UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-50689

BH/RE, L.L.C.

(Exact Name of Registrant as Specified in its Charter)

NEVADA		84-1622334
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification Number)

3667 Las Vegas Boulevard South Las Vegas, Nevada		89109
(Address of Principal Executive Offices)		(Zip Code)

(702) 785-5555

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 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 o No o

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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o		Accelerated filer o

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

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

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BH/RE, L.L.C. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

	June 30, 2009			December 31, 2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	16,093		$	23,881
Receivables, net	20,072			18,717
Inventories	2,223			2,498
Prepaid expenses	5,125			7,935
Deposits and other current assets	164			164
Restricted cash and cash equivalents	35,437			29,366
Total current assets	79,114			82,561

Property and equipment, net	559,105			578,043
Restricted cash and cash equivalents	6,351			11,284
Land receivable	16,049			16,918
Other assets, net	681			244
Total assets	$	661,300		$	689,050

LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)

Current liabilities:
Current portion of long-term debt	$	862,118		$	2,001
Accounts payable	4,065			3,549
Accrued payroll and related	10,423			10,786
Accrued interest payable	6,747			6,827
Accrued taxes	2,468			2,422
Accrued expenses	8,546			8,881
Deposits	4,395			4,587
Other current liabilities	4,022			4,512
Due to affiliates	3,523			1,773
Total current liabilities	906,307			45,338

Long-term debt, less current portion	24,481			885,561
Other long-term liabilities	1,537			1,537
Total liabilities	932,325			932,436

Members’ equity (deficit):
Equity	34,200			34,200
Accumulated deficit	(277,984		)	(253,493		)
BH/RE, L.L.C. deficit	(243,784		)	(219,293		)
Noncontrolling members’ deficit	(27,241		)	(24,093		)
Total members’ equity (deficit)	(271,025		)	(243,386		)
Total liabilities and members’ equity (deficit)	$	661,300		$	689,050

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BH/RE, L.L.C. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

	Three Months Ended June 30, 2009			Three Months Ended June 30, 2008
	(unaudited)			(unaudited)

Operating revenues:
Casino	$	28,336		$	30,965
Hotel	22,839			30,363
Food and beverage	12,700			13,781
Other	3,318			4,071
Gross revenues	67,193			79,180
Promotional allowances	(6,606		)	(6,954		)
Net revenues	60,587			72,226

Operating costs and expenses:
Casino	18,715			18,980
Hotel	9,448			10,764
Food and beverage	8,870			9,614
Other	466			765
Selling, general and administrative	17,313			21,038
Depreciation and amortization	10,212			9,215
	65,024			70,376

Operating (loss) income	(4,437		)	1,850

Interest expense, net	(9,182		)	(16,203		)
Pre-tax loss	(13,619		)	(14,353		)
Provision for income taxes	—			—
Net loss including noncontrolling interest	(13,619		)	(14,353		)
Net loss attributable to noncontrolling interest	(1,551		)	(2,153		)
Net loss attributable to BH/RE, L.L.C.	$	(12,068	)	$	(12,200	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BH/RE, L.L.C. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
	(unaudited)			(unaudited)

Operating revenues:
Casino	$	53,687		$	63,312
Hotel	45,598			61,316
Food and beverage	24,400			28,038
Other	6,198			7,853
Gross revenues	129,883			160,519
Promotional allowances	(12,221		)	(14,300		)
Net revenues	117,662			146,219

Operating costs and expenses:
Casino	36,130			39,400
Hotel	18,849			21,330
Food and beverage	17,507			18,683
Other	922			1,048
Selling, general and administrative	33,016			40,012
Depreciation and amortization	20,396			18,016
	126,820			138,489

Operating (loss) income	(9,158		)	7,730

Interest expense, net	(18,481		)	(34,094		)
Pre-tax loss	(27,639		)	(26,364		)
Provision for income taxes	—			—
Net loss including noncontrolling interest	(27,639		)	(26,364		)
Net loss attributable to noncontrolling interest	(3,148		)	(3,955		)
Net loss attributable to BH/RE, L.L.C.	$	(24,491	)	$	(22,409	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BH/RE, L.L.C. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
	(unaudited)			(unaudited)

Cash flows from operating activities:
Net loss including noncontrolling interest	$	(27,639	)	$	(26,364	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	20,396			18,016
Amortization of debt discount and issuance costs	155			4,181
Decease in value of interest rate cap	26			—
Changes in assets and liabilities:
Restricted cash and cash equivalents	(6,071		)	4,423
Receivables, net	(1,355		)	756
Inventories and prepaid expenses	3,085			163
Deposits and other current assets	—			52
Due to affiliates	1,750			582
Accounts payable	516			(2,552		)
Accrued payroll and related	(363		)	(763		)
Accrued expenses	(289		)	(1,196		)
Deposits and other current liabilities	(682		)	(618		)
Accrued interest	(80		)	(1,300		)
Long term deposits and other assets	869			2,244
Net cash (used in) provided by operating activities	(9,682		)	(2,376		)
Cash flows from investing activities:
Purchases of property and equipment	(1,458		)	(15,887		)
Restricted cash and cash equivalents	4,933			17,281
Net cash provided by investing activities	3,475			1,394
Cash flows from financing activities:
Payments under CUP financing	(963		)	(859		)
Financing fees	(618		)	—
Net cash used in financing activities	(1,581		)	(859		)
Cash and cash equivalents:
(Decrease) in cash and cash equivalents	(7,788		)	(1,841		)
Balance, beginning of period	23,881			21,468
Balance, end of period	$	16,093		$	19,627

Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest	$	18,633		$	31,616

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BH/RE, L.L.C. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

BH/RE, L.L.C. (“BH/RE”) is a holding company that owns 88.61% of EquityCo, L.L.C. (“EquityCo”). The remaining 11.39% of EquityCo is owned indirectly by Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”). MezzCo, L.L.C. (“MezzCo”) is a wholly owned subsidiary of EquityCo and each of OpBiz, LLC (“OpBiz”) and PH Mezz II LLC (“PH Mezz II”) is a wholly owned subsidiary of MezzCo. PH Mezz I LLC (“PH Mezz I”) is a wholly owned subsidiary of PH Mezz II. PH Fee Owner LLC (“PH Fee Owner”) is a wholly owned subsidiary of PH Mezz I. TSP Owner LLC (“TSP Owner”) is a wholly owned subsidiary of PH Fee Owner. PH Mezz II, PH Mezz I, PH Fee Owner and TSP Owner are Delaware limited liability companies structured as bankruptcy remote special purpose entities which, together with OpBiz, own and operate the Planet Hollywood Resort and Casino (the “PH Resort”). OpBiz is the licensed owner and operator of the gaming assets and leases the casino space and hotel space together with all hotel assets from PH Fee Owner. TSP Owner was formed to hold the parcel of land (the “Timeshare Parcel”) that was sold to Westgate Resorts, LLP, a Florida limited partnership (“Westgate”) subject to the Timeshare Purchase Agreement, dated December 10, 2004 and modified on September 10, 2007, between OpBiz and Westgate, as more fully described in Note 3. As of June 30, 2009, each of Robert Earl and Douglas P. Teitelbaum held 50% of BH/RE’s voting membership interests. BH/RE’s equity membership interests were held 43.27% by BH Casino and Hospitality LLC I (“BHCH I”), 15.61% by BH Casino and Hospitality LLC II (“BHCH II” and, together with BHCH I, “BHCH”) and 41.13% by OCS Consultants, Inc. (“OCS”).

BH/RE and its subsidiaries were formed to acquire, operate and renovate the Aladdin Resort and Casino (the “Aladdin”) located in Las Vegas, Nevada. OpBiz completed the acquisition of the Aladdin on September 1, 2004 and completed a renovation project which transformed the Aladdin into the PH Resort at the end of 2007. In connection with the operation of the PH Resort, OpBiz has entered into an agreement with Planet Hollywood International, Inc. (“Planet Hollywood”) and certain of its subsidiaries to, among other things, license Planet Hollywood’s trademarks, memorabilia and other intellectual property. OpBiz has also entered into an agreement with Sheraton Operating Corporation (“Sheraton”), a subsidiary of Starwood, pursuant to which Sheraton will provide hotel management, marketing and reservation services for the hotel that comprises a portion of the PH Resort.

BH/RE is a Nevada limited liability company and was organized on March 31, 2003. BH/RE was formed by BHCH and OCS. BHCH is controlled by Douglas P. Teitelbaum, a managing principal of Bay Harbour Management, L.C. (“Bay Harbour Management”). BHCH was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by funds managed by Bay Harbour Management. Bay Harbour Management is an investment management firm. OCS is wholly owned and controlled by Robert Earl and holds Mr. Earl’s investment in BH/RE. Mr. Earl is the founder, chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is a director of Planet Hollywood. Collectively, Mr. Earl, a trust for the benefit of Mr. Earl’s children and certain affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood owned by the trust.

Interim Financial Statements (unaudited)

The accompanying condensed consolidated financial statements included herein have been prepared by the management of BH/RE (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. BH/RE believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the interim periods have been made. The results for the three and six months ended June 30, 2009, are not indicative of results to be expected for the full fiscal year. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2008, included in BH/RE’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009.

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2. LIQUIDITY AND FINANCIAL POSITION

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result should the Company be unable to continue as a going concern. A summary of the Company’s current financial position and liquidity and management’s plans in regard to these matters is described below.

The Company has significant indebtedness and significant financial commitments in 2009. As of June 30, 2009, the Company had approximately $886.6 million of total debt. The Company is uncertain as to whether it will be able to generate cash flows from operations to fund its 2009 financial commitments and cannot provide any assurances that it will be able to raise additional capital to fund its anticipated expenditures in 2009. Substantially all of the Company’s debt is an $860 million commercial mortgage which has two remaining one year extension options available (the second and third extension options). As a condition to exercising each of the second and third extension options, the Interest Reserve Account (as defined in the Loan Agreement) must be replenished to an amount sufficient to achieve a Debt Service Coverage Ratio (as defined in the Loan Agreement) of 1.05:1.00 and 1.10:1:0, respectively, using the specified terms and parameters outlined in the Loan Agreement. If the Company does not exercise the second extension option, the Loan will mature on December 9, 2009. At December 31, 2008, the Loan was classified as a non current liability in the accompanying financial statements based on the Company’s intent and ability to exercise the second extension option. Operating income for the six months ended June 30, 2009 is not sufficient to demonstrate that the Company will generate sufficient cash flow from operations to meet the conditions set forth to exercise the second extension option. Accordingly, the Loan has been reclassified to a current liability in the accompanying financial statements as of June 30, 2009.

Absent a capital contribution from the members of EquityCo, an equity investment by third parties or a restructuring of the Loan Agreement, we do not believe that cash generated from operations, cash held in reserve by the lenders under the Loan Agreement and cash made available under the Modification to the Loan Agreement will be adequate to meet the anticipated working capital and debt service obligations of OpBiz through December 31, 2009, including interest payments due on the Loan for upcoming monthly payments. The Loan Agreement is a commercial mortgage. As such, the Loan Agreement as amended and the EquityCo subsidiary corporate structures and operating agreements (including bankruptcy remote entities) restrict the ability of OpBiz and PH Fee Owner to file a voluntary petition for relief under the bankruptcy code. Additionally, as detailed in Note 6 – Long-Term Debt, in connection with the execution of the Loan, the Guarantors executed guarantees against certain actions including a voluntary or collusive bankruptcy filing. As currently structured, the Loan Agreement requires that a contribution sufficient to bring the Interest Reserve Account to a level sufficient to cover the interest reserve test (as fully defined in the Loan Agreement) will be required to exercise the next extension. If the Company is not able to exercise the second extension option, the Loan will mature on December 9, 2009. The Company is currently seeking a modification of the Loan Agreement and access to funds in the Interest Reserve Account, as well as additional capital investments to satisfy the requirements necessary to exercise the second extension option or otherwise defer maturity of the Loan and to provide funds to pay upcoming monthly interest payments. Failure to maintain sufficient cash flow to fund operations within the parameters defined in the Loan, failure to replenish the Interest Reserve Account or failure to pay any portion of the Debt (as defined in the Loan Agreement) when due is each an Event of Default (as defined in the Loan Agreement) and a Specified Event (as defined in the Modification). As described in Note 6 – Long-Term Debt, the Modification requires us, within ten days after Lender’s written demand after the occurrence of a Specified Event to deliver to Lender (i) one or more deeds conveying fee simple title to all portions of the Property (as defined in the Loan Agreement); (ii) one or more assignments conveying membership interests of MezzCo in OpBiz; and (iii) all other documents and instruments to Lender that may be required to enable Lender to obtain title insurance coverage with respect to fee simple property.

There can be no assurance the Lender will agree to modify the Loan Agreement, will make funds in the Interest Reserve Account available or that we will receive additional capital from the members of EquityCo or third parties. Additionally, there can be no assurance that we have accurately estimated our liquidity needs, or that we will not experience unforeseen events that may materially increase our need for liquidity to fund our operations or capital expenditure programs or decrease the amount of cash generated from our operations.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies and Estimates

The condensed consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. Certain policies, including the determination of bad debt reserves, the estimated useful lives assigned to assets, asset impairment, insurance reserves and the calculation of liabilities, require that management apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Management’s judgments are based on historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from management’s estimates.

To provide an understanding of the methodology management applies, BH/RE’s significant accounting policies and basis of presentation are discussed below.

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Inventories

Inventories consist of food and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or market. Cost is determined by the first-in, first-out and specific identification methods.

Property and Equipment

Property and equipment are stated at cost. Recurring repairs and maintenance costs, including items that are replaced routinely in the casino, hotel and food and beverage departments which do not meet the Company’s capitalization policy, are expensed as incurred. The Company has established its capital expense policy to be reflective of its individual ongoing repairs and maintenance programs. Gains or losses on dispositions of property and equipment are included in the determination of income. Property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis:

Buildings		40 years
Building improvements		15 to 40 years
Furniture, fixtures and equipment		3 to 7 years

Property and equipment and other long-lived assets are evaluated for impairment in accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” For assets to be disposed of, the asset to be sold is recognized at the lower of carrying value or fair value less costs of disposal. Fair value for assets to be disposed of is estimated based on comparable asset sales, solicited offers or a discounted cash flow model.

Property and equipment are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the estimated future cash flows of the asset, on an undiscounted basis, are compared to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model. As a result of the continuing economic downturn and constrained capital markets which have negatively impacted the Las Vegas economy and the Company’s operating results, the Company determined that its property and equipment should be evaluated for impairment. Using an estimate of undiscounted future cash flows, which exceeded the carrying value of property and equipment, the Company determined that no impairment should be recognized. In assessing the recoverability of the carrying value of property and equipment, we must make assumptions regarding estimated future cash flows and other factors. If these estimates or the related assumptions change, we may be required to record impairment charges.

Derivative Instruments and Hedging Activities

Pursuant to the refinancing of the Securities Purchase Agreement and the terms of the Restructuring Agreement, the Restructuring Parties agreed to amend the warrants issued by MezzCo to purchase 17.5% of the fully diluted equity in MezzCo. The warrants contain a net cash settlement, and therefore are accounted for in accordance with Emerging Issues Task Force (“EITF”) 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. Both SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19 require that the warrants be recognized as liabilities, with changes in fair value affecting net income. See “Note 6. Long-Term Debt.”

The terms of the Loan Agreement required the Company to enter into an interest rate cap agreement, which expires on December 9, 2009, to manage interest rate risk. The Company did not apply cash flow hedge accounting to this instrument. Although this derivative was not afforded cash flow hedge accounting, the Company retained the instrument as protection against the interest rate risk associated with its long-term borrowings. The Company accounts for its derivative activity in accordance with SFAS No. 133 and accordingly, includes the rate cap agreement in other assets on the accompanying balance sheet at fair value with any change in fair value being recorded in interest income or expense in the accompanying consolidated statements of operations.

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Revenue Recognition and Promotional Allowances

Casino revenues are recognized as the net win from gaming activities, which is the difference between gaming wins and losses. Hotel revenue recognition criteria are generally met at the time of occupancy. Food and beverage revenue recognition criteria are generally met at the time of service. Deposits for future hotel occupancy or food and beverage services are recorded as deferred income until revenue recognition criteria are met. Cancellation fees for hotel and food and beverage services are recognized upon cancellation by the customer as defined by a written contract entered into with the customer. All other revenues are recognized as the service is provided. Revenues include the retail value of food, beverage, rooms, entertainment and merchandise provided on a complimentary basis to customers. Such complimentary amounts are then deducted from revenues as promotional allowances on BH/RE’s consolidated statements of operations. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses and consist of the following (amounts in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Rooms	$	1,835	$	1,713	$	3,247	$	3,280
Food and Beverage	2,323		2,164		4,413		4,593
Other	22		14		30		22
Total cost of promotional allowances	$	4,180	$	3,891	$	7,690	$	7,895

Players’ Club Program

Players’ club members earn points based on gaming activity. OpBiz accrues a liability for players’ club points that can be redeemed for cash as the points are earned based on historical redemption percentages in accordance with the Emerging Issues Task Force (“EITF”) consensus on Issue 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” EITF 01-9 requires that sales incentives be recorded as a reduction of revenue; consequently, casino revenues are reduced by points earned through the players’ club loyalty program. In March 2009, the Company changed the structure of its players club to allow patrons who earn points to redeem those points for promotional slot play and other non-cash incentives. The total accrued liability related to potential cash awards redeemable under the players’ club program was $1.3 million at June 30, 2009 and $2.2 million at December 31, 2008.

Self-Insurance Accruals

BH/RE is self-insured, up to certain limits, for costs associated with employee medical coverage. The Company accrues for the estimated expense of known claims, as well as estimates for claims incurred but not yet reported which totaled approximately $3.2 million at June 30, 2009 and $2.4 million at December 31, 2008.

Advertising Costs

Advertising costs are expensed as incurred and included in selling, general and administrative costs and expenses. Advertising costs totaled approximately $1.2 million and $2.1 million for the three and six months ended June 30, 2009, respectively, and $4.5 million and $6.9 million for the three and six months ended June 30, 2008, respectively.

Income Taxes

The condensed consolidated financial statements include the operations of BH/RE and its majority-owned subsidiaries: EquityCo, MezzCo, OpBiz, PH Mezz II, PH Mezz I, PH Fee Owner and TSP Owner. BH/RE and EquityCo are limited liability companies and are taxed as partnerships for federal income tax purposes. However, MezzCo has elected to be taxed as a corporation for federal income tax purposes. OpBiz and PH Mezz II, wholly-owned subsidiaries of MezzCo, are treated as divisions of MezzCo for federal income tax purposes, and accordingly, are also subject to federal income taxes. Additionally, PH Mezz I, a wholly-owned subsidiary of PH Mezz II, PH Fee Owner, a wholly owned subsidiary of PH Mezz I, and TSP Owner, a wholly owned subsidiary of PH Fee Owner, are also subject to federal income taxes.

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connection with the closing of the transaction, OpBiz, PH Fee Owner, LLC and TSP Owner, LLC, entered into a modification agreement (the “Modification Agreement”) with Westgate. The Modification Agreement defines the development phases for the Timeshare Parcel and outlines the permitted number of timeshare, whole ownership and penthouse units. The Modification Agreement also outlines permitted amenities on the Timeshare Parcel and documents Seller’s approval of Westgate’s financing for the project.

Pursuant to the terms of the Timeshare Purchase Agreement, the purchase price of the land was $29.5 million. The Company was carrying the land at a value of $29.5 million. Accordingly, no gain on the sale of this land has been recognized in the accompanying financial statements. Westgate pays the Company a monthly fee equal to 9% of total timeshare sales. 50% of the fees received are used to pay the purchase price for the land and the remaining 50% is recorded as income as received. As of June 30, 2009, the Company has a receivable balance for the sale of land of $18.7 million, $16.0 million of which is classified as long-term and at December 31, 2008 the Company has a receivable balance for the sale of land of $19.9 million, $16.9 million of which is classified as long-term in the accompanying financial statements.

Membership Interests

As of June 30, 2009, BH/RE’s membership interests had not been unitized and BH/RE’s members do not presently intend to unitize these membership interests. Accordingly, management of BH/RE has excluded earnings per share data required pursuant to SFAS No. 128, “Earnings Per Share,” because management believes that such disclosures would not be meaningful to the financial statement presentation.

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141 (revised) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and noncontrolling interest in the acquiree and the goodwill acquired. The revision is intended to simplify existing guidance and converge rulemaking under U.S. generally accepted accounting principles with international accounting rules. This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141 (revised) had no impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.” This statement establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 changes the way the consolidated statement of operations is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests. The statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and those of the noncontrolling owners. This statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of this provision on January 1, 2009 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years beginning after November 15, 2008. SFAS No. 161 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim reporting periods ending after June 15, 2009. Management evaluated the activity of BH/RE through August 14, 2009 (the issue date of the Financial Statements) and concluded that no subsequent events have occurred that would require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.

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4. RECEIVABLES

Receivables consist of the following (in thousands):

	June 30 2009			December 31, 2008
	(unaudited)
Casino	$	16,870		$	13,584
Hotel	6,329			5,999
Land sale receivable	18,689			19,918
Other	4,595			4,368
	46,483			43,869
Long-term portion of land sale receivable	(16,049		)	(16,918		)
Allowance for doubtful accounts	(10,362		)	(8,234		)
Receivables, net	$	20,072		$	18,717

5. PROPERTY AND EQUIPMENT

Property and equipment and the related accumulated depreciation consist of the following (in thousands):

	June 30, 2009			December 31, 2008
	(unaudited)
Land	$	68,479		$	68,479
Building and improvements	502,536			502,305
Furniture, fixtures and equipment	127,427			126,582
Construction in progress	847			464
	699,289			697,830
Accumulated depreciation	(140,184		)	(119,787		)
Property and equipment, net	$	559,105		$	578,043

Depreciation expense was approximately $10.2 million and $20.4 million for the three and six months ended June 30, 2009, respectively, and $9.2 million and $18.0 million for the three and six months ended June 30, 2008, respectively.

6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	June 30, 2009			December 31, 2008
	(unaudited)
$860 million Loan Agreement	$	860,000		$	860,000
Northwind Aladdin obligation under capital lease	26,599			27,562
	886,599			887,562
Current portion of long-term debt	(862,118		)	(2,001		)
Total long-term debt, net	$	24,481		$	885,561

Loan Agreement

On November 30, 2006, OpBiz and PH Fee Owner (collectively the “Borrower”) entered into the Loan Agreement (the “Loan Agreement”) with Column Financial, Inc. (the “Lender”) for a mortgage loan in the principal amount of up to $820 million. The Loan Agreement provided for an initial disbursement in the amount of $759.7 million and a future funding facility in the amount of up to $60.3 million. On July 17, 2007, the Borrower and the Lender entered into an amendment (the “Amendment”) to the Loan Agreement. The Amendment provided for the immediate funding to Borrower of the balance of future funding that was available under the Loan Agreement and established an additional future funding facility in the amount of up to $40 million (“Future Funding Tranche B”). Future Funding Tranche B has the same terms as the Loan Agreement for maturity and extension. The Loan Agreement, as amended by the Amendment, is referred to as the Loan. The Loan is secured by a deed of trust on the PH Resort and a pledge, subject to approval by the Nevada gaming authorities, by MezzCo of its membership interest in OpBiz (as described below).

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date to December 9, 2009. Interest on the Loan is payable monthly and accrues at the 30 day LIBOR rate (0.32% for the June 30, 2009 interest payment) plus 3.25% with a .25% ticking fee on available but un-advanced future funding. Interest on Future Funding Tranche B is payable monthly and accrues at the 30 day LIBOR rate plus 7.50% with a 1.50% ticking fee on available but un-advanced funds. The Loan does not require amortization during the initial term or, provided certain EBITDA thresholds are met, during the extension periods. The Loan requires that the Borrower establish and maintain certain reserves including a reserve for completion of the renovation project, a reserve for projected interest shortfalls, a reserve for payment of property taxes and insurance and a reserve for on-going furniture, fixture and equipment purchases or property improvements. The Loan restricts the Borrower’s ability to spend excess cash flow until certain debt service coverage ratios are met.

The Loan Agreement has two remaining one year extension options available (the second and third extension options). As a condition to exercising each of the second and third extension options, the Borrower must replenish the Interest Reserve Account (as defined in the Loan Agreement) to an amount sufficient to achieve a Debt Service Coverage Ratio (as defined in the Loan Agreement) of 1.05:1.00 and 1.10:1:0, respectively, using the specified terms and parameters outlined in the Loan Agreement. Failure to replenish the Interest Reserve Account is an Event of Default (as defined in the Loan Agreement) and a Specified Event (as defined in the Modification). A Specified Event means the occurrence of certain events, including (a) failure of the Borrower to make certain payments as required by the Modification or the Loan Agreement; (b) certain Events of Default under the Loan Agreement; and (c) an Event of Default under the Modification resulting from failure to pay amounts owed to Lender, failure to pay certain taxes, the incurrence of additional indebtedness in violation of the terms of the Loan Agreement, and the imposition of any lien encumbering the collateral of the loan (for the purpose of a Specified Event, an Event of Default means a Default (as defined in the Loan Agreement) that continues after the applicable notice and cure or grace periods under the terms of the Loan Agreement and related documents).

At December 31, 2008, the Loan was classified as a non current liability in the accompanying financial statements based on the Company’s intent and ability to exercise the second extension option. Operating income for the three and six months ended June 30, 2009 is not sufficient to demonstrate that the Company will generate sufficient cash flow from operations to meet the conditions set forth in the Modification (described above) in order to exercise the second extension option. Accordingly, the Loan has been reclassified to a current liability in the accompanying financial statements as of June 30, 2009.

As further outlined in the Modification dated May 7, 2009 within ten days after Lender’s written demand after the occurrence of a Specified Event as determined by Lender in its sole but good faith discretion, Borrower, MezzCo and TSP Owner LLC shall deliver to Lender (i) one or more deeds conveying fee simple title to all portions of the Property (as defined in the Loan Agreement); (ii) one or more assignments conveying membership interests of MezzCo in OpBiz; and (iii) all other documents and instruments to Lender that may be required to enable Lender to obtain title insurance coverage with respect to fee simple property. In order to permit the Lender to foreclose on the Hotel and Casino separately and to allow OpBiz to continue to operate the casino after such a foreclosure (should the Lender choose to do so), title to the real property comprising the Hotel and Casino (the “Property”) was transferred from OpBiz to PH Fee Owner. OpBiz and PH Fee Owner then entered into a lease pursuant to which OpBiz agreed to continue to operate the Hotel in the manner it had been and to pay monthly rent of approximately $916,000. OpBiz and PH Fee Owner also entered into a lease pursuant to which OpBiz agreed to continue to operate the Casino in the manner it had been and to pay monthly rent of approximately $1,160,000.

In connection with the Loan, the Lender required that Trophy Hunter Investments, Ltd., Bay Harbour 90-1, Ltd. and Bay Harbour Master Ltd., which are affiliates of Bay Harbour Management, execute and deliver a certain Guaranty (as described below). In exchange for Trophy Hunter Investments, Ltd., Bay Harbour 90-1, Ltd. and Bay Harbour Master Ltd. (the “Guarantors”) executing the Guaranty, OpBiz and PH Fee Owner agreed to pay to Trophy Hunter Investments, Ltd. and Bay Harbour Master Ltd. a fee equal to $1,500,000 per year. The fee is accrued as of June 30, 2009 and only payable once OpBiz hits certain debt service coverage ratios defined in the Loan Agreement.

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In connection with the refinancing of the Securities Purchase Agreement and redemption of the Notes, the Restructuring Parties entered into the Restructuring Agreement, dated November 30, 2006, pursuant to which the Restructuring Parties terminated in full the Securities Purchase Agreement, the Subordination Agreement, dated as of August 31, 2004, among MezzCo, OpBiz, the Senior Agent and the Investors, the Pledge Agreement, dated August 9, 2006, among MezzCo and the Collateral Agent, and the Guaranty, dated August 9, 2004, made by OpBiz to the Investors, and amended certain other existing agreements, as described below.

In accordance with the terms of the Restructuring Agreement, the Investors and EquityCo, MezzCo and OpBiz entered into a Release, Consent and Waiver Agreement, pursuant to which the Investors (i) released OpBiz from its guaranteed obligations, under that certain Guaranty Agreement, dated as of August 9, 2004 and executed by OpBiz in favor of the Investors and the collateral agent; (ii) released MezzCo from its pledge of the collateral, under that certain Pledge Agreement, dated as of August 9, 2004, and executed by MezzCo in favor of the collateral agent, the Investors released their security interest, as defined in that certain Security Agreement, as amended by that certain Amendment to Security Agreement, in each case dated as of August 9, 2004 and executed by the Company in favor of the collateral agent; (iii) released and terminated the Deed of Trust, dated as of August 9, 2004 and executed by MezzCo in favor of the Trustee (as defined therein) for the benefit of the collateral agent; (iv) released and terminated the Investors’ security interest in the securities account, provided for that certain Securities Account Control Agreement, dated as of August 9, 2004 and executed by the Company, the collateral agent and Wells Fargo Bank, N.A.

Additionally, MezzCo, EquityCo, and the Investors entered into an Amended and Restated Investor Rights Agreement, dated November 30, 2006 (the “A&R Investor Rights Agreement”), to amend and restate the original Investor Rights Agreements among the parties thereto, dated August 9, 2004.

Pursuant to the Restructuring Agreement, the Restructuring Parties agreed to amend the Warrants by issuing Amended and Restated Warrants to Purchase Membership Interests of MezzCo (the “A&R Warrants”) to the Investors upon approval by the Nevada gaming authorities. The A&R Warrants will be exercisable at any time, subject to the approval of the Nevada gaming authorities, at a purchase price of $0.01 per unit. Subject to the approval of the Nevada gaming authorities, the warrants may be exercised to purchase either voting or non-voting membership interests of MezzCo or a combination thereof through the expiration date of December 9, 2012. In addition to customary anti-dilution protections, the number of units representing MezzCo membership interests issuable upon exercise of the A&R Warrants may be increased from time to time upon the occurrence of certain events as described in the A&R Warrants. Holders of the A&R Warrants and any securities issued upon exercise thereof may require MezzCo to redeem such securities commencing on December 9, 2011 at a redemption price based upon a formula set forth in the A&R Warrants. These rights expire upon completion of a public offering by MezzCo or OpBiz.

In connection with the Restructuring Agreement, EquityCo entered into a Guaranty Agreement, dated November 30, 2006 (the “Guaranty Agreement”), in favor of the Investors and the Collateral Agent, pursuant to which EquityCo has guaranteed the obligation of MezzCo to pay the redemption price under the A&R Warrants prior to expiration and any indebtedness arising under the Put Note (as defined in the A&R Warrants).

EquityCo and the Collateral Agent also entered into a Pledge Agreement, dated November 30, 2006 (the “Pledge Agreement”), pursuant to which EquityCo has, subject to approval of the Nevada gaming authorities, pledged and granted a first priority security interest to the Collateral Agent for the ratable benefit of the Investors in the membership interests of EquityCo in MezzCo. The Pledge Agreement, once approved, will secure the full payment of the Put Right (as defined in the A&R Warrants), including any obligations under the Put Note.

On November 30, 2006, MezzCo entered into an Indemnification Agreement with the Investors, pursuant to which MezzCo agreed to indemnify the Investors for any losses caused by (i) lack of gaming approvals for the issuance of the A&R Warrants, (ii) lack of gaming approval for the granting of a lien by EquityCo in the equity interests in MezzCo, as described in the Pledge Agreement, and (iii) the inability of the Investors to exercise the Warrants until July 1, 2007.

Energy Services Agreement

On January 30, 2009, OpBiz entered into the Fifth Amendment to Energy Services Agreement (the “Fifth Amendment”) with Northwind Aladdin (“Northwind”), the third party that owns and operates a central utility plant on land leased from OpBiz. The plant supplies hot and cold water and emergency power to the property under a contract which expires in 2020. The Fifth Amendment assigns a portion of the capacity to heat and chill water provided to OpBiz to Westgate for operation of the timeshare tower. Operation of the timeshare tower is fully described in Note 3—Summary of Significant Accounting Policies, Timeshare Purchase Agreement. The Fifth Amendment provides for Westgate to assume a pro-rata portion of the debt and equity obligations payable by OpBiz to Northwind. OpBiz’s obligations to Northwind, recorded as a capital lease in the accompanying financial statements, will be reduced

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by the pro-rata assignment to Westgate as payments are made. Payments under the Northwind agreement made by OpBiz total approximately $292,000 per month.

7. MEMBERSHIP INTERESTS

The non-voting interests in BH/RE are owned 43.27% by BHCH I, 15.61% by BHCH II and 41.13% by OCS and the voting interests are owned 50% by Douglas P. Teitelbaum and 50% by Robert Earl. BHCH is controlled by Mr. Teitelbaum, managing principal of Bay Harbour Management, an investment management firm. BHCH was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by funds managed by Bay Harbour Management. OCS is wholly-owned and controlled by Mr. Earl and holds Mr. Earl’s investment in BH/RE. Mr. Earl is the founder, chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is a director of Planet Hollywood. Collectively, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood.

BH/RE owns 88.61% of the membership interests in EquityCo and Starwood owns 11.39%. OpBiz is a wholly owned subsidiary of EquityCo. BH/RE and Starwood made total equity contributions of $20 million each in EquityCo to fund the costs of the planned renovations to the Aladdin. Starwood’s equity interest in EquityCo is reflected as non controlling interest in the accompanying consolidated financial statements.

BH/RE has the option to purchase all of Starwood’s membership interests in EquityCo if OpBiz is entitled to terminate the hotel management contract between OpBiz and Sheraton (see Note 8) as a result of a breach by Sheraton. Starwood can require EquityCo to purchase all of its membership interests in EquityCo if the hotel management contract is terminated for any reason other than in accordance with its terms or as the result of a breach by Sheraton. In addition, BH/RE and Starwood entered into a registration rights agreement with respect to their membership interests in EquityCo.

The Company has entered into various employment agreements, as amended, with several executives. The employment agreements have initial terms of two to three years. The employment agreements provide that the executives will receive a base salary with either mandatory increases or annual adjustments and annual bonus payments. In addition, depending on the terms of the employment agreements, these executives are entitled to options to purchase between 0.2% and 3% of the equity of MezzCo.

In accordance with the provisions of SFAS No. 123(R), “Share-Based Payments” the Company recognizes compensation cost relating to share-based payment transactions in the operating expenses. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s estimated requisite service period (generally the vesting period of the equity award) on a straight-line basis. Estimates are revised if subsequent information indicates that forfeitures will differ from previous estimates, and the cumulative effect on compensation cost of a change in the estimated forfeitures is recognized in the period of the change. Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with APB No. 25, and related interpretations. The Company also followed the disclosure requirements of SFAS No. 123 as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.”

There is no compensation cost related to non-qualified stock options recognized in operating results for the three or six months ended June 30, 2009 and there is $3,000 of compensation cost, which approximated fair value, related to non-qualified stock options recognized in operating results (included in selling, general and administrative expenses) for the three and six months ended June 30, 2008.

8. RELATED PARTY TRANSACTIONS

Planet Hollywood Licensing Agreement

OpBiz, Planet Hollywood and certain of Planet Hollywood’s subsidiaries have entered into a licensing agreement pursuant to which OpBiz received a non-exclusive, irrevocable license to use various “Planet Hollywood” trademarks and service marks. Under the licensing agreement, OpBiz also has the right, but not the obligation, to open a Planet Hollywood restaurant and one or more Planet Hollywood retail shops under a separate restaurant agreement with Planet Hollywood. OpBiz pays Planet Hollywood a quarterly licensing fee of 1.75% of OpBiz’s non-casino revenues. The initial term of the licensing agreement will expire in 2028. OpBiz can renew the licensing agreement for three successive 10-year terms. The property officially began operation as the PH Resort on April 17, 2007 and began paying fees pursuant to the licensing agreement as of that date. Licensing fee expenses related to the Planet Hollywood Licensing Agreement totaled approximately $0.7 million and $1.3 million for the three and six months ended June 30, 2009, respectively, and $0.8 million and $1.6 million for the three and six months ended June 30, 2008, respectively.

In addition to being a manager of BH/RE, Mr. Earl is the chief executive officer and chairman of the board of directors of Planet Hollywood. Similarly, Mr. Teitelbaum is a manager of BH/RE and a director of Planet Hollywood. Together, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood owned by the trust.

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Sheraton Hotel Management Contract

OpBiz and Sheraton have entered into a management contract pursuant to which Sheraton provides hotel management services to OpBiz, assists OpBiz in the management, operation and promotion of the Hotel and permits OpBiz to use the Sheraton brand and trademarks in the promotion of the Hotel. OpBiz pays Sheraton a monthly fee of 4% of gross hotel revenue and certain food and beverage outlet revenues and 2% of rental income from third-party leases in the hotel. The management contract has a 20-year term commencing on the completion of the Aladdin acquisition and is subject to certain termination provisions by either OpBiz or Sheraton. Sheraton is a wholly owned subsidiary of Starwood, which has an 11.39% equity interest in EquityCo and has the right to appoint two members to the EquityCo board of managers. Management fee expenses related to the Starwood management contract totaled approximately $2.2 million and $2.6 million for the three months ended June 30, 2009 and 2008, respectively, and $4.3 million and $5.2 million for the six months ended June 30, 2009 and 2008, respectively.

Planet Hollywood (LV) LLC Lease Agreement

OpBiz and Planet Hollywood (LV) LLC (“Planet Hollywood LV”) have entered into a lease agreement pursuant to which Planet Hollywood LV, as tenant, operates a new concept it has developed for an upscale 24-hour diner named “Planet Dailies” within approximately 11,500 square feet of space located on the premises owned by OpBiz. Planet Hollywood LV pays OpBiz base rent in the amount of $500,000 per year (subject to annual increase adjustments), in addition to percentage rent of up to 12% based on annual gross sales (to the extent such percentage rent exceeds base rent). The initial term of the lease agreement will expire in 2017. Planet Hollywood LV can renew the lease agreement for two successive 5-year terms. Planet Dailies began operation on April 1, 2007 and began paying rent pursuant to the lease agreement as of that date. Rent received from Planet Dailies totaled approximately $0.2 million and $0.3 million for the three and six months ended June 30, 2009, and $0.1 million and $0.2 million for the three and six months ended June 30, 2008.

Planet Hollywood LV is wholly owned by, and a subsidiary of, Planet Hollywood International, Inc. Together, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood International, Inc. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood International Inc. owned by the trust.

Earl of Sandwich (Las Vegas), LLC Lease Agreement

OpBiz and Earl of Sandwich (Las Vegas), LLC (“Earl of Sandwich”) have entered into a lease agreement pursuant to which Earl of Sandwich, as tenant, operates a restaurant named “Earl of Sandwich” within approximately 3,030 square feet of space located on the premises owned by OpBiz. Earl of Sandwich pays OpBiz base rent in the amount of $161,600 per year (subject to annual increase adjustments), in addition to percentage rent of up to 12% based on annual gross sales (to the extent such percentage rent exceeds base rent). The initial term of the lease agreement will expire in 2017. Earl of Sandwich can renew the lease agreement for two successive 5-year terms. Earl of Sandwich began operation in September 2007 and began paying rent pursuant to the lease agreement as of that date. Rent received from Earl of Sandwich totaled approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2009, and $0.1 million and $0.2 million for the three and six months ended June 30, 2008.

Earl of Sandwich is wholly and indirectly owned by a trust for the benefit of Mr. Earl’s children. Mr. Earl disclaims beneficial ownership of any equity of Earl of Sandwich owned by the trust.

Guaranty Agreement

In connection with the Loan, the Lender required that Trophy Hunter Investments, Ltd., Bay Harbour 90-1, Ltd. and Bay Harbour Master Ltd., which are affiliates of Bay Harbour Management, execute and deliver a certain Guaranty (see Note 6.—Long-Term Debt). In exchange for executing the Guaranty, OpBiz and PH Fee Owner agreed to pay Trophy Hunter Investments, Ltd. and Bay Harbour Master Ltd. a fee equal to $1,500,000 per year. The fee is accrued and only payable once OpBiz achieves certain debt service coverage ratios defined in the Loan Agreement.

Aircraft Charter Arrangements

In the ordinary course from time to time the Company utilizes the services of private aircrafts for charter. The Company currently utilizes several different third party aircraft management/charter vendors for the provision of charter flights depending upon aircraft size, availability and location. One or more affiliates of BH/RE have placed an owned aircraft in service with one such vendor. From time to time, the Company may utilize the services of this vendor which may involve the affiliates’ owned aircraft provided that the rate charged for that aircraft shall be at arm’s length and fair market for similar aircraft.

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9. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 does not establish requirements for any new fair value measurements, but it does apply to existing accounting pronouncements in which fair value measurements are already required. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for financial assets and liabilities and January 1, 2009, for non-financial assets and liabilities. Although the adoption of SFAS 157 has not materially impacted its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2009, the Company held certain items that are required to be measured at fair value on a recurring basis. These included an interest rate cap contract and certain put warrants to purchase 17.5% of fully diluted equity interest in the Company. The fair value of interest rate cap contract is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the cap contract as Level 2. The Company determines the value of the put warrants using a discounted cash flow model which is based primarily on projected future cash flows and asset volatilities of comparable companies. Therefore, the Company has categorized these put warrants as Level 3.

In accordance with the fair value hierarchy described in SFAS No. 157, the following table shows the fair value of our financial assets and financial liabilities as of June 30, 2009:

	December 31, 2008		June 30, 2009		Level 1		Level 2		Level 3

Assets:
Interest rate cap	$	26,000	$	18	$	—	$	18	$	—

Liabilities:
Put warrants	$	1,537,000	$	1,537,000	$	—	$	—	$	1,537,000

The following section describes the valuation methodologies used to measure fair value, key inputs, and significant assumptions:

Interest rate cap — The estimated fair value of our interest rate cap is based upon quoted prices available in active markets and represent the amounts we would expect to receive if we sold these marketable securities.

Put warrants — The estimated fair value of our put warrants is based on a discounted cash flow model and asset volatilities of comparable companies over the past three years.

Fair Value of Financial Instruments

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:

Cash Equivalents

The fair value of the Company’s cash equivalents approximates their carrying value due to the short maturity of the cash equivalents.

Accounts Receivable

The fair value of the Company’s casino and hotel receivable approximates their carrying value as they are non-interest bearing and due to their short maturity.

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Land Receivable

The Company did not estimate the fair value of land receivable as the Company determined, in accordance with SFAS 107, that it is not practicable to estimate the fair value of its land receivable. Under the Timeshare Purchase Agreement, the Company receives fees each year based on sales of timeshare units until the timeshare units are one hundred percent sold out. The fees are received monthly and equal to 9% of total timeshare sales. The carrying value of the land receivable at June 30, 2009 and December 31, 2008 were approximately $18.7 million and $19.9 million, respectively.

Long-term Debt

The fair value of the Company’s long-term debts approximates its carrying value, as it is variable-rate debt. The fair value of the Company’s capital lease approximates its carrying value.

The estimated fair values of the Company’s financial instruments are as follows (in thousands):

	June 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	16,093	$	16,093	$	23,881	$	23,881
Accounts Receivable	20,072		20,072		18,717		18,717
Land Receivable	18,689		18,689		19,918		19,918

Financial liabilities:
Long-Term debt	886,599		886,599		887,562		887,562

10. INCOME TAXES

The condensed consolidated financial statements include the operations of BH/RE and its majority-owned subsidiaries: EquityCo, MezzCo, OpBiz, PH Mezz II, PH Mezz I, PH Fee Owner and TSP Owner. BH/RE and EquityCo are limited liability companies and are taxed as partnerships for federal income tax purposes. However, MezzCo has elected to be taxed as a corporation for federal income tax purposes. OpBiz and PH Mezz II, wholly-owned subsidiaries of MezzCo, will be treated as divisions of MezzCo for federal income tax purposes, and accordingly, will also be subject to federal income taxes. Additionally, PH Mezz I, a wholly-owned subsidiary of PH Mezz II, PH Fee Owner, a wholly owned subsidiary of PH Mezz I and TSP Owner, a wholly owned subsidiary of PH Fee Owner will also be subject to federal income taxes.

MezzCo, OpBiz, PH Mezz II, PH Mezz I, PH Fee Owner and TSP Owner account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires the recognition of deferred income tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is recorded.

Management believes it is more likely than not that its net deferred tax asset will not be realized and has therefore recorded a valuation allowance against this net deferred tax asset.

As of December 31, 2008, MezzCo has federal net operating losses of $297.6 million which begin to expire after 2024. MezzCo has general business credit carryforwards at December 31, 2008 of $2.0 million which begin to expire after 2024 and a minimum tax credit carryforward of $7,000.

As discussed in Note 3 to the condensed consolidated financial statements, the Company accounts for income taxes in accordance with the provisions of FIN 48. Upon the adoption of FIN 48, the Company reclassified the uncertain tax benefits as required and reclassified a portion of the existing allowance. Accordingly, there has been no adjustment to retained earnings recorded as a result of the FIN 48 reclassifications. The Company had uncertain tax benefits of $2.1 million as of June 30, 2009 and December 31, 2008. The Company recognizes penalties and interest as a component of income tax expense. Management does not expect any penalty assessment associated with the adoption of FIN 48. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2004.

11. COMMITMENTS AND CONTINGENCIES

Litigation

In the normal course of business, the Company is subject to various litigation claims and assessments. The Company is not

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of Management’s Discussion and Analysis of Financial Condition and Results of Operations

Set forth below is a discussion of the financial condition and results of operations of BH/RE and its subsidiaries for the periods covered in this report. The discussion of operations herein focuses on events and the revenues and expenses during the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008.

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to the consolidated financial statements of BH/RE included in BH/RE’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009, and the unaudited condensed consolidated financial statements and notes hereto included in Part I, Item 1 of this report.

Critical Accounting Policies and Estimates

Significant Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. Certain policies, including the determination of bad debt reserves, the estimated useful lives assigned to assets, asset impairment, insurance reserves and the calculation of liabilities, require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from our estimates. To provide an understanding of the methodology we apply, our significant accounting policies and basis of presentation are discussed below, as well as, where appropriate, in the notes to the condensed consolidated financial statements.

Property and Equipment

Buildings		40 years
Building improvements		15 to 40 years
Furniture, fixtures and equipment		3 to 7 years

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Derivative Instruments and Hedging Activities

The terms of the Loan Agreement required the Company to enter into an interest rate cap agreement, which expires on December 9, 2009, to manage interest rate risk. The Company did not apply cash flow hedge accounting to this instrument. Although this derivative was not afforded cash flow hedge accounting, the Company retained the instrument as protection against the interest rate risk associated with its long-term borrowings. The Company accounts for its derivative activity in accordance with SFAS No. 133 and accordingly, recognizes all derivatives on the balance sheet at fair value with any in change in fair value being recorded in interest income or expense in the accompanying consolidated statements of operations.

Revenue Recognition and Promotional Allowances

Players’ Club Program

Self-Insurance Accruals

Income Taxes

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related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is recorded.

The Company accounts for income taxes in accordance with the provisions of FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes — an interpretation of FASB No. 109” (“FIN 48”), which clarifies certain aspects of accounting for uncertain tax positions, including issues related to the recognition and measurement of those tax positions. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.

Timeshare Purchase Agreement

Pursuant to an agreement dated December 10, 2004 and modified on September 10, 2007, OpBiz entered into a Timeshare Purchase Agreement with Westgate Resorts, LTD. (“Westgate”), a Florida limited partnership, whereby OpBiz agreed to sell approximately 4 acres of land adjacent to the PH Resort to Westgate (the “Timeshare Parcel”), who plans to develop, market, manage and sell timeshare units on the land. On September 19, 2007, the sale of the land and deed transfer to Westgate was completed. In connection with the closing of the transaction, OpBiz, PH Fee Owner, LLC and TSP Owner, LLC, entered into a modification agreement (the “Modification Agreement”) with Westgate. The Modification Agreement defines the development phases for the Timeshare Parcel and outlines the permitted number of timeshare, whole ownership and penthouse units. The Modification Agreement also outlines permitted amenities on the Timeshare Parcel and documents Seller’s approval of Westgate’s financing for the project.

Pursuant to the terms of the Timeshare Purchase Agreement, the purchase price of the land was $29.5 million. The Company was carrying the land at a value of $29.5 million. Accordingly, no gain on the sale of this land has been recognized in the accompanying financial statements. Westgate pays the Company a monthly fee equal to 9% of total timeshare sales. 50% of the fees received are used to pay the purchase price for the land and the remaining 50% is recorded as income as received. As of June 30, 2009, the Company has a receivable balance for the sale of land of $18.7 million, $16.0 million of which is classified as long-term and at December 31, 2008 the Company had a receivable balance for the sale of land of $19.9 million, $16.9 million of which was classified as long-term in the accompanying financial statements.

Membership Interests

As of June 30, 2009, BH/RE’s membership interests had not been unitized and BH/RE’s members do not presently intend to unitize these membership interests. Accordingly, management of BH/RE has excluded earnings per share data required pursuant to SFAS No. 128, “Earnings Per Share,” because management believes that such disclosures would not be meaningful to the financial statement presentation.

Recently Issued Accounting Pronouncements

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Results of Operations

Current Economic Conditions and Comparability of Results

The outlook for the leisure and gaming industries remains highly uncertain due to a number of factors affecting consumers, including a slowdown in global economies, reduced consumer spending, and restricted credit markets. Reduced casino volumes, a reduced demand for hotel rooms and a highly competitive market driving hotel rates down have all contributed to declines in the overall Las Vegas market. This slow down was particularly significant in the fourth quarter of 2008 and has continued into the second quarter of 2009. 2008 was the PH Resort’s first full year of operation as a rebranded property. We believe that second quarter 2009 operating results were negatively impacted by the current market conditions and that we will continue to experience lower than historical hotel occupancy, room rates and casino volumes in 2009. As a result, we have increasingly focused on efficiency initiatives to control expenses and improve performance. We are continually reviewing the costs and marketing opportunities to ensure maximum operating performance in the face of the current economic conditions.

The following table highlights the results of operations for the three and six months ended June 30, 2009 and 2008, respectively (dollars in thousands, unaudited).

	Three Months Ended June 30,					Percent		Six Months Ended June 30,					Percent
	2009			2008		Change		2009			2008		Change
Net Revenues	$	60,587		$	72,226	(16.1	)%	$	117,662		$	146,219	(19.5	)%
Operating Expenses:
Casino	18,715			18,980		(1.4	)%	36,130			39,400		(8.3	)%
Hotel	9,448			10,764		(12.2	)%	18,849			21,330		(11.6	)%
Food and Beverage	8,870			9,614		(7.7	)%	17,507			18,683		(6.3	)%
Other	466			765		(39.1	)%	922			1,048		(12.0	)%
Selling, general and administrative	17,313			21,038		(17.7	)%	33,016			40,012		(17.5	)%
Depreciation and amortization	10,212			9,215		10.8	%	20,396			18,016		13.2	%
Operating (Loss) Income	$	(4,437	)	$	1,850	(339.8	)%	$	(9,158	)	$	7,730	(218.5	)%

Net revenues for the three and six months ended June 30, 2009 decreased when compared to the three and six months ended June 30, 2008. We believe that our revenues for the three and six months ended June 30, 2009 have been negatively impacted by the weakened United States economy. Disruptions in the housing and stock markets, high travel costs, along with declines in the Las Vegas market due to decreased visitor volume and lower customer spending per trip have and may continue to adversely impact our revenues. We have and will continue to aggressively monitor and reduce expenses to improve operating margins during 2009.

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The following table highlights the various sources of our revenues and expenses for the three and six months ended June 30, 2009 and 2008, respectively (dollars in thousands, unaudited).

	Three months ended								Six months ended
	June 30,						Percent		June 30,						Percent
	2009			2008			Change		2009			2008			Change
Casino revenues	$	28,336		$	30,965		(8.5	)%	$	53,687		$	63,312		(15.2	)%
Casino expenses	18,715			18,980			(1.4	)%	36,130			39,400			(8.3	)%
Margin	34.0		%	38.7		%			32.7		%	37.8		%
Hotel revenues	$	22,839		$	30,363		(24.8	)%	$	45,598		$	61,316		(25.6	)%
Hotel expenses	9,448			10,764			(12.2	)%	18,849			21,330			(11.6	)%
Margin	58.6		%	64.5		%			58.7		%	65.2		%
Food and beverage revenues	$	12,700		$	13,781		(7.8	)%	$	24,400		$	28,038		(13.0	)%
Food and beverage expenses	8,870			9,614			(7.7	)%	17,507			18,683			(6.3	)%
Margin	30.2		%	30.2		%			28.3		%	33.4		%
Other revenues	$	3,318		$	4,071		(18.5	)%	$	6,198		$	7,853		(21.1	)%
Other expenses	466			765			(39.1	)%	922			1,048			(12.0	)%
Margin	86.0		%	81.2		%			85.1		%	86.7		%
Selling, general and administrative expenses	$	17,313		$	21,038		(17.7	)%	$	33,016		$	40,012		(17.5	)%
% of revenue	25.8		%	26.6		%			25.4		%	24.9		%

Casino

Casino revenue is derived primarily from patrons wagering on slot machines, table games and other gaming activities. Table games generally include blackjack or twenty one, craps, baccarat and roulette. Other gaming activities include the race and sports books, poker and keno. Casino revenue is defined as the win from gaming activities, computed as the difference between gaming wins and losses.

Casino revenues vary from time-to-time due to general economic conditions, competition, popularity of entertainment offerings, table game hold, slot machine hold and occupancy percentages in the Hotel. Casino revenues also vary depending upon the amount of gaming activity, as well as variations in the odds for different games of chance. Casino revenue is recognized at the end of each gaming day.

Casino revenues decreased 8.5% to $28.3 million for the three months ended June 30, 2009, as compared to $31.0 million for the three months ended June 30, 2008. Table games revenue for the three months ended June 30, 2009, decreased by approximately $0.3 million or 2.6% when compared to the three months ended June 30, 2008. Table drop for the three months ended June 30, 2009 decreased $1.5 million or 2.0% when compared to the same three month period in the prior year. Overall table hold for the three months ended June 30, 2009 was 16.1% compared to 15.4% for the three months ended June 30, 2008. Relationship marketing efforts, focused promotional efforts and a slightly higher hold percentage allowed us to maintain fairly consistent table revenue despite the continued operating challenges presented by market conditions. Slot revenue for the three months ended June 30, 2009 decreased approximately $2.3 million when compared to the same three month period in prior year. Overall slot win percent was 8.4% for the three months ended June 30, 2009 compared to 8.3% for the three months ended June 30, 2008. Slot handle for the three months ended June 30, 2009 decreased $30.0 million or 11.7% when compared to the same three month period in the prior year. Decreases in occupied hotel rooms, visitor volume and spend per visitor contributed to the decline in slot handle and revenue. Second quarter initiatives in slots included a reconfiguration of the gaming floor designed to enhance trial visitation from strip pedestrian traffic and increase the length of stay for rated slot players. Combined revenues from the race and sports book and poker for the three months ended June 30, 2009 increased by 2.4% when compared to the three month period ended June 30, 2008 mainly due to a better hold on sporting events.

Casino expenses decreased 1.4% to $18.7 million for the three months ended June 30, 2009, as compared to $19.0 million for the three months ended June 30, 2008. The casino operating margin decreased 4.7% when comparing the same three month periods. Targeted marketing expenses focused on attracting and retaining casino customers through expansion of loyalty programs and promotional activities, along with successful administrative expense reduction plans, led to the overall expense reduction for the quarter.

Casino revenues decreased 15.2% to $53.7 million for the six months ended June 30, 2009, as compared to $63.3 million for the six months ended June 30, 2008. Table games revenue for the six months ended June 30, 2009 decreased by approximately $3.5 million or 14.0% when compared to the six months ended June 30, 2008. Table drop for the six months ended June 30, 2009

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decreased $8.2 million or 5.3% when compared to the same six month period in the prior year. Overall table hold for the six months ended June 30, 2009 was 14.7% compared to 16.2% for the six months ended June 30, 2008. Reduced visitor volumes and reduced wagering per visitor as well as a lower hold percent in the first quarter of 2009 contributed to the decline in table revenues. Slot revenue for the six months ended June 30, 2009 decreased approximately $5.6 million when compared to the same six month period in the prior year. Overall slot win percent was 8.4% for the six months ended June 30, 2009 compared to 7.9% for the six months ended June 30, 2008. Slot handle for the six months ended June 30, 2009 decreased $96.2 million 18.3% when compared to the same six month period in the prior year. Decreases in occupied hotel rooms, visitor volume and spend per visitor contributed to the decline in slot handle and revenue. Combined revenues from the race and sports book and poker increased by 2.4% for the six months ended June 30, 2009 when compared to the six months ended June 30, 2008. The increase is mainly due to a better hold on sporting events wagering.

Casino expenses decreased 8.3% to $36.1 million for the six months ended June 30, 2009, as compared to $39.4 million for the six months ended June 30, 2008. Operating margin decreased 5.1% when comparing the same six month periods. We continue to focus on expense reduction plans and targeted customer reinvestment expense promotions in the casino division.

Hotel

Hotel revenue is derived from rooms and suites rented to guests. “average daily rate” is an industry specific term used to define the average amount of revenue per rented room per day. “Occupancy percentage” defines the total percentage of rooms occupied and is computed by dividing the number of rooms occupied by the total number of rooms available. Hotel revenue is recognized at the time the room is provided to the guest.

Hotel revenues of $22.8 million for the three months ended June 30, 2009 were 24.8% lower than the three months ended June 30, 2008 driven by a decline in both occupancy and average daily room rate. Hotel occupancy decreased 5.4 percentage points to 91.6% for the three months ended June 30, 2009 compared to 97.0% for the three months ended June 30, 2008. There were approximately 8,377 more room nights available in the three months ended June 30, 2009 when compared to the three months ended June 30, 2008 due to the completion of the room renovation project that was underway in 2008. Average daily room rates decreased to $96 for the three months ended June 30, 2009 compared to $136 for the three months ended June 30, 2008. Las Vegas visitor volume, room occupancy and average daily rate are all down in the second quarter of 2009 when compared to the second quarter of 2008 and as a result, many of the Strip properties are reducing room rate to maintain occupancy. The decline in average daily room rate at the PH Resort is indicative of the rate reductions necessary to remain competitive in the current economic operating environment. Additionally, we have experienced cancellations and attrition in the higher rated convention segment as the economic slowdown continues to reduce the demand for business travel.

Hotel expenses decreased 12.2% to $9.4 million for the three months ended June 30, 2009, as compared to $10.8 million for the three months ended June 30, 2008. Operating margin decreased 5.9% for the three month period ended June 30, 2009 when compared to the same three month period in the previous year. We continue to focus on expense savings initiatives and unique marketing opportunities to maximize profitability in reaction to the reductions in average daily rate and occupancy.

Hotel revenues of $45.6 million for the six months ended June 30, 2009, were 25.6% lower that the six months ended June 30, 2008. Hotel occupancy percentage was 88.4% for the six months ended June 30, 209, as compared to 95.8% for the six months ended June 30, 2008. Average daily room rates decreased to $110 for the six months ended June 30, 2009, as compared to $142 for the six months ended June 30, 2008.

Hotel expenses decreased 11.6% to $18.9 million for the six months ended June 30, 2009, as compared to $21.3 million for the six months ended June 30, 2008. Operating margin decreased 6.5 percentage points over the same six month period.

Food and Beverage

Food and beverage revenues are derived from food and beverage sales in the restaurants, bars, room service, banquets and entertainment outlets. Food and beverage revenue is recognized at the time the food and/or beverage is provided to the guest.

Food and beverage revenues decreased 7.8% to $12.7 million for the three months ended June 30, 2009, as compared to $13.8 million for the three months ended June 30, 2008. Food revenue decreased 17.8% when compared to the same three month period in the previous year while beverage revenue declined 1.6%. The PH Resort operates Starbucks, the Spice Market Buffet, room service, the pool café, banquets and the casino bars. The remaining food outlets are leased to third party operators. The food and beverage revenue declines are mainly attributable to a reduction in buffet covers and banquet revenue. Banquet revenue declines are the direct result of the decline in convention business in the hotel and continued reductions in consumer spending.

Food and beverage expenses decreased 7.7% to $8.9 million for the three months ended June 30, 2009, as compared to $9.6 million for the three months ended June 30, 2008. Operating margin remained consistent at 30.2% when compared to the same three

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Depreciation and Amortization

Depreciation and amortization expense of $10.2 million for the three months ended June 30, 2009 increased when compared to $9.2 million in expense for the three months ended June 30, 2008. Depreciation and amortization expense of $20.4 million for the six months ended June 30, 2009 increased when compared to $18.0 million in expense for the six months ended June 30, 2008. The increase in depreciation expense is a direct result of the additional assets placed in service once the renovation was complete.

Net Interest Expense

Net interest expense decreased to $9.2 million for the three months ended June 30, 2009, as compared to $16.2 million for the three months ended June 30, 2008. Net interest expense decreased to $18.5 million for the six months ended June 30, 2009, as compared to $34.1 million for the six months ended June 30, 2008. The decrease in interest expense is directly related to the reduction in the interest rates.

Liquidity and Capital Resources

During the six months ended June 30, 2009, we utilized cash flows from operating activities of approximately $9.7 million and had a balance of $16.1 million in cash and cash equivalents as of June 30, 2009. We also had current restricted cash and cash equivalents of approximately $35.4 million and long-term restricted cash and cash equivalents of approximately $6.4 million at June 30, 2009. The current restricted cash and cash equivalents are primarily reserve accounts that have been established under the Loan Agreement to guarantee payment of property taxes, insurance and furniture, fixtures and equipment replacement. Current restricted cash also includes the balance in the cash management account. Under the terms of the Loan Agreement, all cash receipts are deposited into a cash management account under Lender control which is used to fund reserves and operating expenses. The long-term cash and cash equivalents include funds held in an interest reserve which will be released once certain debt service coverage ratios are achieved. See “Description of Certain Indebtedness” below.

Our primary remaining cash requirements for 2009 are expected to include (i) approximately $4.0 million for maintenance capital expenditures or replacement furniture, fixtures and equipment, (ii) up to approximately $16.8 million in interest payments on our debt, (iii) approximately $1.7 million in payments to Northwind under the Energy Services Agreement and (iv) a $2.1 million fee required to exercise the second extension of the Loan.

Substantially all of the Company’s debt is an $860 million commercial mortgage which has two remaining one year extension options available (the second and third extension options). As a condition to exercising each of the second and third extension options, the Borrower must replenish the Interest Reserve Account (as defined in the Loan Agreement) to an amount sufficient to achieve a Debt Service Coverage Ratio (as defined in the Loan Agreement) of 1.05:1.00 and 1.10:1:0, respectively, using the specified terms and parameters outlined in the Loan Agreement. If the Company does not exercise the second extension option, the Loan will mature on December 9, 2009. At December 31, 2008, the Loan was classified as a non current liability in the accompanying financial statements based on the Company’s intent and ability to exercise the second extension option. Operating income for the six months ended June 30, 2009 is not sufficient to demonstrate that the Company will generate sufficient cash flow from operations to meet the conditions set forth to exercise the second extension option. Accordingly, the Loan has been reclassified to a current liability in the accompanying financial statements as of June 30, 2009.

Absent a capital contribution from the members of EquityCo, an equity investment by third parties or a restructuring of the Loan Agreement, we do not believe that cash generated from operations, cash held in reserve by the lenders under the Loan Agreement and cash made available under the Modification to the Loan Agreement will be adequate to meet the anticipated working capital and debt service obligations of OpBiz through December 31, 2009, including interest payments due on the Loan for upcoming monthly payments. The Loan Agreement is a commercial mortgage. As such, the Loan Agreement as amended and the EquityCo subsidiary corporate structures and operating agreements (including bankruptcy remote entities) restrict the ability of OpBiz and PH Fee Owner to file a voluntary petition for relief under the bankruptcy code. Additionally, as detailed in Description of Certain Indebtedness below, in connection with the execution of the Loan, the Guarantors executed guarantees against certain actions including a voluntary or collusive bankruptcy filing. As currently structured, the Loan Agreement requires that a contribution sufficient to bring the Interest Reserve Account to a level sufficient to cover the interest reserve test (as fully defined in the Loan Agreement) will be required to exercise the next extension. If the Company is not able to exercise the second extension option, the Loan will mature on December 9, 2009. The Company is currently seeking a modification of the Loan Agreement and access to funds in the Interest Reserve Account, as well as additional capital investments to satisfy the requirements necessary to exercise the second extension option or otherwise defer maturity of the Loan and to provide funds to pay upcoming monthly interest payments. Failure to maintain sufficient cash flow to fund operations within the parameters defined in the Loan, failure to replenish the Interest Reserve Account or failure to pay any portion of the Debt (as defined in the Loan Agreement) when due is each an Event of Default (as defined in the Loan Agreement) and a Specified Event (as defined in the Modification). As described in Description of Certain Indebtedness, the Modification requires us, within ten days after Lender’s written demand after the occurrence of a Specified Event to deliver to Lender (i) one or more deeds conveying fee simple title to all portions of the Property (as defined in the Loan Agreement); (ii) one or more assignments conveying membership interests of MezzCo in OpBiz; and (iii) all other documents and instruments to Lender that may be required to enable Lender to obtain title insurance coverage with respect to fee simple property.

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Description of Certain Indebtedness

Loan Agreement

The initial maturity date of the Loan was December 9, 2008 with three one year extension options available, subject to payment of a fee (applicable to the second and third extensions only) and the Borrower’s compliance with the requirements for an extension outlined in the Loan Agreement. The Borrower exercised the first available extension option thereby extending the maturity date to December 9, 2009. Interest on the Loan is payable monthly and accrues at the 30 day LIBOR rate (0.32% for the June 30, 2009 interest payment) plus 3.25% with a .25% ticking fee on available but un-advanced future funding. Interest on Future Funding Tranche B is payable monthly and accrues at the 30 day LIBOR rate plus 7.50% with a 1.50% ticking fee on available but un-advanced funds. The Loan does not require amortization during the initial term or, provided certain EBITDA thresholds are met, during the extension periods. The Loan requires that the Borrower establish and maintain certain reserves including a reserve for completion of the renovation project, a reserve for projected interest shortfalls, a reserve for payment of property taxes and insurance and a reserve for on-going furniture, fixture and equipment purchases or property improvements. The Loan restricts the Borrower’s ability to spend excess cash flow until certain debt service coverage ratios are met.

On May 7, 2009, the Borrower, Planet Hollywood International, Inc., Planet Hollywood (Region IV), Inc., Planet Hollywood Memorabilia, Inc., Trophy Hunter Investments, Ltd., Bay Harbour 90-1, Ltd., Bay Harbour Master Ltd., Douglas Teitelbaum, Robert Earl, and Wells Fargo Bank, N.A., as Trustee for The Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-TFL2 entered into a third modification (the “Modification”) of the existing Loan Agreement, dated November 30, 2006, between Borrower and Column Financial, Inc. (the “Loan Agreement”). The Modification provides for up to $9 million of the Interest Reserve Fund (as defined in the Loan Agreement) to be available to Borrower for monthly debt service. The Loan Agreement has two remaining one year extension options available (the second and third extension options). As a condition to exercising each of the second and third extension options, the Borrower must replenish the Interest Reserve Account (as defined in the Loan Agreement) to an amount sufficient to achieve a Debt Service Coverage Ratio (as defined in the Loan Agreement) of 1.05:1.00 and 1.10:1:0, respectively, using the specified terms and parameters outlined in the Loan Agreement. Failure to replenish the Interest Reserve Account is an Event of Default (as defined in the Loan Agreement) and a Specified Event (as defined in the Modification). A Specified Event means the occurrence of certain events, including (a) failure of the Borrower to make certain payments as required by the Modification or the Loan Agreement; (b) certain Events of Default under the Loan Agreement; and (c) an Event of Default under the Modification resulting from failure to pay amounts owed to Lender, failure to pay certain taxes, the incurrence of additional indebtedness in violation of the terms of the Loan Agreement, and the imposition of any lien encumbering the collateral of the loan (for the purpose of a Specified Event, an Event of Default means a Default (as defined in the Loan Agreement) that continues after the applicable notice and cure or grace periods under the terms of the Loan Agreement and related documents).

At December 31, 2008, the Loan was classified as a non current liability in the accompanying financial statements based on the Company’s intent and ability to exercise the second extension option. Operating income for the six months ended June 30, 2009 is not sufficient to demonstrate that the Company will generate sufficient cash flow from operations to meet the conditions set forth in the Modification (described above) in order to exercise the second extension option. Accordingly, the Loan has been reclassified to a current liability in the accompanying financial statements as of June 30, 2009.

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also entered into a lease pursuant to which OpBiz agreed to continue to operate the Casino in the manner it had been and to pay monthly rent of approximately $1,160,000.

In connection with the Loan, the Guarantors entered into a Guaranty, dated November 30, 2006 (the “Guaranty”), pursuant to which the Guarantors agreed to indemnify the Lender against losses related to certain prohibited actions of the Borrower and guarantied full repayment of the Loan in the case of a voluntary or collusive bankruptcy of the Borrower, a transfer of the Property or interests in the Borrower in violation of the Loan Agreement and if the Borrower fails to maintain its status as a bankruptcy remote entity and as a result sees its assets consolidated with those of an affiliate in a bankruptcy. The liability of the Guarantors is capped at $15,000,000 per entity and $30,000,000 in the aggregate, however this cap does not apply to (i) liability arising from events, acts or circumstances actually committed or brought about by the willful acts of any of the Guarantors and (ii) the extent of any benefit received by any of the Guarantors as a result of the acts giving rise to the liability under the Guaranty. Each of Douglas Teitelbaum and Robert Earl executed and delivered guaranties substantially the same as that delivered by the Guarantors, however the liability of each of them was limited to (i) liability arising from events, acts or circumstances actually committed or brought about by willful acts by him and (ii) the extent of any benefit received by him as a result of the acts giving rise to the liability under the Guaranty.

In connection with the Loan, the Guarantors and Robert Earl executed and delivered a Completion Guaranty, dated November 30, 2006, pursuant to which they jointly and severally guarantied the completion of the renovation of the Property and payment of all costs associated therewith. The liability under the Completion Guaranty is capped at the greater of (a) $35,000,000 and (b) only in the case that cost overruns for the renovation exceed $15,000,000, 24% of the then unpaid costs of the completion of the renovation.

In addition, in connection with the Loan Agreement, we effected a refinancing of the Securities Purchase Agreement, dated August 9, 2004, among MezzCo and the Investors, pursuant to which MezzCo issued to the Investors (i) 16% senior subordinated secured Notes in the original aggregate principal amount of $87 million, and (ii) Warrants for the purchase (subject to certain adjustments as provided for therein) of membership interests of MezzCo, representing 17.5% of its fully diluted equity. Loan proceeds were used to redeem in full the Notes.

In connection with the refinancing of the Securities Purchase Agreement and redemption of the Notes, the Restructuring Parties entered into the Restructuring Agreement, pursuant to which the Restructuring Parties terminated in full the Securities Purchase Agreement, the Subordination Agreement, dated as of August 31, 2004, among MezzCo, OpBiz, the Senior Agent and the Investors, the Pledge Agreement, dated August 9, 2006, among MezzCo and the Collateral Agent, and the Guaranty, dated August 9, 2004, made by OpBiz to the Investors, and amended certain other existing agreements, as described below.

In accordance with the terms of the Restructuring Agreement, the Investors and EquityCo, MezzCo and OpBiz entered into a Release, Consent and Waiver Agreement, pursuant to which the Investors (i) released OpBiz from its guaranteed obligations, under that certain Guaranty Agreement, dated as of August 9, 2004 and executed by OpBiz in favor of the Investors and the collateral agent; (ii) released MezzCo from its pledge of the collateral, under that certain Pledge Agreement, dated as of August 9, 2004, and executed by MezzCo in favor of the collateral Agent, the Investors released their security interest, as defined in that certain Security Agreement, as amended by that certain Amendment to Security Agreement, in each case dated as of August 9, 2004 and executed by the Company in favor of the collateral agent; (iii) released and terminated the Deed of Trust, dated as of August 9, 2004 and executed by MezzCo in favor of the Trustee (as defined therein) for the benefit of the collateral agent; (iv) released and terminated the Investors’ security interest in the securities account, provided for that certain Securities Account Control Agreement, dated as of August 9, 2004 and executed by the Company, the collateral agent and Wells Fargo Bank, N.A.

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exercise of the A&R Warrants may be increased from time to time upon the occurrence of certain events as described in the A&R Warrants. Holders of the A&R Warrants and any securities issued upon exercise thereof may require MezzCo to redeem such securities commencing on December 9, 2011 at a redemption price based upon a formula set forth in the A&R Warrants. These rights expire upon completion of a public offering by MezzCo or OpBiz.

On November 30, 2006, we entered into an Indemnification Agreement with the Investors, pursuant to which MezzCo agreed to indemnify the Investors for any losses caused by (i) lack of gaming approvals for the issuance of the A&R Warrants, (ii) lack of gaming approval for the granting of a lien by EquityCo in the equity interests in MezzCo, as described in the Pledge Agreement, and (iii) the inability of the Investors to exercise the Warrants until July 1, 2007.

The foregoing descriptions of the various agreements described above do not purport to be complete and are qualified in their entirety by reference to the agreements, which are filed herewith as exhibits, and incorporated herein by reference.

Energy Services Agreement

Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report and elsewhere by management from time to time, the words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “may”, “seek”, “will”, and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our planned and possible expansion plans, legal proceedings and employee matters. Certain important factors, including but not limited to, competition from other gaming operations, factors affecting our ability to complete acquisitions and dispositions of gaming properties, leverage, construction risks, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, and licensing and other regulatory risks, could cause our actual results to differ materially from those expressed in or implied by our forward-looking statements. Further information on potential factors which could affect our financial condition, results of operations and business including, without limitation, the expansion, development and acquisition projects, legal proceedings and employee matters are included in “Item 1A—Risk Factors” of BH/RE’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009. See Liquidity and Capital Resources above for additional risks related to our substantial indebtedness. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We pay interest on the amount outstanding under the Loan Agreement monthly, in cash, at the London Inter-Bank Offered Rate, or LIBOR, plus 3.25% with a .25% ticking fee on available but un-advanced Future Funding. An increase of one percentage point in the average interest rate applicable to the variable rate debt outstanding at June 30, 2009 would increase the annual interest cost by approximately $8.6 million.

PART I— FINANCIAL INFORMATION		3

ITEM 1.	FINANCIAL STATEMENTS:	3

	Condensed Consolidated Balance Sheets (Unaudited)	3

	Condensed Consolidated Statements Of Operations (Unaudited)	4

	Condensed Consolidated Statements Of Cash Flows (Unaudited)	6

	Notes To Condensed Consolidated Financial Statements (Unaudited)	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33

ITEM 4T.	CONTROLS AND PROCEDURES	34

PART II — OTHER INFORMATION:		35

ITEM 1A.	RISK FACTORS	35

ITEM 6.	EXHIBITS	35

SIGNATURES		36

10.1		Third Modification Agreement dated May 7, 2009 by and among Wells Fargo Bank, N.A., as trustee for the Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-TFL2, PH Fee Owner LLC,OpBiz, L.L.C., Planet Hollywood International, Inc., Planet Hollywood (Region IV), Inc., Planet Hollywood Memorabilia, Inc., Trophy Hunter Investments, Ltd., Bay Harbour 90-1, Ltd., Bay Harbour Master Ltd., Douglas Teitelbaum, and Robert Earl. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 13, 2009)

31.1		Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, Thomas J. McCartney.

31.2		Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, Donna Lehmann.

32.1		Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, Thomas J. McCartney.

32.2		Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, Donna Lehmann.

	BH/RE, L.L.C.


August 14, 2009	By:	/S/ Donna Lehmann
	Donna Lehmann
	Treasurer and Chief Financial Officer

Exhibit No.		Description
10.1		Third Modification Agreement dated May 7, 2009 by and among Wells Fargo Bank, N.A., as trustee for the Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-TFL2, PH Fee Owner LLC,OpBiz, L.L.C., Planet Hollywood International, Inc., Planet Hollywood (Region IV), Inc., Planet Hollywood Memorabilia, Inc., Trophy Hunter Investments, Ltd., Bay Harbour 90-1, Ltd., Bay Harbour Master Ltd., Douglas Teitelbaum, and Robert Earl. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 13, 2009)

31.1		Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, Thomas J. McCartney.

31.2		Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, Donna Lehmann.

32.1		Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, Thomas J. McCartney.

32.2		Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, Donna Lehmann.

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Interim Financial Statements (unaudited)

2. LIQUIDITY AND FINANCIAL POSITION

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies and Estimates

Cash and Cash Equivalents

Restricted Cash and Cash Equivalents

Accounts Receivable (and Allowance for Doubtful Accounts)

Inventories

Property and Equipment

Players’ Club Program

Membership Interests

Litigation

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies and Estimates

Significant Accounting Policies and Estimates

Property and Equipment

Players’ Club Program

Membership Interests

Results of Operations

Liquidity and Capital Resources

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4T. CONTROLS AND PROCEDURES

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

ITEM 6. EXHIBITS