-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NmldLAOqJ8WT5ggffPtSzQ7lf67W5VWXpmhJtSnpoPzBYPGq76mWYSct1amCTRJo TMHhERWDFPumL1WF3R8gAw== 0000736908-99-000023.txt : 19990817 0000736908-99-000023.hdr.sgml : 19990817 ACCESSION NUMBER: 0000736908-99-000023 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUVIN REAL ESTATE FUND LP 4 CENTRAL INDEX KEY: 0000736908 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363304339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13402 FILM NUMBER: 99693532 BUSINESS ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3124430922 MAIL ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 10QSB 1 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 June 30, 1999 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. Consolidated Financial Statements. . . . . . . . . . . . . . 3 Consolidated Balance Sheet at June 30, 1999. . . . . . . . . 4 Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998. . . . . . . . . . 5 Consolidated Statements of Operations for three months ended June 30, 1999 and 1998. . . . . . . . . 6 Consolidated Statements of Cash Flows for the three months ended June 30, 1999 and 1998. . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . .17 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .23 Item 2. Changes in Securities. . . . . . . . . . . . . . .23 Item 3. Defaults Upon Senior Securities. . . . . . . . . .23 Item 4. Submission of Matters to Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . .23 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .23 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .23 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Balance Sheet as of June 30, 1999, Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998, Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998 and Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 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 1998 Annual Report on Form 10-KSB. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 1999 ASSETS Investment in real estate: Land $ 3,605,206 Buildings and improvements 14,183,176 17,788,382 Less accumulated depreciation (5,921,762) Net investment in real estate 11,866,620 Investment in Sabal Palm Joint Venture (Note 5) 65,945 Cash and cash equivalents 1,053,257 Rent receivable (net of allowance of $159,750) 182,019 Escrow deposits 37,342 Other assets 33,572 Total Assets $13,238,755 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Mortgage notes payable (Note 3) $10,848,671 Accounts payable and accrued expenses 329,392 Tenant security deposits 57,615 Due to affiliates 50,246 Total Liabilities 11,285,926 MINORITY INTEREST IN STRAWBERRY JOINT VENTURE (325,844) PARTNERS' CAPITAL: General Partners (37,416) Limited Partners (9,550 limited partnership units issued and outstanding) 2,316,089 Total Partners' Capital 2,278,673 Total Liabilities and Partners' Capital $13,238,755 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended June 30, (Unaudited) 1999 1998 INCOME Rental $ 960,591 $ 875,777 Interest 16,955 14,388 Other, primarily tenant expense reimbursements 173,659 174,577 Total income 1,151,205 1,064,742 EXPENSES Interest 467,761 540,838 Depreciation 204,965 210,929 Real estate taxes 123,886 140,394 Repairs and maintenance 31,677 34,533 Management fees (Note 4) 67,307 59,250 Other property operating 54,207 58,383 Provision for impairment -- 1,564,101 General and administrative 131,593 191,633 Total expenses 1,081,396 2,800,061 Net income (loss) before minority and equity interests in joint ventures 69,809 (1,735,319) Minority interest's share of Strawberry Joint Venture's net(income)loss (26,776) 683,916 Equity interest in Sabal Palm Joint Venture's net income 32,118 50,211 Net income(loss) $ 75,151 $(1,001,192) Net income(loss)allocated to: General Partners $ 752 $ (10,012) Limited Partners $ 74,399 $ (991,180) Net income (loss) per Limited Partnership Interest (9,550 units outstanding) $ 7.79 $ (103.79) See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended June 30, (Unaudited) 1999 1998 INCOME Rental $ 475,449 $ 444,516 Interest 9,523 7,559 Other, primarily tenant expense reimbursements 87,128 72,978 Total income 572,100 525,053 EXPENSES Interest 233,202 269,520 Depreciation 103,286 102,524 Real estate taxes 61,943 70,011 Repairs and maintenance 12,638 9,475 Management fees (Note 4) 35,167 28,350 Other property operating 22,734 24,176 Provision for impairment -- 1,564,101 General and administrative 67,520 99,537 Total expenses 536,490 2,167,694 Net income (loss) before minority and equity interests in joint ventures 35,610 (1,642,641) Minority interest's share of Strawberry Joint Venture net (income) loss (17,112) 672,529 Equity interest in Sabal Palm Joint Venture's net (loss) (12,970) (5,360) Net income(loss) $ 5,528 $ (975,472) Net income(loss)allocated to: General Partners $ 55 $ (9,755) Limited Partners $ 5,473 $ (965,717) Net income (loss) per Limited Partnership Interest (9,550 units outstanding) $ 0.57 $ (101.12) See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, (Unaudited) 1999 1998 Cash Flows From Operating Activities: Net income (loss) $ 75,151 $(1,001,192) Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depreciation 204,965 210,929 Provision for impairment -- 1,564,101 Provision for doubtful accounts (1,000) 78,223 Minority interest's share of Strawberry Joint Venture's net income (loss) 26,776 (683,916) Equity interest in Sabal Palm Joint Venture net income (32,118) (50,211) Changes in: Rent receivable 33,158 (113,283) Escrow deposits (22,950) (22,940) Other assets (15,745) (18,397) Accounts payable and accrued expenses 138,931 89,118 Due to affiliates 4,915 4,773 Tenant security deposits (6,263) 14,300 Net cash provided by operating activities 405,820 71,505 Cash Flows From Investing Activities: Capital expenditures (23,516) (16,646) Distribution from Sabal Palm Joint Venture 70,500 79,900 Net cash provided by investing activities 46,984 63,254 Cash Flows From Financing Activities: Repayment of mortgage notes payable (152,160) (173,148) Cash used in financing activities (152,160) (173,148) Net increase (decrease)in cash and cash equivalents 300,644 (38,389) Cash and cash equivalents at beginning of period 752,613 841,230 Cash and cash equivalents at end of period $1,053,257 $ 802,841 Supplemental disclosure of cash flow information: Cash paid for interest $ 456,603 $ 529,191 See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Brauvin Real Estate Fund L.P. 4 (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 Partnership was formed on April 30, 1984 and 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. The Partnership's offering closed on December 31, 1984. A total of $9,550,000 of Units were subscribed for and issued between February 16, 1984 and December 31, 1984 pursuant to the Partnership's public offering. The Partnership has acquired directly or through joint ventures the land and buildings underlying Fortune Professional Building, Raleigh Springs Marketplace, Strawberry Fields Shopping Center and 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. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Rental income is recognized on a straight line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are credited or charged, as applicable, to deferred rent receivable. 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. Consolidation of Joint Venture Partnership The Partnership owns a 58% equity interest in an affiliated joint venture ("Strawberry Joint Venture") which acquired Strawberry Fields Shopping Center ("Strawberry Fields"). The accompanying consolidated financial statements have consolidated 100% of the assets, liabilities, operations and partners' capital of Strawberry Joint Venture. The minority interest in the consolidated joint venture is adjusted for the joint venture partner's share of income or loss and any cash contributions or cash disbursements from the joint venture partner, Brauvin Real Estate Fund L.P. 5 ("BREF 5"). All intercompany items and transactions have been eliminated. Investment in Joint Venture Partnership The Partnership owns a 47% equity interest in a Sabal Palm Joint Venture (see Note 5). Sabal Palm is reported as an investment in an affiliated joint venture. The accompanying financial statements include the investment in Sabal Palm Joint Venture using the equity method of accounting. Investment in Real Estate The Partnership's rental properties are stated at cost including acquisition costs, leasing commissions, tenant improvements and net of provision for impairment. Depreciation and amortization are recorded on a straight-line basis over the estimated economic lives of the properties, which approximate 38 years, and the term of the applicable leases, respectively. All of the Partnership's properties are subject to liens under first mortgages (see Note 3). The Partnership has performed an analysis of its long-lived assets, and the Partnership's management determined that there were no events or changes in circumstances that indicated that the carrying amount of the assets may not be recoverable at June 30, 1999 and December 31, 1998, except as disclosed below. In the second and fourth quarters of 1998, the Partnership recorded provisions for impairment of $1,564,101 and $504,935, respectively, related to an other than temporary decline in the value of real estate for the Strawberry Fields property. These allowances have been allocated to land and building based on the original acquisition percentages. 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. 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, "Disclosure 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 June 30, 1999, 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. The carrying amounts of the following items are reasonable estimates of fair value: cash and cash equivalents; rent receivable; escrow deposits; accounts payable and accrued expenses; and due to affiliates. (2) 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 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 June 30, 1999, the Preferential Distribution Deficiency equaled $12,068,815. (3) MORTGAGE NOTES PAYABLE Mortgage notes payable at June 30, 1999 consist of the following: Interest Date 1999 Rate Due Raleigh Springs Marketplace $ 4,715,159 (a)10% 10/99 Fortune Professional Building 758,312 (b)8.5% 06/00 Strawberry Fields Shopping Center 5,375,200 (c)7% 12/99 $10,848,671 Raleigh Springs Marketplace, Fortune Office Building and Strawberry Fields serve as collateral under the respective nonrecourse debt obligations. (a) Monthly principal and interest payments are based on a 25- year amortization schedule. The carrying value of Raleigh at June 30, 1999 was approximately $5,578,000. (b) Prior to June 26, 1997, the Partnership made monthly payments of interest and principal based upon a: (i) 25-year amortization schedule plus 100% of Available Cash Flow from July 1, 1992 through June 1, 1993; and (ii) 15-year amortization schedule plus 50% of Available Cash Flow from July 1, 1993 through July 1, 1997. The lender had the option to accelerate the loan maturity July 1 of each year, if the property is not: (i) in good condition and repair; (ii) occupied at a rate that is equal to the prevailing occupancy rate for similar properties in the same locale; and (iii) leased at rental rates which are at least 90% of the prevailing rate for similar properties in the same locale. The Partnership was required to make a balloon mortgage payment in July 1997 of approximately $934,000. On June 26, 1997, the Partnership obtained a first mortgage loan in the amount of $875,000 secured by Fortune, from American National Bank and Trust Company (the "Replacement Loan"). In connection with the funding of the Replacement Loan, the Partnership was required to reduce the principal balance of the original loan by approximately $59,000, out of cash and cash equivalents, to release the original mortgage loan and pay loan fees of approximately $33,000. Prior to the Replacement Loan original maturity in June 1999, the Partnership and American National Bank agreed to extend the term of the Replacement Loan to June 30, 2000 under the same terms and conditions. The Replacement Loan has a floating interest rate based on American National Bank's prime rate, which at June 30, 1999 was 7.75%. Principal is being amortized based on a 15-year amortization period and is payable with interest on a monthly basis. As of December 31, 1998, the Partnership was in violation of the debt service coverage ratio. Subsequent to the year end, the Partnership received a waiver of this covenant violation from the mortgage lender for the period ended December 31, 1998. The carrying value of Fortune at June 30, 1999 was approximately $1,607,000. (c) In February 1993, the Partnership and Strawberry Joint Venture, finalized a refinancing of the first mortgage loan (the "Refinancing") on Strawberry Fields with the lender. The Refinancing became effective retroactive to October 1992. Due to the Refinancing, the interest rate was reduced to 9% with monthly payments of interest only from October 1992 through November 1995. The Strawberry Joint Venture had the option to extend the term of the loan and make monthly payments of principal and interest from December 1995 through November 1998, if it is not in default of the terms of the Refinancing. On September 18, 1995, the Strawberry Joint Venture notified Lutheran Brotherhood (the "Strawberry Lender") that it would exercise its option to extend the term of the Strawberry Fields loan from the original maturity of November 1, 1995 to December 1, 1998. The terms of the extension called for all provisions of the loan to remain the same except for an additional monthly principal payment of $12,500. Effective November 1, 1995, the Strawberry Joint Venture and the Strawberry Lender agreed to modify the loan by reducing the interest rate to 7.5% for November 1, 1995 through October 31, 1997 and by reducing the monthly principal payment to $12,000. Commencing November 1, 1997 the interest rate reverted to the original 9.0% rate. Effective October 1, 1998, the Strawberry Joint Venture and the Strawberry Lender agreed to modify and extend the first mortgage loan. As of October 1, 1998 and through the extended maturity date, December 1, 1999, the interest rate has been reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. The carrying value of Strawberry Fields at June 30, 1999 was approximately $4,682,000. The Partnership is required to make balloon mortgage payments for Raleigh Springs Marketplace in the amount of $4,692,333 on October 1, 1999, Fortune Office Building in the amount of $704,830 on June 30, 2000 and for Strawberry Fields in the amount of $5,307,223 at December 1, 1999. The Partnership anticipates extending the maturity of existing loans. (4) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or their affiliates for the six months ended June 30, 1999 and 1998 were as follows: 1999 1998 Management fees $ 63,594 $59,250 Reimbursable office expenses 58,680 56,250 The Partnership believes the amounts paid to affiliates are representative of amounts which would have been paid to independent parties for similar services. The Partnership had made all payments to affiliates except for $12,116 for management fees and $2,430 for reimbursable office expenses as of June 30, 1999. An amount of $35,700 was due to an affiliate at June 30, 1999, representing an advance made from Brauvin Real Estate Fund L.P. 5 to the Strawberry Fields Joint Venture. (5) 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: June 30, 1999 Land, building and personal property, net $3,171,338 Other assets 233,555 $3,404,893 Mortgage note payable $3,127,057 Other liabilities 165,974 3,293,031 Partners' capital 111,862 $3,404,893 For the six months ended June 30, June 30 1999 1998 Rental income $413,462 $411,147 Other income 43,926 39,248 457,388 450,395 Mortgage and other interest 148,859 242,350 Depreciation 52,391 68,224 Operating and administrative expenses 187,802 32,989 389,052 343,563 Net income $ 68,336 $106,832 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 matures 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. In the first quarter of 1998, the Partnership became aware that both Winn-Dixie and Walgreens may vacate their respective spaces at Sabal Palm prior to their lease termination dates. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn- Dixie remains liable for rental payments under its lease at Sabal Palm until April 2005. Walgreens has not given official notice that they will vacate their space prior to the lease termination; the General Partners, however, believe that there is a likelihood that this tenant will vacate. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. In the fourth quarter of 1998, Sabal Palm recorded an impairment of $1,499,958 related to an other than temporary decline in the value of real estate for the Sabal Palm property. This allowance was allocated to the land and building based on the original acquisition percentages. (6) SUBSEQUENT EVENT On July 15, 1999, the Partnership filed a Form 8-K to report the results of the solicitation of the Limited Partners for the sale of the Partnership's assets. The Limited Partners, by a majority vote, have approved the plan to sell the Partnership's assets. 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. Year 2000 The "Year 2000" problem concerns the inability of computer technology systems to correctly identify and process date sensitive information beyond December 31, 1999. Many computers automatically add the "19" prefix to the last two digits the computer reads for the year when date information is needed in computer software programs. Thus when a date beginning on January 1, 2000 is entered into a computer, the computer may interpret this date as the year "1900" rather than "2000". The Partnership's computer information technology systems consist of a network of personal computers linked to a server built using hardware and software from mainstream suppliers. The Partnership does not own any equipment that contains embedded microprocessors, which may also pose a potential Year 2000 problem. Additionally, the Partnership has no internally generated software coding to correct as all of the Partnership's software is purchased and licensed from external providers. These external providers have assured management that their systems are, or will be, Year 2000 compliant. The Partnership has two main software packages that contain date sensitive information, (i) accounting and (ii) investor relations. In 1997, the Partnership initiated and completed the conversion from its existing accounting software to a new software program that is Year 2000 compliant. In 1998, the investor relations software was also updated to a new software program that is Year 2000 compliant. Management has determined that the Year 2000 issue will not pose significant operational problems for its remaining computer software systems. All costs associated with these conversions are expensed as incurred, and are not material. Management does not believe that any further expenditures will be necessary for the Partnership to be Year 2000 compliant. However, existing personal computers may be replaced from time to time with newer machines. Also in 1997, management of the Partnership initiated formal communications with all of its significant third party vendors, service providers and financial institutions to determine the extent to which the Partnership is vulnerable to those third parties failure to remedy their own Year 2000 issue. There can be no guarantee that the systems of these third parties will be timely converted and would not have an adverse effect on the Partnership. The most reasonably likely worst case scenario for the Partnership with respect to the Year 2000 issue would be the inability of certain tenants to timely make their rental payments beginning in January 2000. This could result in the Partnership temporarily suffering a depletion of the Partnership's cash reserves as expenses will need to be paid while the cash flows from revenues are delayed. The Partnership has no formal Year 2000 contingency plan. Liquidity and Capital Resources The Partnership intends to satisfy its short-term liquidity needs through cash flow from the properties. Long-term liquidity needs are expected to be satisfied through extension of the mortgages. Fortune was required to make a balloon mortgage payment in July 1997 of approximately $934,000. On June 26, 1997, the Partnership obtained the Replacement Loan in the amount of $875,000 secured by Fortune, from American National Bank and Trust Company. In connection with the funding of the Replacement Loan, the Partnership was required to reduce the outstanding principal balance of the original mortgage loan by approximately $59,000, out of cash and cash equivalents, to release the original mortgage loan and pay loan fees of approximately $33,000. The Replacement Loan has a floating interest rate based on American National Bank's prime rate, which at June 30, 1999 was 7.75%. Principal is being amortized based on a 15-year amortization period and is payable with interest on a monthly basis. The Replacement Loan has been extended through June 30, 2000. The occupancy level at Fortune at June 30, 1999 was 91%, compared to 80% at December 31, 1998. Raleigh Springs has continued to generate a positive cash flow despite losing T.J. Maxx, an anchor tenant, 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 has been leased to a carpet supplier. The occupancy rate at Raleigh at June 30, 1999 was 95%, compared to 95% at December 31, 1998. 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 are based on a 25-year amortization schedule. The Modified Loan capitalized the August, September and October 1992 mortgage payments with the final payment due on October 1, 1999. The Partnership is current on its mortgage payments for the Raleigh Springs loan. The Strawberry Joint Venture secured a replacement tenant, Syms, a national discount clothing retailer, to sublease the Kroger space at Strawberry Fields. Syms opened for business in October 1992 and has signed a sublease for the remainder of the original lease term which expires June 30, 2005. Customer traffic at Strawberry Fields has increased with the draw of Syms, making vacant space more marketable. The Strawberry Joint Venture is aggressively marketing the property having engaged a prominent local brokerage firm to assist the Strawberry Joint Venture's on-site leasing representative in the marketing of the shopping center. The occupancy rate at Strawberry Fields at June 30, 1999 was 84%, compared to 86% at December 31, 1998. On September 18, 1995, the Strawberry Joint Venture notified the Strawberry Lender that it would exercise its option to extend the term of the Strawberry Fields loan from the original maturity of November 1, 1995 to December 1, 1998. The terms of the extension called for all provisions of the loan to remain the same except for an additional monthly principal payment of $12,500. Effective November 1, 1995, the Strawberry Joint Venture and the Strawberry Lender agreed to modify the loan by reducing the interest rate to 7.5% for November 1, 1995 through October 31, 1997 and by reducing the monthly principal payment to $12,000. As of November 1, 1997 the interest rate reverted to the original 9.0% rate. Effective October 1, 1998, the Strawberry Joint Venture and the Strawberry Lender agreed to modify and extend the first mortgage loan. As of October 1, 1998 and through the extended maturity date, December 1, 1999, the interest rate was reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. In the second and fourth quarters of 1998, the Partnership recorded an impairment of $1,564,101 and $504,935, respectively, related to other than temporary declines in the value of real estate for the Strawberry Fields property. These allowances were allocated to land and building based on the original acquisition percentages. 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 matures 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. In the first quarter of 1998, the Partnership became aware that both Winn-Dixie and Walgreens may vacate their respective spaces at Sabal Palm prior to their lease termination dates. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn- Dixie remains liable for rental payments under its lease at Sabal Palm until April 2005. Walgreens has not given official notice that they will vacate the space prior to their lease termination, the General Partners, however, believe that there is a likelihood that this tenant will vacate. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. In the fourth quarter of 1998, Sabal Palm recorded an impairment of $1,499,958 related to an other than temporary decline in the value of real estate for Sabal Palm. This allowance has been allocated to the land and building based on the original acquisition percentages. On December 10, 1998, the Partnership received notice that an unsolicited tender offer to purchase up to 25% of the outstanding Units was to commence with a tender price of $120 per Unit. The offer was being made, in part, by an entity that owned a nominal economic interest in the Partnership and was scheduled to terminate on January 15, 1999. As a result of this unsolicited tender offer approximately 1,092 economic interests in the Partnership are to be transferred. On May 12, 1999, the Partnership received notice that an unsolicited tender offer to purchase up to approximately 25% of the outstanding Units was to commence with a tender price of $170 per Unit. The offer is made, in part, by an entity that owned a nominal economic interest in the Partnership and was scheduled to expire on June 25, 1999. The General Partners remained neutral as to the particular merits or risks associated with the tender offers to the Limited Partners. The General Partners believed an informed determination of the true value of the Units could be made after the receipt of the appraisals. The General Partners cautioned that the ultimate amount actually received by each Limited Partner will be affected by items including, but not limited to, the timing of the liquidation of the assets, changes in market conditions, necessary Partnership reserves and the sales prices that can be negotiated. The General Partners further informed the Limited Partners that, for those investors who are primarily interested in liquidating their Units immediately, the tender offer provided such an opportunity. In 1998, the General Partners notified the Limited Partners that they are exploring various alternatives to sell the Partnership's assets. In this regard, the Partnership engaged a nationally known appraisal firm to value the Partnership's assets. Additionally, this firm will assist the General Partners in determining the appropriate method and timing for the disposition of the Partnership's assets. The General Partners have determined to pursue disposition of the Partnership's assets, and expect to commence the registration and solicitation process within a few weeks of the date of this Form 10-KSB for the authorization of the Limited Partners for the sale of all or substantially all of the Partnership's properties. The solicitation will be accomplished by written notice directed by U.S. mail to each Limited Partner at the address shown on the Partnership's records, in accordance with the rules of the Securities and Exchange Commission and the requirements of Partnership Agreement. The General Partners expect to distribute proceeds from operations, if any, and from the sale of real estate to Limited Partners in a manner that is consistent with the investment objectives of the Partnership. Management of the Partnership believes that cash needs may arise from time to time which will have the effect of reducing distributions to Limited Partners to amounts less than would be available from refinancing or sale proceeds. These cash needs include, among other things, maintenance of working capital reserves in compliance with the Agreement as well as payments for major repairs, tenant improvements and leasing commissions in support of real estate operations. Results of Operations - Six months ended June 30, 1999 and 1998 (Amounts rounded to 000's) The Partnership generated net income of $75,000 for the six months ended June 30, 1999 as compared to a net loss of $1,001,000 for the same six month period in 1998. The $1,076,000 increase in net income resulted primarily from an $85,000 increase in rental income, a $64,000 decrease in provision for impairment expense and a $60,000 decrease in general and administrative expense. Total income for the six months ended June 30, 1999 was approximately $1,150,000 as compared to $1,065,000 for the same six month period in 1998, an increase of primarily $85,000. The $85,000 increase in rental income is the result of the higher occupancy rate at Fortune which was 59% at June 30, 1998 and increased to 91% at June 30, 1999. For the six months ended June 30, 1999 total expenses were $1,081,000 as compared to $2,800,000 for the same six month period in 1998, a decrease of approximately $1,720,000. The $1,720,000 decrease in total expenses is primarily a result of a $1,564,000 decrease in provision for impairment expense, a $60,000 decrease in general and administrative expense as a result of a decline in bad debt expense, and a $70,000 decrease in interest expense primarily a result of the decrease in the interest rate on the Strawberry mortgage loan to 7.5% from 9%. Results of Operations - Three months ended June 30, 1999 and 1998 (Amounts rounded to 000's) The Partnership generated net income of $6,000 for the three months ended June 30, 1999 as compared to a net loss of $975,000 for the same three month period in 1998. The $981,000 increase in net income resulted primarily from a $30,000 increase in rental income, a $1,564,000 decrease in provision for impairment expense , a $32,000 decrease in general and administrative expense, and a $37,000 decrease in interest expense. Total income for the three months ended June 30, 1999 was $572,000 as compared to $525,000 for the same three month period in 1998, an increase of approximately $47,000. The $47,000 increase in rental income is primarily the result of the higher occupancy rate at Fortune which was 59% at June 30, 1998 and increased to 91% at June 30, 1999. For the three months ended June 30, 1999 total expenses were approximately $536,000 as compared to $2,168,000 for the same three month period in 1998, a decrease of approximately $1,632,000. The $1,632,000 decrease in total expenses is primarily a result of a $1,564,000 decrease in provision for impairment expense, a $30,000 decrease in general and administrative expense as a result of a reduction in bad debt expense, and a $37,000 decrease in interest expense primarily a result of the decrease in the interest rate on the Strawberry mortgage loan to 7.5% from 9%. 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 27. Financial Data Schedule. 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: August 16, 1999 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: August 16, 1999 EX-27 2
5 6-MOS DEC-31-1999 JUN-30-1999 1,053,257 65,945 182,019 0 0 0 17,788,382 5,921,762 13,238,755 437,253 10,848,671 0 0 2,278,673 0 13,238,755 0 1,151,205 0 613,635 5,342 0 467,761 0 0 0 0 0 0 75,151 0 0 "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND BUILDING] "BONDS" REPRESENTS MORTGAGES PAYABLE "COMMON" REPRESENTS TOTAL PARTNERS' CAPITAL "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER INCOME "TOTAL COSTS" REPRESENTS TOTAL EXPENSES LESS INTEREST EXPENSE "OTHER EXPENSES" REPRESENTS EQUITY AND MINORITY INTEREST IN JOINT VENTURES' NET INCOME/LOSS
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