UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported): December 22, 2010 (October 8, 2010)
Behringer Harvard Opportunity REIT II, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | | 000-53650 | | 20-8198863 |
(State or other jurisdiction of incorporation or organization) | | (Commission File Number) | | (I.R.S. Employer Identification No.) |
15601 Dallas Parkway, Suite 600, Addison, Texas
75001
(Address of principal executive offices)
(Zip Code)
(866) 655-3600
(Registrant’s telephone number, including area code)
None
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Pursuant to the requirements of the Securities Exchange Act of 1934, Behringer Harvard Opportunity REIT II, Inc. (which may be referred to as the “Registrant,” “we,” “our,” or “us”) hereby amends our Current Report on Form 8-K filed on October 15, 2010 as amended by our Current Report on Form 8-K/A filed on October 26, 2010 to provide the required financial statements relating to our acquisition of a portfolio of eight medical office buildings located in South Florida and fee simple title to certain excess land related to the buildings and entry into ground leases with the seller for each of the medical office buildings (the “Original Florida MOB Portfolio”), and the acquisition of a ninth medical office building, also located in South Florida, (the “Gardens Medical Pavilion”) as described in such Current Repor ts. Collectively, the Original Florida MOB Portfolio and Gardens Medical Pavilion are referred to as the “Florida MOB Portfolio.”
After reasonable inquiry, we are not aware of any material factors relating to the Original Florida MOB Portfolio or Gardens Medical Pavilion that would cause the reported revenues and certain operating expenses not to be necessarily indicative of future operating results.
Item 9.01 Financial Statements and Exhibits.
| | Page |
(a) | Financial Statements of Businesses Acquired. | |
| | |
| Independent Auditors’ Report on the Original Florida MOB Portfolio | 3 |
| | |
| Original Florida MOB Portfolio Combined Statements of Revenues and Certain Operating Expenses for the Nine Months Ended September 30, 2010 (unaudited) and for the Year Ended December 31, 2009 | 4 |
| | |
| Notes to the Original Florida MOB Portfolio Combined Statements of Revenues and Certain Operating Expenses for the Nine Months Ended September 30, 2010 (unaudited) and for the Year Ended December 31, 2009 | 5 |
| | |
| Independent Auditors’ Report on Gardens Medical Pavilion | 7 |
| | |
| Gardens Medical Pavilion Statement of Revenues and Certain Operating Expenses for the Nine Months Ended September 30, 2010 (unaudited) and for the Year Ended December 31, 2009 | 8 |
| | |
| Notes to Gardens Medical Pavilion Statements of Revenues and Certain Operating Expenses for the Nine Months Ended September 30, 2010 (unaudited) and for the Year Ended December 31, 2009 | 9 |
| | |
(b) | Pro Forma Financial Information. | |
| | |
| Unaudited Pro Forma Consolidated Financial Information | 11 |
| | |
| Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2010 | 13 |
| | |
| Unaudited Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2010 | 14 |
| | |
| Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2009 | 15 |
| | |
| Notes to Unaudited Pro Forma Consolidated Financial Statements | 16 |
2
Independent Auditors’ Report
To the Board of Directors and Stockholders of
Behringer Harvard Opportunity REIT II, Inc.
Addison, Texas
We have audited the accompanying combined statement of revenues and certain operating expenses (the “Historical Summary”) of the Original Florida MOB Portfolio, a portfolio consisting of eight medical office buildings located in South Florida for the year ended December 31, 2009. This Historical Summary is the responsibility of the Original Florida MOB Portfolio’s management. Our responsibility is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as it relates to the Historical Summary as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Original Florida MOB Portfolio’s internal control over financial reporting as it relates to the Historical Summary. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary, assessing the accounting principles used and significant es timates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in this Form 8-K/A of Behringer Harvard Opportunity REIT II, Inc.) as described in Note 1 to the Historical Summary and is not intended to be a complete presentation of the Original Florida MOB Portfolio’s combined revenues and expenses.
In our opinion, the Historical Summary presents fairly, in all material respects, the combined revenues and certain operating expenses described in Note 1 to the Historical Summary of the Original Florida MOB Portfolio for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP |
|
|
Dallas, Texas |
December 22, 2010 |
3
Original Florida MOB Portfolio
Combined Statements of Revenues and Certain Operating Expenses
For the Nine Months Ended September 30, 2010 (unaudited)
and for the Year Ended December 31, 2009
(in thousands)
| | Nine Months Ended
September 30, 2010
(unaudited) | | Year Ended
December 31, 2009 | |
Revenues | | | | | |
Rental revenue | | $ | 6,496 | | $ | 8,329 | |
Tenant reimbursement and other income | | 1,244 | | 1,654 | |
Total revenues | | 7,740 | | 9,983 | |
| | | | | |
Certain Operating Expenses | | | | | |
Property operating expenses | | 4,062 | | 5,606 | |
Property taxes | | 1,125 | | 1,492 | |
Management fees | | 133 | | 197 | |
General and administrative expenses | | 94 | | 352 | |
Total certain operating expenses | | 5,414 | | 7,647 | |
| | | | | |
Revenues in excess of certain operating expenses | | $ | 2,326 | | $ | 2,336 | |
See accompanying Notes to the Combined Statements of Revenues and Certain Operating Expenses.
4
Original Florida MOB Portfolio
Notes to the Combined Statements of Revenues and Certain Operating Expenses
For the Nine Months Ended September 30, 2010 (unaudited)
and for the Year Ended December 31, 2009
1. ORGANIZATION AND BASIS OF PRESENTATION
On October 8, 2010, Behringer Harvard Opportunity REIT II, Inc. through BH-AW Florida MOB Venture, LLC, acquired a portfolio of eight medical office buildings, the rights to the ground lease related to the portfolio of buildings, and fee simple title to certain excess land related to the portfolio buildings, all located in South Florida (the “Original Florida MOB Portfolio”). The Original Florida MOB Portfolio contains an aggregate of more than 618,000 square feet (unaudited) and the excess land totals approximately 7.8 acres (unaudited). The contract purchase price for the Original Florida MOB Portfolio was $47.1 million, excluding closing costs.
The combined statements of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations be included with certain filings with the SEC. The Historical Summary includes the historical revenues and certain operating expenses of the Original Florida MOB Portfolio, exclusive of items which may not be comparable to the proposed future operations of the Original Florida MOB Portfolio. The Historical Summary is not intended to be a complete presentation of the revenues and expenses of the Original Florida MOB Portfolio for the nine months ended September 30, 2010 and for the year ended December 31, 2009. The combined s tatements of revenues and certain operating expenses exclude depreciation and amortization, which may not be comparable to the proposed future operations of the Original Florida MOB Portfolio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Reporting and Use of Estimates
The preparation of the statements of revenues and certain operating expenses, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions of the reported amounts of revenues and certain operating expenses during the reporting period. Actual results may differ from those estimates.
In preparing the accompanying financial statements, we evaluated events and transactions that occurred subsequent to September 30, 2010, through the date that the accompanying consolidated financial statements were available to be issued on December 22, 2010.
Revenue Recognition
The operations of the Original Florida MOB Portfolio consist of rental revenue earned from its tenants under lease agreements which provide for minimum rent payments. The tenant leases have been accounted for as operating leases. Rental revenue is recognized by amortizing the aggregate lease payments on a straight-line basis over the entire term of the lease. Straight-line adjustments decreased rent by approximately $21,000 and increased rent by approximately $12,000 for the nine month period ended September 30, 2010 and the year ended December 31, 2009, respectively.
Tenant reimbursement and other income consist of recovery of property taxes, insurance, and certain other basic operating costs. Recoveries are recognized as revenue in the period the applicable costs are incurred.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations, and replacements are capitalized.
5
Original Florida MOB Portfolio
Notes to the Combined Statements of Revenues and Certain Operating Expenses
For the Nine Months Ended September 30, 2010 (unaudited)
and for the Year Ended December 31, 2009
3. LEASES
The aggregate annual minimum cash payments to be received on the non-cancelable operating leases in effect as of December 31, 2009 for the Original Florida MOB Portfolio are as follows:
Year Ending
December 31, | | Amount | |
2010 | | $ | 6,343 | |
2011 | | 4,402 | |
2012 | | 2,492 | |
2013 | | 1,595 | |
2014 | | 629 | |
Thereafter | | 286 | |
| | $ | 15,747 | |
The minimum future rental income represents the base rent required to be paid by the tenants under the terms of their leases exclusive of operating expense recoveries.
Ground Leases
In connection with the purchase of the Original Florida MOB Portfolio, we entered into a ground lease for each of the eight properties in the Original Florida MOB Portfolio. Each ground lease is for a term of 50 years, with a 25-year extension option. The annual payment for each ground lease increases by 10% every five years. For each of the first five years of the ground leases, our required minimum annual payment for the cumulative ground leases is approximately $293,000.
4. CONCENTRATIONS AND COMMITMENTS
None of the individual tenants represented more than 10% of the rental income of the Original Florida MOB Portfolio for the year ended December 31, 2009.
* * * * * *
6
Independent Auditors’ Report
To the Board of Directors and Stockholders of
Behringer Harvard Opportunity REIT II, Inc.
Addison, Texas
We have audited the accompanying statement of revenues and certain operating expenses (the “Historical Summary”) of Gardens Medical Pavilion, a medical office building located in Palm Beach Gardens, Florida (the “Property”) for the year ended December 31, 2009. This Historical Summary is the responsibility of the Property’s management. Our responsibility is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as it relates to the Historical Summary as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting as it relates to the Historical Summary. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary, assessing the accounting principles used and significant estimates made by manage ment, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in this Form 8-K/A of Behringer Harvard Opportunity REIT II, Inc.) as described in Note 1 to the Historical Summary and is not intended to be a complete presentation of the Property’s revenues and expenses.
In our opinion, the Historical Summary presents fairly, in all material respects, the revenues and certain operating expenses described in Note 1 to the Historical Summary of the Property for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP |
|
|
Dallas, Texas |
December 22, 2010 |
7
Gardens Medical Pavilion
Statement of Revenues and Certain Operating Expenses
For the Nine Months Ended September 30, 2010 (unaudited)
and for the Year Ended December 31, 2009
(in thousands)
| | Nine Months Ended
September 30, 2010
(unaudited) | | Year Ended
December 31, 2009 | |
Revenues | | | | | |
Rental revenue | | $ | 1,400 | | $ | 1,867 | |
Tenant reimbursement and other income | | 722 | | 979 | |
Total revenues | | 2,122 | | 2,846 | |
| | | | | |
Certain Operating Expenses | | | | | |
Property operating expenses | | 333 | | 540 | |
Property taxes | | 275 | | 366 | |
Management fees | | 101 | | 135 | |
General and administrative expenses | | 39 | | 53 | |
Total certain operating expenses | | 748 | | 1,094 | |
| | | | | |
Revenues in excess of certain operating expenses | | $ | 1,374 | | $ | 1,752 | |
See accompanying Notes to the Statements of Revenues and Certain Operating Expenses.
8
Gardens Medical Pavilion
Notes to the Statements of Revenues and Certain Operating Expenses
For the Nine Months Ended September 30, 2010 (unaudited)
and for the Year Ended December 31, 2009
1. ORGANIZATION AND BASIS OF PRESENTATION
On October 20, 2010, Behringer Harvard Opportunity REIT II, Inc., through BH-AW Florida MOB Venture, LLC, a joint venture with two unaffiliated third parties in which Behringer Harvard Opportunity REIT II, Inc., owns a 90% interest, acquired an approximate 80% interest in an entity that owned a medical office building known as the Gardens Medical Pavilion (“Gardens Medical Pavilion”) located in Palm Beach Gardens, Florida when the 80% interest in the entity was contributed to the joint venture, along with $322,000, as the unaffiliated third parties’ contribution to the venture. The Gardens Medical Pavilion has an appraised value of approximately $23.5 million. The Gardens Medical Pavilion was completed in 1995, contains approximately 75,000 rentable square feet (unaudited), and is approximately 90% leased.
Prior to the acquisition of the Gardens Medical Pavilion, on October 8, 2010, Behringer Harvard Opportunity REIT II, Inc. through its then wholly owned subsidiary BH-AW Florida MOB Venture, LLC, acquired the Original Florida MOB Portfolio, which contains eight buildings, the rights to the ground lease related to the portfolio of buildings, and fee simple title to certain excess land related to the portfolio buildings, all located in South Florida.
The statements of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations be included with certain filings with the SEC. The Historical Summary includes the historical revenues and certain operating expenses of the Gardens Medical Pavilion, exclusive of items which may not be comparable to the proposed future operations of the Gardens Medical Pavilion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Reporting and Use of Estimates
The preparation of the statements of revenues and certain operating expenses, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions of the reported amounts of revenues and certain operating expenses during the reporting period. Actual results may differ from those estimates.
In preparing the accompanying financial statements, we evaluated events and transactions that occurred subsequent to September 30, 2010, through the date that the accompanying consolidated financial statements were available to be issued on December 22, 2010.
Revenue Recognition
The operations of the Gardens Medical Pavilion consist of rental revenue earned from its tenants under lease agreements which provide for minimum rent payments. The tenant leases have been accounted for as operating leases. Rental revenue is recognized by amortizing the aggregate lease payments on a straight-line basis over the entire term of the lease. Straight-line adjustments increased rent by approximately $41,000 and approximately $107,000, for the nine month period ended September 30, 2010 and the year ended December 31, 2009, respectively.
Tenant reimbursement and other income consist of recovery of property taxes, insurance, and certain other basic operating costs. Recoveries are recognized as revenue in the period the applicable costs are incurred.
9
Gardens Medical Pavilion
Notes to the Statements of Revenues and Certain Operating Expenses
For the Nine Months Ended September 30, 2010 (unaudited)
and for the Year Ended December 31, 2009
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations, and replacements are capitalized.
3. LEASES
The aggregate annual minimum cash payments to be received on the non-cancelable operating leases in effect as of December 31, 2009 are as follows:
Year Ending
December 31, | | Amount | |
2010 | | $ | 1,850 | |
2011 | | 1,744 | |
2012 | | 1,689 | |
2013 | | 1,601 | |
2014 | | 897 | |
Thereafter | | 863 | |
| | $ | 8,644 | |
The minimum future rental income represents the base rent required to be paid by the tenants under the terms of their leases exclusive of operating expense recoveries.
4. CONCENTRATIONS AND COMMITMENTS
The following presents rental income from tenants who individually represent more than 10% of the rental income of Gardens Medical Pavilion for the year ended December 31, 2009:
Name | | Percent of Rental Revenue | |
Palm Beach Orthopedics | | 25 | % |
Palm Beach Cancer Institute Foundation | | 32 | % |
University of Miami | | 17 | % |
* * * * * *
10
Behringer Harvard Opportunity REIT II, Inc.
Unaudited Pro Forma Consolidated Financial Information
On October 8, 2010, Behringer Harvard Opportunity REIT II, Inc. through its wholly owned subsidiary BH-AW Florida MOB Venture, LLC, (the “Florida MOB Joint Venture”) acquired a portfolio of eight medical office buildings, the rights to the ground lease related to the portfolio of buildings, and fee simple title to certain excess land related to the portfolio buildings, all located in South Florida (“the Original Florida MOB Portfolio”). The Original Florida MOB Portfolio contains an aggregate of more than 618,000 square feet and the excess land totals approximately 7.8 acres. The contract purchase price for the Original Florida MOB Portfolio was $47.1 million, excluding closing costs.
On October 20, 2010, as contemplated pursuant to the terms of the limited liability company agreement of the Florida MOB Joint Venture, two wholly owned subsidiaries of an unaffiliated entity, Applefield Waxman Capital, Inc. (the “AW Entities”) contributed cash in the amount of approximately $322,000 and an approximate 80% interest in an entity (the “GMP Owner”) that owns a ninth medical office building known as the Gardens Medical Pavilion located in Palm Beach Gardens, Florida, to the Florida MOB Joint Venture. The Gardens Medical Pavilion has an appraised value of approximately $23.5 million. Concurrently with the capital contributions by the AW Entities, we made an additional capital contribution to the Florida MOB Joint Venture resulting in the interest of the Florida MOB Joint Venture by us in the GMP Owner to be approximately 88.7%. In addition, we made a $35 million bridge loan to the Florida MOB Joint Venture. Both the contributions and the bridge loan were used to pay off the existing indebtedness related to the Gardens Medical Pavilion and to fund working capital and renovation expenses. Upon the AW Entities’ capital contribution and their admittance to the Florida MOB Joint Venture the AW Entities hold a 10% interest in the Florida MOB Joint Venture and we hold the remaining 90% interest in the Florida MOB Joint Venture.
On December 20, 2010, Gardens Medical Pavilion, LLC, a subsidiary of the Florida MOB Joint Venture, entered into a loan agreement with a financial institution to borrow $15 million. The loan matures in December, 2017. This loan requires monthly payments of principal and interest, amortized over 25 years. The remaining principal balance and any accrued and unpaid interest are due at maturity. The loan bears interest at a rate of 4.9% per annum. The proceeds of this loan will be used to partially repay the $35 million bridge loan that we extended to the Florida MOB Joint Venture.
With the addition of Gardens Medical Pavilion to the Original Florida MOB Portfolio, the “Florida MOB Portfolio” contains an aggregate of approximately 694,000 rentable square feet plus an additional 7.8 acres of land in which we acquired a fee simple interest. As of September 30, 2010, the Florida MOB Portfolio was approximately 79% leased to 224 tenants. The weighted-average remaining lease term for the tenants was approximately 2.2 years. In our opinion, all material adjustments necessary to reflect the effects of the above transaction have been made.
11
We have made the following acquisitions since January 1, 2010:
| | | | | | | |
| | | | | | OP REIT II | |
Property Name | | Date of Acquisition | | Total Purchase Price(1) | | Ownership Interest | |
Palms of Monterrey | | May 10, 2010 | | $ | 25.4 Million | | 90 | % |
Holstenplatz | | June 30, 2010 | | $ | 12.5 Million | | 100 | % |
Inland Empire Distribution Center (formerly El Cajon Distribution Center)(2) | | August 10, 2010 | | $ | 50.3 Million | | 16 | % |
Archibald Business Center | | August 27, 2010 | | $ | 9.5 Million | | 80 | % |
Parrot’s Landing | | September 17, 2010 | | $ | 42 Million | | 90 | % |
Florida MOB Portfolio | | October 8, 2010 | | $ | 47.1 Million | | 90 | % |
Gardens Medical Pavilion | | October 20, 2010 | | $ | 23.5 Million | | 90 | % |
Kauai Coconut Beach Hotel | | October 20, 2010 | | $ | 38 Million | | 80 | % |
Interchange Business Center | | November 23, 2010 | | $ | 30 Million | | 80 | % |
(1) Purchase price is presented before closing costs for the acquired property and does not reflect any adjustments for ownership interest percentage. |
|
(2) We purchased a 16% interest in Inland Empire Distribution Center (formerly El Cajon Distribution Center) and have determined that we exercise significant influence over, but do not control this entity. Therefore, we do not consolidate this entity and account for it under the equity method of accounting. |
The following unaudited pro forma consolidated balance sheet as of September 30, 2010 is presented as if we acquired the Florida MOB Portfolio on September 30, 2010. Palms of Monterrey, Holstenplatz, Archibald Business Center, and Parrot’s Landing were acquired prior to September 30, 2010. Therefore, no adjustments were made to the unaudited pro forma consolidated balance sheet. The following unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2010 and for the year ended December 31, 2009 are presented as if we had acquired the Palms of Monterrey, Holstenplatz, Archibald Business Center, Parrot’s Landing, and the Florida MOB Portfolio on January 1, 2009.
On October 20, 2010, the Company acquired the Kauai Coconut Beach Hotel, a hotel property located on the island of Kauai in Hawaii. The financial statements of the Kauai Coconut Beach Hotel are required to be filed on or before January 5, 2011. As a result, no adjustments have been included in the unaudited pro forma statement of operations related to the Kauai Coconut Beach Hotel.
On November 23, 2010, the Company acquired Interchange Business Center, a four-building industrial property located in San Bernardino, California. The financial statements of Interchange Business Center are required to be filed on or before February 9, 2011. As a result, no adjustments have been included in the unaudited pro forma statement of operations related to Interchange Business Center.
This unaudited pro forma consolidated financial information should be read in conjunction with the historical financial statements and notes thereto as filed in our quarterly report on Form 10-Q for the nine months ended September 30, 2010 and our annual report on Form 10-K for the year ended December 31, 2009 and are not necessarily indicative of what the actual financial position or results of operations would have been had we completed the transaction as of the beginning of the periods presented, nor is it necessarily indicative of future results.
12
Behringer Harvard Opportunity REIT II, Inc.
Pro Forma Consolidated Balance Sheet (Unaudited)
(in thousands, except shares)
| | September 30, 2010 | | Pro Forma | | | |
| | as Reported | | Adjustments | | Pro Forma | |
| | (a) | | (b) | | September 30, 2010 | |
| | | | | | | |
Assets | | | | | | | |
Real Estate | | | | | | | |
Land and land improvements, net | | $ | 34,430 | | $ | 6,279 | | $ | 40,709 | |
Buildings, net | | 91,141 | | 57,825 | | 148,966 | |
Total real estate | | 125,571 | | 64,104 | | 189,675 | |
Real estate loans receivable, net | | 25,211 | | — | | 25,211 | |
Total real estate and real estate-related investments, net | | 150,782 | | 64,104 | | 214,886 | |
| | | | | | | |
Cash and cash equivalents | | 92,173 | | (49,313 | ) | 42,860 | |
Restricted cash | | 1,657 | | — | | 1,657 | |
Accounts receivable, net | | 708 | | — | | 708 | |
Interest receivable-real estate loans receivable | | 1,645 | | — | | 1,645 | |
Prepaid expenses and other assets | | 2,176 | | 507 | (c) | 2,683 | |
Investment in unconsolidated joint venture | | 4,485 | | — | | 4,485 | |
Furniture, fixtures and equipment, net | | 1,770 | | — | | 1,770 | |
Acquisition deposits | | 2,222 | | (150 | )(c) | 2,072 | |
Lease intangibles, net | | 4,602 | | 7,790 | | 12,392 | |
Total assets | | $ | 262,220 | | $ | 22,938 | | $ | 285,158 | |
| | | | | | | |
Liabilities and Equity | | | | | | | |
Notes payable | | $ | 79,039 | | $ | 15,000 | (c) | $ | 94,039 | |
Accounts payable | | 366 | | — | | 366 | |
Payables to related parties | | 1,178 | | 150 | (c) | 1,328 | |
Acquired below-market leases, net | | 999 | | 1,326 | | 2,325 | |
Distributions payable | | 860 | | — | | 860 | |
Accrued and other liabilities | | 3,653 | | — | | 3,653 | |
Total liabilities | | 86,095 | | 16,476 | | 102,571 | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Equity | | | | | | | |
Preferred stock, $.0001 par value per share; 50,000,000 shares authorized, none outstanding | | — | | — | | — | |
Convertible stock, $.0001 par value per share; 1,000 shares authorized, 1,000 outstanding | | — | | — | | — | |
Common stock, $.0001 par value per share; 350,000,000 shares authorized, 21,115,043 shares issued and outstanding | | 2 | | — | | 2 | |
Additional paid-in capital | | 184,078 | | — | | 184,078 | |
Accumulated distributions and net loss | | (12,685 | ) | | | (12,685 | ) |
Accumulated other comprehensive income | | 373 | | — | | 373 | |
Total Behringer Harvard Opportunity REIT II, Inc. equity | | 171,768 | | — | | 171,768 | |
Noncontrolling interest | | 4,357 | | 6,462 | (d) | 10,819 | |
Total equity | | 176,125 | | 6,462 | | 182,587 | |
Total liabilities and equity | | $ | 262,220 | | $ | 22,938 | | $ | 285,158 | |
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
13
Behringer Harvard Opportunity REIT II, Inc.
Pro Forma Consolidated Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 2010
(in thousands, except per share amounts)
| | Nine Months
Ended
September 30,
2010
as Reported | | Prior
Acquisition
Pro Forma
Adjustments | | Statements of
Revenues and
Certain
Operating
Expenses | | Other Pro
Forma | | Pro Forma Nine
Months Ended
September 30, | |
| | (a) | | (b) | | (c) | | Adjustments | | 2010 | |
| | | | | | | | | | | |
Revenues | | | | | | | | | | | |
Rental revenue | | $ | 6,204 | | $ | 7,418 | | $ | 9,862 | | $ | 53 | (d) | $ | 23,537 | |
Interest income from real estate loans receivable | | 3,753 | | (775 | ) | — | | — | | 2,978 | |
Total revenues | | 9,957 | | 6,643 | | 9,862 | | 53 | | 26,515 | |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Property operating expenses | | 2,016 | | 2,041 | | 4,395 | | 351 | (e) | 8,803 | |
Interest expense | | 1,399 | | 1,579 | (f) | — | | 549 | (g) | 3,527 | |
Real estate taxes | | 663 | | 964 | | 1,400 | | — | | 3,027 | |
Property management fees | | 196 | | 299 | | 234 | | (234 | )(h) | 939 | |
| | | | | | | | 444 | (i) | | |
Asset management fees | | 683 | | 488 | | — | | 529 | (j) | 1,700 | |
General and administrative | | 1,562 | | 739 | | 133 | | — | | 2,434 | |
Acquisition expense | | 4,581 | | — | | — | | — | | 4,581 | |
Depreciation and amortization | | 3,235 | | 1,947 | | — | | 4,036 | (k) | 9,218 | |
Total expenses | | 14,335 | | 8,057 | | 6,162 | | 5,675 | | 34,229 | |
| | | | | | | | | | | |
Interest income, net | | 437 | | — | | — | | — | | 437 | |
Gain on sale of investment | | 152 | | | | | | | | 152 | |
Bargain purchase gain | | 5,492 | | (5,492 | ) | — | | — | | — | |
Other expense, net | | (133 | ) | — | | — | | — | | (133 | ) |
Income (loss) before equity in losses of unconsolidated joint venture | | 1,570 | | (6,906 | ) | 3,700 | | (5,622 | ) | (7,258 | ) |
Equity in losses of unconsolidated joint venture | | (151 | ) | — | | — | | — | | (151 | ) |
Net income (loss) | | 1,419 | | (6,906 | ) | 3,700 | | (5,622 | ) | (7,409 | ) |
Add: net (income) loss attributable to the noncontrolling interest | | (388 | ) | 126 | | — | | 192 | (l) | (70 | ) |
Net income (loss) attributable to Behringer Harvard Opportunity REIT II, Inc. | | $ | 1,031 | | $ | (6,780 | ) | $ | 3,700 | | $ | (5,430 | ) | $ | (7,479 | ) |
| | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | |
Basic and diluted | | 18,369 | | | | | | | | 18,369 | |
| | | | | | | | | | | |
Income per share: | | | | | | | | | | | |
Basic and diluted | | $ | 0.06 | | | | | | | | $ | (0.41 | ) |
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
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Behringer Harvard Opportunity REIT II, Inc.
Pro Forma Consolidated Statement of Operations (Unaudited)
For the Year Ended December 31, 2009
(in thousands, except per share amounts)
| | Year Ended
December 31,
2009
as Reported | | Prior
Acquisition
Pro Forma
Adjustments | | Statements of
Revenues and
Certain
Operating
Expenses | | Other Pro
Forma | | Pro Forma
Year Ended
December 31, | |
| | (a) | | (b) | | (c) | | Adjustments | | 2009 | |
| | | | | | | | | | | |
Revenues | | | | | | | | | | | |
Rental revenue | | $ | 5,484 | | $ | 12,920 | | $ | 12,829 | | $ | 70 | (d) | $ | 31,303 | |
Interest income from real estate loans receivable | | 891 | | — | | — | | — | | 891 | |
Total revenues | | 6,375 | | 12,920 | | 12,829 | | 70 | | 32,194 | |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Property operating expenses | | 1,381 | | 3,804 | | 6,146 | | 468 | (e) | 11,799 | |
Interest expense | | 1,309 | | 2,400 | (f) | — | | 731 | (g) | 4,440 | |
Real estate taxes | | 646 | | 1,500 | | 1,858 | | — | | 4,004 | |
Property management fees | | 172 | | 530 | | 332 | | (332 | )(h) | 1,279 | |
| | | | | | | | 577 | (i) | | |
Asset management fees | | 457 | | 852 | | — | | 706 | (j) | 2,015 | |
General and administrative | | 1,545 | | 1,220 | | 405 | | — | | 3,170 | |
Depreciation and amortization | | 2,422 | | 6,168 | | — | | 5,382 | (k) | 13,972 | |
Total expenses | | 7,932 | | 16,474 | | 8,741 | | 7,532 | | 40,679 | |
| | | | | | | | | | | |
Interest income, net | | 484 | | — | | — | | — | | 484 | |
Other income, net | | — | | 5,492 | | — | | — | | 5,492 | |
Income (loss) before equity in losses of unconsolidated joint venture | | (1,073 | ) | 1,938 | | 4,088 | | (7,462 | ) | (2,509 | ) |
Equity in losses of unconsolidated joint venture | | (2 | ) | — | | — | | — | | (2 | ) |
Net income (loss) | | (1,075 | ) | 1,938 | | 4,088 | | (7,462 | ) | (2,511 | ) |
Add: net (income) loss atttributable to the noncontrolling interest | | 9 | | (255 | ) | — | | 337 | (l) | 91 | |
Net income (loss) attributable to Behringer Harvard Opportunity REIT II, Inc. | | $ | (1,066 | ) | $ | 1,683 | | $ | 4,088 | | $ | (7,125 | ) | $ | (2,420 | ) |
| | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | |
Basic and diluted | | 10,592 | | | | | | | | 10,592 | |
| | | | | | | | | | | |
Income (loss) per share: | | | | | | | | | | | |
Basic and diluted | | $ | (0.10 | ) | | | | | | | $ | (0.23 | ) |
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
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Notes to Unaudited Pro Forma Consolidated Financial Statements
Unaudited Pro Forma Consolidated Balance Sheets
a. Reflects our historical balance sheet as of September 30, 2010.
b. Reflects the acquisition of the Florida MOB Portfolio for total consideration of $70.6 million. Of the total purchase price, $32.1 million was cash funded from proceeds from our ongoing initial public offering and $15 million was financed with a loan that a subsidiary of the joint venture obtained from a financial institution. The remaining balance relates to the Gardens Medical Pavilion which has an appraised value of $23.5 million. Gardens Medical Pavilion was contributed to our joint venture by our unaffiliated partner in the joint venture. We hav e preliminarily allocated our purchase price to the assets and liabilities below and estimated the remaining useful lives of the tangible and intangible assets as follows (amounts in thousands):
Description | | Allocation | | Estimated Useful Life | |
| | | | | |
Land | | $ | 5,365 | | — | |
Buildings | | 57,825 | | 25 years | |
Land improvements | | 914 | | 15 years | |
Lease intangibles, net | | 6,300 | | 26 months | |
Acquired above-market leases | | 1,490 | | 26 months | |
Acquired below-market leases | | (1,326 | ) | 26 months | |
| | $ | 70,568 | | | |
We have preliminarily allocated the purchase price to the above tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values in accordance with general accepted accounting principles as follows:
Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which we obtain control of the real estate property. The assets acquired and liabilities assumed may consist of buildings, any assumed debt, identified intangible assets and asset retirement obligations. Identified intangible assets generally consist of the above-market and below-market leases, in-place leases, in-place tenant improvements and tenant relationships. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current ear nings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related costs are expensed in the period incurred.
Initial valuations are subject to change until our information is finalized, which is no later than twelve months from the acquisition dates.
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 buildings 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 (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any fixed rate renewal option for below-market 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 above determined lease term.
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 fair
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value of in-place leases, we consider items such as real estate taxes, insurance and other operating expenses, as well as lost rental revenue during the expected lease-up period and carrying costs that would have otherwise been incurred had the leases not been in place, including tenant improvements and commissions. The estimates of the fair value of tenant relationships also include costs to execute similar leases. We amortize the value of in-place leases to expense over the term of the respective leases.
c. Reflects the acquisition related loan, entered into on December 20, 2010, in the amount of $15 million, along with associated deferred financing costs of $507,000, a payable to our advisor of $150,000 for fees the advisor paid associated with the loan and an adjustment of $150,000 from prepaid expenses in order to reflect a loan related deposit paid prior to September 30, 2010.
d. Reflects the noncontrolling interest share of the allocated pro forma assets.
Unaudited Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2010
a. Reflects our historical operations for the nine months ended September 30, 2010.
b. Reflects the pro forma adjustments for the acquisition of Palms of Monterrey, which was acquired on May 10, 2010, Holstenplatz, which was acquired on June 30, 2010, Archibald Business Center, which was acquired on August 27, 2010, and Parrot’s Landing, which was acquired on September 17, 2010, as if the properties had been acquired on January 1, 2009.
c. Reflects the historical revenues and certain operating expenses of the Florida MOB Portfolio for the nine months ended September 30, 2010.
d. Reflects the pro forma straight-line amortization of the above-market and below-market leases over the average remaining terms of the leases of approximately 2 years.
e. Reflects the straight-line adjusted payments for the ground leases on each of the eight buildings in the Original Florida MOB Portfolio.
f. Reflects the approximate amount of interest on acquisition related debt that would have been incurred for Palms of Monterrey, Holstenplatz, and Parrot’s Landing if these properties had been acquired on January 1, 2009.
g. Reflects the approximate amount of interest on acquisition related debt that would have been incurred for the Florida MOB Portfolio if this portfolio had been acquired on January 1, 2009.
h. Reflects the reversal of historical property management fees for the Florida MOB Portfolio.
i. Reflects the property management fees associated with the current management of the Florida MOB Portfolio, for a fee of 4.5% of annual gross revenues, as defined in the property management agreement.
j. Reflects the inclusion of an asset management fee associated with the Florida MOB Portfolio, based on 1% of the asset basis.
k. Reflects the depreciation and amortization of the Florida MOB Portfolio using the straight-line method over the estimated useful life of 25 years for buildings, 15 years for land improvements, and approximately 2 years for lease intangibles.
l. Reflects the net loss attributable to the noncontrolling interest of the Florida MOB Portfolio.
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Unaudited Pro Forma Consolidated Statement of Operations for the Year ended December 31, 2009
a. Reflects our historical operations for the year ended December 31, 2009.
b. Reflects the pro forma adjustments for the acquisition of Palms of Monterrey, which was acquired on May 10, 2010, Holstenplatz, which was acquired on June 30, 2010, Archibald Business Center, which was acquired on August 27, 2010, and Parrot’s Landing, which was acquired on September 17, 2010, as if the properties had been acquired on January 1, 2009.
c. Reflects the historical revenues and certain operating expenses of the Florida MOB Portfolio for the year ended December 31, 2009.
d. Reflects the pro forma straight-line amortization of the above-market and below-market leases over the average remaining terms of the leases of approximately 2 years.
e. Reflects the straight-line adjusted payments for the ground leases on each of the eight buildings in the Original Florida MOB Portfolio.
f. Reflects the approximate amount of interest on acquisition related debt that would have been incurred for Palms of Monterrey, Holstenplatz, and Parrot’s Landing if these properties had been acquired on January 1, 2009.
g. Reflects the approximate amount of interest on acquisition related debt that would have been incurred for the Florida MOB Portfolio if this portfolio had been acquired on January 1, 2009.
h. Reflects the reversal of historical property management fees for the Florida MOB Portfolio.
i. Reflects the property management fees associated with the current management of the Florida MOB Portfolio, for a fee of 4.5% of annual gross revenues, as defined in the property management agreement.
j. Reflects the inclusion of an asset management fee associated with the Florida MOB Portfolio, based on 1% of the asset basis.
k. Reflects the depreciation and amortization of the Florida MOB Portfolio using the straight-line method over the estimated useful life of 25 years for buildings, 15 years for land improvements, and approximately 2 years for lease intangibles.
l. Reflects the net loss attributable to the noncontrolling interest of the Florida MOB Portfolio.
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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 hereunto duly authorized.
| | BEHRINGER HARVARD OPPORTUNITY REIT II, INC. |
| | | |
| | | |
Dated: December 22, 2010 | | By: | /s/ Kymberlyn Janney |
| | | Kymberlyn Janney |
| | | Chief Financial Officer |
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