Back to GetFilings.com
================================================================================
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, 2003
OR
|_| 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: 333-100126 (1933 ACT)
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 71-0897613
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1323 NORTH STEMMONS FREEWAY, SUITE 211, DALLAS, TEXAS 75207
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (866) 655-1610
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
================================================================================
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
PART I
FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets as of June 30, 2003 and December 31, 2002.................................3
Condensed Statements of Cash Flows for the six months ended June 30, 2003 and from
inception (September 20, 2002) through June 30, 2003............................................4
Notes to Condensed Financial Statements............................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................12
ITEM 4. CONTROLS AND PROCEDURES...........................................................................13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................14
ITEM 5. OTHER INFORMATION.................................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................14
SIGNATURE....................................................................................................15
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
(A DEVELOPMENT STAGE TEXAS PARTNERSHIP)
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
----------------- ------------------
ASSETS
Cash and cash equivalents $ 600 $ 600
Restricted cash 262,929 -
----------------- ------------------
TOTAL ASSETS $ 263,529 $ 600
================= ==================
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Subscriptions for limited partnership units $ 262,929 $ -
----------------- ------------------
TOTAL LIABILITIES 262,929 -
Commitments and contingencies
PARTNERS' CAPITAL
Partners' capital 600 600
----------------- ------------------
TOTAL PARTNERS' CAPITAL 600 600
----------------- ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 263,529 $ 600
================= ==================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
(A DEVELOPMENT STAGE TEXAS PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
FROM INCEPTION
SIX MONTHS (SEPTEMBER 20, 2002)
ENDED THROUGH
JUNE 30, 2003 JUNE 30, 2003
----------------------- --------------------------
----------------------- --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES $ - $ -
----------------------- --------------------------
----------------------- --------------------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
----------------------- --------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
General partners' contributions - 500
Limited partner's contributions - 100
Proceeds from limited partners' subscriptions 262,929 262,929
Increase in restricted cash (262,929) (262,929)
----------------------- --------------------------
CASH PROVIDED BY FINANCING ACTIVITIES - 600
----------------------- --------------------------
Net change in cash and cash equivalents - 600
Cash and cash equivalents at beginning of period 600 -
----------------------- --------------------------
Cash and cash equivalents at end of period $ 600 $ 600
======================= ==========================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
(A DEVELOPMENT STAGE TEXAS PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION
Behringer Harvard Mid-Term Value Enhancement Fund I LP (the
"Partnership") was formed in Texas on July 30, 2002, by Behringer Harvard
Advisors I LP (a "General Partner"), a Texas limited partnership as co-general
partner, Robert M. Behringer (also a "General Partner"), an individual, as
co-general partner, and Gerald J. Reihsen, III (the "Limited Partner" and
collectively with the General Partners, the "Partners") an individual, as
limited partner. The Partnership was funded through capital contributions on
September 20, 2002 (date of inception) and is currently publicly offering its
limited partnership units pursuant to the Offering defined in Note 2 below. The
Partnership intends to use the proceeds from the Offering, after deducting
offering expenses, to invest principally in institutional quality office and
office service center properties, in highly desirable locations in markets with
barriers to entry and limited potential for new development. The Partnership's
partnership agreement provides that it will continue in existence until the
earlier of December 31, 2022 or termination of the Partnership by written
consent of all the Partners.
The Partnership is in the development stage and has not begun real
estate operations.
INITIAL CAPITAL CONTRIBUTION
Upon formation of the Partnership, the two General Partners
collectively contributed cash of $500 and the Limited Partner contributed $100,
respectively, for non-unit investments.
As of June 30, 2003 there are no limited partnership units issued and
outstanding.
CASH FLOW DISTRIBUTIONS
Net cash distributions, as defined in the partnership agreement of the
Partnership, are to be distributed to the Partners as follows:
a) To the Limited Partners on a per unit basis until each of such
Limited Partners have received distributions of net cash from
operations with respect to such fiscal year, or applicable
portion thereof, equal to eight percent (8.0%) per annum of
his or her net capital contribution;
b) Then to the Limited Partners on a per unit basis until each
Limited Partner has received or has been deemed to have
received one hundred percent (100.0%) of his or her net
capital contribution; and
c) Thereafter, eighty-five percent (85.0%) to the Limited
Partners on a per unit basis, and fifteen percent (15.0%) to
the General Partners to be apportioned in such percentages as
they may from time to time agree upon among themselves.
Other limitations of allocated or received distributions are defined
within the partnership agreement.
INCOME (LOSS) ALLOCATIONS
Net income for each applicable accounting period shall be allocated to
the Partners as follows:
a) To the Partners to the extent of and in proportion to
allocations of net loss as noted below; and
5
b) Then, so as to cause the capital accounts of all Partners to
permit liquidating distributions to be made in the same manner
and priority as set forth in the partnership agreement with
respect to net cash distributions.
Net loss for each applicable accounting period shall be allocated to
the Partners as follows:
a) To the Partners having positive balances in their capital
accounts (in proportion to the aggregate positive balances in
all capital accounts) in an amount not to exceed such positive
balance as of the last day of the fiscal year; and
b) Then, eighty-five percent (85.0%) to the Limited Partners and
fifteen percent (15.0%) to the General Partners to be
apportioned in such percentages as they may from time to time
agree upon among themselves.
2. PUBLIC OFFERING
On February 19, 2003, the Partnership's Registration Statement on Form
S-11, covering a public offering (the "Offering") of up to 40,000,000 units of
limited partnership interest to be offered at a price of $10 per unit was
declared effective under the Securities Act of 1933. The Registration Statement
also covers up to 4,000,000 units available pursuant to the Partnership's
distribution reinvestment plan at $10 per unit.
The Partnership will not commence active operations until it receives
and accepts subscriptions for a minimum of 200,000 limited partnership units for
gross offering proceeds of $2,000,000. After the initial 200,000 units are sold,
subscription proceeds will be held in escrow until investors are admitted as
Limited Partners. The Partnership intends to admit new investors at least
monthly. At that time, subscription proceeds may be released to the Partnership
from escrow and utilized as consideration for investments and the payment or
reimbursement of the dealer manager fee, selling commissions and other
organization and offering expenses. Until required for such purposes, net
offering proceeds will be held in short-term, liquid investments.
Until the Partnership satisfies the minimum offering requirements
established for its Offering by accepting subscriptions for at least 200,000
limited partnership units, funds received for these subscriptions will continue
to be escrowed. Amounts associated with these subscriptions are reflected in
Restricted cash and Subscriptions for limited partnership units on the
Partnership's balance sheets.
3. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying condensed financial statements should be read in
conjunction with the Partnership's Registration Statement on Form S-11, as
amended, which was filed with the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
in the United States of America ("GAAP"), have been condensed or omitted in this
report on Form 10-Q pursuant to the rules and regulations of the SEC. In the
opinion of management, the disclosures contained in this report are adequate to
make the information presented not misleading.
The results for the interim period shown in this report are not
necessarily indicative of future financial results. The accompanying condensed
financial statements of the Partnership as of June 30, 2003 have not been
audited by independent accountants. In the opinion of management, the
accompanying unaudited condensed financial statements include all adjustments
(of a normal recurring nature) necessary to present fairly the financial
position of the Partnership as of June 30, 2003 and the results of its
operations and cash flows for the periods then ended.
6
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
was issued in April 2003 and is effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. SFAS No. 149 amends and clarifies financial reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Partnership believes
adoption of SFAS No. 149 will not have a material effect on the financial
condition, results of operations, or liquidity of the Partnership.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" was issued in May 2003 and is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The Partnership believes
adoption of SFAS No. 150 will not have a material effect on the financial
condition, results of operations, or liquidity of the Partnership.
FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest
Entities" was issued in January 2003. This interpretation of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements" applies immediately to
variable interest entities created after January 31, 2003, and applies to the
first interim period beginning after June 15, 2003 to entities acquired before
February 1, 2003. This FIN requires the consolidation of results of variable
interest entities in which the Partnership has a majority variable interest. The
Partnership believes adoption of FIN No. 46 will not have a material effect on
the financial condition, results of operations, or liquidity of the Partnership.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Below is a discussion of the accounting policies that management
considers to be critical in that they may require complex judgment in their
application or require estimates about matters that are inherently uncertain.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and highly liquid
investments purchased with original maturities of three months or less.
REAL ESTATE
As the Partnership commences its operations to acquire real estate,
management will continually monitor events and changes in circumstances
indicating that the carrying amounts of the real estate assets in which it
obtains an ownership interest, either directly or through investments in joint
ventures, may not be recoverable. When such events or changes in circumstances
are present, the Partnership will assess potential impairment by comparing
estimated future undiscounted operating cash flows expected to be generated over
the life of the asset and from its eventual disposition, to the carrying value
of the asset. In the event that the carrying amount exceeds the estimated
7
future undiscounted operating cash flows, the Partnership will recognize an
impairment loss to adjust the carrying amount of the asset to its estimate fair
value.
INCOME TAXES
The Partnership is not a taxpaying entity and, accordingly, records no
income taxes. The Partners are individually responsible for reporting their
share of the Partnership's taxable income or loss on their income tax returns.
Certain transactions of the Partnership may be subject to accounting
methods for income tax purposes which differ from the accounting methods used in
preparing these condensed financial statements in accordance with generally
accepted accounting principles. Accordingly, the net income or loss of the
Partnership and the resulting balances in the Partners' capital accounts
reported for income tax purposes may differ from the balances reported for those
same items in the accompanying condensed financial statements.
REVENUE RECOGNITION
The Partnership will recognize rental income generated from all leases
on real estate assets in which it will have an ownership interest, either
directly or through investments in joint ventures, on a straight-line basis over
the terms of the respective leases unless significant collection problems occur
with the lessee, at which time rents will be recognized on a cash basis.
Contingent rent will be recognized as revenue after the related lease sales
targets are achieved.
OPERATING COST REIMBURSEMENTS
The Partnership will bill tenants for operating cost reimbursements as
provided in the respective lease terms, either directly or through investments
in joint ventures, on a monthly basis at amounts estimated largely on actual
prior period activity. Such billings will be adjusted on an annual basis as
necessary, based on the actual costs incurred during the period and the
respective lease terms.
DEFERRED PROJECT COSTS
The Partnership's General Partners will be paid an acquisition and
advisory fee of 3.0% of the contract price of each property. In addition, the
Partnership will reimburse its General Partners for investment acquisition
expenses in an amount of up to 0.5% of the contract price of the Partnership's
investments (subject to certain overall limitations described in the
Partnership's Registration Statement on Form S-11). Pending such reimbursement,
the General Partners will fund all such expenses and the General Partners will
bear such expenses to the extent they exceed 0.5% of the contract price of the
Partnership's investments (subject to certain overall limitations described in
the Partnership's Registration Statement on Form S-11). As the Partnership
invests its capital proceeds, these costs will be capitalized to real estate
assets, either directly or through contributions to joint ventures, at an amount
up to 3.5% of the contract price of each investment in respect of the
acquisition and advisory fee and acquisition expenses and depreciated over the
useful lives of the respective real estate assets.
DEFERRED OFFERING COSTS
The Partnership's General Partners fund, on the Partnership's behalf,
all of the organization and offering costs and will be reimbursed for such
organization and offering costs up to 2.5% of cumulative offering proceeds
raised by the Partnership in its current public offering. Organization and
offering costs include items such as legal and accounting fees, marketing,
promotional and printing costs, and specifically exclude selling commissions and
the dealer manager fee. The Partnership will be required to repay the General
Partners, at an amount equal to the lesser of 2.5% of cumulative capital raised
or actual costs incurred by third parties less previous reimbursements
8
paid to the General Partners. All offering costs paid by the Partnership will be
recorded as an offset to Partners' capital.
CONCENTRATION OF CREDIT RISK
At June 30, 2003, the Partnership had restricted cash on deposit in a
financial institution in excess of federally insured levels. The Partnership
regularly monitors the financial stability of this financial institution and
does not believe it is exposed to any significant credit risk on restricted
cash.
5. RELATED PARTY ARRANGEMENTS
The General Partners and certain of their affiliates will receive fees
and compensation in connection with the Offering, and the acquisition,
management and sale of the assets of the Partnership. Behringer Securities LP
("Behringer Securities"), the affiliated dealer manager, will receive a
commission of up to 7.0% of gross offering proceeds before reallowance of
commissions earned by participating broker-dealers. Behringer Securities intends
to reallow 100.0% of commissions earned from sales of units by participating
broker-dealers to such broker-dealers. In addition, up to 2.5% of gross proceeds
will be paid to Behringer Securities as a dealer manager fee. Behringer
Securities may reallow a portion of its dealer manager fee of up to 1.5% of the
gross offering proceeds to be paid to such participating broker-dealers as
marketing fees, including bona fide conference fees incurred and due diligence
expense reimbursement.
All organization and offering expenses (excluding selling commissions
and the dealer manager fee) are being funded by the General Partners or their
affiliates and may be reimbursed by the Partnership for up to 2.5% of gross
offering proceeds. As of June 30, 2003, the General Partners or their affiliates
had incurred $1,979,168 of organization and offering expenses on behalf of the
Partnership. The General Partners or their affiliates determine the amount of
organization and offering expenses owed to the General Partners and their
affiliates based on specific invoice identification as well as an allocation of
costs to the Partnership, Behringer Harvard Short-Term Opportunity Fund I LP and
Behringer Harvard REIT I, Inc., affiliates of the Partnership, based on
anticipated equity size. The General Partners or their affiliates also will
receive acquisition and advisory fees of up to 3.0% of the contract purchase
price of each property for identifying, reviewing, evaluating, investing in and
the purchase, development or construction of real property acquisitions. Any
portion of this fee may be deferred and paid in a subsequent year. The General
Partners or their affiliates may also receive up to 0.5% of the contract
purchase price of each property for reimbursement of expenses related to the
costs associated with acquisitions made by the Partnership.
The Partnership expects to pay HPT Management Services LP, its
affiliated property manager, fees for the management and leasing of the
Partnership's properties of up to 4.0% of gross revenues, plus separate leasing
fees based upon the customary leasing fees applicable to the geographic location
of the properties, but in no event will the aggregate of property management and
leasing fees paid to affiliates exceed 6.0% of gross revenues. The Partnership
will also reimburse HPT Management Services LP for costs and expenses incurred
by it on behalf of the Partnership.
The Partnership will pay the General Partners or their affiliates an
annual advisor asset management fee of 0.5% of the aggregate asset value. Any
portion of the asset management fee may be deferred and paid in a subsequent
year.
In connection with the sale of the properties of the Partnership, the
Partnership will pay to the General Partners or their affiliates a real estate
commission in an amount not exceeding the lesser of: (A) 50.0% of the
reasonable, customary and competitive real estate brokerage commissions
customarily paid for the sale of a comparable property in light of the size,
type and location of the property, or (B) 3.0% of the gross sales price of each
property, subordinated to distributions to Limited Partners from the sale
proceeds of an amount which,
9
together with prior distributions to the Limited Partners, will equal (1) 100.0%
of their capital contributions plus (2) an 8.0% annual cumulative
(noncompounded) return of their net capital contributions. Subordinated real
estate commissions that are not payable at the date of sale, because Limited
Partners have not yet received their required minimum distributions, will be
deferred and paid at such time as these subordination conditions have been
satisfied.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the accompanying financial statements of the Partnership and the notes
thereto:
FORWARD-LOOKING STATEMENTS
This section contains forward-looking statements, including discussion
and analysis of the Partnership's financial condition, anticipated capital
expenditures required to complete projects, amounts of anticipated cash
distributions to the Partnership's Partners in the future and other matters.
These forward-looking statements are not historical facts but are the intent,
belief or current expectations of the Partnership's business and industry. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates" and variations of these words and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
the future performance and are subject to risks, uncertainties and other
factors, some of which are beyond the Partnership's control, are difficult to
predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may
ultimately prove to be incorrect or false. You are cautioned to not place undue
reliance on forward-looking statements, which reflect the Partnership's
management's view only as of the date of this Form 10-Q. The Partnership
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results. Factors that could cause actual results to differ
materially from any forward-looking statements made in this Form 10-Q include
changes in general economic conditions, changes in real estate conditions,
construction costs which may exceed estimates, construction delays, increases in
interest rates, lease-up risks, inability to obtain new tenants upon the
expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow. The
forward-looking statements should be read in light of these factors and the
factors identified in the "Risk Factors" section of the Partnership's
Registration Statement on Form S-11 filed with the SEC.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Below is a discussion of the accounting policies that the Partnership
considers to be critical in that they may require complex judgment in their
application or require estimates about matters that are inherently uncertain.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REAL ESTATE
As the Partnership commences its operations to acquire real estate,
management will continually monitor events and changes in circumstances
indicating that the carrying amounts of the real estate assets in which it
obtains
10
an ownership interest, either directly or through investments in joint ventures,
may not be recoverable. When such events or changes in circumstances are
present, the Partnership will assess potential impairment by comparing estimated
future undiscounted operating cash flows expected to be generated over the life
of the asset and from its eventual disposition, to the carrying value of the
asset. In the event that the carrying amount exceeds the estimated future
undiscounted operating cash flows, the Partnership will recognize an impairment
loss to adjust the carrying amount of the asset to its estimated fair value.
REVENUE RECOGNITION
The Partnership will recognize rental income generated from all leases
on real estate assets in which it will have an ownership interest, either
directly or through investments in joint ventures, on a straight-line basis over
the terms of the respective leases unless significant collection problems occur
with the lessee, at which time rents will be recognized on a cash basis.
Contingent rent will be recognized as revenue after the related lease sales
targets are achieved.
OPERATING COST REIMBURSEMENTS
The Partnership will bill tenants for operating cost reimbursements as
per the respective lease terms, either directly or through investments in joint
ventures, on a monthly basis at amounts estimated largely on actual prior period
activity. Such billings will be generally adjusted on an annual basis as
necessary, based on the actual costs incurred during the period and the
respective lease terms.
DEFERRED PROJECT COSTS
The Partnership's General Partners will be paid an acquisition and
advisory fee of 3.0% of the contract price of each property. In addition, the
Partnership will reimburse its General Partners for investment acquisition
expenses in an amount of up to 0.5% of the contract price of the Partnership's
investments (subject to certain overall limitations described in the
Partnership's Registration Statement on Form S-11). Pending such reimbursement,
the General Partners will fund all such expenses and the General Partners will
bear such expenses to the extent they exceed 0.5% of the contract price of the
Partnership's investments (subject to certain overall limitations described in
the Partnership's Registration Statement on Form S-11). As the Partnership
invests its capital proceeds, these costs will be capitalized to real estate
assets, either directly or through contributions to joint ventures, at an amount
up to 3.5% of the contract price of each investment in respect of the
acquisition and advisory fee and acquisition expenses and depreciated over the
useful lives of the respective real estate assets.
DEFERRED OFFERING COSTS
The Partnership's General Partners fund, on the Partnership's behalf,
all of the organization and offering costs and will be reimbursed for such
organization and offering costs up to 2.5% of cumulative offering proceeds
raised by the Partnership in its current public offering. Organization and
offering costs include items such as legal and accounting fees, marketing,
promotional and printing costs, and specifically exclude selling commissions and
the dealer manager fee. The Partnership will be required to repay the General
Partners, at an amount equal to the lesser of 2.5% of cumulative capital raised
or actual costs incurred by third parties less previous reimbursements paid to
the General Partners. All offering costs paid by the Partnership will be
recorded as an offset to Partners' capital.
LIQUIDITY AND CAPITAL RESOURCES
The amount of distributions to be paid to the Partners will be
determined by the General Partners and is dependent on a number of factors,
including funds available for payment of distributions, financial condition and
11
capital expenditure requirements. Operating cash flows are expected to increase
as additional properties are added to the Partnership's investment portfolio.
The Partnership's principal demands for funds will be for property
acquisitions, either directly or through investment interests, for the payment
of operating expenses and distributions. Generally, cash needs for items other
than property acquisitions are expected to be met from operations, and cash
needs for property acquisitions are expected to be met from the Partnership's
current public offering of up to 44,000,000 partnership units at $10 per unit.
However, there may be a delay between the sale of the Partnership's units and
its purchase of properties and investment interests, which could result in a
delay in the benefits to its Partners, if any, of returns generated from the
Partnership's operations. The Partnership expects that at least 84.2% of the
money that Partners invest will be used to buy real estate or investment
interests and approximately 0.8% of the gross proceeds of the offering will be
set aside as initial working capital reserves for such properties. The remaining
15.0% will be used to pay expenses and fees for selling commissions and fees,
organization and offering expenses, acquisition and advisory fees and
acquisition expenses. The Partnership's General Partners evaluate potential
property acquisitions and engage in negotiations with sellers on the
Partnership's behalf. Investors should be aware that after a purchase contract
is executed that contains specific terms, the property will not be purchased
until the successful completion of due diligence and negotiation of final
binding agreements. During this period, the Partnership may decide to
temporarily invest any unused proceeds from the Offering in certain investments
that could yield lower returns than the properties. These lower returns may
affect the Partnership's ability to make distributions.
The net proceeds from the Offering will provide funds to enable the
Partnership to purchase properties. It will be the general policy to acquire
properties free and clear of permanent mortgage indebtedness by paying the
entire purchase price of each property in cash. In the event that the Offering
is not fully sold, the Partnership's ability to diversify its investments may be
diminished.
RESULTS OF OPERATIONS
As of the date of this Form 10-Q, no significant operations have
commenced because the Partnership is in its development stage. No operations
will commence until at least 200,000 units of limited partnership interest
($2,000,000) have been sold pursuant to the Registration Statement filed on Form
S-11 with the SEC. The General Partners are not aware of any material trends or
uncertainties, other than national economic conditions affecting real estate
generally, that may reasonably be expected to have a material impact, favorable
or unfavorable, on revenues or income from the acquisition and operations of
real properties, other than those referred to in this Form 10-Q and the
Partnership's Form S-11.
INFLATION
The real estate market has not been affected significantly by inflation
in the past several years due to the relatively low inflation rate. However, the
Partnership intends to include provisions in the majority of its tenant leases
that would help to protect it from the impact of inflation. These provisions
include reimbursement billings for common area maintenance charges, real estate
tax and insurance reimbursements on a per square foot basis, or in some cases,
annual reimbursement of operating expenses above a certain per square foot
allowance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has limited exposure to financial market risks,
including changes in interest rates and other relevant market prices. The
Partnership does not have any foreign operations and is not exposed to foreign
currency fluctuations.
12
Currently, the Partnership's cash and restricted cash balances at
financial institutions represent the majority of the Partnership's assets. A
10.0% increase or decrease in interest rates would have no material affect on
the Partnership's financial position and results of operations.
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer of Behringer
Harvard Advisors I LP, the Partnership's Co-General Partner, have concluded,
based on their evaluation as of the period ended June 30, 2003, that the
Partnership's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Partnership in the reports filed or
submitted by it under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period specified in
the SEC's rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Partnership in such
reports is accumulated and communicated to the Partnership's Co-General Partner,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in the Partnership's internal
controls that could significantly affect these controls subsequent to the date
of such evaluation.
13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 19, 2003, the Partnership's Registration Statement on Form
S-11, covering a public offering (the "Offering") of up to 40,000,000 units of
limited partnership interest to be offered at a price of $10 per unit was
declared effective under the Securities Act of 1933. The Registration Statement
also covers up to 4,000,000 units available pursuant to the Partnership's
distribution reinvestment plan at $10 per unit.
The Partnership will not commence active operations until it receives
and accepts subscriptions for a minimum of 200,000 limited partnership units for
gross offering proceeds of $2,000,000. After the initial 200,000 units are sold,
subscription proceeds will be held in escrow until investors are admitted as
Limited Partners. The Partnership intends to admit new investors at least
monthly. At that time, subscription proceeds may be released to the Partnership
from escrow and utilized as consideration for investments and the payment or
reimbursement of the dealer manager fee, selling commissions and other
organization and offering expenses. Until required for such purposes, net
offering proceeds will be held in short-term, liquid investments.
Until the Partnership satisfies the minimum offering requirements
established for its Offering by accepting subscriptions for at least 200,000
limited partnership units, funds received for these subscriptions will continue
to be escrowed. Amounts associated with these subscriptions are reflected in
Restricted cash and Subscriptions for limited partnership units on the
Partnership's balance sheets.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 5. OTHER INFORMATION
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 31.1 - Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit 31.2 - Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit 32.1 - Certificate of Chief Executive and Financial
Officers
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 2003.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Behringer Harvard Mid-Term Value Enhancement
Fund I LP.
By: Behringer Harvard Advisors I LP
Co-General Partner
Dated: August 14, 2003 By: /s/ Gary S. Bresky
---------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer
15
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
31.1 Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of Chief Executive and Financial Officers
16