-----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, K5OezSq1sAcRVHtwQRJgZSX4B2qPOmheKdOcTO4HbNwnp3njHcqFT4xCUGt1V8Pu BswFBDAD99ImMruPR0FXPA== 0000810587-98-000014.txt : 19980817 0000810587-98-000014.hdr.sgml : 19980817 ACCESSION NUMBER: 0000810587-98-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE 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: 98690553 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, 1998 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, 1998. . . . . . . . . 4 Consolidated Statements of Operations for the six months ended June 30, 1998 and 1997 . . . . . . . . . . 5 Consolidated Statements of Operations for the three months ended June 30, 1998 and 1997. . . . . . . . . 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 . . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . .18 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .22 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .22 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .22 Item 4. Submission of Matters to Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .22 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .22 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .22 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Balance Sheet as of June 30, 1998, Consolidated Statements of Operations for the six months ended June 30, 1998 and 1997, Consolidated Statements of Operations for the three months ended June 30, 1998 and 1997, and Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 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 1997 Annual Report on Form 10-KSB. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 1998 ASSETS Investment in real estate: Land $ 3,710,168 Buildings and improvements 14,514,795 18,224,963 Less accumulated depreciation (5,513,987) Net investment in real estate 12,710,976 Investment in Sabal Palm Joint Venture (Note 5) 820,281 Cash and cash equivalents 802,841 Rent receivable (net of allowance of $184,500) 234,399 Escrow deposits 29,692 Other assets 61,334 Total Assets $14,659,523 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Mortgage notes payable (Note 3) $11,164,188 Accounts payable and accrued expenses 310,623 Tenant security deposits 56,675 Due to affiliates 51,514 Total Liabilities 11,583,000 MINORITY INTEREST IN STRAWBERRY JOINT VENTURE (147,700) PARTNERS' CAPITAL: General Partners (27,961) Limited Partners (9,550 limited partnership units issued and outstanding) 3,252,184 Total Partners' Capital 3,224,223 Total Liabilities and Partners' Capital $14,659,523 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended June 30, (Unaudited) 1998 1997 INCOME Rental $ 875,777 $ 892,676 Interest 14,388 18,657 Other, primarily tenant expense reimbursements 174,577 204,755 Total income 1,064,742 1,116,088 EXPENSES Interest 540,838 479,727 Depreciation 210,929 221,358 Real estate taxes 140,394 122,905 Repairs and maintenance 34,533 16,653 Management fees (Note 4) 59,250 67,029 Other property operating 58,383 51,653 Provision for impairment 1,564,101 -- General and administrative 191,633 158,887 Total expenses 2,800,061 1,118,212 Loss before minority and equity interests in joint ventures (1,735,319) (2,124) Minority interest's share of Strawberry Joint Venture's net loss 683,916 12,915 Equity interest in Sabal Palm Joint Venture's net income 50,211 34,217 Net (loss)income $(1,001,192) $ 45,008 Net (loss) income allocated to: General Partners $ (10,012) $ 450 Limited Partners $ (991,180) $ 44,558 Net (loss) income per Limited Partnership Interest (9,550 units outstanding) $ (103.79) $ 4.67 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended June 30, (Unaudited) 1998 1997 INCOME Rental $ 444,516 $448,821 Interest 7,559 10,212 Other, primarily tenant expense reimbursements 72,978 119,508 Total income 525,053 578,541 EXPENSES Interest 269,520 239,128 Depreciation 102,524 109,410 Real estate taxes 70,011 56,731 Repairs and maintenance 9,475 8,169 Management fees (Note 4) 28,350 34,363 Other property operating 24,176 26,647 Provision for impairment 1,564,101 -- General and administrative 99,537 77,034 Total expenses 2,167,694 551,482 (Loss) income before minority and equity interests in joint ventures (1,642,641) 27,059 Minority interest's share of Strawberry Joint Venture's net loss 672,529 5,383 Equity interest in Sabal Palm Joint Venture's net income (5,360) (10,293) Net (loss)income $ (975,472) $ 22,149 Net (loss) income allocated to: General Partners $ (9,755) $ 221 Limited Partners $ (965,717) $ 21,928 Net (loss) income per Limited Partnership Interest (9,550 units outstanding) $ (101.12) $ 2.30 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months June 30, (Unaudited) 1998 1997 Cash Flows From Operating Activities: Net (loss) income $ (1,001,192) $ 45,008 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 210,929 221,358 Provision for impairment 1,564,101 -- Provision for doubtful accounts 78,223 22,987 Minority interest's share of Strawberry Joint Venture's net loss (683,916) (12,915) Equity interest in Sabal Palm Joint Venture net income (50,211) (34,217) Change in rent receivable (113,283) (37,229) Change in escrow deposits (22,940) (29,180) Change in other assets (18,397) (30,037) Change in accounts payable and accrued expenses 89,118 119,690 Change in due to affiliates 4,773 12,154 Change in tenant security deposits 14,300 526 Net cash provided by operating activities 71,505 278,145 Cash Flows From Investing Activities: Capital expenditures (16,646) (6,902) Distribution from Sabal Palm Joint Venture 79,900 13,160 Net cash provided by investing activities 63,254 6,258 Cash Flows From Financing Activities: Repayment of mortgage notes payable (173,148) (1,058,174) Loan fees -- (24,605) Proceeds from mortgage note payable -- 875,000 Net cash used in financing activities (173,148) (207,779) Net (decrease) increase in cash and cash equivalents (38,389) 76,624 Cash and cash equivalents at beginning of year 841,230 844,598 Cash and cash equivalents at end of period $ 802,841 $ 921,222 Supplemental disclosure of cash flow information: Cash paid for interest $ 529,191 $ 477,809 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 the 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). In 1995, the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). In conjunction with the adoption of SFAS 121, the Partnership 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, 1998 and December 31, 1997, except as disclosed below. In the second quarter of 1998, the Partnership recorded an impairment of $1,564,101 related to an other than temporary decline in the value of real estate for Strawberry Fields. This allowance has 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, 1998, 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, 1998, the Preferential Distribution Deficiency equaled $10,875,065. (3) MORTGAGE NOTES PAYABLE Mortgage notes payable at June 30, 1998 consist of the following: Interest Date 1998 Rate Due Raleigh Springs Marketplace $4,800,988 (a)10% 10/99 Fortune Professional Building 816,656 (b) 06/99 Strawberry Fields Shopping Center 5,546,544 (c)9% 12/98 $11,164,188 Maturities of the mortgage notes payable are as follows: 1998 $ 5,612,700 1999 5,551,488 $11,164,188 Raleigh Springs Marketplace ("Raleigh"), Fortune Professional Building ("Fortune") and Strawberry Fields Shopping Center ("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, 1998 was approximately $5,744,000. (b) Prior to June 26, 1997, the Partnership made monthly payments of interest and principal payments 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 was not: (i) in good condition and repair; (ii) occupied at a rate that was equal to the prevailing occupancy rate for similar properties in the same locale; and (iii) leased at rental rates which were 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 June 30, 1998 was 8.5%. Principal is being amortized based on a 15-year amortization period and is payable with interest on a monthly basis. The carrying value of Fortune at June 30, 1998 was approximately $1,620,000. (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 has 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 and through the maturity date, December 1, 1998, the interest rate reverted to the original 9.0% rate. The carrying value of Strawberry Fields at June 30, 1998 was approximately $5,347,000. The Partnership is required to make balloon mortgage payments for Fortune in the amount of $758,300 on June 30, 1999 and for Strawberry Fields in the amount of $5,437,606 at December 1, 1998. (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, 1998 and 1997 were as follows: 1998 1997 Management fees $59,250 $51,197 Reimbursable office expenses 46,050 56,236 Legal fees -- 270 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 $6,908 for legal services and $8,905 for management fees, as of June 30, 1998. An amount of $35,700 was due to an affiliate at June 30, 1998, representing an advance made from BREF 5. (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, 1998 Land, building and personal property, net $4,784,125 Other assets 258,344 $5,042,469 Mortgage note payable $3,162,558 Other liabilities 130,962 3,293,520 Partners' capital 1,748,949 $5,042,469 For the six months ended June 30, June 30, 1998 1997 Rental income $411,147 $374,610 Other income 39,248 52,245 450,395 426,855 Mortgage and other interest 242,350 153,848 Depreciation 68,224 67,644 Operating and administrative expenses 32,989 132,560 343,563 354,052 Net income $106,832 $72,803 Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the then existing mortgage obligation, the lender granted Sabal Palm an extension until April 1, 1997. On March 31, 1997, Sabal Palm obtained a new 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. The outstanding mortgage balance encumbered by the property was $3,162,558 at June 30, 1998. 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, the Partnership was given official notice that the Winn-Dixie had vacated its space at the center. Walgreens has not given official notice that they will vacate their 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 with these tenants to determine their intent and the most beneficial steps to be taken by the Partnership. Winn-Dixie remains liable for rental payments under its lease at Sable Palm until April 2005. ITEM 2.Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Annual 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 In 1997, the Partnership initiated the conversion from its existing accounting software to a program that is year 2000 compliant. Management has determined that the year 2000 issue will not pose significant operational problems for its computer system. All costs associated with this conversion are being expensed as incurred, and are not material. 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. 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 refinancing or modification of the mortgages at more favorable interest rates. 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 $24,600. The Replacement Loan has a floating interest rate based on American National Bank's prime rate, which at June 30, 1998 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 matures on June 30, 1999 at which time a balloon mortgage payment in the amount of approximately $758,300 will be due. As a result of a recent decline in the Albuquerque, New Mexico office market, the General Partners have decided not to continue to market this property for sale at this time. The occupancy level at Fortune at June 30, 1998 was 68%, compared to 75% at December 31, 1997 and 86% at June 30, 1997. Fortune had a negative cash flow for the six months ended June 30, 1998. The Partnership is currently working to improve the occupancy rate at Fortune and upon successful releasing of the vacant space the General Partners will reassess the potential sale of the property. Raleigh Springs has continued to generate a slight positive operating 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 is currently being marketed both regionally and nationally. The occupancy level at Raleigh at June 30, 1998 was 81%, compared to 78% at December 31, 1997 and 78% at June 30, 1997. The occupancy level at Strawberry Fields at June 30, 1998 was 87%, compared to 86% at December 31, 1997 and 88% at June 30, 1997. Strawberry Fields had a negative cash flow for the six months ended June 30, 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 and through the maturity date, December 1, 1998, the interest rate reverted to the original 9.0% rate. In the second quarter of 1998, the Partnership recorded an impairment of $1,564,101 related to an other than temporary decline in the value of real estate for the Strawberry Fields property. This allowance has been allocated to land and building based on the original acquisition percentages. At Sabal Palm, the Partnership and its joint venture partner are working to improve the occupancy level of the shopping center which stood at 96% as of June 30, 1998. Although the Sabal Palm retail market appears to be over built, the occupancy level of the building has stayed relatively constant and it has generated positive cash flow since the joint venture acquired the property in 1986. 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, the Partnership was given official notice that the Winn-Dixie had vacated its space at the center. Walgreens has not given official notice that they will vacate their 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 with these tenants to determine their intent and the most beneficial steps to be taken by the Partnership. Winn-Dixie remains liable for rental payments under its lease at Sable Palm until April 2005. 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. The outstanding mortgage balance encumbered by the property was $3,162,558 at June 30, 1998. 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 refinancings 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, 1998 and 1997 (Amounts rounded to 000's) The Partnership generated a net loss of $1,001,000 for the six months ended June 30, 1998 as compared to net income of $45,000 for the same six month period in 1997. The $1,046,000 decrease was primarily due to a $1,564,000 increase in the provision for impairment. Partially offsetting this increase was the minority interest's share of Strawberry Joint Venture's net loss of $684,000. Total income for the six months ended June 30, 1998 was $1,065,000 as compared to $1,116,000 for the same six month period in 1997, a decrease of $51,000. The $51,000 decrease resulted from a decrease of $15,000 in deferred rental income at Strawberry, a decrease of $55,000 in other income (tenant reimbursements) at Raleigh, and a decrease of $32,000 in rental income at Fortune. The decrease in rental income at Fortune was the result of a decrease in the occupancy rate from 86% to 68%, respectively, at June 30, 1997 and 1998. Partially offsetting the decrease in total income were increases of $26,000 in other income at Strawberry and $26,000 in rental income at Raleigh. The increase in rental income at Raleigh resulted from an increase in the occupancy rate from 78% to 81%, respectively, at June 30, 1997 and 1998. For the six months ended June 30, 1998 total expenses were $2,800,000 as compared to $1,118,000 for the same six month period in 1997, an increase of $1,682,000. This increase in total expenses was primarily a result of increases in provision for impairment and interest expense. The provision for impairment at Strawberry was $1,564,000 for the six months ended June 30, 1998 as compared to $0 for the same six month period in 1997, an increase of $1,564,000. Interest expense was $541,000 for the six months ended June 30, 1998 as compared to $480,000 for the same six month period in 1997, an increase of $62,000. This increase was caused primarily by the increase in the interest rate at Fortune from 3% in 1997 to 8.5% in 1998. In addition, interest expense also increased as a result of the interest rate for Strawberry's mortgage loan reverting to 9.0% from 7.5% in November 1997. Results of Operations - Three Months Ended June 30, 1998 and 1997 (Amounts rounded to 000's) The Partnership generated a net loss of $975,000 for the three months ended June 30, 1998 as compared to net income of $22,000 for the same three month period in 1997. The $997,000 decrease was primarily due to a $1,564,000 increase in the provision for impairment. Partially offsetting this increase was the minority interest's share of Strawberry Joint Venture's net loss of $673,000. Total income for the three months ended June 30, 1998 was $525,000 as compared to $579,000 for the same three month period in 1997, a decrease of $54,000. The $54,000 decrease resulted from a decrease of $8,000 in deferred rental income at Strawberry, a decrease of $47,000 in other income (tenant reimbursements) at Raleigh, and a decrease of $15,000 in rental income at Fortune. The decrease in rental income at Fortune was the result of a decrease in the occupancy rate from 86% to 68%, respectively, at June 30, 1997 and 1998. Partially offsetting the decrease in total income was the increase of $18,000 in rental income at Raleigh. The increase in rental income at Raleigh resulted from an increase in the occupancy rate from 78% to 81%, respectively, at June 30, 1997 and 1998. For the three months ended June 30, 1998 total expenses were $2,168,000 as compared to $552,000 for the same three month period in 1997, an increase of $1,616,000. This increase in total expenses was primarily a result of increases in the provision for impairment and interest expense. The provision for impairment at Strawberry was $1,564,000 for the three months ended June 30, 1998 as compared to $0 for the same three month period in 1997, an increase of $1,564,000. Interest expense was $270,000 for the three months ended June 30, 1998 as compared to $240,000 for the same three month period in 1997, an increase of $30,000. This increase was caused primarily by the increase in the interest rate at Fortune from 3% in 1997 to 8.5% in 1998. In addition, interest expense also increased as a result of the interest rate for Strawberry's mortgage loan reverting to 9.0% from 7.5% in November 1997. 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 14, 1998 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: August 14, 1998 EX-27 2
5 6-MOS DEC-31-1998 JUN-30-1998 802,841 820,281 234,399 0 0 0 18,224,963 5,513,987 14,659,523 418,812 11,164,188 0 0 3,224,223 0 14,659,523 0 1,064,742 0 2,259,223 (734,127) 0 540,838 0 0 0 0 0 0 (1,001,192) 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
-----END PRIVACY-ENHANCED MESSAGE-----