-----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, C5mels+OwOvA7joUmI4XQXovosT3++xR3op1GWDvhufRUv6DxyKWXAcIcxQLzEG2 qWkzFEeYwdQZ4uM+DAKP0A== 0000793066-00-000008.txt : 20000522 0000793066-00-000008.hdr.sgml : 20000522 ACCESSION NUMBER: 0000793066-00-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000519 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: 640322 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 March 31, 2000 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 Statement of Net Assets in Liquidation as of March 31, 2000 (Liquidation Basis) . . . . . . . . . . 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2000 to March 31, 2000 (Liquidation Basis) . . . . . . . . . . . . . 5 Consolidated Statements of Operations for the three months ended March 31, 2000 (Liquidation Basis) and the three months ended March 31, 1999 (Going Concern Basis). . . . . . . . . . . . . . . . . . . . 6 Consolidated Statement of Cash Flows for the three months ended March 31, 1999 (Going Concern Basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . 20 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .26 Item 2. Changes in Securities. . . . . . . . . . . . . . .26 Item 3. Defaults Upon Senior Securities. . . . . . . . . .26 Item 4. Submission of Matters to Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .26 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .26 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .26 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of March 31, 2000 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2000 to March 31, 2000 (Liquidation Basis), Consolidated Statements of Operations for the three months ended March 31, 2000 (Liquidation Basis) and the three months ended March 31, 1999 (Going Concern Basis) and the Consolidated Statement of Cash Flows for the three months ended March 31, 1999 (Going Concern 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 1999 Annual Report on Form 10-KSB. CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF MARCH 31, 2000 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $13,407,250 Investment in Sabal Joint Venture (Note 6) 42,862 Cash and cash equivalents 1,142,353 Tenant Receivables 110,051 Escrow deposits 18,637 Other assets 10,957 Total Assets 14,732,110 LIABILITIES Mortgage notes payable (Note 4) 10,610,895 Accounts payable and accrued expenses 230,872 Deferred gain on sale of real estate (Note 2) 1,576,422 Reserve for estimated costs during the period of liquidation (Note 2) 189,875 Tenant security deposits 63,583 Due to affiliates 49,590 Total Liabilities 12,721,237 MINORITY INTEREST IN STRAWBERRY JOINT VENTURE (269,110) Net Assets in Liquidation $ 2,279,983 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS) FOR THE PERIOD JANUARY 1, 2000 TO MARCH 31, 2000 (Unaudited) Net assets at January 1, 2000 (Liquidation Basis) $2,110,441 Income from operations 169,542 Net assets in liquidation at March 31, 2000 $2,279,983 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, (Unaudited) (Liquidation (Going Concern Basis) Basis) 2000 1999 INCOME Rental $489,862 $485,142 Interest 10,520 7,432 Other, primarily tenant expense reimbursements 81,111 86,531 Total income 581,493 579,105 EXPENSES Interest 224,362 234,559 Depreciation -- 101,679 Real estate taxes 64,022 61,943 Repairs and maintenance 13,064 19,039 Management fees (Note 5) 34,464 32,140 Other property operating 23,845 31,473 General and administrative 71,328 64,073 Total expenses 431,085 544,906 Income before minority and equity interests 150,408 34,199 Minority interest's share of Strawberry Fields Joint Venture's net (income) (27,370) (9,664) Equity interest in Sabal Palm Joint Venture's net income 46,504 45,088 Net income $169,542 $69,623 Net income Allocated to the General Partners $ 1,695 $ 696 Net income Allocated to the Limited Partners $167,847 $68,927 Net income Per Limited Partnership Interest (9,550 Units) $ 17.58 $ 7.22 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (GOING CONCERN BASIS) (Unaudited) Cash Flows From Operating Activities: Net income $ 69,623 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 101,679 Provision for doubtful accounts 7,000 Equity interest in Sabal Palm Joint Venture's net loss (45,088) Minority Interest's share of Strawberry Fields Joint Venture's net income 9,664 Changes in: Rent receivables (36,917) Other assets 5,786 Escrow deposits (11,475) Accounts payable and accrued expenses 78,161 Due to affiliates 4,591 Tenant security deposits 4,158 Net cash provided by operating activities 187,182 Cash Flows From Investing Activities: Capital expenditures (19,556) Distribution from Sabal Palm Joint Venture 70,500 Net cash provided by investing activities 50,944 Cash Flows From Financing Activities: Repayment of mortgage notes payable (75,461) Net cash used in financing activities (75,461) Net increase in cash and cash equivalents 162,665 Cash and cash equivalents at beginning of period 752,613 Cash and cash equivalents at end of period $ 915,278 Supplemental disclosure of cash flow information: Cash paid for interest $ 229,183 See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. Basis of Presentation As a result of the July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties the Partnership has 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 a liquidation basis. Accordingly, the carrying value of the assets is presented at net realizable amounts and all 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, 2000. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Prior to the presentation of the financial statements on the liquidation basis, rental income was 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 were 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 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 using the equity method of accounting. Investment in Real Estate Prior to the preparation of the financial statements on a liquidation basis, 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 were 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 4). Subsequent to the adoption of the liquidation basis of accounting, the Partnership adjusted its investments 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. Prior to the adoption of the liquidation basis of accounting, the Partnership recorded impairments to reduce the cost basis of real estate to its estimated fair value when the real estate is judged to have suffered an impairment that is other than temporary. 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 March 31, 2000, except as disclosed below. In the second and fourth quarters of 1999, the Partnership recorded an 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 impairments 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 March 31, 2000, 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, 2000, (Note 2), assets were adjusted to net realizable value, and liabilities were adjusted to estimated settlement amounts. (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. The net adjustment required to convert from the going concern (historical cost) basis to the liquidation basis of accounting was a decrease in assets of $207,299 which is included in the December 31, 1999 statement of changes in net assets in liquidation. Significant changes in the carrying value of assets and liabilities are summarized as follows: Increase in real estate held for sale (a) $1,656,422 Decrease in value of real estate (1,524) Write-off of deferred rent receivable (14,240) Write-off of mortgage points (1,660) Increase in deferred gain on sale of real estate (1,656,422) Estimated liquidation costs (189,875) Total adjustment to liquidation basis $(207,299) (a) Net of estimated closing costs. As of March 31, 2000, the Partnership adjusted its investment in real estate to an offer that was presented for the sale of Strawberry Fields. However, the Partnership has not yet agreed to the terms of this offer. The effect of this adjustment was a reduction in the real estate held for sale of $80,000, and a reduction in the deferred gain on the sale of real estate of $80,000. (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 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, 2000, the Preferential Distribution Deficiency equaled $12,785,065. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at March 31, 2000 consist of the following: Interest Date 2000 Rate Due Raleigh Springs Marketplace $ 4,644,941 (a)10% 10/00 Fortune Professional Building 714,554 (b)7.75% 07/00 Strawberry Fields Shopping Center 5,251,400 (c)7% 05/00 $10,610,895 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 March 31, 2000 was approximately $6,611,500. (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. The Replacement Loan has a floating interest rate based on American National Bank's prime rate, which at March 31, 2000 was 9%. Principal is being amortized based on a 15-year amortization period and is payable with interest on a monthly basis. As of December 31, 1999, 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, 1999. The carrying value of Fortune at March 31, 2000 was approximately $1,600,000. (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, May 1, 2000, the interest rate has been reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. Subsequent to May 1, 2000, the Strawberry Fields lender orally agreed to extend, under the existing terms, the maturity of the mortgage loan for an additional two years. The Strawberry Fields lender is currently preparing the necessary paper work to finalize the extension. The carrying value of Strawberry Fields at March 31, 2000 was approximately $5,195,750. The Partnership is required to make balloon mortgage payments for Raleigh Springs Marketplace in the amount of $4,595,000 on October 1, 2000, Fortune Office Building in the amount of $704,800 on June 30, 2000 and for Strawberry Fields in the amount of $5,237,000 on May 1, 2000. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or their affiliates for the three months ended March 31, 2000 and 1999 were as follows: 2000 1999 Management fees $ 39,479 $32,140 Reimbursable office expenses 31,316 29,564 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 $13,890 for management fees, as of March 31, 2000. An amount of $35,700 was due to an affiliate at March 31, 2000, representing an advance made from BREF 5. (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: March 31, 2000 Real estate held for sale $3,150,250 Other assets 122,389 3,272,639 Mortgage note payable $3,098,457 Other liabilities 79,314 3,177,771 Net Assets in Liquidation $ 98,868 For the three months ended (Liquidation (Going Concern Basis) Basis) March 31, March 31, 2000 1999 Rental income $218,208 $275,647 Other income 2,524 24,337 220,732 299,984 Mortgage and other interest 70,043 74,156 Depreciation 0 26,271 Operating and administrative expenses 51,744 103,625 121,787 204,052 Net income $ 98,945 $ 95,932 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 March 31, 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. 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 computer information technology systems which support the Partnership consists of a network of personal computers linked to a server built using hardware and software from mainstream suppliers. These systems do not have equipment that contains embedded microprocessors, which may also pose a potential Year 2000 problem. Additionally, there is no internally generated software coding to correct as all of the software is purchased and licensed from external providers. The Partnership utilizes two main software packages that contain date sensitive information, (i) accounting and (ii) investor relations. In 1997, a program was initiated and completed to convert from the 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. All costs associated with these conversions were expensed by the Partnership as incurred, and were not material. Management does not believe that any further expenditures will be necessary for the systems to be Year 2000 compliant. However, additional personal computers may be purchased from time to time to replace existing 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 were converted and will not have an adverse effect on the Partnership. The Partnership has not experienced any material adverse impact on its operations or its relationships with tenants, vendors or others. 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. 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 December 31, 1999 was 8.5%. 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 was 89 % at March 31, 2000 and December 31, 1999. 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 March 31, 2000 was 92%, compared to 93% at December 31, 1999. 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 with the final payment due on October 1, 2000. 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 March 31, 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 March 31, 2000 was 90%, compared to 86% at December 31, 1999. 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, May 1, 2000, the interest rate was reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. Subsequent to May 1, 2000, the Strawberry Fields lender orally agreed to extend, under the existing terms, the maturity of the mortgage loan for an additional two years. The Strawberry Fields lender is currently preparing the necessary paper work to finalize the extension. 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 impairments 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 impairment 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 made, in part, by an entity that owned a nominal economic interest in the Partnership and to terminated on January 15, 1999. As a result of this unsolicited tender offer approximately 1,092 economic interests in the Partnership were 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 was made, in part, by an entity that owned a nominal economic interest in the Partnership and expired on June 25, 1999. As a result of this unsolicited tender offer approximately 551 economic interests in the Partnership were transferred. The General Partners remained neutral as to the particular merits or risks associated with the tender offer. 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 will explore 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 determined to pursue 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. As a result of this authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership has 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 a liquidation basis. Accordingly, the carrying value of the assets is presented at net realizable amounts and all 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, 2000. On January 27, 2000, the Partnership executed a contract to sell Strawberry Fields to an unaffiliated third party in the approximate amount of $5,430,000 subject to certain due diligence contingencies. The Partnership anticipated closing this transaction in the second quarter of 2000. Subsequently, the potential purchaser rescinded their offer. The General Partners expect to distribute proceeds from operating cash flow, 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 - Three Months Ended March 31, 2000 (Liquidation Basis) and the Three Months Ended March 31, 1999 (Going Concern Basis) (Amounts rounded to 000's) The Partnership generated net income of $170,000 for the three months ended March 31, 2000 as compared to a net income of $70,000 for the same three month period in 1999. The $100,000 increase in net income resulted primarily from a $2,000 increase in rental and other tenant reimbursement income, and a decrease in total expenses of $114,000. Total income for the three months ended March 31, 2000 was $581,000 as compared to $579,000 for the same three month period in 1999, an increase of $2,000. The $5,000 increase in rental income was offset by a $5,000 decrease in other income. Interest income increased approximately $2,000. For the three months ended March 31, 2000 total expenses were $431,000 as compared to $545,000 for the same three month period in 1999, a decrease of $114,000. The $114,000 decrease in total expenses resulted primarily from the Partnership's adoption of the liquidation basis of accounting in July 1999. Prior to the adoption of the liquidation basis of accounting depreciation was recorded on a straight line basis over the estimated economic lives of the properties. Upon the adoption of the liquidation basis of accounting, real estate held for sale was adjusted to estimated net realizable value and no depreciation expense has been recorded. 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: May 19, 2000 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: May 19, 2000 EX-27 2
5 3-MOS DEC-31-2000 MAR-31-2000 1,142,353 42,862 110,051 0 0 0 13,407,250 0 14,732,110 0 10,610,895 0 0 0 0 0 0 581,493 0 206,723 (19,134) 0 224,362 0 0 0 0 0 0 169,542 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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