10QSB 1 f5.txt BRAUVIN REAL ESTATE FUND 5 10-QSB 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, 2002 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, 2002 (Liquidation Basis) . . . . . . . . 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2002 to September 30, 2002 (Liquidation Basis) . . . . . . . . . . . 5 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2001 to September 30, 2001 (Liquidation Basis) . . . . . . . . . . . 6 Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001 (Liquidation Basis). . . . . . . . . . . . . . . . . . . . . 7 Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001 (Liquidation Basis). . . . . . . . . . . . . . . . . . . . . 8 Notes to Consolidated Financial Statements . . . . . . . . . 9 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . .20 Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . .28 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .29 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .29 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .29 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .29 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .29 Item 6. Exhibits, and Reports on Form 8-K. . . . . . . . . . . . . .29 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of September 30, 2002 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2002 to September 30, 2002 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2001 to September 30, 2001 (Liquidation Basis), Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001 (Liquidation Basis) and Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001 (Liquidation 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership's 2001 Annual Report on Form 10-KSB. CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF SEPTEMBER 30, 2002 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $3,028,375 Cash and cash equivalents 3,053,774 Tenant receivable (net of an allowance of $350) 23,937 Escrow deposits 442,458 Other assets 383 Total Assets 6,548,927 LIABILITIES Mortgage notes payable (Note 4) 2,988,363 Accounts payable and accrued expenses 155,567 Deferred gain on sale of real estate (Note 2) -- Reserve for estimated costs during the period of liquidation 190,315 Tenant security deposits 17,461 Due to affiliates (Note 5) 13,760 Total Liabilities 3,365,466 MINORITY INTEREST IN SABAL PALM JOINT VENTURE 177,777 SHARE OF ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN STRAWBERRY FIELDS JOINT VENTURE 1,359 Net Assets in Liquidation $3,004,325 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2002 TO SEPTEMBER 30, 2002 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2002 $2,364,416 Income from operations 121,112 Gain on sale of property 518,797 Net assets in liquidation at September 30, 2002 $3,004,325 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2001 TO SEPTEMBER 30, 2001 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2001 $1,908,750 Net income 429,714 Net assets in liquidation at September 30, 2001 $2,338,464 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 LIQUIDATION BASIS (Unaudited) 2002 2001 INCOME Rental $ 651,628 $831,895 Lease termination fee 300,000 -- Interest 11,351 24,942 Other, primarily tenant expense reimbursements 91,893 105,747 Total income 1,054,872 962,584 EXPENSES Interest 322,619 365,868 Real estate taxes 91,180 102,294 Repairs and maintenance 138,046 54,772 Management fees (Note 5) 47,771 57,934 Other property operating 89,445 58,324 Bad debt (recovery) expense (40,207) 27,600 General and administrative 243,905 187,666 Total expenses 892,759 854,458 Income before minority and equity interests 162,113 108,126 Minority interest's share of Sabal Palm's net (loss) income (41,001) 62,342 Equity interest in Strawberry Fields Joint Venture's net income -- 373,613 Income before adjustment to liquidation basis and sale of property 121,112 544,081 Adjustment to liquidation basis -- (114,367) Gain on sale of property 518,797 -- Net income $ 639,909 $429,714 Net income allocated to the General Partners $ 6,399 $ 4,297 Net income allocated to the Limited Partners $ 633,510 $425,417 Net income per Limited Partnership Interest (9,914.5 units outstanding) $ 63.90 $ 42.91 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 LIQUIDATION BASIS (Unaudited) 2002 2001 INCOME Rental $144,009 $256,787 Interest 8,199 5,575 Other, primarily tenant expense reimbursements 17,508 35,559 Total income 169,716 297,921 EXPENSES Interest 85,411 121,953 Real estate taxes 21,709 34,986 Repairs and maintenance 119,378 16,511 Management fees (Note 5) 9,934 17,160 Other property operating 20,023 17,802 Bad debt expense 3,725 27,100 General and administrative 87,290 81,838 Total expenses 347,470 317,350 Loss before minority and equity interests (177,754) (19,429) Minority interest's share of Sabal Palm's net income 63,104 64,361 Equity interest in Strawberry Fields Joint Venture's net income -- 312,557 (Loss) income before adjustment to liquidation basis and sale of property (114,650) 357,489 Adjustment to liquidation basis -- (114,367) Gain on sale of property 518,797 Net income $404,147 $243,122 Net income allocated to the General Partners $ 4,041 $ 2,431 Net income allocated to the Limited Partners $400,106 $240,691 Net income per Limited Partnership Interest (9,914.5 units outstanding) $ 40.36 $ 24.28 See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The financial statements consolidate the accounts of Brauvin Real Estate Fund L.P. 5 (the "Partnership") and joint ventures in which the Partnership has a 50% interest or greater. Additionally, the Partnership has a 42% interest in another joint venture which is accounted for using the equity method of accounting. 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. Properties acquired by the Partnership either directly or indirectly through joint ventures are: (a) Crown Point (which was sold in July 2002), (b) Strawberry Fields (which was sold in July 2001) and (c) Sabal Palm Shopping Center. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation As a result of the July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership has begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on the liquidation basis of accounting. Accordingly, the carrying values of the assets are presented at their estimated net realizable values and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of financial statements on the liquidation basis of accounting 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 consolidated statement of net assets as of September 30, 2002. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. 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. The creation of the SPE did not affect the Partnership's economic ownership of the property. On July 2, 2002, Crown Point which was owned by the SPE was sold for a contract price of $4,800,000, net proceeds to the Partnership, after repayment of the mortgage and costs of the sale, were approximately $1,981,000. 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 include 100% of the assets, liabilities, operations and partners' capital of Sabal Palm Joint Venture. The minority interest 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 Brauvin Real Estate Fund L.P. 4 ("BREF 4"). All significant intercompany balances and transactions have been eliminated. Investment in Joint Venture The Partnership owns a 42% equity interest in Strawberry Fields Joint Venture which until the property was sold in July 2001, owned Strawberry Fields (Note 6). 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 of accounting, the operating properties acquired by the Partnership were stated at cost, including acquisition costs, leasing commissions, and tenant improvements, and net of impairment losses. Depreciation and amortization expense were 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). Subsequent to the adoption of the liquidation basis of accounting (see Note 2), the Partnership adjusted its investment in real estate to estimated net realizable value, which is recorded as real estate held for sale. Additionally, the Partnership suspended recording any further depreciation expense. 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. The Partnership maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. Management believes the Partnership is not exposed to any significant credit risk related to cash or cash equivalents. 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, 2002, 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 their net realizable values and liabilities were adjusted to estimated settlement amounts, which approximate their fair value at September 30, 2002. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as assets and liabilities in the balance sheet and be measured at fair value. SFAS 133 also requires changes in fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of the derivatives. In June, 2000, the FASB issued SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivatives and certain hedging activities. SFAS 133 and SFAS 138 were adopted by the Partnership effective January 1, 2001. The adoption of SFAS 133 and SFAS 138 did not have an impact on the financial position, results of operations and cash flows of the Partnership. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which was effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which was effective for years beginning after June 15, 2002. SFAS requires recognition of a liability and associated asset for the fair value of costs arising from legal obligations associated with the retirement of tangible long-lived assets. The asset is to be allocated to expense over its estimated useful life. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which was effective for fiscal years beginning after December 15, 2001. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 144 retains the recognition and measurement requirements of SFAS 121, but resolves significant SFAS 121 implementation issues. In addition, it applies to a segment of a business accounted for as a discontinued operation (which was formerly covered by portions of Accounting Principles Board Opinion No. 30). The Partnership does not believe that the adoption of SFAS 141, 142, 143 and 144 has a significant impact on its financial statements. (2) ADJUSTMENT TO LIQUIDATION BASIS On July 12, 1999, in accordance with the liquidation basis of accounting, assets were adjusted to their estimated net realizable values and liabilities were adjusted to their estimated settlement amounts, including estimated costs associated with carrying out the liquidation. In the second quarter of 2001, the Partnership recorded reductions in real estate held for sale and deferred gain of $259,350 related to an other than temporary decline in the value of real estate for the Crown Point property. In the third quarter of 2001, the Partnership recorded a reduction in real estate held for sale and an increase in the adjustment to liquidation basis in the amount of $114,367 related to an other than temporary decline in the value of real estate for the Sabal Palm property. In the fourth quarter of 2001, the Partnership recorded a reduction in real estate held for sale and an increase in the adjustment to liquidation basis in the amount of $7,508 related to an other than temporary decline in the value of real estate for the Sabal Palm property. In the fourth quarter of 2001, the Partnership recorded a reduction in real estate held for sale and deferred gain of $438,750 related to an other than temporary decline in the value of real estate for the Crown Point property. As a result of the contract for sale of Crown Point(which was sold in July, 2002), the Partnership's investment in real estate held for sale and the deferred gain on sale of real estate were each increased $21,692 in the second quarter of 2002. In July, 2002 the Partnership's investment in real estate held for sale and the deferred gain on the sale or real estate were reduced by $4,683,192 and $525,777, respectively as a result of the Crown Point sale. (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 been paid any unpaid Preferential Distribution Deficiency from prior years. Net Sale Proceeds, as defined in the Agreement, received by the Partnership shall be distributed as follows: (a) first, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to the amount of their Adjusted Investment; (b) second, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to any unpaid Preferential Distribution Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to the Limited Partners, and the remaining 15% of the Net Sale Proceeds to the General Partners. The Preferential Distribution Deficiency at September 30, 2002 equaled $14,795,916. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at September 30, 2002 consist of the following: Interest Date Rate Due Crown Point Shopping Center (a) $ -- Sabal Palm Square Shopping Center (b) 2,988,363 8.93% 4/03 $2,988,363 Sabal Palm Square Shopping Center serves as collateral under its respective nonrecourse debt obligation. Maturities of the mortgage notes payable are as follows: 2002 $ 16,466 2003 2,971,897 $2,988,363 (a) On December 28, 1995, the acquisition loan was paid in full when the Crown Point loan 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 20-year term with a maturity of January 1, 2003. As a precondition to the 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 consolidated financial statements of the Partnership. On July 2, 2002, Crown Point was sold for a contract price of $4,800,000 and the mortgage was paid in full. (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, 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 was scheduled to mature 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 second quarter of 1998, Winn-Dixie vacated its space at the center. Winn-Dixie failed to timely pay its rental obligation for November and December 2001 and January through March 2002. On August 7, 2000, Sabal Palm was given notice that Walgreens will vacate the space prior to its lease termination of April 30, 2005. Walgreens has moved out, however, it remains liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens have reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture has entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In April 2002, the joint venture and the lender agreed to a twelve month extension of the existing loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee. As a requirement of the extension, the joint venture and the lender agreed to use the proceeds from the termination to redemize the former Winn-Dixie space into three spaces as well as certain other improvements to the center. The joint venture has signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Due to the nonpayment of Winn-Dixie's rental obligations, the joint venture did not make its mortgage payments for Sabal Palm in November and December 2001 and January through March 2002 thus resulting in a default on its loan. However, the lender took no foreclosure action and the twelve month extension (as detailed above) with the lender included the joint venture's payment of all past due amounts thus curing the default. The carrying value of Sabal Palm approximated $3,028,000 at September 30, 2002. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or their affiliates for the nine months ended September 30, 2002 and 2001 were as follows: 2002 2001 Management fees $47,771 $57,934 Reimbursable office expenses 74,935 67,957 As of September 30, 2002, the Partnership had made all payments to affiliates, except for a deposit error of $12,224 and management fees of $1,536. (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: September 30, 2002 (Liquidation Basis) Other assets $ 337 Other liabilities 2,000 Net liabilities in liquidation $1,663 For the nine months ended September 30,2001 (Liquidation Basis) Rental income $ 458,587 Other income 782,538 1,241,125 Mortgage and other interest 197,377 Operating and administrative expenses 154,191 351,568 Net income $ 889,557 In 2001, the joint venture received an offer to purchase Strawberry Fields for $5.585 million. In addition, Syms (a tenant at Strawberry Fields) exercised its right of first refusal on the sale of the property. Accordingly, the joint venture executed a purchase and sale agreement with Syms for $5.585 million in the second quarter of 2001. On July 20, 2001, Strawberry Fields was sold to Syms for the contract price. At closing, the Strawberry Fields Joint Venture received net sales proceeds of approximately $299,000. 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. 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. 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 General Partners have 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. In 2001, over 1,000 potential investors were contacted regarding the sale of the properties. Of this group, approximately 180 became registered potential buyers for the properties. Combined with prior periods, there have been approximately 300 potential buyers. In addition, the properties are listed on the Internet at Loopnet.com, the largest commercial real estate website in the nation. Subsequent to the end of the second quarter, the Partnership engaged a new brokerage firm to assist in the marketing of the Partnership's properties for sale. The brokerage firm is national in scope and one of the largest real estate investment brokers in the country. The terms of the engagement are substantially similar to the terms previously negotiated. Property Status Crown Point The anchor tenant at Crown Point is Food City. The overall occupancy level at Crown Point was 89% at September 30, 2002 and 91% at September 30, 2001. On December 28, 1995, the loan balance of the acquisition financing was paid in full when Crown Point 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 carrying value of this property on December 31, 2001 was approximately $4,662,000 based on the purchase contract price of $4,800,000. This contract was executed on February 1, 2002 and is subject to a 45 day due diligence period. In March 2002, the proposed purchaser requested and the Partnership granted an extension of the proposed purchaser's due diligence. The property was sold July 2, 2002 for a contract price of $4,800,000. After repayment of the mortgage and related sales costs the Partnership received approximately $1,981,000 in net sales proceeds. Strawberry Fields Joint Venture In 2001, the Strawberry Fields Joint Venture received an offer to purchase Strawberry Fields for $5.585 million. In addition, Syms exercised its right of first refusal on the sale of the property. Accordingly, the Strawberry Fields Joint Venture executed a purchase and sale agreement with Syms for $5.585 million in the second quarter of 2001. On July 20, 2001, Strawberry Fields was sold to Syms for the contract price. At closing, the Strawberry Joint Venture received net sales proceeds of approximately $299,000. Sabal Palm Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On June 30, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan") secured by its real estate, from NationsBanc Mortgage Capital Corporation. The First Mortgage Loan bears interest at the rate of 8.93% per annum, is amortized over a 25-year period, requires monthly payments of principal and interest of approximately $26,700 and was scheduled to mature 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 second quarter of 1998, Winn-Dixie vacated its space at the center. Winn-Dixie failed to timely pay its rental obligation for November and December 2001 and January through March, 2002. On August 7, 2000, Sabal Palm was given notice that Walgreens will vacate the space prior to its lease termination of April 30, 2005. Walgreens has moved out, however, it remains liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens have reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture has entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In total, Sabal Palm has received six offers on the property ranging in price from $2.2 million to $3.4 million. As a result of the two anchor spaces prior vacancy and recent transition representing more than 55,000 square feet of space or 62% of the property, Sabal Palm has proved very difficult to sell. The Partnership is continuing to market this property for sale. The Partnership's replacing Winn-Dixie and redemizing of the anchor space is requiring a substantial investment by the Partnership into the property. This investment has been evaluated on the benefits to the Partnership including the increased potential value to the Partnership and the likelihood that the property will be sold sooner. As a result of Winn-Dixie's lease default, in the third quarter of 2001, Sabal Palm recorded an adjustment to liquidation basis of $114,367 related to an other than temporary decline in the value of real estate for Sabal Palm. In the fourth quarter of 2001, Sabal Palm recorded a further adjustment to liquidation basis of $7,508 related to an other than temporary decline in the value of real estate at Sabal Palm. In April 2002, the joint venture and the lender agreed to a twelve month extension of the existing loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee. As a requirement of the extension, the joint venture and the lender agreed to use the proceeds from the termination to redemize the former Winn-Dixie space into three spaces as well as certain other improvements to the center. The joint venture has signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Due to the nonpayment of Winn-Dixie's rental obligations, the joint venture did not make its mortgage payments for Sabal Palm in November and December 2001 and January through March 2002 thus resulting in a default on its loan. However, the lender took no foreclosure action and the twelve month extension (as detailed above) with the lender included the joint venture's payment of all past due amounts thus curing the default. As a result of the July 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 the liquidation basis of accounting. Accordingly, the carrying values of the assets are presented at net realizable values and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on the liquidation basis of accounting 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 consolidated statement of net assets as of September 30, 2002. 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. In particular, the retenanting of Sabal Palm, if successful, will require an additional capital investment by the Partnership. On June 20, 2001, the Partnership received an unsolicited tender offer to purchase up to 4,950 of the outstanding Units for $100 per Unit. The offer was made by a group that currently beneficially owns the economic interests with respect to approximately 14.5% of the outstanding Units. The offer period expired on August 17, 2001. Subsequent to August 17, 2001 the tender offer was increased to $120 per unit and the term was extended to October 1, 2001. As of October 1, 2001, 404 economic interests were transferred as a result of this tender offer. Upon completion of the Offer, the purchasers held an aggregate of 1,842 economic interests, or approximately 19% of the outstanding total Units. The General Partners remained neutral as to the particular merits or risks associated with the tender offer. 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 were primarily interested in liquidating their Units immediately, the tender offer provided such an opportunity. 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 conditions have generally adversely impacted the Partnership's property economics. Rental and occupancy rates have generally been less than they were when the properties were acquired. 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 - Nine months ended September 30, 2002 and 2001 (Liquidation Basis) 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. The Partnership generated net income of $640,000 for the period ended September 30, 2002 as compared to net income of $430,000 for the same period in 2001. The $210,000 increase was mainly the result of a $519,000 gain on the sale of Crown Point in July 2002, partially offset by an increase of $103,000 in minority interests share of Sabal Palm's net income and a decrease of $374,000 in the Partnership's equity interest in Strawberry Fields Shopping Center's net income (primarily as a result of its sale in July 2001). Total income for the period ended September 30, 2002 was $1,055,000 as compared to $963,000 for the same period in 2001. The $92,000 increase in total income was primarily a result of a $300,000 increase in lease termination fees partially offset by a $180,000 decrease in rental income, a $14,000 decrease in interest income and a $14,000 decrease in other income. The increase in termination fees is the result of a lease termination at the Sabal Palm property. Rental income decreased primarily as a result of the sale of the Crown Point property in July 2002. The decline in interest income is associated with a decline in interest rates on the Partnership's investments. Total expenses for the period ended September 30, 2002 were $893,000 as compared to $854,000 for the same period in 2001. The $39,000 increase in expense is the result of an increase in repairs and maintenance of $83,000 and an increase in general and administrative expense of $56,000. Partially offsetting these increases in expenses was a decrease in bad debt expense of $68,000 and a decrease in interest expense of $43,000. Repairs and maintenance expense increased as a result of getting Sabal Palm ready for Sav A Lot's occupancy. General and administrative expense increased mainly due to legal fees associated with the termination of the Winn-Dixie lease at Sabal Palm. Bad debt expense decreased as a result of the collection of an allowance for certain tenant items that had been previously estimated to be uncollectible. Interest expense decreased primarily relating to the repayment of the Crown Point mortgage upon the sale of the property. Results of Operations - Three months ended September 30, 2002 and 2001 (Liquidation Basis) 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. The Partnership generated net income of $404,000 for the period ended September 30, 2002 as compared to net income of $243,000 for the same period in 2001. The $161,000 increase was mainly the result of a $519,000 gain on the sale of Crown Point in July 2002, partially offset by a decrease of $313,000 in the Partnership's equity interest in Strawberry Fields Shopping Center's net income (primarily as a result of its sale in July 2001). Total income for the three months ended September 30, 2002 was $170,000 as compared to $298,000 for the same period in 2001. The $128,000 decrease in total income was primarily a result of a $113,000 decrease in rental income and a $18,000 decrease in other tenant income. Rental income and other tenant income decreased primarily as a result of a decline in rents from Crown Point as a result of its sale in July 2002. Total expenses for the three months ended September 30, 2002 were $347,000 as compared to $317,000 for the same period in 2001. The $30,000 increase in expense is a result of an increase in repairs and maintenance expense of $103,000 partially offset by a decrease of $37,000 in interest expense, a decrease of $23,000 in bad debt expense and a decrease of $13,000 in real estate tax expense. Repairs and maintenance expense increased as a result of getting Sabal Palm ready for Sav A Lot's occupancy. Interest expense decreased primarily relating to the repayment of the Crown Point mortgage upon the sale of the property. Bad debt expense decreased as result of a lower level of aged receivables that appear to be uncollectible in 2002 when compared to 2001. Real estate tax expense decreased as a result of the Crown Point sale. Item 3. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within 90 days before the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective and timely, providing all material information relating to the Company required to be disclosed in reports filed or submitted under the Exchange Act. Changes in Internal Controls There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken. 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 99. Certification of Officers. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly 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, 2002 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: November 14, 2002 CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) I, Jerome J. Brault, Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Real Estate Fund L.P. 5; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could aversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 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, President and Chief Executive Officer DATE: November 14, 2002 CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) I, Thomas E. Murphy, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Real Estate Fund L.P 5.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could aversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 5 BY:/s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: November 14, 2002 Exhibit 99 SECTION 906 CERTIFICATION The following statement is provided by the undersigned to accompany the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed pursuant to any provisions of the Securities Exchange Act of 1934 or any other securities law: Each of the undersigned certifies that the foregoing Report on Form 10-QSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of Brauvin Real Estate Fund L.P. 5. 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, 2002 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: November 14, 2002