News Column

BEHRINGER HARVARD OPPORTUNITY REIT I, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 13, 2014

The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements of the Company and the notes thereto: Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q 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 Opportunity REIT I, Inc. and our subsidiaries (which may be referred to herein as the "Company," "REIT," "we," "us," or "our"), including our ability to rent space on favorable terms, 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 cash distributions to our stockholders, the estimated per share value of our common stock 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 stockholders 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 our Annual Report on Form 10-K filed with the SEC on March 25, 2014, and the factors described below: • market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our properties are located;



• the availability of cash flow from operating activities for capital

expenditures;

• 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 financings as

a result of reduced asset values and requirements to reduce overall

leverage;

• future increases in interest rates;

• our ability to raise capital in the future by issuing additional equity or

debt securities, selling our assets or otherwise;

• our ability to retain our executive officers and other key personnel of

our advisor, our property manager and their affiliates;

• impairment charges;

• conflicts of interest arising out of our relationships with our advisor

and its affiliates;

• unfavorable changes in laws or regulations impacting our business or our

assets; and • factors that could affect our ability to qualify as a real estate investment trust. Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management's view only as of the date of this Report, and may ultimately prove to be incorrect. 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. 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 report on Form 10-Q 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. 22



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Executive Overview We are a Maryland corporation that was formed in November 2004 to invest in and operate commercial real estate or real-estate related assets located in or outside the United States on an opportunistic and value-add basis. We conduct substantially all of our business through our operating partnership and its subsidiaries. We are organized and qualify as a REIT for federal income tax purposes. We are externally managed and advised by Behringer Harvard Opportunity Advisors I, a Texas limited liability company formed in June 2007. Behringer Harvard Opportunity Advisors I is responsible for managing our day-to-day affairs and for identifying and making acquisitions, dispositions and investments on our behalf. As of June 30, 2014, we wholly owned four properties and consolidated three properties through investments in joint ventures, all of which were consolidated in our condensed consolidated financial statements. We are the mezzanine lender for one multifamily property. In addition, we have a noncontrolling, unconsolidated ownership interest in an investment in a joint venture consisting of 22 properties that are accounted for using the equity method. Our investment properties are located in Colorado, Missouri, Nevada, Texas, the Commonwealth of The Bahamas, the Czech Republic, Poland, Hungary, and Slovakia. Liquidity and Capital Resources Liquidity Demands The primary objectives of our current business plan are to continue to preserve capital, as well as sustain and enhance property values, while continuing to focus on the disposition of our properties. Our ability to continue to execute this plan is contingent on our ability to dispose of our properties in an orderly fashion thus providing needed liquidity. Our cash balance at June 30, 2014 is $32.5 million. Our financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business as we proceed through our disposition phase. As is usual for opportunity-style real estate investment programs, we are structured as a finite-life entity, and have entered the final phase of operations. This phase includes the selling of our assets, retiring our liabilities, and distributing net proceeds to stockholders. It is possible that we will invest additional capital in some of our assets in order to position these assets for sale in the normal course of business. See "Strategic Asset Sales" below. We have experienced significant losses and may generate negative cash flows as mortgage note obligations and expenses exceed revenues. If we are unable to sell a property when we determine to do so as contemplated in our business plan, it could have a significant adverse effect on our cash flows that are necessary to meet our mortgage obligations and to satisfy our other liabilities in the normal course of business. Our ability to continue as a going concern is, therefore, dependent upon our ability to sell real estate investments, to pay or retire debt as it matures if extensions or new financings are unavailable, and to fund certain ongoing costs of our company, including our development and operating properties. Our principal demands for funds for the next twelve months and beyond will be for the payment of costs associated with the lease-up of available space at our operating properties (including commissions, tenant improvements, and capital improvements), certain ongoing costs at our development properties, Company operating expenses, and interest and principal on our outstanding indebtedness. We expect to fund a portion of these demands by using cash flow from operations of our current investments and borrowings. Additionally, we will use proceeds from our strategic asset sales. On March 29, 2011, we obtained a $2.5 million loan from our Advisor to bridge our liquidity needs. The $2.5 million loan bore interest at a rate of 5% and had a maturity date of the earliest of (i) March 29, 2013, (ii) the termination without cause of the advisory management agreement or (iii) the termination without cause of the property management agreement. On March 25, 2013, we fully repaid the loan and accrued interest. We continually evaluate our liquidity and ability to fund future operations and debt obligations (See Note 7 Notes Payable in the Notes to Unaudited Condensed Consolidated Financial Statements for more details). As part of those analyses, we consider lease expirations at our consolidated office properties and other factors. Operating leases for our office buildings representing 1.7% of our annualized base rent and 2.1% of our rentable square footage (effective annual rent per square foot of $18.06) will expire by the end of 2014. In the normal course of business, we are pursuing renewals, extensions and new leases. If we are unable to renew or extend the expiring leases under similar terms or are unable to negotiate new leases, it would negatively impact our liquidity and consequently adversely affect our ability to fund our ongoing operations. In addition, our portfolio is concentrated in certain geographic regions and industries, and downturns relating generally to such regions or industries may result in defaults on a number of our investments within a short time period. Such defaults would negatively affect our liquidity and adversely affect our ability to fund our ongoing operations. As of June 30, 2014, 61% and 31% of our 2014 contractual base rental income from our office properties, as well as revenue from our multifamily and hotel properties, without consideration of tenant contraction or termination rights, was derived from tenants in Missouri and Texas, respectively. 23



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Strategic Asset Sales Our portfolio of operating properties are either in markets that would benefit from anticipated rental increases and improving local markets before sale, or are in various stages of the stabilization process. As the properties stabilize, they may require additional time and capital resources to lease-up vacancy, retain key tenants or create value through reinvestment before their ultimate disposition. As of June 30, 2014, we have the unfinished penthouse unit at Chase-The Private Residences, LLC in condominium inventory, three development projects, one note receivable, and an investment in land. A final exit of these assets is contingent upon a stabilized economy and resurgent demand for the respective product types. It is possible that we will invest additional capital in some assets, which we believe will enhance their value. We are marketing two projects for sale as we believe the additional capital and time needed to complete these developments do not meet the objectives of our business plan. On June 13, 2014, we sold 1.62 acres of land at our Frisco Square development to an unrelated third party for $1.8 million. On August 7, 2014, one of the properties owned by our Central Europe Joint Venture was sold for €3.6 million. However, there can be no assurance that future dispositions will occur as planned, or if they occur, that they will help us to meet our liquidity demands. Once we anticipate selling all or substantially all of our assets, we will seek stockholder approval prior to liquidating our entire portfolio. Debt Financings One of our principal short-term and long-term liquidity requirements includes the repayment of maturing debt. The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of June 30, 2014. The table does not represent any extension options (in thousands): Payments Due by Period(1) 2014 2015 2016 2017 2018 Total Principal payments - fixed rate debt $ 383$ 815$ 32,823$ 26,182 $ - $ 60,203 Interest payments - fixed rate debt 2,320 4,587 3,225 564 - 10,696 Principal payments - variable rate debt 46,762 520 547 575 29,455 77,859 Interest payments - variable rate debt (based on rates in effect as of June 30, 2014) 2,274 986 961 951 160 5,332 Total $ 51,739$ 6,908$ 37,556$ 28,272$ 29,615$ 154,090



________________________________

(1) Does not include approximately $0.3 million of unamortized premium related to debt we assumed on our acquisition of Northborough Tower. The debt related to Chase Park Plaza Hotel was scheduled to mature in December 2014. The loan opened to prepayment without penalty in December 2013. The outstanding balance on this loan as of June 30, 2014 was $46.5 million. On August 11, 2014, we refinanced the Chase Park Plaza Hotel with a new lender for $62.5 million in proceeds. The loan bears interest at 4.95% and matures in three years with two one-year extensions available. The new loan requires interest-only payments in the first year and principal payments based upon a 25-year amortization during the remaining term, including extension periods. The loan is not prepayable in the first year and requires a prepayment penalty for months 13 through 30 of the original term. A portion of the proceeds from the new loan were used to repay the current debt and closing costs. We have guaranteed that $6.5 million of the proceeds will be utilized for a room and retail renovation program at the Chase Park Plaza Hotel. On April 5, 2013, we sold Becket House and the lender accepted the sales proceeds as full satisfaction of the outstanding debt. The operating costs of our Royal Island property were funded through the Debt LP Loan through June 2014. The initial loan had an availability to draw of $10.4 million. In February 2013, the lender agreed to increase the amount available to draw on the Debt LP Loan to $11.6 million. In June 2013, the lenders further increased the amount available to draw to $12.4 million. Beginning in October 2013, the lender increased the availability each month by the amount of the monthly operating costs. The lender ceased funding the monthly operating costs in July 2014. As of June 30, 2014, the balance of the Debt LP Loan was $13.9 million. We currently expect to use funds generated by our operating properties, additional borrowings, and proceeds from the disposition of properties to continue making our scheduled debt service payments until the maturity dates of the loans are extended, the loans are refinanced, or the loans are completely paid off. However, there is no guarantee that we will be able to 24



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refinance our borrowings with more or less favorable terms or extend the maturity dates of such loans. In addition, the tepid economic environment and limited availability of credit to buyers could delay or inhibit our ability to dispose of our properties in an orderly manner, or cause us to have to dispose of our properties for a lower than anticipated return. To the extent we are unable to reach agreeable terms with respect to extensions or refinancings, we may not have the cash necessary to repay our debt as it matures, which could result in an event of default that could allow lenders to foreclose on the property in satisfaction of the debt, seek repayment of the full amount of the debt outstanding from us or pursue other remedies. Each of our loans is secured by one or more of our properties. At June 30, 2014, interest rates on our notes payable ranged from 3.2% to 15%, with a weighted average interest rate of 6.5%. Generally, our notes payable mature at approximately two to nine years from origination and require payments of interest-only for approximately two to five years, with all principal and interest due at maturity. Notes payable associated with our Northborough Tower, Frisco Square, Las Colinas Commons, and Northpoint Central investments require monthly payments of principal and interest. At June 30, 2014, our notes payable had maturity dates that ranged from December 2014 to February 2018. Our ability to fund our liquidity requirements is expected to come from cash and cash equivalents (which total $32.5 million on our condensed consolidated balance sheet as of June 30, 2014), operating cash flow from properties, new borrowings, additional borrowings that may become available under our existing loan agreements by satisfying certain terms, and proceeds from the disposition of our properties. As necessary, we may seek alternative sources of financing, including using the proceeds from the sale of our properties to achieve our investment objectives. As of June 30, 2014, restricted cash on the condensed consolidated balance sheet of $6.4 million included amounts set aside related to certain operating properties for tenant improvements and commission reserves, tax reserves, maintenance and capital expenditures reserves, and other amounts as may be required by our lenders. 25



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Results of Operations As of June 30, 2014, we were invested in nine assets, seven of which were consolidated (four of those were wholly owned and three properties consolidated through investments in joint ventures). In addition, we are the mezzanine lender for one multifamily property. We also have a noncontrolling, unconsolidated ownership interest in a joint venture consisting of 22 properties that are accounted for using the equity method. Our investment properties are located in Colorado, Missouri, Nevada, Texas, the Commonwealth of The Bahamas, the Czech Republic, Poland, Hungary, and Slovakia. As of June 30, 2013, we were invested in ten assets, eight of which were consolidated (five of those were wholly owned and three properties consolidated through investments in joint ventures). In addition, we were the mezzanine lender for one multifamily property. We also have a noncontrolling, unconsolidated ownership interest in a joint venture consisting of 22 properties that are accounted for using the equity method. As of June 30, 2013, our investment properties were located in Colorado, Missouri, Nevada, Texas, the Commonwealth of The Bahamas, the Czech Republic, Poland, Hungary, and Slovakia. Three months ended June 30, 2014 as compared to three months ended June 30, 2013 The following table provides summary information about our results of operations for the three months ended June 30, 2014 and 2013 ($ in thousands): $ Amount Change Percentage Change 2014 2013 Incr (Decr) Incr/(Decr) Revenues Rental revenue $ 5,125$ 4,832 $ 293 6.1 % Hotel revenue 9,884 9,190 694 7.6 % Total revenues 15,009 14,022 987 7.0 % Expenses Property operating expenses 2,384 3,635 (1,251 ) (34.4 )% Hotel operating expenses 6,832 6,560 272 4.1 % Bad debt expense (recovery) (113 ) 388 (501 ) (129.1 )% Interest expense 2,442 2,428 14 0.6 % Real estate taxes 1,003 1,159 (156 ) (13.5 )% Property management fees 490 455 35 7.7 % Asset management fees 564 604 (40 ) (6.6 )%

General and administrative 1,707 1,304

403 30.9 % Depreciation and amortization 3,308 3,249 59 1.8 % Total expenses $ 18,617$ 19,782$ (1,165 ) (5.9 )% Other income, net $ 760 $ 8 $ 752 9,400.0 %



Equity in earnings (losses)

of unconsolidated joint ventures $ (40 )$ 64 $ (104 ) (162.5 )% Reorganization items, net $ - $ (5 ) $ 5 100.0 %



Gain on sale of real estate $ 476$ 95 $ 381

401.1 % Continuing Operations Revenues. Overall, our total revenues increased by approximately $1 million to $15 million for the three months ended June 30, 2014. The change in revenues was primarily due to: • Rental revenue increased by $0.3 million in the second quarter of 2014 as



compared to the same period of 2013 primarily due to increases of

approximately $0.1 million at each of Northpoint, Northborough and Frisco

Square primarily due to higher recovery income. Rental revenue at Las

Colinas Commons had a nominal increase for the three months ended June 30,

2014 as compared to the three months ended June 30, 2013. 26



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• Hotel revenue increased $0.7 million to $9.9 million for the three months

ended June 30, 2014. Hotel revenue for Chase Park Plaza Hotel increased

$0.6 million primarily due to a 16% increase in occupancy year over year.

The Lodge & Spa at Cordillera had a $0.1 million increase in the second

quarter of 2014 as compared to the second quarter of 2013 primarily due to

a 14% improvement in the occupancy rate.

• We had no condominium sales in the second quarters of 2014 and 2013.

Property operating expenses. Property operating expenses were approximately $2.4 million for the three months ended June 30, 2014 as compared to $3.6 million for the three months ended June 30, 2013, a decrease of approximately $1.2 million, and were comprised of operating expenses from our consolidated properties. During the three months ended June 30, 2013, property operating expenses at Frisco Square decreased $1 million primarily due to $0.8 million of expense for our allocated portion of a Frisco Plaza public improvement project constructed and owned by the City of Frisco in accordance with the development agreement. No such expense was incurred for the same period of 2014. In addition, Royal Island operating expenses decreased $0.1 million as a result of lower operating expenditures as we explore the disposition of this property. Operating expenses at Las Colinas Commons, Northpoint and Northborough remained fairly constant. Hotel operating expenses. Hotel operating expenses were approximately $6.8 million for the three months ended June 30, 2014 compared to $6.6 million for the three months ended June 30, 2013, for an increase of $0.2 million. Operating expenses at our Chase Park Plaza Hotel increased $0.3 million primarily due to a 16% increase in occupancy year over year. This increase was partially offset by a decrease of $0.1 million in hotel operating expenses at The Lodge & Spa at Cordillera due to transitional expenses incurred in the second quarter of 2013 as a result of a change in the management company. Bad debt expense (recovery). Bad debt expense (recovery) in the second quarter of 2014 was a credit of $0.1 million compared to expense of $0.4 million in the second quarter of 2013. The decrease of $0.5 million is primarily due to provisions of $0.3 million and $0.1 million recorded for our Frisco Square and Chase Park Plaza Hotel properties, respectively, in the second quarter of 2013 compared to a recovery of $0.1 million in the second quarter of 2014 which was due to funds received in 2014 that were recognized as bad debt expense at our Frisco Square property in 2013. Cost of condominium sales. There were no condominium sales during the three months ended June 30, 2014 and 2013. Interest expense. Interest expense for the three months ended June 30, 2014 and 2013 remained flat at $2.4 million. Interest expense at all of our properties was comparable year over year. Real Estate Taxes. Real estate taxes were approximately $1 million and $1.2 million for the three months ended June 30, 2014 and 2013, respectively, for a decrease of $0.2 million. During the three months ended June 30, 2014, real estate tax expense at The Lodge & Spa at Cordillera decreased $0.2 million compared to the same period of 2013 due to a successful tax appeal in 2014. This is offset by an increase of $0.1 million in real estate tax expense at Northborough due to a higher valuation by the taxing authorities. Real estate tax expense for our remaining properties were comparable year over year. Property management fees. Property management fees remained flat at $0.5 million for the three months ended June 30, 2014 and 2013. Asset management fees. Asset management fees remained fairly constant at approximately $0.6 million for the three months ended June 30, 2014 and 2013. General and administrative. General and administrative expense was $1.7 million for the three months ended June 30, 2014, an increase of $0.4 million over the expense for the same period in 2013. Legal expense increased $0.1 million year over year. In addition, we had increases of less than $0.1 million in each of auditing expense, corporate overhead allocation and valuation advisory services in the second quarter of 2014 as compared to the expenses incurred in the same period of 2013. Depreciation and amortization. Depreciation and amortization were comparable year over year at $3.3 million and $3.2 million for the three months ended June 30, 2014 and 2013, respectively. Other income, net. Other income was $0.8 million for the second quarter of 2014 compared to less than $0.1 million for the second quarter of 2013. In May 2014, a lot option agreement at Royal Island expired. We recognized $0.8 million in other income related to the expiration of the lot option. Equity in earnings (losses) of unconsolidated joint ventures. Equity in earnings (losses) of unconsolidated joint ventures was a loss of less than $0.1 million for the three months ended June 30, 2014 compared to earnings of less than $0.1 million for the three months ended June 30, 2013. Our Central Europe Joint Venture recorded a loss of less than $0.1 million during the three months ended June 30, 2014 as compared to earnings of $0.1 million for the three months ended June 30, 2013 primarily due to activity related to changes in foreign currency. 27



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Reorganization items, net. During the second quarter of 2013, we recorded reorganization expense of less than $0.1 million, related to the Frisco Square loan restructuring. We did not incur any reorganization expense during the second quarter of 2014. Gain on sale of real estate. On June 13, 2014, we sold 1.62 acres of land at our Frisco Square development to an unrelated third party for approximately $1.8 million. We recorded a $0.5 million gain on sale of real estate. On May 28, 2013, we sold Rio Salado to an unrelated third party for $9.3 million and recorded a $0.1 million gain on sale of real estate. The gain on sale of real estate for both of these sales was included in continuing operations. Six months ended June 30, 2014 as compared to six months ended June 30, 2013 The following table provides summary information about our results of operations for the six months ended June 30, 2014 and 2013 ($ in thousands): $ Amount



Change Percentage Change

2014 2013 Incr (Decr) Incr/(Decr)



Revenues

Rental revenue $ 10,090$ 10,755 $ (665 ) (6.2 )% Hotel revenue 17,337 13,318 4,019 30.2 % Condominium sales - 409 (409 ) (100.0 )% Total revenues 27,427 24,482 2,945 12.0 %



Expenses

Property operating expenses 4,220 6,133 (1,913 ) (31.2 )% Hotel operating expenses 13,047 10,179 2,868 28.2 % Bad debt expense (recovery) (148 ) 1,731 (1,879 ) (108.5 )% Cost of condominium sales - 417 (417 ) (100.0 )% Interest expense 4,855 4,825 30 0.6 % Real estate taxes 1,941 2,065 (124 ) (6.0 )%

Property management fees 879 775 104 13.4 % Asset management fees 1,128 1,188 (60 ) (5.1 )% General and administrative 2,970 3,172 (202 ) (6.4 )% Depreciation and amortization 6,365 6,651 (286 ) (4.3 )% Total expenses $ 35,257$ 37,136$ (1,879 ) (5.1 )% Other Income, net $ 759$ 27 $ 732 2,711.1 %



Equity in earnings (losses)

of unconsolidated joint ventures $ (67 )$ 414 $ (481 ) (116.2 )% Reorganization items, net $ - $ (123 ) $ 123 (100.0 )%



Gain on sale of real estate $ 476$ 95 $ 381

401.1 % Continuing Operations Revenues. Overall, our total revenues increased by approximately $2.9 million to $27.4 million for the six months ended June 30, 2014. The change in revenues was primarily due to: • Rental revenue decreased $0.7 million for the six months ended June 30,



2014 as compared to the same period of 2013. In the first quarter of 2013,

Chase Park Plaza Hotel was accounted for as a lease and recorded $1

million of rental revenue. As of February 19, 2013, we began consolidating

the hotel operations resulting in elimination of the lease payment and reporting of Chase Park Plaza Hotel's operations in hotel revenues and hotel operating expenses (see below). In addition, rental revenue decreased $0.2 million at Las Colinas Commons due to a 10% decrease in



occupancy year over year. These decreases in rental revenue were partially

offset by increases of $0.2 million at each of Frisco Square and Northborough and an increase of $0.1 million at Northpoint primarily due to higher recovery income. 28



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• Hotel revenue increased $4 million to $17.3 million for the six months

ended June 30, 2014. The consolidation of the operations of Chase Park

Plaza Hotel effective February 19, 2013 and an increase of 16% in

occupancy at the Chase Park Plaza Hotel year over year, resulted in an

approximate $4.3 million increase in hotel revenue. Hotel revenue at The

Lodge & Spa at Cordillera increased $0.1 million in the six months ended

June 30, 2014 as compared to the same period of 2013. These increases were

partially offset by a decrease in hotel revenue for Royal Island of $0.4 million due to the suspension of the rental program as we explore the disposition of this property.



• Income from condominium sales was zero for the six months ended June 30,

2014 compared to $0.4 million for the six months ended June 30, 2013. No condominium units were sold at Chase - The Private Residences during the



six months ended June 30, 2014 as compared to one unit sold during the six

months ended June 30, 2013. We have one unit remaining in inventory.

Property operating expenses. Property operating expenses were approximately $4.2 million for the six months ended June 30, 2014 as compared to $6.1 million for the six months ended June 30, 2013, a decrease of approximately $1.9 million, and were comprised of operating expenses from our consolidated properties. Property operating expenses at Frisco Square decreased $1.2 million during the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. During the six months ended June 30, 2013, we incurred a one-time expense of $0.8 million in accordance with the development agreement. Additionally, the POA dues at Frisco Square decreased $0.3 million for the six months ended June 30, 2014 compared to the same period in 2013. For the year ended 2013, we estimated our annual pro rata share of the expense at approximately $0.4 million. As a result of land sales and new assessed values within the POA, the estimate of our annual obligation has decreased to $0.2 million resulting in the reversal of $0.1 million expense in June 2014. Royal Island operating expenses decreased $0.5 million as a result of lower operating expenditures as we explore the disposition of this property. Operating expenses at Las Colinas Commons, Northpoint and Northborough combined accounted for a decrease in property operating expenses of approximately $0.2 million. Hotel operating expenses. Hotel operating expenses were approximately $13 million for the six months ended June 30, 2014 compared to $10.2 million for the six months ended June 30, 2013, for an increase of $2.8 million. The consolidation of the operations of Chase Park Plaza Hotel effective February 19, 2013 and a 16% increase in occupancy year over year contributed a $3.1 million increase in hotel operating expenses. This increase was partially offset by a $0.2 million decrease in expense at Royal Island due to the suspension of the rental program as we explore the disposition of this investment. Bad debt expense (recovery). Bad debt expense (recovery) for the six months ended June 30, 2014 was a credit of $0.2 million compared to a charge of $1.7 million for the same period of 2013 for a decrease of approximately $1.9 million. Chase Park Plaza Hotel's bad debt expense decreased $1.6 million primarily due to a provision recorded in 2013 related to the termination of the hotel operating lease between Kingsdell, L.P. and Chase Park Plaza Hotel. Bad debt expense for Frisco Square decreased $0.3 million due to a recovery of funds in 2014 that were recognized as bad debt expense in 2013. Cost of condominium sales. Cost of condominium sales relating to the sale of condominium units at Chase - The Private Residences was zero for the six months ended June 30, 2014 compared to $0.4 million for the same period of 2013. During the six months ended June 30, 2013 we sold one condominium unit. We did not sell any units during the six months ended June 30, 2014. Interest expense. Interest expense remained relatively flat at $4.9 million and $4.8 million for the six months ended June 30, 2014 and 2013, respectively. Interest expense related to Royal Island increased $0.2 million due to a higher loan balance from borrowings primarily to secure and maintain the property. This was partially offset by a $0.1 million decrease in interest expense for the Chase Park Plaza Hotel due to a lower loan balance that resulted from paydowns from the condominium unit sales during 2013. Interest expense related to Frisco Square, Las Colinas Commons, Northborough and Northpoint had nominal decreases in interest expense due to principal paydowns. Real Estate Taxes. Real estate taxes were approximately $1.9 million and $2 million for the six months ended June 30, 2014 and 2013, respectively, for a decrease of $0.1 million. During the six months ended June 30, 2014, real estate tax expense at The Lodge & Spa at Cordillera decreased $0.2 million compared to the same period of 2013 due to a successful tax appeal in 2014. This is offset by an increase of $0.1 million in real estate tax expense at Northborough due to a higher valuation by the taxing authorities. Real estate tax expense for the remaining of our properties were comparable year over year. Property management fees. Property management fees for the six months ended June 30, 2014 were approximately $0.9 million compared to approximately $0.8 million for the six months ended June 30, 2013. Property management fees, which are based upon revenue collections, increased $0.1 million at Chase Park Plaza Hotel due to increased revenues at the hotel. Property management fees for our other properties were comparable year over year. 29



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Asset management fees. Asset management fees were $1.1 million for the six months ended June 30, 2014, a decrease of $0.1 million compared to the expense for the six months ended June 30, 2013. This decrease was due to the sale of Rio Salado in May 2013. General and administrative. General and administrative expense was $3 million for the six months ended June 30, 2014, a decrease of $0.2 million compared to the expense for the same period in 2013. The decrease was primarily due to a decrease in legal expense of $0.4 million related to our Chase Park Plaza Hotel litigation and Frisco Square restructuring. This was partially offset by an increase of $0.2 million in board and board committee fees for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 due to an increase in the number of board and board committee meetings. Other income, net. Other income was $0.8 million for the six months ended June 30, 2014 compared to less than $0.1 million for the six months ended June 30, 2013. In May 2014, a lot option agreement at Royal Island expired. We recognized $0.8 million in other income related to the expiration of the lot option. Equity in earnings (losses) of unconsolidated joint ventures. Equity in earnings (losses) of unconsolidated joint ventures was a loss of less than $0.1 million for the six months ended June 30, 2014 compared to earnings of $0.4 million for the six months ended June 30, 2013 primarily due to activity related to changes in foreign currency in our Central Europe Joint Venture. Reorganization items, net. During the six months ended June 30, 2013, we recorded reorganization expense of $0.1 million related to the Frisco Square loan restructuring. We did not incur any reorganization expense during the first six months of 2014. Cash Flow Analysis During the six months ended June 30, 2014, net cash used in operating activities was $1.1 million compared to net cash used in operating activities of $3.6 million during the same period of 2013. The $2.5 million difference primarily resulted from a decrease in loss from continuing operations of $5.2 million, partially offset by a a $1.6 million provision for bad debt during the six months ended June 30, 2013 and a net $1.4 million decrease in the timing of cash receipts / payments on accounts receivable, accounts payable, accrued and other liabilities and payables to related parties. The $5.2 million decrease in loss from continuing operations was due to a $4 million increase in hotel revenue primarily from the consolidation of the operations of Chase Park Plaza Hotel effective February 19, 2013 and an increase of 16% in occupancy at the Chase Park Plaza Hotel year over year. In addition, property operating expenses decreased $1.9 million and bad debt expense decreased $1.7 million, partially offset by an increase of $2.9 million in hotel operating expenses due to the consolidation of the operations of Chase Park Plaza Hotel effective February 19, 2013 and a 16% increase in occupancy year over year. Net cash used in investing activities for the six months ended June 30, 2014 was $3.5 million as compared to $26.3 million of net cash provided by investing activities for the six months ended June 30, 2013. The difference of $29.8 million is primarily a result of sales proceeds of $29 million from the sale of Becket House and Rio Salado in the six months ended June 30, 2013. We received sales proceeds of $1.7 million on June 13, 2014 for the sale of 1.62 acres at our Frisco Square property. In addition, we purchased property and equipment totaling $3.7 million for the six months ended June 30, 2014 compared to $0.8 million for the same period of 2013. The $2.9 million increase in fixed asset additions was primarily due to tenant improvements and building renovations at our Northborough, Frisco Square, Chase Park Plaza Hotel and Las Colinas Commons properties during the six months ended June 30, 2014. Net cash provided by financing activities for the six months ended June 30, 2014 was $0.4 million compared to net cash used in financing activities of $19.6 million for the comparable period of 2013. The $20 million difference is primarily the result of the the payoff of debt totaling $19.8 million for the Becket House property which we sold in the second quarter of 2013. Funds from Operations Funds from operations ("FFO") is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We use FFO as defined by the National Association of Real Estate Investment Trusts ("NAREIT") in the April 2002 "White Paper of Funds From Operations" which is net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership), plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, subsidiaries, and noncontrolling interests as one measure to evaluate our operating performance. 30



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Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments of depreciable assets, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. FFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor as an indication of funds available to fund our cash needs, including our ability to make distributions and should be reviewed in connection with other GAAP measurements. Additionally, the exclusion of impairments limits the usefulness of FFO as a historical operating performance measure since an impairment charge indicates that operating performance has been permanently affected. FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO. Our FFO, as presented, may not be comparable to amounts calculated by other REITs that do not define these terms in accordance with the current NAREIT definition or that interpret the definition differently. Our calculation of FFO for the three months ended June 30, 2014 and 2013 is presented below (shares and $ in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, Description 2014 Per Share 2013 Per Share 2014 Per Share 2013 Per Share Net loss attributable to common shareholders $ (2,327 )$ (0.04 )$ (2,506 )$ (0.05 )$ (6,500 )$ (0.11 )$ (9,595 )$ (0.17 ) Adjustments for(1): Impairment charge(2) - - - - - - 244 - Real estate depreciation and amortization(3) 3,805 0.07 3,724 0.07 7,338 0.13 7,694 0.14 Gain on sale of real estate (476 ) (0.01 ) (95 ) - (476 ) (0.01 ) (95 ) - Funds from operations (FFO) $ 1,002$ 0.02$ 1,123$ 0.02$ 362$ 0.01$ (1,752 )$ (0.03 ) GAAP weighted average shares: Basic and diluted 56,500 56,500 56,500 56,500



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(1) Reflects the adjustments for continuing operations as well as discontinued operations (2013). (2) Includes impairment of our investments in unconsolidated entities which resulted from a decrease in the fair value of the depreciable real estate held by the joint venture or partnership. (3) Real estate depreciation and amortization includes our consolidated real



depreciation and amortization expense, as well as our pro rata share of

those unconsolidated investments which we account for under the equity method of accounting and the noncontrolling interest adjustment for the third-party partners' share of the real estate depreciation and amortization. Cash flows generated from FFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capital expenditures and payments of principal on debt, each of which may impact the amount of cash available for future distributions to our stockholders. Distributions Distributions are authorized at the discretion of our board of directors based on its analysis of our forthcoming cash needs, earnings, cash flow, anticipated cash flow, capital expenditure requirements, cash on hand, general financial condition and other factors that our board deems relevant. The board's decision will be influenced, in substantial part, by its obligation to ensure that we maintain our status as a REIT. In connection with entering our disposition phase, on March 28, 2011, our board of directors discontinued regular quarterly distributions. Any future distributions will be based on available cash after weighing operational needs. Historically, distributions paid to stockholders have been funded through various sources, including cash flow from operating activities, proceeds raised as part of our initial public offering, reinvestment through our distribution reinvestment plan and/or additional borrowings. We had no distributions in the six months ended June 30, 2014 and 2013. 31



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Off-Balance Sheet Arrangements We have 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. Critical Accounting Policies and Estimates Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates, including investment impairment, on a regular basis. 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 may differ from these estimates. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. Principles of Consolidation and Basis of Presentation Our condensed consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control. All inter-company transactions, balances, and profits have been eliminated in consolidation. Interests in entities acquired will be evaluated based on applicable GAAP, which includes the requirement to consolidate entities deemed to be variable interest entities ("VIE") in which we are the primary beneficiary. If the interest in the entity is determined not to be a VIE, then the entity will be evaluated for consolidation based on legal form, economic substance, and the extent to which we have control and/or substantive participating rights under the respective ownership agreement. There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements. Real Estate Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which we obtain control of the real estate property. The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities and asset retirement obligations. Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships. Identified intangible liabilities generally consist of below-market leases. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related costs are expensed in the period incurred. The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land and buildings. Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management's estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants. The value of buildings is depreciated over the estimated useful life of 25 years using the straight-line method. We determine the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain at the date of the debt assumption. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method. 32



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We determine the value of above-market and below-market leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management's estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any below-market fixed rate renewal options that, based on a qualitative assessment of several factors, including the financial condition of the lessee, the business conditions in the industry in which the lessee operates, the economic conditions in the area in which the property is located, and the ability of the lessee to sublease the property during the renewal term, are reasonably assured to be exercised by the lessee for below-market leases. We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the determined lease term. The total value of identified real estate intangible assets acquired is further allocated to in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease and our overall relationship with that respective tenant. The aggregate value for tenant improvements and leasing commissions is based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition. The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model. The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions. In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, we include such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on current market conditions. The estimates of the fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal fees and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis. We amortize the value of in-place leases, in-place tenant improvements and in-place leasing commissions to expense over the initial term of the respective leases. The tenant relationship values are amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense. The estimated remaining average useful lives for acquired lease intangibles range from less than one year to approximately ten years. Other intangible assets include the value of identified hotel trade names and in-place property tax abatements. These fair values are based on management's estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The value of the trade names is amortized over its respective estimated useful life of 20 years using the straight-line method and the value of the in-place property tax abatement is amortized over its estimated term of 10 years using the straight-line method. Investment Impairments For all of our real estate and real estate related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers and changes in the global and local markets or economic conditions. Our assets may at times be concentrated in limited geographic locations and, to the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at a portion of our properties within a short time period, which may result in asset impairments. When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows are prepared internally by the Advisor and reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. The Chief Financial Officer and Chief Accounting Officer of the Company review these projected cash flows to assure that the valuation is prepared using reasonable inputs and assumptions that are consistent with market data and with assumptions that would be used by a third-party market participant and assume the highest and best use of the investment. We consider trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair 33



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value. While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates. We also evaluate our investments in notes receivable as of each reporting date. If we believe that it is probable we will not collect all principal and interest in accordance with the terms of the notes, we consider the loan impaired. When evaluating loans for potential impairment, we compare the carrying amount of the loans to the present value of future cash flows discounted at the loans effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral net of any senior loans. For impaired loans, a provision is made for loan losses to adjust the reserve for loan losses. The reserve for loan losses is a valuation allowance that reflects our current estimate of loan losses as of the balance sheet date. The reserve is adjusted through the provision for loan losses account on our condensed consolidated statements of operations. In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, planned development and the projected sales price of each of the properties. A future change in these estimates and assumptions could result in understating or overstating the book value of our investments, which could be material to our financial statements. We also evaluate our investments in unconsolidated joint ventures at each reporting date. If we believe there is an other than temporary decline in market value, we will record an impairment charge based on these evaluations. We assess potential impairment by comparing our portion of estimated future undiscounted operating cash flows expected to be generated by the joint venture over the life of the joint venture's assets to the carrying amount of the joint venture. In the event that the carrying amount exceeds our portion of estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the joint venture to its estimated fair value. The value of our properties held for development depends on market conditions, including estimates of the project start date as well as estimates of future demand for the property type under development. We have analyzed trends and other information related to each potential development and incorporated this information, as well as our current outlook, into the assumptions we use in our impairment analyses. Due to the judgment and assumptions applied in the estimation process with respect to impairments, including the fact that limited market information regarding the value of comparable land exists at this time, it is possible actual results could differ substantially from those estimated. We believe the carrying value of our operating real estate assets, properties under development, investments in unconsolidated joint ventures, and notes receivable is currently recoverable. However, if market conditions worsen beyond our current expectations, or if our assumptions regarding expected future cash flows from the use and eventual disposition of our assets decrease or our expected hold periods decrease, or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take additional charges in future periods for impairments related to existing assets. Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations. Condominium Inventory Condominium inventory is stated at the lower of cost or fair market value. In addition to land acquisition costs, land development costs, and construction costs, costs include interest and real estate taxes, which are capitalized during the period beginning with the commencement of development and ending with the completion of construction. For condominium inventory, at each reporting date, management compares the estimated fair value less costs to sell to the carrying value. An adjustment is recorded to the extent that the fair value less costs to sell is less than the carrying value. We determine the estimated fair value of condominiums based on comparable sales in the normal course of business under existing and anticipated market conditions. This evaluation takes into consideration estimated future selling prices, costs incurred to date, estimated additional future costs, and management's plans for the property. We currently have one remaining unfinished condominium unit in inventory at Chase-The Private Residences. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk We may be exposed to interest rate changes, primarily as a result of long-term variable rate debt used to acquire properties and make loans and 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 will 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 34



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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. Of our $138.3 million in notes payable, at June 30, 2014, $77.8 million represented debt subject to variable interest rates. If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, including interest expensed, interest capitalized, and the effects of the interest rate caps and swaps, would increase by $0.8 million. At June 30, 2014, we have $46.5 million of our consolidated variable rate debt hedged with interest rate caps. At June 30, 2014, our interest rate caps had a fair value of zero. A 100 basis point decrease in interest rates would not impact the fair value of our interest rate caps. A 100 basis point increase in interest rates would result in less than $0.1 million net increase in the fair value of our interest rate caps and swaps. Foreign Currency Exchange Risk At June 30, 2014, we own an approximately 47% interest in a joint venture consisting of 22 properties in the Czech Republic, Poland, Hungary, and Slovakia that holds $3.7 million in local currency-denominated accounts at European financial institutions. As the cash is held in the same currency as the real estate assets and related loans, we believe that we are not materially exposed to any significant foreign currency fluctuations related to these accounts as it relates to ongoing property operations. Material movements in the exchange rate of Euros could materially impact distributions from our foreign investments. Inflation The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. However, we include provisions in the majority of our tenant leases that would protect us from the impact of inflation. These provisions include reimbursement billings for common area maintenance charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of June 30, 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, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2014, to provide reasonable assurance that information required to be disclosed by us in this report 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 our management, including our 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 system 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 company have been detected. Changes in Internal Control over Financial Reporting There has been no change in internal control over financial reporting that occurred during the quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 35



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