Capitalization

9 Months Ended

Sep. 30, 2012

Capitalization

Capitalization

11.Capitalization

As of September 30, 2012, we had 298,712,342 shares of our common stock outstanding, which includes 271,352,628 shares issued through our primary offerings, 5,521,002 shares issued as a result of our 10% stock dividend in October 2005, 34,539,889 shares issued through distribution reinvestment, and 22,000 shares issued to Behringer Harvard Holdings, LLC, offset by 12,723,177 shares repurchased.  As of September 30, 2012, we had outstanding options to purchase 107,875 shares of our common stock at a weighted average exercise price of $7.34 per share.   At September 30, 2012, Behringer OP had 432,586 units of limited partnership interest held by third parties.  These units of limited partnership interest are convertible into an equal number of shares of our common stock.

We sold 1,000 shares of our non-participating, non-voting convertible stock to Behringer Advisors for $1,000 on March 22, 2006.  However, in connection with the August 31, 2012 self-management transaction, Behringer Advisors surrendered for cancellation the existing 1,000 shares of convertible stock owned by it in exchange for 10,000 shares of Series A participating, voting, convertible preferred stock (the “Series A Convertible Preferred Stock”) issued by us to Services Holdings for an aggregate price of $1.00.  Each share of the Series A Convertible Preferred Stock will participate in dividends and other distributions on par with each share of our common stock.  In addition, the Series A Convertible Preferred Stock may be converted into shares of our common stock, reducing the percentage of our common stock owned by stockholders prior to conversion.  In general, the Series A Convertible Preferred Stock will convert into shares of our common stock: (1) automatically in connection with a listing of our common stock on a national exchange; (2) automatically upon a change of control; or (3) upon election by the holder during the period ending August 31, 2017.  The determination of the number of shares of our common stock into which the Series A Convertible Preferred Stock may be converted generally will be based upon 10% of the excess of our “company value” plus total distributions in excess of the current distribution rate after the issuance of the shares and through the date of the event triggering conversion, over the aggregate value of our common stock outstanding as of the issuance date of the shares.  If the shares of Series A Convertible Preferred Stock are not otherwise converted into common stock prior to August 31, 2017, then they will be redeemed for $100,000 which represents $10.00 per share.  Since the number of shares of common stock that would be issued upon conversion of the Series A Convertible Preferred Stock cannot be determined prior to the conversion date and may exceed the currently available number of unissued shares of common stock, the settlement of these shares is considered to be outside the control of the Company. Therefore, as required by GAAP, the shares of Series A Convertible Preferred Stock are recorded at fair value and classified as temporary equity, outside the stockholders’ equity section, on our condensed consolidated balance sheets.  Management determined the fair value of the shares to be approximately $2.7 million at September 30, 2012.  In estimating the fair value of these shares, management considered various potential outcomes for the conversion of the shares within the context of a probability weighted expected returns model.  Future changes in the estimated fair value of these convertible shares will be recorded as adjustments between stockholders’ equity and temporary equity on our condensed consolidated balance sheets.

Share Redemption Program

Our board of directors has authorized a share redemption program to provide limited interim liquidity to stockholders.  In 2009, the board determined to suspend until further notice redemptions other than those submitted in respect of a stockholder’s death, disability or confinement to a long-term care facility (referred to herein as “exceptional redemptions”).  In November 2011, the board set a funding limit of the lesser of $1.0 million or 220,000 shares for exceptional redemptions considered for each redemption period in 2012.

We will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.  Further, our board may, from time to time, in its sole discretion, limit the funds that we use to redeem shares; provided that in no event may the funds used for redemption during any period exceed the proceeds from our distribution reinvestment plan (“DRP”) during the period consisting of the preceding four fiscal quarters for which financial statements are available, less any redemptions during the same period.  Our board reserves the right in its sole discretion at any time and from time to time to (1) waive the one-year hold period applicable to requests for exceptional redemptions or other exigent circumstances such as bankruptcy, a mandatory distribution requirement under a stockholder’s IRA or with respect to shares purchased under or through our DRP, (2) accept or reject any request for redemption, (3) change the purchase price for redemptions, (4) limit the funds to be used for redemptions or otherwise change the limitations on redemption or (5) amend, suspend (in whole or in part) or terminate the program. For the nine months ended September 30, 2012 and 2011, we redeemed approximately 0.7 million and 0.7 million shares for approximately $3.1 million and $3.2 million, respectively.

Stock Plans

Our stockholders have approved and adopted the 2005 Incentive Award Plan which allows for equity-based incentive awards to be granted to our Employees and Key Personnel (as defined in the plan).  The 2005 Incentive Award Plan replaced the Non-Employee Director Stock Option Plan, the Non-Employee Director Warrant Plan and the 2002 Employee Stock Option Plan, each of which was terminated upon the approval of the 2005 Incentive Award Plan.  Prior to an amendment to the 2005 Incentive Award Plan on August 31, 2012, each non-employee director was automatically granted an option to purchase 5,000 shares of common stock on the date he first becomes a director and upon each reelection as a director.  As of September 30, 2012, we had outstanding options to purchase 107,875 shares of our common stock at a weighted average exercise price of $7.34 per share. These options have a maximum term of ten years.  For the grants made in 2005, 2006 and 2007 under the 2005 Incentive Award Plan, the options are exercisable as follows:  25% during 2011, 25% during 2012 and 50% during 2013.  For the grants made in 2008 and thereafter under the 2005 Incentive Award Plan, the options become exercisable one year after the date of grant.  The options were anti-dilutive to earnings per share for each period presented.

Distributions

Effective since May 2010, the declared distribution rate has been equal to a monthly amount of $0.0083 per share of common stock, which is equivalent to an annual distribution rate of 1.0% based on a purchase price of $10.00 per share and 2.2% based on the December 2011 estimated valuation of $4.64 per share.

Pursuant to our DRP, stockholders may elect to reinvest any cash distribution in additional shares of common stock.  We record a liability for distributions when declared.  The stock issued through the DRP is recorded to equity when the shares are issued.  Distributions declared and payable as of both September 30, 2012 and December 31, 2011, were approximately $2.5 million, which included approximately $1.4 million of cash distributions payable and approximately $1.1 million of DRP distributions payable.

The following are the distributions declared for both our stock and noncontrolling interests during the nine months ended September 30, 2012 and 2011 (in thousands):

			Common Stockholders				Preferred		Noncontrolling
	Total		Cash		DRP		Stockholders		Interests
2012
1st Quarter	$	7,450	$	4,171	$	3,268	$	—	$	11
2nd Quarter	7,830		4,177		3,275		—		378
3rd Quarter	7,476		4,204		3,261		—		11
	$	22,756	$	12,552	$	9,804	$	—	$	400
2011
1st Quarter	$	7,401	$	4,069	$	3,320	$	—	$	12
2nd Quarter	7,418		4,068		3,336		—		14
3rd Quarter	7,426		4,093		3,321		—		12
	$	22,245	$	12,230	$	9,977	$	—	$	38