purchase and Sale Agreement by Audelia Plaza, Ltd.
and Behringer Harvard Plaza Skillman LP with respect to the Skillman
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.25 Form of Loan Assumption and Substitution Agreement with respect to the
Skillman Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.26 Form of Agreement of Limited Partnership of Behringer Harvard 4245
Central LP (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.27 Form of Contract of Sale by and among Vortisch Holdings, L.P., Cantex
Realties, Inc. and Realty America Group I, LP with respect to the
Central Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.28 Form of First Amendment to Contract of Sale with respect to the Central
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.29 Form of Second Amendment to Contract of Sale with respect to the Central
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.30 Form of Third Amendment to Contract of Sale with respect to the Central
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.31 Form of Fourth Amendment to Contract of Sale with respect to the Central
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.32 Form of Fifth Amendment to Contract of Sale with respect to the Central
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.33 Form of Sixth Amendment to Contract of Sale with respect to the Central
Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.34 Form of Seventh Amendment to Contract of Sale with respect to the
Central Property (previously filed and incorporated by reference to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100125, filed on September 30, 2004)
10.35 Form of Assignment of Purchase and Sale Agreement by Realty America
Group (4245 Central), LP and Behringer Harvard 4245 Central LP with
respect to the Central Property (previously filed and incorporated by
reference to Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-100125, filed on
September 30, 2004)
10.36 Form of Loan Agreement between Behringer Harvard 4245 Central LP and
Bank of America, N.A. with respect to the Central Property (previously
filed and incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on September 30, 2004)
10.37 Form of Deed of Trust with respect to the Central Property (previously
filed and incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100125, filed on September 30, 2004)
10.38 Contract of Purchase and Sale by and between Behringer Harvard Woodall
Rodgers LP and Texas Land & Realty, LLC with respect to the Woodall
Rodgers Property (previously filed and incorporated by reference to Form
8-K filed on September 9, 2004)
10.39 Agreement of Sale and Purchase between 98 CUSA Plan, L.P. and Realty
America (1221 Coit Road), LP regarding the Coit Property (previously
filed and incorporated by reference to Form 8-K filed on October 8,
2004)
10.40 Reinstatement and First Amendment to Agreement of Sale and Purchase
between 98 CUSA Plano, L.P. and Realty America Group (1221 Coit Road),
LP regarding the Coit Property (previously filed and incorporated by
reference to Form 8-K filed on October 8, 2004)
10.41 Assignment of Agreement of Sale and Purchase by Realty America Group
(1221 Coit Road), LP and Behringer Harvard 1221 Coit LP regarding the
Coit Property (previously filed and incorporated by reference to Form
8-K filed on October 8, 2004)
10.42 Second Amendment to Agreement of Sale and Purchase between 98 CUSA
Plano, L.P. and Behringer Harvard 1221 Coit LP regarding the Coit
Property (previously filed and incorporated by reference to Form 8-K
filed on October 8, 2004)
10.43 Agreement of Limited Partnership among Behringer Harvard 1221 Coit GP,
LLC, Behringer Harvard Short-Term Opportunity Fund I LP and Realty
America Group (1221 Coit Road), LP regarding the Coit Property
(previously filed and incorporated by reference to Form 8-K filed on
October 8, 2004)
10.44 Loan Agreement between Washington Mutual Bank, FA and Behringer Harvard
1221 Coit LP regarding the Coit Property (previously filed and
incorporated by reference to Form 8-K filed on October 8, 2004)
10.45 Promissory Note made by Behringer Harvard 1221 Coit LP to Washington
Mutual Bank, FA regarding the Coit Property (previously filed and
incorporated by reference to Form 8-K filed on October 8, 2004)
10.46 Deed of Trust and Absolute Assignment of Leases and Rents, Security
Agreement and Fixture Filing by Behringer Harvard 1221 Coit LP in favor
of Mark C. McElree, as trustee, and Washington Mutual Bank, FA regarding
the Coit Property (previously filed and incorporated by reference to
Form 8-K filed on October 8, 2004)
10.47 Repayment Guaranty made by Behringer Harvard Short-Term Opportunity Fund
I LP in favor of Washington Mutual Bank, FA regarding the Coit Property
(previously filed and incorporated by reference to Form 8-K filed on
October 8, 2004)
10.48 Contract of Purchase and Sale by and between Maharishi Global
Development Fund and Realty America Group, L.P. regarding the
Mockingbird Commons Property (previously filed and incorporated by
reference to Form 10-Q for the period ended September 30, 2004)
10.49 Agreement of Limited Partnership of Behringer Harvard Mockingbird
Commons GP, LLC, Behringer Harvard Mockingbird Commons Investors LP and
Realty America Group regarding the Mockingbird Commons Property
(previously filed and incorporated by reference to Form 10-Q for the
period ended September 30, 2004)
10.50 Loan Agreement made between Texans Commercial Capital, LLC and Behringer
Harvard Mockingbird Commons LP regarding the Mockingbird Commons
Property (previously filed and incorporated by reference to Form 10-Q
for the period ended September 30, 2004)
10.51 Guaranty Agreement made by Behringer Harvard Short-Term Opportunity Fund
I LP to Texans Commercial Capital, LLC regarding the Mockingbird Commons
Property (previously filed and incorporated by reference to Form 10-Q
for the period ended September 30, 2004)
10.52 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 regarding the Mockingbird Commons Property (previously filed and
incorporated by reference to Form 10-Q for the period ended September
30, 2004)
10.53 Purchase and Sale Agreement by and between YCP Lakeway, L.P., YCP
Lakeway Operator, Inc. and Harvard Property Trust, LLC dated November
24, 2004 as assigned by Harvard Property Trust, LLC to Behringer Harvard
Short-Term Opportunity Fund I LP on November 24, 2004 regarding the
Lakeway Inn Conference Resort (previously filed and incorporated by
reference to Form 8-K filed on December 1, 2004)
10.54 Assignment of Purchase and Sale Agreement and Escrow Instructions by
Behringer Harvard Short-Term Opportunity Fund I LP to Behringer Harvard
Lakeway LP on February 22, 2005 regarding the Lakeway Inn Conference
Resort (previously filed and incorporated by reference to Form 8-K filed
on February 28, 2005)
10.55 Agreement of Limited Partnership of Behringer Harvard Northwest Highway
LP by and among Behringer Harvard Northwest Highway GP, LLC, Behringer
Harvard Short-Term Opportunity Fund I LP, J.L. Armstrong Trust and Paul
and Wilma Nothern Family Trust regarding Northwest Highway Property
(previously filed and incorporated by reference to Form 8-K filed on
March 7, 2005)
10.56 Assignment of Contract of Sale by and between MHC HomeAmerica, Inc. and
Behringer Harvard Northwest Highway LP regarding the Northwest Highway
Property regarding Northwest Highway Property (previously filed and
incorporated by reference to Form 8-K filed on March 7, 2005)
10.57 Development Management Agreement by and between Behringer Harvard
Northwest Highway LP and MHC HomeAmerica, Inc. regarding Northwest
Highway Property (previously filed and incorporated by reference to Form
8-K filed on March 7, 2005)
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
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 Certification of Chief Executive and Financial Officers