DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

12 Months Ended

Dec. 31, 2014

DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

1.	DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

General

We are a Texas limited partnership formed in April 2005 to acquire, develop and operate, directly or indirectly through joint venture arrangements, commercial real estate consisting primarily of single-tenant and multi-tenant retail properties. We commenced our principal operations on June 30, 2005, when we met the required minimum of $2.0 million in our Offering and issued 80 initial Units. We closed the offering on October 31, 2006 when we had received approximately $71.1 million from the sale of 2,833 Units. We invested substantially all of the net proceeds of the Offering in real properties.

We issued Units in the Offering in reliance upon exemptions from the registration requirements of the Securities Act and state securities laws. As a result, our Limited Partners may not transfer the Units except pursuant to an effective registration statement or pursuant to an exemption from registration. The Units are not currently listed on a securities exchange, and there currently is no established public trading market for the Units. We do not intend to list the Units on a securities exchange in the future.

Our General Partner is a Texas corporation and, prior to February 18, 2015, was a wholly-owned subsidiary of AmREIT, formerly a SEC reporting, Maryland corporation that had a class of securities listed on the NYSE and that had elected to be taxed as a REIT. Effective February 18, 2015, Edens became the parent company of our General Partner when AmREIT merged with and into Saturn Subsidiary, LLC (an indirect, wholly-owned subsidiary of Edens, “Saturn”) with Saturn being the surviving entity after Edens acquired all of the outstanding common stock of AmREIT for $26.55 per share in an all-cash transaction, without interest and less any applicable withholding taxes.

Our General Partner has the exclusive right to manage our business and affairs on a day-to-day basis pursuant to our limited partnership agreement. The Limited Partners have the right to remove and replace our General Partner, with or without cause, by a vote of the Limited Partners owning a majority of the outstanding Units (excluding any Units held by our General Partner). Our General Partner is responsible for all of our investment decisions, including decisions relating to the properties to be developed, the method and timing of financing or refinancing the properties, the selection of tenants, the terms of the leases, the method and timing of the sale of the properties and the reinvestment of net sales proceeds. Our General Partner invested $1,000 in us in exchange for its general partner interest and invested $800,000 in us in exchange for 32 Units. Our General Partner utilizes the services of Edens and its affiliates in performing its duties under our limited partnership agreement. Prior to the AmREIT acquisition, these services were performed by AmREIT and its affiliates.

Our operating period ended on October 31, 2012, and we have entered into our liquidation period. However, an orderly liquidation of all of our properties will likely take years for our General Partner to complete and wind up our operations. Because we have entered into our liquidation period, we will not invest in any new real estate without approval of our limited partners. We do not expect that Edens’ acquisition of AmREIT described above will impact the orderly liquidation of our assets. See further discussion in “Strategic Plan” below.

Economic Conditions and Liquidity

As of December 31, 2014, we have $4.0 million in cash on hand. Our results of operations and valuations of our real estate assets have been negatively impacted by overall economic conditions. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations were negatively impacted by recession that began in 2008. The United States has experienced recent improvements in the general economy; however, it is difficult to determine if the improvements experienced will continue into the future.

Current strategies and recent transactions that have impacted current and future liquidity include:

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On October 18, 2014, our 5433 Westheimer joint venture modified its mortgage loan as part of its plans to dispose of the property. See Note 4. Among other things, the modification waived prior non-compliance with its debt covenants through October 18, 2014, extended the term to October 2017, extended the interest-only payment terms to October 2015, and modified certain operating covenants. The 5433 Westheimer joint venture does not have adequate cash to fund costs needed to prepare the property for sale, and we expect that it will look to us for additional liquidity in the near term. We expect to provide the necessary funding in the form of a promissory note with repayment upon disposition of the property. As of December 31, 2014, we have advanced our 5433 Westheimer property $312,000 under this promissory note. Based upon current estimates of fair value, sufficient equity exists in the property post-renovation to recover our advances and any future advances to the joint venture. However, we can provide no assurances that we will be able to do so, or under circumstances and timing that allow us to maximize the value of the property.

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On June 25, 2014, we sold our Lantern Lane property to AmREIT for $22.7 million, which resulted in net sales proceeds of approximately $7.4 million after repayment of the mortgage loan secured by the property. We made a distribution of approximately $3.7 million on July 23, 2014 to our Limited Partners, and we retained the balance to fund the anticipated capital activities related to our Casa Linda Shopping Center and our 5433 Westheimer property.

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On June 6, 2014, we modified our Westside Plaza debt agreement. See Note 5. The modification had the effect of deferring $1.3 million of accrued principal and interest payments until maturity. The modified agreement also contains a provision that may result in forgiveness of all or a portion of our outstanding Note B debt obligation upon a sale or refinancing of the property. As part of the modification agreement, we paid $1.2 million, including a principal reduction and increases to escrow accounts, as well as loan modification and legal fees.

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During 2012, we and MIG IV initiated a lease-up strategy at our Casa Linda property (a 50% joint venture between us and MIG IV). As of December 31, 2014, the joint venture had incurred approximately $2.6 million of $3.0 million in planned capital expenditures, including certain tenant build-out and site improvements. The property is secured by a $38.0 million mortgage loan that was refinanced in December 2013 with a four-year, non-recourse loan. The new loan contains a provision that would allow for an additional funding of approximately $4.5 million should we elect to acquire an adjacent property. The mortgage loan matures in December 2017. The mortgage loan bears interest at a variable rate; however, in connection with the refinancing, we and MIG IV entered into an interest rate cap agreement that provides for a maximum rate of 3% per annum.

A significant portion of Houston’s and Dallas’ industry is in oil and gas as well as oilfield services. The price of oil in the recent months has declined to five-year lows and it is unknown when or whether oil prices will increase, and if they increase, how much and for what duration. We are unable to predict the impact, if any, that lower oil prices could have on economies in which our properties are located. However, a prolonged period of depressed oil prices could potentially be adverse to these economies, the profitability of our tenants as well as, ultimately, the value of our properties.

Our continuing short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements and capital expenditures. We anticipate that our primary long-term liquidity requirements will include, but will not be limited to, operating expenses, making scheduled debt service payments, funding renovations, expansions, and other significant capital expenditures for our existing portfolio of properties including those of with our joint ventures. Although no assurance can be given, we believe that we will be able to generate liquidity sufficient to continue to execute our strategic plan.

Strategic Plan

Our operating period ended on October 31, 2012, and we have entered into our liquidation period pursuant to the terms of our partnership agreement. Accordingly, our General Partner has begun in good faith to review market sales opportunities, but attractive sales opportunities may not exist in the near term. As such, an orderly liquidation of our assets and wind-down of our operations may take several years for our General Partner to complete. During the liquidation period, we plan to distribute net proceeds generated from property sales to our Limited Partners. Although our General Partner will pursue sales opportunities that are in the best interest of our Limited Partners, we do not expect that our investors will recover all of their original investment. We do not expect that Edens’ acquisition of AmREIT described above will impact the orderly liquidation of our assets.