Notes Payable

9 Months Ended

Sep. 30, 2012

Notes Payable

Notes Payable

10.Notes Payable

Our notes payable was approximately $2.2 billion in principal amount at September 30, 2012 as compared to approximately $2.4 billion at December 31, 2011.  As of September 30, 2012, all of our debt is fixed rate debt, with the exception of $368.3 million in debt which bears interest at variable rates.  Approximately $310.0 million of this variable rate debt has been effectively fixed or capped through the use of interest rate hedges.

At September 30, 2012, the stated annual interest rates on our notes payable ranged from 3.23% to 9.80%, with an effective weighted average annual interest rate of approximately 5.53%.  For each of our loans that are in default, as detailed below, we incur default interest rates which are 400 to 500 basis points higher than their stated interest rate, which results in an overall effective weighted average interest rate of approximately 5.77%.

Our loan agreements generally require us to comply with certain reporting and financial covenants.  As of September 30, 2012, we were in default on six non-recourse property loans with a combined outstanding balance of approximately $158.8 million secured by nine of our properties, including one property for which a receiver was appointed in August 2012 and a second property for which a receiver was appointed in October 2012.  We believe each of the loans noted above may be resolved through a discounted purchase or payoff of the debt or a write-down or subordination of a portion of the debt by the lender and, in certain situations, may be resolved by marketing the property for sale on behalf of the lender or negotiating agreements conveying these properties to the lenders.  At September 30, 2012, other than the defaults discussed above, we believe we were in compliance with each of the debt covenants under each of our other loan agreements.  We believe an additional non-recourse loan, totaling approximately $82.6 million and secured by one of our properties, may have an imminent default or event of default and may need to be modified in the near future in order to justify further investment.  At September 30, 2012, our notes payable had maturity dates that range from August 2013 to August 2021.

The following table summarizes our notes payable as of September 30, 2012, (in thousands):

Principal payments due in: (1) (2)
October - December 2012	$	5,799
2013	227,670
2014	264,633
2015	503,839
2016	950,065
Thereafter	221,762
unamortized discount	(19		)
Total	$	2,173,749

(1)Approximately $93.4 million of non-recourse loans secured by our 17655 Waterview, Ashford Perimeter and Riverview Tower properties are in default and have scheduled maturity dates after 2012, but as of September 30, 2012 we have received notification from these lenders demanding immediate payment.  The table above reflects the required principal payments of these loans using the original maturity dates.  If these loans were shown as payable in full on October 1, 2012, the principal payments in 2012 would increase by approximately $93.1 million, while principal payments in 2013, 2014, 2015 and 2016 would decrease by approximately $0.5 million, $0.5 million, $32.4 million and $59.7 million, respectively.

(2)Subsequent to September 30, 2012, we received notification from the lender demanding immediate payment of approximately $49.0 million of non-recourse loans secured by our Epic Center, One Brittany, Two Brittany, Tice Building and One Edgewater Plaza properties.  The impact of accelerating the payment requirements of these loans is not reflected in the table above.

Credit Facility

On October 25, 2011, through our operating partnership, Behringer OP, we entered into a secured credit agreement providing for borrowings of up to $340.0 million, available as a $200.0 million term loan and $140.0 million as a revolving line of credit (subject to increase by up to $110.0 million in the aggregate upon lender approval and payment of certain activation fees to the agent and lenders).  The borrowings are supported by additional collateral (the “Collateral Properties”) owned by certain of our subsidiaries, each of which has guaranteed the credit facility and granted a first mortgage or deed of trust on its real property as security for the credit facility.  The credit facility matures in October 2014 with two one-year renewal options available.  The annual interest rate on the credit facility is equal to either, at our election, (1) the “base rate” (calculated as the greatest of (i) the agent’s “prime rate”; (ii) 0.5% above the Federal Funds Effective Rate; or (iii) LIBOR for an interest period of one month plus 1.0%) plus the applicable margin or (2) LIBOR plus the applicable margin.  The applicable margin for base rate loans is 2.0%; the applicable margin for LIBOR loans is 3.0%.  In connection with the credit agreement, we entered into a three year swap agreement to effectively fix the annual interest rate at 3.79% on $150.0 million of the borrowings under the term loan.  As of September 30, 2012, the term loan was fully funded, and approximately $8.3 million was outstanding under the revolving line of credit.  As of September 30, 2012, we had approximately $125.9 million of available borrowings under our revolving line of credit of which approximately $22.7 million may only be used for leasing and capital expenditures at the Collateral Properties.  As of September 30, 2012, the weighted average annual interest rate for draws under the credit agreement, inclusive of the swap, was 3.63%.

Troubled Debt Restructuring

In February 2010, we completed a discounted purchase, through a wholly-owned subsidiary, of the note totaling approximately $42.8 million associated with our 1650 Arch Street property, resulting in a gain on troubled debt restructuring of approximately $10.1 million, of which $1.0 million was deferred until March 2011, when we acquired the outstanding 10% ownership in the 1650 Arch Street property held by our partner, an unaffiliated third party, for a cash payment of approximately $1.0 million.

In January 2011, pursuant to a deed-in-lieu of foreclosure, we transferred ownership of our Executive Park property to the lender associated with the property.  This transaction was accounted for as a full settlement of debt and resulted in a gain on troubled debt restructuring of approximately $1.0 million and is included in income (loss) from discontinued operations.

In February 2011, pursuant to a foreclosure, we transferred ownership of our Grandview II property to the lender associated with the property.  This transaction was accounted for as a full settlement of debt and resulted in a gain on troubled debt restructuring of approximately $1.0 million and is included in income (loss) from discontinued operations.

In August 2011, we sold our 1300 Main property, which was held in receivership at the date of sale.  All proceeds were used to fully settle the related debt at a discount and resulted in a gain on troubled debt restructuring of approximately $1.6 million which is included in income from discontinued operations.

In January 2012, pursuant to a foreclosure, we transferred ownership of our Minnesota Center property to the lender associated with this property.  This transaction was accounted for as a full settlement of debt and resulted in a gain on troubled debt restructuring of approximately $3.4 million and is included in income (loss) from discontinued operations.

In February 2012, pursuant to a foreclosure, we transferred our 35.71% ownership interest in St. Louis Place to the lender associated with this property.  This transaction was accounted for as a full settlement of debt and resulted in a gain on troubled debt restructuring of approximately $0.2 million.

We had no gain on troubled debt restructuring for the three months ended September 30, 2012.  For the three months ended September 30, 2011, the gain on troubled debt restructuring was approximately $1.4 million and had no impact on gain or loss per common share, on both a basic and diluted income per share basis.  These totals include gains on troubled debt restructuring recorded in both continuing operations and discontinued operations.

For the nine months ended September 30, 2012 and 2011, the gain on troubled debt restructuring of approximately $3.6 million and $4.6 million, respectively, were approximately $0.01 and $0.02 per common share, respectively, on both a basic and diluted income per share basis.  These totals include gains on troubled debt restructuring recorded in both continuing operations and discontinued operations.