Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[MARK ONE]
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
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
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 (I.R.S. Employer
or organization) Identification No.)
15601 DALLAS PARKWAY, SUITE 600, ADDISON, TEXAS 75001
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (866) 655-1610
Securities registered pursuant to section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
NONE
Indicate by check mark 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of limited partnership interests held by
nonaffiliates of the Registrant as of June 30, 2004 (the last business day of
the Registrant's most recently completed second fiscal quarter) was $10,825,570
and as of December 31, 2004 was $31,581,950, assuming a market value of $10 per
unit of limited partnership interest.
While there is no established market for the Registrant's units of limited
partnership interest, the Registrant sold units pursuant to a Form S-11
Registration Statement under the Securities Act of 1933 until the termination of
the offering on February 19, 2005 at a price of $10 per unit.
As of March 16, 2005, the Registrant had 4,430,702 units of limited partnership
interest outstanding.
================================================================================
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
FORM 10-K
YEAR ENDED DECEMBER 31, 2004
PART I
PAGE
ITEM 1. BUSINESS.............................................................4
ITEM 2. PROPERTIES..........................................................13
ITEM 3. LEGAL PROCEEDINGS...................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES............. ...14
ITEM 6. SELECTED FINANCIAL DATA.............................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..........................................21
ITEM 9A. CONTROLS AND PROCEDURES.............................................21
ITEM 9B. OTHER INFORMATION...................................................21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................22
ITEM 11. EXECUTIVE COMPENSATION..............................................25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS...................................26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................26
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES..............................28
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..........................29
SIGNATURES....................................................................30
2
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements, including
discussion and analysis of Behringer Harvard Mid-Term Value Enhancement Fund I
LP (which may be referred to as the "Partnership," "we," "us," or "our") and our
subsidiaries, our financial condition, anticipated capital expenditures required
to complete projects, amounts of anticipated cash distributions to our limited
partners in the future and other matters. These forward-looking statements are
not historical facts but are the intent, belief or current expectations of our
management based on their knowledge and understanding of the business and
industry. Words such as "may," "will," "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," "would," "could," "should" and
variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of the future
performance and are subject to risks, uncertainties and other factors, some of
which are beyond our 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. We caution you not to place undue
reliance on forward-looking statements, which reflect our management's view only
as of the date of this Form 10-K. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results. The forward-looking
statements should be read in light of the risk factors identified in the "Risk
Factors" section of our Registration Statement on Form S-11, as filed with the
Securities and Exchange Commission as well as the following selected risks and
uncertainties that could cause our actual results to differ from those presented
in our forward looking statements:
RISKS RELATED TO INVESTMENTS IN REAL ESTATE
o Our operating results may be affected by economic and regulatory
changes that have an adverse impact on the real estate market in
general.
o Lease terminations could reduce the amount of revenue we receive
from tenants.
o We may be unable to sell a property if or when we decide to do
so.
o We may be subject to uninsured losses relating to real property
or excessively expensive premiums for insurance coverage.
o Properties that we purchase may be subject to development and
construction delays and resultant increased costs and risks.
o Competition with third parties in acquiring properties and other
investments may reduce our profitability.
o A concentration of our investments in any one property class may
leave our profitability vulnerable to a downturn in such sector.
o If we set aside insufficient working capital reserves, we may be
required to defer necessary property improvements.
o The costs of compliance with environmental laws and other
governmental laws and regulations could be significant.
o If we sell properties by providing financing to purchasers, we
will bear the risk of default by the purchaser.
3
RISKS RELATED TO CONFLICTS OF INTEREST
o Our general partners will face conflicts of interest relating to
the purchase and leasing of properties.
o Actions by a co-venturer, co-tenant or partner might have the
result of subjecting a property to additional liabilities.
o Our general partners and certain of our key personnel will face
competing demands relating to their time.
OTHER OPERATIONAL RISKS
o Adverse economic conditions would materially affect our returns
and profitability.
o We may have to make expedited decisions on whether to invest in
certain properties, including prior to receipt of detailed
information on the property.
o If we lose or are unable to obtain key personnel, our ability to
implement our investment strategies could be delayed or
hindered.
o Gains and distributions upon resale of our properties are
uncertain.
o We could be characterized as a publicly traded partnership,
which could have an adverse tax effect.
o Unrelated business taxable income, or UBTI, may be generated
with respect to tax-exempt investors.
PART I
ITEM 1. BUSINESS.
FORMATION
We are a limited partnership formed in Texas on July 30, 2002. Our
general partners are Behringer Harvard Advisors I LP ("Behringer Advisors I")
and Robert M. Behringer (collectively the "General Partners"). We were funded
through capital contributions from our General Partners and initial limited
partner on September 20, 2002 (date of inception) and offered our limited
partnership units pursuant to the public offering that commenced on February 19,
2003 and terminated on February 19, 2005 ("the Offering"). The Offering was a
best efforts continuous offering and we admitted new investors until the
termination of the Offering. We intend to use the proceeds from the Offering,
after deducting offering expenses, primarily to acquire institutional quality
office and office service center properties, in highly desirable locations in
markets with barriers to entry and limited potential for new development.
Our partnership agreement (the "Partnership Agreement") provides that we
will continue in existence until the earlier of December 31, 2022 or termination
of the Partnership pursuant to the dissolution and termination provisions of the
Partnership Agreement, which includes a majority vote of the limited partners.
On February 19, 2003, we commenced the Offering of up to 40,000,000
limited partnership units offered at a price of $10 per unit pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933. The
Registration Statement also covered up to 4,000,000 limited partnership units
available pursuant to our distribution reinvestment plan.
As of December 31, 2004, we had accepted subscriptions for 3,158,195
limited partnership units. Our limited partnership units are not currently
listed on a national exchange, and we do not expect any public market for the
units to develop.
We were in the development stage through March 11, 2004. On March 12,
2004, we commenced operations with our acquisition of a one-story office
building in Hopkins, Minnesota, a suburb of Minneapolis, Minnesota.
4
INVESTMENT OBJECTIVES AND CRITERIA
Our objective is to invest in income-producing real estate properties,
including properties that have been constructed and have operating histories,
are newly constructed or are under development or construction. Our investment
objectives are:
o to preserve, protect and return investor's capital
contributions;
o to maximize cash distributions paid to investors;
o to realize growth in the value of our properties upon the
ultimate sale of such properties; and
o within eight years after termination of the Offering on February
19, 2005, either (i) to make an orderly disposition of the
properties and distribute the cash to the investors or (ii) upon
the approval of the majority of the limited partners, for all
the investors to exchange their units for interests in another
Behringer Harvard program.
We cannot assure investors that we will attain these objectives or that
our capital will not decrease. We may not change our investment objectives
except with the approval of limited partners holding a majority of our units
(without regard to units owned or controlled by our General Partners). In the
event that the holders of a majority of our units approve a merger or
consolidation with another partnership or corporation, in lieu of our
liquidation, limited partners who dissent from any such merger or consolidation
will be entitled to receive cash for their units based on the appraised value of
our net assets.
Our General Partners make all decisions relating to the purchase or sale
of our properties.
ACQUISITION AND INVESTMENT POLICIES
We invest in institutional quality office and other commercial
properties. These are properties that generally have premier business addresses
in especially desirable locations with limited potential for new development or
other barriers to entry. Such properties generally are of high quality
construction, offer personalized tenant amenities and attract higher quality
tenants. We intend to hold our properties for five to eight years from the
termination of the Offering on February 19, 2005, which our General Partners
believe is the optimal period to enable us to capitalize on the potential for
increased income and capital appreciation of our properties. However, economic
or market conditions may influence us to hold our investments for different
periods of time. Also, it is our General Partners' belief that targeting this
type of property for investment will enhance our ability to enter into joint
ventures with other institutional real property investors (such as pension
funds, public real estate investment trusts ("REITs") and other large
institutional real estate investors), thus allowing greater diversity of
investment by increasing the number of properties in which we invest. Our
General Partners also believe that a portfolio consisting of a preponderance of
these types of properties enhances our liquidity opportunities for investors by
making the sale of individual properties, multiple properties or our investment
portfolio as a whole attractive to institutional investors.
Although our investments to date have been strictly institutional
quality office properties, we are not limited to such investments. We may invest
in other commercial properties such as shopping centers, business and industrial
parks, manufacturing facilities, warehouse and distribution facilities in order
to reduce overall portfolio risk or enhance overall portfolio returns if our
General Partners determine that it would be advantageous to do so. For example,
we may invest in commercial properties adjacent to properties we already own or
we may acquire mixed-use properties that otherwise meet our investment criteria.
In addition, our General Partners may determine that it would be advantageous to
acquire commercial properties other than institutional quality office properties
in order to diversify our portfolio or in order to respond to changes in the
real estate market. We may also invest in commercial properties that are not
preleased to such tenants or in other types of commercial properties, such as
hotels or motels. We will not, however, be actively engaged in the business of
operating hotels, motels or similar properties.
We will continue to seek to invest in properties that will satisfy our
objective of providing distributions of current cash flow to our limited
partners. However, because a significant factor in the valuation of
income-producing real properties is their potential for future appreciation in
value, our General Partners anticipate that the majority of properties we
acquire will have the potential for both capital appreciation and distributions
of
5
current cash flow to investors. To the extent feasible, we will invest in a
diversified portfolio of properties in terms of geography, type of property and
industry of our tenants that will satisfy our investment objectives of
maximizing net cash from operations, preserving our capital and realizing
capital appreciation upon the ultimate sale of our properties.
We will not invest more than the lesser of 25% of the gross offering
proceeds available for investment or 10% of our aggregate asset value in
non-income producing properties. If a property is expected to produce income
within two years of its acquisition, we will not consider it a non-income
producing property. In addition, we will not acquire any property in exchange
for units.
Our investment in real estate generally will continue to take the form
of holding fee title or a long-term leasehold estate, either directly or
indirectly through investments in joint ventures, partnerships, co-tenancies or
other co-ownership arrangements with the developers of the properties,
affiliates of the General Partners or other persons. In addition, we may
purchase properties and lease them back to the sellers of such properties. While
we will use our best efforts to structure any such sale-leaseback transaction
such that the lease will be characterized as a "true lease" so that we will be
treated as the owner of the property for federal income tax purposes, we cannot
assure you that the Internal Revenue Service will not challenge such
characterization. In the event that any such sale-leaseback transaction is
recharacterized as a financing transaction for federal income tax purposes,
deductions for depreciation and cost recovery relating to such property would be
disallowed, and our income therefrom could be treated as portfolio income,
rather than passive income.
We intend to continue to invest in properties located in central
business districts of major metropolitan cities and selected suburban markets
with identified barriers to entry. Although we are not limited as to the
geographic area where we may conduct our operations, we intend to continue to
invest in properties located in the United States.
An affiliate of our General Partners has developed and uses proprietary
modeling tools that our General Partners believe will help them to identify
favorable property acquisitions, enable them to forecast growth and make
predictions at the time of the acquisition of a property as to optimal portfolio
blend, disposition timing and sales price. Using these tools in concert with our
overall strategies, including individual market monitoring and ongoing analysis
of macro- and micro-regional economic cycles, we expect to be better able to
identify favorable acquisition targets, increase current returns and resultant
current distributions to investors and maintain higher relative portfolio
property values, and execute timely dispositions at appropriate sales prices to
enhance capital gains distributable to our investors.
In making investment decisions for us, our General Partners consider
relevant real estate property and financial factors, including the location of
the property, its suitability for any development contemplated or in progress,
its income-producing capacity, the prospects for long-range appreciation, and
its liquidity and income tax considerations. Our General Partners have
substantial discretion with respect to the selection of our specific
investments.
We will continue to obtain independent appraisals for each property in
which we invest. However, we will rely on our own independent analysis and not
on such appraisals in determining whether to invest in a particular property. It
should be noted that appraisals are estimates of value and should not be relied
upon as measures of true worth or realizable value. Copies of these appraisals
will be available for review and duplication by investors at our office and will
be retained for at least five years.
Our obligation to purchase any property will generally be conditioned
upon the delivery and verification of certain documents from the seller or
developer, including, where appropriate:
o plans and specifications;
o environmental reports;
o surveys;
o evidence of marketable title subject to such liens and
encumbrances as are acceptable to our General Partners;
o audited financial statements covering recent operations of
properties having operating histories; and
6
o title and liability insurance policies.
We may also enter into arrangements with the seller or developer of a
property whereby the seller or developer agrees that, if during a stated period
the property does not generate a specified cash flow, the seller or developer
will pay in cash to us a sum necessary to reach the specified cash flow level,
subject in some cases to negotiated dollar limitations.
In determining whether to purchase a particular property, we may, in
accordance with customary practices, obtain an option on such property. The
amount paid for an option, if any, is normally surrendered if the property is
not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real properties, we will be
subject to risks generally incident to the ownership of real estate, including:
o changes in general economic or local conditions;
o changes in supply of or demand for similar or competing
properties in an area;
o changes in interest rates and availability of permanent mortgage
funds that may render the sale of a property difficult or
unattractive;
o changes in tax, real estate, environmental and zoning laws;
o periods of high interest rates and tight money supply that may
make the sale of properties more difficult;
o tenant turnover; and
o general overbuilding or excess supply in the market area.
We and our performance are subject to the additional risks listed in the
"Risk Factors" section of our Registration Statement on Form S-11, as filed with
the Securities and Exchange Commission. Some of these risks are listed in the
"Forward-looking statements" section of this Annual Report.
ACQUISITION OF PROPERTIES FROM BEHRINGER DEVELOPMENT
We may acquire properties, directly or through joint ventures, with
affiliated entities, including (i) Behringer Development Company LP ("Behringer
Development"), an indirect wholly owned subsidiary of Behringer Harvard
Holdings, LLC ("Behringer Holdings") and (ii) BHD, LLC, which is a wholly owned
subsidiary of Behringer Holdings. Behringer Development was formed to (1)
acquire existing income-producing commercial real estate properties, and (2)
acquire land, develop commercial real properties, secure tenants for such
properties and sell such properties upon completion to us or other Behringer
Harvard programs.
We may purchase or acquire a property from Behringer Development or any
of our affiliates only if:
o Behringer Development temporarily enters into a contract
relating to an investment property to be assigned to us or
purchases an investment property in its own name and temporarily
holds title to the property in order to facilitate our
acquisition of the property, the completion of construction of
the property or for any other purpose related to our business.
o The purchase price that we pay to Behringer Development for the
property will not exceed the cost to Behringer Development of
the acquisition, construction and development of the project,
including interest and other carrying costs to Behringer
Development.
o All profits and losses during the period any such property is
held by Behringer Development will accrue to us, and no other
benefit will accrue to Behringer Development or its affiliates
from the sale of such property except for acquisition and
advisory fees payable to our General Partners or their
affiliates.
o Behringer Development has not held title to the property for
more than twelve months prior to the beginning of the offering.
7
Except as described above, we will not contract with Behringer Development or
any of its affiliates to develop or construct our properties.
Our General Partners will not cause us to enter into a contract to
acquire property from Behringer Development if they do not reasonably anticipate
that funds will be available to purchase the property at the time of closing. If
we enter into a contract to acquire property from Behringer Development and, at
the time for closing, are unable to purchase the property because we do not have
sufficient net proceeds available for investment, we will not be required to
close the purchase of the property and will be entitled to a refund of our
earnest money deposit from Behringer Development. Because Behringer Development
is an entity without substantial assets or operations, Behringer Development's
obligation to refund our earnest money deposit will be guaranteed by HPT
Management Services LP ("HPT Management"), our property manager, which will
enter into contracts to provide property management and leasing services to
various Behringer Harvard programs, including us, for substantial monthly fees.
As of the time HPT Management may be required to perform under any guaranty, we
cannot assure you that HPT Management will have sufficient assets to refund all
of our earnest money deposit in a lump sum payment. In such a case, we would be
required to accept installment payments over time payable out of the revenues of
HPT Management's operations. We cannot assure you that we would be able to
collect the entire amount of our earnest money deposit under such circumstances.
JOINT VENTURE AND CO-TENANCY INVESTMENTS
We may enter into joint ventures with affiliated entities for the
acquisition, development or improvement of properties for the purpose of
diversifying our portfolio of assets. In this connection, we will likely enter
into joint ventures with Behringer Harvard REIT I, Inc. or other Behringer
Harvard programs. Our General Partners also have the authority to enter into
joint ventures, partnerships, co-tenancies and other co-ownership arrangements
or participations with real estate developers, owners and other affiliated third
parties for the purpose of developing, owning and operating real properties in
accordance with our investment policies. In determining whether to invest in a
particular joint venture, our General Partners will evaluate the real property
that such joint venture owns or is being formed to own under the same criteria
used for the selection of real property investments. For more information on
these criteria, see "Business - Acquisition and Investment Policies" and
"Business - Conflicts of Interest."
We may enter into a partnership, joint venture or co-tenancy with
unrelated parties if:
o the management of such partnership, joint venture or co-tenancy
is under our control in that we or one of our affiliates possess
the power to direct or to cause the direction of the management
and policies of any such partnership, joint venture or
co-tenancy;
o we, as a result of such joint ownership of a property, are not
charged, directly or indirectly, more than once for the same
services;
o the joint ownership, partnership or co-tenancy agreement does
not authorize or require us to do anything as a partner, joint
venturer or co-tenant with respect to the property that we or
our General Partners could not do directly under our partnership
agreement; and
o our General Partners and their affiliates are prohibited from
receiving any compensation, fees or expenses that are not
permitted to be paid under our partnership agreement.
In the event that any such co-ownership arrangement contains a provision
giving each party a right of first refusal to purchase the other party's
interest, we may not have sufficient capital to finance the buy-out.
We may enter into joint ventures with other Behringer Harvard programs
for the acquisition of properties, but we may only do so provided that:
o each such program has substantially identical investment
objectives as ours with respect to the property held in the
partnership or joint venture;
o we, as a result of such joint ownership of a property, are not
charged, directly or indirectly, more than once for the same
services;
8
o the compensation payable to our General Partners and their
affiliates is substantially identical in each program;
o we will have a right of first refusal to buy if such co-venturer
elects to sell its interest in the property held by the joint
venture; and
o the investments by us and such other program are on
substantially the same terms and conditions.
In the event that the co-venturer elects to sell property held in any
such joint venture, however, we may not have sufficient funds to exercise our
right of first refusal. In the event that any joint venture with an affiliated
entity holds interests in more than one property, the interest in each such
property may be specially allocated based upon the respective proportion of
funds invested by each co-venturer in each such property. Entering into joint
ventures with other Behringer Harvard programs will result in certain conflicts
of interest. See "Business - Conflicts of Interest."
We expect that from time to time our General Partners will be presented
with an opportunity to purchase all or a portion of a mixed-use property. In
such instances, it is possible that our General Partners would work in concert
with other Behringer Harvard programs to apportion the assets within the
property among us and the other Behringer Harvard programs in accordance with
the investment objectives of the various programs. After such apportionment, the
mixed-use property would be owned by two or more Behringer Harvard programs or
joint ventures comprised of Behringer Harvard programs. The negotiation of how
to divide the property among the various Behringer Harvard programs will not be
arm's-length and conflicts of interest will arise in the process. It is possible
that in connection with the purchase of a mixed-use property or in the course of
negotiations with other Behringer Harvard programs to allocate portions of such
mixed-use property, we may be required to purchase a property that our General
Partners would otherwise consider inappropriate for our portfolio, in order to
also purchase a property that our General Partners consider desirable. Although
independent appraisals of the assets comprising the mixed-use property will be
conducted prior to apportionment, it is possible that we could pay more for an
asset in this type of transaction than we would pay in an arm's-length
transaction with an unaffiliated third party.
BORROWING POLICIES
We will not borrow money to acquire any of our properties. However, in
order to give our General Partners flexibility in our management, our
partnership agreement authorizes us to borrow funds for the following limited
purposes:
o for partnership operating purposes in the event of unexpected
circumstances in which our cash resources become insufficient
for the maintenance and repair of our properties or for the
protection or replacement of assets;
o in order to finance improvement of properties when our General
Partners deem such improvements to be necessary or appropriate
to protect the capital previously invested in the properties;
o to protect the value of our investment in a particular property;
and
o to make a particular property more attractive for sale or lease.
We may not borrow funds for any other purpose. Further, the aggregate
amount of partnership borrowings at any given time may not exceed amounts
permissible under North American Securities Administrators Association ("NASAA")
Guidelines.
Our General Partners have also represented that they will not cause us
to incur indebtedness unless we first obtain an opinion of counsel or an opinion
from our tax accountants that the indebtedness to be obtained more likely than
not will not cause our income to be characterized by the Internal Revenue
Service as Unrelated Business Taxable Income ("UBTI") as defined in Section 512
of the Internal Revenue Code. You should be aware, however, that any such
opinion would be based upon various representations and assumptions, and would
have no binding effect on the Internal Revenue Service or any court.
Accordingly, no assurance can be given that the conclusions reached in any such
opinion, if contested, would be sustained by a court, or that any such
indebtedness to be obtained by us in the future would not cause the income
allocated to limited partners that are tax-exempt entities to be taxed as UBTI.
9
We may borrow funds from our General Partners or their affiliates for
the purposes listed above only if the following qualifications are met:
o any such borrowing cannot constitute a "financing" as that term
is defined under the NASAA Guidelines, I.E., indebtedness
encumbering partnership properties or incurred by the
partnership, the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than
50% of the principal amount of which is scheduled to be paid
during the first 24 months;
o interest and other financing charges or fees must not exceed the
amounts that would be charged by unrelated lending institutions
on comparable financing for the same purpose in the same
locality as our principal place of business; and
o no prepayment charge or penalty shall be required.
CONFLICTS OF INTEREST
We are subject to various conflicts of interest arising out of our
relationship with our General Partners and their affiliates, including conflicts
related to the arrangements pursuant to which our General Partners and their
affiliates will be compensated by us. All of our agreements and arrangements
with our General Partners and their affiliates, including those relating to
compensation, are not the result of arm's-length negotiations. Some of the
conflicts of interest in our transactions with our General Partners and their
affiliates are described below.
Our General Partners are Robert M. Behringer and Behringer Advisors I.
Robert M. Behringer owns a controlling interest in Behringer Harvard Holdings, a
Delaware limited liability company that indirectly owns all of the outstanding
equity interests of Behringer Advisors I, HPT Management, our property manager,
and Behringer Securities LP, ("Behringer Securities"), our dealer manager.
Messrs. Behringer, Gerald J. Reihsen, III, Gary S. Bresky and M. Jason Mattox
are each the executive officers of Harvard Property Trust, LLC, the sole General
Partner of Behringer Advisors I and Behringer Securities, HPT Management and
Behringer Securities. In addition, Mr. Robert S. Aisner is an executive officer
of Harvard Property Trust, LLC and an executive officer and a director of
Behringer Harvard REIT I, Inc., an affiliated entity.
Our General Partners will be advised by our advisory board. Although the
members of the advisory board are not permitted to serve as a General Partner,
officer or employee of ours, Behringer Advisors I, our affiliates or affiliates
of Behringer Advisors I, members of our advisory board may purchase or own
securities of, or have other business relations with, such parties. One of the
members of the advisory board, Mr. Ralph G. Edwards, Jr., has been an investor
in a number of real estate programs sponsored by Mr. Behringer. All of such
programs have been liquidated. Another member of our advisory board, Mr. Patrick
M. Arnold, has represented prior real estate programs sponsored by Mr.
Behringer, and he or the law firm of which he is a partner, is expected to
represent us and our affiliates with respect to the real estate transactions we
enter into and other corporate matters. Mr. Arnold also owns a nominal interest
in Behringer Holdings. Any prior or current relationship among us, our General
Partners, and members of our advisory board may create conflicts of interest.
Because we were organized and will be operated by our General Partners,
conflicts of interest will not be resolved through arm's-length negotiations but
through the exercise of our General Partners' judgment consistent with their
fiduciary responsibility to the limited partners and our investment objectives
and policies. For a description of some of the risks related to these conflicts
of interest, see the "Risk Factors" section of our Registration Statement on
Form S-11, as filed with the Securities and Exchange Commission.
INTERESTS IN OTHER REAL ESTATE PROGRAMS
Our General Partners and their affiliates are General Partners of other
Behringer Harvard programs, including real estate programs that have investment
objectives similar to ours, and we expect that they will organize other such
programs in the future. Our General Partners and such affiliates have legal and
financial obligations with respect to these other programs that are similar to
their obligations to us. As General Partners, they may have contingent liability
for the obligations of programs structured as partnerships as well as those of
ours, which, if such obligations were enforced against them, could result in
substantial reduction of their net worth.
10
In the event that an investment opportunity becomes available that is
suitable, under all of the factors considered by our General Partners, for both
us and one or more other Behringer Harvard programs, and for which more than one
of such entities has sufficient uninvested funds, then the entity that has had
the longest period of time elapse since it was offered an investment opportunity
will first be offered such investment opportunity. It shall be the duty of our
General Partners to ensure that this method is applied fairly to us. In
determining whether or not an investment opportunity is suitable for more than
one program, our General Partners shall examine, among others, the following
factors:
o the anticipated cash flow of the property to be acquired and the
cash requirements of each program;
o the effect of the acquisition both on diversification of each
program's investment by type of property and geographic area and
on diversification of the tenants of such properties;
o the income tax effects of the purchase on each such entity;
o the size of the investment;
o the amount of funds available to each program and the length of
time such funds have been available for investment; and
o in the case of Behringer Harvard REIT I, Inc. and Behringer
Harvard Short-Term Opportunity Fund I LP, the potential effect
of leverage on such investment.
Robert M. Behringer and his affiliates have sponsored other privately
offered real estate programs with substantially similar investment objectives as
ours, and which are still operating and may acquire additional properties in the
future. Conflicts of interest may arise between these entities and us.
Our General Partners or their affiliates may acquire, for their own
account or for private placement, properties that they deem not suitable for
purchase by us, whether because of the greater degree of risk, the complexity of
structuring inherent in such transactions, financing considerations or for other
reasons, including properties with potential for attractive investment returns.
OTHER ACTIVITIES OF OUR GENERAL PARTNERS AND THEIR AFFILIATES
We rely on our General Partners and their affiliates for the day-to-day
operation of our business. As a result of their interests in other Behringer
Harvard programs and the fact that they have also engaged and will continue to
engage in other business activities, our General Partners and their affiliates
will have conflicts of interest in allocating their time between us and other
Behringer Harvard programs and other activities in which they are involved. In
addition, our partnership agreement does not specify any minimum amount of time
or level of attention that our General Partners must devote to us. However, our
General Partners believe that they and their affiliates have sufficient
personnel to discharge fully their responsibilities to all of the Behringer
Harvard programs and other ventures in which they are involved.
We will not purchase or lease any property in which the General Partners
or any of their affiliates have an interest; provided, however, that our General
Partners or any of their affiliates may temporarily enter into contracts
relating to investment in properties to be assigned to us prior to closing or
may purchase property in their own name and temporarily hold title for us,
provided that such property is purchased by us at a price no greater than the
cost of such property, including acquisition and carrying costs, to our General
Partners or their affiliates. Further, our General Partners or such affiliates
may not have held title to any such property on our behalf for more than twelve
months prior to the commencement of this offering; our General Partners or their
affiliates will not sell property to us if the cost of the property exceeds the
funds reasonably anticipated to be available for us to purchase any such
property; and all profits and losses during the period any such property is held
by our General Partners or their affiliates will accrue to us. In no event may
we:
o sell or lease real property to our General Partners or any of
their affiliates, except under limited circumstances permissible
in the NASAA Guidelines;
o acquire property from any other program in which our General
Partners have an interest;
o make loans to our General Partners or any of their affiliates;
or
11
o enter into agreements with our General Partners or their
affiliates for the provision of insurance covering us or any of
our properties, except under the limited circumstances
permissible in the NASAA Guidelines.
COMPETITION IN ACQUIRING PROPERTIES
Conflicts of interest will exist to the extent that we may acquire
properties in the same geographic areas where properties owned by our General
Partners, their affiliates or other Behringer Harvard programs are located. In
such a case, a conflict could arise in the leasing of our properties in the
event that we and another Behringer Harvard program were to compete for the same
tenants in negotiating leases, or a conflict could arise in connection with the
resale of properties in the event that we and another Behringer Harvard program
were to attempt to sell similar properties at the same time. Conflicts of
interest may also exist at such time as we or our affiliates managing property
on our behalf seek to employ developers, contractors or building managers as
well as under other circumstances. Our General Partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective employees aware of all such properties seeking to
employ such persons. In addition, our General Partners will seek to reduce
conflicts that may arise with respect to properties available for sale or rent
by making prospective purchasers or tenants aware of all such properties.
However, these conflicts cannot be fully avoided in that there may be
established differing compensation arrangements for employees at different
properties or differing terms for resale or leasing of the various properties.
AFFILIATED PROPERTY MANAGER
We anticipate that properties we acquire will be managed and leased by
HPT Management, our affiliated property manager. Our agreement with HPT
Management has a three-year term ending in February 2006, which we can terminate
only in the event of gross negligence or willful misconduct on the part of HPT
Management. We expect HPT Management to also serve as property manager for
properties owned by affiliated real estate programs, some of which may be in
competition with our properties. Management fees to be paid to our property
manager are based on a percentage of the rental income received by the managed
properties.
GUIDELINES AND LIMITS IMPOSED BY OUR PARTNERSHIP AGREEMENT
The agreements and arrangements among us, our General Partners and their
affiliates have been established by our General Partners, and our General
Partners believe the amounts to be paid thereunder to be reasonable and
customary under the circumstances. In an effort to establish standards for
minimizing and resolving these potential conflicts, our General Partners have
agreed to the guidelines and limitations set forth in our partnership agreement.
Among other things, these provisions:
o set forth the specific conditions under which we may own or
lease property jointly or in a partnership with an affiliate of
the General Partners;
o prohibit us from purchasing or leasing an investment property
from our General Partners or their affiliates except under
certain limited circumstances;
o prohibit loans by us to our General Partners or their
affiliates;
o prohibit the commingling of partnership funds (except in the
case of making capital contributions to joint ventures and to
the limited extent permissible under the NASAA Guidelines); and
o with certain exceptions, prohibit our General Partners from
merging or consolidating us with another partnership or a
corporation or converting us to a corporation unless the
transaction complies with certain terms and conditions including
first obtaining a majority vote of our limited partners.
In addition, as described below, our General Partners have a fiduciary
obligation to act in the best interests of both our limited partners and the
investors in other Behringer Harvard programs and will use their best efforts to
assure that we will be treated at least as favorably as any other Behringer
Harvard program.
12
COMPETITION
We may experience competition for tenants from owners and managers of
similar projects, which may include our affiliates. We will experience
competition in the acquisition of real estate from similar companies with access
to greater resources than those available to us. At the time we elect to dispose
of our properties, we will also be in competition with sellers of similar
properties to locate suitable purchasers for our properties.
EMPLOYEES
We have no direct employees. The employees of Behringer Advisors I and
other affiliates of ours perform a full range of real estate services for us,
including acquisitions, property management, accounting, asset management,
wholesale brokerage and investor relations.
We are dependent on our affiliates for services that are essential to
us, including the sale of our limited partnership units, asset acquisition
decisions, property management and other general and administrative
responsibilities. In the event that these companies were unable to provide these
services to us, we would be required to obtain such services from other sources.
AVAILABLE INFORMATION
We electronically file an annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and all amendments to those reports
with the Securities and Exchange Commission ("SEC"). Copies of our filings with
the SEC may be obtained from our web site at http://www.bhfunds.com or at the
SEC's web site, at http://www.sec.gov. Access to these filings is free of
charge.
ITEM 2. PROPERTIES.
On March 12, 2004, we acquired a one-story office building containing
approximately 29,660 rentable square feet, located on approximately 2.5 acres of
land (the "Hopkins Property"). The Hopkins Property is located in Hopkins,
Minnesota, a suburb of Minneapolis. The purchase price of the Hopkins Property
was approximately $3,100,000. We used proceeds from the Offering to pay the
entire purchase price and all closing costs of the acquisition.
On June 28, 2004, we acquired a two-story office building containing
approximately 79,049 rentable square feet, located on approximately 5.1 acres of
land (the "Northpoint Property"). The Northpoint Property is located in Dallas,
Texas. The purchase price of the Northpoint Property was approximately
$5,800,000. We used proceeds from the Offering to pay the entire purchase price
and all closing costs of the acquisition.
On October 19, 2004, we acquired a two-story office building containing
approximately 70,660 rentable square feet on approximately 6.02 acres of land in
Englewood, Colorado, a suburb of Denver ("Tucson Way"). The purchase price for
Tucson Way was approximately $9,300,000. We used proceeds from the Offering to
pay the entire purchase price and all closing costs of the acquisition.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
There is no established trading market for our limited partnership
units, and we do not expect that one will develop. This illiquidity creates a
risk that a limited partner may not be able to sell the units at a time or price
acceptable to the limited partner. It also makes it necessary for us to estimate
the value of our limited partnership units. As of March 31, 2005, we estimate
the per unit value of our limited partnership units to be $10. We base this
valuation on the fact that, as of December 31, 2004, we were selling our limited
partnership units to the public at a price of $10 per unit.
For the first three full fiscal years following the termination of the
Offering, which occurred on February 19, 2005, the value of our units will be
deemed to be $10 and no valuation or appraisal of our units will be performed.
Thereafter, we will prepare annual valuations of our units based upon the
estimated amount a limited partner would receive if all partnership assets were
sold for their estimated values as of the close of our fiscal year and all
proceeds from such sales, without reduction for selling expenses, together with
any funds held by it, were distributed to the limited partners upon liquidation.
Such estimated property values will be based upon annual valuations performed by
the General Partners, and no independent property appraisals will be obtained.
While the General Partners are required under the Partnership Agreement to
obtain the opinion of an independent third party stating that their estimates of
value are reasonable, the unit valuations provided by the General Partners may
not satisfy the technical requirements imposed on plan fiduciaries under the
Employee Retirement Income Security Act ("ERISA"). Similarly, the unit
valuations provided by the General Partners may be subject to challenge by the
Internal Revenue Service if used for any tax (income, estate and gift, or
otherwise) valuation purpose as an indicator of the fair value of the units.
UNIT REDEMPTION PROGRAM
The Partnership Agreement includes a unit redemption program. Limited
partners who have held their units for a least one year may receive the benefit
of limited liquidity by presenting for redemption all or a portion of their
units to us at any time in accordance with the procedures described below. At
that time, we may, subject to the conditions and limitations below, redeem the
units presented for redemption for cash to the extent that sufficient funds from
operations are available to fund such redemption. The purchase price for the
redeemed units for the period beginning after a limited partner has held the
units for a period of one year and ending after the first three full fiscal
years following termination of the Offering, which occurred on February 19,
2005, will generally be the lesser of (1) $9 per unit; provided, however, that
if we have sold property and have made one or more special distributions to
limited partners of all or a portion of the net proceeds from such sales, the
per unit redemption price will be 90% of the difference between the offering
price of units in our most recent offering and the amount of net sale proceeds
per unit distributed to investors prior to the redemption date as a result of
the sale of such property; or (2) the price the limited partner actually paid
for the units. Thereafter, the purchase price will be the lesser of (1) 90% of
the fair value per unit, or (2) the price the limited partner actually paid for
the units. The fair value utilized for purposes of establishing the purchase
price per unit will be the estimated value of units determined annually for
ERISA purposes. The fair value will be based on annual appraisals of our
properties performed by the General Partners and not by an independent
appraiser. The General Partners will, however, obtain annually an opinion of an
independent third party that their estimate of the fair value of each unit for
such year is reasonable and was prepared in accordance with appropriate methods
for valuing real estate. The General Partners reserve the right in their sole
discretion at any time and from time to time to (1) waive the one-year holding
period in the event of the death or bankruptcy of a limited partner or other
exigent circumstances, (2) reject any request for redemption, (3) change the
purchase price for redemptions, or (4) terminate, suspend and/or reestablish the
unit redemption program. In addition, for redemptions of units upon the death of
a limited partner or upon the permanent disability of a limited partner or such
limited partner's need for long-term care, the purchase price for units until
after the first three full fiscal years following termination of the Offering
will be equal to the price the limited partner actually paid for the units;
provided, however, that if we have sold property and have made one or more
special distributions to
14
limited partners of all or a portion of the net proceeds from such sales, the
per unit redemption price will be 90% of the difference between the offering
price of units in our most recent offering and the amount of net sale proceeds
per unit distributed to investors prior to the redemption date as a result of
the sale of such property. Thereafter, the purchase price will be the fair value
of the units as determined by estimated unit valuations. Under the terms of the
plan, during any calendar year we will not redeem in excess of 5% of the
weighted average number of units outstanding during the prior calendar year. In
addition, the General Partners will determine whether we have sufficient cash
from operations to repurchase units, and such purchases will generally be
limited to 1% of operating cash flow for the previous fiscal year plus proceeds
of our distribution reinvestment and automatic purchase plan.
We will cancel the units we purchase under the unit redemption program
and will not reissue the units unless they are first registered with the
Securities and Exchange Commission under the Securities Act and under
appropriate state securities laws or otherwise issued in compliance with or
exemption from such laws and our partnership agreement. As of December 31, 2004,
we had not repurchased any units under the unit redemption program.
HOLDERS
As of March 16, 2005, we had 4,430,702 limited partnership units
outstanding that were held by a total of approximately 1,361 limited partners.
DISTRIBUTIONS
The timing and amount of cash to be distributed to our limited partners
is determined by the General Partners and is dependent on a number of factors,
including funds available for payment of distributions, financial condition and
capital expenditures. However, the Partnership Agreement generally requires cash
distributions at least as often as quarterly. It is our intention to declare and
pay distributions on a monthly basis. The distributions we pay to our limited
partners are not necessarily indicative of our current or future operating
results. The following table shows the distributions declared in the year ended
December 31, 2004.
Distributions
Declared ----------------------------------------------------------
in 2004 Total Cash DRIP
--------------------- ------------------- ---------------- ----------------
1st Quarter $ 52,414 $ 27,645 $ 24,769
2nd Quarter 114,244 56,059 58,185
3rd Quarter 249,206 133,797 115,409
4th Quarter 403,950 206,634 197,316
------------------- ---------------- ----------------
$ 819,814 $ 424,135 $ 395,679
=================== ================ ================
There were no distributions declared or paid during the year ended
December 31, 2003.
There can be no assurance that future cash flow will support
distributions at the current rate. We expect to continue to distribute net cash
from operations and nonliquidating sales of properties to limited partners.
However, our General Partners, in their discretion, may defer fees payable by us
to the General Partners allowing for more cash to be available to us for
distribution to our limited partners. In addition, our General Partners may make
supplemental payments to us or to our limited partners, or otherwise support our
operations to the extent not prohibited under the NASAA Guidelines, which would
permit distributions to our limited partners in excess of net cash from
operations. Accordingly, all or some of such distributions may constitute a
return of capital to our investors to the extent that distributions exceed net
cash from operations, or may be recognized as taxable income by us or by our
investors.
RECENT SALES OF UNREGISTERED SECURITIES
We issued ten units of our limited partnership interest to our initial
limited partner at a price of $10 per unit in conjunction with our organization
in 2002. These units were not registered under the Securities Act of 1933, as
amended, and were issued in reliance on Rule 4(2) of the Securities Act.
15
USE OF PROCEEDS FROM REGISTERED SECURITIES
As of December 31, 2004, we had sold the following securities pursuant
to the Offering for the following aggregate offering prices:
o 3,126,173 limited partnership units on a best efforts basis for
$31,205,892; and
o 32,022 limited partnership units pursuant to our distribution
reinvestment plan for $320,029.
The above-stated number of units sold and the gross offering proceeds
realized pursuant to the Offering as of December 31, 2004 were 3,158,195 limited
partnership units for $31,525,921. The stated number of units sold and the gross
offering proceeds realized from such sales does not include the ten units issued
to our initial limited partner in conjunction with our organization in 2002 and
preceding the commencement of the Offering.
From the commencement of the Offering through December 31, 2004, we
incurred the following expenses in connection with the issuance and distribution
of the registered securities pursuant to the Offering:
TYPE OF EXPENSE AMOUNT
------------------------------------------ -----------------
Other expenses to affiliates* $ 3,718,243
Other expenses to non-affiliates 8,604
-----------------
Total expenses $ 3,726,847
=================
- -----------------------
*Other expenses to affiliates above include commissions and dealer manager fees
paid to Behringer Securities, our affiliate, which reallowed all or a portion of
the commissions and fees to soliciting dealers.
The net offering proceeds to us, after deducting the total expenses
incurred and described above, were $27,799,074.
From commencement of the Offering through December 31, 2004, we had used
$18,247,941 of such net offering proceeds to purchase real estate. Of the amount
used for the purchase of this real estate, $627,375 was paid to Behringer
Advisors I, our affiliate, as acquisition and advisory fees and acquisition
expense reimbursement.
16
ITEM 6. SELECTED FINANCIAL DATA.
We were organized on September 20, 2002, and did not commence operations
until March 2004 when we made our first real estate investment. Accordingly, the
following selected financial data for the year ended December 31, 2004 is not
comparable to the year ended December 31, 2003 or the period from inception
(September 20, 2002) through December 31, 2002. The following data should be
read in conjunction with our financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report on Form 10-K. The selected
financial data presented below has been derived from our financial statements.
FROM INCEPTION
YEAR YEAR (SEPTEMBER 20, 2002)
ENDED ENDED THROUGH
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMEBER 31, 2002
------------------- ------------------- --------------------
Total assets $ 29,513,601 $ 2,092,836 $ 600
=================== =================== ====================
Total liabilities $ 2,612,024 $ 236,989 -
Partners' capital 26,901,577 1,855,847 600
------------------- ------------------- --------------------
Total liabilities and partners'
capital $ 29,513,601 $ 22,092,836 600
=================== =================== ====================
Revenue $ 1,183,349 $ - -
Expenses (1,217,227) (103,724) -
Other income 44,913 84 -
------------------- ------------------- --------------------
Net income (loss) $ 11,035 $ (103,640) -
=================== =================== ====================
Net income (loss) per limited
partnership unit $ 0.01 $ (20.73) $ -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with our accompanying financial statements and the notes thereto:
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results
of operations are based upon our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On a regular basis, we will evaluate these estimates.
These estimates will be based on management's historical industry experience and
on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
REAL ESTATE
Upon the acquisition of real estate properties, we allocate the purchase
price of those properties to the tangible assets acquired, consisting of land
and buildings, and identified intangible assets based on their fair value in
accordance with Statement of Financial Accounting Standards No. 141, "Business
Combinations." Identified intangible assets consist of the fair value of
above-market and below-market leases, in-place leases, in-place tenant
improvements, and tenant relationships.
The fair value of the tangible assets acquired, consisting of land and
buildings, is determined by valuing the property as if it were vacant, and the
"as-if-vacant" value is then allocated to land and buildings. Land values are
derived from appraisals, and building values are calculated as replacement cost
less depreciation or
17
management's estimates of the relative fair value of these assets using
discounted cash flow analyses or similar methods. The value of the building is
depreciated over the estimated useful life of 25 years using the straight-line
method.
We determine the value of above-market and below-market in-place leases
for acquired properties based on the present value (using an interest rate that
reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of current market lease rates for the
corresponding in-place leases, measured over a period equal to the remaining
non-cancelable terms of the respective leases. The fair value of above-market
and below-market leases are recorded by us as intangible assets and liabilities
and amortized as an adjustment to rental income over the remaining
non-cancelable terms of the respective leases.
The total value of identified real estate intangible assets acquired is
further allocated to in-place lease values, in-place tenant improvements,
in-place leasing commissions and tenant relationships based on management's
evaluation of the specific characteristics of each tenant's lease and our
overall relationship with that respective tenant. The aggregate value for tenant
improvements and leasing commissions is based on estimates of these costs
incurred at inception of the acquired leases, amortized through the date of
acquisition. The aggregate value of in-place leases acquired and tenant
relationships is determined by applying a fair value model. The estimates of
fair value of in-place leases includes an estimate of carrying costs during the
expected lease-up periods for the respective spaces considering current market
conditions. In estimating the carrying costs that would have otherwise been
incurred had the leases not been in place, management includes such items as
real estate taxes, insurance and other operating expenses as well as lost rental
revenue during the expected lease-up period based on current market conditions.
The estimates of fair value of tenant relationships also include costs to
execute similar leases including leasing commissions, legal and tenant
improvements as well as an estimate of the likelihood of renewal as determined
by management on a tenant-by-tenant basis.
We amortize the value of in-place leases and in-place tenant
improvements to expense over the initial term of the respective leases. The
value of tenant relationship intangibles are amortized to expense over the
initial term and any anticipated renewal periods, but in no event does the
amortization period for intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the unamortized portion of
the related real estate intangibles would be charged to expense.
INVESTMENT IMPAIRMENTS
For real estate directly owned by us, management monitors events and
changes in circumstances indicating that the carrying amounts of the real estate
assets may not be recoverable. When such events or changes in circumstances
occur, we assess potential impairment by comparing estimated future undiscounted
operating cash flows expected to be generated over the life of the asset and
from its eventual disposition, to the carrying amount of the asset. In the event
that the carrying amount exceeds the estimated future undiscounted operating
cash flows, we recognize an impairment loss to adjust the carrying amount of the
asset to estimated fair value. For the years ending December 31, 2004 and 2003,
we did not recognize an impairment loss.
OVERVIEW
We are organized as a Texas limited partnership formed primarily to
invest in and operate institutional quality office and other commercial
properties, including properties that have been constructed and have operating
histories, are newly constructed or are under development or construction.
We purchased our first property on March 12, 2004 and added two
additional properties during 2004. Our properties are located in Minnesota,
Texas and Colorado. These properties combined contain approximately 179,369 of
rentable square feet.
RESULTS OF OPERATIONS
We commenced active operations when we made our first real estate
acquisition on March 12, 2004 with the purchase of the Hopkins Property. We also
acquired the Northpoint Property and Tucson Way during 2004. As a result, our
results of operations for the year ended December 31, 2004 are not comparable to
the results of operations for the year ended December 31, 2003.
18
FISCAL YEAR ENDED DECEMBER 31, 2004 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2003
REVENUE. Rental revenue for the year ended December 31, 2004 was
$1,183,349 and was comprised of revenue, including adjustments for straight-line
rent and amortization of above and below market leases, from the Hopkins
Property, Northpoint Property and Tucson Way. During the year ended December 31,
2003, we did not own any real estate. Management expects future increases in
rental revenue as we continue to acquire additional real estate properties.
PROPERTY OPERATING EXPENSE. Property operating expenses for the year
ended December 31, 2004 were $385,012 and were comprised of operating expenses
from the Hopkins Property, Northpoint Property and Tucson Way. During the year
ended December 31, 2003, we did not own any real estate. Management expects
future increases in property operating expenses as we continue to acquire
additional real estate properties.
REAL ESTATE TAXES. Real estate taxes for the year ended December 31,
2004 were $137,728 and were comprised of real estate taxes from the Hopkins
Property, Northpoint Property and Tucson Way. During the year ended December 31,
2003, we did not own any real estate. Management expects future increases in
real estate taxes as we continue to acquire additional real estate properties.
PROPERTY AND ASSET MANAGEMENT FEES. Property and asset management fees
for the year ended December 31, 2004 were $71,166 and were comprised of property
management and asset management fees from the Hopkins Property, Northpoint
Property and Tucson Way. During the year ended December 31, 2003, we did not own
any real estate. Management expects future increases in property management and
asset management fees as we continue to acquire additional real estate
properties.
G&A EXPENSE. General and administrative expenses for the year ended
December 31, 2004 were $313,821 and were comprised of general and administrative
expenses from the Hopkins Property, Northpoint Property and Tucson Way and
corporate general and administrative expenses, including directors' and
officers' insurance premiums, organizational expenses, transfer agent fees,
auditing fees and other administrative expenses. During the year ended December
31, 2003, general and administrative expenses were $103,724. The lower amount in
2003 is a result of being in the development stage during 2003. We commenced
active operations when we made our first real estate acquisition on March 12,
2004 with the purchase of the Hopkins Property.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the year ended December 31, 2004 was $309,500 and was comprised of
depreciation and amortization of the Hopkins Property, Northpoint Property and
Tucson Way. During the year ended December 31, 2003, we did not own any real
estate. Management expects future increases in depreciation and amortization
expense as we continue to acquire additional real estate properties.
INTEREST INCOME. Interest income for the year ended December 31, 2004
was $44,913 and was comprised primarily of interest income associated with funds
on deposit with banks. As we admitted new unit holders, subscription proceeds
were released to us from escrow and could then be utilized as consideration for
investments in real properties and the payment or reimbursement of dealer
manager fees, selling commissions, organization and offering expenses and
operating expenses. Until required for such purposes, net offering proceeds are
held in short-term liquid investments and earn interest income. For the year
ended December 31, 2003, we had interest income of $84. The increase in interest
income year over year is due to higher cash balances on deposit with banks as a
result of increased proceeds from investor subscriptions.
FISCAL YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO THE PERIOD OF SEPTEMBER 20,
2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002
As of December 31, 2003 we had not yet commenced operations. Although we
received and accepted subscriptions for a minimum of $2,000,000 on December 22,
2003, there were no real estate acquisitions in 2003. Our first real estate
acquisition occurred with the purchase of the Hopkins Property on March 12,
2004. See "Properties."
Results of operations for the year ended December 31, 2003 consisted
primarily of the following:
G&A EXPENSE. General and administrative expense of $103,724 includes a
full year of corporate overhead and administrative start-up expenses.
19
INTEREST INCOME. Interest income of $84 includes interest income on
funds held by us from the date we first accepted subscriptions, December 22,
2003, through December 31, 2003.
There were no start-up expenses or interest income on funds held by us
in 2002.
CASH FLOW ANALYSIS
We commenced active operations when we made our first real estate
acquisition on March 12, 2004 with the purchase of the Hopkins Property. As a
result, our cash flows for the year ended December 31, 2004 are not comparable
to the cash flows for the year ended December 31, 2003.
Cash provided by operating activities for the year ended December 31,
2004 was $547,352 and was primarily comprised of the net income of $11,035
adjusted for depreciation and amortization of $301,901 and changes in working
capital accounts of $234,416. Cash used in operations for the year ended
December 31, 2003 of $58,894 was comprised primarily of the net loss of
$103,640, partially offset by changes in working capital accounts of $44,746.
Cash used in investing activities for the year ended December 31, 2004
was $18,462,630 and was comprised of our acquisitions of the Hopkins Property,
Northpoint Property and Tucson Way. There were no cash flows from investing
activities for the year ended December 31, 2003.
Cash provided by financing activities for the years ended December 31,
2004 and 2003 was $25,126,743 and $2,044,408, respectively. The increase is due
to the additional number of partnership units issued during the year ended
December 31, 2004 versus the year ended December 31, 2003, partially offset by
distributions in 2004 of $346,371.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $9,197,579 and $1,986,114 at December
31, 2004 and 2003, respectively. In March 2004, we acquired the Hopkins Property
in Hopkins, Minnesota for a purchase price of approximately $3,100,000. In June
2004 we acquired the Northpoint Property, located in Dallas, Texas for a
purchase price of approximately $5,800,000. In October, 2004 we acquired Tucson
Way located in Englewood, Colorado for a purchase price of approximately
$9,300,000. On March 11, 2005, we acquired the 2800 Mockingbird Property located
in Dallas, Texas for a purchase price of approximately $6,350,000. We used the
proceeds from the Offering to pay the entire purchase price and all closing
costs of these acquisitions.
Our principal demands for funds will continue to 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 be met from the net proceeds of the
Offering.
The timing and amount of cash to be distributed to our limited partners
is determined by the General Partners and is dependent on a number of factors,
including funds available for payment of distributions, financial condition and
capital expenditures. There can be no assurance that future cash flow will
support distributions at the current rate. We expect to continue to distribute
net cash from operations and nonliquidating sales of properties to limited
partners. However, our General Partners, in their discretion, may defer fees
payable by us to the General Partners allowing for more cash to be available to
us for distribution to our limited partners. In addition, our General Partners
may make supplemental payments to us or to our limited partners, or otherwise
support our operations to the extent not prohibited under the NASAA Guidelines,
which would permit distributions to our limited partners in excess of net cash
from operations.
We expect to meet our future short-term operating liquidity requirements
through net cash provided by the operations of current properties and those to
be acquired in the future. Management also expects that our properties will
generate sufficient cash flow to cover operating expenses and the payment of a
monthly distribution. Currently, a portion of the distributions are paid from
cash provided by operations and a portion is paid from sales of securities.
Other potential future sources of capital include proceeds from secured or
unsecured financings from banks or other lenders, proceeds from the sale of
properties and undistributed funds from operations. If necessary, we may use
financings or other sources of capital in the event of unforeseen significant
capital expenditures.
20
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
We had no contractual obligations as of December 31, 2004, nor did we
incur any contractual obligations in the acquisition of the 2800 Mockingbird
Property in March 2005.
NEW ACCOUNTING PRONOUNCEMENTS
None.
INFLATION
The real estate market has not been affected significantly by inflation
in the past several years due to the relatively low inflation rate. The majority
of our leases contain inflation protection provisions applicable to
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have limited exposure to financial market risks, including changes in
interest rates and other relevant market prices. We have no investments or
obligations that would be affected by an increase or decrease in interest rates.
We do not have any foreign operations and thus are not exposed to foreign
currency fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is hereby incorporated by
reference to our Financial Statements beginning on page F-1 of this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the filing of this report, the
management of Behringer Advisors I evaluated, with the participation of the
chief executive officer and chief financial officer of its general partner, the
effectiveness of our disclosure controls and procedures as of December 31, 2004.
Based on that evaluation, the chief executive officer and chief financial
officer of the general partner of Behringer Advisors I have concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this report. To these officers' knowledge, there were no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
ITEM 9B. OTHER INFORMATION.
None.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
THE GENERAL PARTNERS
We operate under the direction of our General Partners, which are
responsible for the management and control of our affairs. The General Partners
are assisted by the employees of Harvard Property Trust, LLC ("HPT"), the
general partner of Behringer Advisors I. In addition, the General Partners are
advised by an advisory board comprised of industry professionals. We do not
employ our own management personnel; rather we pay fees to our General Partners
for their services to us.
The General Partners are responsible for our direction and management,
including acquisition, construction and property management. Any action required
to be taken by the General Partners will be taken only if it is approved, in
writing or otherwise, by both General Partners, unless the General Partners
agree between themselves to a different arrangement for the approval of actions
by the General Partners.
The General Partners are Behringer Advisors I and Robert M. Behringer,
individually. Behringer Advisors I is a Texas limited partnership formed in July
2002. The executive office of the General Partners is located at 15601 Dallas
Parkway, Suite 600, Addison, Texas 75001. Behringer Advisors I is owned by HPT,
its sole general partner, and Behringer Harvard Partners, LLC ("Behringer
Partners") its sole limited partner. Behringer Holdings is the sole owner of HPT
and Behringer Partners. Mr. Behringer is the President and sole manager of each
of these companies. Mr. Behringer is the majority owner, the President and sole
manager of Behringer Holdings. Behringer Holdings also is the indirect owner of
HPT Management, our property manager, Behringer Development, a real estate
development company, and Behringer Securities, our dealer manager.
Behringer Advisors I was created in 2002 for the sole purpose of acting
as one of our General Partners. It is managed by its executive officers, namely:
NAME AGE POSITION(S)
---- --- -----------
Robert M. Behringer 56 Chief Executive Officer and Chief
Investment Officer
Robert S. Aisner 58 President
Gerald J. Reihsen, III 46 Executive Vice President - Corporate
Development and Legal and Secretary
Gary S. Bresky 38 Chief Financial Officer and Treasurer
M. Jason Mattox 29 Senior Vice President
ROBERT M. BEHRINGER is the Chief Executive Officer and Chief Investment
Officer of Behringer Advisors I. He is also the Chief Executive Officer,
President and Chairman of the Board of Directors of Behringer Harvard REIT I,
Inc. ("Behringer Harvard REIT I"). Mr. Behringer is the majority owner, sole
manager and Chief Executive Officer and President of Behringer Holdings. Since
2002, Mr. Behringer has also been a general partner of Behringer Harvard
Short-Term Opportunity Fund I LP, a publicly registered real estate limited
partnership. Since 2001, Mr. Behringer has also been the Chief Executive Officer
and sole manager of the following: HPT, the general partner of Behringer
Advisors I; HPT Management, our property manager; Behringer Securities, our
dealer manager; IMS, LLC ("IMS"), the general partner of HPT Management;
Behringer Development, a company organized to develop real properties; and
Behringer Advisors LP ("Behringer Advisors"), a limited partnership organized to
advise Behringer Harvard REIT I. Since 2001, Mr. Behringer has also been the
Chief Executive Officer, President and a manager of Behringer Partners, which is
the limited partner of each of Behringer Securities, HPT Management, HPT,
Behringer Advisors and IMS.
From 1995 until 2001, Mr. Behringer was Chief Executive Officer of
Harvard Property Trust, Inc., a privately held REIT. Before forming Harvard
Property Trust, Inc., Mr. Behringer invested in commercial real estate as
Behringer Partners, a sole proprietorship formed in 1989 that invested in single
asset limited partnerships. From 1985 until 1993, Mr. Behringer was Vice
President and Investment Officer of Equitable
22
Real Estate Investment Management, Inc., one of the largest pension fund
advisors and owners of real estate in the United States. While at Equitable, Mr.
Behringer was responsible for its General Account Real Estate Assets located in
the South Central United States, including Texas, Louisiana, Arkansas, Oklahoma
and Mississippi. The portfolio included institutional quality office,
industrial, retail, apartment and hotel properties exceeding 17 million square
feet with a value of approximately $2.8 billion. Although Mr. Behringer was a
significant participant in acquisitions, management, leasing, redevelopment and
dispositions, his primary responsibility was to increase net operating income
and the overall value of the portfolio.
Mr. Behringer has over 26 years of experience in real estate investment,
management and finance activities, including approximately 140 different
properties with over 24 million square feet of office, retail, industrial,
apartment, hotel and recreational properties. In addition to being the Chief
Executive Officer of Behringer Advisors I, he is currently the general partner
or a co-general partner in several real estate limited partnerships formed for
the purpose of acquiring, developing and operating office buildings and other
commercial properties. Mr. Behringer is a Certified Property Manager, Real
Property Administrator, Certified Hotel Administrator and Texas Real Estate
Broker, holds Series 7, 24 and 63 securities licenses and is a member of the
Institute of Real Estate Management, the Building Owners and Managers
Association, the Urban Land Institute and the Real Estate Council. Mr. Behringer
has also been a licensed certified public accountant for over 20 years. Mr.
Behringer received a Bachelor of Science degree from the University of
Minnesota.
ROBERT S. AISNER is the President of Behringer Advisors I. He is also
Chief Operating Officer and a director of Behringer Harvard REIT I. Mr. Aisner
has over 30 years of commercial real estate experience. From 1996 until 2003,
Mr. Aisner served as (i) Executive Vice President of Amli Residential Properties
Trust, a New York Stock Exchange listed REIT that is focused on the development,
acquisition and management of upscale apartment communities and serves as
institutional advisor and asset manager for institutional investors with respect
to their multifamily real estate investment activities, (ii) President of Amli
Management Company, which oversees all of Amli's apartment operations in 80
communities, (iii) President of the Amli Corporate Homes division, which invests
in and manages corporate housing properties, (iv) Vice President of Amli
Residential Construction, a division of Amli that performs real estate
construction services, and (v) Vice President of Amli Institutional Advisors,
the Amli division that serves as institutional advisor and asset manager for
institutional investors with respect to their multifamily real estate
activities. Mr. Aisner also served on Amli's Executive Committee and Investment
Committee from 1999 until 2003. From 1994 until 1996, Mr. Aisner owned and
operated Regents Management, Inc., which had both a multifamily development and
construction group and a general commercial property management company. From
1984 to 1994, he was employed by HRW Resources, Inc., a real estate development
company, where he served as Vice President.
Mr. Aisner served as an independent director of Behringer Harvard REIT I
from June 2002 until February 2003 and currently serves as a management director
of Behringer Harvard REIT I, a position he has held since June 2003. Since
February 2003, Mr. Aisner has also served as Executive Vice President - Real
Estate Operations of Behringer Holdings and President of HPT, IMS, HPT
Management and Behringer Development. Mr. Aisner received a Bachelor of Arts
degree from Colby College and a Masters of Business Administration degree from
the University of New Hampshire.
GERALD J. REIHSEN, III is the Executive Vice President - Corporate
Development and Legal and Secretary of Behringer Advisors I. He is also
Executive Vice President - Corporate Development and Legal and Secretary of
Behringer Harvard REIT I and is the primary contact for Behringer Advisors I,
Behringer Harvard Advisors II LP, Behringer Harvard REIT I and all of their
affiliates for banks, attorneys and other service providers and contractual
relations. From their inception in 2001 until February 2003, he served as Chief
Operating Officer, Chief Legal Officer and Secretary of Behringer Securities,
Behringer Holdings, Behringer Development, HPT and Behringer Partners. From 2001
until February 2003, Mr. Reihsen served as Chief Legal Officer and Secretary of
IMS and HPT Management. Since 2002, he has served as Chief Operating Officer,
Chief Legal Officer and Secretary of Behringer Advisors. Currently, Mr. Reihsen
holds the following positions: President of Behringer Securities; Chief
Operating Officer, Chief Legal Officer and Secretary of Behringer Holdings and
Behringer Partners; and Executive Vice President - Corporate Development and
Legal and Secretary of Behringer Development, HPT, IMS and HPT Management.
23
For over 20 years, Mr. Reihsen's business and legal background has
centered on sophisticated financial and transactional matters, including
commercial real estate transactions, real estate partnerships, and public and
private securities offerings. For the period from 1985 to 2000, Mr. Reihsen
practiced as an outside corporate securities attorney. After serving from 1986
to 1995 in the corporate department of Gibson, Dunn & Crutcher, a leading
international commercial law firm, Mr. Reihsen established his own firm, Travis
& Reihsen, where he served as a corporate/securities partner until 1998. In
1998, Mr. Reihsen became the lead partner in the corporate/securities section of
the law firm Novakov Davis, where he served until 2000. In 2000, he practiced
law as a principal of Block & Balestri, a corporate and securities law firm. In
2000 and 2001, Mr. Reihsen was employed as the Vice President - Corporate
Development and Legal of Xybridge Technologies, Inc., a telecommunications
software company that Mr. Reihsen helped guide through venture funding,
strategic alliances with international telecommunications leaders and its
ultimate sale to Zhone Technologies, Inc. Mr. Reihsen holds Series 7, 24, 27 and
63 securities licenses. Mr. Reihsen received a Bachelor of Arts degree, magna
cum laude, from the University of Mississippi and a Juris Doctorate degree, cum
laude, from the University of Wisconsin.
GARY S. BRESKY is the Chief Financial Officer and Treasurer of Behringer
Advisors I. Since 2002, Mr. Bresky has also served as the Chief Financial
Officer and Treasurer of Behringer Harvard REIT I and is the primary contact for
Behringer Advisors I LP, Behringer Harvard Advisors II LP, Behringer Harvard
REIT I, and all of their affiliates for accountants and auditors. Since 2002,
Mr. Bresky has served as Chief Financial Officer and Treasurer of Behringer
Advisors. Since 2001, he has served as Chief Financial Officer and Treasurer of
Behringer Securities, Behringer Holdings, Behringer Development, HPT, and IMS.
From their inception in 2001 until February 2003, Mr. Bresky served as Chief
Operating Officer, Chief Financial Officer and Treasurer of HPT Management and
as Chief Financial Officer, Treasurer and a manager of Behringer Partners.
Currently, Mr. Bresky serves as Chief Financial Officer and Treasurer of HPT
Management and Treasurer and a manager of Behringer Partners.
Prior to his employment with Behringer Advisors I, Mr. Bresky served,
from 1996 to 2001, as a Senior Vice President of Finance with Harvard Property
Trust, Inc. In this capacity, Mr. Bresky was responsible for directing all
accounting and financial reporting functions and overseeing all treasury
management and banking functions. Mr. Bresky was also integral in analyzing deal
and capital structures as well as participating in all major decisions related
to any acquisition or sale of assets.
From 1995 until 1996, Mr. Bresky worked in the Real Estate Group at
Coopers & Lybrand LLP in Dallas, Texas, where he focused on finance and
accounting for both public and private REITs. His experience included conducting
annual audits, preparing quarterly and annual public securities reporting
compliance filings and public real estate securities registration statements for
his clients. From 1989 to 1994, Mr. Bresky worked with Ten West Associates, LTD
and Westwood Financial Corporation in Los Angeles, California as a real estate
analyst and asset manager for two commercial real estate portfolios totaling in
excess of $185 million. From 1988 until 1989, Mr. Bresky worked as an analysts'
assistant for both Shearson-Lehman Bros., Inc. and Hambrecht and Quist Inc.
assisting brokers in portfolio management. Mr. Bresky has been active in
commercial real estate and related financial activities for over 16 years and
holds Series 7, 24, 27 and 63 securities licenses. Mr. Bresky received a
Bachelor of Arts degree from the University of California - Berkeley and a
Masters of Business Administration degree from the University of Texas.
M. JASON MATTOX is the Senior Vice President of Behringer Advisors I. He
is also Vice President of Behringer Harvard REIT I. Since 2002, Mr. Mattox has
served as a Vice President of Behringer Advisors. Since 2001, he has served as a
Vice President of Behringer Securities. From their inception in 2001 until
February 2003, Mr. Mattox served as Vice President of Behringer Holdings,
Behringer Development, HPT, Behringer Partners, IMS and HPT Management.
Currently, Mr. Mattox serves as Senior Vice President of Behringer Holdings,
HPT, and HPT Management, and Vice President and Secretary of Behringer
Securities.
From 1997 until joining Behringer Advisors I in 2002, Mr. Mattox served
as a Vice President of Harvard Property Trust, Inc. and became a member of its
Investment Committee in 1998. From 1999 until 2001, Mr. Mattox served as Vice
President of Sun Resorts International, Inc., a recreational property investment
company coordinating marina acquisitions throughout the southern United States
and the U.S. Virgin Islands. From 1999 until 2001, in addition to providing
services related to investing, acquisition, disposition and
24
operational activities, Mr. Mattox served as an asset manager with
responsibility for over one million square feet of Harvard Property Trust,
Inc.'s commercial office assets in Texas and Minnesota, overseeing property
performance, management offices, personnel and outsourcing relationships.
Mr. Mattox is a continuing member of the Building Owners and Managers
Association and the National Association of Industrial and Office Properties.
Mr. Mattox formerly was a member of the National Association of Real Estate
Investment Trusts and the Texas Association of Builders. Mr. Mattox has been
active in commercial real estate and related financial activities for over six
years and holds Series 7, 24 and 63 securities licenses. Mr. Mattox received a
Bachelor of Business Administration degree, with honors, and a Bachelor of
Science degree, cum laude, from Southern Methodist University.
OTHER PERSONNEL
The General Partners are assisted by the officers and employees of HPT,
which is the general partner of Behringer Advisors I. HPT and its affiliates
currently employ 91 persons, including the executive officers listed above and
32 employed by Behringer Securities. HPT and its affiliates will continue to
hire employees as needed. HPT and its affiliates also will engage the services
of non-affiliated third parties to assist with the identification of properties
for possible acquisition and management of our operations.
ADVISORY BOARD
We do not have a board of directors. The General Partners are assisted
by an advisory board. No member of the advisory board may be a general partner,
officer or employee of ours, Behringer Advisors I, or an affiliate of us or
Behringer Advisors I, although members of the advisory board may purchase or own
securities of, or have other business relations with, such parties. The members
of the advisory board are Patrick M. Arnold, Ralph G. Edwards, Jr., Robert
"Bobby" W. McMillan and Scott F. McMullin.
NO AUDIT COMMITTEE; NO "AUDIT COMMITTEE FINANCIAL EXPERT"
We do not have a board of directors and, as such, have no board
committees such as an audit committee. Because we do not have an audit
committee, we do not have an "audit committee financial expert." The General
Partners are responsible for managing the relationship with our Independent
Registered Public Accounting Firm.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Because we do not have a class of equity securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934, we are not yet required to
comply with beneficial ownership reporting under Section 16(a) of the Exchange
Act.
CODE OF ETHICS
Behringer Advisors I has adopted a code of ethics applicable to its
principal executive officer, principal financial officer, principal accounting
officer, controller and other employees. A copy of the code of ethics of
Behringer Advisors I may be obtained from our website at http://www.bhfunds.com.
The web site will be updated to include any material waivers or modifications to
the code of ethics.
ITEM 11. EXECUTIVE COMPENSATION.
We operate under the direction of our General Partners, which are
responsible for the management and control of our affairs. The officers and
employees of HPT assist the General Partners. The officers and employees of HPT
do not devote all of their time to managing us, and they do not receive any
compensation from us for their services. We pay fees to Behringer Advisors I and
its other affiliates. See "Market for Registrant's Common Equity and Related
Stockholder Matters - Use of Proceeds from Offering of Securities" and "Certain
Relationships and Related Transactions" for a description of the fees payable
and expenses reimbursed to our affiliates.
25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
There were no limited partners known by us who owned more than 5% of our
limited partnership units as of March 16, 2005.
We do not have any officers or directors. Our two General Partners,
Robert M. Behringer and Behringer Harvard Advisors I, each own 50% of the
General Partnership interest and no units of the limited partnership interest.
We do not maintain any equity compensation plans, and no arrangements exist that
would, upon operation, result in a change in control for us.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The compensation and fees paid or to be paid by us to our General
Partners and their affiliates in connection with our operation for the years
ended December 31, 2004 and 2003 are as follows:
Total capitalized Total
Total to offering capitalized Total
incurred costs to real estate expensed
------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2004
Behringer Securities, commissions and
dealer manager fees $ 2,734,878 $ 2,734,878 $ - $ -
Behringer Advisors I, reimbursement of
organization and offering expenses 725,152 711,817 - 13,335
Behringer Advisors I, acquisition,
advisory fees and expenses 627,375 - 627,375 -
HPT Management LP, property management
and leasing fees 34,218 - - 34,218
Behringer Advisors I, asset management fees 36,948 - - 36,948
---------------- ------------------ ------------------ -------------
Total $ 4,158,571 $ 3,446,695 $ 627,375 $ 84,501
================ ================== ================== =============
FOR THE YEAR ENDED DECEMBER 31, 2003
Behringer Securities, commissions and
dealer manager fees $ 202,611 $ 202,611 $ - $ -
Behringer Advisors I, reimbursement of
organization and offering expenses 55,603 54,580 - 1,023
Behringer Advisors I, acquisition,
advisory fees and expenses - - - -
HPT Management LP, property management
and leasing fees - - - -
Behringer Advisors I, asset management fees - - - -
---------------- ------------------ ------------------ -------------
Total $ 258,214 $ 257,191 $ - $ 1,023
================ ================== ================== =============
Behringer Securities, our affiliated dealer manager, receives
commissions of up to 7% of gross offering proceeds before reallowance of
commissions earned by participating broker-dealers. In addition, up to 2.5% of
gross proceeds before reallowance to participating broker-dealers is paid to
Behringer Securities as a dealer manager fee; except that this dealer manager
fee is reduced to 1% of the gross proceeds of purchases made pursuant to the
distribution reinvestment feature of our distribution reinvestment and automatic
purchase plan. Behringer Securities reallows all of its commissions of up to 7%
of gross offering proceeds to participating broker-dealers and 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.
During the year ended December 31, 2004, Behringer Securities' commissions and
dealer manager fees totaled $2,006,529 and $728,349, respectively and were
capitalized as offering costs in "Partners' capital" on our balance sheet. For
the year ended December 31, 2003, Behringer Securities earned $147,008 in
selling commissions and $55,603 in dealer management fees.
26
Behringer Advisors I, a general partner of and advisor to us, or
Behringer Advisors I's affiliates receive up to 2.5% of gross offering proceeds
for reimbursement of organization and offering expenses. As of December 31,
2004, $2,609,520 of organization and offering expenses had been incurred by
Behringer Advisors I on our behalf, of which $780,755 had been reimbursed by us
and the balance of $1,828,765 was to be reimbursed at a rate of 2.5% of future
equity raised. Of the $780,755 of organization and offering costs reimbursed by
us as of December 31, 2004, $766,397 had been capitalized as offering costs in
"Partners' capital" on our balance sheet and $14,358 had been expensed as
organizational costs. For the year ended December 31, 2004, we reimbursed
$725,152 of organization and offering expenses, of which $711,817 was
capitalized as offering costs in "Partners' capital" and $13,335 was expensed as
organizational costs. For the year ended December 31, 2003, we reimbursed
$55,603 of organization and offering expenses, of which $54,580 was capitalized
as offering costs in "Partners' capital" and $1,023 was expensed as
organizational costs. Behringer Advisors I or its affiliates determine the
amount of organization and offering expenses owed, based on specific invoice
identification as well as an allocation of costs to us, Behringer Harvard
Short-Term Opportunity Fund I LP and Behringer Harvard REIT I, Inc., our
affiliates, based on anticipated respective equity offering sizes of those
entities. As of February 19, 2005, the date of the termination of the Offering,
organization and offering expenses reimbursed by us totaled approximately
$1,098,000. No further proceeds will be raised by us as a result of the
termination of the Offering and as a result, we will not make any further
reimbursements to Behringer Advisors I for organization and offering expenses
they have incurred or may incur in the future on our behalf.
Behringer Advisors I or its affiliates receive acquisition and advisory
fees of up to 3% of the contract purchase price of each asset for the
acquisition, development or construction of real property or, with respect to
any mortgage loan, up to 3% of the funds advanced for the making or purchase of
a mortgage loan. Behringer Advisors I or its affiliates also receive up to 0.5%
of the contract purchase price of the assets acquired by us for reimbursement of
expenses related to making investments. During the year ended December 31, 2004,
Behringer Advisors I acquisition and advisory fees totaled $537,750 and
reimbursement for related expenses totaled $89,625. For the year ended December
31, 2003, Behringer Advisors I had no acquisition and advisory fees or expense
reimbursement for related expenses.
For the management and leasing of our properties, we pay HPT Management,
our property manager, property management and leasing fees equal to the lesser
of: (A) the amounts charged by unaffiliated persons rendering comparable
services in the same geographic area or (B)(1) for commercial properties that
are not leased on a long-term net lease basis, 4% of gross revenues, plus
separate leasing fees of up to 1.5% of gross revenues based upon the customary
leasing fees applicable to the geographic location of the properties, and (2) in
the case of commercial properties that are leased on a long-term (10 or more
years) net lease basis, 1% of gross revenues plus a one-time initial leasing fee
of 3% of gross revenues payable over the first five years of the lease term. We
reimburse the costs and expenses incurred by HPT Management on our behalf,
including the wages and salaries and other employee-related expenses of all
on-site employees of HPT Management who are engaged in the operation,
management, maintenance and leasing or access control of our properties,
including taxes, insurance and benefits relating to such employees, and legal,
travel and other out-of-pocket expenses that are directly related to the
management of specific properties. During the year ended December 31, 2004, we
incurred $34,218 in property management fees payable to HPT Management. We did
not incur any property management fees payable to HPT Management for the year
ended December 31, 2003.
We pay Behringer Advisors I, or its affiliates, an annual advisor asset
management fee of 0.5% of the aggregate asset value of our assets. Any portion
of the asset management fee may be deferred and paid in a subsequent year.
During the year ended December 31, 2004, we incurred $36,948 of asset management
fees. We did not incur any asset management fees for the year ended December 31,
2003.
In connection with the sale of our properties we will pay to the General
Partners or their affiliates a real estate commission in an amount not exceeding
the lesser of: (A) 50% 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% of the gross
sales price of each property, subordinated to distributions to Limited Partners
from the sale proceeds of an amount which, together with prior distributions to
the Limited Partners, will equal (1) 100% of their capital contributions plus
(2) an 8% 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. In addition, after the limited
partners have received a return of their net capital contributions and an 8%
annual cumulative (noncompounded) return on their net capital contributions,
then the General Partners are entitled to receive 15%
27
of the remaining residual proceeds available for distribution (a subordinated
participation in net sale proceeds and distributions); provided, however, that
in no event will the General Partners receive in the aggregate more than 15% of
sale proceeds remaining after the limited partners have received a return of
their net capital contributions.
We are dependent on Behringer Advisors I, Behringer Securities and HPT
Management for certain services that are essential to us, including the sale of
our limited partnership units, asset acquisition and disposition decisions,
property management and leasing services and other general administrative
responsibilities. In the event that these companies were unable to provide the
respective services to us, we would be required to obtain such services from
other sources.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Because we do not have a board of directors or any board committees,
including an audit committee, the General Partners pre-approve all auditing and
permissible non-auditing services provided by our independent registered public
accounting firm. The independent public accountants may not be retained to
perform the non-auditing services specified in Section 10A(g) of the Securities
Exchange Act of 1934.
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table presents fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of our annual financial
statements for the years ended December 31, 2004 and December 31, 2003, and fees
billed for other services rendered by PricewaterhouseCoopers during those
periods:
2004 2003
------------ ------------
Audit Fees (1) $ 101,000 $ 40,000
Audit-Related Fees (2) 58,392 1,367
Tax Fees (3) 8,097 5,500
------------ ------------
Total Fees $ 167,489 $ 46,867
============ ============
- ------------------------
(1) Audit fees consisted of professional services performed in connection with
the audit of our annual financial statements and review of financial statements
included in our Form 10-Qs.
(2) Fees related to consultations concerning financial accounting and reporting
standards.
(3) Tax fees consisted principally of assistance with matters related to tax
compliance, tax planning, and tax advice.
28
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) LIST OF DOCUMENTS FILED.
1. FINANCIAL STATEMENTS
The list of the financial statements filed as part of this
Annual Report on Form 10-K is set forth on page F-1 herein.
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
Schedule III Real Estate and Accumulated Depreciation
3. EXHIBITS
The list of exhibits filed as part of this Annual Report on Form
10-K is submitted in the Exhibit Index following the financial
statements in response to Item 601 of Regulation S-K.
(b) EXHIBITS.
The exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(c) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules, except for Schedule III (see (a) 2.
above), have been omitted because the required information of such
schedules is not present, is not present in amounts sufficient to
require a schedule or is included in the financial statements.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 31, 2005 BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
By: /s/ Robert M. Behringer
------------------------------------------------
Robert M. Behringer
General partner of the Registrant and Chief
Executive Officer of Harvard Property Trust,
LLC, sole general partner of Behringer Harvard
Advisors I LP
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 31, 2005 /s/ Robert M. Behringer
------------------------------------------------
Robert M. Behringer
General partner of the Registrant and Chief
Executive Officer of Harvard Property Trust,
LLC, sole general partner of Behringer Harvard
Advisors I LP (Principal Executive Officer)
March 31, 2005 /s/ Gary S. Bresky
------------------------------------------------
Gary S. Bresky
Chief Financial Officer and Treasurer of
Behringer Harvard Advisors I LP (Principal
Financial Officer)
March 31, 2005 /s/ Kimberly Arianpour
------------------------------------------------
Kimberly Arianpour
Chief Accounting Officer of Behringer Harvard
Advisors I LP (Principal Accounting Officer)
30
INDEX TO FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2004 and 2003 F-3
Consolidated Statements of Operations for the Years ended
December 31, 2004 and 2003 and the period from September 20,
2002 (date of inception) through December 31, 2002 F-4
Consolidated Statements of Partners' Capital for the Years ended
December 31, 2004 and 2003 and the period from September 20,
2002 (date of inception) through December 31, 2002 F-5
Consolidated Statements of Cash Flows for the Years Ended December
31, 2004 and 2003 and the period from September 20, 2002 (date
of inception) through December 31, 2002 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm on Financial
Statement Schedule F-19
Schedule III - Real Estate and Accumulated Depreciation F-20
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Behringer Harvard Mid-Term Value Enhancement Fund I LP:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Behringer Harvard Mid-Term Value Enhancement Fund I LP (the "Partnership") at
December 31, 2004 and 2003, and the results of their operations and their cash
flows for the years ended December 31, 2004 and 2003 and the period from
September 20, 2002 (date of inception) through December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
March 31, 2005
F-2
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2004 2003
-------------- --------------
ASSETS
REAL ESTATE
Land $ 3,586,232 $ -
Buildings, net 11,249,778 -
Acquired in-place lease intangibles, net 3,908,778
-------------- --------------
TOTAL REAL ESTATE 18,744,788 -
Cash and cash equivalents 9,197,579 1,986,114
Restricted cash 1,339,086 75,132
Accounts receivable, net 122,383 -
Prepaid expenses and other assets 109,765 31,590
-------------- --------------
TOTAL ASSETS $ 29,513,601 $ 2,092,836
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable $ 2,354 $ 7,584
Payables to affiliates 23,611 85,521
Acquired below market lease intangibles, net 350,416 -
Distributions payable 153,414 -
Accrued liabilities 742,599 68,752
Subscriptions for limited partnership units 1,339,630 75,132
-------------- --------------
TOTAL LIABILITIES 2,612,024 236,989
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
Limited partners, 44,000,000 units authorized;
3,158,195 units and 223,345 units issued
and outstanding at December 31, 2004 and
December 31, 2003, respectively 26,901,103 1,855,373
General partners 474 474
-------------- --------------
TOTAL PARTNERS' CAPITAL 26,901,577 1,855,847
-------------- --------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 29,513,601 $ 2,092,836
============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
CONSOLIDATED STATEMENTS OF OPERATIONS
FROM INCEPTION
(SEPTEMBER 20, 2002)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMEBER 31, 2002
----------------- ----------------- -------------------
REVENUE
Rental revenue $ 1,183,349 $ - $ -
----------------- ----------------- -------------------
TOTAL REVENUES 1,183,349 -
EXPENSES
Property operating expenses 385,012 - -
Real estate taxes 137,728 - -
Property and asset management fees 71,166 - -
General and administrative 313,821 103,724 -
Depreciation and amortization 309,500 - -
----------------- ----------------- -------------------
TOTAL EXPENSES 1,217,227 103,724 -
OPERATING LOSS (33,878) (103,724) -
OTHER INCOME
Interest income 44,913 84 -
----------------- ----------------- -------------------
TOTAL OTHER INCOME 44,913 84 -
----------------- ----------------- -------------------
NET INCOME (LOSS) $ 11,035 $ (103,640) $ -
================= ================= ===================
ALLOCATION OF NET INCOME (LOSS):
Net income (loss) allocated to general partners $ - $ (26) $ -
================= ================= ===================
Net income (loss) allocated to limited partners $ 11,035 $ (103,614) $ -
================= ================= ===================
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 1,353,476 5,000 -
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ 0.01 $ (20.73) $ -
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
LIMITED PARTNERS GENERAL PARTNERS
---------------------------------------- --------------------------
ACCUMULATED NUMBER OF ACCUMULATED
CONTRIBUTIONS LOSSES UNITS CONTRIBUTIONS LOSSES TOTAL
------------- ----------- ----------- ------------- ------------ ------------
Beginning balance on September 20, 2002 $ - $ - $ - $ - $ -
Capital contributions on
September 20, 2002 100 500 600
------------- ----------- ----------- ------------- ------------ ------------
Balance as of December 31, 2002 100 - 500 - 600
------------- ----------- ----------- ------------- ------------ ------------
Issuance of units of limited
partnership interest, net 1,958,887 223,345 1,958,887
Net loss (103,614) (26) (103,640)
------------- ----------- ----------- ------------- ------------ ------------
Balance as of December 31, 2003 1,958,987 (103,614) 223,345 500 (26) 1,855,847
------------- ----------- ----------- ------------- ------------ ------------
Issuance of units of limited
partnership interest, net 25,534,480 2,902,828 25,534,480
Distributions to limited partners (819,814) (819,814)
Units issued pursuant
to Distribution Reinvestment Plan 320,029 32,022 320,029
Net income 11,035 - 11,035
------------- ----------- ----------- ------------- ------------ ------------
Balance as of December 31, 2004 $26,993,682 $ (92,579) 3,158,195 $ 500 $ (26) $26,901,577
============= =========== =========== ============= ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM INCEPTION
(SEPTEMBER 20, 2002)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 11,035 $ (103,640) -
Adjustments to reconcile net income (loss) to net cash
flows provided by (used in) operating activities
Depreciation and amortization 301,901 - -
Change in accounts receivable (122,383) - -
Change in prepaid expenses and other assets (55,645) (31,590) -
Change in accounts payable (5,230) 7,584 -
Change in accrued liabilities 417,674 68,752 -
----------------- ----------------- -------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 547,352 (58,894) -
----------------- ----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate (18,247,941) - -
Purchase of property and equipment (214,689) - -
----------------- ----------------- -------------------
CASH USED IN INVESTING ACTIVITIES (18,462,630) - -
----------------- ----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
General partners' contributions - - 500
Limited partners' contributions 28,981,776 2,224,115 100
Offering costs (3,447,296) (265,228) -
Distributions (346,371) - -
Change in limited partners' subscriptions 1,264,498 (75,132) -
Change in restricted cash (1,263,954) 75,132 -
Change in payables to affiliates (61,910) 85,521 -
----------------- ----------------- -------------------
CASH PROVIDED BY FINANCING ACTIVITIES 25,126,743 2,044,408 600
----------------- ----------------- -------------------
Net change in cash and cash equivalents 7,211,465 1,985,514 600
Cash and cash equivalents at beginning of period 1,986,114 600 -
----------------- ----------------- -------------------
Cash and cash equivalents at end of period $ 9,197,579 $ 1,986,114 $ 600
================= ================= ===================
NON-CASH FINANCING ACTIVITIES:
Limited partnership units issued under distribution
reinvestment plan $ 320,029 $ - $ -
Distributions payable in limited partnership units
under distribution reinvestment plan $ 75,650 $ - $ -
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
BUSINESS
Behringer Harvard Mid-Term Value Enhancement Fund I LP is a limited
partnership formed in Texas on July 30, 2002. Our general partners are Behringer
Harvard Advisors I LP ("Behringer Advisors I") and Robert M. Behringer
(collectively the "General Partners"). We were funded through capital
contributions from our General Partners and initial limited partner on September
20, 2002 (date of inception) and offered our limited partnership units pursuant
to the public offering which commenced on February 19, 2003 ("the Offering"),
terminated on February 19, 2005 and is described below. The Offering was a best
efforts continuous offering and we continued to admit new investors until the
termination of the offering in February 2005. We intend to continue to use the
proceeds from the Offering, after deducting offering expenses, primarily to
acquire institutional quality office and office service center properties, in
highly desirable locations in markets with barriers to entry and limited
potential for new development.
We are not limited to investments in institutional quality office
properties. We may invest in other commercial properties, such as shopping
centers, business and industrial parks, manufacturing facilities, warehouse and
distribution facilities, in order to reduce overall portfolio risk or enhance
overall portfolio returns if our General Partners determine that it would be
advantageous to do so. In addition, our General Partners may determine that it
would be advantageous to acquire commercial properties other than institutional
quality office properties in order to diversify our portfolio or in order to
respond to changes in the real estate market. We may also invest in commercial
properties that are not preleased to such tenants or in other types of
commercial properties such as hotels or motels.
We may purchase properties that have been constructed and have operating
histories, are newly constructed or are under development or construction. An
advisory board has been established to provide the General Partners with advice
and guidance with respect to (i) the identification of assets for acquisition;
(ii) general economic and market conditions, general business principles,
specific business principles relating to our business plan; (iii) inroads to
establishing beneficial strategic partners, customers, and suppliers; (iv)
opportunities within and related to the industry; and (v) other assistance as
may be determined by the General Partners or their representatives from time to
time. The Partnership Agreement provides that we will continue in existence
until the earlier of December 31, 2022 or termination of the Partnership
pursuant to the dissolution and termination provisions of the Partnership
Agreement, which includes a majority vote of the limited partners.
ORGANIZATION
On February 19, 2003, we commenced the Offering of up to 40,000,000
units of limited partnership interest to be offered at a price of $10 per unit
pursuant to a Registration Statement on Form S-11 filed under the Securities Act
of 1933. The Registration Statement also covered up to 4,000,000 units available
pursuant to our distribution reinvestment plan at $10 per unit. We terminated
our distribution reinvestment plan on February 19, 2005 with the termination of
the offering.
As of December 31, 2004, we had accepted subscriptions for 3,158,195
limited partnership units. As of March 16, 2005, there were 4,430,702 limited
partnership units outstanding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues and
expenses during the reporting period. These estimates include such items as
purchase price allocation for real estate acquisitions, impairment of long-lived
F-7
assets, depreciation and amortization and allowance for doubtful accounts.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include our accounts and the
accounts of our subsidiaries. All inter-company transactions, balances and
profits have been eliminated in consolidation. Interests in entities acquired
are evaluated based on Financial Accounting Standards Board Interpretation
("FIN") No. 46R "Consolidation of Variable Interest Entities", which requires
the consolidation of variable interest entities in which we are deemed to be the
primary beneficiary. If the interest in the entity is determined to not be a
variable interest entity under FIN No. 46R, then the entities are evaluated for
consolidation under the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 78-9 "Accounting for Investments in Real
Estate Ventures."
REAL ESTATE
Upon the acquisition of real estate properties, we allocate the purchase
price of those properties to the tangible assets acquired, consisting of land
and buildings, and identified intangible assets based on their fair values in
accordance with Statement of Financial Accounting Standards No. 141, "Business
Combinations." Identified intangible assets consist of the fair value of
above-market and below-market leases, in-place leases, in-place tenant
improvements and tenant relationships.
The fair value of the tangible assets acquired, consisting of land and
buildings, is determined by valuing the property as if it were vacant, and the
"as-if-vacant" value is then allocated to land and buildings. Land values are
derived from appraisals, and building values are calculated as replacement cost
less depreciation or management's estimates of the relative fair value of these
assets using discounted cash flow analyses or similar methods. The value of the
building is depreciated over the estimated useful life of 25 years using the
straight-line method.
We determine the value of above-market and below-market in-place leases
for acquired properties based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of current market lease rates for the
corresponding in-place leases, measured over a period equal to the remaining
non-cancelable terms of the respective leases. We record the fair value of
above-market and below-market leases as intangible assets and liabilities and
are amortized as an adjustment to rental income over the remaining
non-cancelable terms of the respective leases.
The total value of identified real estate intangible assets acquired is
further allocated to in-place lease values, in-place tenant improvements,
in-place leasing commissions and tenant relationships based on management's
evaluation of the specific characteristics of each tenant's lease and our
overall relationship with that respective tenant. The aggregate value for tenant
improvements and leasing commissions is based on estimates of these costs
incurred at inception of the acquired leases, amortized through the date of
acquisition. The aggregate value of in-place leases acquired and tenant
relationships is determined by applying a fair value model. The estimates of
fair value of in-place leases includes an estimate of carrying costs during the
expected lease-up periods for the respective spaces considering current market
conditions. In estimating the carrying costs that would have otherwise been
incurred had the leases not been in place, management includes such items as
real estate taxes, insurance and other operating expenses as well as lost rental
revenue during the expected lease-up period based on current market conditions.
The estimates of fair value of tenant relationships also include costs to
execute similar leases including leasing commissions, legal and tenant
improvements as well as an estimate of the likelihood of renewal as determined
by management on a tenant-by-tenant basis.
We amortize the value of in-place leases and in-place tenant
improvements to expense over the initial term of the respective leases. The
value of tenant relationship intangibles are amortized to expense over the
initial term and any anticipated renewal periods, but in no event does the
amortization period for intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the unamortized portion of
the related real estate intangibles would be charged to expense.
F-8
INVESTMENT IMPAIRMENTS
For real estate directly owned by us, management monitors events and
changes in circumstances indicating that the carrying amounts of the real estate
assets may not be recoverable. When such events or changes in circumstances are
present, we assess potential impairment by comparing estimated future
undiscounted operating cash flows expected to be generated over the life of the
asset and from its eventual disposition, to the carrying amount of the asset. In
the event that the carrying amount exceeds the estimated future undiscounted
operating cash flows, we recognize an impairment loss to adjust the carrying
amount of the asset to estimated fair value.
CASH AND CASH EQUIVALENTS
We consider investments in highly-liquid money market funds with
original maturities of three months or less to be cash equivalents. The carrying
amount of cash and cash equivalents reported on the balance sheet approximates
fair value.
RESTRICTED CASH
Restricted cash is comprised of subscription proceeds held in escrow
until investors are admitted as limited partners. We admitted new limited
partners at least monthly until the offering was terminated in February 2005.
Upon acceptance of limited partners, partnership units were issued and
subscription proceeds were released to us from escrow.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include escrow deposits for real
estate to be acquired and prepaid expenses such as prepaid insurance.
REVENUE RECOGNITION
We recognize rental income generated from leases on real estate assets
on the straight-line basis over the terms of the respective leases. Some leases
contain provisions for the tenant's payment of additional rent after certain
tenant sales revenue thresholds are met. Such contingent rent is recognized as
revenue after the related revenue threshold is met. For the year ended December
31, 2004, the total net increase to rental revenues due to straight-line rent
adjustments was $120,376. There were no straight-line rent adjustments during
the year ended December 31, 2003.
OFFERING COSTS
The General Partners fund all of the organization and offering costs on
our behalf. We are required to reimburse them for such organization and offering
costs up to 2.5% of cumulative capital raised by us in the Offering.
Organization and offering costs include items such as legal and accounting fees,
marketing, promotional and printing costs, and specifically exclude selling
commissions and dealer manager fees. All offering costs are recorded as an
offset to partners' capital, and all organization costs are recorded as an
expense at the time we become liable for the payment of these amounts.
CASH FLOW DISTRIBUTIONS
Net cash distributions, as defined in the Partnership Agreement, 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 has received distributions of net cash from
operations with respect to such fiscal year, or applicable
portion thereof, equal to eight percent (8%) per annum of their
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%) of their net capital contribution;
and
F-9
c) Thereafter, eighty-five percent (85%) to the limited partners,
on a per unit basis, and fifteen percent (15%) to the General
Partners.
Other limitations of allocated or received distributions are defined
within the Partnership Agreement.
INCOME (LOSS) ALLOCATIONS
Net income for each applicable accounting period is 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
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 is 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%) to the limited partners and
fifteen percent (15%) to the General Partners.
We distribute to our General Partners a share of net cash from
operations, a 15% distribution after the limited partners have received
distributions equal to their net capital contributions, plus an 8% annual
cumulative (noncompounded) return on their net capital contributions; provided,
however, that in no event will the General Partners receive more than 10% of
cash available for distribution.
INCOME TAXES
We are not a taxpaying entity and, accordingly, record no income taxes.
The partners are individually responsible for reporting their share of our
taxable income or loss on their income tax returns.
Certain transactions of ours may be subject to accounting methods for
income tax purposes, which differ from the accounting methods used in preparing
these financial statements in accordance with accounting principles generally
accepted in the United States of America. Accordingly, our net income or loss
and the resulting balances in the partners' capital accounts reported for income
tax purposes may differ from the balances reported for those same items in the
accompanying financial statements.
CONCENTRATION OF CREDIT RISK
At December 31, 2004, we had cash and cash equivalents and restricted
cash in excess of federally insured levels on deposit in two financial
institutions. We had cash and cash equivalents and restricted cash in excess of
federally insured levels on deposit in three financial institutions at December
31, 2003. We regularly monitor the financial stability of these financial
institutions and believe that we are not exposed to any significant credit risk.
3. NEW ACCOUNTING PRONOUNCEMENTS
None.
F-10
4. REAL ESTATE
ACQUISITIONS
On March 12, 2004, we acquired a one-story office building containing
approximately 29,660 rentable square feet (unaudited), located on approximately
2.5 acres of land (unaudited) (the "Hopkins Property"). The Hopkins Property is
located in Hopkins, Minnesota, a suburb of Minneapolis, Minnesota. The purchase
price of the Hopkins Property was approximately $3,100,000. We used proceeds
from our public offering to pay the entire purchase price and all closing costs
of the acquisition. The Hopkins Property is held by Behringer Harvard Hopkins,
LLC, our wholly-owned subsidiary. The purchase price has been allocated to the
assets acquired and liabilities assumed as follows:
Estimated
Description Allocation useful life
-----------------------------------------------------------------------
Land $ 786,232
Building 2,262,225 25 years
Acquired in-place lease intangibles 64,101 7.5 years
Acquired customer relationship value 86,695 12.5 years
Acquired below market lease intangibles (96,462) 7.5 years
Prepaid insurance 4,000
Prepaid rent (13,548)
----------------
Total $ 3,093,243
================
The purchase price of the Hopkins Property was increased by $36,866 in the
second quarter of 2004 to include professional fees incurred in conjunction with
the acquisition.
On June 28, 2004, we acquired a two-story office building containing
approximately 79,049 rentable square feet (unaudited), located on approximately
5.1 acres of land (unaudited) (the "Northpoint Property"). The Northpoint
Property is located in Dallas, Texas. The purchase price of the Northpoint
Property was approximately $5,800,000. We used proceeds from our public offering
to pay the entire purchase price and all closing costs of the acquisition. The
Northpoint Property is held by Behringer Harvard Northpoint I LP, in which
Behringer Harvard Northpoint I GP, LLC, our wholly owned subsidiary, is the
general partner and we are the limited partner. The purchase price has been
allocated to the assets acquired and liabilities assumed as follows:
Estimated
Description Allocation useful life
-----------------------------------------------------------------------
Land $ 2,000,000
Building 3,265,383 25 years
Acquired in-place lease intangibles 558,344 7.5 years
Acquired above market lease intangibles 226,590 7.5 years
Acquired customer relationship value 153,296 12.5 years
Acquired below market lease intangibles (298,916) 7.5 years
Prepaid expenses 12,797
Accrued liabilities (59,897)
----------------
Total $ 5,857,597
================
The purchase price of the Northpoint property was increased by $34,934 in the
fourth quarter 2004 to include professional fees incurred in conjunction with
the acquisition.
On October 19, 2004, we acquired a two-story office building containing
approximately 70,660 rentable square feet (unaudited) on approximately 6.02
acres of land (unaudited) in Englewood, Colorado, a suburb of
F-11
Denver, Colorado ("Tucson Way"). The purchase price for Tucson Way was
approximately $9,300,000. We used proceeds from our public offering to pay the
entire purchase price and all closing costs of the acquisition. Tucson Way is
held by Behringer Harvard 7400 Tucson Way, LLC, our wholly owned subsidiary. The
purchase price has been allocated to the assets acquired and liabilities assumed
as follows:
Estimated
Description Allocation useful life
-----------------------------------------------------------------------
Land $ 800,000
Building 5,681,173 25 years
Acquired in-plase lease intangibles 1,815,684 7.5 years
Acquired above market lease intangibles 480,837 7.5 years
Acquired customer relationship value 696,437 12.5 years
Prepaid expenses 5,733
Accrued liabilities (182,762)
----------------
Total $ 9,297,102
================
The purchase price of Tucson Way was increased by $27,630 in the fourth quarter
of 2004 to include professional fees incurred in conjunction with the
acquisition.
PRO FORMA RESULTS OF OPERATIONS
The following summary presents the results of operations for the year
ended December 31, 2004 and 2003, on an unaudited pro forma basis, as if the
acquisitions of the Hopkins, Northpoint and Tucson Way properties had occurred
as of January 1 of the respective years. The pro forma results are for
illustrative purposes only and do not purport to be indicative of the actual
results that would have occurred had the transactions been consummated as of
January 1, 2003, nor are they indicative of results of operations that may occur
in the future.
Year ended
December 31,
--------------------------
2004 2003
------------ ------------
Total revenues $ 2,816,930 $ 2,771,582
Total expenses (2,557,649) (2,236,999)
Other income 44,913 84
------------ ------------
Net income $ 304,194 $ 534,667
============ ============
Allocation of net income (loss):
Net income allocated to general partners $ - $ 134
============ ============
Net income allocated to limited partner $ 304,194 $ 534,533
============ ============
Weighted average number of limited
partnership units outstanding 2,241,539 2,062,331
Net income per limited partnership unit $ 0.14 $ 0.26
F-12
5. LEASE INTANGIBLES
We had the following lease intangibles at December 31, 2004.
Initial cost
----------------------------------------
In Place Leases Above Below
& Customer Market Market Accumulated
Property Name Relationship Leases Leases Amortization
-------------------------------------------------------------------------
Hopkins $ 150,796 $ (96,462) $ 2,027
Northpoint 711,640 226,590 (298,916) 65,898
Tucson Way 2,512,121 480,837 - 60,319
-------------------------------------------------------
Totals $ 3,374,557 $ 707,427 $ (395,378) $ 128,244
=======================================================
Amortization of in-place lease intangibles of $135,843 was included in
depreciation and amortization expense and amortization of above and below market
leases was $7,599 and was included as an adjustment to rental income for the
year ended December 31, 2004.
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31, 2004
and 2003:
2004 2003
------------ ------------
Property taxes $ 311,874 $ -
Tenant escrows 133,414 -
Audit fees 51,360 24,467
Tenant improvements 55,664 -
D&O insurance 22,244
Legal fees 14,702
Miscellaneous 153,341 44,285
------------ ------------
$ 742,599 $ 68,752
============ ============
7. PARTNERS' CAPITAL
We initiated the declaration of monthly distributions in March 2004 in
the amount of a 6% annualized rate of return, based on an investment in our
limited partnership units of $10 per unit. Prior to February 19, 2005, we had a
distribution reinvestment and automatic repurchase plan ("DRIP") whereby,
pursuant to the distribution reinvestment feature of the DRIP, unit holders were
permitted to receive additional limited partnership units in lieu of a cash
distribution. We record all distributions when declared, except that the units
issued through the DRIP are recorded when the units are actually issued. The
offering of the units pursuant to the DRIP was terminated with the termination
of the Offering on February 19, 2005. The following are the distributions
declared during the year ended December 31, 2004.
Declared Distributions
in 2004 Total Cash DRIP
------------ -------------- -------------- --------------
1st Quarter $ 52,414 $ 27,645 $ 24,769
2nd Quarter 114,244 56,059 58,185
3rd Quarter 249,206 133,797 115,409
4th Quarter 403,950 206,634 197,316
-------------- --------------- --------------
$ 819,814 $ 424,135 $ 395,679
============== =============== ==============
There were no distributions declared or paid during the year ended
December 31, 2003.
F-13
8. LEASING ACTIVITY
Future minimum base rental revenue due to us under non-cancelable leases
in effect as of December 31, 2004, were as follows:
Year ending December 31,
--------------------------------------------------
2005 $ 1,977,466
2006 2,000,266
2007 2,017,027
2008 1,889,521
2009 1,118,833
Thereafter 2,277,618
-------------
$ 11,280,731
=============
9. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended December 31,
2004 and 2003 consisted of the following:
Year ended December 31,
--------------------------------
2004 2003
--------------- ---------------
Auditing expense $ 128,800 $ 42,867
Transfer agent fees 41,401 19,605
D&O insurance 47,755 15,795
Tax preparation fees 9,333 15,350
Advisory board fees 12,000 9,000
Organization expense 13,335 1,023
Legal expense 17,779 -
Escrow agent fees 12,815 -
Other 30,603 84
--------------- ---------------
$ 313,821 $ 103,724
=============== ===============
Of the $313,821 of general and administrative expenses incurred in the
year ended December 31, 2004, $13,335 was paid to Behringer Harvard Advisors I
for organizational expenses. For the year ended December 31, 2003, of the
$103,724 of general and administrative expenses incurred, $1,023 was paid to
Behringer Advisors I for organizational expenses.
F-14
10. RELATED PARTY ARRANGEMENTS
The General Partners and certain of their affiliates receive fees and
compensation in connection with the Offering and in the acquisition, management
and sale of our assets.
The following is a summary of the related party fees and compensation
incurred by us during the years ended December 31, 2004 and 2003.
Total
capitalized Total
Total to offering capitalized to Total
incurred costs real estate expensed
------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2004
Behringer Securities, commissions and dealer
manager fees $ 2,734,878 $ 2,734,878 $ - $ -
Behringer Advisors I, reimbursement of organization
and offering expenses 725,152 711,817 - 13,335
Behringer Advisors I, acquisition, advisory fees
and expenses 627,375 - 627,375 -
HPT Management LP, property management and leasing fees 34,218 - - 34,218
Behringer Advisors I, asset management fees 36,948 - - 36,948
-------------- ---------------- --------------- -------------
Total $ 4,158,571 $ 3,446,695 $ 627,375 $ 84,501
============== ================ =============== =============
FOR THE YEAR ENDED DECEMBER 31, 2003
Behringer Securities, commissions and dealer
manager fees $ 202,611 $ 202,611 $ - $ -
Behringer Advisors I, reimbursement of organization
and offering expenses 55,603 54,580 - 1,023
Behringer Advisors I, acquisition, advisory fees
and expenses - - - -
HPT Management LP, property management and leasing fees - - - -
Behringer Advisors I, asset management fees - - - -
-------------- ---------------- --------------- -------------
Total $ 258,214 $ 257,191 $ - $ 1,023
============== ================ =============== =============
Behringer Securities, our affiliated dealer manager, receives
commissions of up to 7% of gross offering proceeds before reallowance of
commissions earned by participating broker-dealers. In addition, up to 2.5% of
gross proceeds before reallowance to participating broker-dealers is paid to
Behringer Securities as a dealer manager fee; except that this dealer manager
fee is reduced to 1% of the gross proceeds of purchases made pursuant to the
distribution reinvestment feature of our distribution reinvestment and automatic
purchase plan. Behringer Securities reallows all of its commissions of up to 7%
of gross offering proceeds to participating broker-dealers and 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.
During the year ended December 31, 2004, Behringer Securities' commissions and
dealer manager fees totaled $2,006,529 and $728,349, respectively and were
capitalized as offering costs in "Partners' capital" on our balance sheet. For
the year ended December 31, 2003, Behringer Securities earned $147,008 in
selling commissions and $55,603 in dealer management fees.
Behringer Advisors I, a general partner of and advisor to us, or
Behringer Advisors I's affiliates receive up to 2.5% of gross offering proceeds
for reimbursement of organization and offering expenses. As of December 31,
2004, $2,609,520 of organization and offering expenses had been incurred by
Behringer Advisors I on our behalf, of which $780,755 had been reimbursed by us
and the balance of $1,828,765 was to be reimbursed at a rate of 2.5% of future
equity raised. Of the $780,755 of organization and offering costs reimbursed by
us as of December 31, 2004, $766,397 had been capitalized as offering costs in
"Partners' capital" on our balance
F-15
sheet and $14,358 had been expensed as organizational costs. For the year ended
December 31, 2004, we reimbursed $725,152 of organization and offering expenses,
of which $711,817 was capitalized as offering costs in "Partners' capital" and
$13,335 was expensed as organizational costs. For the year ended December 31,
2003, we reimbursed $55,603 of organization and offering expenses, of which
$54,580 was capitalized as offering costs in "Partners' capital" and $1,023 was
expensed as organizational costs. Behringer Advisors I or its affiliates
determine the amount of organization and offering expenses owed, based on
specific invoice identification as well as an allocation of costs to us,
Behringer Harvard Short-Term Opportunity Fund I LP and Behringer Harvard REIT I,
Inc., our affiliates, based on anticipated respective equity offering sizes of
those entities. As of February 19, 2005, the date of the termination of the
Offering, organization and offering expenses reimbursed by us totaled
approximately $1,098,000. No further proceeds will be raised by us as a result
of the termination of the Offering and as a result, we will not make any further
reimbursements to Behringer Advisors I for organization and offering expenses
they have incurred or may incur in the future on our behalf.
Behringer Advisors I or its affiliates receive acquisition and advisory
fees of up to 3% of the contract purchase price of each asset for the
acquisition, development or construction of real property or, with respect to
any mortgage loan, up to 3% of the funds advanced for the making or purchase of
a mortgage loan. Behringer Advisors I or its affiliates also receive up to 0.5%
of the contract purchase price of the assets acquired by us for reimbursement of
expenses related to making investments. During the year ended December 31, 2004,
Behringer Advisors I acquisition and advisory fees totaled $537,750 and
reimbursement for related expenses totaled $89,625. For the year ended December
31, 2003, Behringer Advisors I had no acquisition and advisory fees or expense
reimbursement for related expenses.
For the management and leasing of our properties, we pay HPT Management,
our property manager, property management and leasing fees equal to the lesser
of: (A) the amounts charged by unaffiliated persons rendering comparable
services in the same geographic area or (B)(1) for commercial properties that
are not leased on a long-term net lease basis, 4% of gross revenues, plus
separate leasing fees of up to 1.5% of gross revenues based upon the customary
leasing fees applicable to the geographic location of the properties, and (2) in
the case of commercial properties that are leased on a long-term (ten or more
years) net lease basis, 1% of gross revenues plus a one-time initial leasing fee
of 3% of gross revenues payable over the first five years of the lease term. We
reimburse the costs and expenses incurred by HPT Management on our behalf,
including the wages and salaries and other employee-related expenses of all
on-site employees of HPT Management who are engaged in the operation,
management, maintenance and leasing or access control of our properties,
including taxes, insurance and benefits relating to such employees, and legal,
travel and other out-of-pocket expenses that are directly related to the
management of specific properties. During the year ended December 31, 2004, we
incurred $34,218 in property management fees payable to HPT Management. We did
not incur any property management fees payable to HPT Management for the year
ended December 31, 2003.
We pay Behringer Advisors I, or its affiliates, an annual advisor asset
management fee of 0.5% of the aggregate asset value of our assets. Any portion
of the asset management fee may be deferred and paid in a subsequent year.
During the year ended December 31, 2004, we incurred $36,948 of asset management
fees. We did not incur any asset management fees for the year ended December 31,
2003.
In connection with the sale of our properties, we will pay to the
General Partners or their affiliates a real estate commission in an amount not
exceeding the lesser of: (A) 50% 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% of
the gross sales price of each property, subordinated to distributions to Limited
Partners from the sale proceeds of an amount which, together with prior
distributions to the Limited Partners, will equal (1) 100% of their capital
contributions plus (2) an 8% 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. In addition, after the
limited partners have received a return of their net capital contributions and
an 8% annual cumulative (noncompounded) return on their net capital
contributions, then the General Partners are entitled to receive 15% of the
remaining residual proceeds available for distribution (a subordinated
participation in net sale proceeds and distributions); provided, however, that
in no event will the General Partners receive in the aggregate more than 15% of
sale proceeds remaining after the limited partners have received a return of
their net capital contributions.
F-16
We are dependent on Behringer Advisors I, Behringer Securities and HPT
Management for certain services that are essential to us, including the sale of
our limited partnership units, asset acquisition and disposition decisions,
property management and leasing services and other general administrative
responsibilities. In the event that these companies were unable to provide the
respective services to us, we would be required to obtain such services from
other sources.
11. INCOME TAX BASIS NET INCOME
Our income tax basis net income for the year ended December 31, 2004 and
2003, respectively, is recalculated as follows:
Year ended December 31,
------------------------------------
2004 2003
----------------- -----------------
Net income (loss) for financial statement purposes $ 11,035 $ (103,640)
Start-up and organizational costs 43,084 -
Bad debt expense 8,529 -
Straight line rent (120,376) -
Prepaid rent 113,270 103,724
Depreciation (4,093) -
Other 135,322 -
----------------- -----------------
Net income for income tax purposes $ 186,771 $ 84
================= =================
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected unaudited quarterly financial data
for each quarter during the years ended December 31, 2004 and 2003.
2004 Quarters Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------
Revenues $ 17,910 $ 111,895 $ 396,474 $ 657,070 $1,183,349
Net income (loss) $ (37,430) $ (15,219) $ (7,209) $ 70,893 $ 11,035
Weighted average number of
limited partnership units
outstanding 326,111 759,096 1,641,927 2,669,144
Net income per limited
partnership unit $ (0.11) $ (0.02) $ 0.00 $ 0.03
2003 Quarters Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------
Revenues $ - $ - $ - $ - $ -
Net loss $ - $ - $ - $ (103,640) $ (103,640)
Weighted average number of
limited partnership units
outstanding - - - 5,000
Net loss per limited
partnership unit $ - $ - $ - $ (20.73)
F-17
13. SUBSEQUENT EVENTS
On March 11, 2005, we acquired a single-story office building located at
2800 Mockingbird Lane in Dallas, Texas (the "2800 Mockingbird Property")
containing approximately 73,349 rentable square feet (unaudited) located on
approximately 3.97 acres of land (unaudited). The contract purchase price for
the 2800 Mockingbird Property was $6,350,000, excluding closing costs. We used
proceeds from our public offering of limited partnership units to pay the full
amount of the purchase price and closing costs.
F-18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Partners of
Behringer Harvard Mid-Term Value Enhancement Fund I LP:
Our audits of the consolidated financial statements referred to in our report
dated March 31, 2005, included in this Annual Report on Form 10-K, also included
an audit of the financial statement schedule listed in Item 15(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
Dallas, Texas
March 31, 2005
F-19
BEHRINGER HARVARD MID TERM VALUE ENHANCEMENT FUND I LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
DECEMBER 31, 2004
Initial cost Cost
------------------------- capitalized Gross amount
subsequent carried at Accumulated Year of Date Depreciable
Property Name Market Land Buildings to acquisition close of period depreciation construction acquired life
- ------------------------------------------------------------------------------------------------------------------------------------
Hopkins Minneapolis $ 786,232 $ 2,225,359 $ 36,866 $ 3,048,457 $ 71,337 1981 3/12/04 25
Northpoint Dallas 2,000,000 3,230,414 249,623 5,480,037 64,629 1978 6/28/04 25
Tuscon Way Denver 800,000 5,653,543 27,630 6,481,173 37,691 1985 10/19/04 25
----------------------------------------------------------------------
Totals $ 3,586,232 $ 11,109,316 $ 314,119 $ 15,009,667 $ 173,657
======================================================================
(1) The aggregate cost for federal income tax purposes is equal to the gross amount carried at the close of the period.
F-20
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1.1 Form of Dealer Manager Distribution Agreement between Registrant and
Behringer Securities LP (previously filed and incorporated by
reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-100126,
filed on February 11, 2003)
3.1 Form of Agreement of Limited Partnership of Registrant, as amended
(included as Exhibit B to prospectus, as supplemented)
3.2 Certificate of Limited Partnership of Registrant (previously filed and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-100126, filed on September 27,
2002)
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit C to prospectus, as supplemented)
5.1 Opinion of Fulbright & Jaworski L.L.P. as to legality of securities
(previously filed and incorporated by reference to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100126, filed on December 23, 2002)
8.1 Opinion of Morris, Manning & Martin, LLP as to tax matters (previously
filed and incorporated by reference to Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form S-11, Commission File
No. 333-100126, filed on December 23, 2002)
10.1 Form of Amended and Restated Property Management and Leasing Agreement
between Registrant and HPT Management Services LP (previously filed
and incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100126, filed on June 3, 2003)
10.2 Form of Escrow Agreement between the Registrant and Wells Fargo Bank,
N.A. (previously filed and incorporated by reference to Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100126, filed on June 3, 2003)
10.3 Distribution Reinvestment Plan (included as Exhibit D to prospectus)
10.4 Purchase Agreement by and between Edward L. Warrington and the
Registrant with respect to the Hopkins Property (previously filed and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100126, filed on June 14, 2004)
10.5 Assignment and Assumption of Purchase Agreement by and between the
Registrant and Behringer Harvard Hopkins, LLC (previously filed and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-100126, filed on June 14, 2004)
10.6 Form of Company Agreement of Behringer Harvard Northpoint I GP, LLC
(previously filed and incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100126, filed on September 14, 2004)
10.7 Form of Agreement of Limited Partnership of Behringer Harvard
Northpoint I LP (previously filed and incorporated by reference to
Post-Effective Amendment No. 4 to Registrant's Registration Statement
on Form S-11, Commission File No. 333-100126, filed on September 14,
2004)
10.8 Form of Purchase Agreement between Northpoint Office Partners, L.P.
and Behringer Harvard Mid-Term Value Enhancement Fund I LP with
respect to the Northpoint Property (previously filed and incorporated
by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-100126,
filed on September 14, 2004)
31
10.9 Form of Amendment to Purchase Agreement between Northpoint Office
Partners, L.P. and Behringer Harvard Mid-Term Value Enhancement Fund I
LP (previously filed and incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100126, filed on September 14, 2004)
10.10 Form of Assignment of Purchase Agreement by Behringer Harvard Mid-Term
Value Enhancement Fund I LP and Behringer Harvard Northpoint I LP
(previously filed and incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100126, filed on September 14, 2004)
10.11 Form of Purchase and Sale Agreement and Escrow Instructions by and
between Koll Bren Fund V, L.P. and Behringer Harvard Mid-Term Value
Enhancement Fund I LP with respect to the Tucson Way Property
(previously filed and incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-100126, filed on September 14, 2004)
10.12 Purchase and Sale Agreement and Escrow Instructions effective as of
September 10, 2004 with respect to the Tucson Way Property (previously
filed and incorporated by reference to Form 8-K filed on September 15,
2004)
10.13 First Amendment to Purchase and Sale Agreement and Escrow Instructions
dated as of September 14, 2004 with respect to the Tucson Way Property
(previously filed and incorporated by reference to Form 8-K filed on
September 15, 2004)
10.14 Purchase and Sale Agreement by and between William D. Oates and
Marilyn Oates and Behringer Harvard Mid-Term Value Enhancement Fund I
LP dated February 3, 2005 with respect to the 2800 Mockingbird
Property (previously filed and incorporated by reference to Form 8-K
filed on February 8, 2005)
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
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 Certification of Chief Executive and Financial Officers