10-K 1 v404269_10k.htm FORM 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2014

 

Commission File Number: 000-51291

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware 71-0897614
(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

15601 Dallas Parkway, Suite 600, Addison, Texas 75001
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (866) 655-1620

 

Securities registered pursuant to section 12(b) of the Act:

None

 

Securities registered pursuant to section 12(g) of the Act:

None *

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ¨*

 

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 ¨ No ¨*

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.45 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨*

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨*

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity as of June 30, 2014. Not applicable.

 

As of March 19, 2015, there were 10,799,839 units of beneficial interest in Behringer Harvard Short-Term Opportunity Liquidating Trust outstanding.

 

*Behringer Harvard Short-Term Opportunity Liquidating Trust is the transferee of the assets and liabilities of Behringer Harvard Short-Term Opportunity Fund I LP and files reports under the Securities and Exchange Commission file number for Behringer Harvard Short-Term Opportunity Fund I LP. Behringer Harvard Short-Term Opportunity Fund I LP filed a Form 15 on February 11, 2013 indicating its notice of termination of registration and filing requirements.

 

 

 
 

 

BEHRINGER HARVARD SHORT-TERM OPPORTUNITY LIQUIDATING TRUST

FORM 10-K

Year Ended December 31, 2014

 

    Page
     
PART I
     
Item 1. Business. 4
     
Item 1A. Risk Factors. 8
     
Item 1B. Unresolved Staff Comments. 22
     
Item 2. Properties. 22
     
Item 3. Legal Proceedings. 22
     
Item 4. Mine Safety Disclosures. 23
     
PART II
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 23
     
Item 6. Selected Financial Data. 23
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 24
     
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 27
     
Item 8. Financial Statements and Supplementary Data. 27
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 27
     
Item 9A. Controls and Procedures. 27
     
Item 9B. Other Information. 28
     
PART III
     
Item 10. Directors, Executive Officers and Corporate Governance. 28
     
Item 11. Executive Compensation. 30
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 30
     
Item 13. Certain Relationships and Related Transactions, and Director Independence. 31
     
Item 14. Principal Accountant Fees and Services. 32
     
PART IV
     
Item 15. Exhibits, Financial Statement Schedules. 33
     
Signatures 34

 

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Forward-Looking Statements

 

Certain statements in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Behringer Harvard Short-Term Opportunity Liquidating Trust (which may be referred to herein as the “Liquidating Trust,” “we,” “us,” or “our”) as successor in interest to Behringer Harvard Short-Term Opportunity Fund I LP (which may be referred to herein as the “Partnership”) and our subsidiaries, including our ability to address our debt maturities and to fund our liquidity requirements, the value of our assets, our anticipated capital expenditures, the amount and timing of anticipated future distributions to our beneficiaries and other matters. Words such as “may,” “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 forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution our beneficiaries not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “ Item 1A. Risk Factors” in this Annual Report on Form 10-K and the factors described below:

 

·adverse economic challenges experienced by the U.S. economy or real estate industry as a whole and the local economic conditions in the market in which our assets are located;

 

·our level of debt and the terms and limitations imposed on us by our debt agreements;

 

·the availability of credit generally, and any failure to refinance or extend our debt as it comes due or a failure to satisfy the conditions and requirements of that debt;

 

·the need to invest additional equity in connection with debt refinancings as a result of reduced asset values and requirements to reduce overall leverage;

 

·future increases in interest rates;

 

·our ability to retain our executive officers and other key personnel of our managing trustee, our property manager and their affiliates;

 

·conflicts of interest arising out of our relationships with our managing trustee and its affiliates;

 

·changes in the level of financial assistance or support provided by our sponsor or its affiliates; and

 

·unfavorable changes in laws or regulations impacting our business or our assets.

 

Forward-looking statements in this Annual Report on Form 10-K reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect or false. 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 except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

 

Cautionary Note

 

The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Annual Report on Form 10-K are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to or with any other parties. Moreover, these representations, warranties or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

 

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PART I

 

Explanatory Note

 

As more fully described below, on February 11, 2013, Behringer Harvard Short-Term Opportunity Fund I LP (referred to herein as the “Partnership”) completed its liquidation pursuant to a Plan of Liquidation adopted by its general partners. The plan provides for the formation of a liquidating trust for the purpose of completing the liquidation of the assets of the Partnership. On February 11, 2013, Behringer Harvard Short-Term Opportunity Liquidating Trust (referred to herein as the “Liquidating Trust,” “we,” “us,” or “our”) was formed, and the Partnership transferred all of its remaining assets and liabilities to the Liquidating Trust.

 

Item 1.                 Business.

 

General Description of Business

 

The Partnership was a limited partnership formed in Texas on July 30, 2002. Its general partners were Behringer Harvard Advisors II LP (“Behringer Advisors II”) and Robert M. Behringer (each a “General Partner” and collectively, the “General Partners”). It was funded through capital contributions from its General Partners and an initial limited partner on September 20, 2002 (the date of inception). It offered its limited partnership units pursuant to a public offering which commenced on February 19, 2003 and terminated on February 19, 2005 (the “Offering”). The Offering was a best efforts continuous offering, and the Partnership admitted new investors until the termination of the Offering.

 

The Partnership used the proceeds from the Offering, after deducting offering expenses, to acquire interests in twelve properties, including seven office building properties, one shopping/service center, one hotel redevelopment with an adjoining condominium development, two development properties and undeveloped land. The Partnership engaged an unaffiliated third party to manage the day-to-day operations of the hotel. The Partnership disposed of its hotel and retail asset during the twelve months ended December 31, 2014. As of December 31, 2014, approximately five acres of land and the back-end promoted interest in distributable cash to one sold asset currently remain in the portfolio, which has been transferred to the Liquidating Trust as described below. We will not purchase any additional properties for our portfolio.

 

Effective as of January 31, 2013, Mr. Behringer ceased to be a general partner of the Partnership due to a permanent disability resulting in an Event of Withdrawal under the Partnership’s Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”). Effective that same date, Mr. Behringer also resigned as Chairman of Behringer Advisors II.

 

On February 11, 2013, the sole remaining General Partner, Behringer Advisors II, in its sole discretion organized us as a Delaware statutory trust for the purpose of winding up the Partnership’s affairs and liquidating the Partnership’s assets, including, but not limited to, the sale of its remaining real estate assets, to make appropriate provision for the Partnership’s remaining obligations and to make special distributions to our investors of available liquidation proceeds.

 

Our office is located at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001, and our toll-free telephone number is (866) 655-3600. The name Behringer Harvard is the property of Behringer Harvard Holdings, LLC (“Behringer Holdings”) and is used by permission.

 

Liquidation of the Partnership

 

On February 11, 2013 (the “Effective Date”), the Partnership completed its liquidation pursuant to a Plan of Liquidation (the “Plan”) adopted by Behringer Advisors II, as its General Partner pursuant to its authority under the Partnership Agreement, which provided for our formation as a liquidating trust for the purpose of completing the liquidation of the assets of the Partnership.

 

In furtherance of the Plan, the Partnership entered into a Liquidating Trust Agreement (the “Liquidating Trust Agreement”) with the Partnership’s General Partners, Behringer Advisors II, as managing trustee (the “Managing Trustee”), and CSC Trust Company of Delaware, as resident trustee (the “Resident Trustee”). As of the Effective Date, each of the holders of limited partnership units in the Partnership received a pro rata beneficial interest unit in the Liquidating Trust in exchange for such holder’s interest in the Partnership.

 

In accordance with the Plan and the Liquidating Trust Agreement, the Partnership transferred all of its remaining assets and liabilities to the Liquidating Trust to be administered, disposed of or provided for in accordance with the terms and conditions set forth in the Liquidating Trust Agreement. On the Effective Date, the Partnership filed a Form 15 with the Securities and Exchange Commission (“SEC”) to terminate the registration of the limited partnership units in the Partnership under the Exchange Act and announced it would cease filing reports under that Act. On March 28, 2013 we were granted No-Action relief from the SEC regarding our proposed modified reporting. A copy of the No-Action letter is publicly available through the SEC’s website. Accordingly, our Managing Trustee will file with the SEC annual reports on Form 10-K that contain unaudited financial statements based on the liquidation basis of accounting and current reports on Form 8-K to disclose material events relating to us. For purposes of the financial statements included in this Annual Report on Form 10-K, under the liquidation basis of accounting, all assets were adjusted to their estimated fair value (on an undiscounted basis) and liabilities, including estimated costs associated with implementing the Plan, were adjusted to their estimated settlement amounts as of January 1, 2013. We chose to adjust items to their fair values as of January 1, 2013 as a matter of convergence, efficiency and materiality.

 

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The Liquidating Trust will terminate upon the earliest of (i) the distribution of all of our assets in accordance with the terms of the Liquidating Trust Agreement, or (ii) the expiration of a period of three years from the Effective Date. The term may be extended beyond the three-year term if our Managing Trustee determines that an extension is reasonably necessary to wind up our affairs.

 

Market Outlook

 

Our primary objectives will be to continue to preserve value, protect and sell our remaining assets, provide for our liabilities and distribute the remaining proceeds. Our ability to dispose of our assets will be subject to various factors, including the ability of potential purchasers to access capital debt financing. If we are unable to sell an asset when we determine to do so, it could have a significant adverse effect on the timing of our final liquidating distributions to our beneficiaries.

 

Disposition Policies and Objectives

 

The Liquidating Trust Agreement provides for a three-year period to liquidate our remaining assets. Our Managing Trustee is working diligently to liquidate these assets in a manner that makes sense for our beneficiaries, and expects that the disposition of these assets will be completed before the end of this three-year period. Our Managing Trustee may exercise its discretion as to the timing of the sale of an asset. We will have no obligation to sell our assets at any particular time, except upon the termination of our existence on February 11, 2016, or after such date if our Managing Trustee determines that an extension is reasonably necessary to wind up our affairs.

 

Pursuant to the Liquidating Trust Agreement, our primary objective is limited to conserve value, protect and sell our remaining assets, provide for our liabilities and distribute the remaining proceeds. Thus, cash flow will not be invested in the acquisition of assets. We are intended to be self-liquidating in nature. However, at the discretion of our Managing Trustee, cash flow and/or net sales proceeds may be held as working capital to pay expenses or other liabilities of the Liquidating Trust.

 

The Liquidating Trust will not pay, directly or indirectly, any commission or fee, except as specifically permitted under Article VI of the Liquidating Trust Agreement, to our Managing Trustee or its affiliates in connection with the distribution of proceeds from the sale, exchange or financing of our assets.

 

Although not required to do so, we will generally seek to sell our real estate assets for cash. We may, however, accept terms of payment from a buyer that include purchase money obligations secured by mortgages as partial payment, depending upon then-prevailing economic conditions customary in the area in which the asset being sold is located, credit of the buyer and available financing alternatives. Some assets we sell may be sold on an installment basis under which only a portion of the sale price will be received in the year of sale, with subsequent payments spread over a number of years. In such event, our full distribution of the net proceeds of any sale may be delayed until the notes are paid, sold or financed.

 

5
 

 

Liquidation Update

 

On December 20, 2012 the Mockingbird Commons Partnership entered into a promissory note agreement with Great American Life Insurance Company (“Palomar Lender”) to borrow $31 million (the “Hotel Palomar Loan”). On August 6, 2014, Behringer Harvard Mockingbird Commons, LLC, a 70% owned subsidiary, sold the 198 room hotel and retail project located in Dallas, Texas (“Hotel Palomar”) to an unaffiliated buyer. The contract sales price for the Hotel Palomar was $48 million, exclusive of closing costs. A portion of the proceeds was used to pay off the Hotel Palomar Loan.

 

During 2013, we recorded an accounts receivable of approximately $6.3 million related to final resolution of the back-end promoted interests on the sale of Landmark I & II which we sold in 2011. The sale contract for Landmark I and II provided that we retain a promoted interest in distributable cash related to the buildings, meaning that we would share in the profits and cash flows of these properties once a certain threshold had been met. We received $6.2 million in January 2014 related to final resolution of the back-end promoted interest and used the $6.2 million to pay down principal and interest.

 

Conflicts of Interest

 

We are subject to various conflicts of interest arising out of our relationship with our Managing Trustee and its affiliates, including conflicts related to the arrangements pursuant to which our Managing Trustee and its affiliates will be compensated by us. All of our agreements and arrangements with our Managing Trustee and its affiliates, including those relating to compensation, are not the result of arm’s-length negotiations. Some of the conflicts of interest in our transactions with our Managing Trustee and its affiliates are described below.

 

Our Managing Trustee is Behringer Advisors II, one of the former General Partners of the Partnership. Mr. Robert M. Behringer, the other former General Partner of the Partnership, owns a controlling interest in Behringer Holdings, a Delaware limited liability company that indirectly owns all of the outstanding equity interests of Behringer Advisors II, our property managers and Behringer Securities LP (“Behringer Securities”), the dealer manager for the Offering. Robert S. Aisner, Gary S. Bresky and M. Jason Mattox are executive officers of Harvard Property Trust, LLC (“HPT”), the sole general partner of Behringer Advisors II, and Behringer Securities. In addition, Mr. Bresky is an executive officer of Behringer Securities.

 

Because we will be operated by our Managing Trustee, conflicts of interest will not be resolved through arm’s-length negotiations, but through the exercise of our Managing Trustee’s judgment consistent with its fiduciary responsibility to our beneficiaries and our disposition objectives and policies. For a description of some of the risks related to these conflicts of interest, see “Item 1A. Risk Factors” of this Annual Report on Form 10-K. For a discussion of the conflict resolution policies, see “Item 13. Certain Relationships and Related Transactions, and Director Independence” of this Annual Report on Form 10-K.

 

Interests in Other Real Estate Programs

 

Our Managing Trustee and its affiliates (collectively, “Behringer”) are sponsors, general partners and advisors of other Behringer programs, including real estate programs that have investment objectives similar to ours, and we expect that they will organize other such programs in the future. Our Managing Trustee and such affiliates have legal and financial obligations with respect to these other programs that are similar to their obligations to us. As general partners of other programs, they may have contingent liabilities for the obligations of other programs structured as partnerships, as well as our obligations, which, if such obligations were enforced against them, could result in substantial reduction of their net worth.

 

Other Activities of Our Managing Trustee and its Affiliates

 

We rely on our Managing Trustee and its affiliates for the day-to-day operation of our business. As a result of their interests in other Behringer programs and the fact that they have also engaged and will continue to engage in other business activities, our Managing Trustee and its affiliates will have conflicts of interest in allocating their time between us and other Behringer programs and other activities in which they are involved. In addition, our Liquidating Trust Agreement does not specify any minimum amount of time or level of attention that our Managing Trustee must devote to us. However, our Managing Trustee believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all of the Behringer programs and other ventures in which they are involved.

 

Competition in Sales of Properties

 

Conflicts of interest will exist to the extent that we own assets in the same geographic areas where assets owned by our Managing Trustee, its affiliates or other Behringer programs are located. In such a case, a conflict could arise in connection with the resale of properties in the event that we and another Behringer program were to attempt to sell similar properties at the same time. Conflicts of interest may also exist at such time as we or our affiliates managing properties on our behalf seek to employ developers, contractors or building managers, and other circumstances. Our Managing Trustee will seek to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective employees aware of all such properties seeking to employ such persons. In addition, our Managing Trustee will seek to reduce conflicts that may arise with respect to properties available for sale by making prospective purchasers aware of all such properties. However, these conflicts cannot be fully avoided in that there may be differing compensation arrangements established for employees at different properties or differing terms for resale of the various properties.

 

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Regulations

 

Our investments are subject to various federal, state and local laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.

 

Environmental

 

As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on the our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on assets in which we hold an interest.

 

Employees

 

We have no employees. The employees of our Managing Trustee, Behringer Advisors II, and other affiliates of Behringer Holdings perform a full range of real estate services for us, including property management, accounting, legal, asset management and investor relations.

 

We are dependent on our affiliates for services that are essential to us, including disposition decisions, property management and other general and administrative responsibilities. In the event that these companies are unable to provide these services to us, we would be required to obtain such services from other sources.

 

Financial Information About Industry Segments

 

Our current business consists only of owning, managing, operating, leasing, developing, and disposing of real estate assets. We internally evaluate all of our real estate assets as one industry segment, and, accordingly, we do not report segment information.

 

Available Information

 

We electronically file an annual report on Form 10-K and current reports on Form 8-K and all amendments to those reports with the SEC. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of our filings with the SEC, as well as the Partnership’s prior filings, may be obtained from the web site maintained for us by our Managing Trustee at http://www.behringerinvestments.com or at the SEC’s website at http://www.sec.gov. Access to these filings is free of charge. As part of the creation of the Liquidating Trust, we requested, and on March 28, 2013 were granted, No-Action relief from the SEC regarding our proposed modified reporting. In accordance with this No-Action relief, we are not required to file quarterly reports on Form 10-Q with the SEC. A copy of the No-Action letter may also be obtained through the SEC’s website. We are not incorporating our website or any information from the website into this Form 10-K.

 

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Item 1A.                 Risk Factors.

 

Risks Related to our Liquidation and your Investment in Behringer Harvard Short-Term Opportunity Liquidating Trust

 

The factors described below represent our principal risks. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate. The occurrence of any of the risks discussed below could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our beneficiaries.

 

Our units have limited transferability and lack liquidity.

 

There is no established trading market for our units of beneficial interests, and we do not expect that one will develop.  Except for certain transfers by will, intestate succession or operation of law, or from a qualified account to a non-qualified account if necessary to allow holders of beneficial interests to comply with certain individual retirement account (“IRA”) minimum distribution requirements under the Internal Revenue Code, if applicable, beneficial interests in the Liquidating Trust are not transferable, and our beneficiaries do not have authority or power to sell or in any other manner dispose of their beneficial interests.

 

We are limited in the number and type of properties in which we have invested and the value of our beneficiaries’ investments will fluctuate with the performance of the specific investments made.

 

The Partnership formerly held interests in twelve assets. However, as of December 31, 2014, we hold only one of the twelve assets and the back-end promoted interest in distributable cash to one sold asset. The reduction in number of assets held has resulted in less diversification in terms of the number of investments owned, the geographic regions in which our investments are located and the types of investments that we made.  The investment in our units will be subject to greater risk to the extent that we lack a diversified portfolio of investments.  In addition, our fixed operating expenses, as a percentage of gross income, have increased as a result of the reduction in number of assets held, and our financial condition and ability to pay distributions may be adversely affected.

 

Our beneficiaries should view their investments as long-term in nature.

 

Our units lack a public trading market and are subject to transfer restrictions.  Although our Liquidating Trust Agreement provides for a three-year period to liquidate the remaining assets, the Managing Trustee is working diligently to liquidate these assets in a manner that makes sense for our beneficiaries, and expects that disposition of these assets will be completed before the end of this three-year period.  However, we may choose to wait to sell any or all of the assets we now hold and our existence may be extended beyond the three-year term if our Managing Trustee determines that an extension is reasonably necessary to wind up our affairs.  We expect that net proceeds from the sale of our assets will generally be distributed to our beneficiaries unless needed for working capital resources.  For each of these reasons, our beneficiaries should view their investment in units strictly as a long-term investment.

 

If we lose or are unable to obtain key personnel, our ability to implement our disposition strategies could be delayed or hindered.

 

Our success depends to a significant degree upon the continued contributions of certain key personnel of the general partner of Behringer Advisors II, HPT, who would be difficult to replace.  Although HPT has employment agreements with its key personnel, these agreements are terminable at will, and we cannot guarantee that such persons will remain affiliated with HPT or us.  If any of HPT’s key personnel were to cease employment, our operating results could suffer.  We believe that our future success depends, in large part, upon HPT’s ability to hire and retain highly skilled managerial, operational and marketing personnel.  Competition for such personnel is intense, and we cannot assure beneficiaries that HPT will be successful in attracting and retaining such skilled personnel.  Further, our Managing Trustee intends to establish strategic relationships with firms that have special expertise in certain services or as to real properties in certain geographic regions.  Maintaining such relationships will be important for us to effectively compete.  We cannot assure beneficiaries that our Managing Trustee will be successful in attracting and retaining such relationships.  If we lose or are unable to obtain the services of key personnel or do not establish or maintain appropriate strategic relationships, our ability to implement our strategies could be delayed or hindered.

 

The executive officers of HPT have a dominant role in determining what is in our best interests and, therefore, we will not have the benefit of independent consideration of issues affecting our operations.

 

Our Managing Trustee is Behringer Advisors II.  Behringer Advisors II is managed by its general partner, HPT.  Therefore, the executive officers of HPT have a dominant role in determining what is in the best interests of us and our beneficiaries.  Since no persons other than the executive officers of HPT have any direct control over our management, we do not have the benefit of independent consideration of issues affecting our operations.  Therefore, the executive officers of HPT alone will determine the propriety of their own actions, which could result in a conflict of interest when they are faced with any significant decision relating to our affairs.

 

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Our Managing Trustee has a limited net worth consisting of assets that are not liquid, which may adversely affect the ability of our Managing Trustee to fulfill its financial obligations to us.

 

The net worth of our Managing Trustee consists primarily of interests in real estate, partnerships and closely held businesses.  Accordingly, the net worth of our Managing Trustee is illiquid and not readily marketable.  This illiquidity, and the fact that our Managing Trustee and its affiliates have commitments to other Behringer programs, may adversely affect the ability of our Managing Trustee to fulfill its financial obligations to us.

 

Our rights and the rights of our beneficiaries to recover claims against our Managing Trustee are limited.

 

Our Liquidating Trust Agreement provides that our Managing Trustee will have no liability for any action or failure to act that the Managing Trustee in good faith determines was in our best interest, provided that its action or failure to act did not constitute gross negligence, willful misconduct or fraud.  As a result, we and our beneficiaries may have more limited rights against our Managing Trustee than might otherwise exist under common law.  In addition, we may be obligated to fund the defense costs incurred by our Managing Trustee in some cases.

 

We have terminated our regular monthly distributions and future distributions will be determined at the sole discretion of our Managing Trustee.

 

The terms of the Liquidating Trust Agreement do not contemplate that we will make monthly distributions. Rather, it is expected that from time to time we will make special cash distributions to our beneficiaries, including in connection with the disposition of our remaining assets, to the extent that such cash will not be needed to provide for our liabilities (including contingent liabilities), in the sole discretion of our Managing Trustee. Liquidating distribution amounts of net proceeds received from sales of our remaining assets will generally depend on our anticipated cash needs to satisfy liquidating and other expenses, financial condition and capital requirements, and other factors our Managing Trustee may deem relevant. Our ability to pay distributions to our beneficiaries may be adversely affected by the risks described herein.

 

We may not successfully provide our beneficiaries with a liquidity event.

 

Our current timeframe for liquidating is by 2016.  Market conditions and other factors could cause us to delay liquidation beyond this period.  If liquidation is delayed, your units will continue to be illiquid.

 

If our liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions to our beneficiaries may be delayed and/or reduced.

 

Before making the final liquidating distribution to our beneficiaries, we will need to pay or arrange for the payment of all of our transaction costs in the liquidation, and all other costs and all valid claims of our creditors. Our Managing Trustee may also decide to acquire one or more insurance policies covering unknown or contingent claims against us, for which we would pay a premium which has not yet been determined. Our Managing Trustee may also decide to establish a reserve fund to pay these contingent claims. The total amount of transaction costs in the liquidation is not yet known.  In addition, if the claims of our creditors are greater than we have anticipated or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions to our beneficiaries may be delayed and/or reduced. Further, if a reserve fund is established, payment of liquidating distributions to our beneficiaries may be delayed and/or reduced.

 

There can be no assurance that the plan of liquidation will result in greater returns to our beneficiaries on their investment within a reasonable period of time than our beneficiaries would receive through other alternatives reasonably available to us.

 

While the Partnership’s General Partners each believed that a liquidation of the Partnership through a transfer of assets and liabilities to a liquidating trust would be more likely to provide our beneficiaries with a greater return on their investment within a reasonable period of time than our beneficiaries would receive through other alternatives reasonably available to us at the time, such belief relied upon certain assumptions and judgments concerning future events which may be unreliable or incorrect.

 

The Plan may lead to litigation which could result in substantial costs and distract our Managing Trustee.

 

Historically, extraordinary actions by a company, such as the plan of liquidation, may sometimes lead to securities class action lawsuits being filed against that company. We may become involved in this type of litigation as a result of the Plan. As of March 26, 2015, no such lawsuits relating to the Plan have been filed. However, if such a lawsuit is filed against us, the litigation is likely to be expensive and, even if we ultimately prevail, the process will divert our Managing Trustee’s attention from implementing the Plan and otherwise operating our business. If we do not prevail in any such lawsuit which may be filed against us in the future, we may be liable for damages. In such event, we cannot predict the amount of any such damages; however, they may be significant and may reduce our cash available for distribution to our beneficiaries.

 

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Our beneficiaries could be liable to the extent of liquidating distributions received from us if contingent reserves are insufficient to satisfy our liabilities.

 

Similar to the liquidation of any fund, including had we remained as a partnership, if we fail to create an adequate contingency reserve for payment of our expenses and liabilities, or if the contingency reserve and the assets held by us are less than the amount ultimately found payable in respect of expenses and liabilities, each of our beneficiaries could be held liable for the payment to creditors of such beneficiary’s pro rata portion of the excess, limited to the amounts previously received by each beneficiary in distributions from us.

 

If a court holds at any time that we have failed to make adequate provision for our expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from contingency reserve and our assets, our creditors could seek an injunction to prevent us from making distributions under the Plan on the grounds that the amounts to be distributed are needed to provide for the payment of our expenses and liabilities. Any such action could delay or substantially diminish the cash distributions to be made to our beneficiaries under the Liquidating Trust Agreement.

 

The prior performance of real estate investment programs sponsored by affiliates of our Managing Trustee or former General Partners may not be an indication of our future results.

 

Investors should not rely upon the past performance of other real estate investment programs sponsored by Mr. Behringer, our Managing Trustee, or their respective affiliates, to predict our future results. To be successful in this market, we must, among other things, attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations. We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause investors to lose all or a portion of their investment.

 

Risks Related to Our Business in General

 

Market disruptions have impacted and may continue to adversely impact many aspects of our operating results and operating condition.

 

Although economic and market conditions in the United States have generally improved over the past two years, the overall market recovery remains uncertain. The previous economic downturn had a significant negative impact and continues to affect us. Our business is affected by market and economic challenges experienced by the U.S. economy or real estate industry as a whole or by the local economic condition in the market in which our asset is located.

 

The capital markets began to substantially open up in 2012 and access to the equity and debt markets continued to improve in 2014. The current conditions have had, or similar conditions existing in the future may continue to have, the following consequences:

 

·credit spreads for major sources of capital could widen as investors demand higher risk premiums, resulting in lenders increasing the cost for debt financing;

 

·a reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real estate transaction activity, reduce the loan to value ratio upon which lenders are willing to lend, and result in difficulty refinancing our debt;

 

·our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to refinance existing debt, reduce our returns from our acquisition and increase our future interest expense;

 

·the value of our asset may have decreased below the amount we paid for it, which may limit our ability to dispose of it at attractive prices or to obtain debt financing secured by our asset and may reduce the availability of unsecured loans; and

 

For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our investments.

 

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We have incurred indebtedness and other borrowings, which may increase our business risks.

 

We have acquired and developed real properties by using either existing financing or borrowing new funds. In addition, we have incurred or increased our debt by obtaining loans. We have incurred debt on a particular real property if we believe the property’s projected cash flow was sufficient to service the mortgage debt. Incurring debt increases the risk of loss since defaults on indebtedness secured by a property may result in foreclosure actions initiated by lenders and our loss of the property securing the loan which is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our assets. When we provide a guaranty on behalf of an entity that owns one of our assets, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any of our assets are foreclosed upon due to a default, our ability to pay distributions to our beneficiaries will be adversely affected. Our approach to investing in assets utilizing leverage in order to accomplish our investment objectives may present more risks to investors than comparable real estate programs which have a longer intended duration and which do not utilize borrowing to the same degree.

 

Our indebtedness adversely affects our financial health and operating flexibility.

 

At December 31, 2014, the Liquidating Trust had notes payable to a related party of approximately $1 million in principal amount.

 

Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences to us and the value of our units, regardless of our ability to refinance or extend our debt, including:

 

·limiting our ability to borrow additional amounts for working capital, debt service requirements, execution of our business plan or other purposes;

 

·limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service our debt;

 

·increasing our vulnerability to general adverse economic and industry conditions;

 

·limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in governmental regulation;

 

·limiting our ability or increasing the costs to refinance our indebtedness.

 

In addition, a breach of the financial and operating covenants in our debt agreements could cause a default and accelerate payment, which could have a material adverse effect on our financial condition.

 

We may not be able to refinance or repay our indebtedness.

 

We have debt that we may not be able to refinance or repay. As of December 31, 2014, approximately $1 million of principal payments, which includes scheduled debt maturities, is scheduled to mature in the next twelve months. We may face significant challenges refinancing our current debt on acceptable terms if at all due to (1) reduced values of our investments, (2) limited cash flow from operations, (3) our debt level, (4) the cost and terms of new or refinanced indebtedness and (5) material changes in lending parameters, including lower loan-to-value standards. Our indebtedness also requires us to use a material portion of our cash flow to service principal and interest, which limits the cash flow available for other business expenses or opportunities.

 

Further, we may not have the funds necessary to repay our debt as it matures. Failure to refinance or extend our debt as it comes due, or a failure to satisfy the conditions and requirements of that debt, could result in an event of default. We have experienced, and may continue to experience, defaults or events of default with respect to our existing indebtedness, which requires us to either restructure the debt in a way that is supported by the underlying asset values of the properties collateralizing the debt or to purchase or pay off the debt at a discount. We can provide no assurance that, with respect to any other indebtedness that we may be unable to repay, we will be able to restructure that debt or to purchase or pay off that debt at a discount, which could result in lenders accelerating that debt. If our debt is accelerated, the value of our assets may not be sufficient to repay the debt in full. If we are unable to refinance or repay our debt as it comes due and maintain sufficient cash flow, our business, financial condition and results of operations will be materially and adversely affected. Furthermore, even if we are able to obtain extensions on our existing debt, those extensions may include operational and financial covenants significantly more restrictive than the covenants on existing indebtedness. Any extensions will also require us to pay certain fees to, and expenses of, our lenders. Any fees and cash flow restrictions will affect our ability to fund our ongoing operations.

 

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Disruptions in the financial markets and adverse economic conditions could adversely affect the value of our investments.

 

The recent market volatility could make the valuation of our investment assets more difficult.  There may be significant uncertainty in the valuation, or in the stability of the value, of our assets that could result in a substantial decrease in the value of our assets.

 

If debt is unavailable at reasonable rates, we may not be able to refinance our assets.

 

If interest rates are higher when the assets are refinanced, we may not be able to finance the properties, and our income could be reduced. If this occurs, it may prevent us from borrowing more money.

 

Future financing could be impacted by negative capital market conditions.

 

Although the current outlook on financing trends appears relatively stable, there are risks. Potential changes in the U.S. Federal Reserve’s monetary policy could further affect interest rates, while the U.S. political deadlock over the debt ceiling, tax policy and government spending levels can affect the overall level of domestic economic growth. Any of these domestic issues or the resurfacing of global issues could slow growth or push the U.S. into a recession, which could affect the amount of capital available or the costs charged for financings. Our ability to borrow funds to refinance current debt, including any financing provided by Behringer, could be affected by our inability to secure permanent financing on reasonable terms, if at all.

 

Gains and distributions upon resale of our assets are uncertain.

 

Although gains from the sales of assets typically represent a substantial portion of any profits attributable to a real estate investment, we cannot assure investors that we will realize any gains on the resales of our assets. In addition, the amount of taxable gain allocated to investors with respect to the sale of a asset could exceed the cash proceeds received from such sale.

 

Proceeds from the sale of an asset will be distributed to our beneficiaries if the Managing Trustee, in its sole discretion, has determined that such proceeds are not needed to fund:

 

·working capital reserves; or

 

·required principal and interest payments to our existing assets.

 

Because we cannot be certain about the precise net realizable value of our assets and the ultimate amount of our liabilities, we are not able to predict accurately the aggregate cash amounts which will ultimately be distributed to our beneficiaries or the timing of any such distributions. The amount and timing of remaining distributions will be determined by our Managing Trustee based on funds available, net proceeds realized from the remaining assets, the timing of asset sales, whether our total assets exceed total liabilities at such time, whether we have provided for the level of reserves deemed necessary or appropriate and other considerations.

 

The provisions of the Delaware Statutory Trust Act applicable to statutory trusts do not grant our beneficiaries any voting rights, and our beneficiaries’ rights are limited under our Liquidating Trust Agreement.

 

A vote of a majority of the units of beneficial interest is sufficient to take the following actions:

 

·to amend our Liquidating Trust Agreement;

 

·to dissolve and terminate the Liquidating Trust;

 

·to remove our Managing Trustee; and

 

·to authorize a merger or a consolidation of the Liquidating Trust.

 

These are the only significant voting rights granted to our beneficiaries under our Liquidating Trust Agreement. Therefore, our beneficiaries’ voting rights in our operations are limited.

 

Our Managing Trustee will make all decisions with respect to our management and determine all of our major policies, including our financing, growth, investment strategies and distributions. Our Managing Trustee may revise these and other policies without a vote of the beneficiaries. Therefore, our beneficiaries will be relying almost entirely on our Managing Trustee for our management and the operation of our business. Our Managing Trustee may only be removed under certain conditions, as set forth in our Liquidating Trust Agreement.

 

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Payment of fees to our Managing Trustee and its affiliates will reduce cash available for distribution.

 

Our Managing Trustee and its affiliates will perform services for us in connection with the management and leasing of our assets and the administration of our other investments. They will be paid fees for these services, which will reduce the amount of cash available for distribution to our beneficiaries.

 

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions.

 

The Federal Deposit Insurance Corporation, or FDIC, generally only insures limited amounts per depositor per insured bank. We have cash and cash equivalents and restricted cash deposited in interest bearing transaction accounts at certain financial institutions in excess of federally insured levels.  If any of the banking institutions in which we have deposited funds ultimately fails, we may lose the portion of our deposits that exceed the federally insured levels.  The loss of our deposits could reduce the amount of cash we have available to distribute and could result in a decline in the value of your investment.

 

Financing arrangements involving balloon payment obligations may adversely affect our operations.

 

Our fixed-term financing arrangements generally require us to make “balloon” payments at maturity. During the interest only period, the amount of each scheduled payment is less than that of traditional amortizing loans. The principal balance of the loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the asset or other assets in our portfolio. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the asset at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to our beneficiaries and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may adversely affect our operations. Any of these results would have a significant, negative impact on your investment.

 

Increases in interest rates could increase the amount of our debt payments and adversely affect our operating cash flow.

 

We may borrow money that bears interest at variable rates which may expose us to increases in costs in a rising interest rate environment. Accordingly, increases in interest rates would increase our interest costs, which could have a material adverse effect on our operating cash flow. In addition, if rising interest rates cause us to need additional capital to repay indebtedness in accordance with its terms or otherwise, we may be required to liquidate one or more of our investments in assets at times which may not permit realization of the maximum return on such investments.

 

To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective and may reduce the overall returns on your investment.

 

From time to time, we may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets.  Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements.  Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from time to time. There is no assurance that our hedging strategy will achieve our objectives.

 

To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we are exposed to credit risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. We may be unable to manage these risks effectively.

 

We may enter into derivative contracts that could expose us to contingent liabilities in the future.

 

Our derivative financial instruments may require us to fund cash payments upon the early termination of a derivative agreement caused by an event of default or other early termination event. The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges. In addition, some of these derivative arrangements may require that we maintain specified percentages of cash collateral with the counterparty to fund potential liabilities under the derivative contract. We may have to make cash payments in order to maintain the required percentage of collateral with the counterparty. These economic losses would be reflected in our results of operations, and our ability to fund these obligations would depend on the liquidity of our respective assets and access to capital at the time. Our due diligence may not reveal all of an entity’s liabilities and may not reveal other weaknesses in the entity’s business.

 

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Lenders may require us to enter into restrictive covenants that may have an adverse effect on our operations.

 

In connection with obtaining certain financing, a lender could impose restrictions on us that affect our ability to incur additional debt and our operating policies. Loan documents we enter into may contain customary negative covenants that may limit our ability to further leverage the asset, to discontinue insurance coverage, replace our Managing Trustee or impose other limitations. Any such restriction or limitation may have an adverse effect on our operations.

 

Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act.

 

We are not registered, and do not intend to register, as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”), based on exclusions that we believe are available to us.  If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

 

·limitations on capital structure;

 

·restrictions on specified investments;

 

·prohibitions on transactions with affiliates; and

 

·compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

 

In order to be excluded from regulation under the Investment Company Act, we must engage primarily in the business of acquiring and owning real estate assets or real estate-related assets. We rely on exemptions or exclusions provided by the Investment Company Act for the direct ownership, or the functional equivalent thereof, of certain qualifying real estate assets or by engaging in business through one or more majority-owned subsidiaries, as well as other exemptions or exclusions. The position of the SEC staff generally requires us to maintain at least 55% of our assets directly in qualifying real estate interests in order for us to maintain our exemption. Mortgage-backed securities may or may not constitute qualifying real estate assets, depending on the characteristics of the mortgage-backed securities, including the rights that we have with respect to the underlying loans.

 

To maintain compliance with the Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain.  In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired. 

 

The method we use to classify our assets for purposes of the Investment Company Act is based in large measure upon no-action positions taken by the SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of qualifying for exemption from regulation under the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exemption from the definition of an “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act.

 

If we are required to register as an investment company but fail to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us.  In addition, our contracts will be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business. 

 

Risks Related to Investments in Real Estate

 

Our operating results will be affected by economic and regulatory changes that may have an adverse impact on the real estate market in general, and we cannot assure investors that we will be profitable or that we will realize growth in the value of our real estate assets.

 

Our operating results will be subject to risks generally incident to the ownership of real estate, including:

 

·changes in general economic or local conditions;

 

·changes in supply of or demand for similar or competing properties in an area;

 

·changes in interest rates and availability of permanent mortgage funds that may render the sale of a asset difficult or unattractive;

 

·the illiquidity of real estate investments generally;

 

·changes in tax, real estate, environmental and zoning laws; and

 

·periods of high interest rates and tight money supply.

 

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The return on our real estate assets also may be affected by a continued or exacerbated general economic slowdown experienced by the local economies where our assets are located. We cannot assure investors that we will be profitable or that we will realize growth in the value of our real estate assets.

 

Our remaining assets are located in the Dallas, Texas metropolitan area. As a result of this limited diversification of the geographic locations of our assets, our operating results will be affected by economic changes that have an adverse impact on the real estate market in that area.

 

The remaining assets that we hold in our portfolio are located in the Southwest United States, more specifically, in the Dallas, Texas metropolitan area. Consequently, because of the lack of geographic diversity among our current assets, our operating results and ability to pay liquidating distributions are likely to be impacted by economic changes affecting the real estate market in the Dallas, Texas area. An investment in our units will be subject to greater risk to the extent that we lack a geographically diversified portfolio of assets.

 

We may be unable to sell an asset if or when we decide to do so, which could adversely impact our ability to pay liquidating distributions to our beneficiaries.

 

The real estate market is affected, as set forth above, by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any asset for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of an asset. If we are unable to sell an asset when we determine to do so, it could have a significant adverse effect on our cash flow, results of operations and our ability to pay special distributions to our beneficiaries.

 

We may be unable to sell an asset on acceptable terms and conditions, if at all.

 

We intend to hold our real assets and other investments until our Managing Trustee decides that a sale or other disposition is consistent with our disposition objectives or until it appears that these objectives will not be met.  Otherwise, our Managing Trustee may exercise its discretion as to whether and when to sell an asset, and we will have no obligation to sell assets at any particular time, except upon the termination of our existence in 2016, or after such date if our Managing Trustee determines that an extension is reasonably necessary to wind up our affairs.

 

If we sell any of our assets in tenant-in-common transactions, those sales may be viewed as sales of securities, and we would retain potential liability after the sale under applicable securities laws.

 

We may sell assets in tenant-in-common transactions. If we do make such sales, they may be viewed as sales of securities, and as a result, if the purchasers in the tenant-in-common transaction had post-closing claims, they could bring claims under applicable securities laws. Those claims could have a material adverse effect upon our business and results of operations.

 

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect investors’ returns.

 

Our Managing Trustee will attempt to ensure that all of our assets, including the sold asset with a back-end promoted interest, in distributable cash, are adequately insured to cover casualty losses. However, there are types of losses which are generally catastrophic in nature and are related to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters which may be uninsurable, not economically insurable or may be insurable subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our assets. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure investors that we will have adequate coverage for such losses. In the event that any of our assets incur a casualty loss which is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than the working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our beneficiaries that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in less cash available for distribution to our beneficiaries.

 

Concentration of our remaining investments in one asset class may leave our profitability vulnerable to a downturn in such sector.

 

A significant portion of our remaining investments are held in one asset class. As a result, we will be subject to risks inherent in investments in a single type of asset. The potential effects on our revenues and corresponding cash available for distribution to our beneficiaries resulting from a downturn in the businesses conducted in this single asset class could be more pronounced than if we had more fully diversified our investments.

 

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The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions.

 

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent such asset or to use the asset as collateral for future borrowing.

 

Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure our beneficiaries that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our assets will not be affected by the existing condition of the land, by operations in the vicinity of the assets, such as the presence of underground storage tanks, or by the activities of unrelated third parties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance.

 

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.

 

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our beneficiaries.

 

Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distributions.

 

Our assets, including the sold asset with a back-end promoted interest, in distributable cash, may be subject to the Americans with Disabilities Act of 1990, as amended (the “Disabilities Act”). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to place the burden on the seller or other third party, such as a tenant, to ensure compliance with the Disabilities Act. However, we cannot assure investors that we will be able to allocate responsibilities in this manner. If we cannot, our funds used for Disabilities Act compliance may affect cash available for distributions and the amount of distributions, if any.

 

If we sell assets by providing financing to purchasers, we will bear the risk of default by the purchaser.

 

If we decide to sell any of our assets, we intend to use our best efforts to sell them for cash. However, in some instances we may sell our assets by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law, which could negatively impact our distributions to our beneficiaries. There are no limitations or restrictions on our ability to take purchase money obligations. We may, therefore, take a purchase money obligation secured by a mortgage as part payment for the purchase price. The terms of payment to us generally will be affected by custom in the area where the asset being sold is located and the then-prevailing economic conditions. If we receive promissory notes or other asset in lieu of cash from asset sales, the distribution of the proceeds of sales to our beneficiaries will be delayed until the promissory notes or other asset are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other asset in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay distributions to our beneficiaries.

 

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Risks Related to Conflicts of Interest

 

We will be subject to conflicts of interest arising out of our relationships with our Managing Trustee and its affiliates, including the material conflicts discussed below.

 

Our Managing Trustee and certain of its key personnel will face competing demands relating to their time, and this may cause our investment returns to suffer.

 

Our Managing Trustee and certain of its key personnel and their respective affiliates are general partners and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to ours and may have other business interests as well. Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and resources to our business than is necessary or appropriate. If this occurs, the returns on our investments may suffer.

 

Our Managing Trustee will face conflicts of interest relating to joint ventures, which could result in a disproportionate benefit to a Behringer program or third party other than us.

 

We have entered into joint ventures with third parties having investment objectives similar to ours for the acquisition or development of assets. We have also purchased and developed assets in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the assets, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with other methods of investment in real estate, including, for example:

 

·the possibility that our co-venturer, co-tenant or partner in an investment might become bankrupt;

 

·the possibility that the investment requires additional capital that we and/or our partner do not have, which lack of capital could affect the performance of the investment and/or dilute our interest if the partner were to contribute our share of the capital;

 

·that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals;

 

·that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;

 

·the possibility that we may incur liabilities as the result of the action taken by our co-venturer, co-tenant or partner; or

 

·that such partner may exercise buy/sell rights that force us to either acquire the entire investment, or dispose of our share, at a time and price that may not be consistent with our investment objectives.

 

Actions by such a co-venturer, co-tenant or partner might have the result of subjecting the property to liabilities in excess of those contemplated and may have the effect of reducing beneficiaries’ returns.

 

Affiliates of our Managing Trustee have sponsored, or are currently sponsoring, registered public offerings on behalf of TIER REIT, Inc., (“TIER REIT”) (formerly Behringer Harvard REIT I, Inc.), Behringer Harvard Opportunity REIT I, Inc. (“Behringer Harvard Opportunity REIT I”), Behringer Harvard Opportunity REIT II, Inc. (“Behringer Harvard Opportunity REIT II”), Monogram Residential Trust, Inc. (“Monogram”) (formerly Behringer Harvard Multifamily REIT I, Inc.) and Behringer Harvard Mid-Term Value Enhancement Liquidating Trust (successor in interest to Behringer Harvard Mid-Term Value Enhancement Fund I LP). Because our Managing Trustee or its affiliates have advisory and management arrangements with other Behringer programs, it is likely that they will encounter opportunities to acquire or sell assets to the benefit of one of the Behringer programs, but not others. Our Managing Trustee or its affiliates may make decisions to sell certain assets, which decisions might disproportionately benefit a Behringer program other than us.

 

The Managing Trustee and certain of its affiliates face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our beneficiaries.

 

Our Managing Trustee and certain of its affiliates, including our Property Manager, are entitled to substantial fees from us under the terms of our Liquidating Trust Agreement and property management agreement. These fees were not negotiated at arm’s length and reduce the amount of cash available for distributions.

 

These fees could influence our Managing Trustee’s advice to us, as well as the judgment of its affiliates performing services for us. Among other matters, these compensation arrangements could affect their judgment with respect to:

 

·continuing, renewing or enforcing our agreements with our Managing Trustee and its affiliates, including the advisory management agreement and the property management agreement;

 

·property sales, which reduce the asset management and property management fees payable to our Managing Trustee or its affiliates but also entitle them to real estate commissions;

 

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·borrowings to refinance assets, which increase the debt financing fees payable to our Managing Trustee;

 

·determining the compensation paid to employees for services provided to us, which could be influenced in part by whether or not the Managing Trustee is reimbursed by us for the related salaries and benefits; and

 

·whether and when we seek to sell our assets, which sale could entitle our Managing Trustee real estate commissions.

 

The fees our Managing Trustee receives in connection with transactions involving the management of an asset are based on the cost of the investment, including the amount budgeted for the development and construction of each asset, and are not based on the quality of the investment or the quality of the services rendered to us. This may influence our Managing Trustee to recommend riskier transactions to us.

 

We may be restricted in our ability to replace our Property Manager under certain circumstances.

 

Under the terms of our property management agreement, we may terminate the agreement upon 30 days’ notice in the event of (and only in the event of) a showing of willful misconduct, gross negligence, or deliberate malfeasance by our Property Manager in the performance of their duties. Our Managing Trustee may find the performance of our Property Manager to be unsatisfactory. However, such performance by the Property Manager may not reach the level of “willful misconduct, gross negligence, or deliberate malfeasance.” As a result, we may be unable to terminate the property management agreement at the desired time, which may have an adverse effect on the management and profitability of our assets.

 

Our Managing Trustee and certain of its key personnel face conflicts of interest related to the positions they hold with affiliated entities, which could diminish the value of the services they provide to us.

 

Certain of the key personnel of Behringer Advisors II are also officers of our Property Manager, our dealer manager and other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities, which may conflict with the fiduciary duties that they owe to us and our investors. Conflicts with our business and interests are most likely to arise from involvement in activities related to (1) allocation of management time and services between us and the other entities, (2) the timing and terms of the sale of an asset, (3) development of our assets by affiliates, (4) investments with affiliates of our Managing Trustee, (5) compensation to our Managing Trustee, and (6) our relationship with our dealer manager and Property Manager.

 

Because we rely on affiliates of Behringer Holdings for the provision of property management services, if Behringer Holdings is unable to meet its obligations, we may be required to find alternative providers of these services, which could result in a significant and costly disruption of our business.

 

Behringer Holdings, through one or more of its subsidiaries, owns and controls our Property Manager. The operations of our Property Manager rely substantially on Behringer Holdings. In light of the common ownership of this entity and its reliance on Behringer Holdings, we consider the financial condition of Behringer Holdings when assessing the financial condition of our Property Manager. In the event that Behringer Holdings would be unable to meet its obligations as they become due, we might be required to find alternative service providers, which could result in a significant and costly disruption of our business.

 

There is no separate counsel for us and our affiliates, which could result in conflicts of interest.

 

DLA Piper LLP (US) acts as legal counsel to us, and is also expected to represent our Managing Trustee and some of its affiliates from time to time. There is a possibility in the future that the interests of the various parties may become adverse and, under the Code of Professional Responsibility of the legal profession, DLA Piper LLP (US) may be precluded from representing any one or all of such parties. If any situation arises in which our interests appear to be in conflict with those of our Managing Trustee or its affiliates, additional counsel may be retained by one or more of the parties to assure that their interests are adequately protected. Moreover, should such a conflict not be readily apparent, or otherwise not recognized, DLA Piper LLP (US) may inadvertently act in derogation of the interest of the parties which could affect us and, therefore, our beneficiaries, and our ability to meet our investment objectives.

 

Federal Income Tax Risks

 

There can be no assurance that the Liquidating Trust will be treated as a partnership for federal income tax purposes.

 

The Liquidating Trust is intending to be treated as a continuation of the Partnership and classified as a partnership for federal income tax purposes, and therefore income, gains, losses, deductions and credits (if any) realized by the Liquidating Trust will be allocated among the beneficiaries for federal tax purposes in the same manner as previously allocated by the Partnership.  Further, with the transfer of all of the Partnership’s remaining assets to the Liquidating Trust and the assumption by the Liquidating Trust of all of the Partnership’s remaining liabilities, it is contemplated that there will be no change to the adjusted basis of any beneficiary’s interest in the Liquidating Trust and the beneficiaries will each have an adjusted basis with respect to such beneficiary’s beneficial interest in the Liquidating Trust equal to the adjusted basis of such beneficiary’s limited partnership interest in the Partnership immediately prior to the Effective Date.  On a yearly basis, the Managing Trustee will cause the Liquidating Trust to continue to issue a Schedule K-1 to each beneficiary.  However, there can be no assurance that the Liquidating Trust will be treated as a partnership for federal income tax purposes.  We will advise you if we learn that the tax treatment of the Liquidating Trust is other than as described herein.

 

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The state and local tax consequences of the transfer of assets to the Liquidating Trust may be different from the federal income tax consequences of such transfer.  In addition, any items of income, gain, loss, deduction or credit of the Liquidating Trust, and any distribution made by the Liquidating Trust, may be treated differently for state and local tax purposes than for federal income tax purposes.

 

The Internal Revenue Service may challenge our characterization of material tax aspects of an investment in our units of beneficial interest.

 

An investment in units involves material income tax risks. Beneficiaries are urged to consult with their own tax advisor with respect to the federal, state and foreign tax considerations of an investment in our units. We will not seek any rulings from the Internal Revenue Service regarding any of the tax issues discussed herein. Further, although we have obtained an opinion from our counsel regarding the material federal income tax issues relating to an investment in our units, investors should be aware that the opinion represents only our counsel’s best legal judgment, based upon representations and assumptions referred to therein and conditioned upon the existence of certain facts. Our counsel’s tax opinion has no binding effect on the Internal Revenue Service or any court. Accordingly, we cannot assure investors that the conclusions reached in the tax opinion, if contested, would be sustained by any court. In addition, our counsel is unable to form an opinion as to the probable outcome of the contest of certain material tax aspects, including whether we will be characterized as a “dealer” so that sales of our assets would give rise to ordinary income rather than capital gain, and whether we are required to qualify as a tax shelter under the Internal Revenue Code. Our counsel also gives no opinion as to the tax considerations to investors of tax issues that have an impact at the individual or beneficiary level. Accordingly, investors are urged to consult with and rely upon their own tax advisors with respect to tax issues that have an impact at the beneficiary or individual level.

 

Investors may realize taxable income without cash distributions, and may have to use funds from other sources to pay their tax liabilities.

 

Beneficiaries will be required to report their allocable share of our taxable income on their personal income tax return regardless of whether they have received any cash distributions from us. It is possible that units of beneficial interest will be allocated taxable income in excess of their cash distributions. We cannot assure beneficiaries that cash flow will be available for distribution in any year. As a result, beneficiaries may have to use funds from other sources to pay their tax liability.

 

We could be characterized as a publicly traded partnership, which would have an adverse tax effect on investors.

 

If the Internal Revenue Service were to classify us as a publicly traded partnership, we could be taxable as a corporation, and distributions made to beneficiaries could be treated as portfolio income rather than passive income. Our counsel has given its opinion that we will not be classified as a publicly traded partnership, which is defined generally as a partnership whose interests are publicly traded or frequently transferred. However, this opinion is based only upon certain representations of our former General Partners and the provisions in our Liquidating Trust Agreement that attempt to comply with certain safe harbor standards adopted by the Internal Revenue Service. We cannot assure beneficiaries that the Internal Revenue Service will not challenge this conclusion or that we will not, at some time in the future, be treated as a publicly traded partnership due to the following factors:

 

·the complex nature of the Internal Revenue Service safe harbors;

 

·the lack of interpretive guidance with respect to such provisions; and

 

·the fact that any determination in this regard will necessarily be based upon facts that have not yet occurred.

 

The deductibility of losses will be subject to passive loss limitations, and therefore their deductibility will be limited.

 

Units of beneficial interest will be allocated their pro rata share of our tax losses. Section 469 of the Internal Revenue Code limits the allowance of deductions for losses attributable to passive activities, which are defined generally as activities in which the taxpayer does not materially participate. Any tax losses allocated to investors will be characterized as passive losses, and accordingly, the deductibility of such losses will be subject to these limitations. Losses from passive activities are generally deductible only to the extent of a taxpayer’s income or gains from passive activities and will not be allowed as an offset against other income, including salary or other compensation for personal services, active business income or “portfolio income,” which includes non-business income derived from dividends, interest, royalties, annuities and gains from the sale of property held for investment. Accordingly, beneficiaries may receive no current benefit from their share of tax losses unless they are currently being allocated passive income from other sources.

 

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The Internal Revenue Service may challenge our allocations of profit and loss, and any reallocation of items of income, gain, deduction and credit could reduce anticipated tax benefits.

 

Counsel has given its opinion that it is more likely than not that partnership items of income, gain, loss, deduction and credit will be allocated among our beneficiaries substantially in accordance with the allocation provisions of the Liquidating Trust Agreement. We cannot assure investors, however, that the Internal Revenue Service will not successfully challenge the allocations in the Liquidating Trust Agreement and reallocate items of income, gain, loss, deduction and credit in a manner that reduces anticipated tax benefits. The tax rules applicable to allocation of items of taxable income and loss are complex. The ultimate determination of whether allocations adopted by us will be respected by the Internal Revenue Service will depend upon facts which will occur in the future and which cannot be predicted with certainty or completely controlled by us. If the allocations we use are not recognized, beneficiaries could be required to report greater taxable income or less taxable loss with respect to an investment in us and, as a result, pay more tax and associated interest and penalties. Our beneficiaries might also be required to incur the costs of amending their individual returns.

 

We may be characterized as a dealer, and if so, any gain recognized upon a sale of real property would be taxable to investors as ordinary income.

 

If we are deemed for tax purposes to be a dealer, defined as one who holds an asset primarily for sale to customers in the ordinary course of business, with respect to one or more of our assets, any gain recognized upon a sale of such real property will be taxable to investors as ordinary income and will also constitute unrelated business taxable income (“UBTI”) to investors who are tax-exempt entities. The resolution of our status in this regard is dependent upon facts that will not be known until the time an asset is sold or held for sale. Under existing law, whether property is held primarily for sale to customers in the ordinary course of business must be determined from all the facts and circumstances surrounding the particular property at the time of disposition. These include the number, frequency, regularity and nature of dispositions of real estate by the holder and activities of the holder of the property in selling the property or preparing the property for sale. Accordingly, our counsel is unable to render an opinion as to whether we will be considered to hold any or all of our assets primarily for sale to customers in the ordinary course of business.

 

We may be audited by the Internal Revenue Service, which could result in the imposition of additional tax, interest and penalties.

 

Our federal income tax returns may be audited by the Internal Revenue Service. Any audit of us could result in an audit of beneficiaries’ tax return that may require adjustments of items unrelated to an investment in us, in addition to adjustments to various items. In the event of any such adjustments, beneficiaries might incur attorneys’ fees, court costs and other expenses contesting deficiencies asserted by the Internal Revenue Service. Beneficiaries may also be liable for interest on any underpayment and penalties from the date their tax was originally due. The tax treatment of all items will generally be determined at the Liquidating Trust level in a single proceeding rather than in separate proceedings with each partner, and our Managing Trustee is primarily responsible for contesting federal income tax adjustments proposed by the Internal Revenue Service. In this connection, our Managing Trustee may extend the statute of limitations as to all beneficiaries and, in certain circumstances, may bind the beneficiaries to a settlement with the Internal Revenue Service. Further, our Managing Trustee may cause us to elect to be treated as an electing large partnership. If they do, we could take advantage of simplified flow-through reporting of items. Adjustments to items would continue to be determined at the Liquidating Trust level, however, and any such adjustments would be accounted for in the year they take effect, rather than in the year to which such adjustments relate. Our Managing Trustee will have the discretion in such circumstances either to pass along any such adjustments to the beneficiaries or to bear such adjustments at the Liquidating Trust level.

 

State and local taxes and a requirement to withhold state taxes may apply, and if so, the amount of net cash from operations payable to investors would be reduced.

 

The state in which a beneficiary resides may impose an income tax upon such beneficiary’s share of our taxable income. Further, states in which we will own our assets may impose income taxes upon its share of our taxable income allocable to any property located in that state. Many states have also implemented or are implementing programs to require entities classified as partnerships to withhold and pay state income taxes owed by non-resident partners relating to income-producing assets located in their states, and we may be required to withhold state taxes from cash distributions otherwise payable. Beneficiaries may also be required to file income tax returns in some states and report their share of income attributable to ownership and operation by the Liquidating Trust of assets in those states. Moreover, despite our pass-through treatment for U.S. federal income tax purposes, certain states may impose income or franchise taxes upon our income and not treat us as a pass-through entity. The imposition of such taxes will reduce the amounts distributable to our beneficiaries. In the event we are required to withhold state taxes from cash distributions, the amount of the net cash from operations otherwise payable would be reduced. In addition, such collection and filing requirements at the state level may result in increases in our administrative expenses that would have the effect of reducing cash available for distribution. Beneficiaries are urged to consult with their own tax advisors with respect to the impact of applicable state and local taxes and state tax withholding requirements on an investment in our units.

 

Legislative or regulatory action could adversely affect investors.

 

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in our units. Additional changes to the tax laws are likely to continue to occur, and we cannot assure investors that any such changes will not adversely affect the taxation of a beneficiary. Any such changes could have an adverse effect on an investment in our units or on the market value or the resale potential of our assets. Investors are urged to consult with their own tax advisor with respect to the impact of recent legislation on their investment in units and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our units. Investors should also note that our counsel’s tax opinion assumed that no legislation that will be applicable to an investment in our units would be enacted after the commencement of the Offering on February 19, 2003.

 

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Congress has passed major federal tax legislation regarding taxes applicable to recipients of qualified dividends. Effective for 2013 the highest marginal tax rate for individuals was increased to 39.6%, and for individuals in this tax bracket the rate on qualified dividends was increased to 20%. The tax changes did not, however, reduce the corporate tax rates. Therefore, the maximum corporate tax rate of 35% has not been affected. Even with the rate of 15% on qualified dividends received by some individuals, the combined maximum corporate federal tax rate and individual tax rate on qualified corporate dividends is 44.75% and, with the effect of state income taxes, can exceed 50%.

 

Although entities classified as partnerships for federal income tax purposes continue to receive substantially better tax treatment than entities taxed as corporations, it is possible that future legislation would make a partnership structure a less advantageous organizational form for investment in real estate, or that it could become more advantageous for us to elect to be taxed for federal income tax purposes as a corporation or a real estate investment trust (“REIT”). Pursuant to our Liquidating Trust Agreement, our Managing Trustee has the authority to make any tax elections on our behalf that, in its sole judgment, are in our best interest. This authority includes the ability to elect to cause us to be taxed as a corporation or to qualify as a REIT for federal income tax purposes. Our Managing Trustee has the authority under our Liquidating Trust Agreement to make those elections without the necessity of obtaining the approval of our beneficiaries. In addition, our Managing Trustee has the authority to amend our Liquidating Trust Agreement without the consent of beneficiaries in order to facilitate our operations so as to be able to qualify us as a REIT, corporation or other tax status that it elects for us. Our Managing Trustee has fiduciary duties to us and to all investors and would only cause such changes in our organizational structure or tax treatment if it determines in good faith that such changes are in the best interest of our investors.

 

There are special considerations that apply to pension or profit sharing trusts or IRAs investing in our units.

 

If investors are investing the assets of a pension, profit sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in our units of beneficial interest, they should be satisfied that, among other things:

 

·their investment is consistent with their fiduciary obligations under the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code;

 

·their investment is made in accordance with the documents and instruments governing their plan or IRA, including their plan’s investment policy;

 

·their investment satisfies the prudence and diversification requirements of ERISA;

 

·their investment will not impair the liquidity of the plan or IRA;

 

·they will be able to value the assets of the plan annually in accordance with ERISA requirements;

 

·their investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code; and

 

·their investment will likely produce UBTI for the plan or IRA and, therefore, is not likely to be an appropriate investment for an IRA. (Due to our intended method of operation, it is likely that we will generate UBTI.)

 

We may dissolve the Liquidating Trust if our assets are deemed to be “plan assets” or if we engage in prohibited transactions.

 

If our assets were deemed to be assets of any qualified plans that is one of our investors, known as “plan assets,” our Managing Trustee would be considered to be a plan fiduciary and certain contemplated transactions between our Managing Trustee or its affiliates and us may be deemed to be prohibited transactions subject to excise taxation under Section 4975 of the Internal Revenue Code. Additionally, if our assets were deemed to be plan assets, ERISA’s fiduciary standards would extend to the Managing Trustee as a plan fiduciary with respect to our investments. We have not requested an opinion of our counsel regarding whether or not our assets would constitute plan assets under ERISA, nor have we sought any rulings from the U.S. Department of Labor (“Department of Labor”) regarding classification of our assets.

 

Department of Labor regulations defining plan assets for purposes of ERISA contain exemptions that, if satisfied, would preclude assets of an entity such as ours from being treated as plan assets. We cannot assure investors that our Liquidating Trust Agreement and the Offering have been structured so that the exemptions in such regulations would apply to us, and although our Managing Trustee intends that an investment by a qualified plan in units will not be deemed an investment in our assets, we can make no representations or warranties of any kind regarding the consequences of an investment in our units by qualified plans in this regard. Plan fiduciaries are urged to consult with and rely upon their own advisors with respect to this and other ERISA issues which, if decided adversely to us, could result in prohibited transactions, which would cause the imposition of excise taxation and the imposition of co-fiduciary liability under Section 405 of ERISA in the event actions undertaken by us are deemed to be non-prudent investments or prohibited transactions.

 

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In the event our assets are deemed to constitute plan assets, or if certain transactions undertaken by us are deemed to constitute prohibited transactions under ERISA or the Internal Revenue Code and no exemption for such transactions applies or is obtainable by us, our Managing Trustee has the right, but not the obligation, upon notice to all beneficiaries, but without the consent of any beneficiary to:

 

·compel a termination and dissolution of the Liquidating Trust; or

 

·restructure our activities to the extent necessary to comply with any exemption in the Department of Labor regulations or any prohibited transaction exemption granted by the Department of Labor or any condition that the Department of Labor might impose as a condition to granting a prohibited transaction exemption.

 

Adverse tax considerations may result because of minimum distribution requirements.

 

If an investor purchased units through an IRA, or if an investor is a trustee of an IRA or other fiduciary of a retirement plan that invested in units, the investor must consider the limited liquidity of an investment in our units as it relates to applicable minimum distribution requirements under the Internal Revenue Code. If units are held and our assets have not yet been sold at such time as mandatory distributions are required to begin to an IRA beneficiary or qualified plan participant, Sections 408(a)(6) and 401(a)(9) of the Internal Revenue Code will likely require that a distribution-in-kind of the units be made to the IRA beneficiary or qualified plan participant. Any such distribution-in-kind of units must be included in the taxable income of the IRA beneficiary or qualified plan participant for the year in which the units are received at the fair market value of the units without any corresponding cash distributions with which to pay the income tax liability attributable to any such distribution. Also, fiduciaries of a retirement plan should consider that, for distributions subject to mandatory income tax withholding under Section 3405 of the Internal Revenue Code, the fiduciary may have an obligation, even in situations involving in-kind distributions of units, to liquidate a portion of the in-kind units distributed in order to satisfy such withholding obligations. There may also be similar state and/or local tax withholding or other obligations that should be considered.

 

UBTI is likely to be generated with respect to tax-exempt investors.

 

We intend to incur indebtedness. This will cause a portion of our income allocable to tax-exempt investors to be recharacterized as UBTI. Further, in the event we are deemed to be a “dealer” in real property, defined as one who holds real estate primarily for sale to customers in the ordinary course of business, the gain realized on the sale of our assets that is allocable to tax-exempt investors would be characterized as UBTI. If we generate UBTI, a trustee of a charitable remainder trust that has invested in us will lose its exemption from income taxation with respect to all of its income for the tax year in question. A tax-exempt beneficiary other than a charitable remainder trust that has UBTI in any tax year from all sources of more than $1,000 will be subject to taxation on such income and be required to file tax returns reporting such income.

 

Item 1B.                  Unresolved Staff Comments.

 

None.

 

Item 2.                     Properties.

 

As of December 31, 2014, the Liquidating Trust owned an interest in approximately five acres of land at 1221 Coit Road and the back-end promoted interest in distributable cash to one sold asset. The following table presents certain additional information about the property owned as of December 31, 2014:

 

      Date        Ownership
Property name  Location  Acquired  Acres  Description  Interest
1221 Coit Road- Land  Dallas, Texas  10/04/04  5 acres  developed land  90%

 

 

 

These assets were transferred to us on the Effective Date. The following information generally applies to all of our assets:

 

·we believe all of our assets are adequately covered by insurance and suitable for their intended purposes; and

 

·we have no plans for any material renovations, improvements or development of our assets, except in accordance with planned budgets

 

Item 3.                     Legal Proceedings.

 

We are not a party to, and none of our assets are subject to, any material pending legal proceedings. Nor are we aware of any such legal or regulatory proceedings contemplated by governmental authorities.

 

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Item 4.Mine Safety Disclosures.

 

None.

 

PART II

 

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

There is no established trading market for our units of beneficial interests, and we do not expect that one will develop. Except for certain transfers by will, intestate succession or operation of law, or from a qualified account to a non-qualified account if necessary to allow holders of beneficial interests to comply with certain IRA minimum distribution requirements under the Internal Revenue Code, if applicable, beneficial interests in the Liquidating Trust are not transferable, and our beneficiaries do not have authority or power to sell or in any other manner dispose of their beneficial interests.

 

Holders

 

As of March 19, 2015, we had 10,799,839 beneficial interest units outstanding that were held by a total of approximately 4,400 beneficiaries of record.

 

Distributions

 

As is common in real estate-related direct investments, when a fund enters its final disposition phase and sells assets, thereby reducing the asset base available to generate distributable cash, it is normal for monthly distributions to cease, and for further distributions to come only in the form of special distributions as assets are sold. As a result, the terms of the Liquidating Trust Agreement contemplates that from time to time we will make special cash distributions to our beneficiaries, including in connection with the disposition of our remaining assets, to the extent that such cash will not be needed to provide for our liabilities (including contingent liabilities). Because we cannot be certain about the precise net realizable value of our assets and the ultimate amount of our liabilities, we are not able to predict accurately the aggregate cash amounts which will ultimately be distributed to our beneficiaries or the timing of any such distributions. The amount and timing of remaining distributions will be determined by our Managing Trustee based on funds available, net proceeds realized from the remaining assets, the timing of asset sales, whether our total assets exceed total liabilities at such time, whether we have provided for the level of reserves deemed necessary or appropriate and other considerations. We did not pay any distributions to our beneficiaries during the year ended December 31, 2014 and 2013.

 

Recent Sales of Unregistered Securities

 

None.

 

Item 6.Selected Financial Data.

 

The following selected financial data should be read in conjunction with “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto beginning on page F-1 of this Annual Report on Form 10-K. The results for the period from January 1, 2013 (a date we used as a matter of convergence, efficiency and materiality) through December 31, 2013 are not comparable to any prior period because we began operations as of an effective date of February 11, 2013. Our historical results are not necessarily indicative of results for any future period (amounts in thousands).

 

   Year Ended   Year Ended 
Selected Financial Data  December 31, 2014   December 31, 2013 
STATEMENT OF NET ASSETS:          
Total assets  $15,334   $62,065 
Net assets in liquidation (1)  $13,304   $16,214 
Net asset value per unit  $1.23   $1.50 

 

(1)The net assets in liquidation as of December 31, 2014 of $13.3 million plus cumulative distributions paid through December 31, 2014 of $21 million (which includes the amount paid to the Partnership’s limited partners prior to the transfer of its assets and liabilities to the Liquidating Trust), would result in distributions paid to our beneficiaries per unit of approximately $3.35 per unit (including $2.12 per unit paid to the Partnership’s limited partners prior to the transfer its of assets and liabilities to the Liquidating Trust).

 

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   Year Ended   Year Ended 
   December 31, 2014   December 31, 2013 
Statement of Changes in Net Assets:          
Net assets in liquidation at beginning of period  $16,214   $11,417 
Change in estimated costs in excess of estimated receipts during liquidation   58    (214)
Net decrease in fair value   (45,998)   (1,624)
Changes in other assets/liabilities   43,030    6,635 
Change in net assets in liquidation   (2,910)   4,797 
Net assets in liquidation at end of period  $13,304   $16,214 

 

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis should be read in conjunction with “Item 6. Selected Financial Data” and our consolidated financial statements and related notes included in this Annual Report on Form 10-K.

 

Overview and Background

 

On the Effective Date, the Partnership completed its liquidation pursuant to the Plan adopted by Behringer Advisors II, as its General Partner pursuant to its authority under the Partnership Agreement, which provided for our formation as a liquidating trust for the purpose of completing the liquidation of the assets of the Partnership.

 

In furtherance of the Plan, the Partnership entered into the Liquidating Trust Agreement with the Partnership’s General Partners, Behringer Advisors II, as Managing Trustee, and CSC Trust Company of Delaware, as the Resident Trustee. As of the Effective Date, each of the holders of limited partnership units in the Partnership received a pro rata beneficial interest unit in the Liquidating Trust in exchange for such holder’s interest in the Partnership.

 

In accordance with the Plan and the Liquidating Trust Agreement, the Partnership transferred all of its remaining assets and liabilities to the Liquidating Trust to be administered, disposed of or provided for in accordance with the terms and conditions set forth in the Liquidating Trust Agreement. On the Effective Date, the Partnership filed a Form 15 with the SEC to terminate the registration of the limited partnership units in the Partnership under the Exchange Act and announced it would cease filing reports under that Act. On March 28, 2013 we were granted No-Action relief from the SEC regarding our proposed modified reporting. A copy of the No-Action letter is publicly available through the SEC’s website. Accordingly, our Managing Trustee will file with the SEC annual reports on Form 10-K that contain unaudited financial statements based on the liquidation basis of accounting and current reports on Form 8-K to disclose material events relating to us.

 

The Liquidating Trust will terminate upon the earliest of (i) the distribution of all of our assets in accordance with the terms of the Liquidating Trust Agreement, or (ii) the expiration of a period of three years from the Effective Date. The term may be extended beyond the three-year term if our Managing Trustee determines that an extension is reasonably necessary to wind up our affairs.

 

Approximately five acres of land and the back-end promoted interest in distributable cash to one sold asset remain in the portfolio. We will not purchase any additional assets for our portfolio.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of our financial statements in conformity with generally accepted accounting principles (“GAAP”) and under the liquidation basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets (including net assets in liquidation) and liabilities, revenues and expenses, and related 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. On a regular basis, we will evaluate these estimates. These estimates will be based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

 

Liquidation Basis of Accounting

 

Under the liquidation basis of accounting, all assets were adjusted to their estimated fair value (on an undiscounted basis) and liabilities, including estimated costs associated with implementing the Plan, were adjusted to their estimated settlement amounts as of January 1, 2013. We chose to adjust items to their fair values as of January 1, 2013 as a matter of convergence, efficiency and materiality. Actual values realized for assets and settlements of liabilities may differ materially from the amounts estimated. Estimated future cash flows from property operations were made based on the anticipated sales dates of our remaining assets. Due to the uncertainty in the timing of the anticipated sales dates and the cash flows therefrom, operations may differ materially from amounts estimated. These amounts are presented in the accompanying statement of net assets included in the consolidated financial statements. The net assets represent the estimated liquidation value of our remaining assets available to our beneficiaries upon liquidation. The actual settlement amounts realized for assets and liabilities may differ materially, perhaps in adverse ways, from the amounts estimated.

 

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In accordance with our Liquidating Trust Agreement, we continue to actively manage our asset portfolio and control operating expenses. We continually evaluate our existing portfolio and adjust our net real estate liquidation value accordingly. When we become aware of market conditions or other circumstances that indicate that the present value of our assets materially differs from our expected net sales price, we will adjust our liquidation value accordingly. Under the terms of our Liquidating Trust Agreement, we will not acquire any new assets and are focused on liquidating our remaining assets.

 

Asset (Liability) for Estimated Receipts (Costs) in Excess of Estimated Costs (Receipts) during Liquidation

 

Under the liquidation basis of accounting, we are required to estimate the cash flows from operations and accrue the costs associated with implementing the liquidation of our remaining assets in compliance with the Plan and our Liquidating Trust Agreement. We currently estimate that we will have estimated costs of liquidation in excess of operating cash flows from our estimated receipts. We believe that our current cash on hand will cover the deficit. These amounts can vary significantly due to, among other things, the timing of property sales, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with winding up our operations. These costs are estimated and are expected to be paid over the liquidation period.

 

The change in the asset (liability) for estimated receipts (costs) in excess of estimated costs (receipts) during liquidation for the year ended December 31, 2014 was as follows (amounts in thousands):

 

   January 1,   Cash Payments   Change in   December 31, 
   2014   and (Receipts)   Estimates   2014 
                 
Asset:                    
Estimated net inflows from consolidation of operating activities  $1,238   $175   $(1,413)  $(0)
Liabilities:                    
Liquidation costs   (796)   538    (542)   (800)
Capital expenditures   (1,300)   1,341    (41)   - 
Total liabilities   (2,096)   1,879    (583)   (800)
Total liabilities for estimated cost in excess of estimated receipts during liquidation  $(858)  $2,054   $(1,996)  $(800)

 

The change in the asset (liability) for estimated receipts (costs) in excess of estimated costs (receipts) during liquidation for the year ended December 31, 2013 was as follows (amounts in thousands):

 

   January 1,   Cash Payments   Change in   December 31, 
   2013   and (Receipts)   Estimates   2013 
                 
Asset:                    
Estimated net inflows from consolidation of operating activities  $2,211   $(778)  $(195)  $1,238 
Liabilities:                    
Liquidation costs   (1,375)   442    137    (796)
Capital expenditures   (1,480)   229    (49)   (1,300)
Total liabilities   (2,855)   671    88    (2,096)
Total liabilities for estimated cost in excess of estimated receipts during liquidation  $(644)  $(107)  $(107)  $(858)

 

Net Assets in Liquidation

 

The net assets in liquidation as of December 31, 2014 of $13.3 million plus cumulative distributions paid through December 31, 2014 of $21 million (which includes the amount paid to the Partnership’s limited partners prior to the transfer of its assets and liabilities to the Liquidating Trust), would result in distributions paid to our beneficiaries of approximately $3.35 per unit (including $2.12 per unit paid to the Partnership’s limited partners prior to the transfer its of assets and liabilities to the Liquidating Trust). These estimates for distributions per unit include projections of costs and expenses expected to be incurred during the period required to complete liquidation of our remaining assets in compliance with the Plan and our Liquidating Trust Agreement. These projections could change materially based on the timing of sales, the performance of underlying assets and any changes in the underlying assumptions of projected cash flows.

 

Factors Which May Influence Future Changes in Net Assets in Liquidation

 

Liquidation Expenses and Contingent Liabilities

 

We have estimated our remaining liquidation expenses and any known contingent liabilities. These amounts can vary significantly due to the timing and amounts associated with discharging known and contingent liabilities and the costs associated with winding up our operations.

 

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Changes in Net Assets in Liquidation

 

For the year ended December 31, 2014

 

Net assets in liquidation decreased $2.9 million during the year ended December 31, 2014. The primary reason for the decrease in net assets was related to the fair value realized upon the sale of Hotel Palomar.

 

For the year ended December 31, 2013

 

Net assets in liquidation increased $4.8 million during the year ended December 31, 2013. The primary reason for the increase in net assets was related to the back-end promoted interests on the sale of Landmark I & II which we sold in 2011. During 2013, we recorded an accounts receivable of approximately $6.3 million related to the back-end promoted interests. We received payment of $6.2 million in January 2014.

 

Liquidity and Capital Resources

 

Our total assets and net assets in liquidation were $15.3 million and $13.3 million, respectively, at December 31, 2014. Our ability to meet our obligations is contingent upon the sale of our remaining assets. We estimate that the net proceeds from the sale of our remaining assets will be adequate to pay our obligations; however we cannot provide any assurance as to the prices we will receive for the disposition of our remaining assets or the net proceeds there from.

 

Current Sources of Capital and Liquidity

 

We anticipate, but cannot assure, that the sale of our remaining assets will be sufficient during the liquidation period to fund our cash needs for payment of expenses and capital expenditures. Although we can provide no assurances, we currently expect to sell all of our assets by February 2016.

 

Other Liquidity Needs

 

We believe that we will have sufficient capital resources to satisfy our liquidity needs during the liquidation period.

 

As of December 31, 2014, we estimate that we will have approximately $0.8 million of commitments and expenditures during the liquidation period. However, there can be no assurance that we will not exceed the amounts of these estimated expenditures or that we will be able to obtain additional sources of financing on commercially favorable terms, or at all. A material adverse change in the net cash provided by operating activities or net proceeds expected from the liquidation of our remaining asset may affect our ability to fund these items.

 

Liquidating distributions will be determined in our Managing Trustee’s sole discretion and are dependent on a number of factors, including the amount of funds available for distribution, our financial condition, our capital expenditures, and other factors our Managing Trustee may deem relevant.

 

We currently have limited exposure to the credit markets. The lack of available credit may affect our ability to dispose of additional assets due to potential purchasers being unable to obtain financing. We have no exposure to money market mutual funds and we monitor the depository institutions that hold our cash and cash equivalents on a regular basis and believe that we have placed our deposits with creditworthy financial institutions.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Contractual Obligations

 

The following table sets forth certain information concerning the Liquidating Trust’s contractual obligations and commercial commitments as of December 31, 2014, and outlines expected future payments to be made by the Liquidating Trust under such obligations and commitments (in thousands):

 

   Payments due by period (1)     
   Totals   2015   2016   2017   2018   2019   Thereafter 
Notes payable  $1,000   $1,000   $-   $-   $-   $-   $- 
Interest   50    50    -    -    -    -    - 
Total  $1,050   $1,050   $-   $-   $-   $-   $- 

 

(1)Includes $1 million notes payable to related party.

 

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New Accounting Pronouncements

 

In May 2014, the FASB issued an update (“ASU 2014-09”) to ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In February 2015, the FASB issued ("ASU No. 2015-02"), Amendments to the Consolidation Analysis, which improves targeted areas of the consolidation guidance and reduces the number of consolidation models. The amendments in ASU 2015-02 are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, with early adoption permitted. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

 

Inflation

 

The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate.

 

Item 7A.                    Quantitative and Qualitative Disclosures About Market Risk.

 

We may be exposed to interest rate changes primarily from variable interest rate debt incurred to acquire and develop assets, issue loans and make other permitted investments. Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we 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 may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps or floors to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate portion of our variable rate debt. None of the Partnership’s approximately $1 million in notes payable at December 31, 2014 were subject to variable interest rates.

 

At December 31, 2014, the Liquidating Trust did not have any foreign operations and thus were not exposed to foreign currency fluctuations.

 

Item 8.                       Financial Statements and Supplementary Data.

 

The information required by this Item 8 is hereby incorporated by reference to our unaudited financial statements beginning on page F-1 of this Annual Report on Form 10-K.

 

Item 9.                       Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

We did not employ an independent registered public accounting firm to perform an audit on the financial statements contained in this Annual Report on Form 10-K.

 

Item 9A.                    Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The management of Behringer Advisors II, as Managing Trustee of the Liquidating Trust, including its Chief Executive Officer and Chief Financial Officer, evaluated as of December 31, 2014 the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Behringer Advisors II concluded that our disclosure controls and procedures, as of December 31, 2014, were effective for the purpose of ensuring that information required to be disclosed by us the reports filed or submitted by us under the Exchange is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to the management of Behringer Advisors II, as our Managing Trustee, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

 

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a partnership have been detected.

 

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Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). The Liquidating Trust’s management, including the Chief Executive Officer and Chief Financial Officer of Behringer Advisors II, as Managing Trustee of the Liquidating Trust, evaluated as of December 31, 2014 the effectiveness of our internal control over financial reporting using the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Behringer Advisors II concluded that the Liquidating Trust’s internal controls, as of December 31, 2014, were effective in providing reasonable assurance regarding reliability of financial reporting.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in internal control over financial reporting that occurred during the year ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.                    Other Information.

 

None.

 

PART III

 

Item 10.                    Directors, Executive Officers and Corporate Governance.

 

Managing Trustee

 

Prior to the Effective Date, the Partnership operated under the direction of its General Partners, Behringer Advisors II and Mr. Robert M. Behringer. Since the Effective Date, the Liquidating Trust operates under the direction of our Managing Trustee, Behringer Advisors II, which was formerly one of the General Partners. The Managing Trustee is assisted by the employees of HPT, the general partner of Behringer Advisors II. We do not employ our own management personnel; instead, we pay fees and expense allocations to our Managing Trustee for its services. The Managing Trustee is responsible for the management and control of our affairs, including acquisitions in the past and property management.

 

Our Managing Trustee, Behringer Advisors II, is a Texas limited partnership formed in July 2002. The executive office of Behringer Advisors II is located at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001. Behringer Advisors II is owned by HPT, its sole general partner, and Behringer Harvard Partners, LLC (“Behringer Partners”), its sole limited partner. Behringer Holdings is the sole owner of HPT and Behringer Partners. Behringer Holdings also is the indirect owner of our Property Manager, Behringer Development Company LP, a real estate development company, and Behringer Securities, our dealer manager.

 

Behringer Advisors II was created in 2002 for the sole purpose of acting as one of the Partnership’s General Partners. It is managed by its executive officers, namely:

 

Name   Age   Position(s)
Robert S. Aisner (1)   68   Chairman, Chief Executive Officer and President
Gary S. Bresky   48   Chief Financial Officer
M. Jason Mattox   39   Executive Vice President
S. Jason Hall   48   Treasurer

 

(1)On January 5, 2015, Michael J. O’Hanlon notified the Managing Trustee, of his decision to resign, effective immediately, as the Chief Executive Officer and President of the Managing Trustee and all other officer positions with the Managing Trustee and with the Trust’s subsidiaries. The Managing Trustee’s general partner appointed the Managing Trustee’s Chairman, Robert S. Aisner, to serve as Chairman, Chief Executive Officer and President effective January 5, 2015.

 

Robert S. Aisner is the Chairman of Behringer Advisors II. Mr. Aisner has served as President (from May 2005 until February 2013), Chief Executive Officer (from June 2008 until May 2009 and from July 2009 until February 2013), and a director since June 2003 of TIER REIT, (formerly Behringer Harvard REIT I, Inc). In addition, Mr. Aisner served as Chairman (from January 2013 until October 2014) and a director (from June 2006 until October 2014) of Behringer Harvard Opportunity REIT I. Mr. Aisner also has served as Chairman (since February 2013), a director (since January 2007) and Principal Executive Officer (since January 2015) of Behringer Harvard Opportunity REIT II. In addition, Mr. Aisner serves as a director of Monogram Residential Trust, Inc. (formerly Behringer Harvard Multifamily REIT I, Inc.), a New York Stock Exchange-listed REIT (MORE-NYSE). Furthermore, Mr. Aisner serves as a Class II Director of Priority Senior Secured Income Fund, Inc., a closed-end management investment company jointly advised by Behringer Holdings and Prospect Capital Management, LLC. Mr. Aisner is also Chief Executive Officer and President of other Behringer companies.

 

Mr. Aisner has over 30 years of commercial real estate experience with acquiring, managing and disposing of properties located in the United States and other countries, including Germany, the Netherlands, England, the Bahamas and Australia. In addition to Mr. Aisner's commercial real estate experience, as an officer and director of Behringer-sponsored programs and their advisors, Mr. Aisner has overseen the acquisition, structuring and management of various types of real estate-related loans, including mortgages and mezzanine loans. From 1996 until joining TIER REIT in 2003, Mr. Aisner served as (i) Executive Vice President of AMLI Residential Properties Trust, formerly a New York Stock Exchange listed REIT that focused on the development, acquisition and management of upscale apartment communities, which serves as advisor and asset manager for institutional investors with respect to their multifamily real estate investment activities, (ii) President of AMLI Management Company, which oversaw all of AMLI’s apartment operations in 80 communities, (iii) President of the AMLI Corporate Homes division that managed AMLI’s corporate housing properties, (iv) Vice President of AMLI Residential Construction, a division of AMLI that performed real estate construction services, and (v) Vice President of AMLI Institutional Advisors, the AMLI division that served as institutional advisor and asset manager for institutional investors with respect to their multifamily real estate activities. Mr. Aisner also served on AMLI’s Executive Committee and Investment Committee from 1999 until 2003. From 1994 until 1996, Mr. Aisner owned and operated Regents Management, Inc., which had both a multifamily development and construction group, and a general commercial property management group. Mr. Aisner is a member of the Board of Directors of the Association of Foreign Investors in Real Estate (AFIRE), the Board of Directors of the National Multi-Housing Council (NMHC), the Urban Land Institute (ULI) and the Pension Real Estate Association (PREA). From 1984 to 1994, Mr. Aisner served as Vice President of HRW Resources, Inc., a real estate development and management company, where he served as Vice President. Mr. Aisner received a Bachelor of Arts degree from Colby College and a Masters of Business Administration degree from the University of New Hampshire.

 

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Gary S. Bresky is the Chief Financial Officer of Behringer Advisors II. Mr. Bresky also serves as Executive Vice President and Chief Financial Officer or in similar executive capacities with other entities sponsored by Behringer Holdings, including Behringer Harvard Advisors I LP, the managing trustee of Behringer Harvard Mid-Term Value Enhancement Liquidating Trust. He previously served as Chief Financial Officer of TIER REIT (from June 2002 to May 2009), Behringer Harvard Opportunity REIT I (from November 2004 to November 2010), Behringer Harvard Opportunity REIT II (from January 2007 to November 2010) and Behringer Harvard Multifamily REIT I (from August 2006 to September 2009).

 

Mr. Bresky has been active in commercial real estate and related financial activities for over 20 years. Prior to his employment with Behringer Advisors II, Mr. Bresky served as Senior Vice President of Finance with Harvard Property Trust, Inc. from 1997 to 2001. In this capacity, Mr. Bresky was responsible for directing all accounting and financial reporting functions and overseeing all treasury management and banking functions for the company. Mr. Bresky also was integral in analyzing deal and capital structures as well as participating in all major decisions related to any acquisition or sale of assets.

 

Mr. Bresky holds FINRA Series 7, 24, 27 and 63 registrations. Mr. Bresky received a Bachelor of Arts degree from the University of California – Berkeley and a Masters of Business Administration degree from the University of Texas at Austin.

 

M. Jason Mattox is the Executive Vice President of Behringer Advisors II and serves in a similar capacity with other Behringer companies. From 2002 until March 2006, Mr. Mattox served as the Senior Vice President of Behringer Advisors II.

 

From 1997 until joining Behringer Advisors II in 2002, Mr. Mattox served as a Vice President of Harvard Property Trust, Inc. and became a member of its Investment Committee in 1998. From 1999 until 2001, Mr. Mattox served as Vice President of Sun Resorts International, Inc., a recreational property investment company, coordinating marina acquisitions throughout the southern United States and the U.S. Virgin Islands. From 1999 until 2001, in addition to providing services related to investing, acquisition, disposition and operational activities, Mr. Mattox served as an asset manager with responsibility for over one million square feet of Harvard Property Trust, Inc.’s commercial office assets in Texas and Minnesota, overseeing property performance, management offices, personnel and outsourcing relationships.

 

Mr. Mattox is a continuing member of the Building Owners and Managers Association and the National Association of Industrial and Office Properties. Mr. Mattox holds FINRA Series 7, 24 and 63 registrations. Mr. Mattox received both a Bachelor of Business Administration degree, with honors, and a Bachelor of Science degree, cum laude, from Southern Methodist University.

 

S. Jason Hall is Treasurer of Behringer Advisors II and, in such capacity, Mr. Hall served as principal accounting officer of the Partnership and now serves as principal accounting officer of the Liquidating Trust. Mr. Hall also serves as the Chief Financial Officer, Senior Vice President, Chief Accounting Officer and Treasurer for Behringer Harvard Opportunity REIT II and is responsible for its accounting and financial reporting. He has held the position of Director of Financial Reporting for other Behringer-sponsored programs since 2010. Mr. Hall joined Behringer in 2005 as SEC Reporting Manager. From 2000 to 2004, he served in a number of accounting positions, including Corporate Controller from 2003 to 2004, at Aegis Communications Group, Inc., then publicly traded on NASDAQ and the nation’s seventh largest provider of outsourced customer care services. Prior to joining Aegis Communications Group, Mr. Hall spent five years as Corporate Controller for a private distribution company and three years in public accounting. Mr. Hall is a certified public accountant in the state of Texas and received a Bachelor of Business Administration in Finance from Angelo State University and a Master of Business Administration from Tarleton State University.

 

Other Personnel

 

The Managing Trustee, Behringer Advisors II, is assisted by the officers and employees of HPT, which is the general partner of Behringer Advisors II. HPT and its affiliates will continue to hire employees as needed.

 

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Advisory Board

 

The Liquidating Trust does not have a board of directors. The Partnership’s General Partners were initially assisted by an advisory board, which was dissolved on March 31, 2008.

 

No Audit Committee; No “Audit Committee Financial Expert”

 

The Liquidating Trust does not, nor did the Partnership as predecessor, have a board of directors and, as such, has no board committees such as an audit committee. Because we do not have an audit committee, we do not have an “audit committee financial expert.” The Managing Trustee is responsible for managing the relationship with our independent registered public accounting firm.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires each director, officer, and individual beneficially owning more than 10% of a registered security of the Partnership to file with the SEC reports of security ownership and reports on subsequent changes in ownership of their securities within specified time frames. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish the Partnership with copies of all Section 16(a) forms filed with the SEC. Based upon our review of the reports furnished to the Partnership pursuant to Section 16(a) of the Exchange Act, to the best of our knowledge, all required Section 16(a) filings with respect to the securities of the Partnership were timely and correctly made by reporting persons during 2013 prior to the Effective Date when the Partnership filed a Form 15 with the SEC to terminate the registration of its limited partnership under the Exchange Act.

 

Code of Ethics

 

Behringer Advisors II, both formerly as a General Partner of the Partnership and now as Managing Trustee of the Liquidating Trust, adopted a code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer, controller and other employees. A copy of the code of ethics of Behringer Advisors II may be obtained from our web site at http://www.behringerinvestments.com. The website will be updated to include any material waivers or modifications to the code of ethics.

 

Item 11. Executive Compensation.

 

Prior to the Effective Date, the Partnership operated under the direction of its General Partners. Since the Effective Date, the Liquidating Trust operates under the direction of our Managing Trustee, Behringer Advisors II, which was formerly one of the General Partners. As of December 31, 2014, neither, the Partnership or the Liquidating Trust made any payments to Mr. Behringer as compensation for serving as General Partner of the Partnership. The officers and employees of HPT assist the Managing Trustee. The officers and employees of HPT do not devote all of their time to managing us, and they do not receive any compensation from us for their services. We pay fees to our Managing Trustee, Behringer Advisors II, and its other affiliates, as provided for in our Liquidating Trust Agreement, which fees are the same as those paid by the Partnership to Behringer Advisors II as General Partner. We do not directly compensate the executive officers of our Managing Trustee, nor do we reimburse our Managing Trustee for compensation paid to the executive officers, for services rendered to us. Reimbursement for the costs of salaries and benefits of the employees of our Managing Trustee relate to compensation paid to the Managing Trustee’s employees that provide services to us such as accounting, administrative or legal, for which our Managing Trustee or its affiliates are not entitled to a separate fee. Accordingly, we do not have, and our Managing Trustee has not considered, a compensation policy or program for itself, its affiliates, any of its employees or any employees of affiliates of our Managing Trustee and we have not included a Compensation Discussion and Analysis in this Annual Report on Form 10-K. See “Item 13. Certain Relationships and Related Transactions, and Director Independence” for a description of the fees payable and expenses reimbursed to our affiliates.

 

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

We do not have any officers or directors. The Partnership’s two General Partners, Mr. Behringer and Behringer Advisors II, each owned 50% of the general partnership interests of the Partnership. Behringer Advisors II, in its capacity as our Managing Trustee, does not own any beneficial interest in the Liquidating Trust. We do not maintain any equity compensation plans, and no arrangements exist that would, upon operation, result in a change in control.

 

The following table sets forth information as of March 19, 2015 regarding the beneficial ownership of units of our beneficial interest by each person known by us to own 5% or more of the outstanding beneficial interests, each of our directors or the directors of our Managing Trustee, each of our executive officers or the executive officers of our Managing Trustee, and our directors and executive officers, or the directors and executive officers of our Managing Trustee, as a group. The percentage of beneficial ownership is calculated based on 10,799,839 units of beneficial interest.

 

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      Beneficial Interest   Percent 
      Units Beneficially   of 
Title of Class  Beneficial owner  Owned   Class 
Beneficial interest  Behringer Harvard Advisors II LP (1)(3)   -      *
Beneficial interest  Robert S. Aisner (1)(2)(4)   386.74      *
Beneficial interest  Gary S. Bresky (1)(2)   -      *
Beneficial interest  M. Jason Mattox (1)(2)   -      *
Beneficial interest  S. Jason Hall (1)(2)   -      *
Beneficial interest  All current executive officers as a group          
    (4 persons)   386.74      *

 

 

*Denotes less than 1%

 

(1)The address of Messrs. Aisner, Bresky, Mattox, Hall and Behringer Advisors II is 15601 Dallas Parkway, Suite 600, Addison, Texas 75001.

 

(2)Messrs. Aisner, Bresky, Mattox and Hall are Executive Officers of our Managing Trustee, Behringer Advisors II.

 

(3)Behringer Harvard Advisors II is our Managing Trustee.

 

(4)On January 5, 2015, Michael J. O’Hanlon notified the Managing Trustee, of his decision to resign, effective immediately, as the Chief Executive Officer and President of the Managing Trustee and all other officer positions with the Managing Trustee and with the Trust’s subsidiaries. The Managing Trustee’s general partner appointed the Managing Trustee’s Chairman, Robert S. Aisner, to serve as Chairman, Chief Executive Officer and President effective January 5, 2015.

 

Item 13.Certain Relationships and Related Transactions, and Director Independence.

 

Transactions with Related Persons

 

The Managing Trustee and certain of its affiliates are entitled to receive fees and compensation in connection with the management and sale of our assets, which fees are the same as those previously paid by the Partnership to Behringer Advisors II as General Partner. In its former capacity as General Partner of the Partnership, Behringer Advisors II and certain of its affiliates have also received fees in the past in connection with the Partnership’s Offering and acquisitions.

 

For the management and leasing of our properties, we pay the 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 net lease basis (ten or more years), 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 our Property Manager on our behalf, including the wages and salaries and other employee-related expenses of all on-site employees who are engaged in the operation, management, maintenance and leasing or access control of our properties, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses that are directly related to the management of specific properties. During the year ended December 31, 2014, the Liquidating Trust incurred property management fees payable to the Property Manager of less than $0.1 million.

 

We pay Behringer Advisors II or its affiliates an annual asset management fee of 0.5% of the contract purchase price of our assets. Any portion of the asset management fee may be deferred and paid in a subsequent year. For the year ended December 31, 2014, the Liquidating Trust incurred asset management fees of $0.1 million.

 

We may pay Behringer Advisors II or its affiliates a debt financing fee for certain debt made available to us. For the year ended December 31, 2014, the Liquidating Trust incurred no such debt financing fee.

 

We may reimburse Behringer Advisors II for costs and expenses paid or incurred to provide services to us including direct expenses and the costs of salaries and benefits of certain persons employed by those entities and performing services for us, as permitted by the Liquidating Trust Agreement. For the year ended December 31, 2014, the Liquidating Trust incurred such cost for administrative services totaling $0.2 million.

 

On December 31, 2014, we entered into a Note Modification Agreement to amend the terms of the BHH Loan with all borrowings and accrued interest due on December 31, 2015. The outstanding principal balance under the BHH Loan at December 31, 2014 and 2013 was $1 million and $8.8 million, respectively. The BHH Loan is unsecured, has an interest rate of 5.0% per annum and requires no monthly payments of interest or principal.

 

At December 31, 2014, we had payables to related parties of less than $1 million. We are dependent on Behringer Advisors II, our Property Manager, or their affiliates, for certain services that are essential to us, including disposition decisions, property management and leasing services and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services to us, we will be required to obtain such services from other sources.

 

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Policies and Procedures for Transactions with Related Persons

 

The agreements and arrangements among the Liquidating Trust, our Managing Trustee and its affiliates have been established by our Managing Trustee, and our Managing Trustee believes the amounts to be paid thereunder to be reasonable and customary under the circumstances.  Additionally, our Managing Trustee has a fiduciary obligation to act in the best interests of both our beneficiaries and the investors in other affiliated programs and will use its best efforts to assure that we will be treated at least as favorably as any other affiliated program.

 

Item 14.Principal Accountant Fees and Services.

 

None

 

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PART IV

 

Item 15.Exhibits and Financial Statement Schedules.

 

(a)List of Documents Filed.

 

1.Unaudited Financial Statements

 

The list of the financial statements filed as part of this Annual Report on Form 10-K is set forth on page F-1 herein.

 

2.Unaudited Financial Statement Schedules

 

Schedule III - Real Estate and Accumulated Depreciation

 

3.Exhibits

 

The list of exhibits filed as part of this Annual Report on Form 10-K is submitted in the Exhibit Index following the financial statements in response to Item 601 of Regulation S-K.

 

(b)Exhibits.

 

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

 

(c)Unaudited Financial Statement Schedules.

 

All financial statement schedules, except for Schedule III (see (a) 2. above), have been omitted because the required information of such schedules is not present in amounts sufficient to require a schedule or is included in the financial statements.

 

33
 

 

SIGNATURES

 

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Behringer Harvard Short-Term Opportunity Liquidating Trust
       
March 26, 2015 By: /s/ Robert S. Aisner  
    Robert S. Aisner  
    Chairman, Chief Executive Officer and President of Behringer Harvard Advisors II LP  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

March 26, 2015 /s/ Robert S. Aisner  
  Robert S. Aisner  
  Chairman, Chief Executive Officer and President of Behringer Harvard Advisors II LP (Principal Executive Officer)  

 

March 26, 2015 /s/ Gary S. Bresky  
  Gary S. Bresky  
  Chief Financial Officer of Behringer Harvard Advisors II LP (Principal Financial Officer)  

 

March 26, 2015 /s/ S. Jason Hall  
  S. Jason Hall  
  Treasurer of Behringer Harvard Advisors II LP  
  (Principal Accounting Officer)  

 

34
 

 

INDEX TO UNAUDITED FINANCIAL STATEMENTS

 

    Page
Unaudited Financial Statements    
     
Consolidated Statements of Net Assets (Liquidation Basis) as of December 31, 2014 and 2013   F-2
     
Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the years ended December 31, 2014 and 2013   F-3
     
Notes to Consolidated Financial Statements   F-4
     
Unaudited Financial Statement Schedules    
     
Schedule III – Real Estate and Accumulated Depreciation for the year ended December 31, 2014  and 2013   F-9

 

F-1
 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Consolidated Statement of Net Assets

(Liquidation Basis)

As of December 31, 2014 and 2013

(unaudited)

(in thousands)

 

   December 31,   December 31, 
   2014   2013 
Assets          
Real estate held for sale  $1,980   $47,978 
Cash and cash equivalents   13,183    4,826 
Restricted cash   -    783 
Accounts receivable, net   94    7,758 
Prepaid expenses and other assets   77    720 
Total assets  $15,334   $62,065 
           
Liabilities          
Notes payable  $-   $31,876 
Note payable to related party   1,000    8,801 
Accounts payable   4    325 
Payables to related parties   3    2,503 
Accrued liabilities   223    1,488 
Liability for estimated costs in excess of estimated receipts during liquidation   800    858 
Total liabilities   2,030    45,851 
Net assets in liquidation  $13,304   $16,214 

 

See Notes to Consolidated Financial Statements

 

F-2
 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Consolidated Statement of Changes in Net Assets

(Liquidation Basis)

For the Years Ended December 31, 2014 and 2013

(unaudited)

(in thousands)

 

   Year Ended   Year Ended 
   December 31, 2014   December 31, 2013 
Statement of Changes in Net Assets:          
Net assets in liquidation at beginning of period  $16,214   $11,417 
Change in estimated costs in excess of estimated receipts during liquidation   58    (214)
Net decrease in fair value   (45,998)   (1,624)
Changes in other assets/liabilities   43,030    6,635 
Change in net assets in liquidation   (2,910)   4,797 
Net assets in liquidation at end of period  $13,304   $16,214 

 

See Notes to Consolidated Financial Statements

 

F-3
 

 

1.Business and Organization

 

Business

 

Behringer Harvard Short-Term Opportunity Fund I LP (which may be referred to as the “Partnership”) was a limited partnership formed in Texas on July 30, 2002 and governed by an Agreement of Limited Partnership, as amended (the “Partnership Agreement”). Its general partners were Behringer Harvard Advisors II LP (“Behringer Advisors II”) and Robert M. Behringer (collectively, the “General Partners”). The Partnership was funded through capital contributions from the General Partners and an initial limited partner on September 20, 2002 (the date of inception). It offered its limited partnership units pursuant to a public offering which commenced on February 19, 2003 and was terminated on February 19, 2005 (the “Offering”). The Offering was a best efforts continuous offering, and new investors were admitted until the termination of the Offering.

 

The Partnership used the proceeds from the Offering, after deducting offering expenses, to acquire interests in twelve assets. As of December 31, 2014, one of the twelve assets acquired remained in its portfolio, which has been transferred to the Liquidating Trust (as hereinafter defined) as described below under “Plan of Liquidation”. Effective as of January 31, 2013, Mr. Behringer ceased to be a general partner of the Partnership due to a permanent disability resulting in an Event of Withdrawal under the Partnership Agreement. Effective that same date, Mr. Behringer also resigned as Chairman of Behringer Advisors II.

 

Plan of Liquidation

 

On February 11, 2013 (the “Effective Date”), the Partnership completed its liquidation pursuant to a Plan of Liquidation (the “Plan”) adopted by Behringer Harvard Advisors II LP, as its General Partner. The Plan provided for the formation of a liquidating trust, Behringer Harvard Short-Term Opportunity Liquidating Trust (which may be referred to herein as the “Liquidating Trust”, “we,” “us,” or “our”), for the purpose of completing the liquidation of the assets of the Partnership. In furtherance of the Plan, the Partnership entered into a Liquidating Trust Agreement (the “Liquidating Trust Agreement”) with one of the Partnership’s General Partners, Behringer Advisors II, as managing trustee (the “Managing Trustee”), and CSC Trust Company of Delaware, as resident trustee. As of the Effective Date, each of the holders of limited partnership units in the Partnership received a pro rata beneficial interest in the Liquidating Trust in exchange for such holder’s interest in the Partnership. In accordance with the Plan and the Liquidating Trust Agreement, the Partnership has transferred all of its remaining assets and liabilities to us to be administered, disposed of or provided for in accordance with the terms and conditions set forth in the Liquidating Trust Agreement. The General Partners elected to liquidate the Partnership and transfer its remaining assets and liabilities to the Liquidating Trust as a cost saving alternative that the General Partners believed to be in the best interests of the investors. The expenses associated with operating a public reporting entity, like the Partnership, are comparatively high and therefore detract from distributable proceeds and returns it can make to its investors. The reorganization into a liquidating trust enables us to reduce costs associated with public reporting obligations and related audit expenses that are not applicable to the Liquidating Trust, helping to preserve capital throughout our disposition phase for the benefit of our investors. Cutting expenses and maximizing investor returns is a primary focus in this disposition phase.

 

Our principal demands for funds in the next twelve months and beyond will be for the payment of operating expenses, recurring debt service and further principal paydowns on our outstanding indebtedness as required by our lender.

 

The Liquidating Trust had notes payable totaling $1 million at December 31, 2014 of which all was to Behringer Harvard Holdings, LLC (“Behringer Holdings”), a related party.

 

2.Summary of Significant Accounting Policies

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the liquidation basis of accounting requires management to make estimates and assumptions that affect the reported amounts of the assets, including net assets in liquidation, 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 are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ, perhaps in adverse ways, and those estimates could be different under different assumptions or conditions from those estimates.

 

F-4
 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Notes to Consolidated Financial Statements

(Unaudited)

 

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of the Liquidating Trust and the accounts of all of its wholly owned subsidiaries. All inter-company transactions, balances and profits have been eliminated in consolidation. These consolidated financial statements have been prepared according to the liquidation basis of accounting. In the Notes to Consolidated Financial Statements, all dollar and share amounts in tabulation are in thousands of dollars and units, respectively, unless otherwise noted.  We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements.

 

Liquidation Basis of Accounting

 

Under the liquidation basis of accounting, all assets were adjusted to their estimated fair value (on an undiscounted basis) and liabilities, including estimated costs associated with implementing the Plan, were adjusted to their estimated settlement amounts on January 1, 2013. We adjusted items to their fair values as of January 1, 2013 as a matter of convergence, efficiency and materiality. Actual values realized for assets and settlements of liabilities may differ materially from the amounts estimated. Estimated future cash flows from property operations were made based on the anticipated sales dates of our remaining assets. Due to the uncertainty in the timing of the anticipated sales dates and the cash flows therefrom, operations may differ materially from amounts estimated. These amounts are presented in the accompanying statement of net assets included in the consolidated financial statements. The net assets represent the estimated liquidation value of our remaining assets available to our beneficiaries upon liquidation. The actual settlement amounts realized for assets and liabilities may differ materially, perhaps in adverse ways, from the amounts estimated.

 

In accordance with the Liquidating Trust Agreement, we continue to actively manage our asset portfolio to control operating expenses. We continually evaluate our existing portfolio and adjust our net real estate liquidation value accordingly. When we become aware of market conditions or other circumstances that indicate that the present value of our assets materially differs from our expected net sales price, we will adjust our liquidation value accordingly. Under the terms of the Liquidating Trust Agreement, we will not acquire any new assets and are focused on liquidating our remaining assets.

 

Cash and Cash Equivalents

 

Management considers investments with original maturities of three months or less to be cash equivalents.

 

Restricted Cash

 

Restricted cash includes funds to be held in escrow for insurance, taxes and other reserves related to the Liquidating Trust’s consolidated properties as required by our lenders.

 

Prepaid Expenses and Other Assets

 

Prepaid expenses and other assets consisted primarily of prepaid insurance and prepaid service contracts.

 

Revenue Recognition

 

Rental revenue is recorded on the contractual basis under the liquidation basis of accounting.

 

Concentration of Credit Risk

 

We had cash and cash equivalents in excess of federally insured levels on deposit in financial institutions. Management regularly monitors the financial stability of these financial institutions and believes that we are not exposed to any significant credit risk in cash and cash equivalents. Cash and cash equivalents are diversified between several banking institutions in an attempt to minimize exposure to any one of these entities.

 

Reportable Segments

 

The Liquidating Trust has determined that it has one reportable segment, with activities related to the ownership, development and management of real estate assets. Income producing assets generated 100% of the Liquidating Trust’s consolidated revenues for the year ended December 31, 2014. The chief operating decision maker evaluates operating performance on an individual property level. Therefore, the assets are aggregated into one reportable segment.

 

F-5
 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Notes to Consolidated Financial Statements

(Unaudited)

 

Income Taxes

 

The Liquidating Trust is intended to be treated as a continuation of the Partnership and classified as a partnership for federal income tax purposes. Therefore, the Liquidating Trust is generally not subject to income tax. However, legal entities that conduct business in Texas are subject to the Texas margin tax, including previously non-taxable entities such as limited partnerships and limited liability partnerships. The tax is assessed on Texas sourced taxable margin, which is defined as the lesser of (1) 70% of total revenue or (2) total revenue less (a) the cost of goods sold or (b) compensation and benefits. Although the law states that the margin tax is not an income tax, it has the characteristics of an income tax since it is determined by applying a tax rate to a base that considers both revenues and expenses. For the year ended December 31, 2014 and 2013, the Liquidating Trust recognized a provision for current tax expense of $0.3 million  and zero, respectively. The Liquidating Trust did not have any entity level uncertain tax positions.

 

Certain 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, 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.

 

3.New Accounting Pronouncements

 

In May 2014, the FASB issued an update (“ASU 2014-09”) to ASC Topic 606, Revenue from Contracts with Customers.  ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.  ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016.  We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In February 2015, the FASB issued ("ASU No. 2015-02"), Amendments to the Consolidation Analysis, which improves targeted areas of the consolidation guidance and reduces the number of consolidation models. The amendments in ASU 2015-02 are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements.

 

4.Liability for Estimated Costs in Excess of Estimated Receipts during Liquidation

 

Under the liquidation basis of accounting, we are required to estimate the cash flows from operations and accrue the costs associated with implementing and complying with the plan of liquidation. We currently estimate that we will have estimated costs of liquidation in excess of operating cash flows from our estimated receipts. These amounts can vary significantly due to timing and amounts associated with discharging known and contingent liabilities and the costs associated with winding up our operations. These costs are estimated and are expected to be paid over the liquidation period.

 

The change in the asset (liability) for estimated receipts (costs) in excess of estimated costs (receipts) during liquidation for the year ended December 31, 2014 was as follows (amounts in thousands):

 

   January 1,   Cash Payments   Change in   December 31, 
   2014   and (Receipts)   Estimates   2014 
                 
Asset:                    
Estimated net inflows from consolidation of operating activities  $1,238   $175   $(1,413)  $(0)
Liabilities:                    
Liquidation costs   (796)   538    (542)   (800)
Capital expenditures   (1,300)   1,341    (41)   - 
Total liabilities   (2,096)   1,879    (583)   (800)
Total liabilities for estimated cost in excess of estimated receipts during liquidation  $(858)  $2,054   $(1,996)  $(800)

 

The change in the asset (liability) for estimated receipts (costs) in excess of estimated costs (receipts) during liquidation for the year ended December 31, 2013 was as follows (amounts in thousands):

 

F-6
 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Notes to Consolidated Financial Statements

(Unaudited)

 

   January 1,   Cash Payments   Change in   December 31, 
   2013   and (Receipts)   Estimates   2013 
                 
Asset:                    
Estimated net inflows from consolidation of operating activities  $2,211   $(778)  $(195)  $1,238 
Liabilities:                    
Liquidation costs   (1,375)   442    137    (796)
Capital expenditures   (1,480)   229    (49)   (1,300)
Total liabilities   (2,855)   671    88    (2,096)
Total liabilities for estimated cost in excess of estimated receipts during liquidation  $(644)  $(107)  $(107)  $(858)

 

5.Net Assets in Liquidation

 

The net assets in liquidation as of December 31, 2014 of $13.3 million would result in liquidating distributions paid to our beneficiaries per unit of approximately $1.23 per unit. These estimates for liquidating distributions per unit include projections of costs and expenses expected to be incurred during the period required to complete the plan of liquidation. These projections could change materially based on the timing of sales and any changes in the underlying assumptions of projected cash flows.

 

6.Real Estate

 

Our real estate investment is comprised of approximately five acres of land at 1221 Coit Road and the back-end promoted interest in distributable cash to one sold asset. As of December 31, 2014, the land is considered held for sale in accordance with the Plan. Under the liquidation basis of accounting, our asset is recorded at fair value less costs to sell. On August 6, 2014, Behringer Harvard Mockingbird Commons, LLC, a 70% owned subsidiary, sold the Hotel Palomar to an unaffiliated buyer. The contract sales price for the Hotel Palomar was $48 million, exclusive of closing costs. A portion of the proceeds was used to pay off the Hotel Palomar Loan.

 

7.Leasing Activity

 

For the year ended December 31, 2014, two of our tenants accounted for 10% or more of the aggregate rental revenues from our hotel. Exhale Spa and DD+JJ production accounted for rental revenue of approximately $0.1 million and $0.1 million, respectively, or approximately 36% and 35%, respectively, of our aggregate rental revenues for the year ended December 31, 2014. On August 6, 2014, Behringer Harvard Mockingbird Commons, LLC, a 70% owned subsidiary, sold the 198 room hotel and retail project located in Dallas, Texas (“Hotel Palomar”) to an unaffiliated buyer.

 

8.Related Party Arrangements

 

The Managing Trustee and certain of its affiliates are entitled to receive fees and compensation in connection with the management and sale of our assets, which fees are the same as those previously paid by the Partnership to Behringer Advisors II as General Partner. In its former capacity as General Partner of the Partnership, Behringer Advisors II and certain of its affiliates have also received fees in the past in connection with the Partnership’s Offering and acquisitions.

 

For the management and leasing of our properties, we pay HPT Management Services, LLC, Behringer Harvard Short-Term Management Services, LLC or Behringer Harvard Real Estate Services, LLC, or their affiliates (individually or collectively referred to as “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 net lease basis (ten or more years), 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 our Property Manager on our behalf, including the wages and salaries and other employee-related expenses of all on-site employees 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. For the year ended December 31, 2014, the Liquidating Trust incurred property management fees payable to the Property Manager of less than $0.1 million .

 

F-7
 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Notes to Consolidated Financial Statements

(Unaudited)

 

We pay Behringer Advisors II or its affiliates an annual asset management fee of 0.5% of the contract purchase price of our assets. Any portion of the asset management fee may be deferred and paid in a subsequent year. For the year ended December 31, 2014, the Liquidating Trust incurred asset management fees of $0.1 million.

 

We may pay Behringer Advisors II or its affiliates a debt financing fee for certain debt made available to us. For the year ended December 31, 2014, the Liquidating Trust incurred no such debt financing fees.

 

We may reimburse Behringer Advisors II for costs and expenses paid or incurred to provide services to us including direct expenses and the costs of salaries and benefits of certain persons employed by those entities and performing services for us, as permitted by the Liquidating Trust Agreement. For the year ended December 31, 2014, the Liquidating Trust incurred such cost for administrative services totaling $0.2 million .

 

On July 5, 2012, the Partnership entered into a Note Modification Agreement and Assignment of Proceeds to amend the terms of a loan with Behringer Holdings (“BHH Loan”) with all borrowings and accrued interest due on December 31, 2014. On December 31, 2014, we entered into a Note Modification Agreement to amend the terms of the BHH Loan with all borrowings and accrued interest due on December 31, 2015. The outstanding principal balance under the BHH Loan at December 31, 2014 was $1 million. Borrowings under the BHH Loan were used principally to finance general working capital and capital expenditures. The BHH Loan is unsecured, has an interest rate of 5.0% per annum and requires no monthly payments of interest or principal.

 

At December 31, 2014, we had payables to related parties of less than $0.1 million. We are dependent on Behringer Advisors II, our Property Manager, or their affiliates, for certain services that are essential to us, including disposition decisions, property management and leasing services and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services to us, we will be required to obtain such services from other sources.

 

9.Notes Payable

 

We had notes payable totaling $1 million at December 31, 2014 of which all was to Behringer Holdings, a related party.

 

On December 20, 2012 the Mockingbird Commons Partnership entered into a promissory note agreement with Great American Life Insurance Company (“Palomar Lender”) to borrow $31 million (the “Hotel Palomar Loan”). The Hotel Palomar Loan had a fixed rate of 5.75% per annum and required monthly payments of interest only during the first 18 months with 30-year amortization thereafter. On August 6, 2014, Behringer Harvard Mockingbird Commons, LLC, a 70% owned subsidiary, sold the Hotel Palomar to an unaffiliated buyer. The contract sales price for the Hotel Palomar was $48 million, exclusive of closing costs. A portion of the proceeds was used to pay off the Hotel Palomar Loan.

 

On December 31, 2014, we entered into a Note Modification Agreement to amend the terms of the BHH Loan with all borrowings and accrued interest due on December 31, 2015. The outstanding principal balance under the BHH Loan at December 31, 2014 and 2013 was $1 million and $8.8 million, respectively. The BHH Loan is unsecured, has an interest rate of 5.0% per annum and requires no monthly payments of interest or principal.

 

10.Subsequent Event

 

On March 4, 2015, Behringer Harvard 1221 Coit LP, a 90% owned subsidiary, entered into an agreement with an unaffiliated buyer to sell the five acres of land at 1221 Coit for a contract sales price of $1.2 million.

 

F-8
 

 

 

Behringer Harvard Short-Term Opportunity Liquidating Trust

Real Estate and Accumulated Depreciation

Schedule III

December 31, 2014 and 2013

(Unaudited)

(in thousands)

 

The changes in total real estate for the year ended December 31, 2014 is as follows (in thousands):

 

   Year Ended 
   December 31, 2014 
Balance as of January 1, 2014  $47,978 
Capital expenditures   1,341 
Liquidation adjustment (1)   (47,339)
Balance as of December 31, 2014 (liquidation basis)  $1,980 

 

(1)Represents the net liquidation adjustment we made to the carrying value of our remaining real estate investments during the year ended December 31, 2014.

 

The changes in total real estate for the year ended December 31, 2013 is as follows (in thousands):

 

   Year Ended 
   December 31, 2013 
Balance as of January 1, 2013  $49,602 
Capital expenditures   229 
Liquidation adjustment (1)   (1,853)
Balance as of December 31, 2013 (liquidation basis)  $47,978 

 

(1)Represents the net liquidation adjustment we made to the carrying value of our remaining real estate investments during the year ended December 31, 2013.

 

F-9
 

 

Index to Exhibits

 

Exhibit Number   Description
     
2.1   Behringer Harvard Short-Term Opportunity Liquidating Trust Plan of Liquidation dated February 11, 2013 (previously filed and incorporated by reference to Form 8-K filed February 11, 2013)
     
3.1   Second Amended and Restated Agreement of Limited Partnership of Behringer Harvard Short Term Opportunity Fund I L.P. dated September 5, 2008 (previously filed and incorporated by reference to Form 8-K filed September 5, 2008)
     
3.2   Certificate of Limited Partnership of Behringer Harvard Short Term Opportunity Fund I L.P. (previously filed in and incorporated by reference to Behringer Harvard Short Term Opportunity Fund I L.P. Registration Statement on Form S-11, Commission File No. 333-100125, filed on September 27, 2002)
     
3.3    Certificate of Trust of Behringer Harvard Short-Term Opportunity Liquidating Trust dated February 13, 2013 (previously filed and incorporated by reference to Form 10-K filed March 29, 2013)
     
4.1   Subscription Agreement and Subscription Agreement Signature Page (previously filed in and incorporated by reference to Exhibit C to Supplement No. 1 to the prospectus of Behringer Harvard Short Term Opportunity Fund I L.P. contained within Post-Effective Amendment No. 1 to Behringer Harvard Short Term Opportunity Fund I L.P. Registration Statement on Form S-11, Commission File No. 333-100125, filed on June 3, 2003)
     
10.1   Note Modification Agreement and Assignment of Proceeds by and between Behringer Harvard Short Term Opportunity Fund I L.P. and Behringer Harvard Holdings, LLC (previously filed and incorporated by reference to Form 10-Q filed November 14, 2012)
     
10.2   Pledge and Security Agreement by and between Behringer Harvard Short Term Opportunity Fund I L.P. and Behringer Harvard Holdings, LLC (previously filed and incorporated by reference to Form 10-Q filed November 14, 2012)
     
10.3   Liquidating Trust Agreement among Behringer Harvard Short-Term Opportunity Fund I LP, as grantor, Behringer Harvard Advisors II LP, as managing trustee, and CSC Trust Company of Delaware, as resident trustee (previously filed and incorporated by reference to Form 8-K filed on February 11, 2013)
     
10.4   Promissory Note by and between Behringer Harvard Mockingbird Commons, LLC and Great American Life Insurance Company (previously filed and incorporated by reference to Form 10-K filed March 29, 2013)
     
10.5   Deed of Trust, Fixture Filing, Assignment of Rents, and Security Agreement by Behringer Harvard Mockingbird Commons, LLC in favor of Rebecca S. Conrad, Trustee, for the benefit of Great American Life Insurance Company (previously filed and incorporated by reference to Form 10-K filed March 29, 2013)
     
10.6*   The Purchase and Sale Agreement between Behringer Harvard Mockingbird Commons, LLC, as seller, and THI VI Dallas Mockingbird LLC, as purchaser, dated May 7, 2014
     
10.7*   Note Modification Agreement by and between Behringer Harvard Short-Term Opportunity Liquidating Trust and Behringer Harvard Holdings, LLC dated December 31, 2014

 

21.1*  

List of Subsidiaries

     
31.1*   Rule 13a-14(a) or Rule 15d-14(a) Certification of Principal Executive Officer
     
31.2*   Rule 13a-14(a) or Rule 15d-14(a) Certification of Principal Financial Officer
     
32.1*   Section 1350 Certifications**

 

 
 

 

*filed or furnished herewith

 

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.