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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
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: 000-51291
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY
FUND I LP
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 71-0897614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15601 DALLAS PARKWAY, SUITE 600, ADDISON, TEXAS 75001
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (866) 655-1620
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
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BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
FORM 10-Q
QUARTER ENDED MARCH 31, 2005
PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2005 and
December 31, 2004...................................................3
Consolidated Statements of Operations for the three
months ended March 31, 2005 and 2004................................4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2005 and 2004................................5
Notes to Consolidated Financial Statements.............................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............25
ITEM 4. CONTROLS AND PROCEDURES...............................................25
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.....................................................26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS...........26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................26
ITEM 5. OTHER INFORMATION.....................................................26
ITEM 6. EXHIBITS..............................................................26
SIGNATURE.....................................................................27
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31, DECEMBER 31,
2005 2004
------------------- ------------------
ASSETS
REAL ESTATE
Land $ 8,610,149 $ 8,610,149
Buildings, net 16,001,587 15,924,745
Real estate under development 25,714,839 18,570,740
Acquired in-place lease intangibles, net 6,192,773 6,707,687
Deferred leasing intangibles, net 237,091 159,717
------------------- ------------------
TOTAL REAL ESTATE 56,756,439 49,973,038
Cash and cash equivalents 66,443,874 36,503,558
Restricted cash 190,450 4,730,194
Accounts receivable, net 545,086 656,095
Receivables from affiliates 820,728 1,602,840
Prepaid expenses and other assets 84,579 136,394
Escrow deposits 1,250,000 -
Investments in unconsolidated joint ventures 4,819,848 4,953,267
Deferred financing fees, net of accumulated
amortization of $182,600 and $98,383, respectively 638,672 722,889
------------------- ------------------
TOTAL ASSETS $ 131,549,676 $ 99,278,275
=================== ==================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage notes payable $ 32,308,237 $ 31,235,080
Accounts payable 41,769 59,653
Payables to affiliates 154,374 571,852
Acquired below market lease intangibles, net 261,401 282,236
Distributions payable 279,998 159,960
Accrued liabilities 2,431,421 1,682,584
Subscriptions for limited partnership units 1,838 4,731,878
------------------- ------------------
TOTAL LIABILITIES 35,479,038 38,723,243
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 1,733,952 1,695,362
PARTNERS' CAPITAL
Limited partners - 11,000,000 units authorized;
10,992,410 units and 6,939,778 units issued
and outstanding at March 31, 2005 and
December 31, 2004, respectively 94,336,210 58,859,193
General partners 476 477
------------------- ------------------
TOTAL PARTNERS' CAPITAL 94,336,686 58,859,670
------------------- ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 131,549,676 $ 99,278,275
=================== ==================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2005 MARCH 31, 2004
-------------------- --------------------
REVENUE
Rental revenue $ 1,148,328 $ 204,733
-------------------- --------------------
TOTAL REVENUES 1,148,328 204,733
EXPENSES
Property operating expenses 272,060 71,830
Property repairs and maintenance 655 5,500
Ground rent 87,837 41,259
Real estate taxes 122,499 29,492
Property and asset management fees 44,162 14,688
General and administrative 194,128 49,256
Interest expense 173,373 48,033
Depreciation and amortization 562,291 70,878
-------------------- --------------------
TOTAL EXPENSES 1,457,005 330,936
-------------------- --------------------
Interest income 311,978 14,247
Equity in losses of investments in
unconsolidated joint ventures (252,268) -
Minority interest 1,929 -
-------------------- --------------------
NET LOSS $ (247,038) $ (111,956)
==================== ====================
ALLOCATION OF NET LOSS
Net loss allocated to general partners $ (1) $ (5)
==================== ====================
Net loss allocated to limited partners $ (247,037) $ (111,951)
==================== ====================
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 10,106,553 1,075,130
==================== ====================
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (0.02) $ (0.10)
==================== ====================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2005 MARCH 31, 2004
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (247,038) $ (111,956)
Adjustments to reconcile net loss to net cash
flows provided by (used in) operating activities:
Minority interest (1,929) -
Equity in losses of investments in joint ventures 252,268 -
Depreciation and amortization 708,342 96,512
Change in accounts receivable 111,009 (7,079)
Change in prepaid expenses and other assets 51,815 16,611
Change in accounts payable (17,884) (9,459)
Change in accrued liabilities 724,836 (24,404)
------------------- -------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,581,419 (39,775)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of real estate (21,000) (10,673,125)
Purchases of properties under development (4,682,550) -
Capital expenditures for properties under development (2,341,479) -
Investments in joint ventures (118,849) -
Purchases of property and equipment (309,332) (1,175)
Escrow deposits on properties to be acquired (1,250,000) -
------------------- -------------------
CASH USED IN INVESTING ACTIVITIES (8,723,210) (10,674,300)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage notes 1,238,597 3,600,000
Payment of mortgage notes (165,440) -
Financing costs - (49,520)
Proceeds from sale of limited partnership units 40,206,197 6,916,382
Offering costs (3,834,249) (535,682)
Distributions (527,856) -
Distribution to minority interest holders (9,482) -
Change in limited partners' subscriptions (4,730,040) 1,285,706
Change in restricted cash 4,539,744 (1,291,223)
Change in receivables from and payables to affiliates 364,636 (37,504)
------------------- -------------------
CASH PROVIDED BY FINANCING ACTIVITIES 37,082,107 9,888,159
------------------- -------------------
Net change in cash and cash equivalents 29,940,316 (825,916)
Cash and cash equivalents at beginning of period 36,503,558 4,572,566
------------------- -------------------
Cash and cash equivalents at end of period $ 66,443,874 $ 3,746,650
=================== ===================
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 96,787 $ 35,653
=================== ===================
NON-CASH FINANCING ACTIVITIES:
Limited partnership units issued
under distribution reinvestment plan $ 99,683 $ -
Distributions payable in limited partnership units
under distribution reinvestment plan $ - $ 57,300
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Behringer Harvard Short-Term Opportunity Fund I LP (which may be
referred to as the "Partnership," "we," "us" or "our") 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 of 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. Our partnership agreement (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.
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.
2. PUBLIC OFFERING
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 our distribution reinvestment plan at $10 per unit. 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 the 50,000 units that had already been issued, thus
terminating our distribution reinvestment plan.
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 containing approximately 1.7 acres of land subject to
a ground lease that expires in 2097 (collectively, the "Woodall Rodgers Improved
Property"). We also acquired 1.6 acres of undeveloped land adjoining the Woodall
Rodgers Improved Property (the "Woodall Rodgers Development Property," and
together with the Woodall Rodgers Improved Property, the "Woodall Rodgers
Property").
6
As of March 31, 2005, we had 10,992,410 limited partnership units
outstanding. No additional units have been issued subsequent to March 31, 2005,
as we terminated our Offering on February 19, 2005.
3. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2004,
which was filed with the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America ("GAAP"), have been condensed or omitted in this report
on Form 10-Q pursuant to the rules and regulations of the SEC.
The results for the interim periods shown in this report are not
necessarily indicative of future financial results. Our accompanying
consolidated balance sheet as of March 31, 2005 and consolidated statements of
operations and cash flows for the three month periods ended March 31, 2005 and
2004 have not been audited by our independent registered public accounting firm.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments (of a normal recurring nature) necessary to
present fairly our financial position as of March 31, 2005 and December 31, 2004
and the results of our operations and cash flows for the periods ended March 31,
2005 and 2004.
Amounts in previous periods have been reclassified to conform to current
period presentation with no effect on previously reported net income or
partners' capital.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect 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 consolidated 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 or if we are
not determined to be the primary beneficiary, 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.
7
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 or intangible
liabilities, respectively, and amortize them 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 include 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 IMPAIRMENT
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 periods ended March 31, 2005 and 2004.
CASH AND CASH EQUIVALENTS
We consider investments 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 March 31, 2005 includes interest income on
subscription proceeds held in escrow until investors were admitted as limited
partners, monies held in escrow for insurance, taxes and other reserves for
properties acquired by and consolidated with us.
8
ACCOUNTS RECEIVABLE
Accounts receivable primarily consists of receivables from tenants
related to those properties that are consolidated in our financial statements.
RECEIVABLES FROM AFFILIATES
Receivables from affiliates at March 31, 2005 includes $808,843 for
overpayment of organization and offering expenses that we reimburse to our
affiliate, Behringer Advisors II. Receivables from affiliates at December 31,
2004 included $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.
During the quarter ended March 31, 2005, in connection with this assignment to
Behringer Harvard Lakeway LP, we were 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.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets at March 31, 2005 include prepaid
expenses such as prepaid insurance.
ESCROW DEPOSITS
Escrow deposits at March 31, 2005 include deposits for the purchase of
properties that we have under contract.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
As of March 31, 2005, "Investments in unconsolidated 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.
In connection with the acquisition of investments in joint ventures, we
incur certain acquisition and advisory fees that 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 tangible real estate 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 a method that approximates 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. For the
quarters ended March 31, 2005 and 2004, the total net increase to rental
revenues due to straight-line rent adjustments was $101,234 and $9,137,
respectively.
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.
9
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.
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 GAAP. 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 March 31, 2005, we had cash and cash equivalents and restricted cash
on deposit in five financial institutions in excess of federally insured levels.
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.
5. REAL ESTATE
We commenced active operations with the purchase of the Woodall Rodgers
Property on February 11, 2004, our first real estate property acquisition. At
March 31, 2005, we owned two properties through direct ownership and five
properties through investments in partnerships and joint ventures. Three
investments in partnerships and joint ventures are consolidated and two are
accounted for under the equity method.
10
As of March 31, 2005, 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
As of March 31, 2005, 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%
Northwest Highway Property Dallas, Texas - redevelopment property 80.00%
ACQUISITIONS
On March 3, 2005, we acquired an 80% interest in 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 the closing by Behringer Harvard
Northwest Highway LP (the "Northwest Highway Partnership") on the purchase of
such property. 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 purchase price for the Northwest Highway Property
was approximately $4,700,000. We paid the entire cost of our 80% interest in the
Northwest Highway Property through contribution of such funds in respect of our
interests in the Northwest Highway Partnership from proceeds of the Offering. At
the closing, the two individuals who serve as trustees of the Class B Limited
Partners of the Northwest Highway Partnership received a brokerage commission in
the amount of $242,000 from the sellers pursuant to the purchase contract. The
Northwest Highway Partnership entered into a Development Management Agreement
with MHC HomeAmerica, Inc., an unaffiliated third party, to perform development
services in respect of the property. MHC HomeAmerica, Inc. will receive a
development fee from the Northwest Highway Partnership of $66,000, payable in 12
monthly installments. The development services include all development and
construction management services required to complete and make ready for
construction a residential subdivision containing a minimum of 19 lots on the
Northwest Highway Property.
On April 20, 2005, the Northwest Highway Partnership entered into a
construction loan agreement (the "Northwest Highway Loan Agreement") with The
Frost National Bank, an unaffiliated third party (the "Northwest Highway
Lender"). We are subject to a Guaranty Agreement with the Northwest Highway
Lender in which we guarantee prompt and full repayment of any borrowings. Under
the Guaranty Agreement, we guarantee, among other things, payment of the
borrowings in the event that the Northwest Highway Partnership becomes insolvent
or enters into bankruptcy proceedings. The Northwest Highway Loan Agreement
provides the Northwest Highway Partnership with the ability to borrow up to
$4,550,000 in advances from the Northwest Highway Lender. Advances are to be
used for payment of costs of construction of improvements to the Northwest
Highway Property. The purchase price has been allocated to the assets acquired
and liabilities assumed as follows:
Estimated
Description Allocation Useful Life
-------------------------------------------------------------------
Real estate under development $ 4,718,596 -
Other liabilities (38,546) -
---------------
Total $ 4,680,050
===============
11
PRO FORMA RESULTS OF OPERATIONS
The following summary presents the results of operations for the three
months ended March 31, 2004, on an unaudited pro forma basis, as if the
acquisition of the Woodall Rodgers, Quorum, Coit, Mockingbird Commons and
Northwest Highway Properties had occurred as of January 1, 2004. The Northwest
Highway Property was acquired on March 3, 2005. However, the Northwest Highway
Property is a development property that had no operations during the quarter
ended March 31, 2005. Therefore, no pro forma results are presented for the
three months ended March 31, 2005. The pro forma results are for illustrative
purposes only and do not purport to be indicative of the actual results which
would have occurred had the transaction occurred on January 1, 2004, nor are
they indicative of results of operations which may occur in the future.
Three months ended
March 31, 2004
--------------------
Total revenues $ 1,100,408
Total expenses (1,783,250)
--------------------
Net loss $ (682,842)
====================
Weighted average number of limited
partnership units outstanding 3,521,717
Net loss per limited partnership unit $ (0.19)
====================
6. INVESTMENTS IN JOINT VENTURES
Our investments in joint ventures as of March 31, 2005 consisted of our
proportionate share of the following assets and liabilities:
Skillman Central
Property Property
--------------- ---------------
Land $ 3,202,871 $ 596,713
Buildings, net 7,589,931 6,268,625
Real estate intangibles, net 2,870,212 925,529
Cash and cash eqivalents 224,054 -
Restricted cash 320,964 50,217
Accounts receivable and other assets 363,107 206,403
--------------- ---------------
Total assets $ 14,571,139 $ 8,047,487
=============== ===============
Total liabilities $ 11,035,697 $ 5,785,892
Equity 3,535,442 2,261,595
--------------- ---------------
Total liabilities and equity $ 14,571,139 $ 8,047,487
=============== ===============
12
In the three months ended March 31, 2005, we recorded $252,268 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 Property and the Central Property for the three months
ended March 31, 2005:
Skillman Central
Property Property
--------------- ---------------
Revenue:
Rental income $ 361,953 $ 240,222
Tenant reimbursement income 171,829 11,150
--------------- ---------------
Total revenues 533,782 251,372
Operating costs and expenses:
General and operating expenses 51,422 99,950
Utilities 16,127 53,610
Property management and
asset management fees 30,436 21,164
Real estate taxes 92,509 57,006
Depreciation and amortization 327,514 161,022
Interest expense 171,257 82,046
--------------- ---------------
Total operating costs and expenses 689,265 474,798
--------------- ---------------
Net loss $ (155,483) $ (223,426)
=============== ===============
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 three months
ended March 31, 2005, we recorded amortization of $7,292 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 three months ended
March 31, 2005.
7. CAPITALIZED COSTS
On November 8, 2004, we acquired a 70% interest in 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. Certain redevelopment costs associated with the Mockingbird
Commons Property have been capitalized on our balance sheet at March 31, 2005.
For the three months ended March 31, 2005, we capitalized a total of $2,341,479
in costs associated with the development of the Mockingbird Commons Property.
Capitalized costs include interest, property taxes, insurance and construction
costs. During the three months ended March 31, 2005 we capitalized $281,249 in
interest costs and $46,070 of deferred financing costs for the Mockingbird
Commons Property.
8. MORTGAGES PAYABLE
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
13
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
March 31, 2005, 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.
On April 6, 2005, the Woodall Rodgers Partnership sold the Woodall
Rodgers Development Property to LZA Properties, L.P., which acquired the
property through assignments from Texas Land & Realty, LLC, each unaffiliated
third parties. The contract sale price was $4,194,828. In accordance with the
loan agreement associated with the Woodall Rodgers Property, a portion of the
proceeds of the sale were used to (i) pay-off the $1,700,000 mortgage note of
the Woodall Rodgers Development Property, (ii) make a principal payment of
$300,000 to pay down the mortgage note of the Woodall Rodgers Improved Property,
and (iii) increase the general reserve account by $200,000.
In connection with 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 the 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 March 31, 2005, the
outstanding balance on the Quorum Property Loan was $4,956,224.
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 the Offering.
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 12 months each if certain conditions are met. The
balance of the Coit Loan at March 31, 2005 was $5,751,840. 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 the
Mockingbird Commons Property, through our direct and indirect partnership
interests in 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 the $17,000,000 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
14
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 March 31, 2005 was $15,600,172. 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.
On April 20, 2005, the Northwest Highway Partnership entered into the
Northwest Highway Loan Agreement with the Northwest Highway Lender. We are
subject to a Guaranty Agreement with the Northwest Highway Lender in which we
guarantee prompt and full repayment of any borrowings. Under the Guaranty
Agreement, we guarantee, among other things, payment of the borrowings in the
event that the Northwest Highway Partnership becomes insolvent or enters into
bankruptcy proceedings. The Northwest Highway Loan Agreement provides the
Northwest Highway Partnership with the ability to borrow up to $4,550,000 in
advances from the Northwest Highway Lender. Advances are to be used for payment
of costs of construction of improvements to the Northwest Highway Property.
We were in compliance with all financial covenants and restrictions of
our loan agreements at March 31, 2005.
9. 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 January 21, 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. The limited partnership
units issued through the DRIP were recorded when the units were actually issued.
The offering of the units pursuant to the DRIP was terminated on January 21,
2005. The following are the distributions declared during the three months ended
March 31, 2005.
Distributions
----------------------------------------------------
2005 Total Cash DRIP
- ------------------------- ----------------- ---------------- ---------------
First Quarter $ 747,577 $ 747,577 $ -
Distributions payable at March 31, 2005 were $279,998.
15
10. 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 periods ended March 31, 2005 and 2004.
Total capitalized
Total capitalized to real estate
Total to offering and investments Total
incurred costs in joint ventures expensed
----------------------------------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 2005
Behringer Securities, commissions
and dealer manager fees $ 3,634,721 $ 3,634,721 $ - $ -
Behringer Advisors II, reimbursement
of organization and offering expenses 206,685 199,475 - 7,210
Behringer Advisors II, acquisition,
advisory fees and expenses 127,176 - 127,176 -
HPT Management LP, property management
and leasing fees 16,745 - - 16,745
Behringer Advisors II, asset management fees 27,417 - - 27,417
--------------- ------------------ -------------------- ---------------
Total $ 4,012,744 $ 3,834,196 $ 127,176 $ 51,372
=============== ================== ==================== ===============
Total capitalized
Total capitalized to real estate
Total to offering and investments Total
incurred costs in joint ventures expensed
----------------------------------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 2004
Behringer Securities commissions
and dealer manager fees $ 363,333 $ 363,333 $ - $ -
Behringer Advisors II, reimbursement
of organization and offering expenses 172,910 171,682 - 1,228
Behringer Advisors II, acquisition,
advisory fees and expenses 360,500 - 360,500 -
HPT Management LP, property management
and leasing fees 7,921 - - 7,921
Behringer Advisors II, asset management fees 6,767 - - 6,767
--------------- ------------------ -------------------- ---------------
Total $ 911,431 $ 535,015 $ 360,500 $ 15,916
=============== ================== ==================== ===============
Behringer Securities LP ("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, which was terminated on January 21, 2005. 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 $2,618,389 in selling commissions and $1,016,332 in dealer manager fees
in the period ended March 31, 2005. For the period ended March 31, 2004,
Behringer Securities earned $203,599 in selling commissions and $159,734 in
dealer manager fees. The commissions and dealer manager fees were capitalized as
offering costs in "Partners' capital" on our balance sheet for the periods ended
March 31, 2005 and 2004.
16
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 March 31, 2005,
$1,925,222 of organization and offering expenses had been incurred by Behringer
Advisors II on our behalf. As of March 31, 2005, all offering expenses incurred
by Behringer Advisors II on our behalf had been reimbursed. Of the $1,925,222 of
organization and offering costs reimbursed by us as of March 31, 2005,
$1,905,836 had been capitalized as offering costs in "Partners' capital" on our
balance sheet and $19,386 had been expensed as organizational costs. For the
three months ended March 31, 2005, we reimbursed $206,685 of organization and
offering expenses, of which $199,475 was capitalized as offering costs in
"Partners' capital" and $7,210 was expensed as organizational costs. For the
three months ended March 31, 2004, we had reimbursed $172,910 of organization
and offering expenses, of which $171,682 was capitalized as offering costs in
"Partners' capital" on our balance sheet and $1,228 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 the anticipated respective equity offering sizes of those
entities. No further proceeds will be raised by us as a result of the
termination of the Offering and, as a result, we will not make any further
reimbursements to Behringer Advisors II for organization and offering expenses
incurred or that may be incurred in the future on our behalf.
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 quarter ended March 31, 2005, Behringer Advisors II
earned $109,008 of acquisition and advisory fees and was reimbursed $18,168 for
acquisition-related expenses. During the quarter ended March 31, 2004, Behringer
Advisors II earned $309,000 of acquisition and advisory fees and was reimbursed
$51,500 for acquisition-related expenses.
For the management and leasing of our properties, we pay HPT Management
Services LP ("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 quarters ended
March 31, 2005 and 2004 we incurred property management fees payable to HPT
Management of $16,745 and $7,921, respectively.
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 periods ended March 31, 2005 and 2004, we incurred asset management
fees of $27,417 and $6,767, respectively.
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
17
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.
11. SUBSEQUENT EVENTS
On April 4, 2005, we acquired a 100% interest in a three-building office
complex containing approximately 536,241 rentable square feet located on
approximately 15.3 acres of land in Irving, Texas, a suburb of Dallas, Texas
(the "250/290 Carpenter Property") through our direct and indirect partnership
interests in Behringer Harvard 250/290 Carpenter LP (the "250/290 Carpenter
Partnership"). The contract purchase price of the 250/290 Carpenter Property was
$29,250,000, exclusive of closing costs. The 250/290 Carpenter Property was
acquired by the 250/290 Carpenter Partnership entirely through the use of
proceeds from the Offering.
On April 6, 2005, the Woodall Rodgers Partnership sold the Woodall
Rodgers Development Property to LZA Properties, L.P., which acquired the Woodall
Rodgers Development Property through assignments from Texas Land & Realty, LLC,
each unaffiliated third parties. The contract sale price was $4,194,828. In
accordance with the loan agreement associated with the Woodall Rodgers Property,
a portion of the proceeds of the sale were used to (i) pay-off the $1,700,000
mortgage note of the Woodall Rodgers Development Property, (ii) make a principal
payment of $300,000 to pay down the mortgage note of the Woodall Rodgers
Improved Property, and (iii) increase the general reserve account by $200,000.
At the closing of the sale of the Woodall Rodgers Development Property, the
Woodall Rodgers Partnership paid total real estate commissions of $140,845.
One-half of this commission was paid to Trammell Crow Company and one-half was
paid to Robert W. McMillan, a member of our advisory board. On May 10, 2005 we
announced that the estimated gain from the sale of the land of $1,096,000 would
be distributed in May 2005 to unit holders of record as of May 15, 2005.
On April 20, 2005, the Northwest Highway Partnership entered into the
Northwest Highway Loan Agreement with the Northwest Highway Lender. We are
subject to a Guaranty Agreement with the Northwest Highway Lender in which we
guarantee prompt and full repayment of any borrowings. Under the Guaranty
Agreement, we guarantee, among other things, payment of the borrowings in the
event that the Northwest Highway Partnership becomes insolvent or enters into
bankruptcy proceedings. The Northwest Highway Loan Agreement provides the
Northwest Highway Partnership with the ability to borrow up to $4,550,000 in
advances from the Northwest Highway Lender. Advances are to be used for payment
of costs of construction of improvements to the Northwest Highway Property. The
Northwest Highway Property is planned for development into high-end residential
lots for the future sale to luxury home builders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our accompanying financial statements and the notes thereto:
FORWARD-LOOKING STATEMENTS
This section of the quarterly report contains forward-looking
statements, including discussion and analysis of us 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
18
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-Q. 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. Factors that could
cause actual results to differ materially from any forward-looking statements
made in this Form 10-Q include changes in general economic conditions, changes
in real estate conditions, construction costs that may exceed estimates,
construction delays, increases in interest rates, lease-up costs, inability to
obtain new tenants upon the expiration of existing leases, and the potential
need to fund tenant improvements or other capital expenditures out of operating
cash flows. 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.
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 GAAP. 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." 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 or intangible
liabilities, respectively, and amortize them 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
19
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 is 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 periods ended March 31, 2005 and 2004.
RESULTS OF OPERATIONS
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 March 31, 2005, we owned two properties through direct ownership and five
properties through investments in partnerships and joint ventures. Three
investments in partnerships and joint ventures are consolidated and two are
accounted for under the equity method. Accordingly, our results of operations
for the three months ended March 31, 2005, as compared to the three months ended
March 31, 2004, reflect significant increases in almost every category.
THREE MONTHS ENDED MARCH 31, 2005 AS COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2004
REVENUE. Rental revenue for the three months ended March 31, 2005 was
$1,148,328 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. During the three months ended March 31,
2004, rental revenue was $204,733 and was comprised of revenue from the Woodall
Rodgers Property from the date of acquisition, February 11, 2004, through March
31, 2004. 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 three
months ended March 31, 2005 and 2004 were $272,060 and $71,830, respectively.
Property operating expenses for the three months ended March 31, 2005 were
comprised mainly of expenses related to the daily operations of the Woodall
Rodgers, Quorum and Coit Properties. Property operating expenses for the three
months ended March 31, 2004 were comprised of operating expenses from the
Woodall Rodgers Property from the date of acquisition, February 11, 2004,
through March 31, 2004. Management expects there will be increases in property
operating expenses in the future as we continue to invest in additional real
estate properties.
20
PROPERTY REPAIRS AND MAINTENANCE. Property repairs and maintenance
expense for the three months ended March 31, 2005 and 2004 were $655 and $5,500,
respectively. Property operating expenses for the three months ended March 31,
2005 were comprised of expenses related to repairs and maintenance for the
Woodall Rodgers and Quorum Properties. Property repairs and maintenance expense
for the three months ended March 31, 2004 were comprised of repairs and
maintenance for the Woodall Rodgers Property. Management expects there will be
increases in property repairs and maintenance expense in the future as we
continue to invest in additional real estate properties.
GROUND RENT EXPENSE. Ground rent expense for the three months ended
March 31, 2005 and 2004 was $87,837 and $41,259, respectively. The ground rent
expense represents the operating lease on the developed land included in the
Woodall Rodgers Property. For the three months ended March 31, 2004, ground rent
is from the date of acquisition of the Woodall Rodgers Property, February 11,
2004, through March 31, 2004. The ground lease for the developed land is
scheduled to terminate in September 2097.
REAL ESTATE TAXES. Real estate taxes for the three months ended March
31, 2005 were $122,499 and were comprised of real estate taxes associated with
the Woodall Rodgers, Quorum, and Coit Properties. Real estate taxes in the
amount of $29,492 for the three months ended March 31, 2004 were composed of
property taxes for the Woodall Rodgers Property. Management expects significant
increases in real estate taxes 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 three months ended March 31, 2005 were $44,162 and were comprised of
property management and asset management fees associated with the Woodall
Rodgers, Quorum and Coit Properties. Property and asset management fees for the
Woodall Rodgers Property for the three months ended March 31, 2004 were $14,688.
Management expects increases in property management and asset management fees in
the future as we invest in additional real estate properties.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended March 31, 2005 were $194,128 and were comprised of
auditing fees, transfer agent fees, tax preparation fees, directors' and
officers' insurance premiums, legal fees and other administrative expenses. For
the three months ended March 31, 2004, general and administrative expenses were
$49,256 and consisted of corporate overhead and administrative start-up
expenses. The increase in general and administrative expenses quarter versus
quarter is primarily due to increases in auditing expense of $61,677, transfer
agent fees of $45,936 and tax preparation fees of $27,068. Management expects
general and administrative expenses to increase as we continue to purchase more
properties in the future.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
2005 was $173,373 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. Interest expense for the
three months ended March 31, 2004 was $48,033 and was comprised of interest
expense and amortization of deferred financing fees related to the mortgage
associated with the acquisition of the Woodall Rodgers Property. Management
expects interest expense to increase if we continue to use borrowings in our
acquisition of new properties. In addition, interest expense for the Mockingbird
Commons Property is expected to increase when the property becomes operational.
For the period ending March 31, 2005, we capitalized interest costs of $281,249
for the Mockingbird Commons Property.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the three months ended March 31, 2005 was $562,291 and includes
depreciation and amortization of buildings and real estate intangibles
associated with the Woodall Rodgers, Quorum and Coit Properties. For the three
months ended March 31, 2004, depreciation and amortization expense for the
Woodall Rodgers Property was $70,878. Management expects future increases in
depreciation and amortization expense as we continue to acquire additional real
estate properties.
INTEREST INCOME. Interest income for the three months ended March 31,
2005 was $311,978 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
21
offering expenses and operating expenses. Until required for such purposes, net
offering proceeds were held in short-term, liquid investments and earned
interest income. Interest income for the three months ended March 31, 2004, was
$14,247. The increase in interest income is due to higher cash balances on
deposit with banks as a result of increased proceeds from investor
subscriptions.
EQUITY IN LOSSES OF UNCONSOLIDATED JOINT VENTURES. Equity in losses of
investments in unconsolidated joint ventures for the three months ended March
31, 2005 was $252,268 and was comprised of our share of equity in the losses of
the Skillman and Central Properties. During the three months ended March 31,
2004, we did not own any interests in unconsolidated joint ventures.
MINORITY INTEREST. Minority interest for the three months ended March
31, 2005 was $1,929 and represents the other partners' proportionate share of
equity in the losses of the Coit Property. During the three months ended March
31, 2004, we had no investments in partnerships with minority interest holders.
CASH FLOW ANALYSIS
We commenced active operations with the purchase of the Woodall Rodgers
Property on February 11, 2004, our first real estate property acquisition. As of
March 31, 2005, we owned two properties through direct ownership and five
properties through investments in partnerships and joint ventures. As a result,
our cash flows for the three months ended March 31, 2005 may not be comparable
to results for the three months ended March 31, 2004.
Cash provided by operating activities for the three months ended March
31, 2005 was $1,581,419 and was comprised primarily of depreciation and
amortization of $708,342, equity in losses of investments in unconsolidated
joint ventures of $252,268 and a change in working capital accounts of $869,776,
partially offset by the net loss of $247,038. During the three months ended
March 31, 2004, cash used in operating activities was $39,775 and consisted of
the net loss from operations of $111,956 and changes in current assets and
liabilities of $24,331, partially offset by depreciation and amortization of
$96,512.
Cash used in investing activities for the three months ended March 31,
2005 was $8,723,210 and was primarily comprised of purchases of properties under
development of $4,682,550, capital expenditures for properties under development
of $2,341,479, escrow deposits on properties to be acquired of $1,250,000 and
purchases of property and equipment of $309,332. Cash used in investing
activities for the three months ended March 31, 2004 was $10,674,300 and
consisted primarily of purchases of real estate of $10,673,125.
Cash provided by financing activities was $37,082,107 for the three
months ended March 31, 2005, versus $9,888,159 for the three months ended March
31, 2004. For the three months ended March 31, 2005, cash flows from financing
activities consisted primarily of the proceeds from the issuance of limited
partnership units net of offering costs of $36,371,948, proceeds from mortgage
notes payable obtained in the acquisition of properties of $1,238,597 and a
change in restricted cash of $4,539,744. This was partially offset by a change
in limited partners' subscription of $4,730,040, distributions to limited
partners of $527,856, payments on mortgage loans of $165,440 and changes in
receivables from and payables to affiliates of $364,636. Cash flows of
$9,888,159 for the three months ended March 31, 2004 were comprised primarily of
funds received from the issuance of limited partnership units net of offering
costs of $6,375,183 and $3,600,000 in proceeds from the mortgage loan associated
with the Woodall Rodgers Property.
LIQUIDITY AND CAPITAL RESOURCES
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 will be delays between the sale
of our units, which ended in February 2005, 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. Our cash and
cash equivalents were $66,443,874 at March 31, 2005.
22
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 North American
Securities Administrators Association 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.
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.
The Mockingbird Commons Property was acquired by the Mockingbird Commons
Partnership using the Mockingbird Commons Loan under a loan agreement with 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. During the quarter ended March 31, 2005, we acquired
additional borrowings of $1,190,641 under the Mockingbird Commons Loan Agreement
for preliminary development costs. We expect to have additional borrowings as we
continue to develop the property.
On March 3, 2005, we acquired an 80% interest in the ownership of the
Northwest Highway Property, through our direct and indirect partnership
interests in 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 April 6, 2005, the Woodall Rodgers Partnership sold the Woodall
Rodgers Development Property to LZA Properties, L.P., which acquired the Woodall
Rodgers Development Property through assignments from Texas Land & Realty, LLC,
each unaffiliated third parties. The contract sale price was $4,194,828. In
accordance with the loan agreement associated with the Woodall Rodgers Property,
a portion of the proceeds of the sale were used to (i) pay-off the $1,700,000
mortgage note of the Woodall Rodgers Development Property, (ii) make a principal
payment of $300,000 to pay down the mortgage note of the Woodall Rodgers
Improved Property, and (iii) increase the general reserve account by $200,000.
At the closing of the sale of the Woodall Rodgers Development Property, the
Woodall Rodgers Partnership paid total real estate commissions of $140,845.
One-half of this commission was paid to Trammell Crow Company and one-half was
paid to Robert W. McMillan, a member of our advisory board. The estimated gain
of $1,096,000 will be distributed in May 2005 to unit holders of record on May
15, 2005.
On April 20, 2005, the Northwest Highway Partnership entered into the
Northwest Highway Loan Agreement with the Northwest Highway Lender. We are
subject to a Guaranty Agreement with the Northwest Highway Lender in which we
guarantee prompt and full repayment of any borrowings. Under the Guaranty
Agreement, we guarantee, among other things, payment of the borrowings in the
event that the Northwest Highway Partnership becomes insolvent or enters into
bankruptcy proceedings. The Northwest Highway Loan Agreement provides the
Northwest Highway Partnership with the ability to borrow up to $4,550,000 in
23
advances from the Northwest Highway Lender. Advances are to be used for payment
of costs of construction of improvements to the Northwest Highway Property. The
Northwest Highway Property is planned for development into high-end residential
lots for the future sale to luxury home builders.
On April 4, 2005, we acquired the 250/290 Carpenter Property through our
direct and indirect partnership interests in the 250/290 Carpenter Partnership.
The contract purchase price of the 250/290 Carpenter Property was $29,250,000,
exclusive of closing costs. The 250/290 Carpenter Property was acquired by the
250/290 Carpenter Partnership entirely through the use of proceeds from the
Offering.
We were in compliance with all financial covenants and restrictions of
the loan agreements at March 31, 2005.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of March
31, 2005:
Payments due by period
--------------------------------------------------------------------
Less than 1-3 3-5 More than
Total 1 year years years 5 years
--------------------------------------------------------------------------------------
Mortgage note payable
Woodall Rogers Facility A $ 4,300,000 $ 22,475 $ 4,277,525 $ - $ -
Woodall Rogers Facility B 1,700,000 170,000 1,530,000 - -
Quorum Property 4,956,224 - 4,956,224 - -
Coit Property 5,751,840 454,960 5,296,880 - -
Mockingbird Commons Property 15,600,173 - 15,600,173 - -
---------------- --------------- ---------------- --------------- ----------------
Total mortgage notes payable 32,308,237 647,435 31,660,802 - -
Operating lease 32,499,690 351,348 702,696 702,696 30,742,950
---------------- --------------- ---------------- --------------- ----------------
Total contractual obligations $ 64,807,927 $ 998,783 $ 32,363,498 $ 702,696 $ 30,742,950
================ =============== ================ =============== ================
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 $ 413,212 $ 185,217 $ 227,995 $ - $ -
Woodall Rogers Facility B 142,995 67,775 75,220 - -
Quorum Property 486,818 224,101 262,717 - -
Coit Property 437,700 171,863 265,837 - -
Mockingbird Commons Property 1,578,218 949,011 629,207 - -
---------------- --------------- ---------------- --------------- ----------------
Total $ 3,058,943 $ 1,597,967 $ 1,460,976 $ - $ -
================ =============== ================ =============== ================
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.
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.
24
ITEM 3. 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 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, the
management of Behringer Advisors II evaluated, with the participation of the
chief executive officer and chief financial officer of its general partner, the
effectiveness of our disclosure controls and procedures as of March 31, 2005.
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.
25
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
As of March 31, 2005, we had sold the following securities pursuant to
the Offering for the following aggregate offering prices:
o 10,946,425 limited partnership units on a best efforts basis for
$108,741,062; and
o 45,985 limited partnership units pursuant to our distribution
reinvestment plan for $470,898.
The above-stated number of units sold and the gross offering proceeds
realized pursuant to the Offering as of March 31, 2005 were 10,992,410 limited
partnership units for $109,211,960.
From the commencement of the Offering through March 31, 2005, 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* $ 11,659,598
Other expenses to non-affiliates 7,387
----------------
Total expenses $ 11,666,985
================
- -----------------
*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 $97,544,975.
From the commencement of the Offering through March 31, 2005, we had
used $29,723,487 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, $2,104,612 was paid to Behringer Harvard Advisors
II LP, our affiliate, as acquisition and advisory fees and acquisition expense
reimbursement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by this report that would
require a response to this item.
ITEM 6. EXHIBITS.
The exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Behringer Harvard Short-Term
Opportunity Fund I LP
By: Behringer Harvard Advisors II LP
Co-General Partner
Dated: May 16, 2005 By: /s/ Gary S. Bresky
--------------------------------
Gary S. Bresky
Chief Financial Officer and
Treasurer
27
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
31.1 Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1* Certificate of Chief Executive and Financial Officers
* In accordance with Release No. 34-47986, this Exhibit is hereby furnished to
the SEC as an accompanying document and is not deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by reference
into any filing under the Securities Act of 1933.