10QSB 1 0001.txt 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 nine months ended September 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-14481 Brauvin Real Estate Fund L.P. 5 (Name of small business issuer as specified 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 past 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 . BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) INDEX PART I Page Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . 3 Consolidated Statement of Net Assets in Liquidation as of September 30, 2000 (Liquidation Basis) . . . . . . . . 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2000 to September 30, 2000 (Liquidation Basis) . . . . . . . . . . . 5 Consolidated Statements of Operations for the nine months ended September 30, 2000 (Liquidation Basis) and the period January 1, 1999 to July 12, 1999 (Going Concern Basis)and the period July 13, 1999 to September 30, 1999 (Liquidation Basis) . . . . . . . 6 Consolidated Statements of Operations for the three months ended September 30, 2000 (Liquidation Basis) and the period July 1, 1999 to July 12, 1999 (Going Concern Basis)and the period July 13, 1999 to September 30, 1999 (Liquidation Basis) . . . . . . . 7 Consolidated Statement of Cash Flows for the period January 1, 1999 to July 12, 1999 (Going Concern Basis) . . . . . . . . . . . . . . . . . . . 8 Notes to Consolidated Financial Statements . . . . . . . . . 9 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . .20 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .27 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .27 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .27 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .27 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .27 Item 6. Exhibits, and Reports on Form 8-K. . . . . . . . . . . . . .27 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of September 30, 2000 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2000 to September 30, 2000 (Liquidation Basis), Consolidated Statements of Operations for the nine months ended September 30, 2000 (Liquidation Basis) and the period January 1, 1999 to July 12, 1999 (Going Concern Basis) and the period July 13, 1999 to September 30, 1999 (Liquidation Basis), Consolidated Statements of Operations for the three months ended September 30, 2000 (Liquidation Basis) and the period July 1, 1999 to July 12, 1999 (Going Concern Basis) and the period July 13, 1999 to September 30, 1999 (Liquidation Basis), and Consolidated Statements of Cash Flows for the period January 1, 1999 to July 12, 1999 (Going Concern Basis) for Brauvin Real Estate Fund L.P. 5 (the "Partnership") are unaudited but reflect, in the opinion of the management, all adjustments necessary to present fairly the information required. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's 1999 Annual Report on Form 10-KSB. CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF SEPTEMBER 30, 2000 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $ 9,122,690 Cash and cash equivalents 771,276 Tenant receivable (net of an allowance of $167,800) 47,962 Escrow deposits 329,610 Other Assets 32,089 Total Assets $10,303,627 LIABILITIES Mortgage notes payable (Note 4) $ 5,961,145 Accounts payable and accrued expenses 211,532 Deferred gain on sale of real estate (Note 2) 1,815,026 Reserve for estimated costs during the period of liquidation (Note 2) 190,315 Tenant security deposits 29,388 Due to affiliates (Note 5) 6,538 Total Liabilities 8,213,944 MINORITY INTEREST IN SABAL PALM JOINT VENTURE 66,654 SHARE OF ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN STRAWBERRY FIELDS JOINT VENTURE 218,992 Net Assets in Liquidation $ 1,804,037 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS) FOR THE PERIOD JANUARY 1, 2000 TO SEPTEMBER 30, 2000 (Unaudited) Net assets at January 1, 2000 (Liquidation Basis) $1,544,831 Income from operations 259,206 Net assets in liquidation at September 30, 2000 $1,804,037 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS For the nine months ended September 30, 2000 (Liquidation Basis) and the period January 1, 1999 to July 12, 1999 (Going Concern Basis), and the period July 13, 1999 to September 30, 1999 (Liquidation Basis) (Unaudited) (Going (Liquidation (Liquidation Concern Basis) Basis) Basis) Nine Months Period Period Ended July 13, to July 1, to September 30, September 30, July 12, 2000 1999 1999 INCOME Rental $ 864,441 $ 178,250 $779,347 Interest 34,445 6,159 18,798 Other, primarily tenant expense reimbursements 123,111 (2,219) 114,607 Total income 1,021,997 182,190 912,752 EXPENSES Interest 375,215 85,493 314,526 Depreciation -- -- 135,993 Real estate taxes 101,484 22,699 80,432 Repairs and maintenance 22,027 37,184 56,974 Management fees (Note 5) 66,736 14,437 49,425 Other property operating 62,440 12,969 52,441 Provision for impairment -- 12,414 -- General and administrative 167,931 29,151 232,884 Total expenses 795,833 214,347 922,675 Income (loss) before minority and equity interests 226,164 (32,157) (9,923) Minority interest's share of Sabal Palm's net (income) loss (44,446) 32,928 (26,189) Equity interest in Strawberry Fields Joint Venture's net income 77,488 2,502 23,937 Income (loss) before adjustment to liquidation basis 259,206 3,273 (12,175) Adjustment to liquidation basis -- (488,526) -- Net income (loss) $ 259,206 $(485,253) $(12,175) Net income (loss) allocated to the General Partners $ 2,592 $ (4,853) $ (122) Net income (loss) allocated to the Limited Partners $ 256,614 $(480,400) $(12,053) Net income (loss) per Limited Partnership Interest (9,550 units outstanding) $ 25.88 $ (48.45) $ (1.22) See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended September 30, 2000 (Liquidation Basis) and the period July 1, 1999 to July 12, 1999 (Going Concern Basis), and the period July 13, 1999 to September 30, 1999 (Liquidation Basis) (Unaudited) (Going (Liquidation (Liquidation Concern Basis) Basis) Basis) Three Months Period Period Ended July 13, to July 1, to September 30, September 30, July 12, 2000 1999 1999 INCOME Rental $ 257,697 $ 178,250 $ 88,131 Interest 12,564 6,159 2,305 Other, primarily tenant expense reimbursements 89,907 (2,219) 16,399 Total income 360,168 182,190 106,835 EXPENSES Interest 124,907 85,493 44,668 Depreciation -- -- 19,378 Real estate taxes 33,829 22,699 11,678 Repairs and maintenance 5,672 37,184 42,267 Management fees (Note 5) 22,673 14,437 4,490 Other property operating 20,308 12,969 8,325 Provision for impairment -- 12,414 -- General and administrative 66,697 29,151 43,236 Total expenses 274,086 214,347 174,042 Income (loss) before minority and equity interests 86,082 (32,157) (67,207) Equity interest's share of Strawberry Fields Joint Venture's net income (loss) 26,317 2,502 (2,839) Minority interest in Sabal Palm Joint Venture's net (income) loss (6,856) 32,928 5,929 Income (loss) before adjustment to liquidation basis 105,543 3,273 (64,117) Adjustment to liquidation basis -- (488,526) -- Net income (loss) $ 105,543 $(485,253) $ (64,117) Net income (loss) allocated to the General Partners $ 1,055 $ (4,853) $ (641) Net income (loss) allocated to the Limited Partners $ 104,488 $(480,400) $ (63,476) Net income (loss) per Limited Partnership Interest (9,550 units outstanding) $ 10.54 $ (48.46) $ (6.40) See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS For the period January 1, 1999 to July 12, 1999 (GOING CONCERN BASIS) (Unaudited) Cash Flows From Operating Activities: Net loss $ (12,175) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 135,993 Provision for doubtful accounts 93,200 Equity interest in Strawberry Fields Joint Venture's net (income) loss (23,937) Minority Interest's share of Sabal Palm Joint Venture's net income 26,189 Changes in: Rent receivables (134,034) Other assets (4,983) Escrow deposits (79,306) Accounts payable and accrued expenses 52,911 Due to affiliates 1,135 Tenant security deposits (6,288) Net cash provided by operating activities 48,705 Cash Flows From Investing Activities: Cash distribution to Minority Partner of Sabal Palm Joint Venture (67,680) Cash used in investing activities (67,680) Cash Flows From Financing Activities: Repayment of mortgage notes payable (74,198) Net cash used in financing activities (74,198) Net decrease in cash and cash equivalents (93,173) Cash and cash equivalents at beginning of period 803,207 Cash and cash equivalents at end of period $ 710,034 Supplemental disclosure of cash flow information: Cash paid for interest $ 298,094 See accompanying notes to consolidated financial statements. (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. Basis of Presentation As a result of the July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties the Partnership has begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. Accordingly, the carrying value of the assets is presented at estimated net realizable amounts and all liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets as of September 30, 2000. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Prior to the preparation of the financial statements on the liquidation basis, rental income was recognized on a straight line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements were credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the financial statements. Consolidation of 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 (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 at estimated net realizable value using the equity method of accounting on a liquidation basis. Investment in Real Estate Prior to the preparation of the financial statements on the liquidation basis, the operating properties acquired by the Partnership were stated at cost including acquisition costs, leasing commissions, tenant improvements and net of impairment. Depreciation and amortization expense was computed on a straight-line basis over approximately 31.5 years and the term of the applicable leases, respectively. All of the Partnership's properties are subject to liens under first mortgages (see Note 4). The Partnership records impairment to reduce the cost basis of real estate to its estimated fair value when the real estate is judged to have suffered an impairment that is other than temporary. The Partnership has performed an analysis of its long-lived assets, and the Partnership's management determined that there were no events or changes in circumstances that indicated that the carrying amount of the assets may not be recoverable at September 30, 2000, except as disclosed below. In the fourth quarter of 1998, the Partnership recorded impairment of $1,499,958 related to an other than temporary decline in the value of real estate for the Sabal Palm Joint Venture. This impairment 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, "Disclosures About Fair Value of Financial Instruments". The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of September 30, 2000, but may not necessarily be indicative of the amounts that the Partnership could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In connection with the adoption of the liquidation basis of accounting, assets were adjusted to net realizable value and liabilities were adjusted to estimated settlement amounts, which approximates their fair value at September 30, 2000. (2) ADJUSTMENT TO LIQUIDATION BASIS On July 12, 1999, in accordance with the liquidation basis of accounting, assets were adjusted to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The net adjustment required to convert from the going concern (historical cost) basis to the liquidation basis of accounting was a decrease in assets of $300,940 which was included in the December 31, 1999 statement of changes in net assets in liquidation. Significant changes in the carrying value of assets and liabilities are summarized as follows: Increase in real estate held for sale (a) $1,707,775 Reduction to investment in real estate (12,414) Write-off of deferred rent receivable (5,984) Write-off of mortgage costs (92,227) Increase in deferred gain on sale of real estate (1,707,775) Estimated liquidation costs (190,315) Total adjustment to liquidation basis $ (300,940) (a) Net of estimated closing costs. In 2000, the Partnership decided, in an effort to attract more buyers for the Crown Point Shopping Center, to build out certain vacant space. The cost of approximately $82,440 increased real estate held for sale. As of September 30, 2000, the Partnership adjusted its investment in real estate to an offer that was presented for the sale of Sabal Palm. The effect of this adjustment was an increase in the real estate held for sale of $107,250 and an increase in the deferred gain on the sale of real estate of $107,250. (3) PARTNERSHIP AGREEMENT The Partnership Agreement (the "Agreement") provides that 99% of the net profits and losses from operations of the Partnership for each fiscal year shall be allocated to the Limited Partners and 1% of net profits and losses from operations shall be allocated to the General Partners. The net profit of the Partnership from the sale or other disposition of a Partnership property shall be allocated as follows: first, there shall be allocated to the General Partners the greater of: (i) 1% of such net profits; or (ii) the amount distributable to the General Partners as Net Sale Proceeds from such sale or other disposition, 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 September 30, 2000 equaled $12,813,012. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at September 30, 2000 consist of the following: Interest Date 2000 Rate Due Crown Point Shopping Center (a) $2,881,842 7.55% 1/03 Sabal Palm Square Shopping Center (b) 3,079,303 8.93% 4/02 $5,961,145 Each shopping center serves as collateral under its respective nonrecourse debt obligation. Maturities of the mortgage notes payable are as follows: 2000 $ 35,870 2001 150,124 2002 3,138,251 2003 2,636,900 $5,961,145 (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 September 30, 2000 was approximately $5,865,190. (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 then required 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. On August 7, 2000 the Partnership was given official notice that Walgreens will vacate the space prior to their lease termination of April 30, 2025. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. The carrying value of Sabal Palm approximated $3,257,500 at September 30, 2000. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or its affiliates for the nine months ended September 30, 2000 and 1999 were as follows: 2000 1999 Management fees $66,736 $63,862 Reimbursable office expenses 67,973 59,426 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 September 30, 2000, the Partnership had made all payments to affiliates, except for management fees of $6,538. (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: (Liquidation Basis) September 30, 2000 Real estate held for sale $5,197,750 Other assets 144,949 5,342,699 Mortgage note payable 5,165,192 Deferred gain on the sale of real estate 529,110 Other liabilities 168,234 5,862,536 Net liabilities in liquidation $ 519,837 (Liquidation (Liquidation (Going Basis) Basis) Concern Basis) For the Nine Period Period Months Ended July 13, to January 1, September 30, September 30, to July 12, 2000 1999 1999 Rental income $618,561 $131,774 $457,095 Interest income -- - 89 Other income 52,759 (8,192) 48,653 671,320 123,582 505,837 Mortgage and other interest 274,193 62,239 220,647 Depreciation -- -- 91,952 Operating and administrative expenses 212,633 81,824 136,245 486,826 144,063 448,844 Net income (loss) $184,494 $(20,481) $ 56,993 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 impairments were allocated to land and building based on the original acquisition percentages. As of March 31, 2000, the joint venture partnership adjusted its investment in real estate. The effect of this adjustment was a reduction in the real estate held for sale of $80,000, and a reduction in the deferred gain on the sale of real estate of $80,000. The joint venture partnership received three bids on this property during the latter part of 1999. After negotiation the joint venture partnership accepted the high bid of $5.43 million and entered into a contract for sale. However, the prospective purchaser terminated its interest in the property during its due diligence period. Subsequent to this deal falling away the joint venture partnership received another offer for $5.35 million. However, although the offer exceeds the November, 1998 appraised value of $4.8 million, the offer, after transaction costs, is below the current mortgage balance of $5.209 million. The joint venture partnership accepted the initial high bid in part because the property's underlying mortgage loan was coming due; and the lender indicated that it would not extend the maturity. However, in the second quarter of this year, the joint venture partnership was successful in extending the loan for a two year period. This extension will allow us to continue to market the property and seek a greater sales price. The Parnership does not anticipate that the ultimate sales price will be significantly different than the offers received to date. Item 2. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Quarterly Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as "anticipates", "expects", "intends", "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Year 2000 The "Year 2000" problem concerned the inability of computer technology systems to correctly identify and process date sensitive information beyond December 31, 1999. Many computers automatically add the "19" prefix to the last two digits the computer reads for the year when date information is needed in computer software programs. Thus when a date beginning on January 1, 2000 is entered into a computer, the computer may interpret this date as the year "1900" rather than "2000". The computer information technology systems which support the Partnership consist of a network of personal computers linked to a server built using hardware and software from mainstream suppliers. These systems do not have equipment that contains embedded microprocessors, which may also pose a potential Year 2000 problem. Additionally, there is no internally generated software coding to correct as all of the software is purchased and licensed from external providers. The Partnership utilizes two main software packages that contain date sensitive information, (i) accounting and (ii) investor relations. In 1997, a program was initiated and completed to convert from the existing accounting software to a new software program that is Year 2000 compliant. In 1998, the investor relations software was also updated to a new software program that is Year 2000 compliant. All costs associated with these conversions were expensed by the Partnership as incurred, and were not material. Management does not believe that any further expenditures will be necessary for the systems to be Year 2000 compliant. However, additional personal computers may be purchased from time to time to replace existing machines. Also in 1997, management of the Partnership initiated formal communications with all of its significant third party vendors, service providers and financial institutions to determine the extent to which the Partnership is vulnerable to those third parties failure to remedy their own Year 2000 issue. There can be no guarantee that the systems of these third parties were converted and will not have an adverse effect on the Partnership. The Partnership has not experienced any material adverse impact on its operations or its relationships with tenants, vendors or others. Liquidity and Capital Resources The Partnership intends to satisfy its short-term liquidity needs through cash flow from the properties. Mortgage notes payable are expected to be satisfied through property sales. The anchor tenant at Crown Point is Food City. The overall occupancy level at Crown Point decreased to 85% at September 30, 2000 when compared to 94% at September 30, 1999. The Partnership is continuing to work to improve 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 Partnership has received two offers for the Crown Point property. The prices were $4.45 million and $4.6 million. These offers compare to the November, 1998 appraisal of $5.95 million and the current outstanding mortgage of $2.9 million. We have not accepted either of the offers given that they were more than $1.3 million less than our appraised value. We believe that a contributing factor in the low offers we have received is that a significant tenant that occupied approximately 17% of the center vacated during the end of 1999. We believe this drop in occupancy is reflected in the two offers received. In order to combat this development, the Partnership reconfigured the vacated space into three smaller units. One of the units has since been leased and we are currently marketing the other two spaces. Once these have been released, we anticipate we will receive more attractive offers. The Strawberry Fields 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 overall occupancy level at Strawberry Fields decreased from 92% at September 30, 1999 to 89% at September 30, 2000. The Strawberry Fields Joint Venture is aggressively marketing the vacant space having engaged a prominent local brokerage firm to assist the Strawberry Fields Joint Venture's on-site leasing representative in the marketing of the shopping center. On September 18, 1995, the Strawberry Fields 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 Fields Joint Venture and the Strawberry Lender agreed to modify and extend the first mortgage loan. As of October 1, 1998 and through the extended maturity date, May 1, 2000, the interest rate has been reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. The outstanding mortgage balance encumbered by the property was $5,165,192 at September 30, 2000. 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. We received three bids on the Strawberry Fields Shopping Center during the latter part of 1999. After negotiation the joint venture partnership accepted the high bid of $5.43 million and entered into a contract for sale. However, the prospective purchaser terminated its interest in the property during its due diligence period. Subsequent to this deal falling away the joint venture partnership received another offer for $5.35 million. However, although the offer exceeds the November, 1998 appraised value of $4.8 million, the offer, after transaction costs, is below the current mortgage balance of $5.209 million. The joint venture partnership accepted the initial high bid in part because the property's underlying mortgage loan was coming due; and the lender indicated that it would not extend the maturity. However, in the second quarter of this year, the joint venture partnership was successful in extending the loan for a two year period. This extension will allow us to continue to market the property and seek a greater sales price. We do not anticipate that the ultimate sales price will be significantly different than the offers received to date. The Partnership owns a 42% joint venture interest in this property. At Sabal Palm, the Partnership and its joint venture partner are working to improve the economic occupancy level of Sabal Palm which stood at 86% as of September 30, 2000. Although the Sabal Palm retail market appears to be overbuilt, the economic 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. On August 7, 2000 the Partnership was given official notice that Walgreens will vacate the space prior to their lease termination of April 30, 2025. 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 total, we have received six offers on the Sabal Palm Square property from unaffiliated parties ranging in price from $2.5 million to $3.4 million. After negotiation the Partnership accepted the highest offer and completed negotiating the sale contract in June. The buyer had a 60 day due diligence period. The buyer terminted the contract within the due diligence period. In September 2000, Sabal Palm completed negotiating a new contract for the sale of the property. The new sale price is $3,360,000. The $3.36 million sales price compares to the November 1998 appraised value of $3.25 million. The current mortgage balance on the property is approximately $3.079 million. The potential purchaser has a 60 day due diligence period. The Partnership owns a 53% joint venture interest in this property. 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 were transferred. On May 12, 1999, 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 $170 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 expire on June 25, 1999. As a result of this unsolicited tender offer approximately 777 economic interests in the Partnership were transferred. The General Partners remained neutral as to the particular merits or risks associated with the tender offers to the Limited Partners. The General Partners believed an informed determination of the true value of the Units could be made after the receipt of the appraisals. The General Partners cautioned that the ultimate amount actually received by each Limited Partner will be affected by items including, but not limited to, the timing of the liquidation of the assets, changes in market conditions, necessary Partnership reserves and the sales prices that can be negotiated. The General Partners further informed the Limited Partners that, for those investors who are primarily interested in liquidating their Units immediately, the tender offer provided such an opportunity. The General Partners determined to pursue the disposition of the Partnership's assets. In 1999, the Partnership solicited and received the votes of the Limited Partners to approve a sale of all of the Partnership's properties, either on an individual or group basis, and to subsequently liquidate the Partnership. The solicitation, which was approved by the Limited Partners in the third quarter of 1999, stated that the Partnership's properties may be sold individually or in any combination provided that the total sales price for the properties included in the transaction equals or exceeds 70% of the aggregate appraised value for such properties, which valuation was conducted by an independent third party appraisal firm. The Partnership intends to sell the properties under a closed bid process which will include identification of target buyers with proven financing ability and performance of certain evaluations of the properties, such as environmental testing. Potential buyers will be requested to sign confidentiality agreements to safeguard the Partnership's confidential proprietary information. The General Partners have determined that each bid must be all cash, completely unconditional and accompanied by a substantial deposit. To date over 250 potential purchasers have been contacted regarding the sale of the properties. Of those contacted, approximately 120 potential buyers have registered to receive packages on one or more of the properties. In addition, the properties are listed on the Internet at Loopnet.com, the largest commercial real estate website in the nation. Please be assured that we are seeking to both maximize the value of the assets and to sell them and liquidate the Partnership as soon as possible. As a result of this authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership has begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. Accordingly, the carrying value of the assets is presented at estimated net realizable amounts and all liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets as of September 30, 2000. 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 - Nine months ended September 30, 2000 (Liquidation Basis) and the period January 1 to July 12, 1999 As a result of the Partnership's adoption of the liquidation basis of accounting, and in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. Prior to the adoption of the liquidation basis of accounting, the Partnership recorded rental income on a straight line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements were credited or charged, as applicable, to deferred rent receivable. Upon adoption of the liquidation basis of accounting, the Partnership wrote off the remaining deferred rent receivable and ceased recording credits or charges to rental income to reflect straight lining of the related leases. Prior to the adoption of the liquidation basis of accounting depreciation was recorded on a straight line basis over the estimated economic lives of the properties. Upon the adoption of the liquidation basis of accounting, real estate held for sale was adjusted to estimated net realizable value and no depreciation expense has been recorded. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters To a Vote of Security Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports on Form 8-K. Exhibit 27. Financial Data Schedule SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 5 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: November 14, 2000 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: November 14, 2000