-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L3uDPxmgfSwCZki/r+YYINheNRDLs+sqPJu2raGGcM2ydNwFd+lEmvN+Vg9vStEL iQn9s5Yw0MFxdbhWzoPoNg== 0000736908-05-000015.txt : 20050524 0000736908-05-000015.hdr.sgml : 20050524 20050523173319 ACCESSION NUMBER: 0000736908-05-000015 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050524 DATE AS OF CHANGE: 20050523 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUVIN REAL ESTATE FUND LP 5 CENTRAL INDEX KEY: 0000762848 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363432071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14481 FILM NUMBER: 05852271 BUSINESS ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE FUNDS CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3127597660 MAIL ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 10QSB 1 f5.txt BRAUVIN REAL ESTATE FUND LP 5 10QSB 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 three months ended March 31, 2005______________ 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 March 31, 2005 (Liquidation Basis) 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2005 to March 31, 2005 (Liquidation Basis) 5 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2004 to March 31, 2004 (Liquidation Basis) 6 Consolidated Statements of Operations for the three months ended March 31, 2005 and March 31, 2004(Liquidation Basis) 7 Notes to Consolidated Financial Statements 8 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 BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of March 31, 2005 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2005 to March 31, 2005 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2004 to March 31, 2004 (Liquidation Basis) and Consolidated Statements of Operations for the three months ended March 31, 2005 and March 31, 2004 (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 2004 Annual Report on Form 10-KSB. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF MARCH 31, 2005 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $3,028,375 Cash and cash equivalents 2,218,582 Restricted cash 756,642 Tenant receivable (net of an allowance of $49,340) 62,465 Utility deposits 3,429 Due from affiliates 10,968 Other assets 5,595 ---------- Total Assets 6,086,056 ---------- LIABILITIES Mortgage notes payable (Note 4) 3,000,000 Accounts payable and accrued expenses 158,118 Reserve for estimated costs during the period of liquidation 183,021 Tenant security deposits 22,893 Due to affiliates (Note 5) 4,394 ---------- Total Liabilities 3,368,426 MINORITY INTEREST IN SABAL PALM JOINT VENTURE 342,185 ---------- Net Assets in Liquidation $2,375,445 ========== See accompanying notes to consolidated financial statements BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2005 TO March 31, 2005 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2005 $2,424,275 Loss from operations (48,830) ---------- Net assets in liquidation at March 31, 2005 $2,375,445 ========== See accompanying notes to consolidated financial statements BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2004 TO MARCH 31, 2004 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2004 $2,562,051 Loss from operations (32,716) ---------- Net assets in liquidation at March 31, 2004 $2,529,335 ========== See accompanying notes to consolidated financial statements BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004 (LIQUIDATION BASIS) (Unaudited) 2005 2004 --------- -------- INCOME Rental $ 116,517 $ 95,393 Interest 12,621 5,338 Other, primarily tenant expense reimbursements 35,860 30,209 --------- -------- Total income 164,998 130,940 EXPENSES Interest 40,676 32,532 Real estate taxes 24,097 23,550 Repairs and maintenance 143,392 41,490 Management fees (Note 5) 9,283 7,122 Other property operating 12,407 13,264 Bad debt expense (recovery) 5,415 8,838 General and administrative 21,145 59,900 --------- -------- Total expenses 256,415 186,696 --------- -------- Loss before minority interest (91,417) (55,756) Minority interest's share of Sabal Palm's net loss 42,587 23,040 --------- -------- Net loss $ (48,830) $(32,716) ========= ======== Net loss allocated to the General Partners $ (488) $ (327) ========= ======== Net loss allocated to the Limited Partners $ (48,342) $(32,389) ========= ======== Net loss per Limited Partnership Interest (9,914.5 units Outstanding) $ (4.88) $ (3.27) ========= ======== See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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, prior to its sale in 2001, was 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 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 owned either directly or indirectly with affiliates of the Partnership from January 1,2001 and subsequent transactions 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. 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 statement of net assets as of March 31, 2005. 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 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 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 were 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. The Partnership has adopted 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 is 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 intangibles, reassessment of the useful lives of existing 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. Application of the statements to future acquisitions, if any, could result in the recognition, upon acquisition of additional intangible assets (acquired in-place lease origination costs and acquired above market leases) and liabilities (acquired below market leases), which would be amortized over the remaining terms of the acquired leases. The Partnership has adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 retains the recognition and measurement requirements of its predecessor, but resolves significant implementation issues. In addition, it applies to a segment of a business accounted for as a discontinued operation. SFAS 144 has not had a significant impact on the Partnership's financial statements. 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. Tenant Receivables Tenant receivables are comprised of (a) billed but uncollected amounts due for monthly rents and other charges and (b) estimated unbilled amounts due for tenant reimbursement of common area maintenance charges and property taxes. Receivables are recorded at management's estimate of the amounts that will ultimately be collected. An allowance for doubtful accounts of $49,340 at March 31, 2005 is based on specific identification of uncollectible accounts and the Partnership's historical collection experience. 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 are based on information available to management as of March 31, 2005, 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 March 31, 2005. Derivatives and Hedging Instruments 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 Partnership had no derivatives in 2005 and 2004. Recent Accounting Pronouncements In January 2003, FASB issued interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 addresses consolidation by business enterprises of certain variable interest entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation was revised in December 2003 and for calendar year end entities, is effective as of December 31, 2003. The Partnership does not own any "special purpose entities." In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with the Characteristics of both Liabilities and Equity" ("SFAS 150"), which is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective beginning July 1, 2003. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 and FIN 46 has not had a significant impact on the Partnership's 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. (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 March 31, 2005 equaled $17,274,546. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at March 31, 2005 consist of the following: Interest Date Balance Rate Due ---------- ------ ------- Sabal Palm Square Shopping Center $3,000,000 LIBOR +2.85% 2/3/06 Sabal Palm Square Shopping Center Sabal Palm Square Shopping Center serves as collateral under its respective limited recourse debt obligation. The original First Mortgage Loan bore interest at the rate of 8.93% per annum, was to be amortized over a 25-year period, required monthly payments of principal and interest of approximately $26,700 and matured 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. Subsequent to the end of the first quarter of 2003, this loan was repaid and replaced with a new facility described below. On August 7, 2000, Sabal Palm was given notice that Walgreens would vacate the space prior to its lease termination of April 30, 2005. Walgreens moved out, however, it remains liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture entered into a new direct lease with the replacement tenant for this space through June 30, 2007. 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. 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. Due to non-payment 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. In April 2002, the joint venture and the lender agreed to a twelve month extension of the existing mortgage loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee and payment of all past due amounts thus curing the default. 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 signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Sav A Lot took occupancy of its space in October, 2002. In addition, in the first quarter of 2004 the joint venture executed a lease with Family Dollar (a national discount retailer) to lease approximately 10,675 square feet (another one of the demized spaces). Family Dollar has taken occupancy in the center. Separately, the Partnership has made a number of cosmetic improvements to the center in preparation for its sale. However, the property was recently damaged by two of the hurricanes that struck the Palm Bay area in the third quarter of 2004 and will likely delay the sale of the property. The property's damage was primarily cosmetic and we do not believe the structural integrity or economic viability of the building has diminished. Temporary repair work has been completed. However due to the extensive damage elsewhere in the area, permanent repairs were not able to commence until the first quarter of 2005. On March 17, 2003, the joint venture obtained a loan commitment from AmSouth Bank in the amount of $3,250,000. The loan proposal provides for payment of interest only for a 24- month term subject to various tests to be met at a six-month period from close and a nine-month period from close. If these tests are not met the joint venture can be required to reduce the principal outstanding by a cumulative amount ranging from $250,000 to $500,000 depending on the test. On April 29, 2003, the Sabal Palm joint venture closed on a $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The joint venture expects to use the remaining proceeds primarily to finance certain tenant improvements and leasing costs. The AmSouth loan bears interest at LIBOR plus 2.85% and is payable interest only monthly until maturity (May 3, 2005) at which time all unpaid interest and principal is due. The loan is secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture have each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager has agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 4 to maintain a minimum combined tangible net worth of not less than $1,000,000. Due to the fact that damage caused by the hurricanes in 2004 is currently in the process of being repaired, the joint venture did not believe it would be able to repay the loan in May. Therefore, the joint venture requested an extension of the mortgage loan. On April 13, 2005, the joint venture and the lender agreed to terms for a nine month extension of the current mortgage note. The lender required that the joint venture make a principal reduction in the amount of $400,000, which the lender has agreed will be paid from the cash deposit held by the lender. Additionally, the joint venture is required to pay an extension fee in the amount of $5,000. All other terms and conditions remain the same. The carrying value of Sabal Palm approximated $3,028,000 at March 31, 2005. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or its affiliates for the three months ended March 31, 2005 and 2004 were as follows: 2005 2004 ------- ------ Management fees $ 9,283 $7,122 Reimbursable office expenses 19,800 19,800 As of March 31, 2005, the Partnership had made all payments to affiliates, except for management fees of $4,394. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) 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 its remaining joint venture investment in Sabal Palm. The Partnership's mortgage note payable is expected to be satisfied through the sale of Sabal Palm. 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 remaining investment 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. Property Status 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 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. Prior to April 29, 2003 the First Mortgage Loan bore interest at the rate of 8.93% per annum, was amortized over a 25-year period, required monthly payments of principal and interest of approximately $26,700 and was scheduled to mature on March 26, 2002 (later extended to April 2003). 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. 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 moved out, however, it remains liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In the second quarter of 1998, Winn-Dixie vacated its space at the center (which was approximately 42,000 square feet). Winn- Dixie failed to timely pay its rental obligation for November and December 2001 and January through March 2002. 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. Due to non-payment 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. In April 2002, the joint venture and the lender agreed to a twelve month extension of the existing mortgage loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee and payment of all past due amounts thus curing the default. 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 signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Sav A Lot took occupancy of its space in October, 2002. In addition, in the first quarter of 2004 the joint venture executed a lease with Family Dollar (a national discount retailer) to lease approximately 10,675 square feet (another one of the demized spaces). Family Dollar has taken occupancy in the center. Separately, the joint venture has made a number of cosmetic improvements to the center in preparation for its sale. However, the property was recently damaged by two of the hurricanes that struck the Palm Bay area in the third quarter of 2004 and will likely delay the sale of the property. The property's damage was primarily cosmetic and we do not believe the structural integrity or economic viability of the building has diminished. Temporary repair work has been completed. However due to the extensive damage elsewhere in the area, permanent repairs were not able to commence until the first quarter of 2005. The joint venture has also received renewed expressions of interest for the potential sale of the property. There can be no assurance that a sale will be consummated; however, the joint venture is continuing to evaluate its opportunities. On March 17, 2003, the joint venture obtained a loan commitment from AmSouth Bank in the amount of $3,250,000. The loan proposal provides for payment of interest only for a 24- month term subject to various tests to be met at a six-month period from close and a nine-month period from close. If these tests are not met the joint venture can be required to reduce the principal outstanding by a cumulative amount ranging from $250,000 to $500,000 depending on the test. On April 29, 2003, the Sabal Palm joint venture closed on a $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The joint venture expects to use the remaining proceeds primarily to finance certain tenant improvements and leasing costs. The AmSouth loan bears interest at LIBOR plus 2.85% and is payable interest only monthly until maturity (February 3, 2006) at which time all unpaid interest and principal is due. The loan is secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture have each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager has agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 4 to maintain a minimum combined tangible net worth of not less than $1,000,000. In January 2004, Sabal Palm was not in compliance with the net operating income requirement established in the loan and as a result the lender had a right to require a repayment of principal from the joint venture in an amount not to exceed $500,000. In the second quarter of 2004, pursuant to the existing loan agreement, the lender requested repayment of principal in the amount of $250,000. The lender agreed to allow for this payment to be made from the $1,000,000 on deposit with the lender and further agreed to reduce the liquidity requirement to $500,000. Additionally, the lender agreed to fund from the deposit with the lender certain improvements (up to $245,000) that the joint venture is contemplating making in order to facilitate the sale of the property. Due to the fact that damage caused by the hurricanes in 2004 is currently in the process of being repaired, the joint venture did not believe it would be able to repay the loan in May. Therefore, the joint venture requested an extension of the mortgage loan. On April 13, 2005, the joint venture and the lender agreed to terms for a nine month extension of the current mortgage note. The lender required that the joint venture make a principal reduction in the amount of $400,000, which the lender has agreed will be paid from the cash deposit held by the lender. Additionally, the joint venture is required to pay an extension fee in the amount of $5,000. All other terms and conditions remain the same. A requirement of the Family Dollar lease was that the joint venture reimburse the tenant approximately $127,000 for the substantial improvements made by the tenant to the existing space. The joint venture reimbursed Family Dollar in September 2004. In addition, the joint venture will be making a number of other repairs and improvements to the center to improve its marketability for sale. These improvements will include roof repair (and repainting) and parking lot repairs including restriping. In total, Sabal Palm has received six offers on the property ranging in price from $2.2 million to $3.4 million. The Partnership continues to market the property for sale. With the recent execution of the Family Dollar lease for 12% of the center, the Partnership anticipates that potential sales activity will improve in 2005. 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 March 31, 2005. 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. 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 - Three months ended March 31, 2005 and 2004 (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 a net loss of $49,000 for the three months ended March 31, 2005 as compared to a net loss of $33,000 for the same period in 2004. Total income for the three months ended March 31, 2005 was $165,000 as compared to $131,000 for the same period in 2004. The $34,000 increase in total income was primarily a result of a $21,000 increase in rental income and a $6,000 increase in other income. Interest income increased $7,000. Rental income increased as a result of an increase in occupancy at Sabal during the three months ended March 31, 2005 compared to the three months ended March 31, 2004. Total expenses for the three months ended March 31, 2005 were $256,000 as compared to $187,000 for the same period in 2004. The $70,000 increase in expense is the result of a $102,000 increase in repairs and maintenance, an $8,000 increase in interest expense, a $2,000 increase in management fees, offset by a $39,000 decrease in general and administrative expense and a $3,000 decrease in bad debt expense. Repairs and maintenance increased primarily as a result of roof repairs at the Sabal Palm property. General and administrative expenses decreased primarily as a result of paying leasing commissions during the three months ended March 31, 2004. Results of Operations - Three months ended March 31, 2004 and 2003 (Liquidation Basis) The Partnership generated a net loss of $33,000 for the three months ended March 31, 2004 as compared to a net loss of $197,000 for the same period in 2003. Total income for the three months ended March 31, 2004 was $131,000 as compared to $117,000 for the same period in 2003. The $14,000 increase in total income was primarily a result of a $1,000 increase in rental income and a $13,000 increase in other income. Total expenses for the three months ended March 31, 2004 were $187,000 as compared to $316,000 for the same period in 2003. The $129,000 decrease in expense is the result of a $155,000 decrease in general and administrative expense and a $34,000 decrease in interest expense. General and administrative expense decreased primarily as a result of an $182,000 decrease in taxes associated with the sale of Crown Point offset by a $37,000 increase in professional fees associated with Sabal Palm. Interest expense decreased as a result of Sabal Palm's new mortgage. Partially offsetting the decreases are increases in repairs and maintenance expense of $39,000, bad debt expense of $14,000, and operating expense of $4,000. Repairs and maintenance increased primarily as a result of repairs at the Sabal Palm property. Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer, of the corporate general partner, have reviewed and evaluated the effectiveness of the Partnership'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 Partnership's current disclosure controls and procedures are effective and timely, providing all material information relating to the Partnership 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 Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. The Chief Executive Officer and Chief Financial Officer are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) 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 BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) 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: May 23, 2005 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: May 23, 2005 CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF BRAUVIN VENTURES, INC. CORPORATE GENERAL PARTNER OF BRAUVIN REAL ESTATE FUND L.P. 5 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. 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: May 23, 2005 CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF BRAUVIN VENTURES, INC. CORPORATE GENERAL PARTNER OF BRAUVIN REAL ESTATE FUND L.P. 5 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. 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: May 23, 2005 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 March 31, 2005, 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: May 23, 2005 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: May 23, 2005 -----END PRIVACY-ENHANCED MESSAGE-----