10QSB 1 f4.txt BRAUVIN REAL ESTATE FUND 4 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 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 0-13402_______________ Brauvin Real Estate Fund L.P. 4_______________ (Name of small business issuer as specified in its charter) Delaware 36-3304339________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 North LaSalle Street, Chicago, Illinois 60602____ (Address of principal executive offices) (Zip Code) (312)759-7660_________________________ (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None___________ Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests________________ (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No. INDEX PART I Page Item 1. Financial Statements 3 Statement of Net Assets in Liquidation as of March 31, 2004 (Liquidation Basis) 4 Statement of Changes in Net Assets in Liquidation for the period January 1, 2004 to March 31, 2004 (Liquidation Basis) 5 Statement of Changes in Net Assets in Liquidation for the period January 1, 2003 to March 31, 2003 (Liquidation Basis) 6 Statements of Operations for the three months ended March 31, 2004 and 2003 (Liquidation Basis) 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis or Plan of Operation 21 Item 3. Controls and Procedures 28 PART II Item 1. Legal Proceedings 29 Item 2. Changes in Securities 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 5. Other Information 29 Item 6. Exhibits, and Reports on Form 8-K 29 Signatures 30 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements The following Statement of Net Assets in Liquidation as of March 31, 2004 (Liquidation Basis), Statement of Changes in Net Assets in Liquidation for the period January 1, 2004 to March 31, 2004 (Liquidation Basis), Statement of Changes in Net Assets in Liquidation for the period January 1, 2003 to March 31, 2003 (Liquidation Basis) and Statements of Operations for the three months ended March 31, 2004 and 2003 (Liquidation Basis) for Brauvin Real Estate Fund L.P. 4 (the "Partnership") are unaudited but reflect, in the opinion of the management, all adjustments necessary to present fairly the information required. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's 2003 Annual Report on Form 10-KSB. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) STATEMENT OF NET ASSETS IN LIQUIDATION AS OF MARCH 31, 2004 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $6,026,500 Investment in Sabal Joint Venture (Note 6) 367,552 Cash and cash equivalents 334,707 Tenant receivables 63,304 Utility deposits 2,370 Other assets 47,729 ----------- Total Assets 6,842,162 ----------- LIABILITIES Mortgage notes payable (Note 4) 4,167,478 Accounts payable and accrued expenses 126,002 Deferred gain on sale of real estate (Note 2) 464,312 Reserve for estimated costs during the period of liquidation 205,725 Tenant security deposits 14,163 Due to affiliates 4,167 ---------- Total Liabilities 4,981,847 ---------- Net Assets in Liquidation $1,860,315 ========== See accompanying notes to financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2004 TO MARCH 31, 2004 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2004 $1,880,062 Loss from operations (19,747) ---------- Net assets in liquidation at March 31, 2004 $1,860,315 ========== See accompanying notes to financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2003 TO MARCH 31, 2003 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2003 $1,825,198 Loss from operations (12,667) Gain from sale of property 13,901 ---------- Net assets in liquidation at March 31, 2003 $1,826,432 ========== See accompanying notes to financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) STATEMENTS OF OPERATIONS For the three months ended March 31, 2004 and 2003 (Liquidation Basis) (Unaudited) 2004 2003 -------- --------- INCOME Rental $153,887 $159,760 Interest 377 224 Other, primarily tenant expense reimbursements 40,162 58,468 -------- -------- Total income 194,426 218,452 EXPENSES Interest 104,486 109,617 Real estate taxes 32,717 39,300 Repairs and maintenance 3,068 2,516 Management fees (Note 5) 10,192 12,231 Other property operating 9,392 18,779 General and administrative 31,278 46,172 -------- -------- Total expenses 191,133 228,615 -------- -------- Income (loss) before equity interests 3,293 (10,163) Equity interest in Sabal Palm Joint Venture's net loss (23,040) (2,504) Loss before gain on sale of property (19,747) (12,667) Gain on sale of property -- 13,901 -------- -------- Net (loss) income $(19,747) $ 1,234 ======== ======== Net (loss) income allocated to the General Partners $ (197) $ 12 ======== ======== Net (loss) income allocated to the Limited Partners $(19,550) $ 1,222 ======== ======== Net (loss) income per Limited Partnership Interest (9,550 units outstanding) $ (2.05) $ 0.13 ======== ======== See accompanying notes to financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The financial statements include the accounts of Brauvin Real Estate Fund L.P. 4 (the "Partnership") and a joint venture in which the Partnership has a 47% interest, which is accounted for using the equity method of accounting. The Partnership is a Delaware limited partnership organized for the purpose of acquiring, operating, holding for investment and disposing of existing office buildings, medical office centers, shopping centers and industrial and retail commercial buildings of a general purpose nature, all in metropolitan areas. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. Mr. Cezar M. Froelich resigned as a director of the corporate general partner in December 1994, and resigned as an Individual General Partner effective 90 days from August 14, 1997. Brauvin Ventures, Inc. is owned by A.G.E. Realty Corporation Inc.(50%), and by Messrs. Brault (beneficially) (25%) and Froelich (25%). A. G. Edwards & Sons, Inc. and Brauvin Securities, Inc., affiliates of the General Partners, were the selling agents of the Partnership. The Partnership is managed by an affiliate of the General Partners. The General Partners of the Partnership filed a Registration Statement on Form S-11 with the Securities and Exchange Commission which became effective on February 16, 1984. The sale of the minimum of $1,200,000 of limited partnership interests of the Partnership (the "Units") necessary for the Partnership to commence operations was achieved on April 30, 1984 and the Partnership was formed. The Partnership's offering closed on December 31, 1984. A total of $9,550,000 of Units were subscribed and issued between February 16, 1984 and December 31, 1984 pursuant to the Partnership's public offering. Properties acquired by the Partnership either directly or indirectly through affiliated joint ventures were: (a) Fortune Professional Building(which was sold February 2003); (b) Raleigh Springs Marketplace; (c) Strawberry Fields Shopping Center(which was sold in July 2001 and terminated in 2002) and (d) Sabal Palm Shopping Center. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation As a result of a July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership had begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on the liquidation basis of accounting. Accordingly, the carrying values of assets are presented at their net realizable amounts and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets as of March 31, 2004. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Tenant Receivables Tenant receivables are comprised of (a) billed but uncollected amounts due for monthly rents and other charges and (b) estimated unbilled amounts due for tenant reimbursement of common area maintenance charges and property taxes. Receivables are recorded at management's estimate of the amounts that will ultimately be collected. An allowance for doubtful accounts of $9,078 is based on specific identification of uncollectible accounts and the Partnership's historical collection experience. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the financial statements. Investment in Joint Venture Partnership The Partnership owns a 47% equity interest in Sabal Palm Joint Venture (see Note 6). Sabal Palm is reported as an investment in an affiliated joint venture. The accompanying financial statements include the investment in Sabal Palm Joint Venture at estimated net realizable value using the equity method of accounting. Investment in Real Estate Prior to the preparation of the financial statements on the liquidation basis of accounting, the operating properties acquired by the Partnership were stated at cost including acquisition costs, leasing commissions, tenant improvements and net of impairment. Depreciation and amortization expense were computed on a straight-line basis over approximately 31.5 years and the term of the applicable leases, respectively. All of the Partnership's properties were subject to liens under first mortgages (see Note 4). Subsequent to the adoption of the liquidation basis of accounting (see Note 2), the Partnership adjusted its investment in real estate to estimated net realizable value, which is recorded as real estate held for sale. Additionally, the Partnership suspended recording any further depreciation expense. The Partnership has adopted Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing intangibles, reassessment of the useful lives of existing intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. Application of the statements to future acquisitions, if any, could result in the recognition, upon acquisition of additional intangible assets (acquired in-place lease origination costs and acquired above market leases) and liabilities (acquired below market leases), which would be amortized over the remaining terms of the acquired leases. The Partnership has adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which is effective for years beginning after June 15, 2002. SFAS 143 requires recognition of a liability and associated asset for the fair value of costs arising from legal obligations associated with the retirement of tangible long-lived assets. The asset is to be allocated to expense over its estimated useful life. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which was effective for fiscal years beginning after December 15, 2001. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 144 retains the recognition and measurement requirements of SFAS 121, but resolves significant SFAS 121 implementation issues. In addition, it applies to a segment of a business accounted for as a discontinued operation. SFAS 143 and SFAS 144 have not had a significant impact on the Partnership's financial statements. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with an original maturity within three months from date of purchase. The Partnership maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. Management believes the Partnership is not exposed to any significant credit risk related to cash or cash equivalents. Estimated Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments". The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of March 31, 2004, but may not necessarily be indicative of the amounts that the Partnership could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In connection with the adoption of the liquidation basis of accounting, which approximates fair value at March 31, 2004, assets were adjusted to net realizable value, and liabilities were adjusted to estimated settlement amounts. Derivatives and Hedging Instruments In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as assets and liabilities in the balance sheet and be measured at fair value. SFAS 133 also requires changes in fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of the derivatives. In June, 2000, the FASB issued SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivatives and certain hedging activities. SFAS 133 and SFAS 138 were adopted by the Partnership effective January 1, 2001. The Partnership had no derivatives in 2004 and 2003. Recent Accounting Pronouncements In April 2002, FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, Amendment of FASB No. 13, and Technical Corrections" ("SFAS 145"). Generally, the rescission of FASB No. 4, "Reporting Gains and Losses from Extinguishment of Debt" would require that debt extinguishment costs are to no longer be treated as extraordinary items. The amendment to FASB No. 13, "Accounting for Leases" requires sale-leaseback accounting for certain lease modifications that have the economic effects that are similar to sale-leaseback transactions. This statement is generally effective for the year ending December 31, 2003. In November 2002, FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and clarifies that a guarantor is required to recognize, at inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for periods ending after December 15, 2002. In January 2003, FASB issued interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 addresses consolidation by business enterprises of certain variable interest entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation was revised in December 2003 and shall, for calendar year end entities, be effective as of December 31, 2003 for "special purpose entities" (as defined) and as of December 31, 2004 for all other entities. The Partnership does not own any "special purpose entities." In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with the Characteristics of both Liabilities and Equity" ("SFAS 150"), which is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective beginning July 1, 2003. SFAS 150 establishes standards for how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 145 and SFAS 150 and FIN 45 and FIN 46 has not had a significant impact on the Partnership's financial statements. (2) ADJUSTMENT TO LIQUIDATION BASIS On July 12, 1999, in accordance with the liquidation basis of accounting, assets were adjusted to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. In February, 2003, the Partnership sold Fortune Professional Building resulting in an adjustment to real estate held for sale of $956,500 and a gain on sale of property of $13,901. (3) PARTNERSHIP AGREEMENT The Partnership Agreement (the "Agreement") provides that 99% of the net profits and losses from operations of the Partnership for each fiscal year shall be allocated to the Limited Partners and 1% of net profits and losses from operations shall be allocated to the General Partners. The net profit of the Partnership from the sale or other disposition of a Partnership property shall be allocated as follows: first, there shall be allocated to the General Partners the greater of: (i) 1% of such net profits; or (ii) the amount distributable to the General Partners as Net Sale Proceeds from such sale or other disposition in accordance with paragraph 2, section K of the Agreement; and second, all remaining profits shall be allocated to the Limited Partners. The net loss of the Partnership from any sale or other disposition of a Partnership property shall be allocated as follows: 99% of such net loss shall be allocated to the Limited Partners and 1% of such net loss shall be allocated to the General Partners. The Agreement provides that distributions of Operating Cash Flow, as defined in the Agreement, shall be distributed 99% to the Limited Partners and 1% to the General Partners. The receipt by the General Partners of such 1% of Operating Cash Flow shall be subordinated to the receipt by the Limited Partners of Operating Cash Flow equal to a 10% per annum, cumulative, non-compounded return on their Adjusted Investment (the "Preferential Distribution"), as such term is defined in the Agreement. In the event the full Preferential Distribution is not made in any year (herein referred to as a "Preferential Distribution Deficiency") and Operating Cash Flow is available in following years in excess of the Preferential Distribution for said year, then the Limited Partners shall be paid such excess Operating Cash Flow until they have been paid any unpaid Preferential Distribution Deficiency from prior years. Net Sale Proceeds, as defined in the Agreement, received by the Partnership shall be distributed as follows: (a) first, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to the amount of their Adjusted Investment; (b) second, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to any unpaid Preferential Distribution Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to the Limited Partners, and the remaining 15% of the Net Sale Proceeds to the General Partners. At March 31, 2004, the Preferential Distribution Deficiency equaled $16,605,065. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at March 31, 2004 consist of the following: Interest Date Balance Rate Due Raleigh Springs Marketplace $ 4,167,478 10% 04/07 Maturities of the mortgage notes payable are as follows: 2004 $ 112,691 2005 163,965 2006 181,135 2007 3,709,687 ---------- $4,167,478 ========== Raleigh Springs Marketplace serves as collateral under the respective nonrecourse debt obligations. Raleigh Springs Marketplace Monthly principal and interest payments are based on a 25- year amortization schedule. In the first quarter of 2001, the mortgage holder agreed to extend the maturity of the mortgage until April 1, 2002. On March 11, 2002, the Partnership accepted a proposal to modify the Raleigh Springs Marketplace mortgage loan. Under the terms of the proposal, the maturity date was extended to April 1, 2007. The loan, which continues to bear interest at 10% per annum, requires monthly installments of principal and interest of $46,839(based upon a 25 year amortization schedule) with a final payment of unpaid interest and principal on April 1, 2007. The carrying value of Raleigh Springs Marketplace at March 31, 2004 was approximately $6,026,500. Fortune Professional Building On June 26, 1997, the Partnership obtained a first mortgage loan in the amount of $875,000 secured by Fortune Professional Building, from American National Bank and Trust Company. The loan had a floating interest rate based on American National Bank's prime rate plus one half percent. Principal was amortized at $5,000 per month. In the third quarter of 2002 the Partnership paid a $50,000 principal payment on this mortgage note payable. On February 4, 2003, Fortune was sold for a gross sales price of $1,050,000 and the outstanding loan was repaid in full. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses incurred or payable to the General Partners or their affiliates for the three months ended March 31, 2004 and 2003 were as follows: 2004 2003 ------- ------- Management fees $10,192 $11,491 Reimbursable office expenses 19,050 22,913 The Partnership had made all payments to affiliates except for $4,167 for management fees, as of March 31, 2004. (6) EQUITY INVESTMENT The Partnership owns a 47% interest in Sabal Palm Joint Venture ("Sabal Palm") and accounts for its investment under the equity method. The following are condensed financial statements for Sabal Palm: Liquidation Basis March 31, 2004 Real estate held for sale $3,028,375 Other assets 1,085,263 ---------- 4,113,638 ---------- Mortgage note payable 3,250,000 Other liabilities 77,941 ---------- 3,327,941 ---------- Net assets in liquidation $ 785,697 ========== Liquidation Basis For the years ended December 31, 2004 2003 -------- -------- Rental income $ 95,394 $ 94,193 Other income 29,658 17,573 -------- -------- 125,052 111,766 -------- -------- Mortgage and other interest 32,532 66,255 Operating and administrative expenses 141,542 50,838 -------- -------- 174,074 117,093 -------- -------- Net loss $(49,022) $ (5,327) ======== ======== The original Sabal Palm first mortgage loan bore interest at the rate of 8.93% per annum, was to be amortized over a 25-year period, required monthly payments of principal and interest of approximately $26,700 and matured on March 26, 2002. A portion of the proceeds of the first mortgage loan, approximately $3,077,000, was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. Subsequent to the end of the first quarter of 2003, this loan was repaid and replaced with a new facility described below. On August 7, 2000, Sabal Palm was given notice that Walgreens will vacate the space prior to its lease termination of April 30, 2005. Walgreens moved out, however, it remains liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn-Dixie failed to timely pay its rental obligation from November 2001 and through March 2002 and was in default. Due to non-payment of Winn-Dixie's rental obligations, the joint venture did not make its mortgage payments for Sabal Palm in November and December 2001 and January through March 2002 thus resulting in a default on its loan. In April 2002, the joint venture and the lender agreed to a twelve-month extension of the existing mortgage loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee and payment of all past due amounts thus curing the default. As a requirement of the extension, the joint venture and the lender agreed to use the proceeds from the termination to redemize the former Winn-Dixie space into three spaces as well as certain other improvements to the center. The joint venture has signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Sav A Lot took occupancy of its space in October, 2002. In addition, in the first quarter of 2004 the joint venture executed a lease with Family Dollar (a national discount retailer) to lease approximately 10,675 square feet (another one of the demized spaces). The joint venture has also received renewed expressions of interest for the potential sale of the property. There can be no assurance that a sale will be consummated; however, the joint venture is continuing to evaluate its opportunities. On March 17, 2003, the Sabal Palm joint venture obtained a loan commitment from AmSouth Bank in the amount of $3,250,000. The loan proposal provides for payment of interest only for a 24- month term subject to various tests to be met at a six-month period from close and a nine-month period from close. If these tests are not met the joint venture will be required to reduce the principal outstanding by an amount ranging from $250,000 to $500,000. On April 29, 2003, the Sabal Palm joint venture closed on the $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The joint venture expects to use the remaining proceeds primarily to finance certain tenant improvements and leasing costs. The new loan bears interest at LIBOR plus 2.85% and is payable interest only monthly until maturity (May 3, 2005) at which time all unpaid interest and principal is due. The loan is secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture have each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager has agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender has required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 5 to maintain a minimum combined tangible net worth of not less than $1,000,000. In January 2004, Sabal Palm was not in compliance with the net operating income requirement established in the loan and as a result the lender had a right to require a repayment of principal from the joint venture in an amount not to exceed $500,000. In the second quarter of 2004, pursuant to the existing loan agreement the lender requested repayment of principal in the amount of $250,000. The lender agreed to allow for this payment to be made from the $1,000,000 on deposit with the lender and further agreed to reduce the liquidity requirement to $500,000. Additionally, the lender agreed to fund from the deposit with the lender certain improvements (up to $245,000) that the joint venture is contemplating making in order to facilitate the sale of the property. (7) PROPERTY SALE On February 4, 2003, the Fortune property was sold for a gross sales price of $1,050,000. Net proceeds delivered to the Partnership at closing, inclusive of closing costs and prorations, was approximately $580,000. The Partnership has recorded a gain of approximately $13,900 on the sale of this property. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) ITEM 2. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Quarterly Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Liquidity and Capital Resources The Partnership intends to satisfy its short-term liquidity needs through cash flow from the properties. Mortgage notes payable are expected to be satisfied through property sales. The General Partners determined to pursue the disposition of the Partnership's assets. In 1999, the Partnership solicited and received the votes of the Limited Partners to approve a sale of all the Partnership's properties, either on an individual or group basis, and to subsequently liquidate the Partnership. The solicitation, which was approved by the Limited Partners in the third quarter of 1999, stated that the Partnership's properties may be sold individually or in any combination provided that the total sales price for the properties included in the transaction equals or exceeds 70% of the aggregate appraised value for such properties, which valuation was conducted by an independent third party appraisal firm. The Partnership intends to sell the properties under a closed bid process which will include identification of target buyers with proven financing ability and performance of certain evaluations of the properties, such as environmental testing. Potential buyers will be requested to sign confidentiality agreements to safeguard the Partnership's confidential proprietary information. The General Partners have determined that each bid must be all cash, completely unconditional and accompanied by a substantial deposit. Property Status Fortune Office Building On February 4, 2003, the Fortune property was sold for a gross sales price of $1,050,000. Net proceeds delivered to the Partnership at closing, inclusive of closing costs and prorations, was approximately $580,000. The Partnership has recorded a gain of approximately $13,900 on the sale of this property. Raleigh Springs Marketplace In 1996, Raleigh Springs lost an anchor tenant, T.J. Maxx, which occupied 21% of the total space. In November 1996, Methodist Hospital entered into a lease for approximately 9,500 square feet. The remaining space was leased to a carpet supplier. This tenant moved to a smaller space in the first quarter of 2001 and, due to nonpayment of rent, was evicted. The occupancy rate at Raleigh at March 31, 2004 was 67%, compared to 65% at March 31, 2003. T.J. Maxx, a former anchor tenant, vacated its space in January 1996. During the third quarter of 1996 a health group signed a $9.00 per square foot lease for approximately 40% of the T.J. Maxx space. In the fourth quarter of 2001, the Partnership leased 13,400 square feet of space to Sav A Lot, a national grocery chain. In the first quarter of 2002, the health group gave notice to the Partnership that it would vacate the 9,500 square feet it occupied at the expiration of its base term which occurred in April, 2002. Raleigh Springs is currently and will remain in a negative cash flow position until this space is released. In the first quarter of 2004, the Partnership reached an agreement in principle with a national clothing retailer to take approximately 25,000 square feet of part of the space currently leased to Toys "R" Us. The Partnership is currently negotiating a lease and is working with the potential tenant on a suitable configuration and space plan. If the Partnership is successful in completing a lease with the prospective tenant, the lease will require substantial reconfiguration to the existing space and tenant improvements. This potential lease is subject to a successful termination and buyout of the existing Toys "R" Us lease. The Partnership has reached an agreement in principle for the termination and a substantial buyout payment from Toys "R" Us to the Partnership. The Partnership anticipates the payment will cover all of the conversion and tenant build out costs required by the new potential tenant. There can be no assurance that the Partnership will ultimately be able to negotiate the lease or the successful buyout of the Toys "R" Us lease. The Partnership is in preliminary discussions with two other sizable tenants. The Partnership is in discussions with a potential user for a portion of the 9,500 square feet previously leased to a health care provider. There can be no assurance that these preliminary discussions will ultimately result in consummation of actual leases. Separately, the Partnership has recently leased approximately 4,800 square feet to a liquor store. In November 1992, the Partnership negotiated a modification of the terms of the mortgage on Raleigh Springs with the lender (the "Modified Loan"). In October 1992, the interest rate was reduced from 12.75% to 10.00%. Since November 1992 and through September 1999, principal and interest payments were based on a 25-year amortization schedule. The Modified Loan capitalized the August, September and October 1992 mortgage payments. The Partnership negotiated an extension of the terms of the mortgage on August 26, 1999 and August 30, 2000. On March 11, 2002, the Partnership accepted a proposal to modify the Raleigh Springs mortgage loan. The maturity date has been extended to April 1, 2007 and continues to bear interest at 10% per annum. The loan will continue to require monthly installments of principal and interest of $46,839(based upon a 25 year amortization schedule) with a final payment of unpaid interest and principal due on April 1, 2007. Sabal Palm Shopping Center Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On June 30, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan") secured by its real estate, from NationsBanc Mortgage Capital Corporation. The First Mortgage Loan bears interest at the rate of 8.93% per annum, is amortized over a 25-year period, requires monthly payments of principal and interest of approximately $26,700 and matured on March 26, 2002. A portion of the proceeds of the First Mortgage Loan, approximately $3,077,000 was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. On August 7, 2000, Sabal Palm was given notice that Walgreens will vacate the space prior to its lease termination of April 30, 2005. Walgreens moved out, however, it remains liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn-Dixie failed to timely pay its rental obligation for November and December 2001 and January through March, 2002. As a result of Winn-Dixie's lease default, in the third quarter of 2001, Sabal Palm recorded an adjustment to liquidation basis of $114,367 related to an other than temporary decline in the value of real estate for Sabal Palm. In the fourth quarter of 2001, Sabal Palm recorded a further adjustment to liquidation basis of $7,508 related to an other than temporary decline in the value of real estate at Sabal Palm. Due to non-payment of Winn-Dixie's rental obligations, the joint venture did not make its mortgage payments for Sabal Palm in November and December 2001 and January through March 2002 thus resulting in a default on its loan. In April 2002, the joint venture and the lender agreed to a twelve-month extension of the existing mortgage loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee and payment of all past due amounts thus curing the default. As a requirement of the extension, the joint venture and the lender agreed to use the proceeds from the termination to redemize the former Winn-Dixie space into three spaces as well as certain other improvements to the center. The joint venture has signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). In addition, the joint venture has executed a lease with Family Dollar for 10,675 square feet (which represents approximately 12% of the center). The tenant completed its buildout and opened for business in the second quarter of 2004. The joint venture is obligated to pay a total of approximately $160,000 in tenant improvements and leasing commissions related to this lease. The joint venture has also received renewed expressions of interest for the potential sale of the property. In total, Sabal Palm has received seven offers on the property ranging in price from $2.2 million to $4.2 million. The Partnership continues to market the property for sale. With the recent execution of the Family Dollar lease for 12% of the center, the Partnership anticipates that potential sales activity will improve in 2004. On March 17, 2003, the joint venture obtained a loan commitment from AmSouth Bank in the amount of $3,250,000. The loan proposal provides for payment of interest only for a 24- month term subject to various tests to be met at a six-month period from close and a nine-month period from close. If these tests are not met the joint venture will be required to reduce the principal outstanding by a cumulative amount ranging from $250,000 to $500,000 depending on the test. On April 29, 2003, the Sabal Palm joint venture closed on the $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The joint venture expects to use the remaining proceeds primarily to finance certain tenant improvements and leasing costs. The new loan bears interest at LIBOR plus 2.85% and is payable interest only monthly until maturity (May 3, 2005) at which time all unpaid interest and principal is due. The loan is secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture have each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager has agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender has required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 5 to maintain a minimum combined tangible net worth of not less than $1,000,000. In January 2004, Sabal Palm was not in compliance with the net operating income requirement established in the loan and as a result the lender had a right to require a repayment of principal from the joint venture in an amount not to exceed $500,000. In the second quarter of 2004, the lender requested repayment of principal in the amount of $250,000. The lender agreed to allow for this payment to be made from the $1,000,000 on deposit with the lender and further agreed to reduce the liquidity requirement to $500,000. Additionally, the lender agreed to fund from the deposit with the lender certain improvements (up to $245,000) that the joint venture is contemplating making in order to facilitate the sale of the property. Results of Operations The Partnership's revenue and expenses are affected primarily by the operations of the properties. Property operations, and in particular the components of income, demand for space and rental rates are, to a large extent, determined by local and national market conditions. These conditions have generally adversely impacted the Partnership's property economics. The General Partners conduct an in-depth assessment of each property's physical condition as well as a demographic analysis to assess opportunities for increasing occupancy and rental rates and decreasing operating costs. In all instances, decisions concerning restructuring of loan terms, reversions and subsequent operation of the property are made with the intent of maximizing the potential proceeds to the Partnership and, therefore, return of investment and income to Limited Partners. In certain instances and under limited circumstances, management of the Partnership entered into negotiations with lenders for the purpose of restructuring the terms of loans to provide for debt service levels that could be supported by operations of the properties. When negotiations are unsuccessful, management of the Partnership considers the possibility of reverting the properties to the first mortgage lender. Foreclosure proceedings may require 6 to 24 months to conclude. An affiliate of the Partnership and the General Partners is assigned responsibility for day-to-day management of the properties. The affiliate receives a combined management and leasing fee, which cannot exceed 6% of gross revenues generated by the properties. Management fee rates are determined by the extent of services provided by the affiliate versus services that may be provided by third parties, e.g., independent leasing agents. In all instances, fees paid by the Partnership to the property management affiliate are, in the General Partners' opinion, comparable to fees that would be paid to independent third parties. Results of Operations - Three months ended March 31, 2004 and 2003 (Liquidation Basis) As a result of the Partnership's adoption of the liquidation basis of accounting, and in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. The Partnership generated net loss of $20,000 for the period ended March 31, 2004 as compared to a net income of $1,000 for the same period in 2003. The $21,000 decrease in net income is primarily a result of a decrease in total income of $24,000 partially offset by a decrease in total expenses of $38,000. The Partnership's share of Sabal Palms net loss increased $21,000. Additionally, in 2003, there was a $14,000 gain from the property sale. Total income for the period ended March 31, 2004 was $194,000 as compared to $218,000 for the same period in 2003. The $24,000 decrease in total income was primarily a result of a $18,000 decrease in other income and a $6,000 decrease in rental income, primarily due to the sale of the Fortune in February 2003. Total expenses for the period ended March 31, 2003 were $191,000 as compared to $229,000 for the same period in 2003. The $38,000 decrease in total expense was due to a decrease in general and administration expense of $15,000, a decrease in operating expense of $9,000 a decrease in real estate tax of $7,000, a decrease in interest expense of $5,000 and a decrease of management fees of $2,000. All decreases in expenses are primarily related to the sale of Fortune in February 2003. Results of Operations - Three months ended March 31, 2003 and 2002 (Liquidation Basis) The Partnership generated net income of $1,000 for the period ended March 31, 2003 as compared to a net income of $3,000 for the same period in 2002. The $2,000 decrease in net income is primarily a result of a decrease in total income of $71,000 partially offset by a decrease in total expenses of $68,000. The Partnership's share of the net income from Sabal Palm of decreased $12,000. Additionally, there was a $14,000 gain from the property sale. Total income for the period ended March 31, 2003 was $218,000 as compared to $290,000 for the same period in 2002. The $71,000 decrease in total income was primarily a result of a $73,000 decrease in rental income, primarily resulting from the loss of rental income due to the sale of the Fortune in February 2003. Also contributing to the decrease in rental income is the decline in occupancy at Raleigh Springs. Total expenses for the period ended March 31, 2003 were $228,000 as compared to $296,000 for the same period in 2002. The $68,000 decrease in total expense was due to an decrease in interest expense of $9,000, a decrease in general and administration expense of $10,000, and decrease in real estate tax of $11,000, a decrease of management fees of $9,000, a decrease in repairs and maintenance of $25,000 and a decrease in operating expense of $4,000. The decrease in repairs in maintenance is primarily the result of the repairs at Raleigh during the first quarter of 2002. All other decreases are primarily related to the sale of Fortune in February 2003. ITEM 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer, of the corporate general partner, have reviewed and evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within 90 days before the filing date of this Annual Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Partnership's current disclosure controls and procedures are effective and timely, providing all material information relating to the Partnership required to be disclosed in reports filed or submitted under the Exchange Act. Changes in Internal Controls There have not been any significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters to a Vote of Security Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports On Form 8-K. Exhibit 99. Certification of Officers BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: May 20, 2004 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: May 20, 2004 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF BRAUVIN VENTURES, INC. CORPORATE GENERAL PARTNER OF BRAUVIN REAL ESTATE FUND L.P. 4 I, Jerome J. Brault, Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Real Estate Fund L.P. 4; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: May 20, 2004 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF BRAUVIN VENTURES, INC. CORPORATE GENERAL PARTNER OF BRAUVIN REAL ESTATE FUND L.P. 4 I, Thomas E. Murphy, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Real Estate Fund L.P 4.; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: May 20, 2004 Exhibit 99 SECTION 906 CERTIFICATION The following statement is provided by the undersigned to accompany the Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004,pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 and shall not be deemed filed pursuant to any provisions of the Securities Exchange Act of 1934 or any other securities law: Each of the undersigned certifies that the foregoing Report on Form 10-QSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of Brauvin Real Estate Fund L.P. 4. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: May 20, 2004 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: May 20, 2004