-----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, NiRB2ATyQvu+D+lFcAgHxIQ6oKkGZQphdCU9EzkqX8M/MXtfF1RbbkgHaZcfnx0y pqKjnAWqV1n/rY+J5hY9eA== 0000736908-99-000002.txt : 19990402 0000736908-99-000002.hdr.sgml : 19990402 ACCESSION NUMBER: 0000736908-99-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUVIN REAL ESTATE FUND LP 5 CENTRAL INDEX KEY: 0000762848 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363432071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14481 FILM NUMBER: 99581999 BUSINESS ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE FUNDS 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 10KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 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 0-14481 Brauvin Real Estate Fund L.P. 5 (Name of small business issuer in its charter) Delaware 36-3432071 (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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filling requirements for the past 90 days. Yes X No . Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year $1,517,301. The aggregate sales price of the limited partnership interests of the issuer (the "Units") to unaffiliated investors of the issuer was $9,914,500. This does not reflect market value. This is the price at which the Units were sold to the public. There is no current established trading market for these Units, nor have any Units been sold within the last 60 days prior to this filing. Portions of the Prospectus of the registrant dated March 1, 1985, as supplemented, and filed pursuant to Rule 424(b) and 424(c)under the Securities Act of 1933, as amended, are incorporated by reference into Parts II and III of this Annual Report on Form 10-KSB. BRAUVIN REAL ESTATE FUND L.P. 5 1998 FORM 10-KSB ANNUAL REPORT INDEX PART I Page Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 3 Item 2. Description of Properties. . . . . . . . . . . . . . . . . . 6 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .12 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .12 PART II Item 5. Market for the Issuer's Limited Partnership Interests and Related Security Holder Matters. . . . . . . .13 Item 6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . .13 Item 7. Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . .21 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . .21 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. . . . . . . . . . . . . . . . . . . . .22 Item 10.Executive Compensation. . . . . . . . . . . . . . . . . . . 24 Item 11.Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . .24 Item 12.Certain Relationships and Related Transactions . . . . . . .25 Item 13.Exhibits, Consolidated Financial Statements and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . .27 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) PART I Item 1. Description of Business. Brauvin Real Estate Fund L.P. 5 (the "Partnership") is a Delaware limited partnership formed in 1985 whose business has been devoted exclusively to acquiring, operating, holding for investment and disposing of existing office buildings, shopping centers and industrial and retail commercial buildings, all in greater metropolitan areas. The General Partners originally intended to dispose of the Partnership's properties approximately five to eight years after acquisition of each property, with a view toward liquidation of the Partnership. Due to the past real estate market conditions and economic trends in the areas where the Partnership's properties are located, the General Partners believed it to be in the best interest of the Partnership to retain the properties until such time as the General Partners reasonably believed it was appropriate to dispose of the Partnership's properties. In order to make this determination, the General Partners periodically evaluated market conditions. 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 the 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. That 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 the Partnership Agreement. The amended and restated limited partnership agreement (the "Agreement") provides that the Partnership shall terminate December 31, 2025, unless sooner terminated. The General Partners shall in no event dispose of the properties after that date. As of December 31, 1998, the Partnership had acquired one rental property, a 42% interest in a joint venture which acquired a second rental property and a 53% interest in a joint venture which acquired a third rental property. A fourth rental property which the Partnership had acquired a 54% interest in a joint venture was foreclosed upon on May 15, 1995 and the joint venture was terminated and dissolved in 1996. The Partnership will not purchase any additional properties. Operations currently consist of operating the real estate properties which have been managed by Brauvin Management Company (an affiliate of the General Partners). The focus of property management activities has been improvement in the economic performance of the properties with the goal of maximizing value to the Partnership upon disposition. On December 10, 1998, the Partnership received notice that an unsolicited tender offer to purchase up to 25% of the outstanding limited partnership interests of the Partnership (the "Units") was to commence with a tender price of $80 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 609 economic interests in the Partnership are to be transferred. The General Partners remained neutral as to the particular merits or risks associated with the tender offer 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. The Partnership has no employees. Market Conditions/Competition The Partnership faces active competition in all aspects of its business and must compete with entities which own properties similar in type to those owned by the Partnership. Competition exists in such areas as attracting and retaining creditworthy tenants, financing capital improvements and eventually selling properties. Many of the factors affecting the ability of the Partnership to compete are beyond the Partnership's control, such as softened markets caused by an oversupply of similar rental facilities, declining performance in the economy in which a property is located, population shifts, reduced availability and increased cost of financing, changes in zoning laws or changes in patterns of the needs of users. The marketability of the properties may also be affected by prevailing interest rates and existing tax laws. The Partnership has retained ownership of its properties for periods longer than anticipated at acquisition. Market conditions have weakened in several markets resulting in lower cash flows than were originally anticipated. The Partnership strives to maximize economic occupancy and, as such, must adjust rents to attract and retain tenants. One measure of a market's relative strength or weakness is the current rental rate demanded by non-anchor tenants. These rates are for tenants who generally sign leases of three to five years and are an indicator of the "spot" rental market. The average rental rates for non-anchor tenants at Sabal Palm in Palm Bay, Florida have remained static at approximately $10.88 per square foot in 1995 to approximately $10.91 per square foot in 1998. However, Winn-Dixie moved out which will likely effect renewal rates and frequency of local tenants. Similarly, the average rental rates for non-anchor tenants at Strawberry Fields in West Palm Beach, Florida have decreased from approximately $12.21 per square foot in 1993 to approximately $8.07 per square foot in 1998. Non-anchor tenant average rental rates, expressed per square foot per year, have increased at the Crown Point property located in Kingsport, Tennessee, from approximately $8.90 per square foot in 1993 to approximately $10.59 per square foot in 1998. However, the Partnership has not benefitted greatly from these increases due to the existence of several leases that were negotiated in prior years. The Partnership, by virtue of its ownership of real estate, is subject to federal and state laws and regulations covering various environmental issues. Management of the Partnership retains the services of third parties who hold themselves out to be experts in the field to assess a wide range of environmental issues and conduct tests for environmental contamination. Management believes that all real estate owned by the Partnership is in full compliance with applicable environmental laws and regulations. Item 2. Description of Properties. The following is a discussion of the rental properties owned and operated by the Partnership. For the purpose of the information disclosed in this section, the following terms are defined as follows: Occupancy Rate: The occupancy rate is defined as the occupied square footage at December 31, divided by the total square footage excluding square footage of outparcels, if any. Average Annual Base Rent Per Square Foot: The average annual base rent per square foot is defined as the total effective base rental income for the year divided by the average square feet occupied excluding outparcels, if any. Average Square Feet Occupied: The average square feet occupied is calculated by averaging the occupied square feet at the beginning of the year with the occupied square feet at the end of the year excluding outparcels, if any. In the opinion of the General Partners, the Partnership has provided for adequate insurance coverage of its real estate investment properties. During the year ended December 31, 1998, the Partnership owned the properties described below: (a) Crown Point Shopping Center ("Crown Point") On September 12, 1985, the Partnership acquired Crown Point, an approximately 71,500 square foot shopping center located in Kingsport, Sullivan County, Tennessee. Crown Point is composed of a main building, constructed in two phases, and two outparcel buildings of approximately 6,500 square feet. Phase I of Crown Point and one outparcel building were completed in 1984. Phase II of Crown Point and the other outparcel building were completed in 1985. The anchor tenant is a Food City grocery. Burger King, a division of Grand Metropolitan PLC, is located in one of the outparcel buildings which is also owned by the Partnership. Crown Point was 100% occupied at December 31, 1998. The Partnership purchased Crown Point for $5,341,696 consisting of approximately $1,775,000 paid in cash at closing and the balance by assuming an existing first mortgage loan of $3,566,696. The lender provided the first mortgage loan through the sale of tax- exempt bonds. The loan had a 30-year term and bore interest at the rate of 9.69% per annum. On December 28, 1995, the loan balance was paid in full when the Crown Point property was refinanced with NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non-recourse loan with a fixed interest rate of 7.55%. The outstanding mortgage balance encumbered by the property is $3,045,656 at December 31, 1998. The outstanding mortgage balance is currently being amortized based on a twenty year term and has a maturity of January 1, 2003. The occupancy rate and average annual base rent per square foot at December 31, 1998 and 1997 were as follows: 1998 1997 Occupancy Rate 100% 100% Average Annual Base Rent Per Square Foot $7.57 $7.42 Crown Point has two tenants which individually occupy ten percent or more of the rentable square footage. The following is a summary of the tenant rent roll at December 31, 1998: Annual Lease Square Base Expiration Renewal Nature of Tenant Feet Rent Date Options Business Food City 39,652 $257,738 8/2004 5/5 yrs ea. Food Store Contel Cellular 12,800 64,000 8/99 None Telecom- munication Services Others 19,000 201,207 Various Various 71,452 $522,945 (b) Strawberry Fields Shopping Center ("Strawberry Fields") On December 12, 1985, the Partnership and Brauvin Real Estate Fund L.P. 4 ("BREF 4"), an affiliated public real estate limited partnership, formed a joint venture (the "Strawberry Joint Venture") to purchase Strawberry Fields located in West Palm Beach, Florida for $9,875,000. The Partnership has a 42% interest in the joint venture which owns Strawberry Fields and BREF 4 has a 58% interest in the joint venture which owns Strawberry Fields. The purchase was funded with $3,875,000 cash at closing and $6,000,000 from the proceeds of a first mortgage loan. In February 1993, the Strawberry Joint Venture finalized a refinancing of the first mortgage loan on Strawberry Fields (the "Refinancing") 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 Partnership 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 outstanding mortgage balance encumbered by the property was $5,454,205 at December 31, 1998. Strawberry Fields is a neighborhood retail development constructed on an 11.87 acre site in 1985. Strawberry Fields was initially anchored by Florida Choice, a combination food, drug and general merchandise chain. In 1987, the Kroger Company ("Kroger") purchased Family Mart, the original lessee, and renamed the store. Kroger then closed the Florida Choice store in November 1988, however, the original lease terms remained in effect and Kroger continued to pay rent. Although Kroger is obligated to continue to pay rent through March 31, 2005, the Strawberry Joint Venture has located and approved a sublease for a replacement tenant, Syms, a national discount clothing retailer, to sublease the space for the remainder of the original lease term. Strawberry Fields' main building contains 103,614 square feet of retail space and is complemented by two outparcel sites plus an older 5,400 square foot Uniroyal tire and automotive outlet. The outparcel sites are leased to Taco Bell, a division of Tricon Global, and Flagler National Bank. Strawberry Fields was 86% occupied at December 31, 1998. With the exception of Kroger, all leases at Strawberry Fields are net with each tenant paying its pro rata share of operating expenses. Local tenant leases and outparcel ground leases provide for the base rent to be increased in accordance with the Consumer Price Index. Even though Florida Choice has vacated the space and the space has been sublet to Syms it is still required to pay any increases in property taxes and insurance above the level incurred in 1986 (the first year of operation). Syms is not required to share in the operating expenses. The occupancy rate and average annual base rent per square foot at December 31, 1998 and 1997 were as follows: 1998 1997 Occupancy Rate 86% 86% Average Annual Base Rent Per Square Foot $7.36 $7.63 Strawberry Fields has one tenant which occupies ten percent or more of the rentable square footage. The following is a summary of the tenant rent roll at December 31, 1998: Annual Lease Square Base Expiration Renewal Nature of Tenant Feet Rent Date Options Business Florida Choice (1) (sublet by Syms) 54,300 $380,100 3/2005 8/5 yrs ea. Discount Clothing Others 34,684 279,771 Various Various Vacant 14,630 -- 103,614 $659,871 (1) Includes Syms and Florida Choice base rent. (c) Sabal Palm Square ("Sabal Palm") On October 31, 1986, the Partnership and BREF 4 formed a joint venture to purchase Sabal Palm, a shopping center in Palm Bay, Florida, for $5,924,000. The Partnership has a 53% interest and BREF 4 has a 47% interest in the joint venture which owns Sabal Palm. The purchase was funded with $2,724,000 cash at closing and a $3,200,000 interim loan. On February 19, 1987, the joint venture obtained a first mortgage loan in the amount of $3,200,000 from an unaffiliated lender. The loan was payable with interest only at 9.5% per annum until February 1992 and now requires payments of principal and interest based on a 30-year amortization schedule. 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, were used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. The outstanding mortgage balance encumbered by the property was $3,145,598 at December 31, 1998. The Partnership consolidated the Sabal Palm Joint Venture and has recorded a minority interest balance to recognize the 47% interest of BREF 4. Sabal Palm is a neighborhood shopping center consisting of approximately 89,000 square feet of retail space situated on approximately 9.7 acres of land. Sabal Palm was constructed in 1985 and is anchored by a Winn Dixie food store and Walgreens. Winn-Dixie completed an approximately 6,500 square foot expansion in the fourth quarter of 1992. Sabal Palm has several outparcels, which are not owned by the Partnership, but which add to the center's appearance and customer activity. Sabal Palm was 96% economically occupied at December 31, 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, 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. The occupancy rate and average annual base rental per square foot at December 31, 1998 and 1997 were as follows: 1998 1997 Occupancy Rate 96% 95% Average Annual Base Rental Per Square Foot $6.56 $6.32 Sabal Palm has two tenants which individually occupy ten percent or more of the net rentable square feet. The following is a summary of the tenant rent roll at December 31, 1998: Annual Lease Square Base Expiration Renewal Nature of Tenant Feet Rent Date Options Business Winn-Dixie 41,983 $142,406 4/2005 5/5 yrs ea. Food Store Walgreens 13,000 81,252 4/2025 2/5 yrs ea. Drug Store Others 30,650 334,474 Various Various Vacant 3,300 -- 88,933 $558,132 Risks of Ownership The possibility exists that the tenants of the Partnership's properties may be unable to fulfill their obligations pursuant to the terms of the leases, including making base rent payments or percentage rent payments to the Partnership. Such defaults by one or more of the tenants could have an adverse effect on the financial situation of the Partnership. Furthermore, the Partnership may be unable to replace these tenants due to competition in the market at the time any vacancy occurs. Additionally, there are costs to the Partnership when replacing tenants such as leasing commissions and tenant improvements. Such improvements may require expenditure of Partnership funds otherwise available for distribution. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for the Issuer's Limited Partnership Interests and Related Security Holder Matters. At December 31, 1998, there were 796 Limited Partners in the Partnership. There is currently no established public trading market for the Units and it is not anticipated that a public market for the Units will develop. Bid prices quoted by "partnership exchanges" vary widely and are not considered a reliable indication of market value. Neither the Partnership nor Brauvin Ventures, Inc. (the "Corporate General Partner") will redeem or repurchase outstanding Units. Pursuant to the terms of the Agreement, there are restrictions on the ability of the Limited Partners to transfer their Units. In all cases, the General Partners must consent to any substitution of a Limited Partner. There were no cash distributions to Limited Partners for 1998 and 1997. Item 6. 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. Discussions containing forward-looking statements may be found in this section and in the section entitled "Description of Business." 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 consists 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, 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 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 refinancing of the mortgages when they mature. The anchor tenant at Crown Point is Food City. The overall occupancy level at Crown Point remained at 100% at December 31, 1998 and at December 31, 1997. The Partnership is continuing to work to sustain the occupancy level of Crown Point. On December 28, 1995, the loan balance of the acquisition financing was paid in full when the Crown Point property was refinanced with NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non-recourse loan with a fixed interest rate of 7.55% and a maturity of January 1, 2003. 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 property has shown an improvement due to the occupancy increase from 78% at December 31, 1994 to 86% at December 31, 1998. 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. 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 has been reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. The outstanding mortgage balance encumbered by the property was $5,454,205 at December 31, 1998. In the second and fourth quarters of 1998, the joint venture partnership recorded impairments 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 allowance were 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 Sabal Palm which stood at 96% as of December 31, 1998. Although the Sabal Palm retail market appears to be overbuilt, the occupancy level of the building has stayed relatively constant and it has generated positive cash flow since its acquisition 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, 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. 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 fourth quarter of 1998, the joint venture 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. 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. 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 $80 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 609 economic interests in the Partnership are to be transferred. The General Partners remained neutral as to the particular merits or risks associated with the tender offer 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. The General Partners have determined to pursue the 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. That 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 the Partnership Agreement. 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 The Partnership's revenue and expenses are affected primarily by the operations of the properties. Property operations, and in particular the components of income, demand for space and rental rates are, to a large extent, determined by local and national market conditions. These market conditions, all beyond the control of the Partnership and its General Partners, have affected the real estate industry since the late 1980's and have combined to cause severe economic hardships for real estate owners. Some of the specific market conditions are as follows: * The savings and loan crisis resulted in the creation of the Resolution Trust Corp. (RTC). The RTC sponsored auctions where large blocks of properties were sold at distressed prices. The low price paid by the new owners enabled them to reduce asking rental rates resulting in significantly lower market rents for all competing properties. * The emergence of "Category Killer" retailers who occupied large "Box" spaces in new developments known as "Power Centers" attracted tenants from the smaller and more traditional "Community Centers" resulting in increased vacancies and downward pressure on market rental rates. * The continuing softness in retail sales has resulted in store closings. This has in turn resulted in increased vacancies and an overall softness in demand for retail space which results in downward pressure on market rents. These conditions have generally adversely impacted the Partnership's property economics. Rental and occupancy rates have generally improved over the past year at all remaining properties; however, they remain below where they were when the properties were acquired. The specific impact of these economic conditions on 1998 and 1997 results are discussed in the section "Results of Operations - Years Ended December 31, 1998 and 1997", below. The General Partners conduct an in-depth assessment of each property's physical condition as well as a demographic analysis to assess opportunities for increasing occupancy and rental rates and decreasing operating costs. In all instances, decisions concerning restructuring of loan terms, reversions and subsequent operation of the property are made with the intent of maximizing the potential proceeds to the Partnership and, therefore, return of investment and income to Limited Partners. In certain instances and under limited circumstances, management of the Partnership entered into negotiations with lenders for the purpose of restructuring the terms of loans to provide for debt service levels that could be supported by operations of the properties. When negotiations are unsuccessful, management of the Partnership considers the possibility of reverting the properties to the first mortgage lender. Foreclosure proceedings may require 6 to 24 months to conclude. An affiliate of the Partnership and the General Partners is assigned responsibility for day-to-day management of the properties. The affiliate receives a combined management and leasing fee which cannot exceed 6% of gross revenues generated by the properties. Management fee rates are determined by the extent of services provided by the affiliate versus services that may be provided by third parties, i.e., independent leasing agents. In all instances, fees paid by the Partnership to the property management affiliate are, in the General Partners opinion, comparable to fees that would be paid to independent third parties. Results of Operations - Years Ended December 31, 1998 and 1997 (Amounts rounded to 000's) The Partnership generated a net loss of $1,562,000 for the year ended December 31, 1998 as compared to net income of $51,000 for the same period in 1997. The $1,613,000 decrease in net income resulted primarily from the net of a $20,000 increase in total income, a $1,463,000 increase in total expenses, a $678,000 decrease in Sabal Palm Joint Venture's minority interest in net income and a $848,000 decrease in the equity interest in Strawberry Fields Joint Venture net income (primarily due to a provision for impairment in the total amount of $2,069,000 recorded at Strawberry Fields). Total income for the year ended December 31, 1998 was $1,517,000 as compared to $1,497,000 for the same period in 1997, an increase of $20,000. The $20,000 increase resulted primarily from a increase in tenant rental income at the Sabal Palm property. For the year ended December 31, 1998, total expenses were $2,856,000 as compared to $1,394,000 for the same period in 1997, an increase of $1,462,000. The $1,462,000 increase in total expenses resulted primarily from a provision for impairment related to an other than temporary decline in the value of the real estate at the Sabal Palm property. Results of Operations - 1997 Compared to 1996 (Amounts rounded to nearest 000's) The Partnership generated net income of $51,000 for the year ended December 31, 1997 as compared to net income of $62,000 for the same period in 1996. The $11,000 decrease in net income resulted primarily from the net of a $23,000 decrease in total income, a $19,000 increase in total expenses and a $36,000 decrease in the minority interest's share in Sabal Palm Joint Venture's net income. Total income for the year ended December 31, 1997 was $1,497,000 as compared to $1,520,000 for the same period in 1996, a decrease of $23,000. The $23,000 decrease resulted primarily from a decrease in tenant expense reimbursements at Sabal Palm. For the year ended December 31, 1997, total expenses were $1,394,000 as compared to $1,375,000 for the same period in 1996, an increase of $19,000. The $19,000 increase in total expenses resulted primarily from an increase in general and administrative expense at Sabal Palm, due to higher insurance premiums as a result of the property's location in a hurricane area. Additionally, landscaping expense increased at Sabal Palm in an effort to attract potential tenants to the center. Item 7. Consolidated Financial Statements and Supplementary Data. See Index to Consolidated Financial Statements on Page F-1 of this Form 10-KSB for consolidated financial statements where applicable. The financial information required in Item 310(b) of Regulation S-B is not applicable. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of The Exchange Act. The General Partners of the Partnership are: Brauvin Ventures, Inc., an Illinois corporation Mr. Jerome J. Brault, individually Brauvin Ventures, Inc. was formed under the laws of the State of Illinois in 1983, with its issued and outstanding shares being owned by A.G.E. Realty Corporation, Inc. (50%), and Messrs. Jerome J. Brault (beneficially) (25%) and Cezar M. Froelich (25%). The principal officers and directors of the Corporate General Partner are: Mr. Jerome J. Brault . . . . .Chairman of the Board of Directors, Director and President Mr. James L. Brault. . . . . . . . . . . .Vice President and Secretary Mr. Thomas E. Murphy . . . . . . . . . . . . . . . . . . Treasurer and Chief Financial Officer The business experience during the past five years of the General Partners, officers and directors is as follows: MR. JEROME J. BRAULT (age 65) chairman of the board of directors, president and chief executive officer of the Corporate General Partner, as well as a principal shareholder of the Corporate General Partner. He is a member and manager of Brauvin Real Estate Funds, L.L.C. He is a member of Brauvin Capital Trust L.L.C. Since 1979, he has been a shareholder, president and a director of Brauvin/Chicago, Ltd. He is an officer, director and one of the principal shareholders of various Brauvin entities which act as the general partners of six other publicly registered real estate programs. He is an officer, director and one of the principal shareholders of Brauvin Associates, Inc., Brauvin Management Company, Brauvin Advisory Services, Inc. and Brauvin Securities, Inc., Illinois companies engaged in the real estate and securities businesses. He is a director, president and chief executive officer of Brauvin Net Lease V, Inc. He is the chief executive officer of Brauvin Capital Trust, Inc. Mr. Brault received a B.S. in Business from DePaul University, Chicago, Illinois in 1959. MR. JAMES L. BRAULT (age 38) is a vice president and secretary and is responsible for the overall operations of the Corporate General Partner and other affiliates of the Corporate General Partner. He is an officer of various Brauvin entities which act as the general partners of six other publicly registered real estate programs. Mr. Brault is executive vice president and assistant secretary and is responsible for the overall operations of Brauvin Management Company. He is also an executive vice president and secretary of Brauvin Net Lease V, Inc. He is a manager of Brauvin Real Estate Funds, L.L.C., Brauvin Capital Trust, L.L.C. and BA/Brauvin L.L.C. He is the president of Brauvin Capital Trust, Inc. Prior to joining the Brauvin organization in May 1989, he was a Vice President of the Commercial Real Estate Division of the First National Bank of Chicago ("First Chicago"), based in their Washington, D.C. office. Mr. Brault joined First Chicago in 1983 and his responsibilities included the origination and management of commercial real estate loans, as well as the direct management of a loan portfolio in excess of $150 million. Mr. Brault received a B.A. in Economics from Williams College, Williamstown, Massachusetts in 1983 and an M.B.A. in Finance and Investments from George Washington University, Washington, D.C. in 1987. Mr. Brault is the son of Mr. Jerome J. Brault. MR. THOMAS E. MURPHY (age 32) is the treasurer and chief financial officer of the Corporate General Partner and other affiliates of the Corporate General Partner. He is the chief financial officer of various Brauvin entities which act as the general partners of six other publicly registered real estate programs. Mr. Murphy is also the chief financial officer of Brauvin Associates, Inc., Brauvin Management Company, Brauvin Financial, Inc., Brauvin Securities, Inc. and Brauvin Net Lease V, Inc. He is the treasurer, chief financial officer and secretary of Brauvin Capital Trust, Inc. He is responsible for the Partnership's accounting and financial reporting to regulatory agencies. He joined the Brauvin organization in July 1994. Prior to joining the Brauvin organization he was in the accounting department of Zell/Merrill Lynch and First Capital Real Estate Funds where he was responsible for the preparation of the accounting and financial reporting for several real estate limited partnerships and corporations. Mr. Murphy received a B.S. in Accounting from Northern Illinois University in 1988. Mr. Murphy is a Certified Public Accountant and is a member of the Illinois Certified Public Accountants Society. Item 10. Executive Compensation. (a & b) The Partnership is required to pay certain fees, make distributions and allocate a share of the profits and losses of the Partnership to the Corporate General Partner or other affiliates as described under the caption "Compensation Table" on pages 11 to 13 of the Partnership's Prospectus, as supplemented, and the sections of the Agreement entitled "Distributions of Operating Cash Flow", "Allocation of Profits, Losses and Deductions", "Distribution of Net Sale or Refinancing Proceeds" and "Compensation of General Partners and Their Affiliates" on pages A-9 to A-13 of the Agreement attached as Exhibit A to the Partnership's Prospectus. The relationship of the Corporate General Partner (and its directors and officers) to its affiliates is set forth above in Item 9. Reference is also made to Notes 2 and 4 of the Notes to Consolidated Financial Statements filed with this annual report for a description of such distributions and allocations. The General Partners received a share of Partnership loss or income for 1998 and 1997. An affiliate of the General Partners of the Partnership is reimbursed for its direct expenses relating to the administration of the Partnership. The Partnership does not have any employees and therefore there is no compensation paid. (c - h) Not applicable. Item 11. Security Ownership of Certain Beneficial Owners and Management. (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units of the Partnership. (b) The officers and directors of the Corporate General Partner do not, individually or as a group, own any Units. (c) The Partnership is not aware of any arrangements, the operations of which may result in a change of control of the Partnership. No officer or director of the Corporate General Partner possesses a right to acquire beneficial ownership of Units. The General Partners will share in the profits, losses and distributions of the Partnership as outlined in Item 10, "Executive Compensation." Item 12. Certain Relationships and Related Transactions. (a & b) The Partnership is entitled to engage in various transactions involving affiliates of the Corporate General Partner of the Partnership, as described in the section of the Partnership's Prospectus, as supplemented, entitled "Compensation Table" and "Conflicts of Interest" at pages 11 to 16 and the section of the Agreement entitled "Rights, Duties and Obligations of General Partners" at pages A-15 to A-18 of the Agreement. The relationship of the Corporate General Partner to its affiliates is set forth in Item 10. Cezar M. Froelich resigned as an individual general partner of the Partnership effective 90 days after August 14, 1997 but remains a shareholder of the Corporate General Partner. He is also a principal of the law firm of Shefsky & Froelich Ltd., which firm acted as securities and real estate counsel to the Partnership. Reference is made to Note 4 of the Notes to Consolidated Financial Statements filed with this annual report for a summary of transactions with affiliates. As a precondition to the new financing at Crown Point, the lender required that ownership of the property reside in a single purpose entity ("SPE"). To accommodate the lender's requirements, ownership of the property was transferred in 1995 to the SPE, Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions of Brauvin/Crown Point L.P. are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of Brauvin/Crown Point L.P. did not affect the Partnership's economic ownership of the Crown Point property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. (c) Not applicable. (d) There have been no transactions with promoters. Item 13. Exhibits, Consolidated Financial Statements and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) (2) Consolidated Financial Statements. (See Index to Consolidated Financial Statements filed with this annual report). (3) Exhibits required by the Securities and Exchange Commission Regulation S-B Item 601: Exhibit No. Description *3.(a) Restated Limited Partnership Agreement *3.(b) Articles of Incorporation of Brauvin Ventures, Inc. *3.(c) By-Laws of Brauvin Ventures, Inc. *3.(d) Amendment to the Certificate of Limited Partnership of the Partnership *10.(a) Escrow Agreement *10.(b)(1) Management Agreement 21. Subsidiaries of the registrant 27. Financial Data Schedule *28. Pages 11-16, A-9 to A-13 and A-15 to A-18 of the Partnership's Prospectus and the Agreement dated March 1, 1985, as supplemented. * Incorporated by reference from the exhibits filed with the Partnership's registration statement (File No. 2-95633) on Form S-11 filed under the Securities Act of 1933. (b) No portions of the annual report have been incorporated by reference in this Form 10-KSB. (c) Form 8-K. None. (d) An annual report for the fiscal year 1998 will be sent to the Limited Partners subsequent to this filing. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRAUVIN REAL ESTATE FUND L.P. 5 BY: Brauvin Ventures, Inc. Corporate General Partner By: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President By: /s/ James L. Brault James L. Brault Vice President and Secretary By: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer INDIVIDUAL GENERAL PARTNER /s/ Jerome J. Brault Jerome J. Brault Dated: March 31, 1999 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report . . . . . . . . . . . . . . . . . . .F-2 Consolidated Balance Sheet, December 31, 1998. . . . . . . . . . F-3 Consolidated Statements of Operations, for the years ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . .F-4 Consolidated Statements of Partners' Capital, for the years ended December 31, 1998 and 1997 . . . . . . . . . . . . .F-5 Consolidated Statements of Cash Flows, for the years ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . .F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . .F-7 All other schedules provided for in Item 13 (a) on Form 10-KSB are either not required, not applicable, or immaterial. INDEPENDENT AUDITORS' REPORT To the Partners of Brauvin Real Estate Fund L.P. 5 We have audited the accompanying consolidated balance sheet of Brauvin Real Estate Fund L.P. 5 (a limited partnership) and subsidiary as of December 31, 1998, and the related consolidated statements of operations, partners' capital, and cash flows for the years ended December 31, 1998 and 1997. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Brauvin Real Estate Fund L.P. 5 and subsidiary at December 31, 1998, and the results of their operations and their cash flows for the years ended December 31, 1998 and 1997 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Chicago, Illinois February 16, 1999 CONSOLIDATED BALANCE SHEET December 31, 1998 ASSETS Investment in real estate: Land $2,111,857 Buildings and improvements 8,543,619 10,655,476 Less accumulated depreciation (3,281,844) Net investment in real estate 7,373,632 Cash and cash equivalents 803,207 Rent receivable (net of an allowance of $24,700) 108,639 Escrow deposits 171,001 Other assets 109,840 Due from affiliates 35,700 Total Assets $8,602,019 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Mortgage notes payable (Note 3) $6,191,254 Accounts payable and accrued expenses 156,158 Tenant security deposits 44,981 Due to affiliates 5,078 Total Liabilities 6,397,471 MINORITY INTEREST IN SABAL PALM JOINT VENTURE 104,327 SHARE OF ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN STRAWBERRY FIELDS JOINT VENTURE (NOTE 6) 352,620 PARTNERS' CAPITAL: General Partners (48,367) Limited Partners (9,914.5 limited partnership units issued and outstanding) 1,795,968 Total Partners' Capital 1,747,601 Total Liabilities and Partners' Capital $8,602,019 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1998 1997 INCOME Rental (Note 5) $1,307,725 $1,281,389 Interest 32,589 26,986 Other, primarily expense reimbursements 176,987 188,995 Total income 1,517,301 1,497,370 EXPENSES Interest 549,292 560,423 Depreciation and amortization 262,426 270,384 Real estate taxes 137,508 135,761 Repairs and maintenance 55,127 47,532 Management fees (Note 4) 90,979 85,464 Other property operating 54,366 64,810 Provision for impairment 1,499,958 -- General and administrative 206,679 229,141 Total expenses 2,856,335 1,393,515 (Loss) income before minority and equity interests (1,339,034) 103,855 Minority interest's share of Sabal Palm's net loss (income) 665,743 (12,412) Equity interest in Strawberry Fields Joint Venture's net loss (888,836) (40,934) Net (loss) income $(1,562,127) $ 50,509 Net (loss) income allocated to the General Partners $ (15,621) $ 505 Net (loss) income allocated to the Limited Partners $(1,546,506) $ 50,004 Net (loss) income Per Limited Partnership Interest (9,914.5 Units) $ (155.98) $ 5.04 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL Years Ended December 31, 1998 and 1997 General Limited Partners Partners Total Balance, January 1, 1997 $(33,251) $3,292,470 $3,259,219 Net income 505 50,004 50,509 Balance, December 31, 1997 (32,746) 3,342,474 3,309,728 Net loss (15,621) (1,546,506) (1,562,127) Balance, December 31, 1998 $(48,367) $1,795,968 $1,747,601 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998 1997 Cash Flows From Operating Activities: Net (loss) income $(1,562,127) $ 50,509 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 262,426 270,384 Provision for doubtful accounts 10,101 25,600 Equity interest in Strawberry Fields Joint Venture's net loss 888,836 40,934 Minority Interest's share of Sabal Palm Joint Venture's net (loss) income (665,743) 12,412 Provision for impairment 1,499,958 -- Changes in: Rent receivable (12,915) (21,796) Escrow deposits (52,248) (60,083) Other assets 30,191 27,926 Due from affiliates -- (29,820) Accounts payable and accrued expenses 45,481 (9,511) Tenant security deposits 1,248 1,366 Due to affiliates (2,871) 5,841 Net cash provided by operating activities 442,337 313,762 Cash Flows From Investing Activities: Capital expenditures (1,320) (4,310) Cash distribution to Minority Partner of Sabal Palm Joint Venture (79,900) (118,910) Cash used by investing activities (81,220) (123,220) Cash Flows From Financing Activities: Repayment of mortgage notes payable (118,303) (3,183,413) Proceeds from refinancing -- 3,200,000 Payment of loan costs -- (55,605) Net cash used in financing activities (118,303) (39,018) Net increase in cash and cash equivalents 242,814 151,524 Cash and cash equivalents at beginning of year 560,393 408,869 Cash and cash equivalents at end of year $803,207 $560,393 Supplemental disclosure of cash flow information: Cash paid for interest $519,910 $533,930 See accompanying notes to consolidated financial statements BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 1998 and 1997 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Brauvin Real Estate Fund L.P. 5 (the "Partnership") was organized on June 28, 1985. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. On August 8, 1997, Mr. Cezar M. Froelich 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 June 28, 1985 and filed a Registration Statement on Form S-11 with the Securities and Exchange Commission which became effective on March 1, 1985. 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 June 28, 1985. The Partnership's offering closed on February 28, 1986. A total of $9,914,500 of Units were subscribed for and issued between March 1, 1985 and February 28, 1986 pursuant to the Partnership's public offering. The Partnership has acquired directly or through joint ventures the land and buildings underlying Crown Point, Strawberry Fields and Sabal Palm shopping centers. 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 Special Purpose Entity The Partnership has one special purpose entity ("SPE"), Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions from the SPE are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of the SPE did not affect the Partnership's economic ownership of the property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. Consolidation of Joint Venture Partnership The Partnership owns a 53% interest in the Sabal Palm Joint Venture which owns Sabal Palm Shopping Center. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and partners' capital of Sabal Palm Joint Venture. The minority interests of the consolidated joint venture is adjusted for the respective joint venture partner's share of income or loss and any cash contributions from or distributions to the joint venture partner, if any. All intercompany items and transactions have been eliminated. Investment in Joint Venture Partnership The Partnership owns a 42% equity interest in a Strawberry Fields Joint Venture (see Note 6). Strawberry Fields is reported as an investment in an affiliated joint venture. The accompanying financial statements include the investment in Strawberry Fields 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 are 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 31.5 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 December 31, 1998 and 1997, except as disclosed below. In the fourth quarter of 1998, the Partnership 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 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 December 31, 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; tenant security deposits and due to/from affiliates. The mortgage notes payable at December 31, 1998 have a fair value of approximately $6,089,600 based upon the current interest rates offered for debt of similar instruments in the market. (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, as defined in the Partnership 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, as such term is defined in the Agreement (the "Preferential Distribution"). 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 years, then the Limited Partners shall be paid such excess Operating Cash Flow until they have 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. The Preferential Distribution Deficiency at December 31, 1998 equaled $11,077,971. (3) MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1998 consist of the following: Interest Date 1998 Rate Due Crown Point Shopping Center (a) $3,045,656 7.55% 1/03 Sabal Palm Square Shopping Center (b) 3,145,598 8.93% 3/02 $6,191,254 Each shopping center serves as collateral under its respective nonrecourse debt obligation. Maturities of the mortgage notes payable are as follows: 1999 $ 128,086 2000 137,877 2001 150,124 2002 3,138,289 2003 2,636,878 $6,191,254 (a) On December 28, 1995, the acquisition loan balance was paid in full when Crown Point was refinanced by NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non- recourse loan with a fixed interest rate of 7.55%, and amortization based on a twenty year term with a maturity of January 1, 2003. As a precondition to the new financing, the Successor Lender required that ownership of the property reside in a single purpose entity ("SPE"). To accommodate the lender's requirements, ownership of the property was transferred to the SPE, Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions of Brauvin/Crown Point L.P. are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of Brauvin/Crown Point L.P. did not affect the Partnership's economic ownership of the Crown Point property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. The carrying value of Crown Point at December 31, 1998 was approximately $4,150,000. (b) On February 19, 1987, the Partnership and its joint venture partner obtained a first mortgage loan in the amount of $3,200,000 from an unaffiliated lender. The loan was payable with interest only at 9.5% per annum until February 1992 and now requires payments of principal and interest based on a 30-year amortization schedule. 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 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. The carrying value of Sabal Palm approximated $3,224,000 at December 31, 1998. (4) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or its affiliates for the years ended December 31, 1998 and 1997 were as follows: 1998 1997 Management fees $ 90,979 $ 85,464 Reimbursable office expenses 92,400 93,091 Legal fees -- 377 The Partnership believes the amounts paid to affiliates are representative of amounts which would have been paid to independent parties for similar services. As of December 31, 1998, the Partnership had made all payments to affiliates, except for management fees of $5,078. An amount of $35,700 due from affiliates at December 31, 1998 represents an advance made to Strawberry Fields. (5) OPERATING LEASES The Partnership is the lessor in operating lease agreements with tenants at its various properties. The minimum future rental income to be received on these operating leases (excluding escalation amounts) is as follows: 1999 $987,976 2000 793,773 2001 687,595 2002 559,867 2003 547,476 Thereafter 2,125,743 Total $5,702,430 Contingent rental income approximated $141,000 and $133,000, in 1998 and 1997, respectively. Collection of future rental income under these lease agreements is subject to the financial stability of the underlying tenants. Minimum rentals received from Food City, the anchor tenant of Crown Point, approximated 19.7% and 20.1% of rental income for the years ended December 31, 1998 and 1997, respectively. Minimum rentals received from Winn Dixie and Walgreens, the anchor tenants of Sabal, approximated 10.9% and 11.1% of rental income and 6.2% and 6.3% of rental income for the years ended December 31, 1998 and 1997, respectively. (6) EQUITY INVESTMENT The Partnership owns a 42% interest in Strawberry Fields Joint Venture, located in West Palm Beach, Florida, and accounts for its investment under the equity method. The following are condensed financial statements for Strawberry Fields Joint Venture: December 31, 1998 Land, building and personal property, net $4,760,592 Other assets 89,461 $4,850,053 Mortgage note payable $5,454,205 Other liabilities 233,848 5,688,053 Partners' capital (838,000) $4,850,053 Years Ended December 31, 1998 1997 Rental income $ 795,811 $ 799,912 Other income 118,960 81,332 914,771 881,244 Mortgage and other interest 464,050 445,595 Depreciation 176,097 201,311 Provision for impairment 2,069,036 -- Operating and administrative expenses 321,865 331,801 3,031,048 978,707 Net loss $(2,116,277) $ (97,463) In the second and fourth quarters of 1998, the joint venture partnership recorded impairments 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 allowance were allocated to land and building based on the original acquisition percentages. EXHIBIT INDEX Exhibit (21) Subsidiaries of the Registrant Exhibit (27) Financial Data Schedule Exhibit 21 Name of Subsidiary State of Formation Brauvin Strawberry Fields Joint Venture Florida Brauvin Sabal Palm Joint Venture Florida Brauvin/Crown Point L.P. Delaware EX-27 2
5 12-MOS DEC-31-1998 DEC-31-1998 803,207 0 108,639 0 0 0 10,655,476 3,281,844 8,602,019 0 6,191,254 0 0 1,747,601 0 8,602,019 0 1,517,301 0 2,307,043 223,093 0 549,292 0 0 0 0 0 0 (1,562,127) 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 "OTHER EXPENSES" REPRESENTS INTEREST IN JOINT VENTURES' NET INCOME/LOSS
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