-----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, VEExnqvDnZTpcJ66Nc8YehXv0vaNFfcw+knhYa/po/HqLSi5CebkB1/cwpzG37mv rGtVMlD2NI7aq1dZ/L+Bbg== 0000736908-99-000024.txt : 19990817 0000736908-99-000024.hdr.sgml : 19990817 ACCESSION NUMBER: 0000736908-99-000024 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: SEC FILE NUMBER: 000-14481 FILM NUMBER: 99693545 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 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 six months ended June 30, 1999 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 Balance Sheet at June 30, 1999. . . . . . . . . 4 Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998 . . . . . . . . . 5 Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998 . . . . . . . . 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . .16 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .23 Item 2. Changes in Securities. . . . . . . . . . . . . . . .23 Item 3. Defaults Upon Senior Securities. . . . . . . . . . .23 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .23 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .23 Item 6. Exhibits, and Reports on Form 8-K. . . . . . . . . . . . . .23 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Balance Sheet as of June 30, 1999, Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998, Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998 and Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 for Brauvin Real Estate Fund L.P. 5 (the "Partnership") are unaudited but reflect, in the opinion of the management, all adjustments necessary to present fairly the information required. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's 1998 Annual Report on Form 10-KSB. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 1999 ASSETS Investment in real estate: Land $ 2,111,857 Buildings and improvements 8,543,619 10,655,476 Less accumulated depreciation (3,398,459) Net investment in real estate 7,257,017 Cash and cash equivalents 795,400 Rent receivable (net of an allowance of $117,300) 106,938 Escrow deposits 235,427 Other assets 119,599 Due from affiliates 45,516 Total Assets $ 8,559,897 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accounts payable and accrued expenses $ 195,636 Due to affiliates 6,147 Tenant security deposits 38,693 Mortgage notes payable (Note 3) 6,128,089 Total Liabilities 6,368,565 Investment in Strawberry Fields Joint Venture(Note 5) 325,844 MINORITY INTEREST IN SABAL PALM JOINT VENTURE 65,945 PARTNERS' CAPITAL: General Partners (47,848) Limited Partners (9,914.5 limited partnership units issued and outstanding) 1,847,391 Total Partners' Capital 1,799,543 Total Liabilities and Partners' Capital $ 8,559,897 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended June 30, (Unaudited) 1999 1998 INCOME Rental $691,216 $721,337 Interest 16,493 12,516 Other, primarily tenant expense reimbursements 98,208 99,768 Total income 805,917 833,621 EXPENSES Interest 269,858 274,636 Depreciation 116,615 135,352 Real estate taxes 68,754 67,883 Repairs and maintenance 14,707 29,812 Management fees (Note 4) 44,935 52,601 Other property operating 44,116 27,691 Bad debt expense 92,600 15,601 General and administrative 97,048 86,007 Total expenses 748,633 689,583 Income before minority and equity interests 57,284 144,038 Minority interest's share of Sabal Palm's net income (32,118) (50,211) Equity interest in Strawberry Fields Joint Venture's net income(loss) 26,776 (683,916) Net income (loss) $ 51,942 $(590,089) Net income (loss) Allocated to the General Partners $ 519 $ (5,901) Net income (loss) Allocated to the Limited Partners $ 51,423 $(584,188) Net income (loss) Per Limited Partnership Interest (9,914.5 Units) $ 5.19 $ (58.92) See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended June 30, (Unaudited) 1999 1998 INCOME Rental $276,752 $292,016 Interest 8,148 7,034 Other, primarily tenant expense reimbursements 47,509 48,956 Total income 332,409 348,006 EXPENSES Interest 134,992 137,332 Depreciation 58,232 67,731 Real estate taxes 34,377 33,941 Repairs and maintenance 3,805 21,881 Management fees 18,577 21,424 Other property operating 23,379 10,965 Bad debt expense 43,138 10,901 General and administrative 52,097 35,704 Total expenses 368,597 339,879 (Loss) income before minority and equity interests (36,188) 8,127 Minority interest's share of Sabal Palm's net income 12,970 5,360 Equity interest in Strawberry Fields Joint Venture's net income (loss) 17,112 (672,529) Net loss $ (6,106) $(659,042) Net loss Allocated to the General Partners $ (61) $ (6,590) Net loss Allocated to the Limited Partners $ (6,045) $(652,452) Net loss Per Limited Partnership Interest (9,914.5 Units) $ (0.61) $ (65.81) See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, (Unaudited) 1999 1998 Cash Flows From Operating Activities: Net income (loss) $ 51,942 $ (590,089) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 116,615 135,352 Provision for doubtful accounts 92,600 15,601 Equity interest in Strawberry Fields Joint Venture's net (loss) income (26,776) 683,916 Minority Interest's share of Sabal Palm Joint Venture's net income 32,118 50,211 Changes in: Rent receivables (90,899) 6,518 Other assets (9,759) (5,241) Escrow deposits (64,426) (94,527) Due from affiliates (9,816) -- Accounts payable and accrued expenses 39,478 96,223 Due to affiliates 1,069 3,158 Tenant security deposits (6,288) 1,000 Net cash provided by operating activities 125,858 302,122 Cash Flows From Investing Activities: Capital expenditures -- (1,320) Cash distribution to Minority Partner of Sabal Palm Joint Venture (70,500) (79,900) Cash used in investing activities (70,500) (81,220) Cash Flows From Financing Activities: Repayment of mortgage notes payable (63,165) (58,368) Net cash used in financing activities (63,165) (58,368) Net (decrease)increase in cash and cash equivalents (7,807) 162,534 Cash and cash equivalents at beginning of period 803,207 560,393 Cash and cash equivalents at end of period $ 795,400 $ 722,927 Supplemental disclosure of cash flow information: Cash paid for interest $ 255,942 $ 260,739 See accompanying notes to consolidated financial statements (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Brauvin Real Estate Fund L.P. 5 (the "Partnership") was organized on June 28, 1985. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. On August 8, 1997, Mr. Cezar M. Froelich resigned as an Individual General Partner effective 90 days from August 14, 1997. Brauvin Ventures Inc. is owned by A.G.E. Realty Corporation Inc. (50%) and by Messrs. Brault (beneficially) (25%) and Froelich (25%). A. G. Edwards & Sons, Inc. and Brauvin Securities, Inc., affiliates of the General Partners, were the selling agents of the Partnership. The Partnership is managed by an affiliate of the General Partners. The Partnership was formed on June 28, 1985 and filed a Registration Statement on Form S-11 with the Securities and Exchange Commission which became effective on March 1, 1985. The sale of the minimum of $1,200,000 of limited partnership interests of the Partnership (the "Units") necessary for the Partnership to commence operations was achieved on June 28, 1985. The Partnership's offering closed on February 28, 1986. A total of $9,914,500 of Units were subscribed for and issued between March 1, 1985 and February 28, 1986 pursuant to the Partnership's public offering. The Partnership has acquired directly or through joint ventures the land and buildings underlying Crown Point, Strawberry Fields and Sabal Palm shopping centers. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Rental income is recognized on a straight line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the financial statements. Consolidation of Special Purpose Entity The Partnership has one special purpose entity ("SPE"), Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions from the SPE are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of the SPE did not affect the Partnership's economic ownership of the property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. Consolidation of Joint Venture Partnership The Partnership owns a 53% interest in the Sabal Palm Joint Venture which owns Sabal Palm Shopping Center. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and partners' capital of Sabal Palm Joint Venture. The minority interests of the consolidated joint venture is adjusted for the respective joint venture partner's share of income or loss and any cash contributions from or distributions to the joint venture partner, if any. All intercompany items and transactions have been eliminated. Investment in Joint Venture Partnership The Partnership owns a 42% equity interest in a Strawberry Fields Joint Venture (see Note 5). Strawberry Fields is reported as an investment in an affiliated joint venture. The accompanying financial statements include the investment in Strawberry Fields Joint Venture using the equity method of accounting. Investment in Real Estate The Partnership's rental properties are stated at cost including acquisition costs, leasing commissions, and tenant improvements and are net of provision for impairment. Depreciation and amortization are recorded on a straight-line basis over the estimated economic lives of the properties, which approximate 31.5 years, and the term of the applicable leases, respectively. All of the Partnership's properties are subject to liens under first mortgages (see Note 3). The Partnership has performed an analysis of its long-lived assets, and the Partnership's management determined that there were no events or changes in circumstances that indicated that the carrying amount of the assets may not be recoverable at June 30, 1999 and 1998, except as disclosed below. In the fourth quarter of 1998, the Partnership recorded an impairment of $1,499,958 related to an other than temporary decline in the value of real estate for the Sabal Palm Joint Venture. This allowance has been allocated to land and building based on the original acquisition percentages. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with an original maturity within three months from date of purchase. Estimated Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments." The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of June 30, 1999, but may not necessarily be indicative of the amounts that the Partnership could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts of the following items are reasonable estimates of fair value: cash and cash equivalents; rent receivable; escrow deposits; accounts payable and accrued expenses; tenant security deposits and due to/from affiliates. Reclassifications Certain reclassifications have been made to the 1998 consolidated financial statements to conform to classifications adopted in 1999. (2) PARTNERSHIP AGREEMENT The Partnership Agreement (the "Agreement") provides that 99% of the net profits and losses from operations of the Partnership for each fiscal year shall be allocated to the Limited Partners and 1% of net profits and losses from operations shall be allocated to the General Partners. The net profit of the Partnership from the sale or other disposition of a Partnership property shall be allocated as follows: first, there shall be allocated to the General Partners the greater of: (i) 1% of such net profits; or (ii) the amount distributable to the General Partners as Net Sale Proceeds from such sale or other disposition, as defined in the Partnership Agreement; and second, all remaining profits shall be allocated to the Limited Partners. The net loss of the Partnership from any sale or other disposition of a Partnership property shall be allocated as follows: 99% of such net loss shall be allocated to the Limited Partners and 1% of such net loss shall be allocated to the General Partners. The Agreement provides that distributions of Operating Cash Flow, as defined in the Agreement, shall be distributed 99% to the Limited Partners and 1% to the General Partners. The receipt by the General Partners of such 1% of Operating Cash Flow shall be subordinated to the receipt by the Limited Partners of Operating Cash Flow equal to a 10% per annum, cumulative, non-compounded return on Adjusted Investment, as such term is defined in the Agreement (the "Preferential Distribution"). In the event the full Preferential Distribution is not made in any year (herein referred to as a "Preferential Distribution Deficiency") and Operating Cash Flow is available in following years in excess of the Preferential Distribution for said years, then the Limited Partners shall be paid such excess Operating Cash Flow until they have paid any unpaid Preferential Distribution Deficiency from prior years. Net Sale Proceeds, as defined in the Agreement, received by the Partnership shall be distributed as follows: (a) first, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to the amount of their Adjusted Investment; (b) second, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to any unpaid Preferential Distribution Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to the Limited Partners, and the remaining 15% of the Net Sale Proceeds to the General Partners. The Preferential Distribution Deficiency at June 30, 1999 equaled $11,573,697. (3) MORTGAGE NOTES PAYABLE Mortgage notes payable at June 30, 1999 consist of the following: Interest Date 1999 Rate Due Crown Point Shopping Center (a) $3,001,032 7.55% 1/03 Sabal Palm Square Shopping Center (b) 3,127,057 8.93% 3/02 $6,128,089 Each shopping center serves as collateral under its respective nonrecourse debt obligation. Maturities of the mortgage notes payable are as follows: 1999 $ 64,921 2000 137,877 2001 150,124 2002 3,138,289 2003 2,636,878 $6,128,089 (a) On December 28, 1995, the acquisition loan balance was paid in full when Crown Point was refinanced by NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non- recourse loan with a fixed interest rate of 7.55%, and amortization based on a twenty year term with a maturity of January 1, 2003. As a precondition to the new financing, the Successor Lender required that ownership of the property reside in a single purpose entity ("SPE"). To accommodate the lender's requirements, ownership of the property was transferred to the SPE, Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions of Brauvin/Crown Point L.P. are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of Brauvin/Crown Point L.P. did not affect the Partnership's economic ownership of the Crown Point property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. The carrying value of Crown Point at June 30, 1999 was approximately $4,086,000. (b) On February 19, 1987, the Partnership and its joint venture partner obtained a first mortgage loan in the amount of $3,200,000 from an unaffiliated lender. The loan was payable with interest only at 9.5% per annum until February 1992 and now requires payments of principal and interest based on a 30-year amortization schedule. Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On March 31, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan") secured by its real estate, from NationsBanc Mortgage Capital Corporation. The First Mortgage Loan bears interest at the rate of 8.93% per annum, is amortized over a 25-year period, requires monthly payments of principal and interest of approximately $26,700 and matures on March 26, 2002. A portion of the proceeds of the First Mortgage Loan, approximately $3,077,000, was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. In the first quarter of 1998, the Partnership became aware that both Winn-Dixie and Walgreens may vacate their respective spaces at Sabal Palm prior to their lease termination dates. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn- Dixie remains liable for rental payments under its lease at Sabal Palm until April 2005. Walgreens has not given official notice that they will vacate the space prior to their lease termination; the General Partners, however, believe that there is a likelihood that this tenant will vacate. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. The carrying value of Sabal Palm approximated $3,171,000 at June 30, 1999. (4) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or its affiliates for the six months ended June 30, 1999 and 1998 were as follows: 1999 1998 Management fees $44,935 $ 52,601 Reimbursable office expenses 36,384 46,200 The Partnership believes the amounts paid to affiliates are representative of amounts which would have been paid to independent parties for similar services. As of June 30, 1999, the Partnership had made all payments to affiliates, except for management fees of $6,147. An amount of $45,516 due from affiliates at June 30, 1999 represents an advance of $35,700 made to Strawberry Fields Joint Venture and $9,816 from affiliates of the General Partner for the 1998 overpayment of reimbursable office expenses. (5) 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: June 30, 1999 Land, building and personal property, net $4,681,776 Other assets 187,552 $4,869,328 Mortgage note payable $5,375,200 Other liabilities 268,375 5,643,575 Partners' capital (774,247) $4,869,328 For the six months ended June 30, 1999 1998 Rental income $394,067 $ 390,838 Other income 42,318 68,865 436,385 459,703 Mortgage and other interest 189,292 252,754 Depreciation 78,816 94,650 Loss on value impairment - 1,564,101 Operating and administrative expenses 268,108 176,570 372,633 2,088,075 Net income (loss) $ 63,752 $(1,628,372) In the second and fourth quarters of 1998, the joint venture recorded impairments of $1,564,101 and $504,935, respectively, related to other than temporary declines in the value of real estate for the Strawberry Fields property. These allowance were allocated to land and building based on the original acquisition percentages. (6) SUBSEQUENT EVENTS On July 15, 1999, the Partnership filed a Form 8-K to report the results of the solicitation of the Limited Partnership for the sale of the Partnership's assets. The Limited Partners, by a majority vote, have approved the plan to sell the Partnership's assets. Item 2. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Quarterly Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as "anticipates", "expects", "intends", "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Year 2000 The "Year 2000" problem concerns the inability of computer technology systems to correctly identify and process date sensitive information beyond December 31, 1999. Many computers automatically add the "19" prefix to the last two digits the computer reads for the year when date information is needed in computer software programs. Thus when a date beginning on January 1, 2000 is entered into a computer, the computer may interpret this date as the year "1900" rather than "2000". The Partnership's computer information technology systems consists of a network of personal computers linked to a server built using hardware and software from mainstream suppliers. The Partnership does not own any equipment that contains embedded microprocessors, which may also pose a potential Year 2000 problem. Additionally, the Partnership has no internally generated software coding to correct as all of the Partnership's software is purchased and licensed from external providers. These external providers have assured management that their systems are, or will be, Year 2000 compliant. The Partnership has two main software packages that contain date sensitive information, (i) accounting and (ii) investor relations. In 1997, the Partnership initiated and completed the conversion from its existing accounting software to a new software program that is Year 2000 compliant. In 1998, the investor relations software was also updated to a new software program that is Year 2000 compliant. Management has determined that the Year 2000 issue will not pose significant operational problems for its remaining computer software systems. All costs associated with these conversions are expensed as incurred, and are not material. Management does not believe that any further expenditures will be necessary for the Partnership to be Year 2000 compliant. However, additional personal computers may be purchased from time to time to replace existing machines. Also in 1997, management of the Partnership initiated formal communications with all of its significant third party vendors, service providers and financial institutions to determine the extent to which the Partnership is vulnerable to those third parties failure to remedy their own Year 2000 issue. There can be no guarantee that the systems of these third parties will be timely converted and would not have an adverse effect on the Partnership. The most reasonably likely worst case scenario for the Partnership with respect to the Year 2000 issue would be the inability of certain tenants to timely make their rental payments beginning in January 2000. This could result in the Partnership temporarily suffering a depletion of the Partnership's cash reserves as expenses will need to be paid while the cash flows from revenues are delayed. The Partnership has no formal Year 2000 contingency plan. Liquidity and Capital Resources The Partnership intends to satisfy its short-term liquidity needs through cash flow from the properties. Long-term liquidity needs are expected to be satisfied through refinancing of the mortgages when they mature. The anchor tenant at Crown Point is Food City. The overall occupancy level at Crown Point decreased to 88% at June 30, 1999 when compared to 100% at June 30, 1998. The Partnership is continuing to work to improve the occupancy level of Crown Point. On December 28, 1995, the loan balance of the acquisition financing was paid in full when the Crown Point property was refinanced with NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non-recourse loan with a fixed interest rate of 7.55% and a maturity of January 1, 2003. The Strawberry Fields Joint Venture secured a replacement tenant, Syms, a national discount clothing retailer, to sublease the Kroger space at Strawberry Fields. Syms opened for business in October 1992 and has signed a sublease for the remainder of the original lease term which expires March 31, 2005. Customer traffic at Strawberry Fields has increased with the draw of Syms, making vacant space more marketable. The property has shown an improvement due to the occupancy increase from 78% at December 31, 1994 to 85% at June 30, 1999. The Strawberry Fields Joint Venture is aggressively marketing the property having engaged a prominent local brokerage firm to assist the Strawberry Fields Joint Venture's on-site leasing representative in the marketing of the shopping center. On September 18, 1995, the Strawberry Fields Joint Venture notified the Strawberry Lender that it would exercise its option to extend the term of the Strawberry Fields loan from the original maturity of November 1, 1995 to December 1, 1998. The terms of the extension called for all provisions of the loan to remain the same except for an additional monthly principal payment of $12,500. Effective November 1, 1995, the Strawberry Joint Venture and the Strawberry Lender agreed to modify the loan by reducing the interest rate to 7.5% for November 1, 1995 through October 31, 1997 and by reducing the monthly principal payment to $12,000. As of November 1, 1997, the interest rate reverted to the original 9.0% rate. Effective October 1, 1998, the Strawberry Fields Joint Venture and the Strawberry Lender agreed to modify and extend the first mortgage loan. As of October 1, 1998 and through the extended maturity date, December 1, 1999, the interest rate has been reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. The outstanding mortgage balance encumbered by the property was $5,375,200 at June 30, 1999. In the second and fourth quarters of 1998, the joint venture partnership recorded impairments of $1,564,101 and $504,935, respectively, related to other than temporary declines in the value of real estate for the Strawberry Fields property. These allowance were allocated to land and building based on the original acquisition percentages. At Sabal Palm, the Partnership and its joint venture partner are working to improve the economic occupancy level of Sabal Palm which stood at 92% as of June 30, 1999. Although the Sabal Palm retail market appears to be overbuilt, the economic occupancy level of the building has stayed relatively constant and it has generated positive cash flow since its acquisition in 1986. In the first quarter of 1998, the Partnership became aware that both Winn-Dixie and Walgreens may vacate their respective spaces at Sabal Palm prior to their lease termination dates. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn- Dixie remains liable for rental payments under its lease at Sabal Palm until April 2005. Walgreens has not given official notice that they will vacate the space prior to their lease termination; the General Partners, however, believe that there is a likelihood that this tenant will vacate. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On March 31, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan"), secured by its real estate, from NationsBanc Mortgage Capital Corporation. The First Mortgage Loan bears interest at the rate of 8.93% per annum, is amortized over a 25-year period, requires monthly payments of principal and interest of approximately $26,700 and matures on March 26, 2002. A portion of the proceeds of the First Mortgage Loan, approximately $3,077,000, was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. In the fourth quarter of 1998, the joint venture recorded an impairment of $1,499,958 related to an other than temporary decline in the value of real estate for Sabal Palm. This allowance has been allocated to the land and building based on the original acquisition percentages. On December 10, 1998, the Partnership received notice that an unsolicited tender offer to purchase up to 25% of the outstanding Units was to commence with a tender price of $80 per Unit. The offer was being made, in part, by an entity that owned a nominal economic interest in the Partnership and was scheduled to terminate on January 15, 1999. As a result of this unsolicited tender offer approximately 609 economic interests in the Partnership are to be transferred. On May 12, 1999, the Partnership received notice that an unsolicited tender offer to purchase up to approximately 25% of the outstanding Units was to commence with a tender price of $170 per Unit. The offer is made, in part, by an entity that owned a nominal economic interest in the Partnership and was scheduled to expire on June 25, 1999. The General Partners remained neutral as to the particular merits or risks associated with all of the tender offer to the Limited Partners. The General Partners believed an informed determination of the true value of the Units could be made after the receipt of the appraisals. The General Partners cautioned that the ultimate amount actually received by each Limited Partner will be affected by items including, but not limited to, the timing of the liquidation of the assets, changes in market conditions, necessary Partnership reserves and the sales prices that can be negotiated. The General Partners further informed the Limited Partners that, for those investors who are primarily interested in liquidating their Units immediately, the tender offers provided such an opportunity. In 1998, the General Partners notified the Limited Partners that they were exploring various alternatives to sell the Partnership's assets. In this regard, the Partnership engaged a nationally known appraisal firm to value the Partnership's assets. Additionally, this firm will assist the General Partners in determining the appropriate method and timing for the disposition of the Partnership's assets. The General Partners determined to pursue the disposition of the Partnership's assets, and began the registration and solicitation process for the authorization of the Limited Partners for the sale of all or substantially all of the Partnership's properties. That solicitation was accomplished by written notice directed by U.S. mail to each Limited Partner at the address shown on the Partnership's records, in accordance with the rules of the Securities and Exchange Commission and the requirements of the Partnership Agreement. On July 12, 1999, the General Partners received approval by a majority of the Limited Partners to begin the disposition of the Partnership's assets. The General Partners expect to distribute proceeds from operating cash flow, if any, and from the sale of real estate to Limited Partners in a manner that is consistent with the investment objectives of the Partnership. Management of the Partnership believes that cash needs may arise from time to time which will have the effect of reducing distributions to Limited Partners to amounts less than would be available from refinancing or sale proceeds. These cash needs include, among other things, maintenance of working capital reserves in compliance with the Agreement as well as payments for major repairs, tenant improvements and leasing commissions in support of real estate operations. Results of Operations - Six Months Ended June 30, 1999 and 1998 (Amounts rounded to 000's) The Partnership generated net income of $52,000 for the six months ended June 30, 1999 as compared to net loss of $590,000 for the same period in 1998. The $642,000 increase in net income resulted primarily from the equity interest in Strawberry Fields Joint Venture. Total income for the six months ended June 30, 1999 was $806,000 as compared to $834,000 for the same period in 1998, a decrease of $28,000. The $28,000 decrease resulted primarily from a decrease in occupancy rate at Crown Point to 88% at June 30, 1999 from 100% at June 30, 1998. For the six months ended June 30, 1999, total expenses were $749,000 as compared to $690,000 for the same period in 1998, an increase of $59,000. The $59,000 increase in total expenses resulted primarily from an increase in the allowance for bad debts at Sabal Palm. The Partnership's equity interest in the Strawberry Joint Venture net income contributed heavily to the increase in the Partnership's net income for the six months ended June 30, 1999 when compared to the same six month period in 1998. In the second quarter of 1998 the Strawberry Fields Joint venture recorded a provision for impairment on an other than temporary decline in the value of real estate of approximately $1,564,000, while no impairments were recorded for the six months ended June 30, 1999. The Partnership's share of this item was approximately $657,000. Results of Operations - Three Months Ended June 30, 1999 and 1998 (Amounts rounded to 000's) The Partnership generated net loss of $6,100 for the three months ended June 30, 1999 as compared to net loss of $659,000 for the same period in 1998. The $653,000 increase in net income resulted primarily from the equity interest in Strawberry Fields Joint Venture. Total income for the three months ended June 30, 1999 was $332,000 as compared to $348,000 for the same period in 1998, an decrease of $16,000. The $16,000 decrease resulted primarily from a decrease in occupancy rate at Crown Point to 88% at June 30, 1999 from 100% at June 30, 1998. For the three months ended June 30, 1999, total expenses were $369,000 as compared to $340,000 for the same period in 1998, an increase of $29,000. The $29,000 increase in total expenses resulted primarily from an increase in the allowance for bad debts at Sabal Palm. The Partnership's equity interest in the Strawberry Joint Venture net income contributed heavily to the increase in the Partnership's net income for the three months ended June 30, 1999 when compared to the same three month period in 1998. In the second quarter of 1998 the Strawberry Fields Joint venture recorded a provision for impairment on an other than temporary decline in the value of real estate of approximately $1,564,000, while no impairments were recorded for the six months ended June 30, 1999. The Partnership's share of this item was approximately $657,000. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters To a Vote of Security Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports on Form 8-K. Exhibit 27. Financial Data Schedule SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 5 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: August 16, 1999 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: August 16, 1999 EX-27 2
5 6-MOS DEC-31-1999 JUN-30-1999 795,400 0 106,938 0 0 0 10,655,476 3,398,459 8,559,897 240,476 6,128,089 0 0 1,799,543 0 8,559,897 0 805,917 0 478,775 5,342 0 269,858 0 0 0 0 0 0 51,942 0 0 "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND BUILDING] "BONDS" REPRESENTS MORTGAGES PAYABLE "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER INCOME "TOTAL COSTS" REPRESENTS TOTAL EXPENSES LESS INTEREST EXPENSE "OTHER EXPENSES" REPRESENTS INTEREST IN JOINT VENTURES' NET INCOME/LOSS
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